Back to GetFilings.com
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
Commission file number 1-1043
Brunswick Corporation
(Exact name of registrant in its charter)
Delaware 36-0848180
(State of Incorporation) (I.R.S. Employer Identification No.)
1 N. Field Ct. 60045-4811
Lake Forest, Illinois (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 735-4700
Securities Registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock ($.75 par value) New York, Chicago, Pacific,
Tokyo and London Stock
Exchanges
Securities Registered pursuant to Section 12(g) of the Act:
None
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 the registrant was required to file such
reports) and (2) has been subject to such filing requirements the
past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of of the registrant's knowledge, in the
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
As of March 15, 1996, the aggregate market value of the voting stock
of the registrant held by non-affiliates was $ 2,229,150,409.
Such number excludes stock beneficially owned by officers and
directors. This does not constitute an an admission that they are
affiliates.
The number of shares of Common Stock($.75 par value) of the registrant
outstanding as of March 15, 1996, was 98,245,452.
Documents Incorporated by Reference
Part III of this Report on Form 10-K incorporates by reference certain
information from the Company's definitive Proxy Statement for the
Annual Meeting scheduled to be held on April 24, 1996.
Part I
Item 1. Business
Brunswick Corporation (the "Company") is organized into six divisions with
operations in two industry segments: Marine and Recreation. Segment
information is contained in Note 9 on page 37.
Marine
The Marine industry segment consists of the Mercury Marine Division, which
manufactures and sells marine propulsion systems, and the US Marine, Sea Ray
and Fishing Boat Divisions, which manufacture and sell pleasure and fishing
boats. The Company believes it has the largest dollar volume of sales of
recreational marine engines and pleasure boats in the world.
The Mercury Marine Division manufactures and sells Mercury, Mariner and Force
outboard motors, MerCruiser gasoline and diesel inboard and stern drive engines,
and the Sport-Jet propless jet system. Outboard motors are sold through marine
dealers for pleasure craft and commercial use and to both the Company's US
Marine, Sea Ray and Fishing Boat Divisions and independent boat dealers. The
MerCruiser engines and the water-jet systems are sold principally to
boatbuilders, including the Company's US Marine, Sea Ray and Fishing Boat
Divisions.
New Environmental Protection Agency guidelines that become effective in mid-1997
call for reduced hydrocarbon and nitrous oxide exhaust emissions from marine
engines over a nine-year period. Two cycle outboard engines are the principal
engines which do not currently meet the proposed EPA guidelines. Stern drive
engines are four cycle engines, which with only minor modifications will satisfy
the EPA guidelines. Mercury Marine expects to meet the proposed emission
standards.
Four cycle outboard engines in the 5 to 100 horsepower range which meet the EPA
guidelines can be developed with existing technology, and Mercury Marine already
produces four cycle 9.9 and 50 horsepower outboard engines which satisfy the EPA
guidelines. Mercury Marine has an agreement with Yamaha Motors Co., Ltd. to
co-develop additional four cycle outboard engines. Mercury Marine also has
license and joint venture agreements with Orbital Engine Corporation, Ltd., of
Australia to design, manufacture and market fuel systems for low emission, two
cycle engines. In 1995 Mercury Marine developed a DFI (direct fuel injection)
3.0 liter V-6 200 horsepower outboard engine using Orbital Engine technology
which more than satisfies the proposed EPA guidelines. This engine will be
produced in 1996 and will be the first of a full line of two cycle outboard
engines now being developed by Mercury Marine to meet the EPA standards.
The Mercury Marine Division also manufactures and sells replacement parts for
engines and outboard motors and marine accessories, including steering systems,
instruments, controls, propellers, service aids and marine lubricants. These
products are marketed through marinas, dealers and boatbuilders under the
Quicksilver brand name.
Mercury Marine products are manufactured in North America and Europe for global
distribution. International assembly facilities are located in Belgium and
Mexico, and offshore distribution centers are in Belgium, Japan and Australia.
Trademarks for Mercury Marine products include MerCruiser, Mercury, Mariner,
Force and Quicksilver.
The US Marine Division builds and sells several brands of fiberglass pleasure
and fishing boats, ranging in size from 16 to 56 feet. Bayliner is the
Division's oldest and most well known brand, with offerings that include jet
powered boats, family runabouts, cabin cruisers, sport fishing boats and luxury
motor yachts. Other brands include Maxum (runabouts and cabin cruisers), Trophy
and Robalo (sports fishing boats), and Quantum (freshwater fishing boats).
The US Marine Division is vertically integrated, producing many of the parts and
accessories which make up the boats. Escort boat trailers also are produced by
the Division and are sold with smaller boats as part of boat-motor-trailer
packages.
Outboard motors and stern drive and inboard engines are purchased from the
Mercury Marine Division.
The US Marine Division's boats, Escort boat trailers, and parts and accessories
are sold through dealers. Trademarks for US Marine products include Bayliner,
Maxum, Quantum, Robalo, Ciera, Trophy, Jazz, Escort and US Marine.
The Sea Ray Division builds and sells Sea Ray fiberglass boats from 14 to 65
feet in length, including luxury motor yachts, cabin cruisers, sport fishing
boats, sport boats, runabouts, water skiing boats, and jet powered boats. Sea
Ray use and are sold with outboard motors, jet powered engines, stern drive
engines and gasoline or diesel inboard engines. The Division purchases its
outboards and most of its stern drive and gasoline inboard engines from the
Mercury Marine Division.
Division.
Sea Ray boats are sold through dealers under the Sea Ray, Laguna, Ski Ray, Sea
Rayder and Baja trademarks.
The Fishing Boat Division manufactures and sells fiberglass and aluminum boats
for the sport fishing and recreational boating markets. Some of these boats are
equipped with Mercury, Mariner or Force outboard motors at the factory and are
sold in boat-motor-trailer packages by marine dealers. The Fishing Boat
Division's boats are sold through dealers under the Astro, Fisher, MonArk,
Procraft, Starcraft, and Spectrum trademarks.
The Company has a minority interest in Tracker Marine, L.P., a limited
partnership which manufactures and markets boats, motors, trailers and
accessories. The Company has various agreements with Tracker Marine, L.P.,
including contracts to supply outboard motors, trolling motors and various other
Brunswick products for Tracker Marine boats.
The Company's Marine segment sales to unaffiliated customers include sales of
the following principal products for the three years ended December 31, 1995,
1994, and 1993:
(in millions, unaudited)
1995 1994 1993
Boats $1,169.9 $ 956.6 $ 754.5
Engines 1,112.3 1,034.1 816.7
$2,282.2 $1,990.7 $1,571.2
Boat sales include the value of engines when such engines are sold as a
component of a finished boat. Engine sales include sales to boat manufacturers
which are not Company-owned, marine dealers and others, when the engine is not
sold with a Company-manufactured boat.
Recreation
There are two divisions in the Recreation industry segment: Zebco and Brunswick
Indoor Recreation Group.
The Zebco Division manufactures, assembles, purchases and sells spincast,
spinning and baitcast fishing reels, rods, reel/rod combinations, Martin fly
reels and reel/rod combinations, and Swivl-Eze fishing pedestals and ski tows
and pylons. The Division also manufactures and sells electric trolling motors
for fishermen and for use by boat manufacturers, including Marine segment
operations. In March 1996 the Zebco Division acquired Roadmaster Industries,
Inc.'s Nelson/Weather-Rite Division, which manufacturers, purchases and sells
camping products including sleeping bags, tents, backpacks, canvas bags,
rainwear, waders and portable stoves.
The Brunswick Indoor Recreation Group manufactures and sells products for the
bowling industry, including bowling lanes, automatic pinsetters, ball returns,
computerized scoring equipment and business systems. In addition, the Group
manufactures and sells seating and locker units for bowling centers; bowling
pins, lane finishes and supplies; and bowling balls and bags. The Group also
sells billiards tables which are manufactured for the Company to its
specifications.
The Brunswick Indoor Recreation Group has a 50% interest in Nippon Brunswick
K. K., which sells bowling equipment and operates bowling centers in Japan. The
Group has other joint ventures (i) to build, own and operate bowling centers and
family entertainment centers, which include bowling, billiards and many other
games, in Brazil, China, Korea and Thailand; (ii) to sell bowling equipment in
China and Thailand; and (iii) to build, own and operate recreation centers
containing the Q-Zar laser tag game and to sell Q-Zar laser tag equipment in
Brazil and Mexico.
The Brunswick Indoor Recreation Group also operates 126 recreation centers
worldwide, and its joint ventures operate an additional 28 centers. Recreation
centers are bowling centers which offer, in varying degrees depending on size
and location, the following additional activities and services: billiards and
other family games, children's playrooms, restaurants and cocktail lounges. The
Group owns most of its recreation centers. The Group in 1995 introduced Cosmic
Cosmic Bowling, a glow in the dark bowling experience that transforms bowling
into a new and different recreation experience that has significantly increased
open play revenues in more than 20 of its recreation centers. Another 20 to 40
centers will feature this concept in the near future, and it will be packaged
and it will be offered to other proprietors in 1996.
The Group intends to bring the family entertainment concept to North America.
Two completely new centers with bowling and billiards as the core forms of
entertainment--but with many other games and recreational activities available
for the entire family--will open in 1996, one in Canada, the other in the United
States.
The Brunswick Indoor Recreation Group is in the process of selling its golf
shaft business and has liquidated its Circus World Pizza business.
Among the Company's trademarks in the recreation field are Zebco, Quantum, Pro
Staff, Classic and Martin fishing equipment, MotorGuide, Stealth and Thruster
electric trolling motors, Swivl-Eze fishing pedestals and ski tows and pylons,
American Camper and Weather-Rite camping equipment and Cloud 9, Expedition
Trails and American Trails sleeping bags, Brunswick Recreation Centers, Leiserv,
Brunswick, AS-90, Armor Plate 3000, Anvilane, BallWall, Guardian, Perry-Austen,
Rhino, GS Series, Systems 2000, BowlerVision, Colorvision and Frameworx
bowling equipment. Browning S.A. has licensed the Zebco Division to manufacture
and sell Browning fishing equipment. Recreation products are distributed,
mainly under these trademarks, to mass merchants, distributors, dealers, bowling
centers and retailers by the Company's salesmen and manufacturers'
representatives and to the recreation centers operated by the Company.
Recreation products are distributed worldwide from regional warehouses, sales
offices and factory stocks of merchandise.
Raw materials
Many different raw materials are purchased from various sources. At the present
time, no critical raw material shortages are anticipated in either of the
Company's industry segments. General Motors Corporation is a significant
supplier of the gasoline engine blocks used to manufacture the Company's
gasoline stern drives.
Patents, trademarks and licenses
The Company has and continues to obtain patent rights, consisting of patents and
patent licenses, covering certain features of the Company's products and
processes. The Company's patents, by law, have a limited life, and rights
expire periodically.
In the Marine segment, patent rights principally relate to boats and features of
outboard motors and inboard-outboard drives including die-cast powerheads,
cooling and exhaust systems, drive train, clutch and gearshift mechanisms,
boat/engine mountings, shock absorbing tilt mechanisms, ignition systems,
propellers, spark plugs, and fuel and oil injection systems.
In the Recreation segment, patent rights principally relate to computerized
bowling, scorers and business systems, bowling lanes and related equipment, game
tables, fishing reels and electric trolling motors.
Although the Company has important patent and patent license positions, the
Company believes that its performance is mainly dependent upon its engineering,
manufacturing, and marketing capabilities.
The Company has many trademarks associated with its various divisions and
applied to its products. Many of these trademarks are well known to the public
and are considered valuable assets of the Company. Significant trademarks are
listed on pages 2-4 herein.
Order backlog
Order backlog is not considered to be a significant factor in the businesses of
the Company, except for bowling capital equipment. The backlog of bowling
capital equipment at December 31, 1995 was $38.3 million, and the Company
expects to fill all of such orders during 1996. The backlog of bowling capital
equipment at December 31, 1994 was $35.0 million.
Competitive conditions and position
The Company believes that it has a reputation for quality in its highly
competitive lines of business. The Company competes in its various markets by
utilizing efficient production techniques and innovative marketing, advertising
and sales efforts, and by providing high quality products at competitive prices.
Strong competition exists with respect to each of the Company's product groups,
but no single manufacturer competes with the Company in all product groups. In
each product area, competitors range in size from large, highly diversified
companies to small producers. The following paragraphs summarize what the
Company believes its position is in each area.
Marine. The Company believes it has the largest dollar volume of sales of
recreational marine engines and pleasure boats in the world. The domestic
marine engine market includes relatively few major competitors. There are 10-12
competitors in outboard engine markets worldwide, and foreign competition
continues in the domestic marine engine market. The marine engine markets are
experiencing pricing pressures. The marine accessories business is highly
competitive.
There are many manufacturers of pleasure and fishing boats, and consequently,
this business is highly competitive. The Company competes on the basis of
quality, value, performance, durability, styling and price. Demand for pleasure
and fishing boats and marine engines is dependent on a number of factors,
including economic conditions, the availability of fuel and marine dockage and,
to some extent, prevailing interest rates and consumer confidence in spending
discretionary dollars.
Recreation. The Company competes directly with many manufacturers of recreation
products. In view of the diversity of its recreation products, the Company
cannot identify the number of its competitors. The Company believes, however,
that in the United States, it is one of the largest manufacturers of bowling
equipment and fishing reels.
Certain bowling equipment, such as automatic scorers and computerized
management systems, represents innovative developments in the market. For other
recreation products, competitive emphasis is placed on pricing and the ability
to meet delivery and performance requirements.
The Company maintains a number of specialized sales forces that sell equipment
to distributors and dealers and also, in some cases, to retail outlets.
The Company operates 126 recreation centers worldwide. Each center competes
directly with centers owned by other parties in its immediate geographic area;
therefore, competitive emphasis is placed on customer service, quality
facilities and personnel, prices and promotional programs.
Research and development
Company-sponsored research activities, relating to the development of new
products or to the improvement of existing products, are shown below:
(in millions)
1995 1994 1993
Marine $81.7 $67.0 $59.3
Recreation Products 15.2 12.5 10.5
$96.9 $79.5 $69.8
Number of employees
The number of employees at December 31, 1995 is shown below by industry
segment:
Marine 14,250
Recreation 6,500
Corporate 150
20,900
There are approximately 900 employees in the Recreation segment and 2,500
employees in the Marine segment who are represented by labor unions. The
Company believes that relations with the labor unions are good.
Environmental requirements
The Company is involved in certain legal and administrative proceedings under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
and other federal and state legislation governing the generation and disposition
of certain hazardous wastes. These proceedings, which involve both on and off
site waste disposal, in many instances seek compensation from the Company as a
waste generator under Superfund legislation which authorizes action regardless
of fault, legality of original disposition or ownership of a disposal site. The
Company believes that it has established adequate reserves to cover all known
claims.
Item 2. Properties
The Company's headquarters are located in Lake Forest, Illinois. The Company
has numerous manufacturing plants, distribution warehouses, sales offices and
test sites. Research and development facilities are division-related, and most
are located at individual manufacturing sites.
The Company's plants are deemed to be suitable and adequate for the Company's
present needs. The Company believes that all of its properties are well
maintained and in good operating condition. Most plants and warehouses are of
modern, single-story construction, providing efficient manufacturing and
distribution operations.
The Company's plants currently are operating at approximately 74 percent of
capacity, excluding the 9 closed plants in the Marine segment. Seven of these
closed plants are being offered for sale. The other two closed plants are not
being offered for sale, but the Company has no plans to reopen them in the near
future.
The Company's headquarters and all of its principal plants are owned by the
Company. Some bowling recreation centers, three small plants, two test
facilities and an overseas distribution center are leased.
The Company's primary facilities are in the following locations:
Mercury Marine Division
Fond du Lac, Hartford and Milwaukee, Wisconsin; Stillwater, Oklahoma; St. Cloud,
Florida; Juarez, Mexico; and Petit Rechain, Belgium.
US Marine Division
Arlington and Spokane, Washington; Roseburg, Oregon; Miami and Claremore,
Oklahoma; Pipestone, Minnesota; Cumberland and Salisbury, Maryland; Dandridge,
Tennessee; Valdosta, Georgia; and Tallahassee, Florida.
Sea Ray Division
Knoxville, Riverview and Vonore, Tennessee; Merritt Island, Sykes Creek and Palm
Coast, Florida; Bucyrus, Ohio; Phoenix, Arizona; and Cork, Ireland.
Fishing Boat Division
Topeka and Nappanee, Indiana; West Point, Mississippi; Lincoln, Alabama, and
Murfreesboro, Tennessee.
Zebco Division
Tulsa, Oklahoma; Starkville, Mississippi; and Lancaster, Texas.
Brunswick Indoor Recreation Group
Muskegon, Michigan; Bristol, Wisconsin; Des Moines, Iowa; Stockach, Germany;
Deerfield, Illinois; and 126 bowling centers in the United States, Canada and
Europe.
Item 3. Legal Proceedings
Concord Boat Corporation, et al v. Brunswick Corporation. On December 7, 1995,
Independent Boat Builders, Inc. ("IBBI"), a boat materials buying group, and
eighteen of its boat building members, brought suit against the Company in the
United States District Court for the Eastern District of Arkansas alleging that
the Company has unlawfully acquired and maintained a monopoly in the domestic
stern drive marine engine market and has attempted to monopolize the domestic
stern drive recreational boat market through (i) its acquisitions of the
Company's current boat companies, (ii) its failure to perform its obligations
under an alleged joint venture agreement to manufacture stern drive engines for
Yamaha Motor Co., Ltd., forcing Yamaha to exit the domestic stern drive
marine engine market, (iii) its stern drive engine buying programs
to IBBI members which offer the best discounts to members purchasing
at least 70% of their stern drive engine requirements from the Company,
(iv) its negotiation in supply contracts of price cap provisions for IBBI
members on stern drive engines which the Company allegedly knew were going to
be discontinued, (v) its alleged disclosure of IBBI members' confidential
business information to members' competitors, (vi) its condition that engine and
boat dealers purchase a substantial share of their engine and boat requirements
from the Company in order to receive the Company's best engine and boat
discounts, and (vii) its alleged offer of cash payments to boat dealers to
terminate thier relationship with competing stern drive boat
manufacturers. The Plaintiffs also maintain that some of this same
alleged conduct by the Company constitutes a breach of the
Company's stern drive engine purchasing contract with them, a breach of the
Company's covenant of good faith and fair dealing under that contract, and
fraudulent misrepresentations. On February 29, 1996, the Plaintiffs and five
additional members of IBBI filed an Amended Complaint making similar allegations
with respect to the Company's manufacture and sale of outboard engines and boats
powered by outboard engines, and asserting that certain of the Company's
agreements with its dealers violate the antitrust laws. The Plaintiffs have
requested an injunction requiring the Company to divest its boat manufacturing
operations and to cease the alleged practices set forth above, as well as actual
damages, trebel damages, punitive damages, and attorneys' fees and costs.
The Company believes, based upon its assessment of the complaint and in
consultation with counsel, that this litigation is without merit and intends to
defend itself vigorously. The Company has filed its Answer to the complaint and
the parties have begun the discovery process. On February 12, 1996, the Company
filed a counterclaim against the Plaintiffs alleging that the Plaintiffs have
conspired to restrain trade in violation of federal antitrust law by (i)
presuring the Company to replace its market share stern drive engine discounts
with volume discounts to the disadvantage of smaller stern drive boat builders
who are not members of a buying group, (ii) soliciting the Company
to limit its boat building divisions' competition with the Plaintiffs in
the manufacture and sale of stern drive boats, (iii) soliciting the Company
to raise the price of its stern drive engines to certain other buyers to favor
the Plaintiffs in competition with those buyers, and (iv) agreeing to limit the
display of boats equipped with the Company's stern drive engines at industry
boat shows. The Company's counterclaim seeks injunctive relief against the
Plaintiffs and the dissolution of IBBI, actual and treble damages, attorneys'
fees and costs.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Company
The Company's executive officers are listed in the following table:
Officer Present Position Age
P. N. Larson Chairman of the
Board, 56
and Chief Executive Officer
P. B. Hamilton Senior Vice President 49
and Chief Financial Officer
J. W. Dawson Vice President and Zebco 61
Division President
F. J. Florjancic, Jr. Vice President and Brunswick 49
Division President
D. D. Jones Vice President and Mercury
Marine Division President 52
D. M. Yaconetti Vice President 49
Administration
and Corporate Secretary
K. B. Zeigler Vice President and Chief 47
Human Resources Officer
T. K. Erwin Controller 46
R. T. McNaney GeneralCounsel 61
R. S. O'Brien Treasurer 46
W. J. Barrington Sea Ray Division President 45
J. C. Olson Fishing Boat
Division President 50
J. A. Schenk Corporate Director of 53
Planning and Development
R. C. Steinway US Marine Division 44
President
There are no family relationships among these officers. The term of office of
all elected officers expires April 24, 1996. The Division Presidents are
appointed from time to time at the discretion of the Chief Executive Officer.
Peter N. Larson has been Chairman of the Board and Chief Executive Officer of
the Company since 1995. He was Chairman of the Worldwide Consumer and Personal
Care Group, Johnson & Johnson, a leading health care company from 1994 to 1995
and Company Group Chairman, Johnson & Johnson from 1991 to 1994.
Peter B. Hamilton has been Senior Vice President and Chief Financial Officer of
the Company since 1995. He was Vice President and Chief Financial Officer,
Cummins Engine Company, Inc., a leading worldwide designer and manufacturer of
diesel engines and related products from 1988 to 1995.
Jim W. Dawson has been Vice President of the Company since 1994 and Zebco
Division President since 1989.
Frederick J. Florjancic, Jr. has been Vice President of the Company since 1988,
President of the Brunswick Indoor Recreation Group since 1995 and President of
the Brunswick Division since 1988-1995.
David D. Jones has been Vice President of the Company since 1995 and Mercury
Marine Division President since 1989.
Dianne M. Yaconetti has been Vice President-Administration of the Company since
1988 and Corporate Secretary of the Company since 1986. She was Manager of
the Office of the Chairman 1985-1995.
Kenneth B. Zeigler has been Vice President and Chief of Human Relations of the
Company since 1995. He was Senior Vice President, The Continental Corporation,
a property and casualty insurance holding company, from 1992 to 1995 and
President, Marine and International Group, The Continental Corporation during
1991.
Thomas K. Erwin has been Controller of the Company since 1988.
Robert T. McNaney has been General Counsel of the Company since 1985.
Richard S. O'Brien has been Treasurer of the Company since 1988.
William J. Barrington has been Sea Ray Division President and President of Ray
Industries, Inc. since 1989.
Jeffrey C. Olson has been Fishing Boat Division President since 1995. He was
President of the Brunswick Marine Unit of the Fishing Boat Division from 1992 to
1995 and Senior Vice President-Marketing, US Marine Division from 1989 to 1992.
James A. Schenk has been Corporate Director of Planning and Development of the
Company since 1988.
Robert C. Steinway has been US Marine Division President since 1994. From 1992
to 1994 he was Senior Vice President-Marketing, US Marine Division. From 1989
to 1992 he was General Manager of the Aluminum Fishing Boat Division.
Part II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters
The Company's common stock is traded on the New York, Chicago, Pacific, London,
and Tokyo Stock Exchanges. Quarterly information with respect to the high and
low sales prices for the common stock and the dividends declared on the common
stock is set forth in Note 23 on page 59. As of December 31, 1995, there were
approximately 22,400 shareholders of record of the Company's common stock.
Item 6. Selected Financial Data
Net sales, net earnings, earnings per common share, cash dividends declared per
common share, total assets, and long-term debt are shown in the Five Year
Financial Summary on page 62.
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Management's Discussion and Analysis is presented on pages 20 to 25.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements are set forth on pages 26 to 28
and are listed in the index on page 19.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company is set forth on pages
2-4 of the Company's definitive Proxy Statement dated March 19, 1996 (the "Proxy
Statement") for the Annual Meeting of Stockholders to be held on April 24, 1996,
and information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth on page 8 of the Proxy Statement. All of the
foregoing information is hereby incorporated by reference. The Company's
executive officers are listed herein on pages 10-12.
Item 11. Executive Compensation
Information with respect to executive compensation is set forth on pages 5, 6
8-23 of the Proxy Statement and is hereby incorporated by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Information with respect to the securities of the Company owned by the directors
and certain officers of the Company, by the directors and officers of the
Company as a group and by the only person known to the Company to own
beneficially than 5% of the outstanding voting securities of the Company is set
forth on pages 6 and 7 of the Proxy Statement, and such information is hereby
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
None.
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
a) Financial Statements and Exhibits
Financial Statements
Financial statements and schedules are incorporated in this Annual
Report on Form 10-K, as indicated in the index on page 19.
Exhibits
3.1 Restated Certificate of Incorporation of the Company filed
as Exhibit 19.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1987, and hereby
incorporated by reference.
3.2 Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock.
3.3 By-Laws of the Company.
4.1 Indenture dated as of March 15, 1987, between the Company
and Continental Illinois National Bank and Trust Company of
Chicago filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1987,
and hereby incorporated by reference.
4.2 Form of 8-1/8% Notes of the Company Due April 1, 1997, filed
as Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1987, and hereby
incorporated by reference.
4.3 Officers' Certificate setting forth terms of the Company's
$125,000,000 principal amount 7-3/8% Debentures due
September 1, 2023 filed as Exhibit 4.3 to the Company's
Annual Report on Form 10-K for 1993, and hereby incorporated
by reference.
4.4 The Company's Agreement to furnish additional debt
instruments upon request by the Securities and Exchange
Commission filed as Exhibit 4.10 to the Company's Annual
Report on Form 10-K for 1980, and hereby incorporated by
reference.
4.5 Rights Agreement dated as of February 5, 1996, between the
Company and Harris Trust and Savings Bank filed as Exhibit
1 to the Company's Registration Statement for Preferred
Share Purchase Rights on Form 8-A dated March 13, 1996, and
hereby incorporated by reference.
10.1* Third Amended and Restated Employment Agreement
entered as of December 30, 1986, between the
Company and Jack F. Reichert filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for 1986
and hereby incorporated by reference.
10.2* Amendment dated October 24, 1989, to Employment
Agreement by and between the Company and Jack F.
Reichert filed as Exhibit 19.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1989 and hereby incorporated by reference.
10.3* Supplemental Agreement to Employment Agreement
dated December 30, 1986, by and between the Company
and Jack F. Reichert filed as Exhibit 19.3 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989, and hereby
incorporated by reference.
10.4* Amendment dated February 12, 1991 to Employment
Agreement by and between the Company and Jack F.
Reichert filed as Exhibit 10.4 to the Company's Annual
Report on Form 10-K for 1990 and hereby incorporated
by reference.
10.5* Amendment dated March 20, 1992 to Employment
Agreement by and between the Company and Jack F.
Reichert filed as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for 1992 and hereby incorporated
by reference.
10.6* Amendment dated December 15, 1992 to Employment
Agreement by and between the Company and Jack F.
Reichert filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for 1992 and hereby incorporated
by reference.
10.7* Employment Agreement dated April 1, 1995 by and
between the Company and Peter N. Larson filed as
Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, and hereby
incorporated by reference.
10.8* Employment Agreement dated December 1, 1995 by and
between the Company and Peter B. Hamilton.
10.9* Form of Employment Agreement by and between the
Company and each of W. J. Barrington, J. W. Dawson,
T. K. Erwin, F. J. Florjancic, Jr., P. B. Hamilton, D. D.
Jones, R. T. McNaney, R. S. O'Brien, J. A. Schenk,
R. C. Steinway and K. B. Zeigler.
10.10* 1994 Stock Option Plan for Non-Employee Directors filed
as Exhibit A to the Company's definitive Proxy Statement
dated March 25, 1994 for the Annual Meeting of
Stockholders on April 27, 1994 and hereby incorporated
by reference.
10.11* 1995 Stock Plan for Non-Employee Directors filed as
Exhibit B to the Company's definitive Proxy Statement
dated March 19, 1996 for the Annual Meeting of
Stockholders on April 24, 1996 and hereby incorporated
by reference.
10.12* Supplemental Pension Plan filed as Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989, and hereby incorporated
by reference.
10.13* Form of Insurance Policy issued for the life of each of the
Company's officers, together with the specifications for
each of these policies, filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for 1980 and
hereby incorporated by reference. The Company pays
the premiums for these policies and will recover these
premiums, with some exceptions, from the policy
proceeds.
10.14* Insurance policy issued by The Prudential Insurance
Company of America insuring all of the Company's
officers and certain other senior management employees
for medical expenses filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for 1980 and
hereby incorporated by reference.
10.15* Form of Indemnification Agreement by and between the
Company and each of N. D. Archibald, M. J. Callahan, J.
P. Diesel, P. Harf, G. D. Kennedy, B. K. Koken,
J. W. Lorsch, B. M. Musham, R. N. Rasmus, K. Roman
and R. W. Schipke filed as Exhibit 19.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1986, and hereby incorporated by
reference.
10.16* Indemnification Agreement dated September 16, 1986,
by and between the Company and J. F. Reichert filed as
Exhibit 19.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1986, and
hereby incorporated by reference.
10.17* Indemnification Agreement dated April 1, 1995 by and
between the Company and P. N. Larson.
10.18* Form of Indemnification Agreement by and between the
Company and each of W. J. Barrington, J. W. Dawson,
T. K. Erwin, F. J. Florjancic, Jr., P. B. Hamilton, D. D.
Jones, R. T. McNaney, R. S. O'Brien, J. C. Olson, J. A.
Schenk, R. C. Steinway, D. M. Yaconetti and K. B.
Zeigler filed as Exhibit 19.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1986, and hereby incorporated by reference.
10.19* 1991 Stock Plan filed as Exhibit A to the Company's
definitive Proxy Statement dated March 19, 1996 for the
Annual Meeting of Stockholders on April 24, 1996 and
hereby incorporated by reference.
10.20* Change In Control Severance Plan filed as Exhibit 10.22
to the Company's Annual Report on Form 10-K for 1989
and hereby incorporated by reference.
10.21* Brunswick Performance Plan for 1995 filed as Exhibit
10.20 to the Company's Annual Report on Form 10-K for
1993 and hereby incorporated by reference.
10.22* Brunswick Performance Plan for 1996.
10.23* Brunswick Strategic Incentive Plan for 1993-1995, 1994-
1996 and 1995-1997 filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for 1993 and
hereby incorporated by reference.
10.24* Brunswick Strategic Incentive Plan for 1996-1997.
21.1 Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule
b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months
ended December 31, 1995.
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of this
Report.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Brunswick Corporation
March 22, 1996 By /s/ Peter B. Hamilton
Peter B. Hamilton, Senior Vice
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title
Peter N. Larson Chairman and Chief Executive Officer (Principal
Executive Officer) and Director
Peter B. Hamilton Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Thomas K. Erwin Controller (Principal Accounting Officer)
Nolan D. Archibald Director
Michael J. Callahan Director
John P. Diesel Director
George D. Kennedy Director
Bernd K. Koken Director
Jay W. Lorsch Director
Bettye Martin Musham Director
Robert N. Rasmus Director
Jack F. Reichert Director
Kenneth Roman Director
Roger W. Schipke Director
Peter B. Hamilton, as Principal Financial Officer and pursuant to a Power of
Attorney (executed by each of the other officers and directors listed above and
filed with the Securities and Exchange Commission, Washington, D.C.), by signing
his name hereto does hereby sign and execute this report of Brunswick
Corporate on behalf of each of the officers and directors named above in the
capacities in which the names of each appear above.
March 22, 1996 /s/ Peter B. Hamilton
Peter B. Hamilton
Index to Financial Statements and Schedule
Page
Consolidated Financial Statements
Management's Discussion and Analysis 20 to 25
Statements of Results of Operations
1995, 1994 and 1993 26
Balance Sheets
December 31, 1995 and 1994 27
Statements of Cash Flows
1995, 1994 and 1993 28
Notes to Financial Statements
1995, 1994 and 1993 29 to 59
Report of Management 60
Report of Independent
Public Accountants 61
Five Year Financial Summary 62
Consent of Independent Public Accountants 63
Schedule
II- Valuation and Qualifying Accounts
1995, 1994 and 1993 64
All other schedules are not submitted because they are not applicable
or not required or because the required information is included in the
consolidated financial statements or in the notes thereto. These notes
should be read in conjunction with these schedules.
The separate financial statements of Brunswick Corporation (the parent
company Registrant) are omitted because consolidated financial
statements of Brunswick Corporation and its subsidiaries are included.
The parent company is primarily an operating company, and all
consolidated subsidiaries are wholly owned and do not have any
indebtedness (which is not guaranteed by the parent company) to any
person other than the parent or the consolidated subsidiaries in an
amount that is material in relation to consolidated assets.
Management's Discussion and Analysis
Cash Flow, Liquidity and Capital Resources
Cash and cash equivalents rose $159.1 million in 1995 to $344.3 million versus a
decrease of $63.6 million in 1994. Net cash provided by operating activities
increased $158.9 million to $280.1 million compared to $121.2 million reported
in 1994. The net cash provided by operating activities increased because of
reduced working capital demands and because a significant portion of the
provisions for the restructuring charge and loss on the divestiture of the
Technical segment did not affect cash in 1995 and the 1994 cash usage included
a $55 million payment to the U.S. Internal Revenue Service, as discussed in Note
16 to the consolidated financial statements.
Net cash used for investing activities decreased $24.3 million to $105.0 million
for 1995 compared to $129.3 million in 1994. The decrease resulted primarily
from the receipt of proceeds from the divestiture of the Company's Technical
segment and the net redemption of marketable securities with maturities of more
than ninety days in 1995 compared to a net investment in such securities in
1994. These items were partially offset by increased capital expenditures and
investments in unconsolidated affiliates.
Net cash used for financing activities was $16.0 million in 1995 compared to
$55.5 million in 1994. The change resulted primarily from a 1995 equity issuance
for pension plan funding of $40.0 million offset in part by a 14% increase in
cash dividends paid to $.50 per share in 1995 versus $.44 per share in 1994.
Working capital at December 31, 1995 was $597.2 million compared to $436.2
million at December 31, 1994. The Company's current ratio was 1.9 at December
31, 1995 and 1.7 at December 31, 1994.
The Company's long-term financing is primarily comprised of 30-year debentures,
10-year unsecured notes, loans secured by mortgages on property and the
guarantee of $67.8 million of debt of the Brunswick Employee Stock Ownership
Plan. The form and timing of all financing is determined by the prevailing
securities markets, the Company's capital requirements and its financial
position at December 31, 1995, the Company had an unused long-term credit
agreement totaling $400 million with a group of banks. The Company's
debt-to-capitalization ratio was 23.4% at December 31, 1995 compared to 26.4% at
December 31, 1994. Total debt at December 31, 1995 was $318.9 million versus
$327.0 million at December 31, 1994.
Capital expenditures, excluding acquisitions, were $122.7 million, $104.6
million and $95.8 million in 1995, 1994 and 1993. The Company has and will
continue to make capital expenditures that offer increased production
efficiencies, improvement to product quality, and growth from new products and
expansion of existing product lines. The Company believes that existing cash
balances and future operating results, supplemented when necessary with short-
and/or long-term borrowings, will continue to provide the financial resources
necessary for capital expenditures and working capital requirements.
Results of Operations 1995 vs. 1994
Net Sales
Consolidated net sales for 1995 increased 13% to $3.04 billion from $2.70
billion reported in 1994. The Marine and Recreation segments each contributed to
the improvement.
The Marine segment's net sales rose 15% to $2.28 billion in 1995 from $1.99
billion in 1994. The improvement reflects a 21% increase in international sales
and a 13% increase in domestic sales. Contributing to these increases were
growth in international sales of boats, primarily in Europe, and the strong
domestic and international demand for marine engines, especially in the first
six months of 1995.
The Recreation segment's net sales increased 7%, to $759.2 million in 1995 from
$709.4 million in 1994. The improvement resulted primarily from continued strong
East Asian demand for the Brunswick Indoor Recreation Group's (formed through
the consolidation of the Brunswick and Brunswick Recreation Centers Divisions in
1995) bowling capital equipment and increased domestic sales of the consumer
products and billiards product lines. The Zebco Division's sales increased both
domestically and internationally, primarily as a result of higher demand.
Operating Earnings
Consolidated operating earnings were $219.6 million in 1995 compared to $210.0
million in 1994. The 1995 results include a $40.0 million provision for
restructuring charges and management transition expenses. Absent these charges,
operating earnings would have been $259.6 million, or 24% higher than 1994.
The Marine segment reported operating earnings of $230.9 million in 1995
compared to $175.6 million in 1994. The previously discussed domestic and
international sales increases accounted for the improvement, offset in part by
increased advertising, marketing and product research and development expenses.
The Recreation segment operating earnings were $50.6 million in 1995 compared to
$82.8 million in 1994. The 1995 results include a $25.8 million restructuring
charge for the divestitures of the golf shaft business and Circus World Pizza
operations. Excluding the restructuring charge, operating earnings were $76.4
million. The decline in operating earnings resulted primarily from increased
research and development expenses, marketing expenses, manufacturing expenses
related to the Brunswick Indoor Recreation Group's new Frameworx capital
equipment line that began to be shipped in the third quarter of 1995 and lower
margins on sales of German-manufactured pinsetters due to currency fluctuations.
The Zebco Division's operating earnings improved due to the previously discussed
sales increases.
Corporate expenses for 1995 were $61.9 million compared to $48.4 million in
1994. The 1995 expenses include a provision of $14.2 million for management
transition expenses and the costs of an early retirement and selective
separation program at the Company's corporate office. Excluding the provision,
corporate expenses were $47.7 million.
Interest Expense and Other Items, Net
Interest expense rose to $32.5 million from the $28.5 million reported in 1994.
The increase resulted primarily from increased interest expense on interest rate
swap transactions. Interest income and other items, net was $21.0 million in
1995 versus $16.9 in 1994. The increase is primarily the result of foreign
currency gains versus foreign currency losses in 1994 as well as higher earnings
of unconsolidated affiliates. The global nature of the Company's business
requires that it deal in many currencies. To mitigate the effect of foreign
currency fluctuations, the Company hedges selected currencies when deemed to be
appropriate.
Income Taxes
In 1995, the Company recorded a tax provision of $73.9 million compared with a
tax provision of $69.4 million in 1994. The 1995 effective tax rate of 35.5%
compares with 35% in 1994. For a reconciliation of tax rates, refer to Note 16
to the consolidated financial statements.
Looking to the Future
In 1995, the Company experienced its fourth consecutive year of improved results
from continuing operations. This performance is attributable to the following
factors the marine industry continued its recovery from the severe recession
that affected this market from late 1988 through 1992; the Company has
continued, and in fact enhanced, its focus on cost improvements that started
with the Marine segment restructuring implemented during the industry downturn;
and the Recreation segment has realized international growth through selected
acquisition and development of new markets for bowling capital equipment.
Looking ahead, it is difficult to predict the long-range outlook as the Company
will continue to be affected by the changing demands in the recreational marine
market and the effect of worldwide economic cycles on international bowling
equipment sales.
However, the Company intends to continue its focus on growth in the markets it
serves through improved productivity and selected acquisitions, such as the
planned acquisition of the Nelson/Weather-Rite unit of Roadmaster Industries,
Inc., announced in the first quarter of 1996.
Environmental Matters
The U.S. Environmental Protection Agency (EPA) has announced proposed
regulations for limiting air emissions from gasoline engines used in pleasure
boats. Specifically, the EPA proposal seeks to reduce hydrocarbon and nitrous
oxide exhaust emissions from two-cycle, gasoline marine engines by more than 75
percent over a nine-year phase-in period beginning with the 1998 model year.
In anticipation of these requirements, in 1993 the Company's Mercury Marine
Division signed an agreement with Yamaha to co-develop and co-manufacture
four-cycle outboard engines. The first such engine was introduced in 1994 and a
second began production in early 1995.
Also in early 1995, Mercury formed a joint venture with Orbital Engine
Corporation, Ltd. of Australia to design, manufacture and market fuel systems
for low emissions, two-cycle engines. This new Small Engine Fuel Injection
System technology (SEFIS) will be employed on a significant range of Mercury
outboards. In late 1995, Mercury introduced a two-cycle, 200-horsepower,
3-liter outboard which utilizes an earlier Orbital direct fuel injection system
technology and which exceeds the impending EPA regulations. In addition, other
direct fuel injection methods to lower hydrocarbon emissions in two-cycle
engines are being evaluated.
The Company expects these four-cycle and low emissions two-cycle engines will
meet or exceed the proposed emission standards and be introduced ahead of the
required schedule.
Results of Operations 1994 vs. 1993
Net Sales
The Company's consolidated net sales for 1994 rose 22% to $2.70 billion from the
$2.21 billion reported for 1993. Increases in both the Marine and Recreation
segments contributed to this improvement.
The Marine segment's 1994 net sales increased 27% to $1.99 billion from $1.57
billion in 1993. Higher volume and an improved product mix accounted for 24% of
the growth while price increases constituted the remaining 3%. Domestic sales of
boats and engines increased 30% over the prior year, while international sales
increased 17%. Engine slaes rose 34% in Europe, and the Latin and South
American, Asian and Middle Eastern markets also reported increases.
International boat sales were flat in 1994 compared to 1993. Retail sales
increased at a rate greater than wholesale sales to dealers; therefore,
dealers inventories continued at low levels.
The Recreation segment's 1994 net sales increased 12% to $709.4 million from
$635.6 million in 1993. The Brunswick Division's sales increased 13% on a 14%
increase in international sales as strong demand for capital equipment in Asia
and Europe continued, and a 10% increase in domestic sales as all product lines
reflected improvements. The Zebco Division's sales increased 20% as domestic
and international sales rose 19% and 25%, respectively. The Brunswick Recreation
Centers (BRC) Division sales were flat in 1994 compared to 1993 as price
increases of approximately 4% were offset by reduced bowling lineage caused by
the severe winter weather in early 1994 and the California earthquake which
closed several centers in the first quarter of 1994.
Operating Earnings
Consolidated operating earnings increased to $210.0 million in 1994 from $99.8
million in 1993. The Marine segment contributed significantly to this
improvement while the Recreation segment was up slightly over 1993.
The Marine segment's operating earnings for 1994 rose to $175.6 million from
$53.7 million in 1993. The previously discussed domestic and international sales
increases, a more favorable product mix and the benefits of the cost reduction
and consolidation programs begun when the marine downturn began in 1988
contributed to the improvement.
The Recreation segment's operating earnings were $82.8 million for 1994 compared
to $80.0 million in 1993. The Brunswick Division's operating earnings increased
as a result of the sales increases discussed above, but were largely offset by
continued operating losses experienced in its composite golf shaft operations
and higher costs for new product development and market expansion efforts. The
Zebco Division operating earnings also increased slightly, primarily due to the
domestic sales increase, which was offset by reduced foreign operating earnings
despite higher foreign sales, as foreign margins declined and as the Division
continued to incur costs as it integrated the Browning acquisition made in late
1992. The BRC Division's operating earnings for 1994 declined from 1993
primarily due to additional start-up costs and operating losses for its Circus
World Pizza operations.
Corporate expenses rose to $48.4 million in 1994 from the $33.9 million reported
in 1993. The increase was primarily due to losses on derivatives of $4.3
million, increased compensation expenses of $4.4 million and a second quarter
severance charge of $1.6 million.
Interest and Other Items, Net
Interest expense rose to $28.5 million in 1994 from $27.2 million in 1993. The
increase resulted primarily from higher interest rates on swaps, which more than
offset the reduced interest expense on lower levels of debt and the net
reduction in interest expense resulting from the redemption of the 9.875%
sinking fund debentures on August 9, 1993, and the sale of 7.375% debentures on
August 25, 1993. Interest income and other items, net increased to $16.9 million
in 1994 from $13.9 million in 1993, primarily due to higher interest income
resulting from higher average investment rates, offset by lower earnings of
unconsolidated affiliates.
Income Taxes
In 1994, the Company recorded a tax provision of $69.4 million compared with a
tax provision of $32.0 million in 1993. The effective tax rate for 1994 of 35%
compared to 37% for 1993. The decrease in the effective tax rate resulted
primarily from increased tax credits and the impact of tax rates on the mix of
the Company's income, as well as the settlement of a dispute with the U. S.
Internal Revenue Service, as discussed in Note 16.
Brunswick Corporation
Consolidated Statements of Results Of Operations
For the Years Ended December 31,
(in millions, except per share data)
1995 1994 1993
Net sales $ 3,041.4 $ 2,700.1 $ 2,206.8
Cost of sales 2,207.9 1,951.7 1,636.6
Selling, general and administrative 573.9 538.4 470.4
Restructuring charges and management transition expenses 40.0 - -
Operating earnings 219.6 210.0 99.8
Interest expense (32.5) (28.5) (27.2)
Interest income and other items, net 21.0 16.9 13.9
Earnings before income taxes 208.1 198.4 86.5
Income tax provision 73.9 69.4 32.0
Earnings from continuing operations before
extraordinary item and cumulative effect
of accounting changes 134.2 129.0 54.5
Cumulative effect on prior years of changes
in accounting principles - - (14.6)
Extraordinary loss from retirement of debt - - (4.6)
Discontinued operations
Estimated loss on divestiture of Technical segment (7.0) - (12.2)
Net earnings $ 127.2 $ 129.0 $ 23.1
Earnings (loss) per common share
Continuing operations $ 1.39 $ 1.35 $ 0.57
Cumulative effect of changes in accounting principles - - (0.15)
Extraordinary item - - (0.05)
Discontinued operations
Estimated loss on divestiture of Technical segment (0.07) - (0.13)
Net earnings per common share $ 1.32 $ 1.35 $ 0.24
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Balance Sheets
As of December 31,
(in millions, except per share data)
Assets 1995 1994
Current assets
Cash and cash equivalents, at cost, which
approximates market $ 344.3 $ 185.2
Marketable securities 11.2 18.2
Accounts and notes receivable, less allowances
of $19.0 and $19.5 257.7 218.9
Inventories 411.4 409.0
Prepaid income taxes 203.8 175.0
Prepaid expenses 34.2 33.9
Income tax refunds receivable 15.0 17.3
Current assets 1,277.6 1,057.5
Property
Land 62.5 61.0
Buildings 385.5 367.8
Equipment 694.8 660.6
Total land, buildings and equipment 1,142.8 1,089.4
Accumulated depreciation (608.3) (571.7)
Net land, buildings and equipment 534.5 517.7
Unamortized product tooling costs 64.4 47.7
Net property 598.9 565.4
Other assets
Dealer networks 117.5 140.9
Trademarks and other 162.2 136.0
Excess of cost over net assets of businesses acquired 119.2 117.8
Investments 85.1 76.1
Other assets 484.0 470.8
Assets of continuing operations 2,360.5 2,093.7
Net assets of discontinued operations - 28.6
Total assets $2,360.5 $2,122.3
Liabilities and Shareholders' Equity
Short-term debt, including current maturities
of long-term debt $ 6.1 $ 8.2
Accounts payable 154.8 157.3
Accrued expenses 519.5 455.8
Current liabilities 680.4 621.3
Long-term debt
Notes, mortgages and debentures 312.8 318.8
Deferred items
Income taxes 157.8 133.8
Postretirement and postemployment benefits 138.3 114.0
Compensation and other 28.1 23.7
Deferred items 324.2 271.5
Common shareholders' equity
Common stock; authorized: 200,000,000 shares,
$.75 par value; issued: 102,537,692 and 100,687,992 76.9 75.5
Additional paid-in capital 299.4 261.5
Retained earnings 814.8 735.5
Treasury stock, at cost: 4,633,036 shares and
5,236,856 shares (85.0) (98.3)
Minimum pension liability adjustment (3.4) (0.7)
Unearned portion of restricted stock issued for futur (6.3) (2.4)
Cumulative translation adjustments 13.7 11.8
Unamortized ESOP expense (67.0) (72.2)
Common shareholders' equity 1,043.1 910.7
Total liabilities and shareholders' equity $2,360.5 $2,122.3
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Statements Of Cash Flows
For the Years Ended December 31,
(in millions)
1995 1994 1993
Cash flows from operating activities
Net earnings $ 127.2 $ 129.0 $ 23.1
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization by continuing operations 120.5 119.8 117.8
Changes in noncash current assets and current
liabilities of continuing operations:
Increase in accounts and notes receivable (36.6) (50.1) (7.8)
(Increase) decrease in inventories 1.5 (83.6) (10.9)
(Increase) decrease in prepaid income taxes (28.8) 11.5 (6.0)
Increase in prepaid expenses (0.4) (9.7) (3.1)
(Increase) decrease in income tax refunds receivable 2.3 (17.3) -
Increase (decrease) in accounts payable (2.5) 34.5 16.4
Increase in accrued expenses 6.3 50.5 31.8
Increase (decrease) in taxes payable - (62.7) 64.5
Increase (decrease) in deferred items 52.6 24.4 (50.2)
Stock issued for employee benefit plans 8.6 4.5 3.8
Pension cost less than funding (33.2) (32.6) (17.8)
Restructuring charges and management transition expenses 40.0 - -
Other, net 3.9 4.3 1.3
Cumulative effect of changes in accounting principles - - 14.6
Estimated loss on disposition of Technical segment 11.5 - 12.2
(Increase)decrease in net assets of discontinued operations 7.2 (1.3) (0.8)
Net cash provided by operating activities 280.1 121.2 188.9
Cash flows from investing activities
Payments for businesses acquired, net of cash acquired and
including other cash payments associated with the acquisitions (10.3) (7.1) (2.1)
Capital expenditures (122.7) (104.6) (95.8)
Proceeds from sales of property 13.3 5.9 7.1
Proceeds from disposal of Technical segment 22.0 - -
Investments in unconsolidated affiliates (10.1) (1.7) (2.8)
Investments in marketable securities 7.0 (18.2) -
Other, net (3.6) (2.4) (1.6)
Net investing activities of discontinued operations (0.6) (1.2) (1.9)
Net cash used for investing activities (105.0) (129.3) (97.1)
Cash flows from financing activities
Proceeds from issuance of long-term debt - - 122.9
Proceeds from equity issuance to pension plan 40.0 - -
Payments of long-term debt, including current maturities (6.0) (6.2) (117.3)
Cash dividends paid (47.9) (42.0) (41.9)
Other, net (2.1) (7.3) (2.2)
Net cash used for financing activities (16.0) (55.5) (38.5)
Net increase (decrease) in cash and cash equivalents 159.1 (63.6) 53.3
Cash and cash equivalents at beginning of year 185.2 248.8 195.5
Cash and cash equivalents at end of year $ 344.3 $ 185.2 $ 248.8
Supplemental cash flow disclosures:
Interest paid $ 34.2 $ 35.1 $ 25.5
Income taxes paid, net of refunds 43.8 114.9 23.9
Supplemental schedule of noncash investing and financing activities:
Fair market value of treasury stock issued for
compensation plans and other $ 11.9 $ 4.0 $ 2.1
The notes are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
1. Nature of Business and Significant Accounting Policies
Nature of Business. Brunswick Corporation and its wholly owned subsidiaries (the
Company ) is a multinational company that operates in two business segments.
The Marine segment through four divisions manufactures and sells marine engines
and boats. The Recreation segment through two divisions manufactures and sells
products utilized in the bowling industry; operates bowling centers; and
manufactures and sells fishing tackle, trolling motors and other products used
in the recreational fishing market.
Use of Estimates in the Financial Statements. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Principles of consolidation. The Company s consolidated financial statements
include the accounts of its significant domestic and foreign subsidiaries, after
eliminating transactions between Brunswick Corporation and such subsidiaries.
Investments in certain affiliates, including some majority-owned subsidiaries
which are immaterial, are reported using the equity method.
Cash and cash equivalents. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments with a maturity of
three months or less from the time of purchase to be cash equivalents.
Inventories. Approximately forty percent of the Company s inventories are valued
at the lower of first-in, first-out (FIFO) cost or market (replacement cost or
net realizable value). All other inventories are valued at last-in, first out
(LIFO) cost, which is not in excess of market. Inventory cost includes material,
labor and manufacturing overhead.
Property. Property, including major improvements, is recorded at cost. The costs
of maintenance and repairs are charged against results of operations as
incurred.
Depreciation is charged against results of operations over the estimated service
lives of the related assets. Improvements to leased property are amortized over
the life of the lease or the life of the improvement, whichever is shorter. For
financial reporting purposes, the Company principally uses the straight-line
method of depreciation. For tax purposes, the Company generally uses accelerated
methods where permitted.
Sales and retirements of depreciable property are recorded by removing the
related cost and accumulated depreciation from the accounts. Gains or losses on
sales and retirements of property are reflected in results of operations.
Product tooling costs. The Company capitalizes product tooling costs and
amortizes those costs over the estimated useful lives of the assets.
Intangibles. The costs of dealer networks, trademarks and other intangible
assets are amortized over their expected useful lives using the straight-line
method. Accumulated amortization was $267.7 million and $240.7 million at
December 31, 1995 and 1994, respectively. The excess of cost over net assets of
businesses acquired is being amortized using the straight-line method,
principally over 40 years. Accumulated amortization was $35.0 million and $29.9
million at December 31, 1995 and 1994, respectively. Subsequent to acquisition,
the Company continually evaluates whether later events and circumstances have
occurred that indicate the remaining estimated useful life of its intangible
assets may warrant revision or that the remaining balance of such assets may not
be recoverable. When factors indicate that such assets should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's undiscounted cash flows or, in the case of goodwill, undiscounted
operating earnings, over the remaining life of the asset in measuring whether
the asset is recoverable.
Income taxes. The Company records income taxes under SFAS No. 109, which
requires an asset and liability method. This method results in the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the book carrying amounts and the tax basis of
assets and liabilities.
Retirement plans. The Company accrues the cost of pension and retirement plans
which cover substantially all employees. Pension costs, which are primarily
computed using the projected unit credit method, are generally funded based on
the legal requirements, tax considerations and investment opportunities for the
Company s domestic pension plans and in accordance with local laws and income
tax regulations for foreign plans. During 1995, 1994 and 1993, the Company
contributed $39.9 million, $37.3 million and $19.0 million, respectively, in
excess of the required minimum funding for its domestic pension plans.
Derivatives. Gains and losses related to qualifying hedges of firm commitments
and anticipated transactions are deferred and recognized in income, or as
adjustments of carrying amounts, when the hedged transaction occurs. Gains and
losses on instruments that do not qualify as hedges are recognized as other
income or expense. The Company does not hold or issue financial instruments for
trading purposes.
2. Earnings (Loss) Per Common Share
Earnings (loss) per common share is based on the weighted average number of
common and common equivalent shares outstanding during each period. Such
average shares were 96.2 million, 95.7 million and 95.3 million for 1995, 1994
and 1993, respectively.
3. Inventories
At December 31, 1995 and 1994, $218.3 million and $183.1 million, respectively,
of inventories were valued using the LIFO method. If the FIFO method of
inventory accounting had been used by the Company for inventories valued at
LIFO, inventories at December 31 would have been $84.3 million and $78.5 million
higher than reported for 1995 and 1994, respectively. The FIFO cost of
inventories at these dates approximated replacement cost or net realizable
value. Inventories at December 31 consisted of the following:
(in millions) 1995 1994
Finished goods $206.9 $233.4
Work-in-process 129.3 105.2
Raw materials 75.2 70.4
Inventories $411.4 $409.0
4. Restructuring Charges and Management Transition Expenses
In the second quarter of 1995, the Company recorded restructuring and
management transition expenses of $40.0 million ($24.4 million after-tax). The
charge consisted of losses on the divestitures of the golf club shaft business
and Circus World Pizza operations in the Recreation segment, and management
transition expenses and the costs of an early retirement and selective
separation program at the Company s corporate office. The net sales and
operating losses (excluding divestiture provisions) for each of the three years
December 31, 1995 of the businesses to be divested were as follows:
(in millions) 1995 1994 1993
Net sales $ 21.0 $17.2 $11.7
Operating Losses $ 7.6 $ 6.4 $ 4.6
The Circus World Pizza operation divestiture and management transition and early
retirement and selected separation program have been completed. The remaining
reserve for the golf club shaft business is $17.0 million and management expects
the reserve to be adequate to cover exposures related to this divestiture. The
Company continues to evaluate offers for the golf club shaft business as of
December 31, 1995.
5. Discontinued Operations
In February 1993, the Company s Board of Directors approved plans to divest the
Technical Group, the only remaining business in the Company s Technical segment.
On April 28, 1995, the Company completed the sale of substantially all the
assets of its Technical Group to Technical Products Group, Inc., a newly formed
company controlled by TPG Holdings in Atlanta, Georgia. Included in the sale
were Brunswick operations in Marion, Virginia; Lincoln, Nebraska; Camden,
Arkansas; and Deland, Florida. Excluded were the assets associated with the
unit's facility in Costa Mesa, California, which are fully reserved as of
Decmeber 31, 1995 and which the Company continues to seek a buyer. Certain
liabilities of discontinued operations which are being retained by the Company
are reflected in Company's continuing operations in 1995. In the second quarter
of 1995, the Company recorded a provision of $11.5 million ($7.0 million
after-tax) reflecting lower than anticipated selling prices for those
businesses. A $26.0 million estimated loss ($42.0 million pretax) on the
divestiture of the Technical Group and for certain other expenses of
the previously divested Technical businesses was recorded in 1992. In
1993, the Company recorded an additional $12.2 million estimated loss ($20.0
million pretax) on the divestiture of the Technical Group which reflected the
estimated net realizable value on disposition including post-sale expenses.
The net sales were $35.1 million, $135.5 million and $147.4 million for the
three years ended December 31, 1995, 1994 and 1993, respectively. Operating
results of discontinued operations for 1995, 1994 and 1993 have been credited
to/charged against the divestiture reserve established in 1992.
6. Acquisitions
In 1995, the Company purchased the assets of one company for $10.3 million in
cash.
In 1994, the Company purchased the assets of four companies and majority
positions in three joint ventures for $7.1 million in cash.
In 1993, the Company purchased the assets of three companies for $2.1 million in
cash.
The effect of the aforementioned acquisitions, which were accounted for as
purchases, was not significant to the Company s consolidated results of
operations in the year of acquisition.
7. Commitments and Contingent Liabilities
It is customary within the marine industry for manufacturers to enter into
product repurchase agreements with financial institutions that provide financing
to marine dealers. The Company has entered into agreements which provide for the
repurchase of its products from a financial institution in the event of
repossession upon a dealer s default. Most of these agreements contain
provisions which limit the Company s annual repurchase obligation. The Company
accrues for the cost and losses that are anticipated in connection with expected
repurchases. Such losses are mitigated by the Company s resale of repurchased
products. Repurchases and losses incurred under these agreements have not and
are not expected to have a significant impact on the Company s results of
operations. The maximum potential repurchase commitments at December 31,
1995 and 1994, were approximately $167.0 million and $152.0 million,
respectively.
The Company also has various agreements with financial institutions that provide
limited recourse on marine and bowling capital equipment sales. The maximum
potential recourse liabilities outstanding under these programs were
approximately $39.0 million and $38.0 million at December 31, 1995 and 1994,
respectively. Recourse losses have not and are not expected to have a
significant impact on the Company s results of operations.
The Company had outstanding standby letters of credit and financial guarantees
of approximately $50.3 million and $21.0 million at December 31, 1995 and 1994,
respectively, representing conditional commitments whereby the Company
guarantees performance to a third party. The majority of these commitments
include guarantees of premium payment under certain of the Company s insurance
programs and other guarantees issued in the ordinary course of business.
8. Financial Instruments
The Company enters into various financial instruments in the normal course of
business and in connection with the management of its assets and liabilities.
The carrying values of the Company s short-term financial instruments, including
cash and cash equivalents, marketable securities, accounts and note receivables,
short-term debt and the current maturities of long-term debt, approximate their
fair value because of the short maturity of these instruments. The fair value
of the long-term debt is $332.9 million and $304.0 million, respectively, versus
carrying amounts of $312.8 million and $318.8 million, respectively, at December
31, 1995 and 1994. The fair value of the Company s long-term investments was
determined based on quoted market prices, where available. Discounted cash flows
using market rates available for long-term debt with similar terms and remaining
maturities were used in determining the fair value of long-term debt.
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on the Company s investments and borrowings. These
agreements involve the exchange of interest payments based on underlying
notional principal amounts. The differential to be paid or received is
recognized over the lives of the agreements as an adjustment of interest income
and other items, net or as interest expense. The Company is exposed to credit
loss in the event of nonperformance by the other parties to the interest rate
swap agreements. The Company regularly monitors its positions and the credit
ratings of these counterparties and considers the risk of default to be remote.
At December 31, 1995 and 1994, the Company had an outstanding
floating-to-floating interest rate swap agreement with a notional principal
amount of $260.0 million which term expires in September 2003. The swap matches
the Company's invested cash portfolio. The interest rates on this agreement are
set on a semi-annual basis in arrears. In September 1994, the Company entered
into two $260.0 million notional principal floating-to-floating interest rate
swap agreements which terms expire in September 2003. The purpose of the
agreements is to mitigate the exposure on the original $260.0 million swap
agreement. The interest rates on these agreements are set on an annual and
semi-annual basis or quarterly basis in arrears, depending on the interest rate
agreements. The fair value of the interest rate swaps is based on dealer quotes
and represents the amount of consideration the Company would receive or pay to
terminate the contracts. The estimated aggregate market value of these
agreements at December 31, 1995 and 1994 were losses of $0.7 million and $5.4
million, respectively. Under the terms of the swap agreements, the timing of
payments and receipts between the Company and its counterparties do not always
fall within the same accounting period. As a result, the Company has recorded
prepaid assets related to the interest rate swap agreements at December 31, 1995
and 1994 of $10.5 million and $10.2 million, respectively. Other liabilities
relating to the original interest rate swap agreement were $4.6 million and $4.3
million, respectively at December 31, 1995 and 1994.
At December 31, 1993, the Company also had outstanding fixed-to-floating
interest rate swap agreements with notional principal amounts totaling $200.0
million, which terms expire in September 1996. These agreements, which matched a
portion of the Company's fixed rate debt, were terminated in September 1994 to
recognize the loss on these agreements for tax purposes. A deferred loss of
$10.1 million is being amortized over the original terms of the interest rate
swap agreements. The unamortized loss at December 31, 1995 is $4.4 million. The
Company replaced these agreements with interest rate swap agreements with
notional principal amounts totaling $200.0 million that contained revised rates,
shorter terms and with counterparties. These agreements were terminated in
October 1994. The impact of these terminations, which is being deferred and
amortized over the original terms of the agreements, was not material.
The Company also enters into forward exchange contracts, whose durations are
usually less than two years, to hedge the U.S. dollar exposure of its foreign
operations. Realized and unrealized gains and losses on contracts are recognized
and included in net earnings. Losses of $4.2 million and $2.9 million were
included in net earnings for 1995 and 1994 and a gain of $1.2 million was
recorded in 1993.
Forward exchange contracts outstanding at December 31 were as follows:
Contract
Foreign U.S. Fair Market
(in millions) Currency Dollar Value
1995
Belgium Franc 949.9 $ 29.2 $ 32.1
Japanese Yen 3,697.0 37.8 36.2
Swiss Franc 1.2 1.0 1.0
Italian Lira 242.8 0.2 0.2
French Franc 3.4 0.7 0.7
German Mark 4.2 3.1 2.9
Total $ 72.0 $ 73.1
1994
Belgium Franc 1,909.0 $ 58.4 $ 58.9
Canadian Dollar 22.4 16.0 16.0
Italian Lira 1,415.8 0.9 0.9
French Franc 4.0 0.7 0.7
German Mark 5.0 3.3 3.2
Total $ 79.3 $ 79.7
1993
Belgium Franc 1,057.2 $ 29.2 $ 29.8
The Company uses commodity swap agreements to hedge anticipated purchases of
aluminum. Under the aluminum swap agreements, the Company receives or makes
payments based on the difference between a specified price and the market price
of aluminum. At December 31, 1995, the Company had swap agreements with dealers
to exchange monthly payments on approximately 57% of the Company's total
aluminum purchases in 1996 and 40% in 1997. The Company records the payments
when received or made and does not have a carrying value recorded. These
agreements have a notional principal value of $32.0 million. During the year
ended December 31, 1995, the Company had swaps covering approximately 60% of the
40 million pounds of aluminum purchased. During the year ended December 31,
1994, the Company had swaps covering approximately 31% of the 41 million pounds
of aluminum purchased. The Company had no outstanding commodity swaps at
December 31, 1993.
The fair market value of these agreements was $0.3 million and $6.4 million at
December 31, 1995 and December 31, 1994, respectively. The fair market value
was obtained from dealer quotes based on a financial model used to project
future prices of aluminum.
The Company monitors and controls market risk from derivative activities by
utilizing floating rates that historically have moved in tandem with each other,
matching positions and limiting the terms of contracts to short durations. To
minimize credit risk, the Company limits derivative arrangements to those banks
and investment firms that the Company has continuing business relationships with
and regularly monitors the credit ratings of its counterparties. The Company
prepares periodic analyses of its positions in derivatives to assess the current
and projected status of these agreements.
The fair market value of the financial instruments held by the Company at
December 31, 1995, may not be representative of the actual gains or losses that
will be recorded when these instruments mature due to the volatility of the
markets in which they are traded.
9. Segment Information
Industry segments Geographic segments
Total United
(in millions) Marine Recreation Elimin. Segments States Foreign Elimin. Corporate Consolidated
1995
Net sales
Customers $ 2,282.2 759.2 $ 3,041.4 $ 2,532.2 509.2 - - $ 3,041.4
Intersegment 4.5 (4.5) - 237.1 38.5 (275.6) - -
$ 2,282.2 763.7 (4.5) $ 3,041.4 $ 2,769.3 547.7 (275.6) - $ 3,041.4
Operating earnings $ 230.9 50.6 $ 281.5 230.6 50.9 - (61.9) $ 219.6
Assets of continuing
operations $ 1,136.7 464.2 $ 1,600.9 1,417.1 183.8 - 759.6 $ 2,360.5
Capital expenditures 89.9 31.1 - 121.0 1.7 122.7
Depreciation 59.7 26.3 - 86.0 1.8 87.8
Amortization 30.5 1.9 32.4 0.3 32.7
1994
Net sales
Customers $ 1,990.7 709.4 $ 2,700.1 $ 2,212.7 487.4 - - $ 2,700.1
Intersegment 3.8 (3.8) - 235.4 30.3 (265.7) - -
$ 1,990.7 713.2 (3.8) $ 2,700.1 $ 2,448.1 517.7 (265.7) - $ 2,700.1
Operating earnings $ 175.6 82.8 $ 258.4 205.4 53.0 - (48.4) $ 210.0
Assets of continuing
operations $ 1,115.7 437.1 $ 1,552.8 1,388.9 163.9 - 540.9 $ 2,093.7
Capital expenditures 69.5 34.5 - 104.0 0.6 104.6
Depreciation 54.7 23.1 - 77.8 2.0 79.8
Amortization 38.1 1.5 39.6 0.4 40.0
1993
Net sales
Customers $ 1,571.2 635.6 $ 2,206.8 $ 1,802.7 404.1 - - $ 2,206.8
Intersegment 3.7 (3.7) - 197.4 35.4 (232.8) - -
$ 1,571.2 639.3 (3.7) $ 2,206.8 $ 2,000.1 439.5 (232.8) - $ 2,206.8
Operating earnings $ 53.7 80.0 $ 133.7 95.5 38.2 - (33.9) $ 99.8
Assets of continuing
operations $ 1,031.0 375.4 $ 1,406.4 1,258.7 147.7 - 551.2 $ 1,957.6
Capital expenditures 51.1 34.0 - 85.1 10.7 95.8
Depreciation 56.7 19.5 - 76.2 1.9 78.1
Amortization 37.6 0.9 38.5 1.2 39.7
Net sales to customers include immaterial amounts sold to unconsolidated
affiliates. Sales between domestic and foreign operations generally are priced
with reference to prevailing market prices.
Operating earnings of segments do not include the expenses of corporate
administration, other expenses and income of a nonoperating nature, and
provisions for income taxes.
The Recreation segment s 1995 operating earnings include a $25.8 million charge
for the anticipated losses on the divestitures of the golf club shaft business
and Circus World Pizza operations.
The Corporate operating expenses for 1995 include $14.2 million in management
transition expenses and costs associated with an early retirement and selective
separation program at the Company s corporate office.
Corporate assets consist primarily of cash and marketable securities, prepaid
income taxes and investments in unconsolidated affiliates.
The Company s export sales to unaffiliated customers for the three years ended
December 31, 1995, 1994 and 1993, were $294.5 million, $190.6 million and $181.4
million, respectively.
10. Accrued Expenses
Accrued expenses at December 31 were as follows:
(in millions) 1995 1994
Payroll and other compensation $97.8 $80.3
Product warranties 89.5 78.3
Dealer allowances and discounts 72.9 67.9
Litigation and claims 40.9 45.1
Health and liability insurance 60.8 59.9
Restructuring charges
and disposition costs 59.2 28.4
Taxes, other than income taxes 16.0 17.2
Other 82.4 78.7
Accrued expenses $519.5 $455.8
11. Debt
Short-term debt at December 31 consisted of the following:
(in millions) 1995 1994
Notes payable $ 0.3 $ 2.6
Current maturities of long-term debt 5.8 5.6
Short-term debt $ 6.1 $ 8.2
Long-term debt at December 31 consisted of the following:
(in millions) 1995 1994
Mortgage notes and other, 3% to 10%
payable through 2001 $ 26.8 $ 27.3
Notes, 8.125% due 1997,
net of discount of $0.1 99.9 99.9
Debentures, 7.375% due 2023
net of discount of $0.9 124.1 124.1
Guaranteed ESOP debt, 8.13%
payable through 2004 67.8 73.1
318.6 324.4
Current Maturities (5.8) (5.6)
Long Term Debt $ 312.8 $ 318.8
Scheduled Maturities
1997 $106.4
1998 10.8
1999 9.9
2000 8.0
Thereafter 177.7
$312.8
On November 6, 1995, the Company and seventeen banks amended the long-term
credit agreement and increased the amount to $400 million from $300 million. The
termination date was extended to December 31, 2000. The $100 million short-term
credit agreement was canceled.
Under terms of the amended agreement, the Company has multiple borrowing
options, including borrowing at a corporate base rate, as announced by The First
National Bank of Chicago, or a rate tied to the Eurodollar rate. The Company
must pay a facility fee of 0.11% per annum on the agreement.
Under the agreement, the Company is subject to interest coverage, net worth and
leverage tests, as well as a restriction on secured debt, as defined. Under the
interest coverage test, the Company is required to maintain a ratio of
consolidated income before interest and taxes, as defined, to consolidated
interest expense of not less than 2.0 to 1.0 on a cumulative twelve-month basis.
This ratio on a cumulative twelve-month basis, was 8.6 to 1.0 at December 31,
1995. The leverage ratio of consolidated total debt to capitalization, as
defined, may not exceed 0.55 to 1.00, and at December 31, 1995, this ratio was
0.23 to 1.00. The Company also is required to maintain shareholders equity of
at least $839.6 million at December 31, 1995. The required level of shareholders
equity at December 31 of each subsequent year is increased by 50% of net
earnings for that year. The Company has complied with this limitation and the
secured debt limitation as of December 31, 1995. There were no borrowings
under the credit agreement at December 31, 1995.
On August 9, 1993, the $100 million 9.875% sinking fund debentures were
redeemed by the Company at 105.704% of the principal amount of the debentures
plus accrued interest to the redemption date. Proceeds of the Company s common
stock offering in May 1992 of $104.5 million, and cash from operations were used
to redeem the debentures. The Company recorded an after-tax extraordinary loss
of $4.6 million ($7.4 million pretax) relating to this transaction during the
third quarter of 1993. On August 25, 1993, the Company sold $125 million of
7.375% debentures maturing on September 1, 2023. The proceeds were used for
general corporate purposes.
The interest rate on the ESOP notes, originally at 8.2% per anum, was reduced to
8.13% per annum, effective as of January 1, 1993, as a result of the change in
tax law passed by the U.S. Congress in August 1993. Company contributions to the
ESOP along with dividends paid on shares purchased with ESOP debt proceeds
are used to service the ESOP debt. Under the terms of the ESOP debt agreement,
future changes in tax law could cause the interest rate on the debt to vary
within the range of 6.8% to 10.3%.
12. Consolidated Common Shareholders' Equity
(in millions, except per share data) Minimum
Addt'l pension Unearned Cumul. Unamort.
Common stock paid-in Retained Treasury stock liab restricted transl. ESOP
Shares Amount capital earnings Shares Amount adjmt stock adjmt Expense Total
Balance, December 31, 1992 100.7 $75.5 $261.7 $667.3 (5.6) $(105.7) - $(3.4) $8.9 $(81.8) $822.5
1993
Net Earnings - - - 23.1 - - - - - - 23.1
Dividends declared ($.44 per
common share) - - - (41.9) - - - - - - (41.9)
Compensation plans and other - - (0.3) - 0.2 3.0 (6.7) 1.1 - - (2.9)
Deferred Compensation-ESOP - - - - - - - - - 4.6 4.6
Currency translation - - - - - - - - (1.0) - (1.0)
Balance, December 31, 1993 100.7 $75.5 $261.4 $648.5 (5.4) ($102.7) ($6.7) ($2.3) $7.9 ($77.2) $804.4
1994
Net Earnings - - - 129.0 - - - - - - 129.0
Dividends declared ($.44 per
common share) - - - (42.0) - - - - - - (42.0)
Compensation plans and other - - 0.1 - 0.2 4.4 6.0 (0.1) - - 10.4
Deferred Compensation-ESOP - - - - - - - - - 5.0 5.0
Currency translation - - - - - - - - 3.9 - 3.9
Balance, December 31, 1994 100.7 $75.5 $261.5 $735.5 (5.2) ($98.3) ($0.7) ($2.4) $11.8 ($72.2) $910.7
1995
Net income - - - 127.2 - - - - - - 127.2
Dividends declared ($.50 per
common share) - - - (47.9) - - - - - - (47.9)
Compensation plans and other - - (0.7) - 0.6 13.3 (2.7) (3.9) - - 6.0
Deferred Compensation-ESOP - - - - - - - - - 5.2 5.2
Purchase of stock by master pe 1.8 1.4 38.6 - - - - - - - 40.0
Currency translation - - - - - - - - 1.9 - 1.9
Balance, December 31, 1995 102.5 $76.9 $299.4 $814.8 (4.6) ($85.0) ($3.4) ($6.3) $13.7 ($67.0) $1,043.1
At December 31, 1995, 1994 and 1993, the Company had no preferred stock outstanding (Authorized: 12.5 million shares,
$.75 par value at December 31, 1995)
13. Litigation
The Company is subject to certain legal proceedings and claims which have arisen
in the ordinary course of its business and have not been finally adjudicated. In
1995, 1994 and 1993, the Company recorded pretax provisions of $7.8 million,
$15.6 million and $18.2 million ($4.8 million, $9.7 million and $11.2 million
after-tax), respectively, for litigation matters. In light of existing reserves,
the Company's litigation and environmental claims, including those discussed
below, when finally resolved, will not, in the opinion of management, have a
material adverse effect on the Company s consolidated financial position and
results of operations.
The Company is involved in certain legal and administrative proceedings under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
and other federal and state legislation governing the generation and disposition
of certain hazardous wastes. These proceedings, which involve both on and off
site waste disposal, in many instances seek compensation from the Company as a
waste generator under Superfund legislation which authorizes action regardless
of fault, legality of original disposition or ownership of a disposal site.
On December 7, 1995, Independent Boat Builders, Inc. ( IBBI ), a boat materials
buying group, and eighteen of its boat building members, brought suit against
the Company in the United States District court for the Eastern District of
Arkansas alleging that the company has unlawfully acquired and maintained a
monopoly of the domestic stern drive marine engine market and has attempted to
monopolize the domestic stern drive recreational boat market through its
acquisitions of the Company s current boat companies and its marketing, sales
and business practices. On February 29, 1996, the Plaintiffs and five
additional members of IBBI filed an Amended Complaint making similar allegations
with respect to the Company's manufacture and sale of outboard engines and
boats powered by outboard engines, and asserting that certain of the Company's
agreements with its dealers violate the antitrust laws. The Plaintiffs have
requested an injunction requiring the Company to divest its boat manufacturing
operations and to cease the alleged monopolizing practices, as well as actual
damages, treble damages, punitive damages, and attorneys fees and costs. The
Company believes, based upon its assessment of the complaint and in consultation
with counsel, that this litigation is without merit and intends to defend itself
vigorously. The Company has filed its answer to the complaint and the parties
have begun the discovery process. On February 12, 1996 the Company filed a
counterclaim in this litigation against the Plaintiffs alleging that the
Plaintiffs have unlawfully conspired to restrain trade in violation of Federal
antitrust laws. The Company intends to aggressively pursue its counterclaim,
which seeks injunctive relief, the dissolution of IBBI, actual and treble
damages, attorney's fees and costs.
On February 3, 1995, the Company announced a series of agreements with Genmar
Industries, Inc., including settlement of an antitrust lawsuit brought by Genmar
against the Company. Agreements were entered to supply Genmar with marine
engines manufactured by the Company and to acquire certain investments in Baja
Boats, Inc. from Genmar. The Company s total cash payment relating to these
agreements was $22.5 million and had no material impact on the results of
operations of the Company.
The Federal Trade Commission is conducting an investigation of whether the
formation or operations of Tracker Marine, L.P. and the Company s contracts with
Tracker Marine, L.P. violate antitrust laws. The Company has received and
responded to subpoenas seeking information relating to the Company s outboard
motor sales. The Company understands that other marine companies have received
similar subpoenas from the Federal Trade Commission.
14. Stock Plans and Management Compensation
On April 24, 1991, shareholders of the Company approved the 1991 Stock Plan
(Plan) to succeed the 1984 Restricted Stock Plan and the 1971 Stock Plan. Under
this Plan, the Company may grant non-qualified stock options, incentive stock
options, stock appreciation rights and restricted stock and other various types
of awards to executives and other management employees of the Company. The Plan
as originally adopted provided for the issuance of a maximum of 5,000,000 shares
of common stock of the Company. On October 24, 1995, the Board of Directors
amended the plan to increase the number of shares issuable under the plan by
6,200,000 shares, subject to shareholders approval at the Company s Annual
Meeting on April 24, 1996. Common stock issued under the plan may be either
authorized, but unissued shares or treasury shares.
Non-qualified stock options were awarded to 377, 364 and 413 executives and
management employees of the Company in 1995, 1994 and 1993, respectively.
Under the terms of the Plan, the option price per share may not be less than
100% of the fair market value on the date of grant. The stock options are
exercizable over a period of time determined by the Compensation Committee of
the Board of Directors. In the event of a change in control as defined below,
the option holder may exercise all unexercised options until the earlier of the
stated expiration date or two years following termination of employment.
At December 31, 1995, 1,386,165 shares were exercisable under outstanding
options at a weighted average option price of $15.88 per share.
Restricted shares were also awarded to certain senior executives of the Company
during 1995, 1994 and 1993. Restrictions will lapse on a portion of these shares
four years from the date of grant and after five years on the remaining shares.
As the restrictions lapse, the shares awarded are transferred to the employees.
According to the terms of this grant, a participant may elect within 90 days of
a change in control to terminate the restricted period for all shares awarded to
him. Charges against earnings from continuing operations for the compensation
element of the Plan were $0.6 million, $0.5 million and $0.3 million for 1995,
1994 and 1993, respectively.
Also in 1995, the Company granted stock awards to certain senior executives to
compensate them for the forfeiture of compensation and other employee benefits
to which they had been entitled at their former employers. Of these shares,
149,079 are held in trust until termination of employment.
Stock option and restricted stock activities including discontinued operations
were as follows:
Stock Restricted Available
Options Average Stock for
Outstanding Price Outstanding Grant
At December 31,
1992 797,700 ----- 71,050 4,131,250
Granted 825,475 $16.600 87,575 (913,050)
Exercised (8,870) $13.875 0 -----
Canceled (29,540) $15.332 0 29,540
At December 31,
1993 1,584,765 ----- 158,625 3,247,740
Granted 719,150 $18.217 102,989 (822,139)
Exercised (124,765) $14.596 (4,925) -----
Canceled (81,910) $16.401 (21,175) 81,910
At December 31,
1994 2,097,240 ----- 235,514 2,507,511
Granted 1,395,850 $19.419 109,101 (1,504,951)
Exercised (114,265) $15.043 (179,115) -----
Canceled (45,740) $17.912 0 45,740
Stock awards ----- $20.140 ----- (151,079)
At December 31,
1995 3,333,085 ----- 165,500 897,221
Under the 1971 Stock Plan (1971 Plan), certain other management employees were
granted shares of the Company s common stock at no cost during 1988 through
1991. There have been no grants since 1991 and there will be no further grants
under the 1971 Plan. The shares awarded under the 1971 Plan are subject to
restrictions which lapse ratably over a period of one to five years. The shares
will be released at the time of a change in control of the Company or on a date
selected by the Compensation Committee. Charges against earnings from continuing
operations for the compensation element of the 1971 Plan were $0.1 million, $0.2
million and $0.4 million in 1995, 1994 and 1993, respectively.
Subject to shareholder approval at the April 24, 1996 Annual Meeting, the Board
of Directors of the Company has adopted the 1995 Stock Plan for Non-Employee
Directors. Under this plan, the Company has agreed to pay the non-employee
directors at retirement common stock equal to the July 25, 1995 present value of
benefits at retirement under the non-employee directors pension plan, which has
been terminated. New directors receive a $25,000 common stock award under the
plan. The plan also provides that certain fees and annual retainers be paid in
common stock. Awards for the pension benefits and for new directors are deferred
until retirement, and directors may elect to defer receipt of the stock issued
for annual retainers and fees. In 1995 89,776 shares of common stock were issued
under the plan and held in trust.
On April 26, 1994, shareholders of the Company approved the 1994 Stock Option
Plan for Non-Employee Directors. Under this plan, the Company may grant options
to non-employee directors to purchase up to a maximum of 200,000 shares of the
Company s common stock with the grant price being the market price at the date
of grant. Stock option activities were as follows:
Stock Options Average Available
Outstanding Option Price for Grant
At January 1, 1994 ---- ----- 200,000
Granted 22,500 $22.75 (22,500)
Exercised 0 -----
Canceled 0 0
At December 31, 1994
22,500 ----- 177,500
Granted 24,800 $21.00 (24,800)
Exercised 0 -----
Canceled 0 0
At December 31, 1995
47,300 ----- 152,700
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, Accounting for Stock-Based Compensation, which encourages, but does not
require, companies to recognize compensation expense for grants of common
stock, stock options and other equity instruments to employees based on new fair
value accounting rules. The Company does not expect to adopt the new rules and
will continue to apply the existing accounting rules contained in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Statement No. 123 requires companies to comply with certain disclosures about
stock-based employee compensation arrangements regardless of the method used
to account for them in 1996.
A "change in control of the Company" occurs when (1) any person is or becomes a
beneficial owner directly or indirectly of 30% or more of the combined voting
pwoer of the Company, (2) individuals nominated by the Board of Directors for
election as directors do not constitute a majority of the Board of Directors
after such elections or (3) a tender offer is made for the Company s stock,
involving a control block, which is not negotiated and approved by the Board of
Directors.
The Company has employment agreements with certain executive officers that
become operative only upon a change in control of the Company, as defined above.
In 1989, the Company established a severance plan for all other salaried
employees of the Company which also only becomes operative upon a change in
control of the Company. Compensation which might be payable under these
agreements and the severance plan has not been accrued in the consolidated
financial statements as a change in control has not occurred.
Under the Brunswick Employee Stock Ownership Plan (ESOP), the Company may
make annual contributions to a trust for the benefit of eligible domestic
employees in the form of either cash or common shares of the Company. In April
1989, the Company's Board of Directors approved an amendment to the ESOP that
permits the ESOP to borrow funds to acquire the Company s common shares.
Subsequent to that amendment, the ESOP obtained a bridge loan of $100 million
and purchsed from the Company 5,095,542 shares (ESOP Shares) of the Company's
common stock at a price of $19.625 per share. The bridge loan was repaid with
notes sold on February 27, 1990. The debt of the ESOP is guaranteed by the
Company and is recorded in the Company s consolidated financial statements.
The ESOP Shares are maintained in a Suspense Account until released and
allocated to participants accounts. The release of shares from the Suspense
Account is determined by multiplying the number of shares in the Suspense
Account by the ratio of debt service payments (principal plus interest) made by
the ESOP during the year to the sum of the debt service payments made by the
ESOP in the current year plus the debt service payments to be made by the ESOP
in future years. Allocation of released shares to participants accounts is done
at the discretion of the Compensation Committee of the Board of Directors.
Shares committed-to-be released, allocated and remaining in suspense at December
31 were as follows:
Share accounts 1995 1994
Committed-to-be released 298,098 298,806
Allocated 1,450,545 1,310,686
Suspense 2,788,656 3,116,075
The Accounting Standards Division of the American Institute of Certified Public
Accountants issued Statement of Position 93-6 (SOP 93-6), Employers' Accounting
for Employee Stock Ownership Plans, in November 1993. SOP 93-6 requires
accounting for ESOPs under the shares allocated method for shares purchased by
ESOPs after December 31, 1992. The Company is covered by the grandfather
provisions of SOP 93-6 for its current ESOP shares which were purchased from the
Company prior to December 31, 1992 and are accounted for under the cash
payment method. All ESOP shares are considered outstanding for earnings (loss)
per common share purposes.
The expense recorded by the Company since 1989 is based on cash contributed or
committed to be contributed by the Company to the ESOP during the year, net of
dividend payments to the ESOP. Unamortized ESOP expense is reduced as the
Company recognizes compensation expense. Dividend payments made by the
Company to the ESOP are reported as a reduction of retained earnings and are
used by the ESOP to pay down ESOP debt. The Company s contributions to the
ESOP were as follows:
(in millions) 1995 1994 1993
Compensation expense $ 2.9 $ 2.9 $ 2.4
Interest expense 5.8 6.2 6.6
Dividends 2.3 2.1 2.2
Total debt service payments $11.0 $11.2 $11.2
15. Retirement and Employee Benefit Costs
The Company has pension and retirement plans covering substantially all of its
employees, including certain employees in foreign countries.
Pension cost of continuing operations for all plans was $12.7 million, $11.2
million and $7.3 million in 1995, 1994 and 1993, respectively. Plan benefits are
based on years of service, and for some plans, the average compensation prior to
retirement. Plan assets generally consist of debt and equity securities, real
estate and investments in insurance contracts.
Pension costs for 1995, 1994 and 1993, determined in accordance with the
Financial Accounting Standards Board Statement No. 87, "Employers Accounting
for Pensions" (SFAS No. 87), included the following components:
(in millions) 1995 1994 1993
Service cost-benefits
earned during the period $ 11.6 $ 11.7 $ 9.4
Interest cost on projected
benefit obligation 34.2 31.2 29.4
Actual return on assets (90.8) 3.0 (25.7)
Net amortization and deferral 57.7 (34.7) (5.8)
Net pension cost $ 12.7 $ 11.2 $ 7.3
The funded status of the plans accounted for in accordance with SFAS No. 87 and
the amounts recognized in the Company s balance sheets at December 31 were as
follows:
Plans whose Plans whose Plans whose Plans whose
assets exceed accumulated assets exceed accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
(in millions)
Actuarial present value of:
Vested benefit
obligation $(440.1) $(43.9) $(316.8) $(23.9)
Nonvested benefit
obligation (30.5) (0.4) (22.8) (0.2)
Accumulated benefit
obligation (470.6) (44.3) (339.6) (24.1)
Effects of anticipated future
compensation levels and
other events (59.3) (7.5) (43.3) (5.3)
Projected benefit
obligation (529.9) (51.8) (382.9) (29.4)
Plan assets at
fair value 543.3 13.7 361.0 2.0
Plan assets in excess of
(less than) projected
benefit obligation 13.4 (38.1) (21.9) (27.4)
Unrecognized net
transition asset (6.6) 1.6 (12.3) 1.8
Unrecognized prior
service cost 17.2 (0.1) 20.5 (0.2)
Net unrecognized loss
from past experience different
from assumed and effects of changes
in assumptions 60.4 10.0 64.0 3.7
Adjustment to recognize
minimum liability -- (6.1) -- (1.6)
Pension asset (liability)
recognized in financial
statements $84.4 $(32.7) $50.3 $(23.7)
The projected benefit obligations were determined primarily using assumed
weighted average discount rates of 7.25% in 1995 and 8.5% in 1994, and an
assumed compensation increase of 5.5% in 1995 and 1994. The assumed weighted
average long-term rate of return on plan assets was primarily 9% in 1995 and
1994.
The unrecognized asset or liability at the initial adoption of SFAS No. 87 is
being amortized on a straight-line basis over 10 years for the Company's
domestic plans and over the average remaining service period of plan
participants for the Company s foreign plans. The unrecognized prior service
cost is being amortized on a straight-line basis over the average remaining
service period of plan participants.
Two of the Company's salaried pension plans provide that in the event of a
termination, merger or transfer of assets of the plans during the five years
following a change in control of the Company occurring on or before April 1,
2001, benefits would be increased so that there would be no excess net assets.
The Company s supplemental pension plan provides for a lump sum payout to plan
participants of the present value of accumulated benefits upon a change in
control of the Company. For a definition of change in control of the Company
refer to Note 14.
Sea Ray employees participate in a noncontributory employee stock ownership and
profit sharing plan, under which the Company makes annual cash contributions to
a trust for the benefit of eligible employees. The charges to net earnings for
this plan were $3.2 million, $2.5 million and $1.3 million in 1995, 1994 and
1993, respectively.
Certain other Brunswick employees participate in a profit sharing plan to which
the Company makes cash contributions. Participants become vested in the
contributions after they are employed for a specified period. This plan resulted
in charges to net earnings of $3.1 million, $3.0 million and $2.2 million in
1995, 1994 and 1993, respectively.
The Brunswick Retirement Savings Plan for salaried and certain hourly employees,
including employees of discontinued operations, allows participants to make
contributions via payroll deductions pursuant to section 401(k) of the Internal
Revenue Code. Effective January 1, 1991, the Company makes a minimum matching
contribution of 5% of a participant s pretax contributions limited to 6% of
their salary. The Company may increase the matching percentage to 30% of the
participant's pretax contributions. The Company made a 30% matching
contribution in 1995 and 1994 and a 10% matching contribution in 1993.
The Company's contributions are made in common stock of the Company. The net
charges to continuing operations for matching contributions were $2.3 million,
$2.1 million and $0.5 million in 1995, 1994 and 1993, respectively.
In addition to providing benefits to present employees, the Company currently
provides certain health care and life insurance benefits for eligible retired
employees. Employees may become eligible for those benefits if they have
fulfilled specific age and service requirements. The Company monitors the cost
of these plans, and has, from time to time, changed the benefits provided under
these plans. The plans contain requirements for retiree contributions generally
based on years of service as well as other cost sharing features such as
deductibles and copayments. The Company reserves the right to make additional
changes or terminate these benefits in the future. The Company's plans are not
funded; claims are paid as incurred.
Effective January 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS No. 106), for its domestic unfunded postretirement health care
and life insurance programs. SFAS No. 106 requires the cost of postretirement
benefits to be accrued during the service lives of employees. The cumulative
effect on years prior to 1992 of adopting SFAS No. 106 on an immediate
recognition basis, including discontinued operations, was to decrease net
earnings by $38.3 million. Postretirement benefit cost was $4.5 million,
$5.3 million and $6.4 million in 1995, 1994 and 1993, respectively.
Net periodic postretirement benefit cost of continuing operations for 1995,
1994 and 1993 included the following components:
(in millions) 1995 1994 1993
Service cost-benefits attributed to service
during the period $1.2 $1.5 $1.5
Interest cost on accumulated
postretirement benefit obligation 4.3 4.2 4.9
Net amortization and deferral (1.0) (0.4) ----
Net periodic postretirement
benefit cost $4.5 $5.3 $6.4
The amounts recognized in the Company's balance sheets at December 31 were as
follows:
(in millions) 1995 1994
Accumulated postretirement benefit obligation:
Retirees $ 40.9 $ 24.9
Fully eligible active plan participants 6.5 4.8
Other active plan participants 29.3 23.8
Total 76.7 53.5
Unrecognized prior service cost 2.4 2.5
Unrecognized net gains 6.9 12.2
Post retirement liability recognized
in financial statements $86.0 $68.2
The postretirement liability for the Company s discontinued Technical segment
of $16.7 million was included in the net assets of discontinued operations at
December 31, 1994. Under the terms of the sales agreement, the postretirement
liability has been retained by the Company and included above at December 31,
1995.
The accumulated postretirement benefit obligation was determined using weighted
average discount rates of 7.25% in 1995 and 8.5% in 1994, and an assumed
compensation increase of 5.5% in 1995 and 1994. The health care cost trend rates
were assumed to be 9.7% and 7% in 1996 for pre-65 and post-65 benefits,
respectively, gradually declining to 5% after six years and years, respectively,
and remaining at that level thereafter. The health care cost trend rates were
assumed to be 10.4% and 8% in 1995 for pre-65 and post-65 benefits,
respectively, gradually declining to 5% after seven years and three years,
respectively, and remaining at that level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported. For
example, a 1% increase in the health care trend rate would increase the
accumulated postretirement benefit obligation by $7.3 million at December 31,
1995 and the net periodic cost by $1.0 million for the year.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 112, Employers Accounting for Postemployment Benefits (SFAS No.
112), for employees disability benefits. SFAS No. 112 requires the accrual
method for recognizing the cost of postemployment benefits. The cumulative
effect on years prior to 1993 of adopting SFAS No. 112, including discontinued
operations, was to decrease net earnings by $14.6 million. The effect of
this change on 1995, 1994 and 1993 consolidated results of operations was not
material.
16. Income Taxes
The sources of earnings (loss) before income taxes are presented as follows:
(in millions) 1995 1994 1993
United States $197.1 $191.6 $89.0
Foreign 11.0 6.8 (2.5)
Earnings before income taxes $208.1 $198.4 $86.5
The income tax provision (benefit) consisted of the following:
(in millions) 1995 1994 1993
Current tax expense
U. S. Federal $56.7 $ 48.3 $ 13.9
State and local 8.9 2.6 11.1
Foreign 7.7 8.4 7.0
Total current $73.3 $ 59.3 $ 32.0
Deferred tax expense
U.S. Federal $ 2.0 $ 4.2 $ 8.5
State and local (2.4) 6.6 (7.0)
Foreign 1.0 (0.7) (1.5)
Total deferred $ 0.6 $ 10.1 $ 0.0
Total provision $73.9 $ 69.4 $ 32.0
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities at December 31 are as follows:
(in millions) 1995 1994
Deferred tax assets
Litigation and claims $18.3 $18.6
Product warranty 36.9 33.1
Dealer allowance and discounts 15.2 15.8
Bad debts 9.5 9.8
Sales of businesses 16.1 9.9
Insurance reserves 28.9 27.3
Restructuring 13.5 4.8
Loss carryforwards and carrybacks 14.4 13.0
Other 54.2 45.9
Valuation allowance (3.2) (3.2)
Total Deferred tax assets $203.8 $175.0
Deferred tax liabilities(assets)
Depreciation and amortization $32.6 $24.5
Postretirement and
postemployment benefits (22.1) (22.2)
Other assets and investments 84.7 86.5
Other 62.6 45.0
Total deferred tax liabilities $157.8 $133.8
The valuation allowance relates to deferred tax assets established under SFAS
No. 109 for capital loss carry-forwards of $2.9 million, and state net operating
loss carryforwards of $0.3 million. These unutilized loss carryforwards, which
will expire through 2000, will be carried forward to future years for possible
utilization. No benefit for these carryforwards has been recognized in the
financial statements. No other valuation allowances were deemed necessary as
all deductible temporary differences will be utilized primarily by carryback to
prior years taxable income or as charges against reversals of future taxable
temporary differences. Based upon prior earnings history, it is expected that
future taxable income will be more than sufficient to utilize the remaining
deductible temporary differences.
Deferred taxes have been provided, as required, on the undistributed
earnings of foreign subsidiaries and unconsolidated affiliates.
The difference between the actual income tax provision and the tax provision
computed by applying the statutory Federal income tax rate to earnings before
taxes is attributable to the following:
(in millions) 1995 1994 1993
Income tax provision at 35% $ 72.8 $ 69.4 $ 30.3
State and local income taxes,
net of Federal income tax effect 4.3 5.8 2.7
Foreign sales corporation benefit (1.7) (1.5) (1.5)
Taxes related to foreign income,
net of credits 0.8 (2.3) (1.9)
Goodwill and other amortization 0.8 0.8 1.8
Enacted tax rate change ----- ----- (3.6)
Other (3.1) (2.8) 4.2
Actual income tax provision $ 73.9 $ 69.4 $ 32.0
Effective tax rate 35.5% 35.0% 37.0%
In January 1994, the Company reached an agreement with the U. S. Internal
Revenue Service regarding its examination of the Company for the years 1985 and
1986. The issues of their examination dealt primarily with the deductibility
of approximately $500 million of acquired intangible assets, which the IRS
proposed to reclassify to non-deductible intangible assets. Under the terms of
the agreement, the IRS agreed to allow amortization deductions for virtually all
of the acquired intangible assets, and the Company agreed to increase the
amortizable lives of most of the acquired intangible assets.
The revised lives created a temporary difference which resulted in an initial
obligation by the Company to pay the IRS approximately $55 million during the
first quarter of 1994, representing taxes and interest, net of taxes for the
years 1986 through 1993. This initial $55 million obligation will subsequently
be reduced by the future tax benefits of the temporary difference created by the
agreement. Since the interest was charged to existing reserves and the taxes
paid represent temporary differences which created, and have been recorded as
deferred tax assets, this agreement had no impact on the Company's consolidated
results of operations.
17. Translation of Foreign Currencies
Most of the Company s entities use the local currency as the functional currency
and translate all assets and liabilities at year-end exchange rates,
all income and expense accounts at average rates and record adjustments
resulting from the translation in a separate component of common
shareholders equity. The following is an analysis of the cumulative
translation adjustments reflected in common shareholders equity:
(in millions) 1995 1994 1993
Balance at January 1 $11.8 $ 7.9 $ 8.9
Translation and other 3.9 7.8 (1.9)
Allocated income taxes (2.0) (3.9) 0.9
Balance at December 31 $13.7 $11.8 $ 7.9
The remaining foreign entities translate monetary assets and liabilities at
year-end exchange rates and inventories, property and nonmonetary assets and
liabilities at historical rates. Income and expense accounts are translated at
the average rates in effect during the year, except that depreciation and cost
of sales are translated at historical rates. Adjustments resulting from the
translation of these entities are included in the results of operations. Gains
and losses resulting from transactions of the Company and its subsidiaries
which are made in currencies different from their own are included in income
as they occur. Currency losses of $3.6 million, $5.4 million and
$1.0 million were recorded in 1995, 1994 and 1993, respectively.
18. Leases
The Company has various lease agreements for offices, branches, factories,
distribution and service facilities, certain Company-operated bowling centers,
and certain personal property. These obligations extend through 2028.
Most leases contain renewal options and some contain purchase options. Many
leases for Company-operated bowling centers contain escalation clauses, and many
provide for contingent rentals based on percentages of gross revenue. No leases
contain restrictions on the Company s activities concerning dividends,
additional debt or further leasing.
Rent expense consisted of the following:
(in millions) 1995 1994 1993
Basic expense $22.8 $22.0 $21.2
Contingent expense 0.6 0.6 0.6
Sublease income (1.9) (1.7) (1.2)
Rent expense, net $21.5 $20.9 $20.6
Future minimum rental payments at December 31, 1995, under agreements classified
as operating leases with noncancelable terms in excess of one year, are
as follows:
(in millions)
1996 $ 8.8
1997 10.1
1998 12.0
1999 8.0
2000 7.1
Thereafter 12.6
Future minimum operating lease rental payments
(not reduced by minimum sublease rentals
of $1.1 million) $58.6
19. Technological Expenditures
Technological expenditures consisted of the following:
(in millions) 1995 1994 1993
Research and development $ 90.4 $ 68.6 $ 60.8
Engineering and other 6.5 10.9 9.0
Technological expenditures $ 96.9 $ 79.5 $ 69.8
20. Preferred Share Purchase Rights
In March 1986, the Company's Board of Directors declared a dividend of one
Preferred Share Purchase Right (Old Right) on each outstanding share of the
Company's common stock. After the two-for-one stock split distributed on June 9,
1987, under certain conditions, each holder of Old Rights may purchase one
one-hundredth share of a new series of junior participating preferred
stock at an exercise price of $100 for each two Old Rights held. The Old Rights
expire on March 31, 1996.
On February 6, 1996, the Board of directors declared a dividend payable on April
1, 1996 of one Preferred Share Purchase Right (New Right) on each outstanding
share of the Company's common stock. Under certain conditions each holder of New
Rights may purchase one one-thousandth of a share of a new series of junior
participating preferred stock at an exercise price of $85 for each New Right
held. The new Rights expire on April 1, 2006.
The Old Rights and the New Rights (collectively the Rights) become exercisable
at the earlier of (1) a public announcement that a person or group acquired or
obtained the right to acquire 15% or more on the Company's common stock or
(2) fifteen days (or such later time as determined by the Board of Directors)
after commencement or public announcement of an offer for more than 15% of
the Company's common stock. After a person or group acquires 15% or more of the
common stock of the Company, other shareholders may purchase additional shares
of the Company at fifty percent of the current market price. These Rights may
cause substantial ownership dilution to a person or group who attempts to
acquire the Company without approval of the Company's Board of Directors.
The Rights, which do not have any voting rights, may be redeemed by the Company
at a price of $.025 per Old Right and $.01 per New Right at any time prior to a
person's or group's acquisition of 15% or more of the Company' s common stock.
The new series of preferred stock that may be purchased upon exercise of the
Rights may not be redeemed and may be subordinate to other series of the
Company's preferred stock designated in the future. A Right also will be issued
with each share of the Company's common stock that becomes outstanding prior
to the time the Rights become exercisable or expire.
In the event that the Company is acquired in a merger or other business
combination transaction, provision will be made so that each holder of Rights
will be entitled to buy the number of shares of common stock of the surviving
company, which at the time of such transaction would have a market value of
two times the exercise price of the Rights.
21. Unconsolidated Affiliates and Subsidiaries
The Company has certain unconsolidated foreign and domestic affiliates that are
accounted for on the equity method.
Summary financial information of the unconsolidated affiliates is presented
below:
(in millions) 1995 1994 1993
Net sales $414.4 $392.3 $332.2
Gross margin $ 62.9 $ 80.4 $ 70.5
Net earnings $ 17.8 $ 26.0 $ 24.2
Company's share of net earnings $ 11.5 $ 10.1 $ 11.3
Current assets $200.1 $178.5 $155.4
Non-current assets 123.5 114.2 104.2
Total assets 323.6 292.7 259.6
Current liabilities (157.4) (134.9) (125.1)
Non-Current liabilities (17.8) (27.2) (28.8)
Net assets $148.4 $130.6 $105.7
The net sales of affiliates include an insignificant amount of sales to the
Company.
23. Quarterly Data (unaudited)
Quarter
(in millions, except per share data) 1st 2nd 3rd 4th Year
1995
Net sales $ 774.2 $ 839.2 $ 725.7 $ 702.3 $ 3,041.4
Gross margin $ 215.4 $ 244.9 $ 193.8 $ 179.4 $ 833.5
Earnings from continuing operations $ 40.2 $ 37.1 $ 34.7 $ 22.2 $ 134.2
Loss on disposition of Technical segment - (7.0) - - (7.0)
Net earnings $ 40.2 $ 30.1 $ 34.7 $ 22.2 $ 127.2
Per common share
Earnings from continuing operations $ 0.42 $ 0.38 $ 0.36 $ 0.23 $ 1.39
Discontinued operations
Loss on disposition of Technical segment - (0.07) - - (0.07)
Net earnings $ 0.42 $ 0.31 $ 0.36 $ 0.23 $ 1.32
Dividends declared $ 0.125 $ 0.125 $ 0.125 $ 0.125 $ 0.50
Common stock price (NYSE)
High $21 $23 1/2 $21 3/8 $24 $24
Low $18 7/8 $16 3/8 $16 7/8 $19 $16 3/8
1994
Net sales $ 634.9 $ 748.2 $ 662.1 $ 654.9 $ 2,700.1
Gross margin $ 176.3 $ 225.4 $ 177.1 $ 169.6 $ 748.4
Earnings from continuing operations $ 26.4 $ 55.2 $ 29.4 $ 18.0 $ 129.0
Net earnings $ 26.4 $ 55.2 $ 29.4 $ 18.0 $ 129.0
Per common share
Earnings from continuing operations $ 0.28 $ 0.58 $ 0.31 $ 0.19 $ 1.35
Net earnings $ 0.28 $ 0.58 $ 0.31 $ 0.19 $ 1.35
Dividends declared $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.44
Common stock price (NYSE)
High $23 5/8 $25 1/8 $24 5/8 $22 $25 1/8
Low $18 1/8 $20 1/8 $19 7/8 $17 $17
Second quarter net earnings in 1995 include an after-tax charge of $24.4 million
for the losses on the divestiture of the golf club shaft business and Circus
World Pizza operations in the Recreation segment and management transition
expenses and the cost of an early retirement and selective separation program at
the Company's corporate office.
Report of Management
The consolidated balance sheets of Brunswick Corporation as of December 31,
1995 and 1994, and the related consolidated statements of operations, cash flows
and stockholders equity for each of the three years in the period ending
December 31, 1995, have been prepared by management, which is responsible for
their integrity and objectivity. The statements have been prepared in conformity
with generally accepted accounting principles and include some amounts that are
based upon management s best estimates and judgements and contain all normal and
recurring adjustments to present fairly the results of operations. The financial
information contained elsewhere in this annual report is consistent with that
contained in the financial statements.
The Company maintains accounting and related internal control systems which are
intended to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and to produce records necessary for the preparation of
financial information. There are limits inherent in all systems of internal
control, and the cost of the systems should not exceed the expected benefits.
Through the use of a program of internal audits performed by a professional
staff of corporate auditors and through discussions with and recommendations
from its independent public accountants the Company periodically reviews these
systems and controls and compliance therewith.
The Audit Committee of the Board of Directors, comprised entirely of
non-employee directors, meets regularly with management, the internal auditors,
and the independent public accountants to review the results of their work and
to satisfy itself that their responsibilities are being properly discharged.
The internal auditors and independent public accountants have full and free
access to the Audit Committee and have discussions regarding appropriate
matters, with and without management present.
Report of Independent Public Accountants
To the Shareholders of Brunswick Corporation:
We have audited the accompanying consolidated balance sheets of Brunswick
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of results of operations and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brunswick Corporation and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 15 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for postemployment
benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois,
January 30, 1996
Brunswick Corporation
Five Year Financial Summary
(in millions, except ratios and per share data 1995 1994 1993 1992 1991
Results of Operations Data
Net sales $3,041.4 $2,700.1 $2,206.8 $2,059.4 $1,841.0
Depreciation 87.8 79.8 78.1 77.8 84.0
Amortization 32.7 40.0 39.7 38.1 41.0
Operating earnings(loss) 219.6 210.0 99.8 79.8 (18.4)
Earnings(loss) before income taxes 208.1 198.4 86.5 62.0 (40.5)
Earnings(loss) from continuing operations
before extraordinary item and cumulative
effect of accounting changes 134.2 129.0 54.5 39.7 (35.0)
Cumulative effect on prior years of changes
in accounting principles - - (14.6) (38.3) -
Extraordinary loss from retirement of debt - - (4.6) - -
Discontinued operations
Earnings(loss) from discontinued operations - - - (1.7) 11.3
Gain(estimated loss) on divestitures of
Technical segment businesses (7.0) - (12.2) (26.0) -
Net earnings(loss) 127.2 129.0 23.1 (26.3) (23.7)
Per Common Share Data
Earnings(loss) from continuing operations
before extraordinary item and cumulative
effect of accounting changes $ 1.39 $ 1.35 $ 0.57 $ 0.43 $ (0.40)
Cumulative efffect on prior years of changes
in accounting principles - - (0.15) (0.41) -
Extraordinary item - - (0.05) - -
Discontinued operations
Earnings(loss) from discontinued operations - - - (0.02) 0.13
Gain(estimated loss) on divestitures of
Technical segment businesses (0.07) - (0.13) (0.28) -
Net earnings(loss) 1.32 1.35 0.24 (0.28) (0.27)
Dividends declared 0.50 0.44 0.44 0.44 0.33
Dividends paid 0.50 0.44 0.44 0.44 0.44
Book value 10.66 9.55 8.44 8.65 8.79
Balance Sheet Data
Capital expenditures $ 122.7 $ 104.6 $ 95.8 $ 88.6 $ 74.7
Assets of continuing operations 2,360.5 2,093.7 1,957.6 1,872.4 1,760.9
Debt
Short-term $ 6.1 $ 8.2 $ 11.9 $ 16.0 $ 6.3
Long-term 312.8 318.8 324.5 304.5 315.9
Total debt 318.9 327.0 336.4 320.5 322.2
Common shareholders' equity 1,043.1 910.7 804.4 822.5 778.7
Total capitalization $1,362.0 $1,237.7 $1,140.8 $1,143.0 $1,100.9
Other Data
Return on beginning
shareholders' equity 14.7 % 16.0 % 6.6 % 5.1 % (4.2)%
Effective tax rate(benefit) 35.5 % 35.0 % 37.0 % 36.0 % (13.6)%
Working capital ratio 1.9 1.7 1.6 1.7 1.5
Debt-to-capitalization rate 23.4 % 26.4 % 29.5 % 28.0 % 29.3 %
Common Stock Price(NYSE)
High $24 $25 1/8 $18 1/2 $17 3/4 $16 1/8
Low 16 3/8 17 12 1/2 12 1/4 8 3/4
Close 24 18 7/8 18 16 1/4 13 7/8
The Notes to Consolidated Financial Statements should be read in conjunction
with the above summary.
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report dated January 30, 1996, included in this
Form 10-K, into the Company's previously filed registration statements
on Form S-8 (File No. 33-4683), Form S-3 (File No. 33-61512), Form S-8
(File No. 33-55022), Form S-8 (File No. 33-56193), Form S-8 (File No.
33-61835) and Form S-8 (File No. 33-65217).
Arthur Andersen LLP
Chicago, Illinois,
March 22, 1996
Brunswick Corporation
Schedule II - Valuation and Qualifying Accounts
Balance at Charges Balance
beginning to profit at end of
(in millions) of period and loss Write-offs Recoveries Other period
Allowances for
possible losses
on receivables
1995 $ 19.5 $ 5.7 $ (6.5) $ 0.4 $ (0.1) $ 19.0
1994 $ 16.9 $ 6.0 $ (4.3) $ 1.1 $ (0.2) $ 19.5
1993 $ 15.6 $ 2.1 $ (4.0) $ 1.1 $ 2.1 $ 16.9
* Includes $2.4 million relating to acquisitions
This schedule reflects only the financial information of continuing
operations.
Deferred tax
asset valuation
allowance
1995 $ 3.2 $ - $ - $ - $ - $ 3.2
1994 $ 5.8 $ - $ - $ (2.6) $ - $ 3.2
1993 $ 8.8 $ - $ - $ (3.0) $ - $ 5.8
This account reflects the adoption of SFAS No. 109, "Accounting for Income
Taxes", which was adopted effective January 1, 1992. In 1993 and 1994 the
Company utilized $3.0 million and $2.6 million respectively, of foreign tax
credits from prior years. The utilization of these foreign tax credit
carryforwards reduced income tax expense for the year.
This schedule reflects only the financial information of continuing
operations.