A N N U A L R E P O R T
March 20, 2020
Dear fellow shareholders:
2019 was a year of transformational changes in our Company that sharpened our business focus, streamlined our narrative and
positioned us for continued success in 2020 and beyond. Throughout the year, Brunswick aggressively pursued its vision of
redefining the marine industry with strategic changes to our business portfolio, including the acquisition of Freedom Boat Club
and the sale of our fitness businesses; implementation of a leaner, more focused operating model; the launch of multiple award
winning new products; and strategic investments in capacity and technology. We accomplished this while navigating unexpected
retail headwinds and uncertain trade conditions, ending the year firmly established as the leading and most innovative recreational
marine company.
2019 also marked Brunswick’s 10th consecutive year of adjusted earnings per share growth delivered in combination with expanded
gross- and operating-margins. Adjusted earnings per share were $4.33, up five percent from $4.13 in 2018. Consolidated net sales,
as adjusted, were $4.1 billion, a slight increase versus 2018. The Company also delivered record operating earnings, as adjusted,
of $531.9 million, up six percent from 2018.
Product leadership remains a cornerstone of Brunswick’s success and, in 2019, we introduced many industry-leading products
including Mercury Racing’s 450R outboard engine and Mercury’s 400hp Verado outboard engine, Boston Whaler’s all-new 325 and
405 Conquest models, the new Harris Solstice pontoon with segment-first CZone digital switching technology, and the new Sea Ray
SLX-R 350 and 320 Coupe models along with many other new products across our divisions and brands.
We also established new centers of excellence for design, engineering and technology with the official opening of the Brunswick
Boat Group Technology Center in Edgewater, Florida and the new Noise and Vibration Center at Mercury Marine. These and other
investments position the Company to deliver differentiated products that meet the evolving expectations of our marine customers.
At Mercury, we undertook the most significant capacity investment in our history to meet the unprecedented levels of demand for
our 175-300hp outboard engines enabling Mercury to continue its share growth in saltwater, commercial and repower markets. For
the past two years, Mercury has reported the highest outboard engine share of any manufacturer at the two bellwether saltwater
boats shows in Miami and Ft. Lauderdale. In addition, Mercury broke ground on a propeller manufacturing facility expansion that
will almost double current capacity, positioning Mercury for further growth in this important parts and accessories category.
One of the most exciting developments of 2019 was the acquisition of Freedom Boat Club (FBC) which became part of our
newly-formed Business Acceleration Division. FBC, now with over 210 locations around the world, positions Brunswick as the
world’s largest boat club operator and the leader in shared-access boating, with the opportunity to engage more consumers and
significantly expand boating participation. We are rapidly advancing our plans to introduce Brunswick boats and Mercury engines
into the FBC fleet. With the acquisition of FBC, Brunswick adds a new and important strategic asset to its business portfolio which
already includes a leading marine engine company, the largest, most recognized portfolio of boat brands in the industry, and the
largest portfolio of marine parts and accessories businesses.
As we continue to evolve the marine experience of the future, we are working to bring our ACES strategy (Autonomy, Connectivity,
Electrification and Shared-Access) to life in our products and services. In addition to expanding our internal capabilities for technology
development, we established an eco-system of technology partnerships including mature technology providers, earlystage
technology companies and leading academic institutions. Examples include our iJet laboratory at the University of Illinois, our
partnership on marine autonomy with MIT, and our minority investments in a number of innovative technology companies via our
relationship with TechNexus.
As we exited 2019, the Company positioned itself for another year of strong growth and operating performance in 2020, however,
the unexpected coronavirus (COVID-19) pandemic has created challenges for the global economy and our Company. At this time,
we have prioritized the health and safety of our employees, stakeholders, and communities. We are taking prompt and responsive
measures that support COVID-19 containment efforts, such as temporary suspension of manufacturing operations, broad work-
from-home policies where feasible, and making our annual shareholder meeting “virtual.” The situation is constantly evolving, and
we are diligently monitoring developments and evaluating appropriate steps to maintain the health and safety of our team and
business continuity.
As we confront the challenges resulting from the Covid-19 pandemic, we are also preparing for a return to more normal business
conditions when we will focus on advancing our five strategic pillars: exceptional products and brands; operating and quality
excellence; being the best employer and partner; customer-centric innovation; and frictionless consumer experiences.
Forbes declared Brunswick one of America’s Best Employers in 2019 for the second year in a row, which is well-deserved recognition
for the Company and our 12,000+ employees. We are committed to our vision of providing “Innovation and Inspiration on the
Water” and are excited about our future as a marine-focused business. While 2020 is the 175th anniversary of Brunswick, we are
really in the first year of our marine focused strategy and look forward to the future.
Respectfully,
David M. Foulkes
Chief Executive Officer
Brunswick Corporation
UNITED STATES
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
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-1043
Brunswick Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
36-0848180
(I.R.S. Employer Identification No.)
26125 N. Riverwoods Blvd., Suite 500, Mettawa, IL 60045-3420
(Address of principal executive offices, including zip code)
(847) 735-4700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Common stock, par value $0.75 per share
6.500% Senior Notes due 2048
6.625% Senior Notes due 2049
6.375% Senior Notes due 2049
BC
BC-A
BC-B
BC-C
Name of Each Exchange on Which Registered
New York Stock Exchange
Chicago Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth
company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $3,906,175,936. Such number excludes stock beneficially owned by executive officers and directors. This does not
constitute an admission that they are affiliates.
The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of February 12, 2020 was 79,470,343.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates by reference certain information that will be set forth in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders scheduled to be held on May 6, 2020.
BRUNSWICK CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2019
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Page
1
8
18
18
19
19
21
23
25
42
42
42
43
43
44
44
44
44
44
45
106
Item 1. Business
PART I
Brunswick Corporation is a Delaware corporation incorporated on December 31, 1907. We are a leading global designer,
manufacturer, and marketer of recreational marine products including marine engines, boats, and parts and accessories for those
products. Our engine-related products include: outboard, sterndrive, and inboard engines; trolling motors; propellers; engine control
systems; electrical components and integrated systems; and marine parts and accessories. The boats we make include fiberglass
sport boats, cruisers, sport fishing and center-console, offshore fishing, aluminum and fiberglass fishing, pontoon, utility, deck,
inflatable, tow/wake, and heavy-gauge aluminum boats. We manufacture and supply parts and accessories for original equipment
manufacturers, aftermarket parts and accessory retailers and distributors, and for internal production. Additionally, we explore,
invest in, and develop growth opportunities in key strategically, synergistically, and technologically adjacent markets.
In 2019, we sold our Fitness business, including the active aging, rehabilitation and billiards lines, transitioning to a company
focused on the recreational marine industry. We have leading positions in several important marine business lines, including
propulsion, parts & accessories, boats, and shared access models. As the global leader in recreational marine, it is our intention to
define the future of recreational boating through innovation and inspiration on the water. We will do this through an integrated
strategy focused on:
Introducing exceptional products across our strong array of brands;
Promoting operational and quality excellence;
Strengthening our relationships with our channel partners, suppliers, and employees;
•
•
•
• Developing customer-centric innovation in both products and services; and
• Establishing frictionless experience across consumer touchpoints.
Our integrated marine business strategy is supported by a balanced capital strategy that includes allocating capital to organic
growth initiatives and strategic acquisition opportunities while also managing debt levels and maturities, maintaining strong cash
and liquidity positions, and continuing to return capital to shareholders through dividends and share repurchases. These strategies
support our aim to create exceptional experiences for our customers, expand participation in recreational boating, deliver industry
transforming technology, and leverage our leading marine businesses to grow earnings and enhance shareholder value.
Consistent with our integrated marine business strategy, the Company is focused on four business pillars - Propulsion, Parts
and Accessories (P&A), Boats and Business Acceleration. Effective January 1, 2020, we changed our management reporting and
updated our reportable segments to Propulsion, P&A and Boat to align with our strategy. The Propulsion segment will contain
both outboard and sterndrive engines, along with controls and riggings, which are closely associated with our propulsion businesses.
The P&A segment will contain all other P&A categories, including engine parts and consumables, electrical products, boat parts
and systems, and our distribution business. The Boat segment will continue to include Business Acceleration. For this Annual
Report on Form 10-K, we are reporting our results according to our historical segments, Marine Engine and Boat.
Refer to Note 6 – Segment Information and Note 3 – Discontinued Operations in the Notes to Consolidated Financial
Statements for additional information regarding our segments and discontinued operations.
Marine Engine Segment
The Marine Engine segment, which had net sales of $3,073.5 million in 2019, consists of the Mercury Marine Group (Mercury
Marine). We believe our Marine Engine segment is a world leader in the manufacturing and sale of recreational marine engines
and marine parts and accessories.
Mercury Marine manufactures and markets a full range of outboard, sterndrive, and inboard engine and propulsion systems
under, among other brand names, Mercury, Mercury MerCruiser, Mercury Racing, and MotorGuide brands. Mercury Marine
supplies integrated propulsion systems to the worldwide recreational and commercial marine markets. To promote advanced
propulsion systems with improved handling, performance, and efficiency, Mercury Marine also designs, manufactures, and markets
advanced boat steering and engine control systems.
Mercury Marine's outboard, sterndrive, and inboard engines are sold to independent boat builders, local, state, and foreign
governments, and to Brunswick's Boat segment. In addition, Mercury Marine sells outboard engines through a global network of
more than 6,000 marine dealers and distributors, specialty marine retailers, and marine service centers.
1
Mercury Marine manufactures four-stroke outboard engine models ranging from 2.5 to 450 horsepower. These low-emission
engines comply with applicable U.S. Environmental Protection Agency (EPA) requirements. Mercury Marine's four-stroke
outboard engines include Verado, a collection of outboards ranging from 250 to 400 horsepower, and Mercury Marine's naturally
aspirated four-stroke outboards, ranging from 2.5 to 300 horsepower. Mercury Marine and Mercury Racing manufacture inboard
and sterndrive engine models ranging from 115 to 1,750 horsepower. Mercury Marine also manufactures two-stroke, non-DFI
engines for certain markets outside the United States. In addition, most of Mercury Marine's sterndrive and inboard engines are
available with catalyst exhaust treatment and monitoring systems, and all are compliant with applicable U.S. state and federal
environmental regulations. Mercury Marine also makes engines that comply with global emissions and noise regulations.
Mercury Marine continues to develop innovative products and technologies. In 2019, Mercury Marine jointly received the
Most Innovative Marine Company Award from Soundings Trade Only media group for its introduction of groundbreaking new
products and technologies, as well as its commitment to sustainability and diversity training. Mercury Marine also earned an
International Forum Design (iF) award in 2019 in the Product Category for design excellence demonstrated by its V6 outboard
line. Additionally in 2019, Wisconsin Manufacturers and Commerce awarded Mercury Marine the 2018 Manufacturer of the Year
Award and the North American Die Casting Association awarded Mercury Marine the 2018 Casting of the Year Award for its 4.6-
liter V8 outboard engine blocks.
Mercury Marine produces gasoline outboard and sterndrive engines domestically in Fond du Lac, Wisconsin. Mercury Marine
manufactures 40, 50 and 60 horsepower four-stroke outboard engines in a facility in China, and produces smaller outboard engines
in Japan pursuant to a joint venture with its partner, Tohatsu Corporation. Mercury Marine sources engine components from a
global supply base and manufactures additional engine component parts at its Fond du Lac facility and plants in Florida and
Mexico. Mercury Marine also operates a remanufacturing business for engines and service parts in Wisconsin.
For the ninth consecutive year, the Wisconsin Sustainable Business Council (Council) awarded Mercury Marine a “Green
Masters” designation, a program measuring a broad range of sustainability issues including energy and water conservation, waste
management, community outreach, and education. The designation highlights Mercury Marine's commitment to sustainability as
discussed in its 2019 Sustainability Report, detailing specific goals related to energy, environment, products, and people, all of
which goals Mercury Marine has met or exceeded. In addition, the Council awarded Mercury Marine the 2019 Sustainable Process
Award for its responsible stewardship of aluminum. Also in 2019, Mercury Marine declared its Fond du Lac distribution operation
as a "Zero Waste to Landfill Facility."
In addition to marine engines and propulsion systems, Mercury Marine manufactures, markets, and supplies parts and
accessories for both marine and non-marine markets. These products are designed for and sold to original equipment manufacturers
(including Brunswick brands) and aftermarket retailers, distributors, and distribution businesses. Branded propulsion-related parts
and accessories include consumables, such as engine oils and lubricants, and propulsion-related parts and accessories such as
propellers, controls, and riggings. Branded propulsion-related parts and accessories are sold under the Mercury, Mercury Precision
Parts, Quicksilver, and Seachoice brand names.
The Company announced the formation of the Advanced Systems Group on December 10, 2019, which is effective starting
on January 1, 2020. The Advanced Systems Group comprises the collection of brands acquired with Power Products in 2018 and
certain other parts and accessories brands. The Advanced Systems Group will conduct business under the Ancor, Attwood, BEP,
Blue Sea Systems, CZone, DelCity, Garelick, Lenco Marine, Marinco, Mastervolt, MotorGuide, ParkPower, Progressive Industries,
ProMariner, and Whale brand names, including marine electronics and control systems, instruments, trolling motors, fuel systems,
electrical systems, as well as specialty vehicle, mobile, and transportation aftermarket products.
Mercury Marine's distribution businesses include: Land 'N' Sea, Kellogg Marine Supply, Lankhorst Taselaar, BLA, and Payne's
Marine Group. These businesses are leading distributors of marine parts and accessories throughout North America, Europe, and
Asia-Pacific, offering same-day or next-day delivery service to a broad array of marine service facilities.
Intercompany sales to Brunswick's Boat segment represented approximately 10 percent of Mercury Marine's sales in 2019.
Domestic demand for the Marine Engine segment's products is seasonal, with sales generally highest in the second calendar quarter
of the year.
2
Boat Segment
The Boat segment consists of the Brunswick Boat Group (Boat Group), which manufactures and markets the following types
of boats: fiberglass sport boats, cruisers, sport fishing and center-console, offshore fishing, aluminum and fiberglass fishing,
pontoon, utility, deck, inflatable, tow/wake, and heavy-gauge aluminum. The Boat segment also includes the Company's Business
Acceleration group. We believe that the Boat segment, which had net sales of $1,333.8 million during 2019, is a world leader in
the manufacturing and sale of pleasure motorboats.
The Boat Group manages Brunswick's boat brands; evaluates and optimizes the Boat segment's boat portfolio; promotes
recreational boating services and activities to enhance the consumer experience and dealer profitability, including through its
Business Acceleration initiatives; and speeds the introduction of new technologies into boat manufacturing and design processes.
The Boat Group includes the following boat brands: Sea Ray sport boats and cruisers; Bayliner sport cruisers, runabouts, and
Heyday wake boats; Boston Whaler fiberglass offshore boats; Lund fiberglass fishing boats; Crestliner, Cypress Cay, Harris, Lowe,
Lund, and Princecraft aluminum fishing, utility, pontoon boats, and deck boats; and Thunder Jet heavy-gauge aluminum boats.
The Boat Group procures substantially all of its outboard engines, gasoline sterndrive engines, and gasoline inboard engines from
Brunswick's Marine Engine segment.
The Boat Group also includes Brunswick boat brands based in Europe and Asia-Pacific, which include Quicksilver, Uttern,
and Rayglass (including Protector and Legend), that are typically equipped with Mercury Marine engines and often include other
parts and accessories supplied by Mercury Marine.
The Boat Group operates manufacturing facilities in Florida, Indiana, Minnesota, Missouri, Washington, Canada, Mexico,
New Zealand, and Portugal. The Boat Group also uses two contract manufacturing facilities in Poland.
The Boat Group sells its products through a global network of nearly 1,300 dealers and distributors, with some dealers operating
in more than one location and some dealers carrying more than one of our boat brands. Sales to the Boat Group's largest dealer,
MarineMax, Inc., which has multiple locations and carries a number of the Boat Group's product lines, represented approximately
25 percent of Boat Group sales in 2019. Domestic demand for pleasure boats is seasonal, with sales generally highest in the second
calendar quarter of the year.
Business Acceleration
Through innovative service models, shared access solutions and emerging technology, Business Acceleration, which is reported
in our Boat segment, provides exceptional experiences which attract a wide range of consumers to the marine industry and shape
the future of boating through several businesses.
Boating Services Network is our dealer finance and ancillary service business unit that provides floor plan finance
through Brunswick Acceptance Company (USA) and Brunswick Commercial Finance (Canada), retail finance through Blue Water
Finance and Mercury Repower Finance, retail extended warranties under the Passport and Passport Premier brands through
Brunswick Product Protection Corporation, retail insurance through Boater's Choice Insurance, and close to 50 name brand marine
dealer service providers through Brunswick Dealer Advantage. Each offering allows us to deliver a more complete line of financial
services and product offerings to our boat and marine engine dealers and their customers. See the “Financing Joint Venture” section
below for details about our related financing joint venture that operates closely with the Boating Services Network.
On May 21, 2019, Brunswick acquired Freedom Boat Club, the leading boat club network in North America. Freedom Boat
Club is made up of over 210 company-owned and franchised boat club locations, primarily in North America, with three franchised
locations in France. These locations sell memberships comprised of an initiation fee and ongoing monthly payment in exchange
for which members gain shared access to their local club’s diverse fleet of boats and reciprocal privileges at other Freedom Boat
Club locations around the world. We believe this boat club membership model provides access to the boating lifestyle in a way
that attracts new entrants, keeps disaffected boaters in the fold, and helps grow the broader boating community. We anticipate a
portion of boat club members will ultimately transition to boat ownership. The Freedom Boat Club business also provides a channel
for sales of our boats, marine engines, parts & accessories, and various other of our services both at company-owned and franchised
locations.
NAUTIC-ON, a smart technology and service system that helps boaters stay connected with their boats remotely by monitoring
engine, battery and bilge pump status, and providing other advanced features, was launched in 2018 and now comes factory
installed on certain Sea Ray and Boston Whaler models.
3
Financing Joint Venture
Through our Brunswick Financial Services Corporation subsidiary, we own a 49 percent interest in a joint venture, Brunswick
Acceptance Company, LLC (BAC). Under the terms of the joint venture agreement (JV Agreement), BAC provides secured
wholesale inventory floorplan financing to our boat and engine dealers. A subsidiary of Wells Fargo & Company owns the remaining
51 percent.
The JV Agreement runs through December 31, 2022. The JV Agreement contains a financial covenant that conforms to the
maximum leverage ratio test in the Credit Facility described in Note 16 – Debt in the Notes to Consolidated Financial Statements.
The JV Agreement contains provisions allowing for the renewal of the JV Agreement or the purchase of the other party’s interest
in the joint venture at the end of its term. Alternatively, either partner may terminate the JV Agreement at the end of its term.
Refer to Note 10 – Financing Joint Venture in the Notes to Consolidated Financial Statements for more information about
our financial services.
Distribution
We utilize independent distributors, dealers, and retailers (Dealers) for the majority of our boat sales and significant portions
of our sales of marine engines. We have over 16,000 Dealers serving our business segments worldwide. Our marine Dealers
typically carry one or more of the following product categories: boats, engines, and related parts and accessories.
We own Land 'N' Sea, Kellogg Marine Supply, Payne's Marine Group, and Del City, which comprise the primary parts and
accessories distribution platforms for our Marine Engine segment in North America. We believe that these businesses, collectively,
are the leading distributors of marine parts and accessories throughout North America, with a network of distribution warehouses
located throughout the United States and Canada offering same-day or next-day delivery service to a broad array of marine service
facilities and Dealers. We also believe we are a leading parts and accessories distributor outside of North America.
Our Dealers are independent companies or proprietors that range in size from small, family-owned businesses to a large,
publicly-traded corporation with substantial revenues and multiple locations. Some Dealers sell our products exclusively, while
a majority also carry competitor and complementary products. We partner with our boat dealer network to improve quality, service,
distribution, and delivery of parts and accessories to enhance the boating customer's experience.
Demand for a significant portion of our products is seasonal, and a number of our Dealers are relatively small and/or highly-
leveraged. As a result, many Dealers secure floor plan financing from BAC or other third party finance companies, enabling them
to stock product in advance of the peak selling season and provide stable channels for our products. In addition to the financing
BAC offers, we may also provide our Dealers with incentive programs, loan guarantees, inventory repurchase commitments, and
financing receivable arrangements, under which we are obligated to repurchase inventory or receivables from a finance company
in the event of a Dealer's default. We believe that these arrangements are in our best interest; however, these arrangements expose
us to credit and business risk. Our business units, along with BAC, maintain active credit operations to manage this financial
exposure, and we continually seek opportunities to sustain and improve the financial health of our various distribution channel
partners. Refer to Note 8 – Financing Receivables and Note 13 – Commitments and Contingencies in the Notes to Consolidated
Financial Statements for further discussion of these arrangements.
Technology and Innovation
With the 2019 sale of our Fitness business, Brunswick transitioned into a company concentrated on leading the global marine
industry with a sharpened focus and clear vision, consistently innovating the future of recreational boating. To support this goal,
we have established a strong foundation of cross functional and cross business investments and initiatives to further improve
customer interaction with our products and grow boating participation, including Freedom Boat Club, NAUTIC-ON, and
VesselView Mobile. We continue to partner with TechNexus Holdings, LLC to identify and incubate innovative start-up ventures
with strategic marine applications to help drive long-term growth.
4
Non-U.S. sales are set forth in Note 6 – Segment Information and Note 2 – Revenue Recognition in the Notes to Consolidated
Financial Statements and are also included in the table below, which details our non-U.S. sales by region:
International Operations
(in millions)
Europe
Canada
Asia-Pacific
Rest-of-World
Total
Total International Sales as a Percentage of Net Sales
$
2019
516.7
279.9
274.9
165.8
$ 1,237.3
2018
$
494.3
287.3
262.0
159.3
$ 1,202.9
2017
$
420.7
288.1
251.9
165.3
$ 1,126.0
30%
29%
29%
We transact a portion of our sales in non-U.S. markets in local currencies, while a meaningful portion of our product costs
are denominated in U.S. dollars as a result of our U.S. manufacturing operations. As a result, the strengthening or weakening of
the U.S. dollar affects the financial results of our non-U.S. operations.
Marine Engine segment non-U.S. sales represented approximately 74 percent of our non-U.S. sales in 2019. The segment's
principal non-U.S. operations include the following:
•
•
•
•
Distribution, sales, service, engineering, or representative offices in Australia, Belgium, Brazil, Canada, China, Dubai,
Finland, France, Italy, Japan, the Netherlands, New Zealand, Norway, Russia, Singapore, Sweden, and Switzerland;
Component, parts and accessories manufacturing, and light assembly facilities in Mexico, the Netherlands, New Zealand,
and Northern Ireland;
An outboard engine assembly plant in Suzhou, China; and
An outboard engine assembly plant operated by a joint venture in Japan.
Boat segment non-U.S. sales comprised approximately 26 percent of our non-U.S. sales in 2019. The Boat Group manufactures
or assembles a portion of its products in Canada, Mexico, New Zealand, and Portugal, as well as in boat plants owned and operated
by third parties in Poland that perform contract manufacturing for us, which are sold mostly in international markets through
Dealers. The Boat Group has sales or import offices in Belgium, Canada, France, Italy, the Netherlands, New Zealand, Norway,
Poland, and Sweden. Of our boat sales in Canada and Europe, approximately 33 percent and 91 percent of the units, respectively,
were produced in the region.
Raw Materials and Supplies
We purchase a wide variety of raw materials from our supplier base, including commodities such as aluminum, resins, oil,
and steel, as well as product parts and components, such as engine blocks and boat windshields. The prices for these raw materials,
parts, and components fluctuate depending on market conditions. Significant increases in the cost of such materials would raise
our production costs, which could reduce profitability if we did not recoup the increased costs through higher product prices.
Our global procurement operations continue to better leverage purchasing power across our divisions and to improve supply
chain and cost efficiencies. We mitigate commodity price risk on certain raw material purchases by entering into fixed priced
contracts or derivatives to mitigate exposure related to changes in commodity prices.
Intellectual Property
We have, and continue to obtain, patent rights covering certain features of our products and processes. By law, our patent
rights, which consist of patents and patent licenses, have limited lives and expire periodically. We believe that our patent rights
are important to our competitive position in all of our business segments. Our trademark rights have indefinite lives, and many
are well known to the public and are considered to be valuable assets. Most of our intellectual property is owned by U.S. entities.
In the Marine Engine segment, patent rights principally relate to features of outboard engines and inboard-outboard drives,
hybrid drives, and pod drives, including: die-cast powerheads; cooling and exhaust systems; drivetrain, clutch, and gearshift
mechanisms; boat/engine mountings; shock-absorbing tilt mechanisms; ignition systems; propellers; marine vessel control systems;
fuel and oil injection systems; supercharged engines; outboard mid-section structures; segmented cowls; hydraulic trim, tilt and
steering; screw compressor charge air cooling systems; a range of proprietary metal alloys; and airflow silencers.
5
In the Boat segment, patent rights principally relate to processes for manufacturing fiberglass hulls, decks, and components
for boat products, as well as patent rights related to boat design, features and components.
In addition to "Brunswick," the following are our principal trademarks and brands:
Marine Engine Segment: Ancor, Attwood, Axius, BEP, Blue Sea Systems, CZone, Del City, FulTyme RV, Garelick, Kellogg
Marine Supply, Land 'N' Sea, Lenco Marine, Marinco, Mariner, Mastervolt, MerCruiser, Mercury, Mercury Marine, Mercury
Precision Parts, Mercury Propellers, Mercury Racing, MotorGuide, OptiMax, ParkPower, Power Products, Progressive Industries,
ProMariner, Quicksilver, Seachoice, SeaPro, SmartCraft, Sport-Jet, Swivl-Eze, Talamex, Valiant, Verado, VesselView, Whale, and
Zeus.
Boat Segment: Bayliner, Boston Whaler, Crestliner, Cypress Cay, Freedom Boat Club, Harris, Heyday, Legend, Lowe, Lund,
Master Dealer, NAUTIC-ON, Princecraft, Protector, Quicksilver, Rayglass, Sea Ray, Thunder Jet, and Uttern.
Competitive Conditions and Position
We believe that we have a reputation for quality in each of our highly competitive lines of business. We compete in various
markets by: utilizing efficient production techniques; developing and strengthening our leading brands; developing and promoting
innovative technological advancements; undertaking effective marketing, advertising, and sales efforts; providing high-quality,
innovative products at competitive prices; and offering extensive aftermarket products.
Strong competition exists in each of our product groups, but no single enterprise competes with us in all product groups. In
each product area, competitors range in size from large, highly-diversified companies to small, single-product businesses. We also
indirectly compete with businesses that offer alternative leisure products or activities.
The following summarizes our competitive position in each segment:
Marine Engine Segment: We believe the Marine Engine segment is a world leader in the manufacture and sale of recreational
and commercial marine engines and marine parts and accessories. The marine engine market is highly competitive among several
major international companies that comprise the majority of the market, including Japanese-based outboard engine manufacturers,
as well as several smaller companies including Chinese manufacturers. Competitive advantage in this segment is a function of
product features, technological leadership, quality, service, pricing, performance, manufacturing capabilities, depth of product
portfolio, intuitive product controls, and durability, along with effective promotion and distribution. The parts & accessories and
distribution market is highly competitive and fragmented. Our competitive advantage in this market includes our product breadth,
proprietary parts and technology, nationwide distribution center network, sales team, delivery timing and service.
Boat Segment: We believe that the Boat segment is a world leader in the manufacture and sale of pleasure motorboats. There
are several major manufacturers of pleasure and offshore fishing boats, along with hundreds of smaller manufacturers. However,
few major manufacturers compete in the breadth of categories or geographies in which our Boat segment competes. Consequently,
this business is highly competitive by category but also highly fragmented. In all of our boat operations, we compete on the basis
of product features, technology, quality, brand strength, dealer service, pricing, performance, value, durability and styling, along
with effective promotion and distribution. In addition, we believe Freedom Boat Club is the largest operator of boat club locations
in North America with more than 210 locations, either company-owned or franchised. This operating model providers boaters a
unique and lower cost means to participate in boating.
6
The number of employees worldwide is shown below by segment:
Number of Employees
Marine Engine
Boat (A)
Corporate (B)
Total(C)
December 31, 2019
December 31, 2018
Total
7,483
5,016
329
12,828
Union
(domestic)
Total
Union
(domestic)
2,053
—
—
7,719
4,996
369
2,402
—
—
2,053
13,084
2,402
(A) Includes Freedom Boat Club employees at company-owned locations for 2019.
(B) Corporate numbers include (i) enterprise information technology employees, which numbered 151 as of December 31, 2019 and 186 as of December 31, 2018,
and (ii) shared service employees.
(C) All employee numbers exclude third-party contractor employees supplying temporary labor
We believe that the relationships between our employees, labor unions, and the Company remain stable. The collective
bargaining agreement between Mercury Marine and its largest union, the International Association of Machinists and Aerospace
Workers (IAM) Lodge 1947, remains in place until August 26, 2023.
Discontinued Operations
Refer to Note 3 – Discontinued Operations in the Notes to Consolidated Financial Statements for additional information
regarding discontinued operations.
Refer to Note 13 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for a description
of certain environmental proceedings.
Environmental Requirements
Available Information
Brunswick maintains an Internet website at http://www.brunswick.com that includes links to our Annual Report on Form 10-
K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, and Proxy Statements
(SEC Filings). The SEC Filings are available without charge as soon as reasonably practicable following the time that they are
filed with, or furnished to, the SEC. Shareholders and other interested parties may request email notification of the posting of these
documents through the Investors section of our website. Brunswick’s SEC Filings are also available on the SEC’s website at http://
www.sec.gov.
7
Item 1A. Risk Factors
The Company's operations and financial results are subject to certain risks and uncertainties, including those described below,
which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our
common stock.
Worldwide economic conditions significantly affect our industries and businesses, and economic decline can materially impact
our financial results.
In times of economic uncertainty and contraction, consumers tend to have less discretionary income and to defer expenditures
for discretionary items, which adversely affects our financial performance. Although we have expanded the portions of our portfolio
that are dependent or substantially weighted toward the usage and maintenance of boats and engines versus the sale of new product
and therefore less susceptible to economic cycles, a portion of the business remains cyclical and sensitive to personal spending
levels.
Deterioration in general economic conditions that in turn diminishes consumer confidence or discretionary income may reduce
our sales, or we may decide to lower pricing for our products, thus adversely affecting our financial results, including increasing
the potential for future impairment charges. Further, most of our products are used for recreation, and consumers’ limited
discretionary income in times of economic hardship may be diverted to other activities that occupy their time, such as other forms
of recreation, religious, cultural, or community activities. We cannot predict the timing or continued strength of global economies,
either worldwide or in the specific markets in which we compete.
Failure to successfully implement our strategic plan and growth initiatives could have a material adverse effect on our business
and financial condition.
Our ability to continue generating strong cash flow and profits depends partly on the sustained successful execution of our
strategic plan and growth initiatives, including optimizing our business and product portfolio, making acquisitions, improving
operating efficiency, and expanding into new adjacent markets and customers. To address risks associated with our plan and growth
initiatives, we have established processes to regularly review, manage, and modify our plans, and we believe we have appropriate
oversight to monitor initiatives and their impact. However, our strategic plan and growth initiatives may require significant capital
investment and management attention, which could result in the diversion of these resources from the core business and other
business issues and opportunities. Additionally, any new initiative is subject to certain risks, including customer acceptance,
competition, the ability to manufacture products on schedule and to specification, the ability to create the necessary supply chain,
and/or the ability to attract and retain qualified management and other personnel. There is no assurance that we will be able to
develop and successfully implement our strategic plan and growth initiatives in a manner that fully achieves our strategic objectives.
Successfully managing our manufacturing activity is critical to our operating and financial results.
Over the past several years, we have made strategic capital investments in capacity expansion activities to successfully capture
growth opportunities and enhance product offerings, including expansions at Mercury Marine in Fond du Lac, Wisconsin and
Boston Whaler in Edgewater, Florida. We may also make decisions to reduce our manufacturing footprint in accordance with our
business strategy. We have also implemented, or are in the process of implementing, several manufacturing efficiency enhancements
that are important to our success. We must carefully manage these capital improvement projects, expansions, efficiency
enhancements, and any manufacturing consolidation efforts to ensure they meet cost targets, comply with applicable environmental,
safety, and other regulations, and uphold high-quality workmanship.
Moving production to a different plant, expanding capacity at an existing facility, or ceasing production at a facility involves
risks, including difficulties initiating production within the cost and timeframe estimated, supplying product to customers when
expected, integrating new products, and attracting sufficient skilled workers to handle additional production demands. If we fail
to meet these objectives, it could adversely affect our ability to meet customer demand for products and increase the cost of
production versus projections, both of which could result in a significant adverse impact on operating and financial results.
Additionally, plant consolidation or expansion can result in manufacturing inefficiencies, additional expenses, including higher
wages or severance costs, and cost inefficiencies, which could exceed projections and negatively impact financial results.
Changes to U.S. trade policy, tariffs, and import/export regulations may have a material adverse effect on our business, financial
condition, and results of operations.
Changes in laws and policies governing foreign trade could continue to adversely affect our business. As a result of recent
policy changes, there may be greater restrictions and economic disincentives on international trade. The new tariffs and other
changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments have instituted
8
or are considering imposing trade sanctions on certain U.S. goods, such as aluminum and steel. Although we were granted exclusion
from Section 301 tariffs for Mercury Marine 40, 50, and 60 horsepower engines in 2018 effective through the end of 2019, these
exclusions were not renewed for 2020 and the denial of exemption requests will negatively affect our business. We continue to
be subject to meaningful other tariffs, and there is no assurance that we will be granted similar exclusions for these or other products
in the future, or that we will not be subject to additional tariffs. Like many other multinational corporations, we do a significant
amount of business that would be affected by changes to the trade policies of the U.S. and foreign countries (including governmental
action related to tariffs and international trade agreements). Such changes have the potential to adversely impact the U.S. economy,
our industry, and global demand for our products and, as a result, could have a material adverse effect on our business, financial
condition and results of operations.
Changes in currency exchange rates can adversely affect our results.
Some of our sales are denominated in a currency other than the U.S. dollar. Consequently, a strong U.S. dollar may adversely
affect reported revenues and our profitability. We have hedging programs in place to reduce our risk to currency fluctuations;
however, we cannot hedge against all currency risks, especially over the long term. We maintain a portion of our cost structure in
currencies other than the U.S. dollar, which partially mitigates the impact of a strengthening U.S. dollar. This includes manufacturing
operations for boats in Europe and Canada, and smaller outboard engines manufactured in China and purchased from our joint
venture in Japan. We also continue to evaluate the supply chain and cost structure for opportunities to further mitigate foreign
currency risks.
We sell products manufactured in the U.S. into certain international markets in U.S. dollars, including to Canada, Europe,
and Latin America. Demand for our products in these markets may be diminished by a strengthening U.S. dollar, or we may need
to lower prices to remain competitive. Some of our competitors with cost positions based outside the U.S., including Asian-based
outboard engine manufacturers and European-based large fiberglass boat manufacturers, may have an improved cost position due
to a strengthening U.S. dollar, which could result in pricing pressures on our products. Although these factors have existed for
several years, we do not believe they have had a material adverse effect on our competitive position.
Our success depends upon the continued strength of our brands.
We believe that our brands, particularly including Mercury Marine, Sea Ray, Boston Whaler, and Lund significantly contribute
to our success, and that maintaining and enhancing these brands is important to expanding our customer base. A failure to adequately
promote, protect, and strengthen our brands could adversely affect our business and results of operations. Further, in connection
with the divestiture of the bowling and billiards businesses, we licensed certain trademarks and servicemarks, including use of the
name “Brunswick,” to the acquiring companies. Our reputation may be adversely affected by the purchasers' inappropriate use of
the marks or of the name Brunswick, including potential negative publicity, loss of confidence, or other damage to our image due
to this licensed use.
Fiscal concerns and policy changes may negatively impact worldwide economic and credit conditions and adversely affect our
industries, businesses, and financial condition.
Fiscal policy could have a material adverse impact on worldwide economic conditions, the financial markets, and availability
of credit and, consequently, may negatively affect our industries, businesses, and overall financial condition. Customers often
finance purchases of our products, particularly boats, and as interest rates rise, the cost of financing the purchase also increases.
While credit availability is adequate to support demand and interest rates remain relatively low, there are fewer lenders, tighter
underwriting and loan approval criteria, as well as greater down payment requirements than before the global recession. If credit
conditions worsen, and adversely affect the ability of customers to finance potential purchases at acceptable terms and interest
rates, it could result in a decrease in sales or delay improvement in sales.
Dealer or distributor inability to secure adequate access to capital could adversely affect our sales.
Our dealers require adequate liquidity to finance their operations, including purchasing our products. Dealers are subject to
numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued
access to adequate financing sources on a timely basis on reasonable terms. These financing sources are vital to our ability to sell
products through our distribution network, particularly to boat and engine dealers. Entities affiliated with Wells Fargo & Company,
including BAC, the Company’s 49 percent owned joint venture, finance a significant portion of our boat and engine sales to dealers
through floorplan financing to marine dealers.
9
Many factors continue to influence the availability and terms of financing that our dealer floorplan financing providers offer,
including:
•
•
•
•
•
their ability to access certain capital markets, such as the securitization and the commercial paper markets, and to
fund their operations in a cost effective manner;
the performance of their overall credit portfolios;
their willingness to accept the risks associated with lending to marine dealers;
the overall creditworthiness of those dealers; and
the overall aging and level of pipeline inventories.
Our sales could be adversely affected if financing terms change unfavorably or if BAC were to be terminated. This could
require dealers to find alternative sources of financing, including our direct financing to dealers, which could require additional
capital to fund the associated receivables.
Our financial results could be adversely affected if we are unable to maintain effective distribution.
We rely on third-party dealers and distributors to sell most of our products. Maintaining a reliable network of dealers is essential
to our success. We face competition from other manufacturers in attracting and retaining distributors and independent boat dealers.
A significant deterioration in the number or effectiveness of our dealers and distributors could have a material adverse effect on
our financial results.
Although at present we believe dealer health to be generally favorable, weakening demand for marine products could hurt
our dealers’ financial performance. In particular, reduced cash flow from decreases in sales and tightening credit markets may
impair dealers' ability to fund operations. Inability to fund operations can force dealers to cease business, and we may be unable
to obtain alternate distribution in the vacated market. An inability to obtain alternate distribution could unfavorably affect our net
sales through reduced market presence. If economic conditions deteriorate, we anticipate that dealer failures or voluntary market
exits would increase, especially if overall retail demand materially declines.
Adverse economic, credit, and capital market conditions could have a negative impact on our financial results.
We may rely on short-term capital markets to meet our working capital requirements, fund capital expenditures, pay dividends,
or fund employee benefit programs and we maintain short-term borrowing facilities that can be used to meet these capital
requirements. In addition, over the long term, we may determine that it is necessary to access the capital markets to refinance
existing long-term indebtedness or to raise capital for other initiatives.
Adverse global economic conditions, market volatility, and regulatory uncertainty could lead to volatility and disruptions in
the capital and credit markets. This could adversely affect our ability to access capital and credit markets or increase the cost to
do so, which could have a negative impact on our business, financial results and competitive position.
In addition, our variable rate indebtedness and financing programs, including wholesale financing arrangements through BAC,
may use LIBOR as a benchmark for establishing the rate. As announced in July 2017, LIBOR is expected to be phased out by the
end of 2021. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may
adversely impact the availability and cost of borrowings.
Adverse weather conditions, climate events, or regulatory policies can have a negative effect on revenues.
Changes in seasonal weather conditions can have a significant effect on our operating and financial results. Sales of our marine
products are typically stronger just before and during spring and summer, and favorable weather during these months generally
has had a positive effect on consumer demand. Conversely, unseasonably cool weather, excessive rainfall, or drought conditions
during these periods can reduce or change the timing of demand. Climate change could have an impact on longer-term natural
weather trends, resulting in environmental changes including, but not limited to, increases in severe weather, changing sea levels,
changes in sea, land and air temperatures, poor water conditions, or reduced access to water, could disrupt or negatively affect our
business. Many of our customers use our products for fishing and related recreational activities. Regulatory or commercial policies
and practices impacting access to water, including availability of slip locations and/or the ability to transfer boats among different
waterways, access to fisheries, or the ability to fish in some areas could negatively affect demand for our products.
Catastrophic events, including natural and environmental disasters, could have a negative effect on our operations and financial
results.
Hurricanes, floods, earthquakes, storms, and catastrophic natural or environmental disasters could disrupt our distribution
channel, operations, or supply chain and decrease consumer demand. If a catastrophic event takes place in one of our major sales
10
markets, our sales could be diminished. Additionally, if such an event occurs near our business locations, manufacturing facilities
or key suppliers' facilities, business operations and/or operating systems could be interrupted. We could be uniquely affected by
a catastrophic event due to the location of certain of our boat facilities in coastal Florida and the size of the manufacturing operation
in Fond du Lac, Wisconsin.
Loss of key customers could harm our business.
In each segment, we have important relationships with key customers, such as White River Marine Group, LLC and MarineMax,
Inc., and, from time to time, contracts with these customers come up for renewal. We cannot be certain we will renew such contracts,
or renew them on favorable terms. If we lose a key customer, or a significant portion of its business, we could be adversely
affected. In addition, certain customers could try to negotiate more favorable pricing of our products, which could depress earnings.
In an effort to mitigate the risk associated with reliance on key customer accounts, we continually monitor such relationships and
maintain a complete and competitive product lineup.
Our business and operations are dependent on the expertise of our key contributors, our successful implementation of succession
plans, and our ability to attract and retain management employees and skilled labor.
The talents and efforts of our employees, particularly key managers, are vital to our success. Our management team has
significant industry experience and would be difficult to replace. We may be unable to retain them or to attract other highly qualified
employees. Failure to hire, develop, and retain highly qualified and diverse employee talent and to develop and implement an
adequate succession plan for the management team could disrupt our operations and adversely affect our business and our future
success. Although we cannot ensure that all transitions will be implemented successfully, we perform an annual review of
management succession plans with the Board of Directors, including reviewing executive officer and other important positions to
substantially mitigate the risk associated with key contributor transitions.
In 2019, we reorganized several of our operations and streamlined functions as part of the transformation to a marine-focused
enterprise. Our ability to continue to execute our growth strategy could potentially be adversely affected by the effectiveness of
these organizational changes or other, currently unanticipated executive or management changes that may be disruptive to, or
cause uncertainty in, our business and future strategic direction. Any such disruption or uncertainty could have a material adverse
impact on our business, results of operations, and financial condition.
Much of our future success depends on, among other factors, our ability to attract and retain skilled labor. If we are not
successful in these efforts, we may be unable to meet our operating goals and plans, which may impact our financial results. We
continually invest in automation and improve our efficiency, but with unemployment rates at low levels in many of the geographic
areas in which we manufacture or distribute goods, availability of skilled hourly workers remains critical to our operations. In
order to manage this risk, we regularly monitor and make improvements to wages and benefit programs, as well as develop and
improve recruiting and training programs to attract and retain an experienced and skilled workforce.
A significant portion of our revenue is derived from international sources, which creates additional uncertainty.
We intend to continue to expand our international operations and customer base as part of our growth strategy. Sales outside
the United States, especially in emerging markets, are subject to various risks, including government embargoes or foreign trade
restrictions, foreign currency effects, tariffs, customs duties, inflation, difficulties in enforcing agreements and collecting
receivables through foreign legal systems, compliance with international laws, treaties, and regulations, and unexpected changes
in regulatory environments, disruptions in distribution, and dependence on foreign personnel and unions, economic and social
instability, and public health crises, including the outbreak of pandemic or contagious disease, such as the novel coronavirus. In
addition, there may be tax inefficiencies in repatriating cash from non-U.S. subsidiaries, or tax laws that affect this process may
change.
Instability, including, but not limited to, political events, civil unrest, and an increase in criminal activity, in locations where
we maintain a significant presence could adversely impact our manufacturing and business operations. Decreased stability poses
a risk of business interruption and delays in shipments of materials, components, and finished goods, as well as a risk of decreased
local retail demand for our products.
In addition, global political and economic uncertainty and shifts pose risks of volatility in global markets, which could affect
our operations and financial results. Changes in U.S. policy regarding foreign trade or manufacturing may create negative sentiment
about the U.S. among non-U.S. customers, employees, or prospective employees, which could adversely affect our business, sales,
hiring, and employee retention. If we continue to expand our business globally, our success will depend, in part, on our ability to
anticipate and effectively manage these and other risks, which could materially impact international operations or the business as
a whole.
11
Additionally, on January 31, 2020, the United Kingdom (“UK”) officially withdrew from the EU (“Brexit”), subject to a
transition period until December 31, 2020, which could be extended up to two years under certain conditions (the “Brexit Transition
Period”). There is uncertainty as to the scope, nature and terms of the relationship between the UK and the EU after the Brexit
Transition Period. This uncertainty could adversely impact customer and investor confidence, result in additional market volatility,
legal uncertainty and divergent national laws and regulations.
An impairment in the carrying value of goodwill, trade names, and other long-lived assets could negatively affect our
consolidated results of operations and net worth.
Goodwill and indefinite-lived intangible assets, such as our trade names, are recorded at fair value at the time of acquisition
and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators arise. In
evaluating the potential for impairment of goodwill and trade names, we make assumptions regarding future operating performance,
business trends, and market and economic conditions. Such analyses further require us to make certain assumptions about sales,
operating margins, growth rates, and discount rates. Uncertainties are inherent in evaluating and applying these factors to the
assessment of goodwill and trade name recoverability. We could be required to evaluate the recoverability of goodwill or trade
names prior to the annual assessment if we experience business disruptions, unexpected significant declines in operating results,
a divestiture of a significant component of our business, or declines in market capitalization.
We also continually evaluate whether events or circumstances have occurred that indicate the remaining estimated useful lives
of our definite-lived intangible assets and other long-lived assets may warrant revision or whether the remaining balance of such
assets may not be recoverable. We use an estimate of the related undiscounted cash flow over the remaining life of the asset in
measuring whether the asset is recoverable.
As of December 31, 2019, the balance of total goodwill and indefinite lived intangible assets was $580 million, which represents
approximately 16 percent of total assets. If the future operating performance of either the Company or individual operating segments
is not sufficient, we could be required to record non-cash impairment charges. Impairment charges could substantially affect our
reported earnings in the periods such charges are recorded. In addition, impairment charges could indicate a reduction in business
value which could limit our ability to obtain adequate financing in the future.
Our business operations could be negatively impacted by an outage or breach of our information technology systems, operational
technology systems, or a cybersecurity event.
We manage our global business operations through a variety of information technology (IT) and operational technology
systems which we continually enhance to increase efficiency and security. We depend on these systems for commercial transactions,
customer interactions, manufacturing, branding, employee tracking, and other applications. Some of the systems are based on
legacy technology and operate with a minimal level of available support, and recent acquisitions using other systems have added
to the complexity of our IT infrastructure. In addition, the Fitness business sale has required the separation of previously unified
business and IT systems, and new systems, which process is ongoing. New system implementations across the enterprise also pose
risks of outages or disruptions, which could affect our suppliers, commercial operations, and customers. We are working to upgrade,
streamline, and integrate these systems and have invested in strategies to prevent a failure or breach but, like those of other
companies, our systems are susceptible to outages due to natural disasters, power loss, computer viruses, security breaches, hardware
or software vulnerabilities, disruptions, and similar events. If a legacy system or another of the Company's key systems were to
fail or if our IT systems were unable to communicate effectively, this could result in missed or delayed sales or lost opportunities
for cost reduction or efficient cash management.
We exchange information with hundreds of trading partners across all aspects of our commercial operations through our IT
systems. A breakdown, outage, malicious intrusion, breach, random attack, or other disruption of communications could result
in erroneous or fraudulent transactions, disclosure of confidential information, loss of reputation and confidence, and may also
result in legal claims or proceedings, penalties and remediation costs. We have numerous e-commerce and e-marketing portals
and our systems may contain personal information of customers or employees; therefore, we must continue to be diligent in
protecting against malicious cyber attacks. We have been the target of attempted cyber attacks and other security threats and we
may be subject to breaches of our IT systems. We have programs in place that are intended to detect, contain, and respond to data
security incidents and that provide employee awareness training regarding phishing, malware and other cyber risks. However,
because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and
may be difficult to detect, we may be unable to anticipate these techniques or implement adequate preventive measures. If our
security measures are breached or fail, unauthorized persons may be able to obtain access to or acquire personal or other confidential
data. Depending on the nature of the information compromised, we may also have obligations to notify consumers and/or employees
about the incident, and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for
the individuals affected by the incident. This could negatively affect our relationships with customers or trading partners, lead to
potential claims against the Company, and damage our image and reputation.
12
We rely on third parties for computing, storage, processing, and similar services. Any disruption of or interference with our
use of these third-party services could have an adverse effect on our business, financial condition, and operating results.
Certain of our business system reside on third-party outsourced cloud infrastructure providers. We are therefore vulnerable
to service interruptions experienced by these providers and could experience interruptions, delays, or outages in service availability
in the future due to a variety of factors, including infrastructure changes, human, hardware or software errors, hosting disruptions,
and capacity constraints. While we have mitigation and service redundancy plans in place, outages and/or capacity constraints
could still arise from a number of causes such as technical failures, natural disasters, fraud, or internal or third-party security attacks
which could negatively impact our ability to manufacture and operate our business.
We collect, store, process, share, and use personal information, and rely on third parties that are not directly under our control
to do so as well, which subjects us to legal obligations, laws and regulations related to security and privacy, and any actual or
perceived failure to meet those obligations could harm our business.
We are subject to various data protection and privacy laws and regulations in the countries where we operate because we
collect, store, process, share, and use personal information, and we rely on third parties that are not directly under our control to
do so as well. The General Data Protection Regulation (GDPR) in the European Union (EU) went into effect in May 2018 and the
California Consumer Privacy Act (CCPA) became effective January 1, 2020. Although we have implemented plans to comply
with the laws, GDPR, CCPA, and future law and regulations could impose an even greater compliance burden and risk with respect
to privacy and data security than prior laws. The EU (through the GDPR) and a growing number of legislative and regulatory
bodies elsewhere in the world have adopted consumer notification requirements in the event of unauthorized access to or acquisition
of certain types of personal information. These breach notification laws continue to evolve and may be inconsistent from one
jurisdiction to another. Complying with these obligations could cause us to incur substantial costs, require significant management
time and attention, and increase negative publicity surrounding any incident that compromises personal information.
Inventory reductions by major dealers, retailers, and independent boat builders could adversely affect our financial results.
The Company and our dealers, retailers, and other distributors could decide to reduce the number of units they hold, particularly
if demand trails forecasted levels or if new product introductions are expected to replace existing products. Such efforts tend to
result in wholesale sales reductions in excess of retail sales reductions and would likely result in lower production levels of certain
of our products, potentially causing lower rates of absorption of fixed costs in our manufacturing facilities and lower margins. While
we have processes in place to help manage dealer inventories at appropriate levels, potential inventory reductions remain a risk
to our future sales and results of operations.
We may be required to repurchase inventory or accounts of certain dealers.
We have agreements with certain third-party finance companies to provide financing to our customers, enabling them to
purchase our products. In connection with these agreements, we may either have obligations to repurchase our products from the
finance company or have recourse obligations. These obligations may be triggered if our dealers default on their payment or other
obligations to the finance companies.
Our maximum contingent obligation to repurchase inventory and our maximum contingent recourse obligations on customer
receivables are less than the total balances of dealer financings outstanding under these programs, because our obligations under
certain of these arrangements are subject to caps, or are limited based on the age of product. Our risk related to these arrangements
is partially mitigated by the proceeds we receive on the resale of repurchased product to other dealers, or by recoveries on receivables
purchased under the recourse obligations.
Our inventory repurchase obligations relate primarily to the inventory floorplan credit facilities of our boat and engine dealers.
Our actual historical repurchase experience related to these arrangements has been substantially less than our maximum contractual
obligations. If dealers default on their obligations, file for bankruptcy, or cease operations, however, we could incur losses associated
with the repurchase of our products. In addition, our net sales and earnings may be unfavorably affected due to reduced market
coverage and an associated decline in sales.
Declines in marine industry demand could cause an increase in future repurchase activity, or could require us to incur losses
in excess of established reserves. In addition, our cash flow and loss experience could be adversely affected if repurchased inventory
is not successfully distributed to other dealers in a timely manner, or if the recovery rate on the resale of the product declines. The
finance companies could require changes in repurchase or recourse terms that would result in an increase in our contractual
contingent obligations.
13
Our financial results may be adversely affected by our third party suppliers' increased costs or inability to meet required
production levels due to tariff impacts or defects or disruption of supply of raw materials, parts, and product components.
We rely on third parties to supply raw materials used in the manufacturing process, including oil, aluminum, copper, steel,
and resins, as well as product parts and components. The prices for these raw materials, parts, and components fluctuate depending
on market conditions and, in some instances, commodity prices or trade policies. Substantial increases in the prices of raw materials,
parts, and components would increase our operating costs, and could reduce our profitability if we are unable to recoup the increased
costs through higher product prices. Similarly, if a critical supplier were to close its operations, cease manufacturing, or otherwise
fail to deliver an essential component necessary to our manufacturing operations, that could detrimentally affect our ability to
manufacture and sell our products, resulting in an interruption in business operations and/or a loss of sales.
In addition, some components used in our manufacturing processes, including certain engine components, furniture, upholstery,
and boat windshields, are available from a sole supplier or a limited number of suppliers. Operational and financial difficulties
that these or other suppliers may face in the future could adversely affect their ability to supply us with the parts and components
we need, which could significantly disrupt our operations. It may be difficult to find a replacement supplier for a limited or sole
source raw material, part, or component without significant delay or on commercially reasonable terms. In addition, an uncorrected
defect or supplier's variation in a raw material, part, or component, either unknown to us or incompatible with our manufacturing
process, could jeopardize our ability to manufacture products.
Some additional supply risks that could disrupt our operations, impair our ability to deliver products to customers, and
negatively affect our financial results include:
•
•
•
•
•
•
financial pressures on our suppliers due to a weakening economy or unfavorable conditions in other end markets;
a deterioration of our relationships with suppliers;
events such as natural disasters, power outages or labor strikes;
an outbreak of disease or similar public health threat, such as the existing threat of coronavirus, particularly as it may
impact our operations and supply chain in China;
supplier manufacturing constraints and investment requirements; or
labor disruption at major global ports and shipping hubs.
These risks are exacerbated in the case of single-source suppliers, and the exclusive supplier of a key component potentially
could exert significant bargaining power over price, quality, warranty claims, or other terms.
We continue to increase production; consequently, our need for raw materials and supplies continues to increase. Our suppliers
must be prepared to ramp up operations and, in many cases, hire additional workers and/or expand capacity in order to fulfill our
orders and those of other customers. Cost increases, defects, or sustained interruptions in the supply of raw materials, parts, or
components due to delayed start-up periods our suppliers experience as they increase production efforts create risks to our operations
and financial results. The Company experienced periodic supply shortages and increases in costs to certain materials, such as
aluminum, in 2019. We continue to address these issues by identifying alternative suppliers for key materials and components,
working to secure adequate inventories of critical supplies, and continually monitoring the capabilities of our supplier base. In the
future, however, we may experience shortages, delayed delivery, and/or increased prices for key materials, parts, and supplies that
are essential to our manufacturing operations.
Higher energy and fuel costs can affect our results.
Higher energy and fuel costs increase operating expenses at our manufacturing facilities and the cost of shipping products to
customers. In addition, increases in energy costs can adversely affect the pricing and availability of petroleum-based raw materials
such as resins and foam that are used in many of our marine products. Higher fuel prices may also have an adverse effect on
demand for our parts and accessories businesses, as they increase the cost of boat ownership and possibly affect product use.
Either inadequate intellectual property protection that could allow others to use our technologies and impair our ability to
compete, or failure to successfully defend against patent infringement claims could have a material adverse effect on our
financial condition and results of operations.
We regard much of the technology underlying our products as proprietary. We rely on a combination of patents, trademark,
copyright, and trade secret laws; employee and third-party non-disclosure agreements; and other contracts to establish and protect
our technology and other intellectual property rights. However, we remain subject to risks, including:
•
•
the steps we take to protect our proprietary technology may be inadequate to prevent misappropriation of our technology;
third parties may independently develop similar technology;
14
agreements containing protections may be breached or terminated;
•
• we may not have adequate remedies for breaches;
•
•
• we may be required to litigate to enforce our intellectual property rights, and we may not be successful.
existing patent, trademark, copyright, and trade secret laws may afford limited protection;
a third party could copy or otherwise obtain and use our products or technology without authorization; or
Policing unauthorized use of our intellectual property is difficult, particularly outside the U.S., and litigating intellectual
property claims may result in substantial cost and divert management’s attention.
In addition, we may be required to defend our products against patent or other intellectual property infringement claims or
litigation. In addition to defense expenses and costs, we may not prevail in such cases, forcing us to seek licenses or royalty
arrangements from third parties, which we may not be able to obtain on reasonable terms, or subjecting us to an order or requirement
to stop manufacturing, using, selling, or distributing products that included challenged intellectual property, which could harm
our business and financial results.
We have a fixed cost base that can affect our profitability in a declining sales environment.
The fixed cost levels of operating production facilities can put pressure on profit margins when sales and production decline.
We have maintained discipline over our fixed cost base during the economic recovery, and improvements in gross margin can help
mitigate the risks related to a fixed cost base. However, our profitability is dependent, in part, on our ability to absorb fixed costs
over an increasing number of products sold and shipped. Decreased demand or the need to reduce inventories can lower our
production levels and impact our ability to absorb fixed costs, consequently materially impacting our results.
An inability to identify and complete targeted acquisitions could negatively impact financial results.
Our growth initiatives include making strategic acquisitions, which depend on the availability of suitable targets at acceptable
terms and our ability to complete the transactions. In managing our acquisition strategy, we conduct rigorous due diligence, involve
various functions, and continually review target acquisitions, all of which we believe mitigates some of our acquisition risks.
However, we cannot assure that suitable acquisitions will be identified or consummated or that, if consummated, they will be
successful. Acquisitions include a number of risks, including our ability to project and evaluate market demand, potential synergies,
and cost savings, and our ability to make accurate accounting estimates, as well as diversion of management attention. Uncertainties
exist in assessing the value, risks, profitability, and liabilities associated with certain businesses or assets, negotiating acceptable
terms, obtaining financing on acceptable terms, and receiving any necessary regulatory approvals. As we continue to grow, in part,
through acquisitions, our success depends on our ability to anticipate and effectively manage these risks. Any failure to do so
could have a material adverse effect on our financial condition and results of operations.
There can be no assurance that strategic divestitures or restructurings will provide business benefits.
As part of our strategy, we continuously evaluate our portfolio of businesses. Recent results of this evaluation include the sale
of the Fitness business, the discontinuation of Sea Ray Sport Yacht and Yacht models, and winding down yacht production. We
have previously and may in the future make other changes to our portfolio as well, which may be material. Divestitures involve
risks, including difficulties in the separation of operations, services, products and personnel, disruption in our operations or
businesses, finding a suitable purchaser, the diversion of management's attention from our other businesses, the potential loss of
key employees, adverse effects on relationships with our dealer or supplier partners or their businesses, the erosion of employee
morale or customer confidence, and the retention of contingent liabilities related to the divested business. If we do not successfully
manage the risks associated with divestitures, our business, financial condition, and results of operations could be adversely affected
as the potential strategic benefits may not be realized or may take longer to realize than expected.
The completed Fitness business separation could be disruptive to the business and our operations, and there can be no assurance
that it will provide all of the anticipated business benefits.
On June 27, 2019, the Company completed the sale (Sale) of the Fitness business to KPS Capital Partners, LP (KPS), which
Sale included a transition services arrangement. Like any business separation, the Sale involves risks, including difficulties
associated with the separation of operations, services, and personnel, disruption in our operations or businesses, the potential loss
of key employees, and adverse effects on relationships with business partners. In addition, we have incurred, and continue to incur,
expenses in connection with the separation, and the completion of the transition services arrangement requires time and effort by
the Company’s management team, which may divert management’s attention from other aspects of our business operations. Also,
in connection with the Sale, we agreed to indemnify KPS for certain specified matters, including product liability and regulatory
matters. If we do not successfully manage these risks, our business, financial condition, and results of operations could be adversely
15
affected. Furthermore, the Sale may not achieve the intended results, or results may take longer to realize than expected. The
anticipated benefits of the Sale are based on a number of factors that we cannot predict.
The inability to successfully integrate acquisitions, including the Global Marine & Mobile Business of Power Products, could
negatively impact financial results.
On August 9, 2018, Brunswick acquired the Global Marine & Mobile business of Power Products, which includes the global
marine, specialty vehicle, mobile, industrial power, and transportation aftermarket products businesses. Additionally, on May 21,
2019, Brunswick acquired 100 percent of Freedom Boat Club, a leading boat club operator based in Florida. Acquisitions pose
risks, such as our ability to project and evaluate market demand; maximize potential synergies and cost savings; make accurate
accounting estimates; and achieve anticipated business objectives. The Power Products and Freedom Boat Club acquisitions and
other, future acquisitions, present these and other integration risks, including:
•
•
•
•
•
disruptions in core, adjacent, or acquired businesses that could make it more difficult to maintain business and operational
relationships, including customer and supplier relationships;
the possibility that the expected synergies and value creation will not be realized or will not be realized within the expected
time period;
the risk that unexpected costs will be incurred;
diversion of management attention; and
difficulties retaining employees.
If we fail to timely and successfully integrate new businesses, including Power Products and Freedom Boat Club, into existing
operations, we may see higher costs, lost sales, or otherwise diminished earnings and financial results.
The franchise business model of Freedom Boat Club presents risks.
Our franchisees are an integral part of our Freedom Boat Club business and its growth strategies. We may be unable to
successfully implement the growth strategies if our franchisees do not participate in the implementation of those strategies or if
we are unable to attract a sufficient number of qualified franchisees.
While our franchisees are required to comply with our franchise and related agreements, our franchisees are independent and
manage their boat clubs as independent businesses, responsible for all day-to-day operations of their boat clubs. If these franchisees
fail to maintain or act in accordance with applicable brand standards; experience service, safety or other operational problems,
including any data breach involving club member information; or project a brand image inconsistent with ours, our image and
reputation could suffer, which in turn could hurt our business and operating results.
The timing and amount of our share repurchases are subject to a number of uncertainties.
The Board of Directors has authorized the Company’s discretionary repurchase of outstanding common stock, to be
systematically completed in the open market or through privately negotiated transactions. In 2019, we repurchased $400 million
of shares, and we plan to continue share repurchases in 2020 and beyond. The amount and timing of share repurchases are based
on a variety of factors. Important considerations that could cause us to limit, suspend, or delay future stock repurchases include:
•
•
•
•
unfavorable market and economic conditions;
the trading price of our common stock;
the nature and magnitude of other investment opportunities available to us from time to time; and
the availability of cash.
Delaying, limiting, or suspending our stock repurchase program may negatively affect performance versus earnings per share
targets, and ultimately our stock price.
Our profitability may suffer as a result of competitive pricing and other pressures.
The introduction of lower-priced alternative products or services by other companies can hurt our competitive position in all
of our businesses. We are constantly subject to competitive pressures in which predominantly international manufacturers may
pursue a strategy of aggressive pricing, particularly during periods when their local currency weakens versus the U.S. dollar. Such
pricing pressure may limit our ability to increase prices for our products in response to raw material and other cost increases and
negatively affect our profit margins.
16
In addition, our independent boat builder customers may react negatively to potential competition for their products from
Brunswick’s own boat brands, which can lead them to purchase marine engines, boat systems, and marine engine supplies from
competing marine engine manufacturers and may negatively affect demand for our products.
Our ability to remain competitive depends on successfully introducing new products and services that meet customer
expectations.
We believe that our customers look for and expect quality, innovation, and advanced features when evaluating and making
purchasing decisions about products and services in the marketplace. Our ability to remain competitive and meet our growth
objectives may be adversely affected by difficulties or delays in product development, such as an inability to develop viable new
products or customer solutions, gain market acceptance of new products, generate sufficient capital to fund new product
development, or obtain adequate intellectual property protection for new products. To meet ever-changing consumer demands,
both timing of market entry and pricing of new products are critical. As a result, we may not be able to introduce new products
that are necessary to remain competitive in all markets that we serve. Furthermore, we must continue to meet or exceed customers'
expectations regarding product quality and after-sales service.
We manufacture and sell products that create exposure to potential claims and litigation.
Our manufacturing operations and the products we produce could result in product quality, warranty, personal injury, property
damage, and other issues, thereby increasing the risk of litigation and potential liability, as well as regulatory fines. To manage
this risk, we have established a global, enterprise-wide program charged with the responsibility for addressing, reviewing, and
reporting on product integrity issues. Historically, the resolution of such claims has not had a materially adverse effect on our
business, and we maintain what we believe to be adequate insurance coverage to mitigate a portion of these risks. However, we
may experience material losses in the future, incur significant costs to defend claims or issue product recalls, experience claims
in excess of our insurance coverage or that are not covered by insurance, or be subjected to fines or penalties. Our reputation may
be adversely affected by such claims, whether or not successful, including potential negative publicity about our products. We
record accruals for known potential liabilities, but there is the possibility that actual losses may exceed these accruals and therefore
negatively impact earnings.
Compliance with environmental, health, safety, zoning, and other laws and regulations may increase costs and reduce demand
for our products.
We are subject to federal, state, local, and foreign laws and regulations, including product safety, environmental, health and
safety, privacy, and other regulations. While we believe that we maintain the requisite licenses and permits and that we are in
material compliance with applicable laws and regulations, a failure to satisfy these and other regulatory requirements could result
in fines or penalties, and compliance could increase the cost of operations. The adoption of additional laws, rules, and regulations,
including stricter emissions standards, could increase our manufacturing costs, require additional product development investment,
increase consumer pricing, and reduce consumer demand for our products or boat club operations.
Environmental restrictions, boat plant emission restrictions, and permitting and zoning requirements can limit production
capacity, access to water for boating and marinas, and storage space. While future licensing requirements, including any licenses
imposed on recreational boating, are not expected to be unduly restrictive, they may deter potential customers, thereby reducing
our sales. Furthermore, regulations allowing the sale of fuel containing higher levels of ethanol for automobiles, which is not
appropriate or intended for use in marine engines, may nonetheless result in increased warranty, service costs, customer
dissatisfaction with products, and other claims against the Company if boaters mistakenly use this fuel in marine engines, causing
damage to and the degradation of components in their marine engines.
Our manufacturing processes involve the use, handling, storage and contracting for recycling or disposal of hazardous or toxic
substances or wastes. Accordingly, we are subject to regulations regarding these substances, and the misuse or mishandling of
such substances could expose us to liabilities, including claims for property, personal injury, or natural resources damages, or
fines. We are also subject to laws requiring the cleanup of contaminated property, including cleanup efforts currently underway. If
a release of hazardous substances occurs at or from one of our current or former properties or another location where we have
disposed of hazardous materials, we may be held liable for the contamination, regardless of knowledge or whether we were at
fault, and the amount of such liability could be material.
Additionally, we are subject to laws governing our relationships with employees, including, but not limited to, employment
obligations as a federal contractor and employee wage, hour, and benefits issues, such as pension funding and health care benefits.
Compliance with these rules and regulations, and compliance with any changes to current regulations, could increase the cost of
our operations.
17
Changes in income tax laws or enforcement could have a material adverse impact on our financial results.
Although domestic tax reform legislation in the form of the Tax Cuts and Jobs Act (TCJA), signed into law on December 22,
2017, has had an overall positive impact on our financial statements, the impact of the legislation could change as we analyze and
apply additional regulations or guidance issued by the government. In addition, other changes in international and domestic tax
laws, including the reaction by states to the corporate tax changes in the TCJA, and changes in tax law enforcement, could negatively
impact our tax provision, cash flow, and/or tax related balance sheet amounts, including our deferred tax asset values. Changes in
U.S. tax law will likely have broader implications, including impacts to the economy, currency markets, inflation environment,
consumer behavior, and/or competitive dynamics, which are difficult to predict, and may positively or negatively impact the
Company and our results.
Certain activist shareholder actions could cause us to incur expense and hinder execution of our strategy.
We actively engage in discussions with our shareholders regarding further strengthening our Company and creating long-
term shareholder value. This ongoing dialogue can include certain divisive activist tactics, which can take many forms. Some
shareholder activism, including potential proxy contests, could result in substantial costs, such as legal fees and expenses, and
divert management’s and our Board’s attention and resources from our businesses and strategic plans. Additionally, public
shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with dealers,
distributors, or customers, make it more difficult to attract and retain qualified personnel, and cause our stock price to fluctuate
based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals
and prospects of our business. These risks could adversely affect our business and operating results.
Some of our operations are conducted by joint ventures that are not operated solely for our benefit.
We share ownership and management responsibilities with jointly owned companies such as BAC and Tohatsu Marine
Corporation. These joint ventures may not have the same goals, strategies, priorities, or resources as the Company because they
are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. If such a conflict occurred, it
could negatively impact our sales or financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our headquarters are in Mettawa, Illinois. We have numerous manufacturing plants, distribution warehouses, sales offices,
and product test sites around the world. Research and development facilities are primarily located at manufacturing sites.
We believe our facilities are suitable and adequate for our current needs and are well maintained and in good operating condition.
Most plants and warehouses are of modern, single-story construction, providing efficient manufacturing and distribution operations.
We believe our manufacturing facilities have the capacity, or we are investing to increase capacity, to meet current and anticipated
demand. We own most of our principal plants.
The principal facilities used in our operations are in the following locations:
Marine Engine Segment
Leased facilities include: Fresno, California; Old Lyme, Connecticut; Lake Suzy, Largo, Miramar, Pompano Beach, and Stuart,
Florida; Lowell, Michigan; St. Paul Park, Minnesota; Reno, NV; Bellingham and Kent, WA; Menomonee Falls, WI; Brisbane and
Melbourne, Australia; Palcoa, Brazil; Toronto, Ontario, Canada; Juarez, Mexico; Auckland, New Zealand; Bangor, Northern
Ireland; Amsterdam and Heerenveen, Netherlands; and Singapore.
Owned facilities include: Panama City and St. Cloud, Florida; Atlanta, Georgia; Brookfield, Fond du Lac, and Oshkosh,
Wisconsin; Petit Rechain, Belgium; Victoria and Burnaby, British Columbia, Canada; Milton and Oakville, Ontario, Canada;
Suzhou, China; and Juarez, Mexico.
18
Boat Segment
Leased facilities include: Greeneville and Knoxville, Tennessee; and Auckland, New Zealand.
Owned facilities include: Edgewater and Merritt Island, Florida; Fort Wayne, Indiana; New York Mills, Minnesota; Lebanon,
Missouri; Vonore, Tennessee; Clarkston, Washington; Petit Rechain, Belgium; Princeville, Quebec, Canada; Reynosa, Mexico;
and Vila Nova de Cerveira, Portugal.
Item 3. Legal Proceedings
Refer to Note 13 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for information
about the Company's legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
19
Brunswick's Executive Officers are listed in the following table:
Information About Our Executive Officers
Officer Name
David M. Foulkes
William L. Metzger
Huw S. Bower
Christopher F. Dekker
Christopher D. Drees
Brenna D. Preisser
Present Position
Chief Executive Officer
Senior Vice President and Chief Financial Officer
Vice President and President - Brunswick Boat Group
Vice President, General Counsel and Secretary
Vice President and President - Mercury Marine
Vice President and Chief Human Resources Officer and President -
Business Acceleration
Randall S. Altman
Vice President and Controller
First Became an
Executive Officer Age
58
58
45
2018
2013
2016
2014
2019
2016
2019
51
51
42
48
The executive officers named above have been appointed to serve until their successors are chosen and qualified or until the
executive officer's earlier resignation or removal. Each of our executive officers has held the position set forth in the table above
or has served Brunswick in various executive or administrative capacities at Brunswick for at least five years.
20
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Brunswick's common stock is traded on the New York and Chicago Stock Exchanges under the symbol "BC". As of
February 12, 2020, there were 7,444 shareholders of record of the Company's common stock.
Brunswick expects to continue to pay quarterly dividends at the discretion of the Board of Directors, subject to continued
capital availability and a determination that cash dividends continue to be in the best interest of the Company's shareholders.
Brunswick's dividend and share repurchase policies may be affected by, among other things, the Company's views on future
liquidity, potential future capital requirements and restrictions contained in certain credit agreements.
Performance Graph
Comparison of Five-Year Cumulative Total Shareholder Return among Brunswick, S&P 500 Index and S&P 500 Global
Industry Classification Standard (GICS) Consumer Discretionary Index
Brunswick
S&P 500 GICS Consumer Discretionary Index
S&P 500 Index
100.00
100.00
100.00
99.55
101.41
110.12
108.76
113.40
116.69
111.49
137.98
143.34
95.22
132.16
144.71
124.96
173.42
184.06
2014
2015
2016
2017
2018
2019
The basis of comparison is a $100 investment at December 31, 2014 in each of: (i) Brunswick, (ii) the S&P 500 GICS Consumer
Discretionary Index and (iii) the S&P 500 Index. All dividends are assumed to be reinvested. The S&P 500 GICS Consumer
Discretionary Index encompasses industries including automotive, household durable goods, textiles and apparel and leisure
equipment. Brunswick believes the companies included in this index provide the most representative sample of enterprises that
are in primary lines of business that are similar to Brunswick's.
Issuer Purchases of Equity Securities
The Company has executed share repurchases against authorizations approved by the Board of Directors in 2014, 2016 and
2019. In 2019, the Company repurchased $400.0 million of stock under these authorizations and as of December 31, 2019, the
remaining authorization was $234.8 million.
21
During the three months ended December 31, 2019, the Company repurchased the following shares of its common stock:
Period
September 29 to October 26
October 27 to November 23
November 24 to December 31
Total
Maximum
Amount of
Dollars that
May Yet Be
Used to
Purchase
Shares Under
the Program
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
939,938
1,071,300
926,156
2,937,394
$
234,788,743
Total Number
of Shares
Purchased
Weighted
Average Price
Paid per Share
939,938
$
1,071,300
926,156
2,937,394
$
53.60
59.38
59.37
57.53
22
Item 6. Selected Financial Data
The selected historical financial data presented below as of and for the years ended December 31, 2019, 2018 and 2017 has
been derived from, and should be read in conjunction with, the historical consolidated financial statements of the Company,
including the notes thereto, and Item 7 of this report, including the Matters Affecting Comparability section. The selected
historical financial data presented below as of and for the years ended December 31, 2016 and 2015 has been derived from the
consolidated financial statements of the Company for those years and are not included in this Annual Report Form 10-K.
(in millions, except per share data)
Results of operations data
Net sales
Restructuring, exit, integration, and impairment charges
Operating earnings
Pension settlement charge
Earnings before interest and income taxes
Earnings before income taxes
Net earnings from continuing operations
2019 (A)
2018 (A)
2017
2016
2015
$
4,108.4
$
4,120.9
$
3,802.2
$
3,508.1
$
3,311.1
18.8
471.0
292.8
183.4
110.7
30.4
54.8
355.5
—
358.9
310.7
253.4
48.6
330.3
96.6
236.7
212.9
101.3
2.9
356.3
55.1
292.7
267.0
188.4
Net (loss) earnings from discontinued operations, net of tax
(161.4)
11.9
45.1
87.6
Net (loss) earnings
$
(131.0) $
265.3
$
146.4
$
276.0
$
Basic earnings (loss) per common share
Earnings from continuing operations
Net (loss) earnings from discontinued operations, net of tax
Net (loss) earnings
Average shares used for computation of basic earnings per share
Diluted earnings (loss) per common share
Earnings from continuing operations
Net (loss) earnings from discontinued operations, net of tax
Net (loss) earnings
$
$
$
$
0.36
$
2.89
$
1.13
$
2.07
$
(1.90)
0.14
0.51
0.96
(1.54) $
3.03
$
1.64
$
3.03
$
85.2
87.6
89.4
91.2
0.36
$
2.87
$
1.12
$
2.05
$
(1.89)
0.14
0.50
0.95
(1.53) $
3.01
$
1.62
$
3.00
$
Average shares used for computation of diluted earnings per share
85.6
88.2
90.1
92.0
(A) Refer to Note 22 – Quarterly Data (unaudited), for further details on certain non-recurring items which impacted 2019 and 2018 results.
23
12.4
306.0
82.3
219.0
193.4
143.5
97.9
241.4
1.54
1.06
2.60
93.0
1.52
1.04
2.56
94.3
(in millions, except per share and other data)
2019
2018
2017
2016
2015
Balance sheet data
Total assets
Debt
Short-term
Long-term
Total debt
Common shareholders' equity
Total capitalization
Cash flow data
$ 3,564.4
$ 4,291.5
$ 3,371.1
$ 3,311.3
$ 3,153.0
$
41.3
$
41.3
$
5.6
$
5.9
$
1,068.0
1,109.3
1,300.9
1,179.5
1,220.8
1,582.6
431.8
437.4
436.5
442.4
1,482.9
1,440.1
1,281.3
$ 2,410.2
$ 2,803.4
$ 1,920.3
$ 1,882.5
$ 1,729.8
6.0
442.5
448.5
Net cash provided by operating activities of continuing operations $
475.3
$
Depreciation and amortization
Capital expenditures
Investments
Cash dividends paid
Other data
Dividends declared per share
Book value per share
Return on beginning shareholders' equity
Effective tax rate from continuing operations
Debt-to-capitalization rate
Number of employees
Number of shareholders of record
Common stock price (NYSE)
High
Low
Close (last trading day)
138.7
232.6
2.4
73.4
274.5
124.0
180.2
(8.8)
67.8
$
308.2
$
309.6
$
331.3
87.1
178.0
(3.2)
60.6
83.8
157.9
5.1
55.4
94.6
177.0
5.1
5.4
$
0.87
$
0.78
$
16.34
18.23
$
0.685
16.95
$
0.615
16.13
0.525
14.11
(8.3)%
72.5 %
46.0 %
12,828
7,484
$
62.23
$
41.02
59.98
17.9%
18.4%
43.5%
13,084
7,823
69.82
41.92
46.45
$
10.2%
52.4%
22.8%
12,262
8,247
63.82
48.04
55.22
$
21.5%
29.4%
23.5%
11,522
8,683
56.30
36.05
54.54
$
20.6%
25.8%
25.9%
10,398
9,009
56.63
46.08
50.51
The Notes to Consolidated Financial Statements should be read in conjunction with the above summary.
24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in Management’s Discussion and Analysis are based on non-GAAP financial measures. GAAP refers to
generally accepted accounting principles in the United States. For example, the discussion of the Company’s cash flows includes
an analysis of free cash flows and total liquidity; the discussion of the Company's net sales includes a discussion of net sales on a
constant currency basis and excluding acquisitions and Sport Yacht and Yacht operations; the discussion of the Company's earnings
includes a presentation of operating earnings and operating margin, as adjusted, excluding restructuring, exit, impairment and
other charges, Sport Yacht and Yacht operations, purchase accounting amortization and acquisition-related costs; gross margin, as
adjusted, excluding Sport Yacht and Yacht operations and purchase accounting amortization; and diluted earnings per common
share, as adjusted. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial
performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding
amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the
consolidated statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject
to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated
and presented. Non-GAAP financial measures do not include operating and statistical measures.
The Company includes non-GAAP financial measures in Management’s Discussion and Analysis and elsewhere in this Annual
Report on Form 10-K, as Brunswick’s management believes that these measures and the information they provide are useful to
investors because they permit investors to view Brunswick’s performance using the same tools that management uses and to better
evaluate the Company’s ongoing business performance. In order to better align Brunswick's reported results with the internal
metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior
periods and peer data, non-GAAP financial measures exclude the impact of purchase accounting amortization related to the Power
Products and Freedom Boat Club acquisitions.
Certain statements in this Management's Discussion and Analysis are forward-looking as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on current expectations, estimates, and projections about
Brunswick’s business and by their nature address matters that are, to different degrees, uncertain. Words such as “may,” “could,”
“expect,” “anticipate,” “intend,” “target,” “plan,” “seek,” “estimate,” “believe,” “predict,” “project,” “outlook,” “goal,” and similar
expressions are intended to identify forward-looking statements. Forward looking statements are not guarantees of future
performance and involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of
the date of this Annual Report on Form 10-K. These risks include, but are not limited to, those set forth under Item 1A of this
Annual Report on Form 10-K. Forward-looking statements speak only as of the date on which they are made and Brunswick does
not undertake any obligation to update them to reflect events or circumstances after the date of this Annual Report.
Brunswick does not provide forward-looking guidance for certain financial measures on a GAAP basis because it is unable
to predict certain items contained in the GAAP measures without unreasonable efforts. These items may include pension settlement
charges, restructuring, exit, integration and impairment costs, special tax items, acquisition-related costs, and certain other unusual
adjustments.
Overview and Outlook
Discontinued Operations
On June 27, 2019, the Company completed the sale of its Fitness business. This business, which was previously reported as
the Company's Fitness segment, is being reported as discontinued operations for all periods presented.
The Company's results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a
continuing operations basis, unless otherwise noted. Refer to Note 3 – Discontinued Operations in the Notes to Consolidated
Financial Statements for further information.
Presentation of Sea Ray Results
In December 2017, the Board of Directors authorized the Company to exit its Sea Ray business, including the Meridian brand,
and as a result, reclassified the assets and liabilities as held for sale on the Consolidated Balance Sheets and presented the results
of the business as discontinued operations on the Consolidated Statements of Operations in the Annual Report on Form 10-K for
the fiscal year ended December 31, 2017. In June 2018, the Board of Directors authorized the Company to end the sale process
for its Sea Ray business and once again report the results of the business within continuing operations beginning in the second
quarter of 2018. As part of this action, the Company decided to restructure the businesses, including discontinuing Sea Ray Sport
25
Yacht and Yacht models and winding down yacht production, while reinventing Sea Ray Sport Boat and Sport Cruiser operations.
Refer to the Form 8-K filed with the Securities and Exchange Commission (SEC) on July 19, 2018 for further information.
The Company largely completed the wind down of its Sea Ray Sport Yacht and Yacht operations during 2018. Non-GAAP
figures exclude the results of Sport Yacht and Yacht operations in 2018 and 2017, and certain amounts in 2019 related to changes
in estimated liabilities.
Acquisition of Power Products
On August 9, 2018, the Company completed its acquisition of the Global Marine Business of Power Products Holdings, LLC
(Power Products) for $909.6 million in cash, on a cash-free, debt-free basis. For further discussion regarding the acquisition, refer
to Note 5 – Acquisitions in the Notes to Consolidated Financial Statements.
Overview
The Company's 2019 results represent the tenth consecutive year of growth, resulting from strong operating performance.
The Company looked to achieve the following financial objectives in 2019:
• Deliver revenue growth.
•
Increase earnings before income taxes, as well as deliver improvements in both gross margin and operating margin
percentages, excluding non-recurring charges.
• Continue to generate strong free cash flow and execute against the Company's capital strategy.
Achievements against the Company's financial objectives in 2019 were as follows:
Deliver revenue growth:
Ended the year with a slight decrease in net sales when compared with 2018 due to the following:
• The decrease in GAAP net sales included a benefit of 4.1 percent relating to recent acquisitions, negative impacts from
foreign exchange rate of 1 percent, and negative impact from the exit of Sport Yacht and Yacht operations of 1 percent.
• The U.S. engine and boat operations experienced total industry powerboat retail unit declines of 5 percent in 2019 versus
an expectation at the beginning of the year of a low-to-middle single digit percent increase, reflecting a challenging retail
environment during the first half of the year with volumes stabilizing in the second half. Outboard engine retail units
were up slightly year-over-year.
• The Marine Engine segment reported sales increases as the addition of Power Products and continued gains in higher
horsepower outboard engine categories were partially offset by reductions in outboard engines 150 horsepower and below,
as well as lower sales of sterndrive engines.
• Boat segment net sales decreased as a result of planned reductions in wholesale unit shipments of value pontoons and
aluminum fish products. Saltwater fishing sales were affected by challenging comparisons between years at Boston
Whaler due to leaning pipelines in advance of upcoming major product launches. Sales declines were partially offset by
gains in other premium offerings, including Sea Ray Sport Boats and Cruisers.
•
International sales for the Company increased 3 percent in 2019 when compared with 2018 on a GAAP basis and increased
4 percent on a constant currency basis, excluding the impact of acquisitions and Sport Yacht and Yacht operations; the
increase was driven by Europe, Asia-Pacific and Rest-of-World regions, partially offset by weakness in Canada.
26
Increase earnings before income taxes, as well as deliver improvements in both gross margin and operating margin percentages,
excluding non-recurring charges:
• Reported earnings before income taxes of $110.7 million in 2019 compared with earnings before income taxes of $310.7
million in 2018; adjusted earnings before income taxes were $465.2 million in 2019 versus $461.7 million in 2018
• Gross margin improved 190 basis points when compared with 2018 and reflected the absence of Sport Yacht and Yacht
operations and purchase accounting amortization associated with the Power Products acquisition, both of which negatively
impacted 2018. Gross margin, as adjusted, improved 50 basis points as benefits from the Power Products acquisition and
favorable changes in sales mix in the Marine Engine segment outweighed the impact of lower sales, tariffs and unfavorable
changes in foreign exchange rates
• Operating margin improved by 290 basis points when compared with the prior year due to the factors affecting gross
margin percentage discussed above, as well as reduced restructuring, exit, impairment and other charges and acquisition-
related costs. Operating margin, as adjusted, was up 50 basis points compared with 2018
• Earnings before income taxes included a pre-tax, non-cash charge of $292.8 million relating to the exit of its remaining
defined benefit pension plans during the year
Continue to generate strong free cash flow and execute against the Company's capital strategy:
• Generated free cash flow of $250.4 million in 2019, and had cash flow from discontinued operations of $440.6 million
including proceeds from the sale of Fitness, enabling the Company to continue executing its capital strategy as follows:
•
Funded investments in growth:
• Organically through capital expenditures and research and development, which included investments in new
products as well as capacity expansions, primarily within the Marine Engine segment
• Through the acquisition of Freedom Boat Club for $64.1 million
• Retired $300.0 million of near-term debt including the retirement of the Company’s 4.625 percent senior notes due
2021 and refinancing of acquisition-related debt
• Completed the exit from the Company's qualified defined benefit pension plans
• Enhanced shareholder returns in 2019 by repurchasing $400.0 million of common stock under the Company’s share
repurchase program and increased cash dividends paid to shareholders to $73.4 million
• Ended the year with $332.7 million of cash and marketable securities
Net earnings from continuing operations decreased to $30.4 million in 2019 from $253.4 million in 2018, and included an
after-tax, non-cash charge of $310.3 million related to pension settlement costs as well as a net tax benefit of $17.2 million primarily
related to favorable rate change impacts on state deferred tax assets as well as a reassessment of the state valuation allowance.
The 2018 results reflect an income tax provision of $57.3 million and included a net benefit of $4.8 million primarily related to
2017 U.S. tax reform updates.
Outlook for 2020
Reportable Segment Changes
The Company has refocused its strategy on four business pillars - Propulsion, Parts and Accessories (P&A), Boats and Business
Acceleration. Effective January 1, 2020, the Company changed its management reporting and updated its reportable segments to
Propulsion, P&A and Boat (inclusive of Business Acceleration) to align with its strategy. Outlook statements included in this
discussion will reflect these new segments.
For further information, refer to the Company's Current Report on Form 8-K filed with the SEC on January 30, 2020 and
Note 23 – Subsequent Events in the Notes to Consolidated Financial Statements.
27
Outlook
The Company is projecting 2020 to be another year of strong growth and operating performance, with free cash flow generation
in excess of $325 million. The Company is targeting growth in the range of 6 percent to 8 percent.
The Company projects U.S. marine industry powerboat retail unit demand for 2020 to be flat to slightly up versus 2019. Our
efforts to manage pipeline inventory levels in the back half of 2019 put us in a favorable position entering 2020, as wholesale boat
sales are expected to more closely match retail sales for the year resulting in top-line growth versus 2019. We anticipate continued
growth and share gains in higher horsepower engine categories bolstered by our completed capacity expansion efforts. Boat
segment sales in 2020 will also benefit from significant new product introductions as well as the Company's continued focus on
product with more technology features and content. The Propulsion and Boat segments will experience more challenging wholesale
revenue comparisons early in the year, with more favorable comparisons in the second-half, as a result of the timing of wholesale
activity in 2019, including the impact of second-half reductions in wholesale shipments and pipeline inventories. The P&A segment
should benefit from more normal seasonal conditions for boating activity.
The Company is planning to deliver higher earnings before income taxes in 2020 resulting from planned sales increases and
continued margin growth resulting from improved operating efficiency. However, as a result of the expiration and non-renewal
of the tariff exemption related to 40 to 60 horsepower engines assembled in China, the Company now anticipates the full impact
of tariffs on its 2020 pre-tax earnings to be between $30 to $35 million, or an incremental $10 to $15 million over 2019. In addition,
the Company expects foreign currency exchange rates to negatively impact 2020 earnings growth by one percent to two percent.
The Company is planning for its effective tax rate in 2020 to be approximately 21 percent to 22 percent based on existing tax
law.
Matters Affecting Comparability
Certain events occurred during 2019, 2018 and 2017 that the Company believes affect the comparability of the results of
operations. The tables below summarize the impact of changes in currency exchange rates, the impact of recent acquisitions and
the impact of Sport Yacht and Yacht operations on the Company's net sales:
Net Sales
2019 vs. 2018
(in millions)
Marine Engine
Boat
Marine eliminations
Total
(in millions)
Marine Engine
Boat
Marine eliminations
Total
$
2019
3,073.5
1,333.8
(298.9)
$
4,108.4
$
2018
2,993.6
$
1,471.3
(344.0)
4,120.9
GAAP
2.7%
(9.3)%
Currency
Impact
(1.3)%
(0.6)%
Acquisition
Impact
4.2%
Sport Yacht
and Yacht
Impact
—
1.1%
(3.2)%
(0.3)%
(1.2)%
4.1%
(1.2)%
Net Sales
2018 vs. 2017
GAAP
13.7%
(1.3)%
Currency
Impact
0.1%
0.5%
Acquisition
Impact
4.0%
—
Sport Yacht
and Yacht
Impact
—
(7.5)%
8.4%
0.3%
2.8%
(3.1)%
2017
2,631.8
$
$
2018
2,993.6
1,471.3
(344.0)
$
4,120.9
$
1,490.6
(320.2)
3,802.2
28
Sport Yacht and Yacht Wind-down. The results of Sport Yacht and Yacht operations are summarized in the table below.
(in millions)
Net sales (A)
Gross margin
Restructuring, exit and impairment charges
Operating loss
2019
2018
2017
$
(0.7) $
(6.4)
—
(7.8)
$
49.4
(39.7)
49.4
(107.8)
151.6
(12.4)
23.3
(55.2)
(A) During 2019, results included $(0.7) million of charges within Net sales related to estimated retail sales incentives to support the sale of sport yachts and
yachts currently in the dealer pipeline. During 2018, results included $16.0 million of charges within Net sales to support the sale of sport yachts and yachts
in the dealer pipeline at that time. There were no comparable charges in 2017.
Acquisitions. The Company completed acquisitions during 2019, 2018 and 2017 that affect the comparability of net sales.
The impacts on consolidated and segment sales comparisons are reflected above. Refer to Note 5 – Acquisitions in the Notes to
Consolidated Financial Statements for further information.
Changes in foreign currency rates. Percentage changes in net sales expressed in constant currency reflect the impact that
changes in currency exchange rates had on comparisons of net sales. To determine this information, net sales transacted in currencies
other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the
comparative period. The percentage change in net sales expressed on a constant currency basis better reflects the changes in the
translation arising from foreign currency exchange rate
underlying business
fluctuations. Approximately 22 percent of the Company's annual net sales are transacted in a currency other than the U.S. dollar.
The Company's most material exposures include sales in Euros, Canadian dollars, Australian dollars and Brazilian reais.
trends, excluding
impact of
the
Additionally, operating earnings comparisons were negatively affected by foreign exchange rates by approximately $15 million
in 2019 when compared with 2018, and were positively affected by foreign exchange rates by approximately $1 million in 2018
when compared with 2017. These estimates include the impact of translation on all sales and costs transacted in a currency other
than the U.S. dollar and the impact of hedging activities.
Restructuring, exit and impairment charges. The Company recorded restructuring, exit and impairment charges during 2019,
2018 and 2017. The following table summarizes these charges by cash charges and non-cash charges.
(in millions)
Cash charges:
Boat (A)
Marine Engine
Corporate
Total cash charges
Non-cash charges:
Boat (A)
Total restructuring, exit and impairment charges
Other cash charges (B)
Total restructuring, exit, impairment and other charges
2019
2018
2017
$
$
6.1
4.7
4.5
15.3
3.5
18.8
2.2
21.0
$
$
27.5
—
0.7
28.2
26.6
54.8
—
54.8
$
$
5.4
—
—
5.4
43.2
48.6
—
48.6
(A) Restructuring, exit and impairment activities within the Boat segment primarily related to the wind-down of Sport Yacht and Yacht operations. As the wind-
down was substantially completed by the end of 2019.
(B) During 2019, the Company recorded $2.2 million of charges within Corporate related to IT transformation project costs resulting from the Fitness business
sale.
See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further
details on charges and initiatives.
Purchase accounting amortization. As part of purchase accounting for the Freedom Boat Club and Power Products acquisitions,
the Company recognized definite-lived intangible assets as well as a fair value adjustment to inventory for Power Products, both
of which are amortized over their useful lives. During 2019 and 2018, the Company recorded $29.5 million and $12.0 million,
respectively, of purchase accounting amortization within Selling, general and administrative expense. During 2018, the Company
also recorded $9.2 million of purchase accounting amortization within Cost of sales.
29
Acquisition-related costs. In connection with the Freedom Boat Club and Power Products acquisitions in 2019 and 2018,
respectively, the Company recorded $2.6 million and $13.8 million, respectively, of acquisition-related costs within Selling, general
and administrative expense. As part of the financing of the Power Products acquisition, the Company recorded $5.1 million of
Transaction financing charges to secure the 364-Day Senior Unsecured Bridge Facility as described in Note 16 – Debt in the
Notes to Consolidated Financial Statements.
Pension settlement charges. During 2019, the Company fully exited its remaining defined benefit pension plans and recorded
a pretax pension settlement charge of $292.8 million. There were no pension settlement charges in 2018. In the fourth quarter of
2017, the Company recognized $96.6 million of charges related to actions taken to settle a portion of its pension obligations. These
actions included transferring certain plan obligations to a third party by purchasing annuities on behalf of plan participants and
making lump-sum payments directly to certain plan participants, as applicable. These costs are reflected in Pension settlement
charge on the Consolidated Statements of Operations. See Note 17 – Postretirement Benefits in the Notes to Consolidated
Financial Statements for further details.
Adoption of new revenue standard. On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with
Customers, (new revenue standard) using the modified retrospective method. As a result of applying the new revenue standard,
the Company reported higher Net sales and Operating earnings of $5.4 million during the year ended December 31, 2018 when
compared with 2017, which was reported under previous GAAP.
Tax items. The 2019 results include an income tax provision of $80.3 million and includes a net charge of $17.5 million
related to the settlement of the Company's qualified defined benefit plans. The tax impact of this action consisted of a tax benefit
of $73.9 million from the pension settlement charge, which was netted against a tax charge of $91.4 million resulting from the
release of disproportionate tax effects in Accumulated Other Comprehensive Income. Additionally, the income tax provision for
2019 included a net benefit of $17.2 million primarily related to favorable rate change impacts on state deferred tax assets as well
as a reassessment of the state valuation allowance. The 2018 income tax provision of $57.3 million included a net benefit of $4.8
million primarily related to 2017 U.S. tax reform updates. The 2017 results reflected an income tax provision of $111.6 million,
which included net charges of $64.3 million mostly relating to the impact of U.S. tax reform, including the impact on deferred tax
balances from the reduction in the statutory rate from 35 percent to 21 percent, along with an estimate of taxes payable on deemed
unrepatriated foreign earnings.
See Note 12 – Income Taxes in the Notes to Consolidated Financial Statements for further details.
30
Results of Operations
Consolidated
The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of
Operations for 2019, 2018 and 2017:
2019 vs. 2018
2018 vs. 2017
(in millions, except per share data)
2019
2018
2017
$
%
$
$ 4,108.4
$
4,120.9
$
3,802.2
$
(12.5)
(0.3)% $
318.7
Net sales
Gross margin (A)
Restructuring, exit, integration and impairment charges
Operating earnings
Pension settlement charge
Transaction financing charges
Net earnings from continuing operations
1,121.0
1,047.0
18.8
471.0
292.8
—
30.4
54.8
355.5
—
(5.1)
253.4
948.6
48.6
330.3
96.6
—
101.3
74.0
(36.0)
(31.3)
292.8
5.1
7.1 %
(65.7)%
32.5 %
— %
NM
%
8.4 %
10.4 %
12.8 %
(16.9)%
98.4
6.2
25.2
(96.6)
(100.0)%
(5.1)
NM
(223.0)
(88.0)%
152.1
150.1 %
Diluted earnings per share from continuing operations
$
0.36
$
2.87
$
1.12
$
(2.51)
(87.5)% $
1.75
156.3 %
Expressed as a percentage of Net sales:
Gross margin
Selling, general and administrative expense
Research and development expense
Operating margin
NM = not meaningful
bpts = basis points
27.3%
12.4%
3.0%
11.5%
25.4%
12.5%
2.9%
8.6%
24.9%
12.0%
2.9%
8.7%
190 bpts
(10) bpts
10 bpts
290 bpts
50 bpts
40 bpts
0 bpts
(10) bpts
(A) Gross margin is defined as Net sales less Cost of sales as presented in the Consolidated Statements of Operations.
2019 vs. 2018
Net sales decreased slightly during 2019 when compared with 2018. Refer to the Marine Engine segment and Boat segment
discussions for further details on the drivers of net sales changes.
Gross margin percentage increased, reflecting benefits from the absence of the Sea Ray Sport Yacht and Yacht operations in
2019, which had a negative gross margin impact in 2018, as well as improvements in the Marine Engine segment including benefits
from the Power Products acquisition as well as favorable changes in sales mix. These positive factors exceeded the impact of
lower sales, tariffs and unfavorable changes in foreign exchange rates. Additionally, the gross margin percentage reflected favorable
comparisons versus the prior year due to unfavorable plant efficiencies associated with production ramp-up for new products and
warehouse management integration in the first half of 2018.
Selling, general and administrative expense (SG&A) decreased and included purchase accounting amortization, acquisition-
related costs, and the impacts of Sport Yacht and Yacht operations. Excluding these items, operating expenses were relatively flat
on a percentage of net sales basis as lower variable compensation expense and benefits from cost reduction programs were offset
by a full year of Power Products results and the acquisition of Freedom Boat Club. Research and development expense was
relatively consistent in 2019 versus 2018, reflecting continued investment in new products in both the Marine Engine and Boat
segments.
During 2019, the Company recorded restructuring, exit and impairment charges of $18.8 million compared with $54.8 million
in 2018. See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for
further details.
The Company recognized equity earnings of $7.3 million and $7.7 million in 2019 and 2018, respectively, which were mainly
related to the Company's marine joint ventures. Equity earnings in 2018 included a $2.3 million gain on the sale of an equity
investment as discussed in Note 9 – Investments in the Notes to Consolidated Financial Statements.
31
In 2019, the Company recorded $292.8 million of charges related to pension settlement actions as discussed in Note 17 –
Postretirement Benefits in the Notes to Consolidated Financial Statements. There were no pension settlement actions in 2018.
The Company recognized $(2.1) million and $(4.3) million in 2019 and 2018, respectively, in Other expense, net. Other
expense, net primarily includes pension and other postretirement benefit costs, the amortization of deferred income related to a
trademark licensing agreement with AMF Bowling Centers, Inc. as discussed in Note 1 - Significant Accounting Policies in the
Notes to Consolidated Financial Statements, as well as remeasurement gains and losses resulting from changes in foreign currency
rates.
Net interest expense increased $29.6 million to $72.7 million in 2019 compared with 2018 primarily due to recent debt activity
as discussed in Note 16 – Debt in the Notes to Consolidated Financial Statements.
Transaction financing charges of $5.1 million in 2018 related to the 364-Day Senior Unsecured Bridge Facility which was
secured in connection with the Power Products acquisition as discussed in Note 16 – Debt in the Notes to Consolidated Financial
Statements.
Income tax provision for 2019 was $80.3 million and includes a net charge of $17.5 million related to the settlement of the
Company's qualified defined benefit plans. The tax impact of this action consisted of a tax benefit of $73.9 million from the pension
settlement charge, which was netted against a tax charge of $91.4 million resulting from the release of disproportionate tax effects
in Accumulated Other Comprehensive Income. Additionally, the income tax provision for 2019 included a net benefit of $17.2
million, primarily related favorable rate change impacts on state deferred tax assets as well as a reassessment of the state valuation
allowance. The 2018 results reflect an income tax provision of $57.3 million which included a net benefit of $4.8 million primarily
related to 2017 U.S. tax reform updates. The effective tax rate for 2019 and 2018 was 72.6 percent and 18.5 percent, respectively.
The Company's effective tax rate also reflects the benefit of having earnings from foreign entities that are in jurisdictions that
have lower statutory tax rates than the U.S. with the most significant impact related to China and Poland, which have applicable
statutory tax rates of 15 percent and 19 percent, respectively.
See Note 12 – Income Taxes in the Notes to Consolidated Financial Statements for further details on the impacts of the Tax
Cuts and Jobs Act as well as a reconciliation of the Company's effective tax rate and statutory Federal income tax rate.
Due to the factors described in the preceding paragraphs, operating earnings increased, while net earnings from continuing
operations and diluted earnings per common share from continuing operations decreased during 2019. Diluted earnings per common
share from continuing operations benefited from common stock repurchases in both years.
Adjusted diluted earnings per common share from continuing operations increased in 2019. The following table is a summary
of the factors described in the preceding paragraphs and their impact on diluted earnings per common share from continuing
operations:
(in millions, except per share data)
Diluted earnings per common share from continuing operations
Restructuring, exit, impairment and other charges (A)
Pension settlement charge
Purchase accounting amortization
Sport Yacht & Yachts
Acquisition-related costs
Loss on early extinguishment of debt
Gain on sale of equity investment
Special tax items
Diluted earnings per common share from continuing operations, as adjusted
(A) Includes IT transformation costs of $0.02 in 2019.
32
2019
2018
$
$
$
0.36
0.23
3.62
0.22
0.07
0.02
0.01
—
(0.20)
4.33
$
2.87
0.47
—
0.19
0.51
0.17
—
(0.02)
(0.06)
4.13
2018 vs. 2017
Net sales increased during 2018 when compared with 2017. Refer to the Marine Engine segment and Boat segment discussions
for further details on the drivers of net sales changes.
Gross margin percent increased in 2018 when compared with 2017, reflecting favorable items including volume benefits and
a favorable impact from changes in sales mix, resulting from new products. Partially offsetting these factors were the wind-down
of the Sport Yacht and Yacht operations as well as purchase accounting amortization.
Selling, general and administrative expense and Research and development expense increased during 2018 when compared
with 2017. Selling, general and administrative expense in 2018 included purchase accounting amortization associated with the
Power Products acquisition and acquisition-related costs. Excluding these items, both line items reflected planned spending
increases to support new product promotion and development, primarily in the Marine Engine segment.
During 2018, the Company recorded restructuring, exit and impairment charges of $54.8 million compared with $48.5 million
in 2017. See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for
further details.
The Company recognized equity earnings of $7.7 million and $6.1 million in 2018 and 2017, respectively, which were mainly
related to the Company's marine joint ventures. In the fourth quarter of 2018, the Company sold its 36 percent equity investment
in Bella-Veneet Oy (Bella), a Finnish boat manufacturer, which had previously been fully impaired due to significant declines in
profitability that were deemed other than temporary. As a result, the Company recorded a gain of $2.3 million within Equity
earnings on the Consolidated Statements of Operations, which was equal to the proceeds from the sale.
In 2017, the Company recorded $96.6 million of charges related to pension settlement payments as discussed in Note 17 –
Postretirement Benefits in the Notes to Consolidated Financial Statements.
The Company recognized $(4.3) million and $(3.1) million in 2018 and 2017, respectively, in Other expense, net.
Net interest expense increased $19.3 million to $43.1 million in 2018 compared with 2017 as a result of debt activity in 2018
as discussed in Note 16 – Debt in the Notes to Consolidated Financial Statements.
The Company recognized an income tax provision of $57.3 million in 2018, which included a net benefit of $4.8 million
primarily related to 2017 U.S. tax reform updates. The Company recognized an income tax provision of $111.6 million in 2017,
which included net charges of $64.3 million mostly relating to the impact of U.S. tax reform, including the impact on deferred tax
balances from the reduction in the statutory rate from 35 percent to 21 percent, along with an estimate of taxes payable on deemed
unrepatriated foreign earnings. The effective tax rates for 2018 and 2017 were 18.5 percent and 52.4 percent, respectively. See Note
12 – Income Taxes in the Notes to Consolidated Financial Statements for further details.
Operating earnings, Net earnings from continuing operations and Diluted earnings per common share from continuing
operations increased in 2018 when compared with 2017, primarily due to the factors discussed in the preceding paragraphs. Diluted
earnings per common share from continuing operations benefited from common stock repurchases during both years.
Adjusted diluted earnings per common share from continuing operations increased in 2019. The following table is a summary
of the factors described in the preceding paragraphs and their impact on diluted earnings per common share from continuing
operations:
(in millions, except per share data)
2019
2018
Diluted earnings per common share from continuing operations
$
Restructuring, exit, impairment and other charges
Pension settlement charge
Purchase accounting amortization
Sport Yacht & Yachts
Acquisition-related costs
Gain on sale of equity investment
Special tax items
$
2.87
0.47
—
0.19
0.51
0.17
(0.02)
(0.06)
Diluted earnings per common share from continuing operations, as adjusted
$
4.13
$
33
1.12
0.36
0.69
—
0.22
—
—
0.72
3.11
Segments
The Company has two reportable segments: Marine Engine and Boat. Refer to Note 6 – Segment Information in the Notes
to Consolidated Financial Statements for details on the segment operations.
Marine Engine Segment
The following table sets forth Marine Engine segment results for the years ended December 31, 2019, 2018 and 2017:
2019
2018
2017
$
%
$
%
2019 vs. 2018
2018 vs. 2017
(in millions)
Net sales
Restructuring, exit and
impairment charges (A)
Operating earnings (B)
$
3,073.5
$
2,993.6
$
2,631.8
$
4.7
497.1
—
454.4
—
411.3
Operating margin
16.2%
15.2%
15.6%
NM = not meaningful
bpts = basis points
79.9
4.7
42.7
2.7% $
361.8
13.7%
NM
9.4%
100 bpts
—
43.1
NM
10.5%
(40) bpts
(A) See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.
(B) Includes $28.7 million and $21.2 million in 2019 and 2018, respectively, of purchase accounting amortization and $13.8 million of acquisition-related costs
in 2018.
2019 vs. 2018
The Marine Engine segment reported net sales increases in 2019, including benefits from the Power Products acquisition,
which had an accretive impact of 5 percentage points to the segment's revenue growth rate. The propulsion business benefited
from continued robust demand for higher horsepower engines, particularly in the 175 to 300 horsepower categories introduced in
2018 and the 400 and 450 horsepower engines released in 2019, but overall sales performance declined due to lower sales of
outboard engines 150 horsepower and below and sterndrive engines. The marine parts and accessories business continued its
steady performance in the year 2019. International net sales were 31 percent of the segment's net sales in 2019 and international
net sales, excluding Power Products, were up 6 percent versus the prior year on a GAAP basis as well as on a constant currency
basis and excluding the impact of the Power Products acquisition. International net sales increases were driven by Europe, Asia-
Pacific and Rest-of-World regions, partially offset by declines in Canada.
Marine Engine segment operating earnings for the year increased as a result of benefits from the Power Products acquisition,
favorable changes in sales mix, described above, and cost control measures. Additionally, the operating earnings increase included
favorable comparisons versus the prior year due to unfavorable plant efficiencies associated with production ramp-up for new
products, warehouse management integration in the first half of 2018, and acquisition-related costs related to the Power Products
acquisition in 2018. Partially offsetting these positive factors were the impact of tariffs, unfavorable changes in foreign exchange
rates and volume declines.
2018 vs. 2017
Marine Engine segment net sales benefited from significant growth in both the propulsion and marine parts and accessories
businesses. Propulsion benefited from organic growth as a result of robust demand for new, higher horsepower outboard
products. The marine parts and accessories business benefited from contributions from Power Products as well as steady organic
growth in both the products and distribution businesses. Acquisitions completed in 2018 and 2017 accounted for approximately
4 percentage points of the Marine Engine segment's overall revenue growth rate in 2018. International net sales were 30 percent
of the segment's net sales in 2018 and increased 13 percent from the prior year on a GAAP basis. On a constant currency basis
and excluding acquisitions, international net sales increased 6 percent in 2018, which included gains in all international regions.
The Marine Engine segment reported increased operating earnings in 2018 when compared with the prior year as a result of
strong operating performance including higher net sales, favorable impacts from changes in sales mix and contributions from the
acquisition of Power Products. Partially offsetting these factors were the impacts of purchase accounting amortization and
acquisition-related costs. Additionally, the first half of the year included unfavorable impacts of plant efficiencies associated with
34
production ramp-up for new products and the integration of new warehouse management systems as well as planned spending
increases for product promotion and development.
Boat Segment
The following table sets forth Boat segment results for the years ended December 31, 2019, 2018 and 2017:
(in millions)
2019
2018
2017
$
%
$
%
2019 vs. 2018
2018 vs. 2017
Boat segment:
Net sales (A)
Restructuring, exit and
impairment charges (B)
Operating earnings (loss) (A) (C)
Operating margin
Sport Yacht and Yacht operations:
Net sales (A)
Restructuring, exit and
impairment charges (B)
Operating loss
Operating margin
NM = not meaningful
bpts = basis points
$ 1,333.8
$ 1,471.3
$ 1,490.6
$
(137.5)
(9.3)% $
(19.3)
(1.3)%
9.6
58.0
54.1
(12.5)
48.6
5.3
4.3%
(0.8)%
0.4 %
(44.5)
70.5
(82.3)%
NM
510 bpts
5.5
(17.8)
11.3 %
NM
(120) bpts
(0.7)
—
(7.8)
NM
49.4
49.4
(107.8)
151.6
23.3
(55.2)
NM
(36.4)%
(50.1)
(49.4)
100.0
NM
NM
92.8 %
NM
(102.2)
(67.4)%
26.1
(52.6)
NM
NM
NM
(A) During 2019, results included $(0.7) million of charges within Net sales related to estimated retail sales incentives to support the sale of sport yachts and
yachts currently in the dealer pipeline. During 2018, results included $16.0 million of charges within Net sales to support the sale of sport yachts and yachts
in the dealer pipeline at that time. There were no comparable charges in 2017.
(B) See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.
(C) 2019 results include $2.6 million of acquisition-related costs and $0.8 million of purchase accounting amortization related to the Freedom Boat Club acquisition.
2019 vs. 2018
Boat segment net sales decreased versus 2018, reflecting planned pipeline reductions in the aluminum freshwater and saltwater
fishing boat categories and the exit of Sport Yacht and Yacht operations. Excluding the impact of Sport Yacht and Yacht operations,
recreational fiberglass net sales increased as a result of improvement at Sea Ray, with a more favorable mix toward boats with
expanded content driving sales. The planned reductions in wholesale unit shipments in the aluminum freshwater boat category
were in response to a challenging retail market environment in the first half of the year, due in part to unfavorable weather conditions.
Premium boat brands, including Boston Whaler, Sea Ray and Lund, all performed strongly at retail in their key product categories.
International sales were 24 percent of the segment's net sales in 2019 and decreased 7 percent on a GAAP basis. On a constant
currency basis, international sales decreased 5 percent primarily due to declines in Europe and Asia-Pacific.
Boat segment operating earnings comparisons between 2019 and 2018 reflect reduced losses associated with the exit of the
Sport Yacht and Yacht operations. Excluding this factor, operating earnings decreased as a result of lower volume, higher retail
discounts required to lower pipelines during the second-half of the year and planned spending on profit improvement initiatives.
Additionally, comparisons were negatively impacted by less favorable plant efficiencies at certain of our boat facilities in the first
quarter of 2019 versus 2018, due in part to new product integrations. These negative factors excluded benefits from cost control
measures.
2018 vs. 2017
Boat segment net sales decreased slightly in 2018 compared with the same prior year period, primarily as a result of the
winding down of Sport Yacht and Yacht operations during 2018. Sport Yacht and Yacht sales negatively affected sales comparisons
by 7 percent. Net sales for the segment benefited from strong growth in the saltwater fishing category, due in part to the impact
of new products in 2018 and of hurricane activity on 2017 results. Net sales growth excluding Sport Yacht and Yacht operations
was solid for the recreational fiberglass category, led by continued sales growth for Sea Ray Sport Boats and Cruisers. Aluminum
freshwater reported solid growth as strong sales increases in pontoon boats were partially offset by continued weakness at Lowe
due to the transition of distribution away from Cabela's and lower sales into Canada due to the impact of retaliatory tariffs on
35
wholesale shipments. Global wholesale boat shipments were down, but sales increases were aided by higher average selling prices
as customers continued to migrate to boats with more content and higher horsepower engines, as well as growth in premium brands,
which outpaced the performance of value product lines. In addition, price increases were implemented in response to cost inflation,
particularly in aluminum fishing boats and pontoons. International net sales were 24 percent of the segment's net sales in 2018, a
decrease of 6 percent from the prior year on a GAAP basis. On a constant currency basis and excluding Sport Yacht and Yacht
operations, international net sales decreased 3 percent when compared with the same prior year period, mainly due to declines in
Rest-of-World regions.
Boat segment operating earnings decreased in 2018 when compared with the prior year, including positive timing benefits
from the adoption and implementation of the new revenue standard. The decrease was the result of losses from Sport Yacht and
Yacht operations which included wind-down activities and higher restructuring, exit, integration and impairment charges. The
other businesses posted an overall increase in earnings, benefitting from increased sales and a favorable impact from changes in
product mix.
Corporate/Other
The following table sets forth Corporate/Other results for the years ended December 31, 2019, 2018 and 2017:
(in millions)
2019
2018
2017
$
%
$
%
Restructuring, exit,
impairment and other
charges (A) (B)
$
6.7
$
0.7
$
— $
Operating loss
(84.1)
(86.4)
(86.3)
6.0
2.3
NM $
2.7%
0.7
(0.1)
NM
(0.1)%
2019 vs. 2018
2018 vs. 2017
NM = not meaningful
(A) See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.
(B) 2019 includes $2.2 million of IT transformation costs resulting from the Fitness separation.
Corporate operating expenses decreased in 2019 compared with 2018 primarily as a result of several factors which included
cost containment measures largely completed by the end of the third quarter of 2019, partially offset by higher restructuring, exit,
impairment and other charges. Corporate expenses were relatively flat in 2018 compared with 2017.
Cash Flow, Liquidity and Capital Resources
The following table sets forth an analysis of free cash flow for the years ended December 31, 2019, 2018 and 2017:
(in millions)
Net cash provided by operating activities of continuing operations
2019
2018
2017
$
475.3
$
274.5
$
307.7
Net cash provided by (used for):
Plus: Capital expenditures
Plus: Proceeds from the sale of property, plant and equipment
Plus: Effect of exchange rate changes on cash and cash equivalents
Less: Cash impact of Sport Yacht and Yacht operations, net of tax
Total free cash flow from continuing operations (A)
(232.6)
7.3
0.4
—
250.4
$
(180.2)
0.4
(5.0)
(53.7)
143.4
$
(178.0)
7.9
6.9
(10.9)
155.4
$
(A) The Company defines “Free cash flow” as cash flow from operating and investing activities of continuing operations (excluding cash provided by or used for
acquisitions, investments, purchases or sales/maturities of marketable securities and other investing activities, as well as the cash impact of Sport Yacht &
Yacht operations, net of tax) and the effect of exchange rate changes on cash and cash equivalents. Free cash flow is not intended as an alternative measure
of cash flow from operations, as determined in accordance with GAAP in the United States. The Company uses this financial measure both in presenting its
results to shareholders and the investment community and in its internal evaluation and management of its businesses. Management believes that this financial
measure and the information it provides are useful to investors because it permits investors to view Brunswick’s performance using the same tool that
management uses to gauge progress in achieving its goals. Management believes that the non-GAAP financial measure “Free cash flow” is also useful to
investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives.
Brunswick’s major sources of funds for capital investments, acquisitions, share repurchase programs and dividend payments
are cash generated from operating activities, available cash and marketable securities balances, proceeds from divestitures and
potential borrowings. The Company evaluates potential acquisitions, divestitures and joint ventures in the ordinary course of
business.
36
2019 Cash Flow
Net cash provided by operating activities of continuing operations in 2019 totaled $475.3 million versus $274.5 million in
the comparable period of 2018. This comparison reflected lower pension contributions and higher net earnings, net of non-cash
items (pension settlement charges, depreciation and amortization, impairments and income tax impacts not yet realized in cash)
in 2019, which were partially offset by unfavorable working capital usage trends.
The primary drivers of the cash provided by operating activities of continuing operations in 2019 were net earnings net of
non-cash expense items, partially offset by an increase in working capital. Working capital is defined as Accounts and notes
receivable, Inventories and Prepaid expenses and other, net of Accounts payable and Accrued expenses as presented in the
Consolidated Balance Sheets, excluding the impact of acquisitions and non-cash adjustments. Inventory increased $50.5 million
primarily related to finished goods in the Marine Engine segment, to support higher sales volumes after pipeline reduction efforts
in 2019. Accrued expenses decreased $44.7 million, Accounts payable decreased $32.7 million and Accounts and notes receivable
decreased $41.4 million primarily as a result of lower sales in the fourth quarter.
Net cash used for investing activities of continuing operations was $287.0 million, which included capital expenditures of
$232.6 million and cash paid for the acquisition of Freedom Boat Club of $64.1 million. See Note 5 – Acquisitions in the Notes
to Consolidated Financial Statements for further details on the Freedom Boat Club acquisition. The Company's capital spending
focused on investments in capacity expansion initiatives mostly in the Marine Engine segment as well as new products. Net cash
provided by investing activities of discontinued operations was $481.7 million and mainly related to proceeds from the sale of the
Fitness business.
Net cash used for financing activities was $600.8 million and primarily related to common stock repurchases, net payments
from issuances of long-term debt and cash dividends paid to common shareholders. Refer to Note 15 – Debt in the Notes to
Consolidated Financial Statements for further details on the Company's debt activity during the year ended December 31, 2019.
2018 Cash Flow
In 2018, net cash provided by operating activities of continuing operations totaled $274.5 million. The primary driver of the
cash provided by operating activities was net earnings from continuing operations net of non-cash expense items. Additionally,
the Company made discretionary pension contributions of $163.8 million to its qualified and nonqualified defined benefit plans
in connection with its plan termination activities. An increase in working capital had a negative effect on net cash provided by
operating activities. Net inventories increased by $82.4 million, primarily driven by increases in the Marine Engine segment due
to increased production associated with new outboard products. Accounts receivable increased by $30.2 million as a result of
strong year-over-year sales increases in the fourth quarter in the Company's Marine Engine segment. Partially offsetting these
items were increases in Accounts payable of $61.4 million, mostly related to higher expenditures in the Marine Engine segment
to support higher production, and Accrued expenses of $17.6 million primarily due to customer rebates attributable to increased
sales volume.
Net cash used for investing activities of continuing operations during 2018 totaled $1,098.4 million, which included cash paid
for the acquisition of Power Products, net of cash acquired, of $909.6 million. See Note 5 – Acquisitions in the Notes to Consolidated
Financial Statements for further details on the Power Products acquisition. In addition, capital expenditures totaled $180.2
million. The Company's capital spending focused on investments in new products as well as capacity expansion initiatives. Net
cash used for investing activities also included $8.8 million of investments which primarily related to the Company's marine joint
ventures.
Net cash provided by financing activities was $620.5 million during 2018. The cash inflow was mainly due to $793.5 million
of net proceeds from debt activity in connection with the Power Products acquisition, partially offset by common stock repurchase
activity and cash dividends paid to common shareholders. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements
for further details on the Company's debt activity.
37
Liquidity and Capital Resources
The Company views its highly liquid assets as of December 31, 2019 and 2018 as:
(in millions)
Cash and cash equivalents
Short-term investments in marketable securities
Total cash, cash equivalents and marketable securities
2019
2018
$
$
320.3
0.8
321.1
$
$
$
$
294.4
0.8
295.2
2018
295.2
396.1
691.3
The following table sets forth an analysis of Total liquidity as of December 31, 2019 and 2018:
(in millions)
Cash, cash equivalents and marketable securities
Amounts available under lending facilities(A)
Total liquidity (B)
2019
321.1
387.9
709.0
$
$
(A) See Note 16 – Debt in the Notes to Consolidated Financial Statements for further details on the Company's lending facility.
(B) The Company defines Total liquidity as Cash and cash equivalents and Short-term investments in marketable securities as presented in the Consolidated
Balance Sheets, plus amounts available for borrowing under its lending facilities. Total liquidity is not intended as an alternative measure to Cash and cash
equivalents and Short-term investments in marketable securities as determined in accordance with GAAP in the United States. The Company uses this financial
measure both in presenting its results to shareholders and the investment community and in its internal evaluation and management of its businesses. Management
believes that this financial measure and the information it provides are useful to investors because it permits investors to view the Company’s performance
using the same metric that management uses to gauge progress in achieving its goals. Management believes that the non-GAAP financial measure “Total
liquidity” is also useful to investors because it is an indication of the Company’s available highly liquid assets and immediate sources of financing.
Cash, cash equivalents and marketable securities totaled $321.1 million as of December 31, 2019, an increase of $25.9 million
from $295.2 million as of December 31, 2018. Total debt as of December 31, 2019 and December 31, 2018 was $1,109.3 million
and $1,220.8 million, respectively. The Company's debt-to-capitalization ratio increased to 46.0 percent as of December 31, 2019,
from 43.5 percent as of December 31, 2018 as debt reductions during the year were more than offset by the impact of share
repurchases funded with Fitness sale proceeds.
In June and July of 2019, the Company announced cost reduction measures to drive greater efficiency and reduce its annual
operating costs. These actions are expected to reduce costs by approximately $50 million on an annual run-rate basis. The cost
reduction initiative was largely completed at the end of 2019. Refer to Note 4 – Restructuring, Exit and Impairment Activities
in the Notes to Consolidated Financial Statements for further information.
Consistent with the Company's plan to reduce substantially all of its near-term maturity debt in 2019, in the first quarter of
2019 the Company issued $230 million of 30-year senior notes and used $150 million of the proceeds to retire its 3-year term loan
due 2021. Additionally, in the third quarter of 2019 the Company retired its $150.0 million of senior notes due 2021.
During 2019, the Company borrowed a total of $655.0 million under the Credit Facility, all of which was repaid during the
period. The maximum amount utilized under the Credit Facility during the period, including letters of credit outstanding, was
$258.6 million. The Company did not borrow under the Credit Facility during 2018.
Refer to Note 15 – Debt in the Notes to Consolidated Financial Statements for further details on the Company's debt activity
during 2019.
Management believes that the Company has adequate sources of liquidity to meet the Company's short-term and long-term
needs.
The Company received net proceeds of approximately $470 million from the sale of its Fitness business in the second quarter
of 2019 and revised its capital strategy. As a result, the Company's Board of Directors authorized an additional $600 million of
share repurchases in 2019, including $450 million announced in the second quarter of 2019 and an additional $150 million
announced on July 16, 2019. The Company repurchased approximately $400 million of shares 2019, bringing the total remaining
authorization to approximately $235 million as of December 31, 2019.
During 2019 and 2018 the company contributed $3.5 million and $160.0 million, respectively, to its qualified pension plans
and contributed $4.4 million and $3.8 million, respectively, to fund benefit payments to its nonqualified pension plan.
38
In 2019, settlement payments were made from the Company's defined benefit plans to fully exit the plans through group
annuity contracts or lump-sum payments to certain participants. As a result of this action, the Company incurred a non-cash, after-
tax pension settlement charge of $310.3 million, including the recognition of actuarial losses as well as certain income tax
consequences.
See Note 17 – Postretirement Benefits in the Notes to Consolidated Financial Statements for more details.
2020 Cash Flow Outlook and Capital Plan
The Company plans to continue executing against a balanced capital strategy in 2020, leveraging its strong free cash flow
generation. The Company is projecting an increase in net earnings in 2020 when compared with 2019. Net working capital activity
is projected to reflect a usage of cash in 2020 in the range of $30 million to $50 million. Additionally, the Company is planning
for capital expenditures of approximately $200 million to $220 million, including investments in new products across all businesses,
cost reduction and automation projects, and additional capacity in the propulsion business. Including these and other factors, the
Company plans to generate free cash flow in 2020 in excess of $325 million.
The 2020 plan includes debt reduction of approximately $100 million, with estimated interest expense of $65 million. The
plan also includes approximately $100 million of share repurchases spread relatively evenly throughout the year. Quarterly dividend
payments are anticipated to be $0.24 per share, consistent with current levels.
The Company expects its cash tax rate to be in the low-to-mid-teens percentage range in 2020.
Financial Services
Refer to Note 10 – Financing Joint Venture in the Notes to Consolidated Financial Statements for more information about
the Company's financial services.
Off-Balance Sheet Arrangements
Guarantees. The Company has reserves to cover potential losses associated with guarantees and repurchase obligations based
on historical experience and current facts and circumstances. Historical cash requirements and losses associated with these
obligations have not been significant. See Note 13 – Commitments and Contingencies in the Notes to Consolidated Financial
Statements for a description of these arrangements.
Contractual Obligations
The following table sets forth a summary of the Company's contractual cash obligations as of December 31, 2019:
(in millions)
Contractual Obligations
Debt (A)
Interest payments on long-term debt
Operating leases (B)
Purchase obligations (C)
Deferred management compensation (D)
Other long-term liabilities (E)
Total contractual obligations
Payments due by period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$
1,133.6
$
1,163.3
101.4
48.9
25.3
108.3
41.3
65.0
22.5
47.0
5.1
16.3
$
79.4
$
307.6
$
125.8
37.5
1.8
6.0
49.0
102.4
27.0
0.1
6.0
27.6
705.3
870.1
14.4
—
8.2
15.4
$
2,580.8
$
197.2
$
299.5
$
470.7
$
1,613.4
(A) See Note 16 – Debt in the Notes to Consolidated Financial Statements for additional information on the Company's debt. “Debt” refers to future cash principal
payments. Debt also includes the Company's capital leases as discussed in Note 21 – Leases in the Notes to Consolidated Financial Statements.
(B) See Note 21 – Leases in the Notes to Consolidated Financial Statements for additional information.
(C) Purchase obligations represent agreements with suppliers and vendors as part of the normal course of business.
(D) Amounts primarily represent long-term deferred compensation plans for Company management.
(E) Other long-term liabilities primarily includes long-term warranty contracts, future projected payments related to the Company's nonqualified pension plans
and deferred revenue. The Company is not required to make contributions to the qualified pension plan in 2019.
39
Legal Proceedings
See Note 13 – Commitments and Contingencies in the Notes to Consolidated Financial Statements.
Environmental Regulation
In its Marine Engine segment, Brunswick continues to develop engine technologies to reduce engine emissions to comply
with current and future emissions requirements. The Boat segment continues to pursue fiberglass boat manufacturing technologies
and techniques to reduce air emissions at its boat manufacturing facilities. The costs associated with these activities may have an
adverse effect on segment operating margins and may affect short-term operating results. Environmental regulatory bodies in the
United States and other countries may impose more stringent emissions standards and/or other environmental regulatory
requirements than are currently in effect. Using its environmental management system processes to drive sustainable, responsible
practices, the Company complies with current regulations and expects to comply fully with any new regulations; compliance will
most likely increase the cost of these products for the Company and the industry, but is not expected to have a material adverse
effect on Brunswick's competitive position.
Critical Accounting Policies
The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the
United States requires management to make certain estimates and assumptions that affect the amount of reported assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and
expenses during the periods reported. Actual results may differ from those estimates. If current estimates for the cost of resolving
any specific matters are later determined to be inadequate, results of operations could be adversely affected in the period in which
additional provisions are required. The Company has discussed the development and selection of the critical accounting policies
with the Audit Committee of the Board of Directors and believes the following are the most critical accounting policies that could
have an effect on Brunswick's reported results.
Revenue Recognition and Sales Incentives. Revenue is recognized as performance obligations under the terms of contracts
with customers are satisfied; this occurs when control of promised goods (engines, engine parts and accessories, boats, and fitness
equipment) is transferred to the customer. The Company recognizes revenue related to the sale of extended warranty contracts
that extend the coverage period beyond the standard warranty period over the life of the extended warranty period.
Revenue is measured as the amount of consideration expected to be entitled in exchange for transferring goods or providing
services. The Company has excluded sales, value add, and other taxes collected concurrent with revenue-producing activities from
the determination of the transaction price for all contracts. The Company has elected to account for shipping and handling activities
that occur after the customer has obtained control of a good as a fulfillment activity. For all contracts with customers, the Company
has not adjusted the promised amount of consideration for the effects of a significant financing component as the period between
the transfer of the promised goods and the customer's payment is expected to be one year or less.
See Note 2 – Revenue Recognition in the Notes to Consolidated Financial Statements for more information.
Warranty Reserves. The Company records an estimated liability for product warranties at the time revenue is recognized. The
liability is estimated using historical warranty experience, projected claim rates and expected costs per claim. The Company adjusts
its liability for specific warranty matters when they become known and the exposure can be estimated. The Company's warranty
liabilities are affected by product failure rates as well as material usage and labor costs incurred in correcting a product failure. If
actual costs differ from estimated costs, the Company must make a revision to the warranty liability.
Goodwill. Goodwill results from the excess of purchase price over the net assets of businesses acquired. The Company reviews
goodwill for impairment annually and whenever events or changes in circumstances indicate that the fair value of a reporting unit
may be below its carrying value. As part of the annual test, the Company may perform a qualitative, rather than quantitative,
assessment to determine whether the fair values of its reporting units are “more likely than not” to be greater than their carrying
values. In performing this qualitative analysis, the Company considers various factors, including the effect of market or industry
changes and the reporting units' actual results compared to projected results.
If the fair value of a reporting unit does not meet the "more likely than not" criteria discussed above, the Company performs
a quantitative assessment which begins by measuring the fair value of the reporting unit. If the carrying value of the reporting unit
exceeds its fair value, a goodwill impairment is recorded equal to the carrying value of the reporting unit less its fair value, not to
exceed the carrying value of goodwill.
40
The Company calculates the fair value of its reporting units considering both the income approach and the guideline public
company method. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach
utilizing a Gordon Growth model. Internally forecasted future cash flows, which the Company believes reasonably approximate
market participant assumptions, are discounted using a weighted average cost of capital (Discount Rate) developed for each
reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a
measure of risk related to the specific reporting unit’s forecasted performance. Fair value under the guideline public company
method is determined for each unit by applying market multiples for comparable public companies to the unit’s current and
forecasted financial results. The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s
forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with
those forecasts in determining the Discount Rate, along with selecting representative market multiples.
The Company did not record any goodwill impairments in 2019, 2018 or 2017 in continuing operations. Refer to Note 3 –
Discontinued Operations for further information on the Fitness goodwill impairment recorded during 2019.
Other intangible assets. The Company's primary intangible assets are customer relationships and trade names acquired in
business combinations. Intangible assets are initially valued using a methodology commensurate with the intended use of the asset.
The customer relationships including those acquired in the Power Products acquisition, which constitute the majority of the
Company's customer relationships, were valued using the income approach, specifically the multi-period excess earnings method
(MPEEM). The fair value of trade names, including the Power Products trade names, is measured using a relief-from-royalty
(RFR) approach, which assumes the value of the trade name is the discounted amount of cash flows that would be paid to third
parties had the Company not owned the trade name and instead licensed the trade name from another company. Higher royalty
rates are assigned to premium brands within the marketplace based on name recognition and profitability, while other brands
receive lower royalty rates. The basis for future sales projections for both the RFR and MPEEM are based on internal revenue
forecasts by brand, which the Company believes represent reasonable market participant assumptions. The future cash flows are
discounted using an applicable Discount Rate as well as any potential risk premium to reflect the inherent risk of holding a
standalone intangible asset.
The key uncertainties in the RFR and MPEEM calculations, as applicable, are: assumptions used in developing internal
revenue growth and expense forecasts, assumed customer attrition rates, the selection of an appropriate royalty rate, as well as the
perceived risk associated with those forecasts in determining the Discount Rate.
The costs of amortizable intangible assets are recognized over their expected useful lives, typically between three and fifteen
years, using the straight-line method. Intangible assets that are subject to amortization are evaluated for impairment using a process
similar to that used to evaluate long-lived assets described below. Intangible assets not subject to amortization are assessed for
impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset
may be impaired. The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the
intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds
the fair value of the asset.
Refer to Note 5 – Acquisitions and Note 11 – Goodwill and Other Intangibles in the Notes to Consolidated Financial
Statements for more information.
Long-Lived Assets. The Company continually evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful lives of its definite-lived intangible assets and other long-lived assets may warrant revision or that the
remaining balance of such assets may not be recoverable. Once an impairment indicator is identified, the Company tests for
recoverability of the related asset group using an estimate of undiscounted cash flows over the asset group's remaining life. If an
asset group's carrying value is not recoverable, the Company records an impairment loss based on the excess of the carrying value
of the asset group over the long-lived asset group's fair value. Fair value is determined using observable inputs, including the use
of appraisals from independent third parties, when available, and, when observable inputs are not available, based on the Company's
assumptions of the data that market participants would use in pricing the asset, based on the best information available in the
circumstances. Specifically, the Company uses discounted cash flows to determine the fair value of the asset when observable
inputs are unavailable. The Company tested its long-lived asset balances for impairment as indicators arose during 2019, 2018
and 2017, resulting in impairment charges of $3.0 million, $12.7 million and $31.0 million, respectively, which are recognized
in Restructuring, exit and impairment charges in the Consolidated Statements of Operations.
Income Taxes. Deferred taxes are recognized for the future tax effects of temporary differences between financial and income
tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the
realizability of net deferred tax assets and, as necessary, records valuation allowances against them. The Company estimates its
tax obligations based on historical experience and current tax laws and litigation. The judgments made at any point in time may
41
change based on the outcome of tax audits and settlements of tax litigation, as well as changes due to new tax laws and regulations
and the Company's application of those laws and regulations. These factors may cause the Company's tax rate and deferred tax
balances to increase or decrease. See Note 12 – Income Taxes in Notes to Consolidated Financial Statements for further details.
Recent Accounting Pronouncements
See Note 1 – Significant Accounting Policies in the Notes to Consolidated Financial Statements for the recent accounting
pronouncements that have been adopted during the year ended December 31, 2019, or will be adopted in future periods.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest
rates. The Company enters into various hedging transactions to mitigate certain of these risks in accordance with guidelines
established by the Company's management. The Company does not use financial instruments for trading or speculative purposes.
The Company uses foreign currency forward and option contracts to manage foreign exchange rate exposure related to
anticipated transactions, and assets and liabilities that are subject to risk from foreign currency rate changes. The Company's
principal currency exposures mainly relate to the Euro, Japanese Yen, Canadian dollar, Australian dollar, and the Brazilian Real.
The Company hedges certain anticipated transactions with financial instruments whose maturity date, along with the realized gain
or loss, occurs on or near the execution of the anticipated transaction. The Company manages foreign currency exposure of certain
assets or liabilities through the use of derivative financial instruments such that the gain or loss on the derivative financial instrument
offsets the loss or gain recognized on the underlying asset or liability, respectively.
The Company uses fixed-to-floating interest rate swaps to convert a portion of the Company's long-term debt from fixed-to-
floating rate debt. An interest rate swap is entered into with the expectation that the change in the fair value of the interest rate
swap will offset the change in the fair value of the debt instrument attributable to changes in the benchmark interest rate. Each
period, the change in the fair value of the interest rate swap asset or liability is recorded as a change in the fair value of the
corresponding debt instrument.
The following analyses provide quantitative information regarding the Company's exposure to foreign currency exchange
rate risk and interest rate risk as it relates to its derivative financial instruments. The Company uses a model to evaluate the
sensitivity of the fair value of financial instruments with exposure to market risk that assumes instantaneous, parallel shifts in
exchange rates. For options and instruments with nonlinear returns, models appropriate to the instrument are utilized to determine
the impact of market shifts. There are certain shortcomings inherent in the sensitivity analyses presented, primarily due to the
assumption that exchange rates change in a parallel fashion.
The amounts shown below represent the estimated reduction in fair market value that the Company would incur on its derivative
financial instruments from a 10 percent adverse change in quoted foreign currency rates and interest rates.
(in millions)
Risk Category
Foreign exchange
Interest rates
2019
2018
$
$
34.5
—
35.1
1.5
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedule on page 49.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
42
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company's management, including the Chief Executive Officer and
the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively), the
Company has evaluated its disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a -15(e) and 15d
-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective.
Management's Report on Internal Control Over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included a report of management's assessment of
the effectiveness of its internal control over financial reporting as part of this Annual Report on Form 10-K for the fiscal year
ended December 31, 2019. Management's report is included in the Company's 2019 Financial Statements under the captions
entitled “Report of Management on Internal Control Over Financial Reporting” and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during the quarter ended
December 31, 2019, that have materially affected, or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
Item 9B. Other Information
None.
43
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information pursuant to this Item with respect to our Directors, the Company's Audit Committee, and the Company's code of
ethics is incorporated by reference from the discussion under the headings Proposal No. 1: Election of Directors and Corporate
Governance in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2020 (Proxy
Statement).
The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers
of the Registrant” following Item 4 in Part I of this Annual Report.
Item 11. Executive Compensation
Information pursuant to this Item with respect to compensation paid to our Directors is incorporated by reference from the
discussion under the heading Director Compensation in the Proxy Statement. Information pursuant to this Item with respect to
executive compensation is incorporated by reference from the discussion under the heading Executive Compensation in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information pursuant to this Item 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 persons known to the Company to own
beneficially more than 5 percent of the outstanding voting securities of the Company is incorporated by reference from the discussion
under the heading Stock Held by Directors, Executive Officers, and Principal Shareholders in the Proxy Statement. Information
pursuant to this Item with respect to securities authorized for issuance under the Company's equity compensation plans is hereby
incorporated by reference from the discussion under the heading Equity Compensation Plan Information in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information pursuant to this Item with respect to certain relationships and related transactions is incorporated from the
discussion under the headings Proposal No. 1: Election of Directors and Corporate Governance in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information pursuant to this Item with respect to fees for professional services rendered by the Company's independent
registered public accounting firm and the Audit Committee's policy on pre-approval of audit and permissible non-audit services
of the Company's independent registered public accounting firm is incorporated by reference from the discussion in the Proxy
Statement under the heading Proposal No. 3: Ratification of the Appointment of Independent Registered Public Accounting Firm.
44
Item 15. Exhibits and Financial Statement Schedules
PART IV
The financial statements and schedule filed as part of this Annual Report on Form 10-K are listed in the accompanying Index
to Financial Statements and Financial Statement Schedule on page 49. The exhibits filed as a part of this Annual Report are listed
in the Exhibit Index below.
Exhibit No.
2.1
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Description
Equity Purchase Agreement, dated as of May 5, 2019, between Brunswick Corporation and Lumos
International Holdings B.V., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 8, 2019 and hereby incorporated by
reference.
Restated Certificate of Incorporation of the Company, dated July 22, 1987, filed as Exhibit 19.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1987, as filed with
the Securities and Exchange Commission, and hereby incorporated by reference.
Amendments to Restated Certificate of Incorporation of the Company, as effective May 2, 2018,
filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2018, as filed with the Securities and Exchange Commission on May 3, 2018, and hereby
incorporated by reference.
Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock,
filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for 1995 as filed with the
Securities and Exchange Commission on March 23, 1995, and hereby incorporated by reference.
Amended By-Laws of the Company, filed as Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 2, 2016 as filed with the Securities and Exchange
Commission on May 5, 2016, and hereby incorporated by reference.
Description of the Company's Securities Registered Pursuant to Section 12 of the Exchange Act.
Indenture, dated as of October 3, 2018, between the Company and U.S. Bank National Association,
as Trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 3, 2018, and hereby incorporated by reference.
First Supplemental Indenture, dated as of October 3, 2018, between the Company and U.S. Bank
National Association, as Trustee, filed as Exhibit 4.2 to the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on October 3, 2018, and hereby incorporated
by reference.
Second Supplemental Indenture, dated as of December 3, 2018, between the Company and U.S.
Bank National Association, as Trustee, filed as Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on December 3, 2018 and hereby incorporated by reference.
Third Supplemental Indenture, dated as of March 4, 2019, between the Company and U.S. Bank
National Association, as Trustee, filed as Exhibit 4.2 to the Company's Current Report on Form 8-
K as filed with the Securities and Exchange Commission on March 4, 2019, and hereby
incorporated by reference.
Form of Global Note for the 6.500% Senior Notes due 2048, incorporated by reference to Exhibit
4.3 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on October 3, 2018 and hereby incorporated by reference.
Form of Global Note for the 6.625% Senior Notes due 2049, filed as Exhibit 4.3 to the Form 8-A
filed with the Securities and Exchange Commission on December 3, 2018, and hereby incorporated
by reference.
Form of Global Note for the 6.375% Senior Notes due 2049, filed as Exhibit 4.3 to the Form 8-A
filed with the Securities and Exchange Commission on March 4, 2019, and hereby incorporated by
reference.
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.
Officers' Certificate setting forth terms of the Company's $125,000,000 principal amount of 7 3/8%
Debentures due September 1, 2023, filed as Exhibit 4.3 to the Company's Annual Report on Form
10-K for 1993 as filed with the Securities and Exchange Commission on March 29, 1994, and
hereby incorporated by reference.
Form of the Company's $200,000,000 principal amount of 7 1/8% Notes due August 1, 2027, filed
as Exhibit 4.1 to the Company's Current Report on Form 8-K as filed with the Securities and
Exchange Commission on August 21, 1997, and hereby incorporated by reference.
45
4.12
10.1
10.2
10.3
10.4
10.5
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
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.
Term Loan Credit Agreement, dated as of August 7, 2018, among the Company, the lenders party
thereto, and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 9, 2018 and hereby incorporated by reference.
Amended and Restated Credit Agreement, dated as of March 21, 2011, as amended and restated as
of June 26, 2014, as further amended and restated as of June 30, 2016, as further amended as of
July 13, 2018 and as further amended and restated as of September 26, 2018, among the Company,
the subsidiary borrowers party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A.,
as administrative agent, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 28, 2018 and hereby incorporated by
reference.
Extension Amendment, dated as of November 12, 2019, amending the Amended and Restated
Credit Agreement, dated as of March 21, 2011, as amended and restated as of June 26, 2014, as
further amended and restated as of June 30, 2016, as further amended as of July 13, 2018 and as
further amended and restated as of September 26, 2018, among the Company, the subsidiary
borrowers party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 12, 2019 and hereby incorporated by
reference.
First Amendment, dated September 26, 2018, to the Term Loan Credit Agreement, dated as of
August 7, 2018, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A.,
as administrative agent, filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 28, 2018 and hereby incorporated by
reference.
Form of Dealer Agreement between Brunswick Corporation and the Dealer party thereto, filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the Securities and
Exchange Commission on December 19, 2019, and hereby incorporated by reference.
Terms and Conditions of Employment Agreement for David M. Foulkes, effective January 1, 2019,
filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 10, 2018 and hereby incorporated by reference.
Form of Officer Terms and Conditions of Employment.
Brunswick Corporation Supplemental Pension Plan as amended and restated effective February 3,
2009, filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for 2008 as filed with
the Securities and Exchange Commission on February 24, 2009, and hereby incorporated by
reference.
Form of Non-Employee Director Indemnification Agreement, filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for 2006 as filed with the Securities and Exchange
Commission on February 23, 2007, and hereby incorporated by reference.
Brunswick Corporation 2003 Stock Incentive Plan, as amended and restated, filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 2010, as filed with
the Securities and Exchange Commission on May 7, 2010, and hereby incorporated by reference.
1997 Stock Plan for Non-Employee Directors, filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, as filed with the Securities and
Exchange Commission on November 13, 1998, and hereby incorporated by reference.
Brunswick Corporation 2005 Elective Deferred Compensation Plan as amended and restated
effective January 1, 2013, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on
August 3, 2012, and hereby incorporated by reference.
Brunswick Restoration Plan, as amended and restated effective January 1, 2013, filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, as filed
with the Securities and Exchange Commission on August 3, 2012, and hereby incorporated by
reference.
Brunswick Corporation Senior Management Incentive Plan, filed as Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 2013, as filed with the Securities
and Exchange Commission on May 1, 2013, and hereby incorporated by reference.
Brunswick Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 2014, as filed with the Securities
and Exchange Commission on July 31, 2014 and hereby incorporated by reference.
46
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
2017 Cash-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 1, 2017, as filed with the Securities and Exchange
Commission on May 4, 2017, and hereby incorporated by reference.
2017 Stock-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 1, 2017 as filed with the Securities and Exchange
Commission on May 4, 2017 and hereby incorporated by reference.
2018 Performance Share Grant Terms and Conditions Pursuant to the Brunswick Corporation 2014
Stock Incentive Plan, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2018, as filed with the Securities and Exchange Commission on May
3, 2018, and hereby incorporated by reference.
2018 Performance Share Grant Terms and Conditions for Select Key Employees Pursuant to the
Brunswick Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as filed with the Securities
and Exchange Commission on May 3, 2018, and hereby incorporated by reference.
2018 Stock-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2018, as filed with the Securities and Exchange
Commission on May 3, 2018, and hereby incorporated by reference.
2018 Cash-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2018, as filed with the Securities and Exchange
Commission on May 3, 2018, and hereby incorporated by reference.
2018 Stock-Settled Restricted Stock Unit Grant Terms and Conditions for Select Key Employees
Pursuant to the Brunswick Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as filed with the
Securities and Exchange Commission on May 3, 2018, and hereby incorporated by reference.
2019 Brunswick Performance Plan Summary Terms and Conditions, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2019, as filed with the
Securities and Exchange Commission on May 1, 2019, and hereby incorporated by reference.
2019 Stock-Settled Restricted Stock Unit Grant Terms and Conditions for Select Key Employees
Pursuant to the Brunswick Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2019, as filed with the
Securities and Exchange Commission on May 1, 2019, and hereby incorporated by reference.
2019 Stock-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 2019, as filed with the Securities and Exchange
Commission on May 1, 2019, and hereby incorporated by reference.
2019 Cash-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 2019, as filed with the Securities and Exchange
Commission on May 1, 2019, and hereby incorporated by reference.
2019 Cash-Settled Restricted Stock Unit Grant Terms and Conditions for Select Key Employees
Pursuant to the Brunswick Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2019, as filed with the
Securities and Exchange Commission on May 1, 2019, and hereby incorporated by reference.
2019 Stock-Settled Stock Appreciation Right Grant Terms and Conditions Pursuant to the
Brunswick Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 2019, as filed with the Securities
and Exchange Commission on May 1, 2019, and hereby incorporated by reference.
Brunswick Corporation 2005 Automatic Deferred Compensation Plan as amended and restated
effective January 1, 2018, filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 30, 2019, as filed with the Securities and Exchange Commission on
May 1, 2019, and hereby incorporated by reference.
2020 Brunswick Performance Plan Summary Terms and Conditions.
2020 Performance Share Grant Terms and Conditions Pursuant to the Brunswick Corporation 2014
Stock Incentive Plan.
2020 Performance Share Grant Terms and Conditions Pursuant to the Brunswick Corporation 2014
Stock Incentive Plan --TSR Participants.
47
10.33*
10.34*
10.35*
10.36*
12.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104.1
2020 Stock-Settled Restricted Stock Unit Grant Terms and Conditions for Select Key Employees
Pursuant to the Brunswick Corporation 2014 Stock Incentive Plan.
2020 Stock-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan.
2020 Cash-Settled Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2014 Stock Incentive Plan.
2020 Cash-Settled Restricted Stock Unit Grant Terms and Conditions for Select Key Employees
Pursuant to the Brunswick Corporation 2014 Stock Incentive Plan.
Ratios.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File, formatted in Inline XBRL, is contained in Exhibit 101.
* Management contract or compensatory plan or arrangement.
48
Index to Financial Statements and Financial Statement Schedule
Brunswick Corporation
Financial Statements:
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Page
50
51
52
54
55
56
58
59
60
106
49
BRUNSWICK CORPORATION
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for the preparation, integrity, and objectivity of the financial statements and other
financial information presented in this Annual Report. The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States and reflect the effects of certain estimates and judgments made by management.
The Company's management is also responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the
effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on the Company's evaluation under the framework in Internal Control - Integrated Framework, management concluded that
internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in its attestation report, which is included herein.
Brunswick Corporation
Mettawa, Illinois
February 18, 2020
50
BRUNSWICK CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Brunswick Corporation
Mettawa, Illinois
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Brunswick Corporation and subsidiaries (the “Company”) as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report
dated February 18, 2020, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 18, 2020
51
BRUNSWICK CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Brunswick Corporation
Mettawa, Illinois
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brunswick Corporation and subsidiaries (the “Company”) as
of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders’ equity,
and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed
in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 18, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Power Products Trade Name Intangible Assets-Refer to Notes 1 and 11 to the financial statements
Critical Audit Matter Description
As of December 31, 2019, the carrying value of the Power Products trade name intangible assets was $111 million. Management
assesses the recoverability of the Power Products trade name intangible assets at least annually by estimating the fair value of the
trade name and comparing this fair value to the carrying value. The determination of the fair value requires management to make
significant estimates and assumptions related to royalty rates, discount rates, and forecasts of future Power Products revenues.
How the Critical Audit Matter Was Addressed in the Audit
• We tested the effectiveness of controls over management’s intangible assets impairment evaluation, including those over the
determination of the fair value of the Power Products trade name, such as controls related to management’s forecasts of future
Power Products revenues and selection of the royalty and discount rates.
52
• We evaluated
revenues
management's
to accurately
forecast
ability
historical
forecasts.
to management's
future Power Products
revenues
by comparing
actual
Power Products
• We evaluated
to:
forecasts
the reasonableness
of management's
forecasts
of future Power Products
revenues
by comparing
management's
strategic
revenues.
Historical
Internal
Forecasted
and selected
forecasts
information
companies
included
in its peer group.
presented to
management
in Company press releases
and the Board of Directors.
as well as in analyst
and industry
reports
of the Company
specialists,
underlying
we evaluated
the determination
of the royalty
and discount
and discount
rates by:
rates and the mathematical
the reasonableness
of the royalty
a range of independent
estimates
and comparing
those to the royalty
and discount
rates selected
by
of our fair value
information
• With the assistance
the source
Testing
of the calculation.
accuracy
Developing
management.
Isl DELOITTE & TOUCHE LLP
Chicago,
February 18, 2020
Illinois
We have served
as the Company's
auditor
since 2014.
53
BRUNSWICK CORPORATION
Consolidated Statements of Operations
(in millions, except per share data)
Net sales
Cost of sales
Selling, general and administrative expense
Research and development expense
Restructuring, exit and impairment charges
Operating earnings
Equity earnings
Pension settlement charge
Other expense, net
Earnings before interest and income taxes
Interest expense
Interest income
Transaction financing charges
Earnings before income taxes
Income tax provision
Net earnings from continuing operations
Discontinued operations:
(Loss) Earnings from discontinued operations, net of tax
Loss on disposal of discontinued operations, net of tax
(Loss) earnings from discontinued operations, net of tax
Net (loss) earnings
Earnings (loss) per common share:
Basic
Earnings from continuing operations
(Loss) Earnings from discontinued operations
Net (loss) earnings
Diluted
Earnings from continuing operations
(Loss) Earnings from discontinued operations
Net (loss) earnings
Weighted average shares used for computation of:
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
54
For the Years Ended December 31
2017
2018
2019
$
4,108.4
$
4,120.9
$
3,802.2
2,987.4
3,073.9
2,853.6
509.6
121.6
18.8
471.0
7.3
(292.8)
(2.1)
183.4
(76.0)
3.3
—
110.7
80.3
30.4
(117.5)
(43.9)
(161.4)
(131.0) $
$
0.36
(1.90)
(1.54) $
$
0.36
(1.89)
(1.53) $
85.2
85.6
$
$
$
$
$
515.2
121.5
54.8
355.5
7.7
—
(4.3)
358.9
(46.0)
2.9
(5.1)
310.7
57.3
253.4
11.9
—
11.9
458.1
111.6
48.6
330.3
6.1
(96.6)
(3.1)
236.7
(26.4)
2.6
—
212.9
111.6
101.3
45.1
—
45.1
265.3
$
146.4
$
$
$
$
2.89
0.14
3.03
2.87
0.14
3.01
87.6
88.2
1.13
0.51
1.64
1.12
0.50
1.62
89.4
90.1
BRUNSWICK CORPORATION
Consolidated Statements of Comprehensive Income
(in millions)
Net (loss) earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation:
Foreign currency translation adjustments (A)
Less: foreign currency translation reclassified into Net earnings (loss) (B)
Net foreign currency translation
Defined benefit plans:
Net actuarial losses (A)
Amortization of prior service credits (B)
Amortization of net actuarial losses (B)
Net defined benefit plans
Derivatives:
Net deferred gains (losses) on derivatives (A)
Net (gains) losses reclassified into Net earnings (loss) (B)
Net activity for derivatives
Other comprehensive income (loss)
Comprehensive income
For the Years Ended December 31
2019
2018
2017
$
(131.0) $
265.3
$
146.4
25.1
(13.8)
11.3
(11.3)
3.1
310.2
302.0
3.6
(7.2)
(3.6)
309.7
$
178.7
$
(17.3)
—
(17.3)
(3.3)
(0.5)
7.9
4.1
7.3
2.6
9.9
(3.3)
262.0
20.3
—
20.3
(8.1)
(0.5)
69.3
60.7
(7.5)
1.3
(6.2)
74.8
$
221.2
(A) The tax effects for the year ended December 31, 2019 were $(0.7) million for foreign currency translation, $5.1 million for net actuarial losses arising during
the period and $(1.4) million for derivatives. The tax effects for the year ended December 31, 2018 were $1.5 million for foreign currency translation, $1.2
million for net actuarial losses arising during the period and $(3.3) million for derivatives. The tax effects for the year ended December 31, 2017 were $(4.1)
million for foreign currency translation, $5.4 million for net actuarial losses arising during the period and $3.4 million for derivatives.
(B) See Note 19 – Comprehensive Income (Loss) for the tax effects for the years ended December 31, 2019, December 31, 2018 and December 31, 2017.
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
55
BRUNSWICK CORPORATION
Consolidated Balance Sheets
As of December 31
2019
2018
(in millions)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates fair value
$
320.3
$
294.4
Restricted cash
Short-term investments in marketable securities
Total cash and short-term investments in marketable securities
Accounts and notes receivable, less allowances of $8.5 and $8.7
Inventories
Finished goods
Work-in-process
Raw materials
Net inventories
Prepaid expenses and other
Current assets held for sale
Current assets
Property
Land
Buildings and improvements
Equipment
Total land, buildings and improvements and equipment
Accumulated depreciation
Net land, buildings and improvements and equipment
Unamortized product tooling costs
Net property
Other assets
Goodwill
Other intangibles, net
Equity investments
Deferred income tax asset
Operating lease assets
Other long-term assets
Long-term assets held for sale
Other assets
11.6
0.8
332.7
331.8
554.3
101.3
168.9
824.5
36.8
—
9.0
0.8
304.2
351.8
490.8
94.1
189.1
774.0
72.9
377.2
1,525.8
1,880.1
17.8
415.4
1,090.1
1,523.3
16.5
359.8
983.0
1,359.3
(863.8)
(791.9)
659.5
136.9
796.4
415.0
583.5
29.5
118.7
83.2
12.3
—
1,242.2
567.4
127.1
694.5
377.3
585.8
32.6
97.8
—
13.1
610.3
1,716.9
Total assets
$
3,564.4
$
4,291.5
56
BRUNSWICK CORPORATION
Consolidated Balance Sheets
As of December 31
2019
2018
(in millions)
Liabilities and shareholders’ equity
Current liabilities
Short-term debt and current maturities of long-term debt
$
41.3
$
Accounts payable
Accrued expenses
Current liabilities held for sale
Current liabilities
Long-term liabilities
Debt
Operating lease liabilities
Postretirement benefits
Other
Long-term liabilities held for sale
Long-term liabilities
Shareholders’ equity
Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares;
outstanding: 79,569,000 and 86,757,000 shares
Additional paid-in capital
Retained earnings
Treasury stock, at cost: 22,969,000 and 15,781,000 shares
Accumulated other comprehensive loss, net of tax:
Foreign currency translation
Defined benefit plans:
Prior service credits
Net actuarial losses
Unrealized losses on derivatives
Accumulated other comprehensive loss, net of tax
Shareholders’ equity
393.5
509.6
—
944.4
41.3
458.2
502.1
255.0
1,256.6
1,068.0
1,179.5
70.1
73.6
107.4
—
—
71.6
101.6
99.6
1,319.1
1,452.3
76.9
369.2
76.9
371.1
1,931.3
2,135.7
(1,023.1)
(638.0)
(37.6)
(48.9)
(3.0)
(7.3)
(5.5)
(6.1)
(306.2)
(1.9)
(53.4)
(363.1)
1,300.9
1,582.6
Total liabilities and shareholders’ equity
$
3,564.4
$
4,291.5
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
57
BRUNSWICK CORPORATION
Consolidated Statements of Cash Flow
(in millions)
Cash flows from operating activities
Net (loss) earnings
Less: net (loss) earnings from discontinued operations, net of tax
Net earnings from continuing operations
Depreciation and amortization
Stock compensation expense
Pension expense including settlement charges, net of (funding)
Asset impairment charges
Deferred income taxes
Changes in certain current assets and current liabilities
Change in accounts and notes receivable
Change in inventory
Change in prepaid expenses and other, excluding income taxes
Change in accounts payable
Change in accrued expenses
Long-term extended warranty contracts and other deferred revenue
Income taxes
Other, net
Net cash provided by operating activities of continuing operations
Net cash (used for) provided by operating activities of discontinued operations
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Sales or maturities of marketable securities
Investments
Acquisition of businesses, net of cash acquired
Proceeds from the sale of property, plant and equipment
Other, net
Net cash used for investing activities of continuing operations
Net cash provided by (used for) investing activities of discontinued operations
Net cash provided by (used for) investing activities
Cash flows from financing activities
Proceeds from issuances of short-term debt
Payments of short-term debt
Net proceeds from issuances of long-term debt
Payments of long-term debt including current maturities
Common stock repurchases
Cash dividends paid
Proceeds from share-based compensation activity
Tax withholding associated with shares issued for share-based compensation
Other, net
Net cash (used for) provided by financing activities of continuing operations
Net cash used for financing activities of discontinued operations
Net cash (used for) provided by financing activities
Effect of exchange rate changes
Net increase (decrease) in Cash and cash equivalents and Restricted cash
Cash and cash equivalents and Restricted cash at beginning of period
Cash and cash equivalents and Restricted cash at end of period
Less: Restricted cash
Cash and cash equivalents at end of period
Supplemental cash flow disclosures:
Interest paid
Income taxes paid, net
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
58
$
$
$
For the Years Ended December 31
2017
2018
2019
$
(131.0) $
(161.4)
30.4
138.7
17.3
293.3
3.0
(49.8)
265.3
11.9
253.4
124.0
16.7
(156.1)
32.1
31.0
(30.2)
(82.4)
(8.9)
61.4
17.6
7.9
4.9
3.1
274.5
62.5
337.0
(180.2)
—
(8.8)
(909.6)
0.4
(0.2)
(1,098.4)
(8.9)
(1,107.3)
298.9
(300.0)
794.6
(12.6)
(75.0)
(67.8)
1.4
(12.5)
(6.5)
620.5
—
620.5
(5.0)
(154.8)
458.2
303.4
9.0
294.4
46.8
21.7
$
$
$
$
146.4
45.1
101.3
87.1
15.9
32.2
37.7
92.2
(30.7)
(29.9)
2.9
21.7
13.5
9.1
(48.0)
3.2
308.2
92.1
400.3
(178.0)
35.0
(3.2)
(15.5)
7.9
—
(153.8)
(25.1)
(178.9)
—
—
—
(3.0)
(130.0)
(60.6)
6.2
(14.8)
—
(202.2)
(1.5)
(203.7)
6.9
24.6
433.6
458.2
9.4
448.8
33.0
73.5
41.4
(50.5)
5.7
(32.7)
(44.7)
4.0
114.4
4.8
475.3
(41.1)
434.2
(232.6)
—
2.4
(64.1)
7.3
—
(287.0)
481.7
194.7
655.0
(655.0)
223.6
(341.0)
(400.0)
(73.4)
2.8
(12.1)
(0.7)
(600.8)
—
(600.8)
0.4
28.5
303.4
331.9
11.6
320.3
79.5
18.2
$
$
$
BRUNSWICK CORPORATION
Consolidated Statements of Shareholders' Equity
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
$
76.9
$
382.0
$
1,881.0
$
(in millions, except per share data)
Balance, December 31, 2016
Net earnings
Other comprehensive income
Dividends ($0.685 per common share)
Compensation plans and other
Common stock repurchases
Balance, December 31, 2017
ASU No. 2014-09 adoption
Net earnings
Other comprehensive loss
Dividends ($0.78 per common share)
Compensation plans and other
Common stock repurchases
Balance, December 31, 2018
Net loss
Other comprehensive income
Dividends ($0.87 per common share)
Compensation plans and other
Common stock repurchases
Balance, December 31, 2019
—
—
—
—
—
—
—
—
(7.6)
—
76.9
374.4
—
—
—
—
—
—
—
—
—
—
(3.3)
—
76.9
371.1
—
—
—
—
—
—
—
—
(1.9)
—
146.4
—
(60.6)
—
—
1,966.8
(28.6)
265.3
—
(67.8)
—
—
2,135.7
(131.0)
—
(73.4)
—
—
$
76.9
$
369.2
$
1,931.3
(465.2) $
—
(434.6) $
—
—
—
19.8
(130.0)
(575.4)
—
—
—
—
12.4
(75.0)
(638.0)
—
—
—
14.9
(400.0)
$ (1,023.1) $
74.8
—
—
—
(359.8)
—
—
(3.3)
—
—
—
(363.1)
—
309.7
—
—
—
(53.4) $
Total
1,440.1
146.4
74.8
(60.6)
12.2
(130.0)
1,482.9
(28.6)
265.3
(3.3)
(67.8)
9.1
(75.0)
1,582.6
(131.0)
309.7
(73.4)
13.0
(400.0)
1,300.9
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
59
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 1 – Significant Accounting Policies
Basis of Presentation. Brunswick Corporation (Brunswick or the Company) has prepared its consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). As stated in Note 3 – Discontinued
Operations, Brunswick's results as discussed in the financial statements reflect continuing operations only, unless otherwise noted.
Principles of Consolidation. Brunswick's consolidated financial statements include the accounts of all majority owned and
controlled domestic and foreign subsidiaries. Intercompany balances and transactions have been eliminated.
Use of Estimates. The preparation of the consolidated financial statements in accordance with accounting principles generally
accepted in the United States (GAAP) requires management to make certain estimates. Actual results could differ materially from
those estimates. These estimates affect:
• The reported amounts of revenues and expenses during the reporting periods;
• The reported amounts of assets and liabilities at the date of the financial statements; and
• The disclosure of contingent assets and liabilities at the date of the financial statements.
Estimates in these consolidated financial statements include, but are not limited to:
• Allowances for doubtful accounts;
•
Inventory valuation reserves;
• Variable consideration related to recorded revenue;
• Reserves related to repurchase and recourse obligations;
• Warranty related reserves;
• Losses on litigation and other contingencies;
• Environmental reserves;
Insurance reserves;
•
• Valuation of goodwill and other intangible assets;
•
• Reserves related to restructuring, exit and impairment activities;
•
• Valuation allowances on deferred tax assets; and
•
Impairments of long-lived assets;
Postretirement benefit liabilities;
Income tax reserves.
Cash and Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. These investments include, but are not limited to, investments in money market funds,
bank deposits, federal government and agency debt securities and commercial paper.
Restricted Cash. Restricted Cash is primarily related to cash deposited in a trust that is pledged as collateral against certain
workers' compensation-related obligations to be restricted cash. Refer to Note 13 – Commitments and Contingencies for more
information.
Accounts and Notes Receivable and Allowance for Doubtful Accounts. The Company carries its accounts and notes receivable
at their face amounts less an allowance for doubtful accounts. On a regular basis, the Company records an allowance for uncollectible
receivables based upon known bad debt risks and past loss history, customer payment practices and economic conditions. Actual
collection experience may differ from the current estimate of net receivables. A change to the allowance for doubtful accounts
may be required if a future event or other change in circumstances results in a change in the estimate of the ultimate collectability
of a specific account.
Inventories. Inventories are valued at the lower of cost or net realizable value, with net realizable value equal to the estimated
selling price less the estimated costs to transact. Approximately 45 percent and 49 percent of the Company's inventories were
determined by the first-in, first-out method (FIFO) at December 31, 2019 and December 31, 2018, respectively. Remaining
inventories valued at the last-in, first-out method (LIFO) were $139.9 million and $135.5 million lower than the FIFO cost of
inventories at December 31, 2019 and 2018, respectively. Inventory cost includes material, labor and manufacturing overhead.
There were no liquidations of LIFO inventory layers in 2019, 2018 or 2017.
60
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Property. Property, including major improvements and product tooling costs, is recorded at cost. Product tooling costs
principally comprise the cost to acquire and construct various long-lived molds, dies and other tooling the Company uses in its
manufacturing processes. Design and prototype development costs associated with product tooling are expensed as incurred.
Maintenance and repair costs are also expensed as incurred. Depreciation is recorded over the estimated service lives of the related
assets, principally using the straight-line method. Buildings and improvements are depreciated over a useful life of five to forty
years. Equipment is depreciated over a useful life of two to twenty years. Product tooling costs are amortized over the shorter of
the useful life of the tooling or the anticipated life of the applicable product, for a period up to eight years. The Company capitalizes
interest on qualifying assets during the construction period and capitalized $5.0 million and $2.2 million in the periods ending
December 31, 2019 and 2018, respectively. The Company presents capital expenditures on a cash basis within the Consolidated
Statements of Cash Flows. There were $27.5 million and $65.0 million of unpaid capital expenditures within Accounts payable
as of December 31, 2019 and 2018, respectively. The Company includes gains and losses recognized on the sale and disposal of
property in either Selling, general and administrative expenses or Restructuring, exit and impairment charges as appropriate. The
amount of gains and losses for the years ended December 31 were as follows:
(in millions)
Gains on the sale of property
Losses on the sale and disposal of property
Net (losses) gains on sale and disposal of property
2019
2018
2017
$
$
$
1.8
(2.4)
(0.6) $
$
0.3
(0.8)
(0.5) $
0.7
(0.6)
0.1
As of December 31, 2019 and 2018, the Company had $3.0 million and $8.9 million, respectively, of net assets classified as
held-for-sale within Net property in the Consolidated Balance Sheets.
Software Development Costs for Internal Use. The Company expenses all software development and implementation costs
incurred until the Company has determined that the software will result in probable future economic benefit and management has
committed to funding the project. Once this is determined, external direct costs of material and services, payroll-related costs of
employees working on the project and related interest costs incurred during the application development stage are capitalized.
These capitalized costs are amortized over three to seven years. All other related costs, including training costs and costs to re-
engineer business processes, are expensed as incurred.
Goodwill. Goodwill results from the excess of purchase price over the net assets of businesses acquired. The Company reviews
goodwill for impairment annually and whenever events or changes in circumstances indicate that the fair value of a reporting unit
may be below its carrying value. As part of the annual test, the Company may perform a qualitative, rather than quantitative,
assessment to determine whether the fair values of its reporting units are “more likely than not” to be greater than their carrying
values. In performing this qualitative analysis, the Company considers various factors, including the effect of market or industry
changes and the reporting units' actual results compared to projected results.
If the fair value of a reporting unit does not meet the "more likely than not" criteria discussed above, the Company performs
a quantitative assessment which begins by measuring the fair value of the reporting unit. If the carrying value of the reporting unit
exceeds its fair value, a goodwill impairment is recorded equal to the carrying value of the reporting unit less its fair value, not to
exceed the carrying value of goodwill.
The Company calculates the fair value of its reporting units considering both the income approach and the guideline public
company method. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach
utilizing a Gordon Growth model. Internally forecasted future cash flows, which the Company believes reasonably approximate
market participant assumptions, are discounted using a weighted average cost of capital (Discount Rate) developed for each
reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a
measure of risk related to the specific reporting unit’s forecasted performance. Fair value under the guideline public company
method is determined for each unit by applying market multiples for comparable public companies to the unit’s current and
forecasted financial results. The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s
forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those
forecasts in determining the Discount Rate, along with selecting representative market multiples.
The Company did not record any goodwill impairments in 2019, 2018 or 2017 in continuing operations. Refer to Note 3 –
Discontinued Operations for further information on the Fitness goodwill impairment recorded during 2019.
61
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Other intangible assets. The Company's primary intangible assets are customer relationships and trade names acquired in
business combinations. Intangible assets are initially valued using a methodology commensurate with the intended use of the asset.
The customer relationships including those acquired in the Power Products acquisition, which constitute the majority of the
Company's customer relationships, were valued using the income approach, specifically the multi-period excess earnings method
(MPEEM). The fair value of trade names, including the Power Products trade names, is measured using a relief-from-royalty
(RFR) approach, which assumes the value of the trade name is the discounted amount of cash flows that would be paid to third
parties had the Company not owned the trade name and instead licensed the trade name from another company. Higher royalty
rates are assigned to premium brands within the marketplace based on name recognition and profitability, while other brands
receive lower royalty rates. The basis for future sales projections for both the RFR and MPEEM are based on internal revenue
forecasts by brand, which the Company believes represent reasonable market participant assumptions. The future cash flows are
discounted using an applicable Discount Rate as well as any potential risk premium to reflect the inherent risk of holding a
standalone intangible asset.
The key uncertainties in the RFR and MPEEM calculations, as applicable, are: assumptions used in developing internal revenue
growth and expense forecasts, assumed customer attrition rates, the selection of an appropriate royalty rate, as well as the perceived
risk associated with those forecasts in determining the Discount Rate.
The costs of amortizable intangible assets are recognized over their expected useful lives, typically between three and fifteen
years, using the straight-line method. Intangible assets that are subject to amortization are evaluated for impairment using a process
similar to that used to evaluate long-lived assets described below. Intangible assets not subject to amortization are assessed for
impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset
may be impaired. The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible
asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value
of the asset.
Refer to Note 5 – Acquisitions and Note 11 – Goodwill and Other Intangibles in the Notes to Consolidated Financial
Statements for more information.
Equity Investments. For investments in which the Company owns or controls from 20 percent to 50 percent of the voting
shares, the Company uses the equity method of accounting. The Company's share of net earnings or losses from equity method
investments is included in the Consolidated Statements of Operations. The Company carries other investments, for which the
Company does not have the ability to exercise significant influence, at fair value, with changes in fair value recognized in net
income. For equity investments that do not have a readily determinable fair value, the Company measures the investment at cost
less impairment, plus or minus observable price changes. The Company periodically evaluates the carrying value of its investments.
See Note 9 – Investments for further details about the Company's evaluation of the fair value of its investments.
Long-Lived Assets. The Company continually evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful lives of its definite-lived intangible assets and other long-lived assets may warrant revision or that the
remaining balance of such assets may not be recoverable. Once an impairment indicator is identified, the Company tests for
recoverability of the related asset group using an estimate of undiscounted cash flows over the asset group's remaining life. If an
asset group's carrying value is not recoverable, the Company records an impairment loss based on the excess of the carrying value
of the asset group over the long-lived asset group's fair value. Fair value is determined using observable inputs, including the use
of appraisals from independent third parties, when available, and, when observable inputs are not available, based on the Company's
assumptions of the data that market participants would use in pricing the asset, based on the best information available in the
circumstances. Specifically, the Company uses discounted cash flows to determine the fair value of the asset when observable
inputs are unavailable. The Company tested its long-lived asset balances for impairment as indicators arose during 2019, 2018
and 2017, resulting in impairment charges of $3.0 million, $12.7 million and $31.0 million, respectively, which are recognized
either in Restructuring, exit and impairment charges or Selling, general and administrative expense in the Consolidated Statements
of Operations.
Other Long-Term Assets. Other long-term assets consists mainly of capitalized financing costs, long-term pension assets and
deposits.
Revenue Recognition. Revenue is recognized as performance obligations under the terms of contracts with customers are
satisfied; this occurs when control of promised goods is transferred to the customer. The Company recognizes revenue related to
the sale of extended warranty contracts that extend the coverage period beyond the standard warranty period over the life of the
extended warranty period.
62
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Revenue is measured as the amount of consideration expected to be entitled in exchange for transferring goods or providing
services. The Company has excluded sales, value add, and other taxes collected concurrent with revenue-producing activities from
the determination of the transaction price for all contracts. The Company has elected to account for shipping and handling activities
that occur after the customer has obtained control of a good as a fulfillment activity. For all contracts with customers, the Company
has not adjusted the promised amount of consideration for the effects of a significant financing component as the period between
the transfer of the promised goods and the customer's payment is expected to be one year or less.
For product sales, the Company transfers control and recognizes revenue at the time the product ships from a manufacturing
or distribution facility ("free on board shipping point"), or at the time the product arrives at the customer's facility ("free on board
destination"). When the shipping terms are "free on board shipping point", the customer obtains control and is able to direct the
use of, and obtain substantially all of the benefits from, the products at the time the products are shipped. For shipments provided
under “free on board destination”, control transfers to the customer upon delivery. Payment terms vary but are generally due within
30 days of transferring control. For the Company's Boat and Marine Engine segments, most product sales to dealers are wholesale
financed through the Company's joint venture, Brunswick Acceptance Company, LLC (BAC), or other lending institutions, and
payment is typically due in the month of shipment. For further information on the BAC joint venture, refer to Note 10 – Financing
Joint Venture. In addition, periodically the Company may require the customer to provide up front cash deposits in advance of
performance.
The Company also sells separately priced extended warranty contracts that extend the coverage period beyond the standard
warranty period. When determining an appropriate allocation of the transaction price to the extended warranty performance
obligation, the Company uses an observable price to determine the stand-alone selling price. Extended warranties typically range
from an additional 1 year to 3 years. The Company receives payment at the inception of the contract and recognizes revenue over
the extended warranty coverage period. This time-elapsed method is used to measure progress because the Company, on average,
satisfies its performance obligation evenly over the warranty period.
See Note 2 – Revenue Recognition for more information.
Advertising Costs. The Company records advertising and promotion costs in Selling, general and administrative expense in
the Consolidated Statements of Operations in the period when the advertising first takes place. Advertising and promotion costs
were $35.6 million, $31.7 million and $26.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Foreign Currency. The functional currency for the majority of Brunswick's operations is the U.S. dollar. All assets and
liabilities of operations with a functional currency other than the U.S. dollar are translated at period end current rates. The resulting
translation adjustments are recorded in Accumulated other comprehensive loss, net of tax. Revenues and expenses of operations
with a functional currency other than the U.S. dollar are translated at the average exchange rates for the period. Transaction gains
and losses resulting from changes in foreign currency exchange rates are recorded in either Cost of sales or Other expense, net in
the Consolidated Statements of Operations.
Trademark Licensing Agreement. On September 18, 2014, the Company completed the sale of its retail bowling business to
AMF Bowling Centers, Inc. (AMF) and entered into a trademark licensing agreement, allowing AMF to use the Company's retail
trademarks and trade names over a five year period from the date of sale. As a result, the Company recorded deferred income of
$20.7 million related to this agreement, which was recognized as Other expense, net in the Consolidated Statements of Operations
over five years. There was no deferred income remaining as of December 31, 2019.
Share-Based Compensation. The Company records amounts for all share-based compensation, including non-vested stock
awards and performance-based share awards over the vesting period in the Consolidated Statements of Operations based upon
their fair values at the date of the grant. Share-based compensation costs are included in Selling, general and administrative expense
in the Consolidated Statements of Operations. See Note 18 – Stock Plans and Management Compensation for a description of
the Company's accounting for share-based compensation plans.
Research and Development. Research and development costs are expensed as incurred.
Derivatives. The Company uses derivative financial instruments to manage its risk associated with movements in foreign
currency exchange rates and interest rates. These instruments are used in accordance with guidelines established by the Company's
management and are not used for trading or speculative purposes. The Company records all derivatives on the Consolidated Balance
Sheets at fair value. See Note 14 – Financial Instruments for further discussion.
63
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Recently Adopted Accounting Standards
Recognition of Leases: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2016-02, Leases, (new leasing standard), which amended the Accounting Standards Codification (ASC) to require
lessees to recognize assets and liabilities on the balance sheet for all leases with terms greater than twelve months. On January 1,
2019, the Company adopted the new leasing standard and all related amendments. The Company elected the optional transition
method provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements, and as a result, has not restated its
consolidated financial statements for prior periods presented. The Company has elected the practical expedients upon transition
to retain the lease classification and initial direct costs for any leases that existed prior to adoption. The Company has also not
reassessed whether any contracts entered into prior to adoption are leases.
The standard did not have a material impact on the Company's Consolidated Statements of Operations. The cumulative effect
of the changes made to the Company's Consolidated Balance Sheet as of January 1, 2019 for the adoption of the new leasing
standard was as follows:
(in millions)
Assets
Operating lease assets
Long-term assets held for sale
Current liabilities
Accrued expenses
Current liabilities held for sale
Long-term liabilities
Other
Operating lease liabilities
Long-term liabilities held for sale
Balance as of
December 31,
2018
Adjustments
Due to ASC
842
Balance as of
January 1,
2019
$
— $
610.3
$
80.1
21.1
80.1
631.4
502.1
255.0
101.6
—
99.6
16.4
2.9
(3.4)
67.1
18.2
518.5
257.9
98.2
67.1
117.8
The Company determines if an arrangement is a lease at lease inception. Operating lease assets and operating lease liabilities
are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As
most of the Company's lease contracts do not include an implicit rate, the Company uses its incremental borrowing rate based on
information available at commencement date in determining the present value of future payments. The incremental borrowing rate
is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments
where the leased asset is located. The operating lease asset also includes any initial direct costs and lease payments made prior to
lease commencement and excludes lease incentives incurred.
The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company
will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease
term. The Company has certain lease agreements that contain both lease and non-lease components, which it has elected to account
for as a single lease component for all asset classes.
Measurement of Goodwill Impairment: In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other
(Topic 350), Simplifying the Test for Goodwill Impairment. The standard simplifies the subsequent measurement of goodwill by
eliminating step two from the goodwill impairment test. Instead, goodwill impairment is measured as the difference between the
fair value and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax-
deductible goodwill when measuring goodwill impairment loss. The Company early adopted this amendment on January 1, 2019,
which did not have a material impact on the consolidated financial statements but will impact future goodwill impairment
measurement.
64
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Tax Effects in Other Comprehensive Income: In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income (AOCI), which requires certain new disclosures and permits companies
to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within AOCI to retained earnings.
The Company currently records its stranded tax effects in AOCI using the portfolio approach. Upon adoption, the Company elected
not to reclassify stranded tax effects in AOCI to retained earnings and there was no impact on its consolidated financial statements.
Hedge Accounting: In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging
Activities, to simplify the application of hedge accounting and to better align an entity's risk management activities with the financial
reporting of hedging relationships. The Company adopted this ASC amendment and it did not have a material impact on its
consolidated financial statements.
Recently Issued Accounting Standards
Defined Benefit Plan Disclosures: In August 2018, the FASB issued ASU 2018-14, Disclosure Framework - Changes to the
Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined
benefit pension or other postretirement plans. The amendment is effective for interim and annual periods ending after December
15, 2020, with early adoption permitted. The company has recently adopted this standard and it did not have a material impact on
the consolidated financial statements.
Current Expected Credit Loss: In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial
Instruments, which updated the ASC to add an impairment model that is based on expected losses rather than incurred losses. On
January 1, 2020, the Company adopted this standard and the adoption will not have a material impact on the consolidated financial
statements.
Note 2 – Revenue Recognition
The following table presents the Company's revenue into categories that depict how the nature, amount, timing and uncertainty
of revenue and cash flows are affected by economic factors:
(in millions)
Geographic Markets
United States
Europe
Asia-Pacific
Canada
Rest-of-World
Marine eliminations
Total
Major Product Lines
Parts & Accessories
Propulsion
Aluminum Freshwater Boats
Recreational Fiberglass Boats
Saltwater Fishing Boats
Business Acceleration
Marine eliminations
Total
Year Ended December 31, 2019
Year Ended December 31, 2018
Marine
Engine
Boat
Total
Marine
Engine
Boat
Total
$
$
$
$
2,131.1
410.9
246.6
142.8
142.1
(298.9)
2,774.6
1,594.2
1,479.3
—
—
—
—
(298.9)
2,774.6
$
$
$
$
1,008.5
115.6
31.2
154.8
23.7
—
1,333.8
$
$
— $
—
556.6
438.8
316.6
21.8
—
1,333.8
$
3,139.6
526.5
277.8
297.6
165.8
(298.9)
4,108.4
1,594.2
1,479.3
556.6
438.8
316.6
21.8
(298.9)
4,108.4
$
$
$
$
2,106.6
373.7
228.8
150.5
134.0
(344.0)
2,649.6
1,442.0
1,551.6
—
—
—
—
(344.0)
2,649.6
$
$
$
$
1,119.9
132.9
35.7
157.5
25.3
—
1,471.3
$
$
— $
—
619.0
485.9
362.1
4.3
—
1,471.3
$
3,226.5
506.6
264.5
308.0
159.3
(344.0)
4,120.9
1,442.0
1,551.6
619.0
485.9
362.1
4.3
(344.0)
4,120.9
As of January 1, 2019, $74.8 million of contract liabilities associated with extended warranties and customer deposits were
reported in Accrued expenses and Other Long-term liabilities with $21.7 million of this amount recognized as revenue during year
ended December 31, 2019. As of December 31, 2019, total contract liabilities were $96.2 million. The total amount of the transaction
65
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
price allocated to unsatisfied performance obligations as of December 31, 2019 is $88.8 million for contracts greater than one
year, which includes extended warranties. The Company expects to recognize approximately $26.3 million of this amount in 2020
and $62.5 million thereafter. Contract assets as of January 1, 2019 and December 31, 2019 were not material. In addition, costs
to obtain and fulfill contracts during the period were not material.
Note 3 – Discontinued Operations
On May 6, 2019, the Company announced that it reached an agreement to sell its Fitness business to KPS Capital Partners,
LP. On June 27, 2019, the Company completed the sale. The Company determined that the sale of its Fitness business represented
a strategic shift that had a major effect on the Company's operations and financial results. The Company no longer participates in
the fitness industry and now solely focuses on its global marine portfolio. As a result, the Company classified the assets and
liabilities of the Fitness business as held for sale on the Consolidated Balance Sheets for all prior periods. Additionally, this business,
which was previously reported in the Company's Fitness segment, is being reported as discontinued operations in the Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for all periods presented.
The sale of the Fitness business resulted in net proceeds of $473.7 million and an after-tax loss of $43.9 million, subject to a
working capital adjustment. In connection with the sale of its Fitness business, the Company retained assets of $26.4 million
primarily related to VAT receivables, and retained liabilities of $45.1 million primarily related to VAT payables, product warranty
liabilities and certain employee benefits. As of December 31, 2019, retained assets and liabilities were $16.4 million and $30.5
million, respectively.
In connection with the sale of the Fitness business, the Company entered into a Transition Services Agreement (TSA) with
the purchaser to provide certain support functions for a period of up to twelve months following the sale. The TSA is not material
to the Company's consolidated financial statements. The Company does not have or anticipate having any significant continuing
net cash flows associated with the Fitness business.
The following table discloses the results of operations of the business reported as discontinued operations for the year ended
December 31, 2019, December 31, 2018 and December 31, 2017 respectively:
(in millions)
Net sales
Cost of sales
Selling, general and administrative expense (C) (D)
Research and development expense
Restructuring, exit and impairment charges
Other (income), net
(Loss) earnings from discontinued operations before income taxes (B) (C) (D)
Income tax (benefit) provision
(Loss) earnings from discontinued operations, net of tax (B) (C) (D)
Loss on disposal of discontinued operations, net of tax (A)
Net (loss) earnings from discontinued operations, net of tax
$
$
2019
448.3
334.6
113.3
12.6
138.3
(0.3)
(150.2)
(32.7)
(117.5)
(43.9)
(161.4) $
2018
$ 1,038.3
764.3
206.1
27.4
26.1
(0.1)
14.5
2.6
11.9
—
11.9
2017
$ 1,033.7
720.1
177.9
34.8
32.8
(0.2)
68.3
23.2
45.1
—
45.1
$
(A) The Loss on disposal of discontinued operations, net of tax for the year ended December 31, 2019 includes a pre-tax loss of $51.3 million and a net tax benefit
of $7.4 million.
(B) In the first quarter of 2019, the Company re-evaluated the fair value of the Fitness reporting unit and determined the fair value of the business was less than
its carrying value. As a result, (Loss) Earnings from discontinued operations, net of tax, includes a $137.2 million ($103.0 million after tax) goodwill impairment
charge for the year ended December 31, 2019.
(C) The Company recorded $16.5 million and $19.3 million for the year ended December 31, 2019 and December 31, 2018, respectively, of net costs incurred in
connection with the sale of Fitness.
(D) The Company recorded adjustments to certain liabilities that were retained as part of the sale of the bowling businesses. As a result, (Loss) earnings from
discontinued operations, net of tax, includes a gain of $3.0 million ($2.2 million after tax) for the year ended December 31, 2018.
66
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
There were no assets and liabilities held for sale related to discontinued operations as of December 31, 2019. The following
table reflects the summary of assets and liabilities held for sale as of December 31, 2018 primarily related to the Fitness business
included in discontinued operations:
(in millions)
Accounts and notes receivable, net
Net inventory
Prepaid expenses and other
Current assets held for sale
Net property (A)
Goodwill
Other intangibles, net
Other assets
Long-term assets held for sale
Assets held for sale
Accounts payable
Accrued expenses
Current liabilities held for sale
Other liabilities
Long-term liabilities held for sale
Liabilities held for sale
December 31,
2018
$
$
$
$
198.9
169.7
8.6
377.2
110.9
389.8
60.6
49.0
610.3
987.5
69.7
185.3
255.0
99.6
99.6
354.6
(A) As of December 31, 2018, the Company had $8.9 million of net long-term assets classified as held for sale that were not related to the business reported as
discontinued operations.
67
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 4 – Restructuring, Exit and Impairment Activities
The Company has announced and implemented a number of initiatives designed to improve its cost structure, better utilize
overall capacity and improve general operating efficiencies. These initiatives resulted in the recognition of restructuring, exit and
impairment charges in the Consolidated Statements of Operations during 2019, 2018 and 2017.
The costs incurred under these initiatives include:
• Restructuring and Exit Activities – These amounts relate to:
• Employee termination and other benefits
• Inventory adjustments to lower of cost or net realizable value
• Costs to retain and relocate employees
• Consulting costs
• Consolidation of manufacturing footprint
• Facility shutdown costs
• Costs associated with the wind-down of Sport Yacht & Yachts
• Asset Disposition and Impairment Actions – These amounts relate to impairments of assets and gains on the sale of
assets previously impaired as part of a restructuring or exit activity. The impairments recognized were equal to the
difference between the carrying amount of the asset and the estimated fair value of the asset, which was determined
using observable inputs, including appraisals from independent third parties when available. When observable inputs
were not available, estimated fair value was determined using the Company’s assumptions, including the data that
market participants would use in pricing the asset, based on the best information available in the
circumstances. Specifically, the Company used discounted cash flows to determine the fair value of the asset when
observable inputs were unavailable.
The Company has reported restructuring, exit and impairment activities based on the specific driver of the cost and reflected
the expense in the accounting period when the Company has committed to or incurred the cost, as appropriate. The following table
is a summary of the net expense associated with the restructuring, exit and impairment activities.
(in millions)
Restructuring and exit activities:
Employee termination and other benefits
Current asset write-downs
Professional fees
Other (A)
Asset disposition and impairment actions:
Definite-lived and other asset impairments
Valuation (reversal) allowance on disposal group
Total restructuring, exit and impairment charges
2019
2018
2017
$
11.7
$
9.5
$
0.5
3.1
0.5
3.0
—
$
18.8
$
18.9
8.0
10.7
12.7
(5.0)
54.8
$
3.2
7.2
1.1
1.1
31.0
5.0
48.6
(A) The charges in 2018 relate to warranty adjustments in connection with the wind-down of Sport Yacht & Yachts.
The following tables summarize the change in accrued restructuring, exit and impairment charges within Accrued expenses
in the Consolidated Balance Sheets for the years ended December 31, 2019, 2018 and 2017:
(in millions)
Marine Engine
Boat
Corporate
Accrued balance
Dec 31, 2018
Accrued
Charges
2019 Activity
Non-Cash
Charges
Payments (A)
Dec 31, 2019
Accrued
Charges (B)
$
$
Total Charges
4.7
— $
$
15.4
0.7
9.6
4.5
16.1
$
18.8
$
68
— $
(3.5)
—
(3.5) $
(3.4) $
(15.5)
(3.7)
(22.6) $
1.3
6.0
1.5
8.8
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Dec 31, 2017
Accrued
Charges
$
$
3.7
—
3.7
Dec 31, 2016
Accrued
Charges
$
0.7
2018 Activity
Non-Cash
Charges
Payments (A)
Dec 31, 2018
Accrued
Charges
$
$
(26.6) $
—
(26.6) $
(15.8) $
—
(15.8) $
15.4
0.7
16.1
Total Charges
54.1
$
0.7
54.8
$
2017 Activity
Non-Cash
Charges
Payments (A)
Dec 31, 2017
Accrued
Charges
$
(43.2) $
(2.4) $
3.7
Total Charges
48.6
$
(in millions)
Boat
Corporate
Accrued balance
(in millions)
Boat
(A) Cash payments may include payments related to prior period charges.
(B) The accrued charges as of December 31, 2019 are expected to be paid during 2020.
Reductions in demand for the Company’s products, further refinement of its product portfolio, further opportunities to reduce
costs or the cost of integrating future acquisitions may result in additional restructuring, exit and impairment charges in future
periods.
Actions Initiated in 2019
During 2019, the Company recorded restructuring charges within the Boat segment related to consolidating its commercial
and government products operations in order to rationalize its product line to better align with customer demand.
In addition, the Company announced headcount reductions aimed at streamlining the cost structure of its enterprise-wide
general and administrative functions, and recorded restructuring charges in 2019 as a result of these actions.
The following table is a summary of the expenses associated with the restructuring, exit and impairment activities for the year
ended December 31, 2019, related to actions initiated in 2019:
(in millions)
Restructuring and exit activities:
Marine Engine
Boat
Corporate
Total
Employee termination and other benefits
$
4.7
$
Current asset write-downs
Professional fees
Other
Asset disposition and impairment actions:
Definite-lived and other asset impairments
Total restructuring, exit and impairment charges
$
Actions Initiated in 2018
—
—
—
—
4.7
$
3.9
0.5
1.7
0.5
3.0
9.6
$
$
3.1
—
1.4
—
—
4.5
$
$
11.7
0.5
3.1
0.5
3.0
18.8
In the second quarter of 2018, the Company ended the sale process of Sea Ray. As a result, the Company recorded an additional
impairment of long-lived assets. During the second, third and fourth quarters of 2018, the Company also recorded additional
charges in connection with the wind down of Sport Yacht & Yachts, mainly relating to inventory write-downs, increased warranty
liabilities and employee severance and retention bonuses. These costs were partially offset by the reversal of the valuation allowance
in the second quarter of 2018 for estimated transaction costs which was recorded when the assets and liabilities of Sea Ray were
initially classified as held for sale.
In 2018, the Company executed headcount reductions in the Boat segment aimed at improving general operating efficiencies.
The Company also recorded charges within Corporate related to the transition of certain corporate officers.
The following table is a summary of the expenses associated with the restructuring, exit and impairment activities for the year
ended December 31, 2018, related to actions initiated in 2018:
69
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
(in millions)
Restructuring and exit activities:
Employee termination and other benefits
Current asset write-downs
Professional fees
Other
Asset disposition and impairment actions:
Definite-lived and other asset impairments
Total restructuring, exit and impairment charges
Actions Initiated in 2017
Boat
Corporate
Total
4.7
$
0.7
$
18.9
3.9
10.7
12.7
50.9
$
—
—
—
—
0.7
$
5.4
18.9
3.9
10.7
12.7
51.6
$
$
In the fourth quarter of 2017, the Board of Directors authorized the Company to exit its Sea Ray business, including the
Meridian brand. In conjunction with this decision, the Company evaluated the disposal group's fair value, less costs to sell, and
compared that to its carrying value at the time. As a result, the Company recorded an impairment of long-lived assets as well as a
valuation allowance for estimated transaction costs.
In the second, third and fourth quarters of 2017, the Company implemented headcount reductions in the Boat segment aimed
at improving general operating efficiencies.
In the first quarter of 2017, the Company announced the closure of its boat manufacturing facility in Joinville, Santa Catarina,
Brazil, as a result of continued market weakness due partially to unfavorable foreign currency impacts in the region. As a result,
the Company recorded restructuring, exit and impairment charges including the write-down of inventory. The facility manufactured
certain Bayliner and Sea Ray boat models for the Latin American market. The long-lived assets at this facility were previously
fully impaired.
The following table is a summary of the expense associated with the restructuring, exit and impairment activities within the
Boat segment, for the years ended December 31, 2018 and 2017, related to actions initiated in 2017:
(in millions)
Restructuring and exit activities:
Employee termination and other benefits
Current asset write-downs (reversals)
Professional fees
Other
Asset disposition and impairment actions:
Definite-lived and other asset impairments
Valuation allowance (reversal) on disposal
Total restructuring, exit, integration and impairment charges
2018
2017
$
$
$
4.1
—
4.1
—
—
(5.0)
3.2
$
3.2
7.2
1.1
1.1
31.0
5.0
48.6
70
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 5 – Acquisitions
2019 Acquisitions
On May 21, 2019, the Company acquired 100 percent of Freedom Boat Club, a leading boat club operator based in Florida.
The acquisition expands the Company's presence and scale within the emerging and fast-growing boat club market, providing its
over 20,000 members access to a fleet of nearly 2,500 boats. Freedom Boat Club is included as part of the Company's Boat segment.
The net cash consideration the Company paid to acquire Freedom Boat Club was $64.1 million, in addition to acquisition-
related transaction costs of $2.5 million, for the year ended December 31, 2019. The preliminary opening balance sheet included
$29.2 million of identifiable intangible assets, including customer relationships, franchise agreements and trade names for $11.1
million, $4.9 million and $13.2 million, respectively, along with $26.4 million of goodwill, most of which is deductible for tax
purposes. The amount assigned to Freedom Boat Club's customer relationships and franchise agreements will be amortized over
their estimated useful lives of approximately 10 years and 15 years, respectively. These amounts recorded are preliminary and are
subject to change within the measurement period as the Company finalizes its fair value estimates.
The 2019 Freedom Boat Club acquisition is not material to the Company's net sales, results of operations or total assets during
any period presented. Accordingly, the Company's consolidated results from operations do not differ materially from historical
performance as a result of this acquisition and, therefore, pro forma results are not presented.
2018 Acquisitions
On August 9, 2018, the Company completed its acquisition of the Global Marine & Mobile business of Power Products
Holdings, LLC (Power Products) for $909.6 million in cash, on a cash-free, debt-free basis. Brunswick used proceeds from a
combination of 364-day, three-year and five-year term loans (Term Loans) totaling $800.0 million as described in the Annual
Report on Form 10-K for the fiscal year ended December 31, 2018, along with cash on hand to fund this acquisition.
Power Products is a leading provider of electrical products to marine and other recreational and specialty vehicle markets.
The acquisition advances Brunswick’s leadership by adding integrated electrical systems solutions to the marine market and an
array of other mobile, specialty vehicle and industrial applications. Power Products is managed as part of the Marine Engine
segment.
The following table is a summary of the assets acquired, liabilities assumed and net cash consideration paid for the Power
Products acquisition during 2018:
(in millions)
Accounts and notes receivable
Inventory
Goodwill (A) (B) (C)
Trade names
Customer relationships
Property and equipment
Other assets
Total assets acquired
Accounts payable (B)
Accrued expenses (B) (C)
Deferred tax liabilities (C)
Total liabilities assumed
Fair Value
Useful Life
$
38.3
64.3
355.5
111.0
Indefinite
430.0
15 years
10.6
5.6
1,015.3
27.3
22.0
56.4
105.7
Net cash consideration paid (B) (C)
$
909.6
(A) The goodwill recorded for the acquisition of Power Products is partially deductible for tax purposes.
71
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
(B) Includes $4.4 million and $3.0 million of purchase accounting adjustments in the first and second quarters of 2019, respectively, primarily related to contingency
reserves.
(C) Includes $3.9 million of purchase accounting adjustments in the third quarter of 2019 primarily related to deferred taxes.
Pro Forma Financial Information (Unaudited)
The pro forma information has been prepared as if the Power Products acquisition and the related debt financing had occurred
on January 1, 2018. These pro forma results are based on estimates and assumptions which the Company believes to be reasonable.
They are not the results that would have been realized had the acquisition actually occurred on January 1, 2018 and are not
necessarily indicative of Brunswick's consolidated net earnings in future periods. The pro forma results include adjustments
primarily related to interest expense on the Term Loans and amortization of intangible assets.
(in millions)
Pro forma Net sales
Pro forma Operating earnings
Pro forma Net earnings from continuing operations
Year Ended
December 31, 2018
$
4,271.1
362.8
239.8
The pro forma results reflect an effective income tax rate of 17.2 percent for the year ended December 31, 2018.
Note 6 – Segment Information
Brunswick is a manufacturer and marketer of leading consumer brands and has two reportable segments: Marine Engine and
Boat. The Company’s segments are defined by management’s reporting structure and operating activities.
The Marine Engine segment manufactures and markets a full range of outboard engines, sterndrive engines, inboard engines
and marine parts and accessories, which are principally sold directly to boat builders, including Brunswick's Boat segment, or
through marine retail dealers and distributors worldwide. The Company's engine manufacturing plants are located mainly in the
United States, China and Japan, with sales mainly to markets in the Americas, Europe and Asia-Pacific.
The Boat segment designs, manufactures and markets the following types of boats: fiberglass pleasure, sport cruiser, sport
fishing and center-console, offshore fishing, aluminum and fiberglass fishing, pontoon, utility, deck, inflatable, tow/wake, and
heavy-gauge aluminum. The Boat segment also includes the Business Acceleration business, which through innovative service
models, shared access solutions and emerging technology, aims to provide exceptional experiences to attract a wide range of
customers to the marine industry and shape the future of boating. The Boat segment's products are manufactured mainly in the
United States, Europe and Mexico and sold through a global network of dealer and distributor locations, primarily in North America
and Europe.
The Company evaluates performance based on business segment operating earnings. Segment operating earnings do not
include the expenses of corporate administration, pension costs, pension settlement charges, impairments or gains on the sale of
equity investments, earnings from unconsolidated equity affiliates, other expenses and income of a non-operating nature, transaction
financing charges, interest expense and income or provisions or benefits for income taxes.
Corporate/Other results include items such as corporate staff and administrative costs, investments in technology solutions,
business development and other growth-related expenses, including IT enhancements. Corporate/Other total assets consist of
mainly cash, cash equivalents and investments in marketable securities, restricted cash, income tax balances and investments in
unconsolidated affiliates. Marine eliminations adjust for sales between the Marine Engine and Boat segments, primarily for the
sale of engines and parts and accessories to various boat brands, which are consummated at established arm’s length transfer prices
as the intersegment pricing for these engines and parts and accessories are based upon and consistent with selling prices to third
party customers.
72
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Information about the operations of Brunswick's reportable segments is set forth below:
Reportable Segments
(in millions)
Marine Engine
Boat
Net Sales
2018
2019
2017
Operating Earnings (Loss)
2017
2018
2019
Total Assets(A)
2018
2019
$ 3,073.5
$ 2,993.6
$ 2,631.8
$
497.1
$
1,333.8
1,471.3
Marine eliminations
(298.9)
(344.0)
Total Marine
Corporate/Other
Total
4,108.4
4,120.9
—
—
—
$ 4,108.4
$ 4,120.9
$ 3,802.2
$
1,490.6
(320.2)
3,802.2
58.0
—
555.1
(84.1)
471.0
$
454.4
(12.5)
—
441.9
(86.4)
355.5
$
411.3
$ 2,522.4
$ 2,380.9
5.3
—
416.6
(86.3)
330.3
472.4
—
423.2
—
2,994.8
2,804.1
569.6
508.8
$ 3,564.4
$ 3,312.9
$
(A) As of December 31, 2018, the Company had $978.6 million of assets classified as held for sale in the Consolidated Balance Sheets relating to discontinued
operations. See Note 3 – Note 3 – Discontinued Operations for further detail.
(in millions)
Marine Engine
Boat
Corporate/Other
Total
(in millions)
Marine Engine
Boat
Corporate/Other
Total
Geographic Segments
(in millions)
United States
International
Corporate/Other
Total
Depreciation
2018
2019
2017
2019
Amortization
2018
2017
$
$
76.2
28.2
2.7
$
69.3
26.7
4.0
48.8
31.8
3.8
$
30.3
$
23.0
$
1.3
—
1.0
—
$
107.1
$
100.0
$
84.4
$
31.6
$
24.0
$
1.7
1.0
—
2.7
Capital Expenditures
2018
2017
2019
Research & Development Expense
2018
2019
2017
$
180.8
$
126.3
$
111.1
$
104.7
$
46.8
5.0
48.5
5.4
55.4
11.5
16.9
—
$
98.6
22.9
—
90.5
21.1
—
$
232.6
$
180.2
$
178.0
$
121.6
$
121.5
$
111.6
2019
Net sales
2018
2017
2019
2018
Net property
$ 2,871.1
$ 2,918.0
$ 2,676.2
$
714.6
$
1,237.3
1,202.9
1,126.0
—
—
—
63.0
18.8
$ 4,108.4
$ 4,120.9
$ 3,802.2
$
796.4
$
620.5
57.5
16.5
694.5
Note 7 – Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the
use of unobservable inputs. There is a fair value hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable.
• Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time
quotes for transactions in active exchange markets involving identical assets or liabilities.
73
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
• Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either
directly or indirectly. These are typically obtained from readily available pricing sources for comparable instruments.
• Level 3 - Unobservable inputs, for which there is little or no market activity for the asset or liability. These inputs reflect
the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based
on the best information available in the circumstances.
The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis as
of December 31, 2019:
(in millions)
Assets:
Cash equivalents
Short-term investments in marketable securities
Restricted cash
Derivatives
Total assets
Liabilities:
Derivatives
Deferred compensation
Total liabilities at fair value
Liabilities measured at net asset value
Total liabilities
Level 1
Level 2
Total
$
$
$
$
$
0.3
0.8
11.6
—
12.7
$
— $
1.2
1.2
$
— $
—
—
4.2
4.2
3.2
18.8
22.0
$
$
$
$
0.3
0.8
11.6
4.2
16.9
3.2
20.0
23.2
8.5
31.7
The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis as
of December 31, 2018:
(in millions)
Assets:
Short-term investments in marketable securities
Restricted cash
Derivatives
Total assets
Liabilities:
Derivatives
Deferred compensation
Total liabilities at fair value
Liabilities measured at net asset value
Total liabilities
Level 1
Level 2
Total
$
$
$
$
0.8
9.0
—
9.8
$
$
— $
3.5
3.5
$
— $
—
7.6
7.6
2.2
20.7
22.9
$
$
$
$
0.8
9.0
7.6
17.4
2.2
24.2
26.4
10.2
36.6
Refer to Note 14 – Financial Instruments for additional information related to the fair value of derivative assets and liabilities
by class. In addition to the items shown in the tables above, see Note 17 – Postretirement Benefits for further discussion regarding
the fair value measurements associated with the Company’s postretirement benefit plans.
74
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 8 – Financing Receivables
The Company has recorded financing receivables, which are defined as a contractual right to receive money, as assets on its
Consolidated Balance Sheets as of December 31, 2019 and 2018. Substantially all of the Company’s financing receivables are for
commercial customers, which includes receivables sold to third-party finance companies (Third-Party Receivables) and customer
notes and other (Other Receivables). Third-Party Receivables are accounts that have been sold to third-party finance companies,
but do not meet the definition of a true sale and are therefore recorded as an asset with an offsetting balance recorded as a secured
obligation in Accrued expenses. Other Receivables are mostly comprised of notes from customers, which are originated by the
Company in the normal course of business. Financing receivables are carried at their face amounts less an allowance for credit
losses.
The Company sells a broad range of recreational products to a worldwide customer base and extends credit to its customers
based upon an ongoing credit evaluation program. The Company’s business units maintain credit organizations to manage financial
exposure and perform credit risk assessments on an individual account basis. Accounts are not aggregated into categories for credit
risk determinations. Due to the composition of the account portfolio, the Company does not believe that the credit risk posed by
the Company’s financing receivables is significant to its operations, financial condition or cash flows. There were no significant
troubled debt restructurings during the years ended December 31, 2019, 2018 or 2017.
The Company’s financing receivables, excluding trade accounts receivable contractually due within one year as of
December 31, 2019 and December 31, 2018 were $8.8 million and $11.2 million, respectively.
The activity related to the allowance for credit loss on financing receivables during the years ended December 31, 2019 and
December 31, 2018 was not material.
Note 9 – Investments
Investments in Marketable Securities
The Company may invest a portion of its cash reserves in marketable debt securities. These investments are reported in Short-
term investments in marketable securities on the Consolidated Balance Sheets.
As of December 31, 2019 and 2018, the fair values of the Company's available-for-sale securities, which were equal to the
amortized costs, were $0.8 million and $0.8 million, respectively. The Company had no maturities of available-for-sale securities
in 2019 and 2018, and had $35.0 million of maturities of available-for-sale securities during 2017.
Equity Investments
The Company has certain unconsolidated international and domestic affiliates that are accounted for using the equity method.
The equity method is applied in situations in which the Company has the ability to exercise significant influence, but not control,
over the investees. Management reviews equity investments for impairment whenever indicators are present suggesting that the
carrying value of an investment is not recoverable. The following items are examples of impairment indicators: significant, sustained
declines in an investee’s revenue, earnings, and cash flow trends; adverse market conditions of the investee’s industry or geographic
area; the investee’s inability to execute its operating plan; the investee’s ability to continue operations measured by several items,
including liquidity; and other factors. Once an impairment indicator is identified, management uses considerable judgment to
determine if the decline in value is other than temporary, in which case the equity investment is written down to its estimated fair
value, which could negatively impact reported results of operations.
In the fourth quarter of 2018, the Company sold its 36 percent equity investment in Bella-Veneet Oy (Bella), a Finnish boat
manufacturer, which had previously been fully impaired due to significant declines in profitability that were deemed other than
temporary. As a result, the Company recorded a gain of $2.3 million within Equity earnings on the Consolidated Statements of
Operations, which was equal to the proceeds from the sale.
Refer to Note 10 – Financing Joint Venture for more details on the Company’s Brunswick Acceptance Company, LLC joint
venture.
75
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 10 – Financing Joint Venture
The Company, through its Brunswick Financial Services Corporation (BFS) subsidiary, owns a 49 percent interest in a joint
venture, Brunswick Acceptance Company, LLC (BAC). CDF Joint Ventures, LLC (CDFJV), a subsidiary of Wells Fargo and
Company, owns the remaining 51 percent.
In February 2018, the parties entered into an amended and restated joint venture agreement (JV Agreement) to extend the
term of their financial services through December 31, 2022. The JV Agreement contains a financial covenant that conforms to the
maximum leverage ratio test in the Credit Facility described in Note 16 – Debt. The joint venture agreement contains provisions
allowing for the renewal of the agreement or the purchase of the other party’s interest in the joint venture at the end of its
term. Alternatively, either partner may terminate the agreement at the end of its term.
BAC is funded in part through a $1.0 billion secured borrowing facility from Wells Fargo Commercial Distribution Finance,
LLC (WFCDF), which is in place through the term of the joint venture, and with equity contributions from both partners. BAC
also sells a portion of its receivables to a securitization facility, the Wells Fargo Dealer Floorplan Master Note Trust, which is
arranged by Wells Fargo. The sales of these receivables meet the requirements of a “true sale” and are therefore not retained on
the financial statements of BAC. Neither the Company nor any of its subsidiaries guarantee the indebtedness of BAC. In addition,
BAC is not responsible for any continuing servicing costs or obligations with respect to the securitized receivables.
The Company considers BFS’s investment in BAC as an investment in a variable interest entity of which the Company is not
the primary beneficiary. To be considered the primary beneficiary, the Company must have the power to direct the activities of
BAC that most significantly impact BAC’s economic performance and the Company must have the obligation to absorb losses or
the right to receive benefits from BAC that could be potentially significant to BAC. Based on the Company's qualitative analysis,
BFS did not meet the definition of a primary beneficiary. As a result, the Company accounts for BFS’s investment in BAC under
the equity method and records it as a component of Equity investments in its Consolidated Balance Sheets. The Company records
BFS’s share of income or loss in BAC based on its ownership percentage in the joint venture in Equity earnings in its Consolidated
Statements of Operations. BFS’s equity investment is adjusted monthly to maintain a 49 percent interest in accordance with the
capital provisions of the joint venture agreement. The Company funds its investment in BAC through cash contributions and
reinvested earnings. BFS’s total investment in BAC at December 31, 2019 and December 31, 2018 was $18.8 million and $21.7
million, respectively.
The Company’s maximum loss exposure relating to BAC is detailed as follows:
(in millions)
Investment
Repurchase and recourse obligations (A)
Liabilities (B)
Total maximum loss exposure
December 31,
2019
December 31,
2018
$
$
18.8
$
36.5
(1.7)
53.6
$
21.7
41.6
(1.3)
62.0
(A) Repurchase and recourse obligations are off-balance sheet obligations provided by the Company for the Boat and Marine Engine segments, respectively, and
are included within the Maximum Potential Obligations disclosed in Note 13 – Commitments and Contingencies. Repurchase and recourse obligations
include a North American repurchase agreement with WFCDF and could be reduced by repurchase activity occurring under other similar agreements with
WFCDF and affiliates. The Company’s risk under these repurchase arrangements is partially mitigated by the value of the products repurchased as part of the
transaction. Amounts above exclude any potential recoveries from the value of the repurchased product.
(B) Represents accrued amounts for potential losses related to recourse exposure and the Company’s expected losses on obligations to repurchase products, after
giving effect to proceeds anticipated to be received from the resale of these products to alternative dealers.
BFS recorded income related to the operations of BAC of $6.9 million, $6.4 million and $6.0 million in Equity earnings in
the Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017, respectively.
Cash Flows
BFS reported cash flows from operating activities of $7.6 million, $6.3 million and $0.0 million within Other, net on the
Consolidated Statements of Cash Flows in 2019, 2018 and 2017, respectively.
In 2019, BFS reported net cash flows from investing activities within Investments on the Consolidated Statements of Cash
flows. Such cash flows for 2019 were $2.2 million, consisting of $7.9 million of cash received and $(5.7) million of cash
76
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
contributions; in 2018 were $(3.8) million, consisting of $8.2 million of cash received and $(12.0) million of cash contributions;
and in 2017 were $(5.1) million, consisting of $7.0 million of cash received and $(12.1) million of cash contributions.
Note 11 – Goodwill and Other Intangibles
Changes in the Company's goodwill during the period ended December 31, 2019, by segment, are summarized below:
(in millions)
Marine Engine
Boat
Total
2018
Acquisitions
Adjustments
2019
$
$
375.1
2.2
377.3
$
$
— $
26.0
26.0
$
11.3
0.4
11.7
$
$
386.4
28.6
415.0
Changes in the Company's goodwill during the period ended December 31, 2018, by segment, are summarized below:
(in millions)
Marine Engine
Boat
Total
2017
Acquisitions
Adjustments
2018
$
$
31.7
2.2
33.9
$
$
344.2
—
344.2
$
$
(0.8) $
—
(0.8) $
375.1
2.2
377.3
Adjustments in 2019 mainly relate to refining purchase accounting related to the Power Products and Freedom Boat Club
acquisitions. See Note 5 – Acquisitions for further details on the Company's acquisitions. Adjustments in both periods include
the effect of foreign currency translation on goodwill denominated in currencies other than the U.S. dollar.
As of December 31, 2019 and 2018, the Company had no accumulated impairment loss on Goodwill.
The Company's intangible assets, included within Other intangibles, net on the Consolidated Balance Sheets as of December 31,
2019 and 2018, are summarized by intangible asset type below:
(in millions)
Intangible assets:
Customer relationships (A)
Trade names
Other (A)
Total
2019
2018
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
$
$
687.0
165.8
18.4
871.2
$
$
(274.6) $
—
(13.1)
(287.7) $
675.7
152.5
13.5
841.7
$
$
(243.3)
—
(12.6)
(255.9)
(A) The weighted average remaining amortization period for Customer relationships and Other intangibles assets were 13.2 years and 10.7 years, respectively, as
of December 31, 2019.
The Company's intangible assets, included within Other intangibles, net on the Consolidated Balance Sheets as of December 31,
2019 and 2018, are summarized by segment below:
(in millions)
Intangible assets:
Marine Engine
Boat
Total
2019
2018
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
$
$
618.6
252.6
871.2
$
$
(82.4) $
(205.3)
(287.7) $
618.3
223.4
841.7
$
$
(52.0)
(203.9)
(255.9)
See Note 5 – Acquisitions for further details on intangibles acquired during 2019 and 2018.
77
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Aggregate amortization expense for intangibles was $31.6 million, $14.8 million and $2.7 million for the years ended December
31, 2019, 2018 and 2017, respectively. Estimated amortization expense for intangible assets is $31.9 million for the year ending
December 31, 2020, $31.9 million in 2021, $31.6 million in 2022, $31.1 million in 2023, and $31.1 million in 2024.
Note 12 – Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA made significant changes to the
U.S. tax code effective for 2018, although certain provisions affected the Company’s 2017 financial results. The changes impacting
2017 included, but are not limited to, the write-down of net deferred tax assets resulting from the reduction in the U.S. federal
corporate income tax rate from 35 percent to 21 percent, imposing a one-time deemed repatriation tax on certain unremitted earnings
of foreign subsidiaries, and bonus depreciation that will allow for immediate full expensing of qualified property acquired and
placed in service after September 27, 2017. The TCJA also established new corporate tax laws that were effective in 2018 but did
not impact the Company’s 2017 financial results. These changes included, but were not limited to, lowering the U.S. federal
corporate income tax rate from 35 percent to 21 percent, a general elimination of U.S. federal income taxes on income and dividends
from foreign subsidiaries, a new tax on global intangible low-taxed income (GILTI) net of allowable foreign tax credits, a new
deduction for foreign derived intangible income (FDII), the repeal of the domestic production activity deduction, new limitations
on the deductibility of certain executive compensation and interest expense, and limitations on the use of foreign tax credits to
reduce the U.S. federal income tax liability.
Due to the complexities involved in accounting for the enactment of the TCJA, the SEC staff issued Staff Accounting Bulletin
(SAB) 118 which provided guidance on accounting for the income tax effects of the TCJA. SAB 118 provided a measurement
period that should not extend beyond one year from the TCJA enactment date to complete the accounting for the impact of the
TCJA. SAB 118 allowed the Company to provide provisional estimates of the impact of the TCJA in our financial statements for
the year ended December 31, 2017. Accordingly, based on information and IRS guidance available as of December 31, 2017, we
recorded a discrete net tax expense of $66.7 million for the year ended December 31, 2017. This expense consisted primarily of
a net expense of $56.5 million for the write down of our net deferred tax balances due to the U.S. corporate income tax rate reduction
and a net expense of $10.2 million for the one-time deemed repatriation tax. In 2018, the Company completed its accounting for
the income tax effects of the TCJA and based on additional guidance from the IRS, we updated our calculations. For the year ended
December 31, 2018, the Company recorded a tax benefit of $5.1 million. This benefit consists primarily of an additional $7.0
million tax expense related to the one-time deemed repatriation tax and a tax benefit of $12.1 million primarily related to additional
tax benefits for pension contributions.
The TCJA created a new requirement that certain income (i.e. GILTI) earned by controlled foreign corporations (CFC’s) must
be included in the gross income of the CFC’s U.S. shareholder. Under U.S. GAAP, we are allowed to make an accounting policy
choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense
when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes
(the “deferred method”). The Company has elected to use the period cost method and has reflected the impact of the GILTI tax in
its financial statements for the periods ended December 31, 2019 and December 31, 2018, using such method.
The sources of Earnings before income taxes were as follows:
(in millions)
United States
Foreign
Earnings before income taxes
2019
2018
2017
$
$
10.1
100.6
110.7
$
$
237.3
73.4
310.7
$
$
161.3
51.6
212.9
78
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The Income tax provision consisted of the following:
(in millions)
Current tax expense (benefit):
U.S. Federal
State and local
Foreign
Total current
Deferred tax expense (benefit):
U.S. Federal
State and local
Foreign
Total deferred
Income tax provision
2019
2018
2017
$
$
94.5
6.3
29.3
130.1
(2.3) $
5.7
22.9
26.3
(19.7)
(29.5)
(0.6)
(49.8)
30.5
0.9
(0.4)
31.0
(2.6)
4.7
17.3
19.4
95.4
(2.0)
(1.2)
92.2
$
80.3
$
57.3
$
111.6
Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31, 2019 and 2018 are
summarized in the table below:
(in millions)
Deferred tax assets:
Loss carryforwards
Tax credit carryforwards
Product warranties
Sales incentives and discounts
Operating lease liabilities
Deferred revenue
Equity compensation
Postretirement and postemployment benefits
Deferred compensation
Compensation and benefits
Long term contracts
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
State and local income taxes
Operating lease assets
Other
Deferred tax liabilities
Total net deferred tax assets
$
2019
2018
$
81.9
71.8
28.4
25.9
17.1
16.1
12.0
11.5
10.9
10.5
3.6
47.8
337.5
(93.3)
244.2
(85.5)
(24.3)
(15.7)
(5.3)
(130.8)
68.5
53.2
33.6
29.2
—
22.2
14.7
12.0
13.6
17.1
11.7
41.6
317.4
(74.7)
242.7
(123.1)
(18.2)
—
(6.9)
(148.2)
$
113.4
$
94.5
The Company's total net deferred tax asset as of December 31, 2019 and 2018 reflects the impact of the U.S. federal corporate
tax rate at 21 percent that was part of the TCJA. The Company was required to value its net deferred tax balance at the lower tax
rate.
79
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
At December 31, 2019, the Company had a total valuation allowance against its deferred tax assets of $93.3 million. The
remaining realizable value of deferred tax assets at December 31, 2019 was determined by evaluating the potential to recover the
value of these assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences
and carryforwards, certain tax planning strategies and future taxable income exclusive of reversing temporary differences and
carryforwards. At December 31, 2019, the Company retained valuation allowance reserves of $59.5 million against deferred tax
assets in the U.S. primarily related to non-amortizable intangibles and various state operating loss carryforwards and state tax
credits that are subject to restrictive rules for future utilization, and valuation allowances of $33.8 million for deferred tax assets
related to foreign jurisdictions, primarily Brazil and Luxembourg.
At December 31, 2019, the tax benefit of loss carryforwards totaling $81.9 million was available to reduce future tax liabilities.
This deferred tax asset was comprised of $1.8 million for the tax benefit of federal net operating loss (NOL) carryforwards, $46.9
million for the tax benefit of state NOL carryforwards and $33.2 million for the tax benefit of foreign NOL carryforwards. NOL
carryforwards of $48.7 million expire at various intervals between the years 2020 and 2039, while $33.2 million have an unlimited
life.
At December 31, 2019, tax credit carryforwards totaling $73.6 million were available to reduce future tax liabilities. This
deferred tax asset was comprised of $31.0 million related to general business credits and other federal credits, and $42.6 million
of various state tax credits related to research and development, capital investment and job incentives. Tax credit carryforwards
of $73.6 million expire at various intervals between the years 2020 and 2039.
No deferred income taxes have been provided as of December 31, 2019 or 2018, on the applicable undistributed earnings
of the non-U.S. subsidiaries where the indefinite reinvestment assertion has been applied. If at some future date these earnings
cease to be indefinitely reinvested and are repatriated, the Company may be subject to additional U.S. income taxes and foreign
withholding and other taxes on such amounts. Pursuant to changes made by the TCJA, remittances from foreign subsidiaries
made in 2018 and future years are generally not subject to U.S. income taxation. These remittances are either excluded from U.S.
taxable income as earnings that have already been subjected to taxation, or in the alternative are subject to a 100 percent foreign
dividends received deduction. The Company continues to provide deferred taxes, primarily related to foreign withholding taxes,
on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates that are not deemed to be indefinitely
reinvested in operations outside the United States, although such amounts were immaterial as of December 31, 2019 and 2018.
As of December 31, 2019, 2018 and 2017 the Company had $3.9 million, $2.3 million and $2.3 million of gross unrecognized
tax benefits, including interest, respectively. Substantially all of these amounts, if recognized, would impact the Company's tax
provision and the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December
31, 2019, 2018 and 2017, the amounts accrued for interest and penalties were not material.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for the
2019, 2018 and 2017 annual reporting periods:
(in millions)
Balance at January 1
Gross increases - tax positions prior periods
Gross decreases - tax positions prior periods
Gross increases - current period tax positions
Decreases - settlements with taxing authorities
Reductions - lapse of statute of limitations
Balance at December 31
2019
2018
2017
$
$
2.3
2.0
(0.8)
0.4
—
(0.2)
3.7
$
$
2.1
0.6
(0.7)
0.4
(0.1)
—
2.3
$
$
3.4
0.1
(0.2)
0.4
(0.5)
(1.1)
2.1
The Company believes it is reasonably possible that the total amount of gross unrecognized tax benefits as of December 31,
2019 could decrease by approximately $0.6 million in 2020 due to settlements with taxing authorities or lapses in applicable
statutes of limitation. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the
timing of the settlement of tax audits, it is possible that there could be significant changes in the amount of unrecognized tax
benefits in 2020, but the amount cannot be estimated at this time.
80
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The Company is regularly audited by federal, state and foreign tax authorities. The Internal Revenue Service (IRS) has
completed its field examination and has issued its Revenue Agents Report through the 2014 tax year and all open issues have been
resolved. The Company is currently open to tax examinations by the IRS for the 2016 through 2018 tax years. Primarily as a result
of filing amended returns, which were generated by the closing of federal income tax audits, the Company is still open to state
and local tax audits in major tax jurisdictions dating back to the 2014 taxable year. The Company is no longer subject to income
tax examinations by any major foreign tax jurisdiction for years prior to 2013.
The difference between the actual income tax provision and the tax provision computed by applying the statutory Federal
income tax rate to Earnings before income taxes is attributable to the following:
(in millions)
Income tax provision at 21 percent, 21 percent and 35 percent
State and local income taxes, net of Federal income tax effect
Deferred tax asset valuation allowance
Equity compensation
Change in estimates related to prior years and prior years amended tax return filings
Federal and state tax credits
Taxes related to foreign income, net of credits
Deferred tax reassessment
Tax law changes
FDII deduction
Disproportionate tax effect released from Other comprehensive income
Other
Actual income tax provision
Effective tax rate
2019
2018
2017
$
$
23.2
(3.6)
(3.5)
(2.9)
(2.9)
(11.6)
(5.2)
1.9
—
(5.5)
91.4
(1.0)
80.3
$
$
65.2
8.8
4.0
(3.1)
1.6
(11.6)
(6.5)
3.3
(5.2)
(2.6)
—
3.4
57.3
$
$
74.5
3.9
5.9
(7.3)
1.4
(9.5)
(21.5)
2.1
66.7
—
—
(4.6)
111.6
72.6%
18.5%
52.4%
During 2019, the Company fully exited its remaining defined benefit pension plans and recorded a pretax pension settlement
charge of $292.8 million. The tax impact of this action consisted of a tax benefit of $73.9 million from the pension settlement
charge, which was netted against a tax charge of $91.4 million resulting from the release of disproportionate tax effects in
Accumulated Other Comprehensive Income. See Note 17 – Postretirement Benefits for more information.
The Company's effective tax rate also reflects the benefit of having earnings from foreign entities that are in jurisdictions that
have lower statutory tax rates than the U.S. with the most significant impact related to China and Poland, which have applicable
statutory tax rates of 15 percent and 19 percent, respectively.
In addition, the Company's effective tax rate for 2017 includes the utilization of excess foreign tax credits in connection with
the repatriation of foreign earnings.
Income tax provision allocated to continuing operations and discontinued operations for the years ended December 31 was
as follows:
(in millions)
Continuing operations
Discontinued operations
Total income tax provision
2019
2018
2017
$
$
80.3
(40.1)
40.2
$
$
57.3
2.6
59.9
$
$
111.6
23.2
134.8
81
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 13 – Commitments and Contingencies
Financial Commitments
The Company has entered into guarantees of indebtedness of third parties, primarily in connection with customer financing
programs. Under these arrangements, the Company has guaranteed customer obligations to the financial institutions in the event
of customer default, generally subject to a maximum amount that is less than the total outstanding obligations. The Company has
also extended guarantees to third parties that have purchased customer receivables from Brunswick and, in certain instances, has
guaranteed secured term financing of its customers. Potential payments in connection with these customer financing arrangements
generally extend over several years. The single year and maximum potential cash obligations associated with these customer
financing arrangements as of December 31, 2019 and December 31, 2018 were $4.3 million and $10.9 million, respectively.
In most instances, upon repurchase of the receivable or note, the Company receives rights to the collateral securing the
financing. The Company’s risk under these arrangements is partially mitigated by the value of the collateral that secures the
financing.
The Company has accounts receivable sale arrangements with third parties which are included in the guarantee arrangements
discussed above. The Company treats the sale of receivables in which the Company retains an interest as a secured obligation as
the transfers of the receivables under these arrangements do not meet the requirements of a “true sale.” Accordingly, the current
portion of receivables underlying these arrangements of $1.7 million and $4.9 million was recorded in Accounts and notes receivable
and Accrued expenses as of December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019 and 2018, the
Company did not have any long-term receivables related to these arrangements.
The Company has also entered into arrangements with third-party lenders in which it has agreed, in the event of a customer
or franchisee default, to repurchase from the third-party lender those Brunswick products repossessed from the customer or
franchisee. These arrangements are typically subject to a maximum repurchase amount. The single year and maximum potential
cash payments the Company could be required to make to repurchase collateral as of December 31, 2019 and December 31, 2018
were $63.1 million and $50.4 million, respectively. Included within this repurchase amount are amounts related to BAC, as discussed
in Note 10 –Financing Joint Venture.
The Company’s risk under these repurchase arrangements is partially mitigated by the value of the products repurchased as
part of the transaction. The Company had $1.5 million and $1.3 million accrued for potential losses related to repurchase exposure
as of December 31, 2019 and December 31, 2018, respectively. The Company’s repurchase accrual represents the expected losses
that could result from obligations to repurchase products, after giving effect to proceeds anticipated to be received from the resale
of those products to alternative dealers.
The Company has recorded its estimated net liability associated with losses from these guarantee and repurchase obligations
on its Consolidated Balance Sheets based on historical experience and current facts and circumstances. Historical cash requirements
and losses associated with these obligations have not been significant, but could increase if dealer defaults exceed current
expectations.
Financial institutions have issued standby letters of credit and surety bonds conditionally guaranteeing obligations on behalf
of the Company totaling $13.1 million and $13.0 million, respectively, as of December 31, 2019. A large portion of these standby
letters of credit and surety bonds are related to the Company’s self-insured workers’ compensation program as required by its
insurance companies and various state agencies. The Company has recorded reserves to cover the anticipated liabilities associated
with these programs. Under certain circumstances, such as an event of default under the Company’s revolving credit facility, or,
in the case of surety bonds, a ratings downgrade, the Company could be required to post collateral to support the outstanding letters
of credit and surety bonds. The Company was not required to post letters of credit as collateral against surety bonds as of
December 31, 2019.
The Company has a collateral trust arrangement with insurance carriers and a trustee bank. The trust is owned by the Company,
but the assets are pledged as collateral against workers’ compensation related obligations in lieu of other forms of collateral
including letters of credit. In connection with this arrangement, the Company had $9.1 million and $9.0 million of cash in the trust
at December 31, 2019 and December 31, 2018, respectively, which was classified as Restricted cash in the Company's Consolidated
Balance Sheets.
82
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Product Warranties
The Company records a liability for product warranties at the time of the related product sale. The liability is estimated using
historical warranty experience, projected claim rates and expected costs per claim. The Company adjusts its liability for specific
warranty matters when they become known and the exposure can be estimated. Product failure rates as well as material usage and
labor costs incurred in correcting a product failure affect the Company's warranty liabilities. If actual costs differ from estimated
costs, the Company must make a revision to the warranty liability. Changes in the Company's warranty liabilities resulting from
the Company's experience and adjustments related to changes in estimates are included as Aggregate changes for preexisting
warranties presented in the table below.
The following activity related to product warranty liabilities was recorded in Accrued expenses during the years ended
December 31, 2019 and December 31, 2018:
(in millions)
Balance at beginning of period
Payments - Recurring
Payments - Sport Yacht and Yachts
Provisions/additions for contracts issued/sold
Aggregate changes for preexisting warranties (A)
Warranty liability retained from discontinued operations (B)
Foreign currency translation
Acquisitions
Other
Balance at end of period
2019
2018
$
$
116.8
(59.2)
(12.5)
59.0
7.6
5.9
0.0
—
—
101.7
(57.0)
(7.3)
61.5
13.7
—
(1.2)
2.8
2.6
$
117.6
$
116.8
(A) Includes $3.6 million and $10.7 million of warranty adjustments related to the wind-down of Sport Yacht and Yachts in 2019 and 2018, respectively.
(B) The Company retained a $5.9 million warranty liability from the sale of its Fitness business in 2019, which was included in Current liabilities held for sale
in 2018.
Extended Product Warranties
End users of the Company's products may purchase a contract from the Company that extends product warranty beyond the
standard period. For certain extended warranty contracts in which the Company retains the warranty or administration obligation,
a deferred revenue liability is recorded based on the aggregate sales price for contracts sold. The liability is reduced and revenue
is recognized on a straight-line basis over the contract period during which corresponding costs are expected to be incurred.
The following activity related to deferred revenue for extended product warranty contracts was recorded in Accrued expenses
and Other long-term liabilities during the years ended December 31, 2019 and December 31, 2018:
(in millions)
Balance at beginning of period
Extended warranty contracts sold
Revenue recognized on existing extended warranty contracts
Foreign currency translation
Other
Balance at end of period
Legal
2019
2018
$
66.4
$
24.3
(15.2)
0.2
(0.4)
75.3
$
$
56.9
22.8
(12.8)
(0.2)
(0.3)
66.4
The Company accrues for litigation exposure when it is probable that future costs will be incurred and such costs can be
reasonably estimated. Adjustments to estimates are recorded in the period they are identified. Management does not believe that
there is a reasonable possibility that a material loss exceeding the amounts already recognized for the Company’s litigation claims
and matters, if any, has been incurred. In light of existing accruals, the Company's litigation claims, when finally resolved, are not
83
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
expected, in the opinion of management, to have a material adverse effect on the Company's consolidated financial position, results
of operations or cash flows.
Environmental
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 disposal of certain
hazardous wastes. These proceedings, which involve both on- and off-site waste disposal or other contamination, in many instances
seek compensation or remedial action from the Company as a waste generator under Superfund legislation, which authorizes action
regardless of fault, legality of original disposition or ownership of a disposal site. The Company has established accruals based
on a range of cost estimates for all known claims.
The environmental remediation and clean-up projects in which the Company is involved have an aggregate estimated range
of exposure of approximately $14.6 million to $36.7 million as of December 31, 2019. At December 31, 2019 and 2018, the
Company had accruals for environmental liabilities of $14.8 million and $17.0 million, respectively, which were recorded within
Accrued expenses and Other long-term liabilities in the Consolidated Balance Sheets. The Company recorded no environmental
provision for the year ended December 31, 2019, and the Company recorded $0.7 million and $1.1 million for the years ended
December 31, 2018 and 2017, respectively.
The Company accrues for environmental remediation-related activities for which commitments or clean-up plans have been
developed and for which costs can be reasonably estimated. All accrued amounts are generally determined in consultation with
third-party experts on an undiscounted basis and do not consider recoveries from third parties until such recoveries are realized.
In light of existing accruals, the Company's environmental claims, when finally resolved, are not expected, in the opinion of
management, to have a material adverse effect on the Company's consolidated financial position, results of operations or cash
flows.
Note 14 – Financial Instruments
The Company operates globally with manufacturing and sales facilities around the world. Due to the Company’s global
operations, the Company engages in activities involving both financial and market risks. The Company utilizes normal operating
and financing activities, along with derivative financial instruments, to minimize these risks.
Derivative Financial Instruments. The Company uses derivative financial instruments to manage its risks associated with
movements in foreign currency exchange rates and interest rates. Derivative instruments are not used for trading or speculative
purposes. The Company formally documents its hedge relationships, including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes
linking derivatives that are designated as hedges to specific forecasted transactions. The Company also assesses, both at the hedge’s
inception and monthly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes
in the anticipated cash flows of the hedged item. If the hedging relationship ceases to be highly effective, or it becomes probable
that a forecasted transaction is no longer expected to occur, the Company discontinues hedge accounting prospectively and
immediately recognizes the gains and losses associated with those hedges. There were no material adjustments as a result of
ineffectiveness to the results of operations for the years ended December 31, 2019, 2018 and 2017. The fair value of derivative
financial instruments is determined through market-based valuations and may not be representative of the actual gains or losses
that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded. The effects
of derivative financial instruments are not expected to be material to the Company’s financial position or results of operations
when considered together with the underlying exposure being hedged. Use of derivative financial instruments exposes the Company
to credit risk with its counterparties when the fair value of a derivative contract is an asset. The Company mitigates this risk by
entering into derivative contracts with highly rated counterparties. The maximum amount of loss due to counterparty credit risk
is limited to the asset value of derivative financial instruments.
Cash Flow Hedges. The Company enters into certain derivative instruments that are designated and qualify as cash flow
hedges. The Company executes both forward and option contracts, based on forecasted transactions, to manage foreign currency
exchange exposure mainly related to inventory purchase and sales transactions.
A cash flow hedge requires that as changes in the fair value of derivatives occur, the portion of the change deemed to be
effective is recorded temporarily in Accumulated other comprehensive loss and reclassified into earnings in the same period or
84
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
periods during which the hedged transaction affects earnings. As of December 31, 2019, the term of derivative instruments hedging
forecasted transactions ranged up to 18 months.
The following activity related to cash flow hedges was recorded in Accumulated other comprehensive loss as of December
31:
(in millions)
Beginning balance
Net change in value of outstanding hedges
Net amount recognized into earnings
Ending balance
Accumulated Unrealized Derivative
Gains (Losses)
2019
2018
Pretax
After-tax
Pretax
After-tax
$
$
6.2
5.1
(10.2)
1.1
$
$
(1.9) $
3.6
(7.2)
(5.5) $
(7.8) $
10.6
3.4
6.2
$
(11.8)
7.3
2.6
(1.9)
Fair Value Hedges. The Company enters into fixed-to-floating interest rate swaps to convert a portion of the Company's long-
term debt from fixed to floating rate debt. An interest rate swap is entered into with the expectation that the change in the fair value
of the interest rate swap will offset the change in the fair value of the debt instrument attributable to changes in the benchmark
interest rate. Each period, the change in the fair value of the interest rate swap asset or liability is recorded in debt and the difference
between the fixed interest payments and floating interest receipts is recorded as a net adjustment to interest expense.
Other Hedging Activity. The Company has entered into certain foreign currency forward contracts that have not been designated
as a hedge for accounting purposes. These contracts are used to manage foreign currency exposure related to changes in the value
of assets or liabilities caused by changes in foreign exchange rates. The change in the fair value of the foreign currency derivative
contract and the corresponding change in the fair value of the asset or liability of the Company are both recorded through earnings,
each period as incurred.
Foreign Currency Derivatives. The Company enters into forward and option contracts to manage foreign exchange exposure
related to forecasted transactions and assets and liabilities that are subject to risk from foreign currency rate changes. These
exposures include: product costs; revenues and expenses; associated receivables and payables; intercompany obligations and
receivables and other related cash flows.
Forward exchange contracts outstanding at December 31, 2019 and December 31, 2018 had notional contract values of $332.5
million and $308.9 million, respectively. Option contracts outstanding at December 31, 2019 and December 31, 2018, had notional
contract values of $17.8 million and $27.2 million, respectively. The forward and options contracts outstanding at December 31,
2019, mature during 2020 and 2021 and mainly relate to the Euro, Australian dollar, Canadian dollar and Japanese yen. As of
December 31, 2019, the Company estimates that during the next 12 months, it will reclassify approximately $3.4 million of net
gains (based on rates as of December 31, 2019) from Accumulated other comprehensive loss to Cost of sales.
Interest Rate Derivatives. The Company enters into fixed-to-floating interest rate swaps to convert a portion of the Company's
long-term debt from fixed to floating rate debt. In the third quarter of 2019, the Company retired its Senior notes due 2021 and
settled the associated interest rate swaps, which resulted in a nominal loss recorded within Interest expense. Additionally, in the
fourth quarter of 2019, the Company settled the interest rate swaps related to its Debentures due 2023, resulting in a net deferred
gain of $2.5 million which is included in Debt. The Company will reclassify $0.7 million of net deferred gains from Debt to Interest
expense during the next 12 months. As a result, there are no outstanding interest rate swaps as of December 31, 2019. As of
December 31, 2018, the outstanding swaps had notional contract values of $200.0 million, of which $150.0 million corresponded
to the Company's 4.625 percent Senior notes due 2021 and $50.0 million corresponded to the Company's 7.375 percent Debentures
due 2023. These instruments have been designated as fair value hedges, with the fair value recorded in Debt as discussed in Note
16 – Debt.
85
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The Company may also enter into forward-starting interest rate swaps to hedge the interest rate risk associated with anticipated
debt issuances. There were no forward-starting interest rate swaps outstanding at December 31, 2019 or December 31, 2018,
however the Company had $2.0 million and $2.5 million, respectively, of net deferred losses associated with previously settled
forward-starting interest rate swaps which were included in Accumulated other comprehensive loss. As of December 31, 2019,
the Company will reclassify approximately $0.6 million of net losses resulting from settled forward-starting interest rate swaps
from Accumulated other comprehensive loss to Interest expense during the next 12 months.
As of December 31, 2019 and December 31, 2018, the fair values of the Company’s derivative instruments were:
(in millions)
Instrument
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Derivative Assets
Derivative Liabilities
2019
2018
2019
2018
Derivatives Designated as Cash Flow Hedges
Foreign exchange contracts
Prepaid expenses and other
$
4.1
$
6.8
Accrued expenses
$
2.3
$
0.3
Derivatives Designated as Fair Value Hedges
Interest rate contracts
Interest rate contracts
Prepaid expenses and other
Other long-term assets
—
—
—
Accrued expenses
— Other long-term liabilities
Total
$ — $ —
$ — $
—
$ — $
0.1
1.8
1.9
Other Hedging Activity
Foreign exchange contracts
Prepaid expenses and other
$
0.1
$
0.8
Accrued expenses
$
0.9
$
0.0
The effect of derivative instruments on the Consolidated Statements of Operations for the years ended December 31, 2019
and December 31, 2018 was:
(in millions)
Derivatives Designated as Cash
Flow Hedging Instruments
Amount of Gain (Loss) on
Derivatives Recognized in
Accumulated Other Comprehensive
Loss (Effective Portion)
2019
2018
Location of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Loss into
Earnings (Effective Portion)
Interest rate contracts
Foreign exchange contracts
Total
$
$
— $
5.1
5.1
$
—
10.6
10.6
Interest expense
Cost of sales
Amount of Gain/Loss Reclassified
from Accumulated Other
Comprehensive Loss into Earnings
(Effective Portion)
2019
2018
$
$
(0.6) $
10.8
10.2
$
(0.9)
(2.5)
(3.4)
Derivatives Designated as Fair Value Hedging Instruments
Location of Gain (Loss) on Derivatives
Recognized in Earnings
Amount of Gain (Loss) on
Derivatives Recognized in Earnings
2019
2018
Interest rate contracts
Interest expense
$
0.1
$
(0.0)
Other Hedging Activity
Foreign exchange contracts
Foreign exchange contracts
Total
Location of Gain (Loss) on Derivatives
Recognized in Earnings
Amount of Gain (Loss) on
Derivatives Recognized in Earnings
Cost of sales
Other expense, net
2019
2018
$
$
2.4
(1.3)
1.1
$
$
7.9
1.5
9.4
86
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including
cash and cash equivalents and accounts and notes receivable approximate their fair values because of the short maturity of these
instruments. At December 31, 2019 and December 31, 2018, the fair value of the Company’s long-term debt was approximately
$1,214.6 million and $1,292.9 million, respectively, and was determined using Level 1 and Level 2 inputs described in Note 7 –
Fair Value Measurements, including quoted market prices or discounted cash flows based on quoted market rates for similar
types of debt. The carrying value of long-term debt, including current maturities, was $1,131.6 million and $1,226.4 million as of
December 31, 2019 and December 31, 2018, respectively.
Note 15 – Accrued Expenses
Accrued Expenses at December 31, 2019 and 2018 were as follows:
(in millions)
Compensation and benefit plans
Product warranties
Sales incentives and discounts
Deferred revenue and customer deposits
Current operating lease liabilities
Interest
Insurance reserves
Legal Fees
Environmental reserves
Real, personal and other non-income taxes
Sales return reserves
Secured obligations, repurchase and recourse
Derivatives
Other
Total accrued expenses
2019
2018
$
$
118.9
117.6
116.9
38.7
18.4
16.5
16.3
15.1
6.6
4.5
3.9
3.5
3.2
29.5
509.6
$
$
143.6
116.8
124.8
27.6
—
15.0
14.2
9.4
7.6
3.9
3.1
6.2
0.4
29.5
502.1
87
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 16 – Debt
Long-term debt at December 31, 2019 and December 31, 2018 consisted of the following:
(in millions)
Term loan, floating rate due 2023, net of debt issuance costs of $1.3 and $1.6 (A) (D)
Senior Notes, 6.375%, due 2049, net of debt issuances costs of $7.8 in 2019
Senior Notes, 6.500% due 2048, net of debt issuance costs of $8.2 and $8.5
Notes, 7.125% due 2027, net of discount of $0.3 and $0.3 and debt issuance costs of $0.4 and $0.4
Senior Notes, currently 6.625%, due 2049, net of debt issuances costs of $4.4 and $4.5
Debentures, 7.375% due 2023, net of discount of $0.1 and $0.2 and debt issuance costs of $0.2
and $0.2 (C)
Loan with Fond du Lac County Economic Development Corporation, 2.0% due 2021, net of
discount of $1.6 and $2.3 and debt issuance costs of $0.0 and $0.1
Notes, various up to 5.8% payable through 2028, net of discount of $0.0 and $0.2
Term loan, floating rate due 2021, net of debt issuance costs of $0.5 in 2018 (E)
Senior Notes, currently 4.625%, due 2021, net of debt issuances costs of $1.0 in 2018 (B)
Total long-term debt
Current maturities of long-term debt
Long-term debt, net of current maturities
2019
2018
$
305.0
$
339.7
222.2
176.8
162.5
120.6
105.2
11.1
5.9
—
—
—
176.5
162.5
120.5
102.6
15.3
6.9
149.5
147.3
1,109.3
(41.3)
1,068.0
$
1,220.8
(41.3)
1,179.5
$
(A) Beginning in December 2018, scheduled repayment of the 5-year term loan occurs each March, June, September and December equal to 2.50% of the aggregate
principal amount of $350.0 million. The remaining principal amount is due August 2023.
(B) Included in Senior notes, 4.625 percent due 2021 at December 31, 2018, is the aggregate fair value related to the fixed-to-floating interest rate swap as discussed
in Note 14 – Financial Instruments.
(C) Included in Debentures, 7.375 percent due 2023 at December 31, 2019 and December 31, 2018, are the aggregate fair values related to the fixed-to-floating
interest rate swaps as discussed in Note 14 – Financial Instruments.
(D) As of December 31, 2019 and December 31, 2018, the interest rate was 3.50% and 4.10%, respectively.
(E) As of December 31, 2018, the interest rate was 3.85%.
Debt issuance costs paid for the years ended December 31, 2019 and December 31, 2018 were $8.1 million and $15.4 million,
respectively. Debt issuance costs are reported in net proceeds from issuances of long-term debt within cash flows from financing
activities on the Consolidated Statements of Cash Flows. There were no debt issuance costs paid during 2017.
Scheduled maturities, net:
(in millions)
2020
2021
2022
2023
2024
Thereafter
Total long-term debt including current maturities
Power Products Financing
$
41.3
42.0
35.7
305.8
0.4
684.1
$
1,109.3
In June 2018, in connection with the acquisition of Power Products the Company entered into an agreement with Morgan
Stanley Senior Funding, Inc. to obtain a $1.1 billion, 364-Day Senior Unsecured Bridge Facility (Bridge Facility). Refer to Note
5 – Acquisitions for further details regarding the acquisition. In July 2018, the Company executed the First Amendment to its
Credit Facility to remove certain restrictions on the Company to incur unsecured debt with a maturity date before the Credit facility
termination date. Simultaneously, $300.0 million of commitments related to the Bridge Facility were terminated resulting in $800.0
million remaining under this facility. In August 2018, the commitments with respect to the Bridge Facility were reduced to zero
and replaced with a term loan credit agreement (Credit Agreement) to obtain term loans (Term Loans) in an aggregate principal
88
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
amount of $800.0 million. The Term Loan debt issued in August 2018 consisted of a $300.0 million 364-day tranche loan, a $150.0
million 3-year tranche loan and a $350.0 million 5-year tranche loan. The Company is required to maintain compliance with two
financial covenants: a minimum interest coverage ratio and a maximum leverage ratio. The minimum interest coverage, as defined
in the Credit Agreement, is not permitted to be less than 3.00 to 1.00. The maximum leverage ratio, as defined in the Credit
Agreement, is not permitted to be more than 3.50 to 1.00. As of December 31, 2019, the Company was in compliance with the
financial covenants in the Credit Agreement.
Senior Note, Notes and Debentures
Activity
In July 2019, the Company called $150.0 million of its 4.625% senior notes due 2021. The bonds were retired in August 2019
at par plus accrued interest, in accordance with the call provisions of the notes, and the associated interest rate swaps have been
terminated. Refer to Note 14 – Financial Instruments for further information on the terminated interest rate swaps.
In March 2019, the Company issued an aggregate principal amount of $230.0 million of its 6.375% Senior Notes due April
2049 (6.375% Notes) in a public offering, which resulted in aggregate net proceeds to the Company of $222.0 million. Net proceeds
from the offering of the 6.375% Notes were used to prepay all of the $150.0 million, 3-year tranche loan due 2021 and for general
corporate purposes. The Company may, at its option, redeem the notes on or after (but not prior to) April 15, 2024.
In December 2018, the Company issued an aggregate principal amount of $125.0 million of its 6.625% Senior Notes due
January 2049 (6.625% Notes) in a public offering, which resulted in aggregate net proceeds to the Company of $120.5 million.
Net proceeds from the offering of the 6.625% Notes were used, together with cash on hand, to prepay the remaining $115.0 million
of the $300.0 million 364-day tranche loan. The Company may, at its option, redeem the 2049 Notes on or after (but not prior to)
January 15, 2024.
In October 2018, the Company issued an aggregate principal amount of $185.0 million of its 6.500% Senior Notes due October
2048 (6.500% Notes) in a public offering, which resulted in aggregate net proceeds to the Company of $176.5 million. Net proceeds
from the offering of the 6.500% Notes were used, together with cash on hand, to prepay $185.0 million of the $300.0 million 364-
day tranche loan. The Company may, at its option, redeem the 2048 Notes on or after (but not prior to) October 15, 2023.
Provisions
Pursuant to the indenture governing the 6.500% Notes, the 6.625% Notes and the 6.375% Notes, the Company and its restricted
subsidiaries are subject to restrictions on the incurrence of debt secured by liens on principal property (as defined in the indenture)
or shares of capital stock of such restricted subsidiaries, entering into sale and leaseback transactions in respect of principal property
and mergers or consolidations with another entity or sales, transfers or leases of the Company's properties and assets substantially
as an entirety to another person.
Interest on the Company's 2023 and 2027 notes is due semi-annually. Interest on the Company's 6.500% Notes, 6.625% Notes,
6.375% Notes and the Term Loan is due quarterly.
Unless otherwise noted, the Company's debt is unsecured and does not contain subsidiary guarantees.
The Company may be required to repurchase some or all of the 6.500% Notes, 6.625% Notes and the 6.375% Notes in the
event of a change of control, subject to certain circumstances, for an amount equal to 101 percent of the outstanding principal plus
any accrued and unpaid interest.
The Company's 2027 notes may be redeemed at any time at the Company's discretion, in whole or in part, at the redemption
price specified in the agreement, plus any accrued and unpaid interest. The Company's 2023 notes are not redeemable. The
Company's 2023 floating rate term loan may be redeemed at any time at the Company's discretion, either in whole or in part, at
the redemption price equal to 100 percent of the principal amount plus any accrued and unpaid interest. The remainder of the
Company's 2048 and 2049 notes may be redeemed in 5 years from the date of issuance, either in whole or in part, at a redemption
price equal to 100 percent of the principal amount plus any accrued and unpaid interest.
89
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Short-term Borrowing Arrangements
On September 26, 2018, the Company entered into an Amended and Restated Credit Agreement (Credit Facility). The Credit
Facility amended and restated the Company's existing credit agreement. The Credit Facility provides for $400.0 million of borrowing
capacity and is in effect through September 2024. The Credit Facility includes provisions to add up to $100.0 million of additional
borrowing capacity and extend the facility for two additional one-year terms, subject to lender approval. In November 2019, the
Credit Facility was amended to extend the maturity date from September 2023 to September 2024. The Company currently pays
a facility fee of 15 basis points per annum. The facility fee per annum will be within a range of 12.5 to 35 basis points based on
the Company's credit rating. Under the terms of the Credit Facility, the Company has two borrowing options: borrowing at a rate
tied to adjusted LIBOR plus a spread of 110 basis points or a base rate plus a margin of 10.0 basis points. The rates are determined
by the Company's credit ratings, with spreads ranging from 100 to 190 basis points for LIBOR rate borrowings and 0 to 90 basis
points for base rate borrowings. The Company is required to maintain compliance with two financial covenants included in the
Credit Facility: a minimum interest coverage ratio and a maximum leverage ratio. The minimum interest coverage ratio, as defined
in the agreement, is not permitted to be less than 3.00 to 1.00. The maximum leverage ratio, as defined in the agreement, is not
permitted to be more than 3.50 to 1.00. During 2019, borrowings under the Credit Facility totaled $655.0 million, all of which
were repaid during the period. No borrowings were outstanding as of December 31, 2019, and available borrowing capacity totaled
$387.9 million, net of $12.1 million of letters of credit outstanding under the Credit Facility. As of December 31, 2019, the Company
was in compliance with the financial covenants in the Credit Facility.
On December 2019, the Company entered into an unsecured commercial paper program (CP Program) pursuant to which the
Company, may issue short-term, unsecured commercial paper notes (CP Notes). Amounts available under the CP Program may
be borrowed, repaid and re-borrowed from time to time, with the aggregate principal amount of CP Notes outstanding under the
CP Program at any time not to exceed the available borrowing amount under the credit facility. The net proceeds of the issuances
of the CP Notes are expected to be used for general corporate purposes. The maturities of the CP Notes will vary but may not
exceed 397 days from the date of issue. The CP Notes will be sold under customary terms in the commercial paper market and
will be issued at a discount from par or, alternatively, will be issued at par and bear varying interest rates on a fixed or floating
basis. There were no borrowings under the CP program during 2019.
Other Debt
As provided under the terms of its loan agreement with the Fond du Lac County Economic Development Corporation, which
is secured by the Company's property located in Fond du Lac, Wisconsin, up to a maximum 43 percent of the principal due annually
can be forgiven if the Company achieves certain employment targets as outlined in the agreement. The amount of loan forgiveness
is based on average employment levels at the end of the previous four quarters. Total loan forgiveness for 2019, 2018 and 2017
was $2.1 million or 43 percent of the principal due each year.
Note 17 – Postretirement Benefits
Overview. The Company has defined contribution plans and makes contributions including matching and annual discretionary
contributions which are based on various percentages of compensation, and in some instances are based on the amount of the
employees' contributions to the plans. The expense related to the defined contribution plans was $44.1 million in 2019, $45.3
million in 2018 and $42.2 million in 2017.
The Company's domestic pension and retiree health care and life insurance benefit plans, which are discussed below, provide
benefits based on years of service and, for some plans, average compensation prior to retirement. Benefit accruals are frozen for
all plan participants. The Company uses a December 31 measurement date for these plans. The Company's foreign postretirement
benefit plans are not significant individually or in the aggregate.
Plan Developments. The Company historically maintained four qualified defined benefit plans: the Brunswick Pension Plan
for Salaried Employees (Salaried Plan), the Brunswick Pension Plan for Hourly Bargaining Unit Employees (Bargaining Plan),
the Brunswick Pension Plan For Hourly Employees (Hourly Plan) and the Brunswick Pension Plan For Hourly Wage Employees
(Muskegon Plan). During the third quarter of 2018, the Company initiated actions to terminate its two remaining plans, the Salaried
Plan and the Bargaining Plan, effective October 31, 2018. All benefits were settled during 2019, either through a lump-sum payment
to participants or the purchase of an annuity offering on behalf of the participants. As a result of the planned terminations, the
remaining over-funded position for each plan is currently recorded within Accounts and notes receivable in the Consolidated
Balance Sheets. The Company has previously completed actions to terminate the Hourly Plan and the Muskegon Plan, effective
as of December 31, 2016, and all benefits were paid during 2017 as described below.
90
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
During 2019, total settlement payments of $673.9 million were made from the Salaried Plan and the Bargaining Plan, consisting
of lump-sum pension distributions of $77.1 million and the purchase of group annuity contracts totaling $596.8 million to cover
future benefit payments. The annuity contracts unconditionally and irrevocably guarantee the full payment of all future annuity
payments to the affected participants. The insurance company assumed all risk associated with the assets and obligations that were
transferred. The Company recognized a pretax settlement loss of $292.8 million during the year related to these actions.
During 2017, total settlement payments of $132.7 million were made from the Bargaining Plan and Salaried Plan to purchase
group annuity contracts on behalf of participants to cover future benefit payments. In addition, settlement payments totaling $101.7
million were made from the Hourly Plan and the Muskegon Plan in connection with plan terminations. The settlement payments
included group annuity contracts to cover future benefit payments as well as lump-sum benefit payments to certain participants.
The annuity contracts provide for the full payment of all future annuity payments to the participants. The insurance company
assumed all investment risk associated with the assets and obligations that were transferred. The Company recognized a pretax
settlement loss of $96.6 million during 2017 related to these actions.
Costs. Pension and other postretirement benefit costs included the following components for 2019, 2018 and 2017:
(in millions)
Interest cost
Expected return on plan assets
Amortization of prior service credits
Amortization of net actuarial losses
Settlement charges
$
6.0
$
(7.4)
—
5.8
292.8
Pension Benefits
2018
2019
2017
Other Postretirement Benefits
2018
2019
2017
$
22.6
(24.8)
—
9.9
—
7.7
28.4
(33.5)
—
14.4
96.6
$
1.3
$
1.1
$
—
(0.7)
—
—
0.6
$
—
(0.7)
—
—
0.4
$
1.2
—
(0.7)
—
—
0.5
Net pension and other benefit costs
$
297.2
$
$
105.9
$
Net pension and other benefit costs are recorded in Pension Settlement Charge and Other expense, net in the Consolidated
Statements of Operations.
91
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Benefit Obligations and Funded Status. A reconciliation of the changes in the benefit obligations and fair value of assets over
the two-year period ending December 31, 2019, and a statement of the funded status at December 31 for these years for the
Company's pension and other postretirement benefit plans follow:
(in millions)
Reconciliation of benefit obligation:
Benefit obligation at previous December 31
Interest cost
Participant contributions
Actuarial losses (gains)
Benefit payments
Settlement payments
Benefit obligation at December 31
Reconciliation of fair value of plan assets:
Fair value of plan assets at previous December 31
Actual return on plan assets
Employer contributions
Participant contributions
Benefit payments
Settlement payments
Adjustments
Fair value of plan assets at December 31
Pension Benefits
Other Postretirement
Benefits
2019
2018
2019
2018
$
$
652.8
6.0
—
77.3
(34.1)
(673.9)
28.1
642.0
70.8
7.9
—
(34.1)
(673.9)
(2.1)
10.6
$
716.9
22.6
—
(42.9)
(43.8)
—
652.8
546.1
(24.1)
163.8
—
(43.8)
—
—
642.0
$
34.3
1.3
—
0.2
(2.8)
—
33.0
—
—
2.8
—
(2.8)
—
—
—
38.7
1.1
0.2
(2.5)
(3.2)
—
34.3
—
—
3.0
0.2
(3.2)
—
—
—
Funded status at December 31
Funded percentage (A)
$
(17.5)
$
38%
$
(10.8)
98%
(33.0) $
NA
(34.3)
NA
(A) As all of the Company's plans are frozen, the projected benefit obligation and the accumulated benefit obligation are equal. As of December 31, 2018, the plan
assets for the Company's Salaried and Bargaining plans were in excess of the projected and accumulated benefit obligations.
The funded status of these pension plans includes the projected and accumulated benefit obligations for the Company's
nonqualified pension plan of $28.1 million and $29.2 million at December 31, 2019 and 2018, respectively. The Company's
nonqualified pension plan and other postretirement benefit plans are not funded.
The amounts included in the Company's Consolidated Balance Sheets as of December 31, 2019 and 2018, were as follows:
(in millions)
Prepaid expenses and other
Accounts and notes receivable
Assets recognized
Accrued expenses
Postretirement benefit liabilities
Liabilities recognized
Pension Benefits
Other Postretirement
Benefits
2019
2018
2019
2018
$
$
$
$
— $
10.6
10.6
3.5
24.6
28.1
$
$
$
14.8
3.6
18.4
3.7
25.5
29.2
$
$
$
$
— $
—
— $
3.6
29.4
33.0
$
$
—
—
—
3.6
30.7
34.3
92
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Accumulated Other Comprehensive Loss. The following pretax activity related to pensions and other postretirement benefits
was recorded in Accumulated other comprehensive loss as of December 31:
(in millions)
Prior service credits
Beginning balance
Amount recognized as component of net benefit costs
Ending balance
Net actuarial losses
Beginning balance
Actuarial (gains) losses arising during the period
Amount recognized as component of net benefit costs
Ending balance
Total
Pension Benefits
2019
2018
Other Postretirement
Benefits
2019
2018
$
— $
—
—
— $
—
—
(8.8) $
0.7
(8.1)
298.3
12.3
(298.6)
12.0
302.1
6.1
(9.9)
298.3
(1.5)
0.1
—
(1.4)
(9.5)
0.7
(8.8)
1.0
(2.5)
—
(1.5)
$
12.0
$
298.3
$
(9.5) $
(10.3)
Prior service credits associated with other postretirement benefits are being amortized on a straight-line basis over the average
future working lifetime to full eligibility for active hourly plan participants and over the average remaining life expectancy for
those plans' participants who are fully eligible for benefits. Actuarial gains and losses in excess of 10 percent of the greater of the
benefit obligation or the market value of assets are amortized over the remaining service period of active plan participants and
over the average remaining life expectancy of inactive plan participants.
Other Postretirement Benefits. Once participants eligible for other postretirement benefits turn 65 years old, the health care
benefits become a flat dollar amount based on age and years of service. The assumed health care cost trend rate for other
postretirement benefits for pre-age 65 benefits as of December 31 was as follows:
Health care cost trend rate for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year rate reaches the ultimate trend rate
Pre-age 65 Benefits
2018
2019
5.4%
4.5%
2037
5.5%
4.5%
2037
A one percent change in the assumed health care trend rate at December 31, 2019 would not have a material impact on the
accumulated postretirement benefit obligation.
The Company monitors the cost of health care and life insurance benefit plans and reserves the right to make additional changes
or terminate these benefits in the future.
Assumptions. Weighted average assumptions used to determine pension and other postretirement benefit obligations at
December 31 were as follows:
Discount rate
Pension Benefits
Other Postretirement
Benefits
2019
2018
2019
2018
2.96%
4.13%
3.07%
4.20%
93
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Weighted average assumptions used to determine net pension and other postretirement benefit costs for the years ended
December 31 were as follows:
Discount rate for pension benefits (A) (B)
Discount rate for other postretirement benefits (A) (B)
Long-term rate of return on plan assets (C)
2019
4.13%
3.85%
NA
2018
3.27%
3.08%
4.25%
2017
3.40%
3.17%
4.75%
(A) The Company utilizes a yield curve analysis to calculate the discount rates used to determine pension and other postretirement benefit obligations. The yield
curve analysis matches the cash flows of the Company's benefit obligations. The yield curve consisted of spot interest rates at half year increments for each
of the next 30 years and was developed based on pricing and yield information for high quality corporate bonds rated Aa by either Moody's or Standard &
Poor's, private placement bonds that are traded in reliance with Rule 144A and are at least two years from date of issuance, bonds with make-whole provisions
and bonds issued by foreign corporations that are denominated in U.S. dollars, excluding callable bonds and bonds less than a minimum size and other filtering
criteria. Additionally, the Company's yield curve methodology includes bonds having a yield that is greater than the regression mean yield curve as the Company
believes this methodology represents an appropriate estimate of the rates at which the Company could effectively settle its pension obligations. For the
Company's Salaried and Bargaining plans which were terminated during 2018, the discount rate was a blend of the December 31, 2018 yield curve rate
associated with those participants electing annuity contracts to cover future benefit payments, and a lump-sum segment rate for those participants electing
lump-sum benefit payments.
(B) The Company uses a "spot rate approach" in the calculation of pension and postretirement interest costs to provide a more accurate measurement of interest
costs. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of pension and postretirement interest costs.
(C) The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical experience, future expectations of
investment returns, asset allocations, investment strategies and views of investment professionals.
Master Trust Investments. Assets of the Company's Master Pension Trust (Trust) are invested solely in the interest of the plan
participants for the purpose of providing benefits to participants and their beneficiaries. Investment decisions within the Trust are
made after giving appropriate consideration to the prevailing facts and circumstances that a prudent person acting in a like capacity
would use in a similar situation, and follow the guidelines and objectives established within the investment policy statement for
the Trust. In general, the Trust's investment strategy is to invest in a diversified portfolio of assets that will generate returns equal
to or in excess of the change in liabilities resulting from interest costs and discount rate fluctuations. The excess returns generated
from this strategy will contribute to improve the funded position of the plan. In order for returns to achieve this objective, the Trust
will invest in fixed income investments and equities. These asset classes have historically been reasonably correlated to changes
in plan liabilities resulting from changes in the discount rate. All investments are continually monitored and reviewed, with a focus
on asset allocation, investment vehicles and performance of the individual investment managers, as well as overall Trust
performance. Over time, the Company has shifted a greater percentage of the Trust's assets into long-term fixed-income securities,
with an objective of achieving an improved matching of asset returns with changes in liabilities.
During 2019, all assets of the Trust were distributed to participants in connection with the plan terminations.
94
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The fair values of the Trust's pension assets at December 31, 2018, by asset class were as follows:
(in millions)
Investments at fair value
Cash and cash equivalents
Fixed-income securities:
Government securities (C)
Corporate securities (D)
Other investments (F)
Total investments at fair value
Investments at net asset value
Short-term investments
Equity securities: (B)
United States
Fixed-income securities:
Commingled funds (E)
Total investments at net asset value
Other liabilities (G)
Total pension plan net assets
Fair Value Measurements at December 31, 2018 (A)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Total
$
$
6.1
$
— $
6.1
—
—
—
6.1
$
126.2
356.2
7.2
489.6
126.2
356.2
7.2
495.7
102.3
2.0
63.3
167.6
(21.3)
642.0
$
$
(A) See Note 7 – Fair Value Measurements for a description of levels within the fair value hierarchy. The level in the fair value hierarchy within which the fair
value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety. A description of
the valuation methodologies is provided following these tables. There were no transfers in and/or out of Level 1 and Level 2 in 2018.
(B) The equity assets are invested in two indexed funds based on the Russell 3000 Index (U.S.) and the MSCI EAFE Equity Index (International). The Trust did
not directly own any of the Company's common stock as of December 31, 2018.
(C) Government securities are comprised of U.S. Treasury bonds and other government securities.
(D) Corporate securities consist primarily of a diversified portfolio of investment grade bonds issued by companies.
(E) This class includes commingled funds that primarily invest in investment grade corporate securities and government-related securities. This class also includes
investments in non-agency collateralized mortgage obligations and mortgage-backed securities, futures and options.
(F) Other investments consist primarily of interest rate swaps used to manage the average duration of the fixed income portfolio and credit default swaps to manage
credit risk exposure.
(G) This class includes interest receivable and receivables/payables for securities sold/purchased.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. See Note
7 – Fair Value Measurements for further description of the procedures the Company performs with respect to its Level 2
measurements:
Equity securities: The indexed equity funds are valued at the net asset value (NAV) provided by the investment managers.
The NAV is based on the quoted market value of the underlying assets owned by the fund, minus its liabilities, divided by the
number of units outstanding. The indexed equity funds are invested in portfolios of equity securities with the goal of matching
returns to specific indices. Investments in United States equity securities are invested in an index fund that tracks the Russell 3000
index, which is an all cap market index. Withdrawal from the United States equity fund is permitted with a one-day notice prior
to the trade date with subsequent settlement three days after the trade date.
Corporate debt securities: Corporate debt securities are valued based on prices provided by third-party pricing sources, which
are based on estimated prices at which a dealer would pay for or sell a security.
Government debt securities: U.S. Treasury bonds are valued using quoted market prices in active markets. Other agency
securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer
would pay for or sell a security.
Short-term investments, commingled funds: Short-term investments and commingled funds are valued at the NAV provided
by the investment managers. The NAV is based on the quoted market value of the underlying assets owned by the fund, minus its
95
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
liabilities, divided by the number of units outstanding. Investments in fixed income commingled funds include long-duration
corporate bonds, asset-backed securities and other short-term, fixed-income securities with the goal of preserving capital and
maximizing total return consistent with prudent investment management.
Other investments: Exchange-traded derivative instruments are valued using market indices. The fair value of derivatives
that are not traded on an exchange are based on valuation models using observable market data as of the measurement date.
There were no pension plan assets measured using significant unobservable inputs (Level 3) for the years ended December 31,
2019 and December 31, 2018.
Expected Cash Flows. The expected cash flows for the Company's pension and other postretirement benefit plan are presented
as follows:
(in millions)
Company contributions expected to be made in 2020
Expected benefit payments:
2020
2021
2022
2023
2024
2025-2029
Note 18 – Stock Plans and Management Compensation
Pension Benefits
$
3.5 $
3.5
3.0
2.8
2.7
2.3
9.7
Other
Postretirement
Benefits
3.2
3.2
3.0
2.9
2.7
2.6
10.8
Under the Brunswick Corporation 2014 Stock Incentive Plan, the Company may grant stock appreciation rights (SARs), non-
vested stock awards, and performance awards to executives, other employees and non-employee directors, with shares from treasury
shares and from authorized, but unissued, shares of common stock initially available for grant, in addition to: (i) the forfeiture of
past awards; (ii) shares not issued upon the net settlement of SARs; or (iii) shares delivered to or withheld by the Company to pay
the withholding taxes related to awards. As of December 31, 2019, 5.1 million shares remained available for grant.
Share grant amounts, fair values, and fair value assumptions reflect all outstanding awards for both continuing and discontinued
operations.
Non-Vested Stock Awards
The Company grants both stock-settled and cash-settled non-vested stock units and awards to key employees as determined
by management and the Human Resources and Compensation Committee of the Board of Directors. Non-vested stock units and
awards have vesting periods of three years. Non-vested stock units and awards are eligible for dividends, which are reinvested,
and are non-voting. All non-vested units and awards have restrictions on the sale or transfer of such awards during the vesting
period.
Generally, grants of non-vested stock units and awards are forfeited if employment is terminated prior to vesting. Non-vested
stock units and awards vest pro rata over one year if (i) the grantee has attained the age of 62, or (ii) the grantee's age plus total
years of service equals 70 or more.
The Company recognizes the cost of non-vested stock units and awards on a straight-line basis over the requisite service
period. Additionally, cash-settled non-vested stock units and awards are recorded as a liability on the balance sheet and adjusted
to fair value each reporting period through stock compensation expense. During the years ended December 31, 2019, 2018 and
2017, the Company charged $10.9 million, $11.1 million and $9.7 million, respectively, to compensation expense for non-vested
stock units and awards. The related income tax benefit recognized in 2019, 2018 and 2017 was $2.7 million, $2.8 million and $3.7
million, respectively. The fair value of shares vested during 2019, 2018 and 2017 was $19.2 million, $4.4 million and $12.1 million
respectively.
96
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The weighted average price per Non-vested stock award at grant date was $49.12, $59.05 and $60.30 for awards granted in
2019, 2018 and 2017, respectively. Non-vested stock award activity for the year ended December 31, 2019 was as follows:
(in thousands, except grant date fair value)
Non-vested awards, unvested at January 1, 2019
Awarded
Forfeited
Vested
Non-vested awards, unvested at December 31, 2019
Non-vested
Stock Award
Activity
574
374
(183)
(321)
444
Weighted
Average
Grant Date
Fair Value ($)
54.82
49.12
41.45
57.74
53.42
As of December 31, 2019, there was $9.1 million of total unrecognized compensation cost related to non-vested share-based
compensation arrangements. The Company expects this expense to be recognized over a weighted average period of 1.5 years.
SARs
Between 2005 and 2012, the Company issued stock-settled SARs. Generally, SARs are exercisable over a period of 10 years,
or as otherwise determined by management and the Human Resources and Compensation Committee of the Board of Directors,
and subject to vesting periods of generally 4 years. However, with respect to SARs, all grants vest immediately: (i) in the event
of a change in control; (ii) upon death or disability of the grantee; or (iii) with respect to awards granted prior to 2008, upon the
sale or divestiture of the business unit to which the grantee is assigned.
In addition, grantees continue to vest in accordance with the vesting schedule even upon termination if (i) the grantee has
attained the age of 62, or (ii) the grantee's age plus total years of service equals 70 or more. An additional provision applies that
prorates the grant in the event of termination prior to the first anniversary of the date of grant, provided the participant had met
the appropriate retirement age definition of rule of 70 or age 62.
SARs activity for all plans for the years ended December 31, 2019, 2018 and 2017, was as follows:
2019
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
SARs
Outstanding
2018
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
SARs
Outstanding
2017
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Aggregate
Intrinsic
Value
SARs
Outstanding
343
$ 16.04
(224) $ 13.13
0
$
5.86
594
$ 14.40
978
$ 14.43
$ 10,494
(248) $ 12.10
$ 12,636
(352) $ 14.37
$ 16,071
(3) $ 17.06
(32) $ 15.76
119
$ 21.57
1.4 years
$ 4,571
343
$ 16.04
$ 10,439
594
$ 14.40
$ 24,261
119
$ 21.57
1.4 years
$ 4,571
343
$ 16.04
$ 10,439
594
$ 14.40
$ 24,261
(in thousands,
except exercise
price and terms)
Outstanding on
January 1
Exercised
Forfeited
Outstanding on
December 31
Exercisable and
Vested on
December 31
97
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The following table summarizes information about SARs outstanding as of December 31, 2019:
Outstanding and Exercisable
Exercise
Price
Number
(in thousands)
$11.08
$14.68
$21.52
$23.79
SARs expense was immaterial for all periods presented.
Performance Awards
Weighted
Average Remaining Years of
Contractual
Life
0.1 years
1.7 years
1.1 years
2.1 years
2.8
7.4
71.1
37.6
In February 2019, 2018 and 2017, the Company granted performance shares to certain senior executives. Performance share
awards are based on three performance measures: a cash flow return on investment (CFROI) measure, an operating margin (OM)
measure and a total shareholder return (TSR) modifier. Performance shares are earned based on a three-year performance period
commencing at the beginning of the calendar year of each grant. The performance shares earned are then subject to a TSR modifier
based on stock returns measured against stock returns of a predefined comparator group over a three-year performance period.
Additionally, in February 2019, 2018 and 2017, the Company granted 24,605, 24,490 and 26,300 performance shares, respectively,
to certain officers and certain senior managers based on the respective measures and performance periods described above but
excluding a TSR modifier.
The fair values of the senior executives' performance share award grants with a TSR modifier at the grant date in 2019, 2018
and 2017 were $49.64, $61.59 and $64.82, respectively, which were estimated using the Monte Carlo valuation model, and
incorporated the following assumptions:
Risk-free interest rate
Dividend yield
Volatility factor
Expected life of award
2019
2018
2017
2.9%
1.7%
41.0%
2.4%
1.3%
38.9%
1.5%
1.1%
38.3%
2.9 years
2.9 years
2.9 years
The fair value of certain officers' and certain senior managers' performance awards granted based solely on the CFROI and
OM performance factors was $47.61, $57.19 and $58.77, which was equal to the stock price on the date of grant in 2019, 2018
and 2017, respectively, less the present value of dividend payments over the vesting period.
The Company recorded compensation expense related to performance awards of $6.4 million, $5.6 million and $6.2 million
in 2019, 2018 and 2017, respectively. The related income tax benefit recognized in 2019, 2018 and 2017 was $1.6 million, $1.4
million and $2.4 million, respectively. The fair value of awards vested during 2019, 2018 and 2017 was $4.9 million, $7.8 million
and $5.5 million, respectively.
98
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Performance award activity for the year ended December 31, 2019 was as follows:
(in thousands, except grant date fair value)
Performance awards, unvested at January 1
Awarded
Forfeited
Vested and earned
Performance awards, unvested at December 31
Performance
Awards
91
137
(59)
(81)
88
Weighted
Average
Grant Date
Fair Value ($)
61.32
48.92
49.30
57.49
53.55
As of December 31, 2019, the Company had $2.3 million of total unrecognized compensation expense related to performance
awards. The Company expects this expense to be recognized over a weighted average period of 1.6 years.
Excess Tax Benefits/Shortfalls
For tax purposes, share-based compensation expense is deductible in the year of exercise or release based on the intrinsic
value of the award on the date of exercise or release. For financial reporting purposes, share-based compensation expense is based
upon grant-date fair value, which is amortized over the vesting period. Excess or "windfall" tax benefits represent the excess tax
deduction received by the Company resulting from the difference between the share-based compensation expense deductible for
tax purposes and the share-based compensation expense recognized for financial reporting purposes. Conversely, the Company
may recognize a tax "shortfall" in circumstances when share-based expense recognized for reporting purposes exceeds the expense
deductible for tax purposes. Windfall tax benefits and shortfalls are recorded directly to Income tax provision on the Company's
Consolidated Statement of Operations. Windfall tax benefits for the years ended December 31, 2019, 2018 and 2017 were $2.8
million, $3.1 million and $7.4 million, respectively.
Director Awards
The Company issues stock awards to non-employee directors in accordance with the terms and conditions determined by the
Nominating and Corporate Governance Committee of the Board of Directors. A portion of each director’s annual fee is paid in
Brunswick common stock, the receipt of which may be deferred until a director retires from the Board of Directors. Each director
may elect to have the remaining portion paid in cash, in Brunswick common stock distributed at the time of the award, or in deferred
Brunswick common stock units with a 20 percent premium.
99
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 19 – Comprehensive Income (Loss)
The following table presents reclassification adjustments out of Accumulated other comprehensive loss during the years ended
December 31, 2019, 2018 and 2017:
(in millions)
Details about Accumulated other
comprehensive loss components
Amount of loss reclassified into
earnings from foreign currency:
Foreign currency cumulative
translation adjustment
2019
2018
2017
Affected line item in the statement where net
income is presented
$
(13.9) $
— $
(13.9)
0.1
—
—
Loss on disposal of discontinued
operations
Earnings before income taxes from
discontinued operations
—
—
— Income tax provision
Amortization of defined benefit items:
Prior service credits
Net actuarial losses
Net actuarial losses
Amount of gain (loss) reclassified
into earnings on derivative
contracts:
Interest rate contracts
Foreign exchange contracts
$
$
$
$
$
(13.8) $
— $
— Net earnings from discontinued operations
$
0.7
(6.2)
(292.8)
(298.3)
(15.0)
(313.3) $
$
0.7
(10.3)
—
(9.6)
2.2
(7.4) $
0.7 Other expense, net (A)
(15.2) Other expense, net (A)
(96.6) Pension settlement charge (A) (B)
(111.1) Earnings before income taxes
Income tax provision (B)
42.3
(68.8) Net earnings from continuing operations(B)
(0.6) $
10.8
10.2
(3.0)
7.2
$
(0.9) $
(2.5)
(3.4)
0.8
(2.6) $
Interest expense
(1.1)
(0.9) Cost of sales
(2.0) Earnings before income taxes
0.7
Income tax provision
(1.3) Net earnings from continuing operations
(A) These Accumulated other comprehensive income (loss) components are included in the computation of net pension and other benefit costs. See Note 17 –
Postretirement Benefits for additional details.
(B) In 2019, the Company fully exited its qualified benefit pension plans and as a result, recorded a pre-tax settlement charge of $292.8 million. The income tax
impact of the settlement action was a net provision of $17.5 million, consisting of an income tax benefit of $73.9 million associated with the pension settlement
charge netted against an income tax charge of $91.4 million resulting from the release of disproportionate tax effects in Accumulated Other Comprehensive
Income. Refer to Note 17 – Postretirement Benefits and Note 12 – Income Taxes in the Notes to Consolidated Financial Statements for further information
on the pension settlement and related income tax consequences, respectively.
100
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 20 – Treasury Stock
The Company has executed share repurchases against authorizations approved by the Board of Directors in 2014, 2016 and
2019. In 2019, the Company repurchased $400.0 million of stock under these authorizations and as of December 31, 2019, the
remaining authorization was $234.8 million.
Treasury stock activity for the years ended December 31, 2019, 2018 and 2017, was as follows:
(Shares in thousands)
Balance at January 1
Compensation plans and other
Share repurchases
Balance at December 31
Note 21 – Leases
2019
2018
2017
15,781
(542)
7,730
22,969
15,001
(460)
1,240
15,781
13,221
(547)
2,327
15,001
The Company has operating lease agreements for offices, branches, factories, distribution and service facilities and certain
personal property. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. Finance leases are
not material to the Company's consolidated financial statements.
Several leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years
or more. The exercise of lease renewal options is at our sole discretion. Certain of our lease agreements include rental payments
that vary based on changes in volume activity, storage activity, or changes in the Consumer Price Index or other indices. Our lease
agreements do not contain any material residual value guarantees or material restrictive covenants.
A summary of the Company's lease assets and lease liabilities as of December 31, 2019 is as follows:
Classification
Dec 31, 2019
(in millions)
Lease Assets
Operating lease assets
Lease Liabilities
Current operating lease liabilities
Non-current operating lease liabilities
Total lease liabilities
Operating lease assets
Accrued expenses
Operating lease liabilities
A summary of the Company's total lease cost for the year ended December 31, 2019 is as follows:
(in millions)
Operating lease cost
Variable lease cost
Total lease cost (A)
Classification
Selling, general, and administrative expense
Cost of sales
Selling, general, and administrative expense
Cost of sales
$
$
$
$
83.2
18.4
70.1
88.5
Dec 31, 2019
13.9
25.6
0.5
4.4
44.4
(A) Includes total short-term lease cost which is immaterial.
Total lease cost was $33.6 million and $30.7 million for the years ended December 31, 2018 and December 31, 2017,
respectively.
101
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
The Company's maturity analysis of its operating lease liabilities as of December 31, 2019 is as follows:
(in millions)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
$
$
22.5
19.7
17.8
15.1
11.9
14.4
101.4
(12.9)
88.5
The total weighted-average discount rate and remaining lease term for the Company's operating leases was 4.99 percent and
5.5 years, respectively, as of December 31, 2019. Total operating lease payments reflected in operating cash flows were $21.9
million for the year ended December 31, 2019.
The following represents the Company's future minimum rental payments at December 31, 2018 for agreements classified as
operating leases under ASC 840 with non-cancelable terms in excess of one year:
(in millions)
2019
2020
2021
2022
2023
Thereafter
Total (not reduced by minimum sublease income of $0.1)
$
$
31.4
24.5
21.0
14.7
11.4
20.1
123.1
102
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 22 – Quarterly Data (unaudited)
The Company maintains its financial records on the basis of a fiscal year ended on December 31, with the fiscal quarters
spanning approximately thirteen weeks. The first quarter ends on the Saturday closest to the end of the first thirteen-week period.
The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first three
quarters of fiscal year 2019 ended on March 30, 2019, June 29, 2019, and September 28, 2019, and the first three quarters of fiscal
year 2018 ended on March 31, 2018, June 30, 2018, and September 29, 2018.
(in millions, except per share data)
Net sales (A)
Gross margin (B)
Restructuring, exit and impairment charges (C)
Pension settlement charge (D)
Net earnings (loss) from continuing operations (F)
Net loss from discontinued operations, net of tax
Net (loss) earnings
Basic earnings (loss) per common share:
Net earnings (loss) from continuing operations
Net loss from discontinued operations
Net (loss) earnings
Diluted earnings (loss) per common share:
Net earnings (loss) from continuing operations
Net loss from discontinued operations
Net (loss) earnings
Dividends declared
Common stock price (NYSE symbol: BC):
High
Low
Quarter Ended
March 30,
2019
$ 1,050.7
279.5
3.2
—
76.2
(112.5)
(36.3)
June 29,
2019
$ 1,163.5
328.0
5.4
—
112.1
(34.6)
77.5
$
$
$
$
$
$
$
$
0.87
(1.29)
(0.42) $
$
0.87
(1.29)
(0.42) $
1.29
(0.40)
0.89
1.28
(0.39)
0.89
0.21
$
0.21
55.35
44.89
$
$
54.76
41.02
September 28,
2019
December 31,
2019
$
$
$
$
$
$
$
$
$
976.6
276.9
7.4
(294.1)
(232.9)
(6.4)
(239.3)
(2.74) $
(0.08)
(2.82) $
(2.74) $
(0.08)
(2.82) $
917.6
236.6
2.8
1.3
75.0
(7.9)
67.1
0.92
(0.10)
0.82
0.92
(0.10)
0.82
0.21
$
0.24
54.75
42.57
$
$
62.23
49.36
$
Year Ended
December 31,
2019
4,108.4
1,121.0
18.8
(292.8)
30.4
(161.4)
(131.0)
$
$
$
$
$
$
$
0.36
(1.90)
(1.54)
0.36
(1.89)
(1.53)
0.87
62.23
41.02
103
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
(in millions, except per share data)
Net sales (A)
Gross margin (B)
Restructuring, exit and impairment charges (C)
Transaction financing charges (E)
Net earnings from continuing operations (F)
Net earnings (loss) from discontinued operations, net of
tax
Net earnings
Basic (loss) earnings per common share:
Net earnings from continuing operations
Net earnings (loss) from discontinued operations
Net earnings
Diluted (loss) earnings per common share:
Net earnings from continuing operations
Net earnings (loss) from discontinued operations
Net earnings
Dividends declared
Common stock price (NYSE symbol: BC):
High
Low
Quarter Ended
March 31,
2018
$
967.0
243.1
June 30,
2018
$ 1,148.7
September 29,
2018
1,044.1
$
281.2
278.3
2.6
—
63.8
9.1
72.9
0.72
0.11
0.83
0.72
0.10
0.82
0.19
64.45
55.35
$
$
$
$
$
$
$
34.2
—
68.1
10.9
79.0
0.78
0.12
0.90
0.77
0.13
0.90
0.19
69.27
54.76
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9.4
(5.1)
75.2
(5.2)
70.0
0.86
(0.06)
0.80
0.86
(0.06)
0.80
0.19
69.82
61.78
December 31,
2018
$
$
$
$
$
$
$
$
961.1
244.4
8.6
—
46.3
(2.9)
43.4
0.53
(0.03)
0.50
0.53
(0.04)
0.49
0.21
67.92
41.92
Year Ended
December 31,
2018
4,120.9
$
1,047.0
54.8
(5.1)
253.4
11.9
265.3
2.89
0.14
3.03
2.87
0.14
3.01
0.78
69.82
41.92
$
$
$
$
$
$
$
(A) In the second quarter of 2018, the Company announced its intention to wind down Sport Yacht & Yachts (SYY) operations. During the second quarter and the
full-year of 2019, SYY had Net sales of $(0.7) million. During the first, second, third and fourth quarters and the full-year of 2018, SYY had Net sales of
$15.1 million, $19.9 million, $9.0 million, $5.4 million and $49.4 million, respectively.
(B) Gross margin is defined as Net sales less Cost of sales (COS) as presented in the Consolidated Statements of Operations. In the second and fourth quarter and
the full-year of 2019, the company recorded $3.2 million, $3.9 million and $7.1 million in COS, respectively, related to SYY. During the first, second, third
and fourth quarter and the full-year of 2018, the Company recorded $18.7 million, $43.1 million, $17.3 million, $10.0 million and $89.1 million in COS,
respectively, related to SYY. During the third and fourth quarter and the full-year of 2018, the company recorded $4.6 million, $4.6 million and $9.2 million
in COS, respectively, of purchase accounting amortization related to the purchase of Power Products.
(C) Restructuring, exit, integration and impairment charges are discussed in Note 4 – Restructuring, Exit and Impairment Activities.
(D) Pension settlement charges are discussed in Note 17 – Postretirement Benefits.
(E) In the third quarter and full-year of 2018, the company recorded $5.1 million of Transaction financing charges related to the acquisition of Power Products.
(F) During the first, second, third and fourth quarter and full-year of 2019, Net (loss) earnings from continuing operations includes $5.7 million, $9.0 million, $6.1
million, $8.2 million and $29.0 million, respectively, related to SYY, IT transformation costs, purchase accounting amortization and acquisition-related costs,
related to the purchase of Freedom Boat Club and Power Products. Net earnings (loss) from continuing operations also includes $(1.7) million, $1.8 million,
$(2.5) million, $(14.8) million and $(17.2) million related to discrete tax items. During the first, second, third and fourth quarter and full-year ended 2018,
Net earnings from continuing operations includes $6.4 million, $23.3 million, $25.0 million, $16.9 million and $71.6 million, respectively, related to SYY,
purchase accounting amortization and acquisition-related costs. Refer to Note 5 – Acquisitions for further details. Net earnings from continuing operations
also includes $6.7 million, $(1.1) million, $(10.7) million, $0.3 million and $(4.8) million related to discrete tax items. In the third and fourth quarter and full-
year of 2019, the Company had a loss (gain) of extinguishment of debt, net of tax, of $0.7 million, $(0.1) million and $0.6 million, respectively. In the fourth
quarter of 2018, the Company sold its non-controlling interest in a marine joint venture and recorded a gain of $1.8 million, net of tax, within Equity earnings.
104
BRUNSWICK CORPORATION
Notes to Consolidated Financial Statements
Note 23 – Subsequent Events
Throughout 2019, Brunswick implemented strategic and organizational initiatives to sharpen the focus of the Company on
the recreational marine market and adjacent opportunities. Starting in 2020, the Company’s strategy is focused on four business
pillars - Propulsion, Parts and Accessories (P&A), Boats and Business Acceleration. Effective January 1, 2020, we changed our
management reporting and updated our reportable segments to Propulsion, P&A and Boat to align with our strategy. The Propulsion
segment will contain both outboard and sterndrive engine businesses, along with controls and riggings, which are closely associated
with our propulsion businesses. The P&A segment will contain all other P&A categories, including engine parts and consumables,
electrical products, boat parts and systems, and our distribution business. The Boat segment will continue to include Business
Acceleration. As a result of the change in segments, the Goodwill balance previously reported on the Marine Engine segment will
be allocated to the Propulsion and P&A segments based on their relative fair values.
Concurrent with this change, the Company has changed its measurement of segment profit and loss due to a decision to
streamline internal and external reporting practices relating to marine engines sold from the Propulsion segment to the Boat segment.
This change in presentation, which is not the result of a change in business practice, more closely follows current market dynamics,
as well as provides improved comparability with other boat companies.
105
BRUNSWICK CORPORATION
Schedule II - Valuation and Qualifying Accounts
(in millions)
Allowances for
Losses on
Receivables
Balance at
Beginning
of Year
Charges to
Profit and
Loss
Write-offs Recoveries Acquisitions
Other
Balance at
End of
Year
2019
2018
2017
$
8.7
$
1.6
$
(1.7) $
0.2
$
— $
(0.3) $
7.2
9.7
0.8
1.3
(0.9)
(4.4)
0.1
0.1
1.1
—
0.4
0.5
8.5
8.7
7.2
Deferred Tax Asset
Valuation Allowance
Balance at
Beginning
of Year
Charges to
Profit and
Loss(A)
Write-offs Recoveries
Other(B)
Balance at
End of
Year
2019
2018
2017
$
74.7
$
(3.5) $
— $
— $
22.1
$
93.3
78.0
75.5
4.0
5.9
—
—
—
—
(7.3)
(3.4)
74.7
78.0
(A) For the year ended December 31, 2019, the deferred tax asset valuation benefit activity primarily relates to reassessments for state recognition purposes. For
the years ended December 31, 2018 and 2017, the deferred tax asset valuation provision activity primarily relates to tax losses in foreign jurisdictions.
(B) For the year ended December 31, 2019, the activity primarily relates to Federal and State impact of the sale of the stock of certain entities. For the years ended
December 31, 2018 and 2017, activity primarily relates to Federal tax law changes and foreign currency translation.
Item 16. Form 10-K Summary
None.
106
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.
SIGNATURES
February 18, 2020
BRUNSWICK CORPORATION
By:
/S/ RANDALL S. ALTMAN
Randall S. Altman
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
February 18, 2020
February 18, 2020
February 18, 2020
By:
/S/ DAVID M. FOULKES
David M. Foulkes
Chief Executive Officer and Director
(Principal Executive Officer)
By:
/S/ WILLIAM L. METZGER
William L. Metzger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
By:
/S/ RANDALL S. ALTMAN
Randall S. Altman
Vice President and Controller
(Principal Accounting Officer)
This report has been signed by the following directors, constituting the remainder of the Board of Directors, by William L.
Metzger, as Attorney-in-Fact.
Nancy E. Cooper
David C. Everitt
Manuel A. Fernandez
Lauren Patricia Flaherty
Joseph W. McClanathan
David V. Singer
Jane L. Warner
J. Steven Whisler
Roger J. Wood
February 18, 2020
By:
/S/ WILLIAM L. METZGER
William L. Metzger
Attorney-in-Fact
107
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BOARD OF DIRECTORS
NANCY E. COOPER
—————————————————————————
Retired Executive Vice President and
Chief Financial Officer of CA Technologies, Inc.
Director Since: 2013
JOSEPH W. MCCLANATHAN
—————————————————————————
Retired President and Chief Executive Officer, Household
Products Division of Energizer Holdings, Inc.
Director Since: 2018
DAVID C. EVERITT
—————————————————————————
Retired President, Agricultural and Turf
Division of Deere & Company
Director Since: 2012
DAVID V. SINGER
—————————————————————————
Retired Chief Executive Officer
of Snyder’s-Lance, Inc.
Director Since: 2013
MANUEL A. FERNANDEZ
—————————————————————————
Non-Executive Chairman of the Board
Retired Chairman, Chief Executive Officer,
and President of Gartner, Inc.
Director Since: 1997
JANE L. WARNER
—————————————————————————
Retired Executive Vice President of
Decorative Surfaces and Finishing Systems
of Illinois Tool Works Inc.
Director Since: 2015
LAUREN P. FLAHERTY
—————————————————————————
Retired Executive Vice President and Chief Marketing
Officer of CA Technologies, Inc.
Director Since: 2018
J. STEVEN WHISLER
—————————————————————————
Retired Chairman and Chief Executive Officer
of Phelps Dodge Corporation
Director Since: 2007
DAVID M. FOULKES
—————————————————————————
Chief Executive Officer Brunswick Corporation
Director Since: 2019
ROGER J. WOOD
—————————————————————————
Retired Co-Chief Executive Officer of Tenneco, Inc.
Director Since: 2012
BOARD COMMITTEES
AUDIT
COMMITTEE
FINANCE
COMMITTEE
HUMAN
RESOURCES AND
COMPENSATION
COMMITTEE
NOMINATING
AND CORPORATE
GOVERNANCE
COMMITTEE
EXECUTIVE
COMMITTEE
NANCY E. COOPER (C)
DAVID V. SINGER (C)
DAVID C. EVERITT (C)
J. STEVEN WHISLER (C)
NANCY E. COOPER
JOSEPH W. MCCLANATHAN
NANCY E. COOPER
MANUEL A. FERNANDEZ
DAVID C. EVERITT
DAVID C. EVERITT
DAVID V. SINGER
JOSEPH W. MCCLANATHAN
LAUREN P. FLAHERTY
MANUEL A. FERNANDEZ
MANUEL A. FERNANDEZ
JANE L. WARNER
JANE L. WARNER
J. STEVEN WHISLER
LAUREN P. FLAHERTY
DAVID M. FOULKES
ROGER J. WOOD
ROGER J. WOOD
DAVID V. SINGER
J. STEVEN WHISLER
OFFICERS OF THE COMPANY
DAVID M. FOULKES
—————————————————————————
Chief Executive Officer
CHRISTOPHER F. DEKKER
—————————————————————————
Vice President, General Counsel, and Secretary
WILLIAM L. METZGER
—————————————————————————
Senior Vice President and Chief Financial Officer
BRETT A. DIBKEY
—————————————————————————
Vice President and President—Advanced Systems Group
RANDALL S. ALTMAN
—————————————————————————
Vice President—Controller
CHRISTOPHER D. DREES
—————————————————————————
Vice President and President—Mercury Marine
JEFFRY K. BEHAN
—————————————————————————
Vice President of Corporate Strategy and
President—Aluminum Commercial Operations
KEVIN S. GRODZKI
—————————————————————————
Vice President—Communications
and Public Affairs
HUW S. BOWER
—————————————————————————
Vice President and President—Brunswick Boat Group
RYAN M. GWILLIM
—————————————————————————
Vice President—Finance and Treasurer
DANIELLE BROWN
—————————————————————————
Vice President—Chief Information Officer
NANCY J. LOUBE
—————————————————————————
Vice President—Tax
BRENT G. DAHL
—————————————————————————
Vice President—Internal Audit
BRENNA D. PREISSER
—————————————————————————
Vice President and Chief Human Resources Officer and
President—Business Acceleration
CORPORATE INFORMATION
CORPORATE OFFICES
Brunswick Corporation
26125 N. Riverwoods Blvd., Suite 500
Mettawa, IL 60045-3420
Phone: 847-735-4700
Fax: 847-735-4765
brunswick.com
STOCK EXCHANGE LISTINGS
Brunswick common stock is listed and traded on the New York
and Chicago Stock Exchanges under the ticker symbol BC.
CERTIFICATION
Brunswick’s Chief Executive Officer has filed a certification with
the New York Stock Exchange stating that he is not aware of
any violation by the Company of NYSE Corporate Governance
listing standards. That document was most recently filed on
May 14, 2019.
ANNUAL MEETING OF SHAREHOLDERS
Brunswick’s annual meeting of shareholders will be held on
May 6, 2020. Details are included in the Proxy Statement.
INVESTOR AND MEDIA INQUIRIES
Securities analysts, institutional investors, and media representatives
requesting information about the Company should contact Investor
Relations by mail at the corporate offices, by phone at 847-735-
4926, or by email at services@brunswick.com.
TRANSFER AGENT AND REGISTRAR
Shareholders requesting information on electronic dividend
deposits, transfers, address or ownership changes, account
consolidation, or the investment plan should contact the transfer
agent and registrar at:
Computershare Trust Company, N.A.
PO Box 505000
Louisville, KY 40233-5000
Shareholder online inquiries
https://www-us.computershare.com/investor/contact
(800) 546-9420 – Toll-free within the United States, Canada, and
Puerto Rico
+1 (781) 575-4313 – Outside the United States, Canada, and
Puerto Rico
computershare.com/investor
DIVIDENDS
Dividends are paid on a quarterly basis, subject to approval by
the Board of Directors, generally in March, June, September, and
December. Shareholders are welcome to participate in Brunswick’s
Investor Plan by contacting the plan administrator, Computershare
Investor Services. The plan provides for automatic reinvestment
of dividends into shares of Brunswick common stock and allows
for initial and additional stock purchases. Shareholders can also
choose to have their dividends directly deposited into their
bank accounts. Brochures and enrollment forms are available on
Computershare’s website at www.computershare.com/investor/
or by contacting Computershare.
ELECTRONIC RECEIPT OF PROXY MATERIALS
AND PROXY VOTING
The Annual Report and Proxy Statement are also available
for review and download on the Brunswick website at
www.brunswick.com/investors. If you have any questions,
please contact Shareholder Services by mail at Brunswick’s
corporate offices, by phone at 847-735-4374, or by email at
services@brunswick.com.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Chicago, Illinois
NON-GAAP FINANCIAL MEASURES
Certain statements in this report contain non-GAAP financial
measures. GAAP refers to generally accepted accounting
principles in the United States. A “non-GAAP financial measure”
is a numerical measure of a company’s historical or future
financial performance, financial position, or cash flows that
excludes amounts, or is subject to adjustments that have the
effect of excluding amounts, that are included in the most directly
comparable measure calculated and presented in accordance
with GAAP in the statements of operations, balance sheets, or
statements of cash flows of the company; or includes amounts,
or is subject to adjustments that have the effect of including
amounts, that are excluded from the most directly comparable
measure so calculated and presented. Operating and statistical
measures and certain ratios and other statistical measures are
not non-GAAP financial measures.
Brunswick’s management believes that non-GAAP financial
measures and the information that they provide are useful to
investors because they permit investors to view our performance
using the same tools that we use and to better evaluate our
ongoing business performance. Diluted earnings per common
share, as adjusted, refers to diluted earnings (loss) per common
share from continuing operations, excluding the earnings per
share impact of pension settlement charges; restructuring, exit,
and impairment charges; impairment charges or gain on sale
of an equity investment; loss on early extinguishment of debt;
special tax items; Sea Ray Sport Yacht and Yacht operations;
acquisition-related costs; purchase accounting amortization; or
other applicable charges. Brunswick defines adjusted operating
earnings as operating earnings (loss), excluding the earnings
impact of restructuring, exit, and impairment charges; purchase
accounting amortization; Sea Ray Sport Yacht and Yacht
operations; acquisition-related costs; and other non-recurring
or applicable charges. Brunswick defines free cash flow as cash
flow from operating and investing activities (excluding cash
provided by or used for acquisitions, investments, purchases
or sales/maturities of marketable securities, and other investing
activities) and the effect of exchange rate changes on cash and
cash equivalents.
Brunswick does not provide forward-looking guidance for
certain financial measures on a GAAP basis because it is unable
to predict certain items contained in the GAAP measures
without unreasonable efforts. These items may include pension
settlement charges, restructuring, exit, and impairment charges,
special tax items, acquisition-related costs, and certain other
unusual adjustments. To reflect the impact of changes in currency
exchange rates on net sales, Brunswick may use constant currency
reporting. To present this information, net sales transacted in
currencies other than U.S. dollars are translated to U.S. dollars
using prior year exchange rates for the comparative period,
using the average exchange rates in effect during that period.
The percentage change in net sales expressed on a constant
currency basis may better reflect changes in the underlying
business trends, excluding the impact of translation arising from
foreign currency exchange rate fluctuations.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report are forward looking
as defined in the Private Securities Litigation Reform Act of
1995. Such statements are based on current expectations,
estimates, and projections about our business. Forward-
looking statements by their nature address matters that are, to
different degrees, uncertain and often contain words such as
“may,” “could,” “expect,” “intend,” “plan,” “seek,” “estimate,”
“believe,” “predict,” “potential,” “continue,” “project,” “target,”
or “forecast.” These statements are not guarantees of future
performance and involve certain risks and uncertainties that
may cause actual results to differ materially from expectations
as of the date of this report. For a description of these risks,
see the Risk Factors section and forward-looking statements
section in the Management’s Discussion and Analysis in the
attached Annual Report on Form 10-K for the fiscal year ended
December 31, 2019.
Brunswick Corporation is a publicly held company listed
on the New York and Chicago stock exchanges, with
sales over $4.1 billion annually. While we are family to
approximately 12,000 employees around the world,
four divisions in more than 24 countries create a local
environment. Our global headquarters is located in the
Chicago suburb of Mettawa, Illinois.
Since Brunswick was founded in 1845, the Company has
grown to become a world leader in: marine propulsion,
boats, and parts and accessories. We’ve been successful
in the market for so long because we maintain a focus
on driving innovation, while leveraging best practices
and veteran industry knowledge.
READ OUR SUSTAINABILITY REPORT
brunswick.com/corporate-responsibility/sustainability
READ OUR PROXY REPORT
brunswick.com/investors/sec-filings
VISIT OUR INVESTOR RELATIONS WEBSITE
brunswick.com/investors
VISIT OUR INVESTOR RELATIONS WEBSITE
www.brunswick.com/investors