BC 10-Q Quarter ended Oct. 2, 2010

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2010

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-1043

Brunswick Corporation

(Exact name of registrant as specified in its charter)

Delaware		36-0848180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ¨ No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨ (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of November 1, 2010, was 88,656,402.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

BRUNSWICK CORPORATION

Consolidated Statements of Operations

(unaudited)

		Three Months Ended								Nine Months Ended
(in millions,  except per share data)		October 2, 2010				October 3, 2009				October 2, 2010				October 3, 2009
Net sales		$	815.4			$	665.8			$	2,674.5			$	2,118.8
Cost of sales			632.1				590.2				2,070.3				1,878.0
Selling, general and administrative expense			122.8				136.7				401.6				454.5
Research and development expense			23.1				19.5				67.8				64.7
Restructuring, exit and impairment charges			12.2				28.8				43.8				103.9
Operating earnings (loss)			25.2				(109.4	)			91.0				(382.3	)
Equity loss			(2.0	)			(3.8	)			(1.2	)			(11.1	)
Other income (expense), net			(2.2	)			0.3				(1.6	)			(1.3	)
Earnings (loss) before interest, loss on early extinguishment of debt and income taxes			21.0				(112.9	)			88.2				(394.7	)
Interest expense			(22.7	)			(23.6	)			(70.9	)			(60.1	)
Interest income			0.9				0.7				2.5				2.2
Loss on early extinguishment of debt			(1.1	)			(0.1	)			(5.5	)			(0.1	)
Earnings (loss) before income taxes			(1.9	)			(135.9	)			14.3				(452.7	)
Income tax provision (benefit)			5.3				(21.6	)			20.8				9.5
Net loss		$	(7.2	)		$	(114.3	)		$	(6.5	)		$	(462.2	)
Loss per common share:
Basic		$	(0.08	)		$	(1.29	)		$	(0.07	)		$	(5.23	)
Diluted		$	(0.08	)		$	(1.29	)		$	(0.07	)		$	(5.23	)
Weighted average shares used for computation of:
Basic loss per common share			88.8				88.4				88.7				88.4
Diluted loss per common share			88.8				88.4				88.7				88.4
The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

(in millions)		October 2, 2010				December 31, 2009				October 3, 2009
		(unaudited)								(unaudited)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates market		$	676.5			$	526.6			$	624.1
Accounts and notes receivable, less allowances of $44.0, $47.7 and $60.7			367.4				332.4				368.2
Inventories
Finished goods			245.8				234.4				238.8
Work-in-process			177.5				174.3				182.9
Raw materials			95.1				76.2				81.5
Net inventories			518.4				484.9				503.2
Deferred income taxes			1.8				79.3				13.1
Prepaid expenses and other			30.0				35.5				34.6
Current assets			1,594.1				1,458.7				1,543.2
Property
Land			89.9				100.0				105.6
Buildings and improvements			654.8				678.3				682.5
Equipment			1,073.3				1,078.9				1,104.9
Total land, buildings and improvements and equipment			1,818.0				1,857.2				1,893.0
Accumulated depreciation			(1,245.8	)			(1,221.8	)			(1,193.7	)
Net land, buildings and improvements and equipment			572.2				635.4				699.3
Unamortized product tooling costs			65.3				88.9				99.1
Net property			637.5				724.3				798.4
Other assets
Goodwill			291.1				292.5				292.6
Other intangibles, net			59.6				75.6				78.5
Investments			59.9				56.7				57.8
Other long-term assets			89.5				101.6				109.9
Other assets			500.1				526.4				538.8
Total assets		$	2,731.7			$	2,709.4			$	2,880.4
The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

		October 2,				December 31,				October 3,
(in millions, except share data)		2010				2009				2009
		(unaudited)								(unaudited)
Liabilities and shareholders’ equity
Current liabilities
Short-term debt, including current maturities of long-term debt		$	4.3			$	11.5			$	11.5
Accounts payable			274.9				261.2				232.6
Accrued expenses			623.3				633.9				628.4
Current liabilities			902.5				906.6				872.5
Long-term liabilities
Debt			829.8				839.4				904.8
Deferred income taxes			52.8				10.1				54.4
Postretirement and postemployment benefits			527.8				535.7				517.6
Other			201.7				207.3				195.3
Long-term liabilities			1,612.1				1,592.5				1,672.1
Shareholders’ equity
Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares			76.9				76.9				76.9
Additional paid-in capital			421.9				415.1				412.6
Retained earnings			498.7				505.3				633.7
Treasury stock, at cost:
13,912,000; 14,220,000 and 14,275,000 shares			(406.5	)			(412.2	)			(413.3	)
Accumulated other comprehensive loss, net of tax			(373.9	)			(374.8	)			(374.1	)
Shareholders’ equity			217.1				210.3				335.8
Total liabilities and shareholders’ equity		$	2,731.7			$	2,709.4			$	2,880.4
The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

		Nine Months Ended
(in millions)		October 2, 2010				October 3, 2009
Cash flows from operating activities
Net loss		$	(6.5	)		$	(462.2	)
Depreciation and amortization			98.5				119.8
Pension expense, net of funding			12.1				58.7
Provision for doubtful accounts			1.1				33.1
Deferred income taxes			5.4				9.9
Long-lived asset impairment charges			19.0				18.0
Equity in earnings of unconsolidated affiliates, net of dividends			1.4				11.4
Loss on early extinguishment of debt			5.5				0.1
Changes in certain current assets and current liabilities			(71.4	)			314.3
Income taxes			114.1				90.6
Repurchase of accounts receivable			—				(84.2	)
Other, net			13.4				20.8
Net cash provided by operating activities			192.6				130.3
Cash flows from investing activities
Capital expenditures			(31.1	)			(20.2	)
Investments			(8.6	)			7.5
Proceeds from the sale of property, plant and equipment			5.9				11.7
Other, net			8.3				1.9
Net cash provided by (used for) investing activities			(25.5	)			0.9
Cash flows from financing activities
Net issuances (payments) of short-term debt			(6.8	)			8.3
Proceeds from asset-based lending facility			—				81.1
Payments of asset-based lending facility			—				(81.1	)
Net proceeds from issuance of long-term debt			30.2				329.9
Payments of long-term debt including current maturities			(36.7	)			(162.6	)
Payments of premium on early extinguishment of debt			(5.3	)			(0.2	)
Net stock compensation activity			1.4				—
Net cash provided by (used for) financing activities			(17.2	)			175.4
Net increase in cash and cash equivalents			149.9				306.6
Cash and cash equivalents at beginning of period			526.6				317.5
Cash and cash equivalents at end of period		$	676.5			$	624.1
The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Significant Accounting Policies

Interim Financial Statements. The unaudited interim consolidated financial statements of Brunswick Corporation (Brunswick or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain previously reported amounts have been reclassified to conform to the current period presentation.

These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Brunswick’s 2009 Annual Report on Form 10-K (the 2009 Form 10-K). These interim results include, in the opinion of management, all normal and recurring adjustments necessary to present fairly the financial position of Brunswick as of October 2, 2010, December 31, 2009, and October 3, 2009, the results of operations for the three months and nine months ended October 2, 2010 and October 3, 2009, and the cash flows for the nine months ended October 2, 2010 and October 3, 2009.  Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks and ending on the Saturday closest to the end of that thirteen-week period.  The first three quarters of fiscal year 2010 ended on April 3, 2010, July 3, 2010 and October 2, 2010 and the first three quarters of fiscal year 2009 ended on April 4, 2009, July 4, 2009 and October 3, 2009.

Recent Accounting Pronouncements . In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets” (SFAS 166) (codified within the FASB Accounting Standards Codification (ASC) 860, “Transfers and Servicing”). SFAS 166 amends the derecognition guidance in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 166 is effective for fiscal years beginning after November 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167) (codified within ASC 810, “Consolidation”). SFAS 167 amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective for fiscal years beginning after November 15, 2009. The adoption of this statement resulted in the Company expanding its disclosures relative to its variable interest entity, as reflected in Note 11 – Financial Services .

In October 2009, the FASB issued ASU No. 2009-13, “Multiple Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13) (codified within ASC Topic 605, “Revenue Recognition”). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact that the adoption of the amendments to the ASC resulting from ASU 2009-13 may have on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (ASU 2010-06) (codified within ASC 820, “Fair Value Measurements and Disclosures” (ASC 820)).  ASU 2010-06 improves disclosures originally required under SFAS No. 157, “Fair Value Measurements” (codified under ASC 820). ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this ASU resulted in the Company expanding its disclosures, as reflected in Note 4 – Fair Value Measurements .

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (ASU 2010-09) (codified within ASC 855, “Subsequent Events” (ASC 855)).  ASU 2010-09 amended SFAS No. 165, “Subsequent Events” (codified within ASC 855) to resolve conflicts with SEC reporting requirements. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

In July 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (ASU 2010-20) (codified within ASC 310, “Receivables”).  ASU 2010-20 amends the codification to include additional disclosure requirements related to the Company’s financing receivables and associated credit risk.  The disclosure requirements presented as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010.  The disclosure requirements about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  The adoption of this ASU is expected to result in the Company expanding its disclosures.

Note 2 – Restructuring Activities

In November 2006, Brunswick announced restructuring initiatives to improve the Company’s cost structure, better utilize overall capacity and improve general operating efficiencies. These initiatives reflected the Company’s response to a difficult marine market. As the marine market continued to decline, Brunswick expanded its restructuring activities during 2007, 2008, 2009 and 2010 in order to improve performance and better position the Company for current market conditions and longer-term profitable growth. These initiatives have resulted in the recognition of restructuring, exit and impairment charges in the Consolidated Statement of Operations during 2009 and 2010.

The costs incurred under these initiatives include:

Restructuring Activities – These amounts mainly relate to:

·	Employee termination and other benefits

·	Costs to retain and relocate employees

·	Consulting costs

·	Consolidation of manufacturing footprint

Exit Activities – These amounts mainly relate to:

·	Employee termination and other benefits

·	Lease exit costs

·	Inventory write-downs

·	Facility shutdown costs

Asset Disposition Actions – These amounts mainly relate to sales of assets and definite-lived asset impairments of:

·	Fixed assets

·

Tooling

·	Patents and proprietary technology

·	Dealer networks

Impairments of definite-lived assets are recognized when, as a result of the restructuring activities initiated, the carrying amount of the long-lived asset is not expected to be fully recoverable, in accordance with ASC 360, “Property, Plant, and Equipment.” The impairments recognized were equal to the difference between the carrying amount of the asset and the fair value of the asset, which was determined using observable inputs, including the use of appraisals from independent third parties, when available, and, when observable inputs were not available, based on the Company’s assumptions of the data that market participants would use in pricing the asset or liability, 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 and exit activities based on the specific driver of the cost and reflected the expense in the accounting period when the cost has been committed to or incurred. The Company considers actions related to the divestiture of its Triton fiberglass boat business, the sale of certain Baja boat business assets, the closure of its bowling pin manufacturing facility, the sale of the Valley-Dynamo and Integrated Dealer Systems businesses and the divestiture of MotoTron, to be exit activities. All other actions taken are considered to be restructuring activities.

The following table is a summary of the expense associated with the restructuring, exit and impairment activities for the three months and nine months ended October 2, 2010 and October 3, 2009. The 2010 charge consists of expenses related to actions initiated in 2010, 2009 and 2008:

		Three Months Ended								Nine Months Ended
(in millions)		October 2, 2010				October 3, 2009				October 2, 2010				October 3, 2009
Restructuring activities:
Employee termination and other benefits		$	1.5			$	9.8			$	7.3			$	39.4
Current asset write-downs			1.7				0.3				1.7				3.7
Transformation and other costs:
Consolidation of manufacturing footprint			4.1				16.7				10.3				39.9
Retention and relocation costs			0.2				—				0.2				0.1
Consulting costs			—				—				—				0.3
Exit activities:
Employee termination and other benefits			—				0.3				0.7				0.7
Current asset write-downs (adjustments)			(0.2	)			—				0.7				1.1
Transformation and other costs (adjustments):
Consolidation of manufacturing footprint			5.9				(1.7	)			5.9				1.3
Asset disposition actions:
Trade name impairments			—				—				1.1				—
Definite-lived asset impairments
(adjustments)			(1.0	)			3.4				15.9				17.4
Total restructuring, exit and impairment charges		$	12.2			$	28.8			$	43.8			$	103.9