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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950137-02-001164.txt : 20020415
<SEC-HEADER>0000950137-02-001164.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950137-02-001164
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020308
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BRUNSWICK CORP
CENTRAL INDEX KEY: 0000014930
STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510]
IRS NUMBER: 360848180
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-01043
FILM NUMBER: 02570850
BUSINESS ADDRESS:
STREET 1: ONE N FIELD CT
STREET 2: C/O MICHAEL SCHMITZ
CITY: LAKE FOREST
STATE: IL
ZIP: 60045-4811
BUSINESS PHONE: 8477354700
MAIL ADDRESS:
STREET 1: ONE N FIELD CT
CITY: LAKE FOREST
STATE: IL
ZIP: 60045-4811
FORMER COMPANY:
FORMER CONFORMED NAME: BRUNSWICK BALKE COLLENDER CO
DATE OF NAME CHANGE: 19660919
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c67590e10-k405.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 2001
COMMISSION FILE NUMBER 1-1043
---------------------
BRUNSWICK CORPORATION
(Exact name of registrant in its charter)
<Table>
<S> <C>
DELAWARE 36-0848180
(State of incorporation) (I.R.S. Employer Identification No.)
1 N. FIELD CT., LAKE FOREST, ILLINOIS 60045-4811
(Address of principal executive offices) (Zip Code)
</Table>
(847) 735-4700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock ($0.75 par value) New York, Chicago, Pacific
and London Stock Exchanges
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of MARCH 1, 2002, the aggregate market value of the voting stock of the
registrant held by non-affiliates was $2,372,937,249. Such number excludes stock
beneficially owned by 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 MARCH 1, 2002, was 88,841,124.
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 SCHEDULED TO BE HELD ON MAY 1, 2002.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-K REPORT
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related 14
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition 15
and Results of Operations...................................
Item 7A. Quantitative and Qualitative Disclosures About Market 28
Risk........................................................
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting 29
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 30
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and 30
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 30
8-K.........................................................
</Table>
<PAGE>
PART I
ITEM 1. BUSINESS
Brunswick Corporation (the Company) is a manufacturer and marketer of
leading consumer brands including Mercury and Mariner outboard engines; Mercury
MerCruiser sterndrive and inboard engines; marine parts and accessories under
the Mercury Precision Parts and Quicksilver brands; Sea Ray, Bayliner, Maxum and
Sealine pleasure boats; Hatteras luxury sportfishing convertibles and
motoryachts; Baja high-performance boats; Boston Whaler and Trophy offshore
fishing boats; Princecraft fishing, deck and pontoon boats; Life Fitness, Hammer
Strength and ParaBody fitness equipment; Brunswick bowling equipment and
consumer products; and Brunswick billiards tables and accessories. The Company
also owns and operates Brunswick family bowling centers across the United States
and internationally, as well as a chain of specialty fitness retail stores
concentrated in the Northeast and Pacific Northwest regions of the United
States.
The Company's strategy is to achieve growth by developing innovative
products, identifying and deploying leading-edge technologies, pursuing
aggressive marketing and brand-building activities, pursuing international
opportunities and leveraging core competencies. Further, the Company focuses on
enhancing its operating margins through effective cost management and
investments in technology. The Company's objective is to enhance shareholder
value by achieving returns on investments that exceed its cost of capital.
During 2001, the Company substantially completed the divestiture of its
former outdoor recreation segment, including its cooler, hunting sports
accessories and North American fishing businesses. The Company completed the
sale of its bicycle and camping businesses in 2000 and its European fishing
business in early 2002. The Company's reportable segments following these
divestitures are: Marine Engine, Boat, and Recreation. Prior-year numbers have
been restated to conform with the discontinued operations and new segment
presentations. See NOTE 3, SEGMENT INFORMATION, in the Notes to Consolidated
Financial Statements for financial information about these segments.
MARINE ENGINE SEGMENT
The Marine Engine segment consists of the Mercury Marine Group. The Company
believes its Marine Engine segment has the largest dollar sales volume of
recreational marine engines in the world.
Mercury Marine manufactures and markets a full range of outboard engines,
sterndrive engines, inboard engines and propless water-jet propulsion systems
under the familiar Mercury, Mariner, Mercury MerCruiser, Mercury Racing, Mercury
SportJet and Mercury Jet Drive brand names. A portion of Mercury Marine's
outboards and parts and accessories, including marine electronics and controls
integration systems, steering systems, instruments, controls, propellers,
service aids and marine lubricants, are sold to end-users through marine dealers
and specialty marine retailers. The remaining outboard engines and virtually all
of the sterndrives, inboard engines and water-jet propulsion systems are sold
either to independent boatbuilders or to the Company's own boat companies that
comprise the Brunswick Boat Group (Boat Group).
Mercury Marine has five two-stroke OptiMax outboard engines ranging from
135 to 250 horsepower, all of which feature Mercury's direct fuel injection
(DFI) technology. DFI is part of Mercury's plan to reduce outboard engine
emissions 75 percent by 2006 to comply with U.S. Environmental Protection Agency
(EPA) requirements. Mercury's product line of low-emission engines includes 13
four-stroke outboards ranging from 4 to 115 horsepower. These OptiMax and
four-stroke outboards already achieve the EPA's mandated 2006 emission levels.
The California Air Resources Board (CARB) mandated that EPA's 2006 emission
levels be met by 2001 with further emission reductions scheduled for 2004 and
2008. CARB has instituted a rating system for emissions reduction that
establishes ratings of either one star (75 percent reduction), two stars (82
percent reduction) or three stars (91 percent reduction). Mercury believes that
its 135-horsepower OptiMax is the only two-stroke engine in the world with a
three-star rating from CARB. All Mercury four-stroke outboards from 25 to 115
horsepower are also three-star rated.
On February 14, 2002, Mercury Marine announced the formation of a joint
venture with Cummins Marine, a division of Cummins Inc., to supply integrated
diesel propulsion systems to the worldwide
1
<PAGE>
recreational and commercial marine markets. The Company and Cummins will each
own 50 percent of the joint venture, Cummins MerCruiser Diesel Marine LLC,
effective April 1, 2002. Through the joint venture, Mercury will extend its
product offerings to include diesel-fueled propulsion packages in a displacement
range of 1.7 to 15 liters for pleasure, sailing, military and commercial
applications.
Mercury also announced in February 2002 that it had acquired Teignbridge
Propellers, Ltd., and formed a manufacturing alliance with All Star Engine
Company. Teignbridge, located in Newton Abbot, United Kingdom, is a manufacturer
of custom and standard propellers and underwater stern gear for inboard-powered
vessels. The acquisition of Teignbridge will allow Mercury to extend its product
offerings to a full line of propellers and related equipment in markets and
applications not previously served. In connection with the All Star alliance,
Mercury will produce All Star's 708 engine, an aluminum block, fuel-injected V-8
which will be offered by Mercury's Racing division to the high-performance
marine market as well as to commercial marine and non-marine applications.
Mercury's SmartCraft system, a total marine electronics and controls
integration system, links power, controls, and internal and external sensors, to
provide synchronized data and control over all essential boat functions.
SmartCraft systems leverage Mercury's advanced engine capability and allow
Mercury and its customers to take advantage of advances in communications,
entertainment and navigation electronics by providing a platform to integrate
these technologies and enhance the overall boating experience. SmartCraft was
introduced on a number of Mercury engine offerings beginning in 2000 and 2001,
and will be offered on a broader range of products beginning in 2002, including
Cummins MerCruiser diesel engines, the All Star 708 V-8, and numerous Mercury
and MerCruiser engines.
Mercury Marine's product offerings in international markets include the
sale and distribution of a range of aluminum, fiberglass and inflatable boats
produced either by, or for, Mercury in Australia, France, Norway, Poland,
Portugal and Sweden. These boats are marketed under the brand names Armor,
Arvor, Askaladden, Bermuda, Mercury, Ornvik, Quicksilver, Savage, Uttern and
Valiant.
In response to unfavorable market conditions, during 2001 Mercury Marine
undertook both permanent and temporary workforce reductions. Production
workforces were reduced through layoffs and through temporary plant shutdowns in
weekly increments to match production output with customer demand, while
full-time salaried employee costs were reduced through permanent reductions and
a one-week furlough. Approximately 325 positions were affected by permanent
workforce reductions.
Domestic retail demand for the Marine Engine segment's products is
seasonal, with sales generally highest in the second quarter. A number of
factors can influence demand for the Marine Engine segment's products,
including, but not limited to:
- Economic conditions and consumer confidence in the United States and
certain international regions;
- Adverse weather in key geographic areas, including excessive rain,
prolonged below-average temperatures and severe heat or drought,
particularly during the key selling season;
- The level of inventories maintained by the segment's dealers,
independent boatbuilders and the Company's Boat Group;
- The segment's ability to make technological advancements to meet
customer demands;
- The segment's ability to provide competitive products;
- Consumer demand for the Company's boat offerings and those of other
major domestic boatbuilders;
- Fuel costs;
- Prevailing interest rates; and
- Consumer interest in recreational boating.
BOAT SEGMENT
The Boat segment consists of the Brunswick Boat Group, which manufactures
and markets fiberglass pleasure boats, high-performance boats, offshore fishing
boats, and aluminum fishing, deck and pontoon boats. The Company believes its
Boat Group has the largest dollar sales volume of pleasure boats in the world.
2
<PAGE>
The Boat Group was formed in October 2000 to leverage the Company's core
competencies in the marine industry by combining all of its boat brands within
one operating unit. Through its Sea Ray, US Marine, Hatteras, Sealine and
Princecraft divisions, the Boat Group manufactures and markets Hatteras luxury
sportfishing convertibles and motoryachts; Sea Ray, Bayliner, Maxum and Sealine
motoryachts, cruisers and runabouts; Boston Whaler and Trophy offshore fishing
boats; Baja high-performance boats; Princecraft aluminum fishing, deck and
pontoon boats; and Escort boat trailers. The Boat Group procures outboard
engines, gasoline sterndrives and gasoline inboard engines from the Mercury
Marine Group.
During 2001, the Boat Group made several important acquisitions, including
Hatteras Yachts, Inc., a manufacturer of luxury sportfishing convertibles and
motoryachts from 50 to 100 feet in length with manufacturing facilities in New
Bern, North Carolina; Princecraft Boats, a manufacturer of an extensive line of
aluminum pontoon, deck and fishing boats with manufacturing facilities in
Princeville, Quebec, Canada; and Sealine International, a manufacturer of luxury
sport cruisers and motoryachts from 23 to 51 feet in length with manufacturing
facilities in Kidderminster, United Kingdom.
The Company closed six of its boat manufacturing plants during 2001. The
closed plants were located in Phoenix, Arizona; Tallahassee, Florida; two plants
in Valdosta, Georgia; Miami, Oklahoma; and Spokane, Washington. The affected
plants manufactured Bayliner, Maxum and Sea Ray boats. The closures were made to
capitalize on improved operating efficiencies at the remaining boat plants and
to facilitate reduction of pipeline inventories through reduced production
volumes. The Company also chose to delay the opening of a plant it has
constructed in Cape Canaveral, Florida. Also in 2001, the Company completed
workforce reductions at several manufacturing plants and implemented production
suspensions. In all, approximately 2,750 hourly and salaried positions were
eliminated in connection with these plant closures and workforce reductions.
Following completion of the closures, and the acquisitions of Hatteras,
Princecraft and Sealine, the Boat Group has 15 boat plants throughout the United
States, one boat plant in Canada and one in the United Kingdom, and component
plants in the United States and United Kingdom.
The Boat Group's products are sold to end users through dealers. Sales to
the Boat Group's largest dealer, with multiple locations, comprised
approximately 19 percent of Boat segment sales in 2001. Domestic retail demand
for pleasure boats is seasonal with sales generally highest in the second
quarter. A number of factors can influence demand for the Boat segment's
products, including, but not limited to:
- Economic conditions and consumer confidence in the United States and
certain international regions;
- Adverse weather in key geographic areas, including excessive rain,
prolonged below average temperatures and severe heat or drought,
particularly during the key selling season;
- The level of inventories maintained by the segment's dealers;
- The segment's ability to provide competitive products;
- Availability of effective distribution;
- Fuel costs;
- Prevailing interest rates; and
- Consumer interest in recreational boating.
RECREATION SEGMENT
The Recreation segment includes the Life Fitness exercise equipment
business and the Brunswick Bowling and Billiards (BB&B) business.
The Company believes Life Fitness has the largest dollar sales volume of
commercial fitness equipment in the world. Life Fitness designs, markets and
manufactures a full line of reliable, high-quality cardiovascular fitness
equipment (including treadmills, total-body cross-trainers, and stationary
bikes) and strength-training fitness equipment under the Life Fitness, Hammer
Strength and ParaBody brands. Life Fitness serves the commercial (health clubs,
gyms, professional sports teams, military, government, hospitality, corporate
and educational facilities) and high-end consumer markets.
In 2001, Life Fitness acquired all of the remaining interest in Omni
Fitness Equipment, Inc., and its affiliated companies (Omni Fitness). The
Company had previously accounted for its interest in Omni Fitness
3
<PAGE>
under the equity method of accounting. Omni Fitness is a chain of 63 specialty
fitness retail stores that sell high-end fitness equipment directly to
consumers. Omni Fitness stores are concentrated in the Northeast and Pacific
Northwest regions of the United States.
BB&B is the leading manufacturer and designer of bowling products,
including bowling balls, after-market products and parts, and capital equipment,
which includes bowling lanes, automatic pinsetters, ball returns and furniture
units. BB&B also sells computerized bowling-scoring equipment, which is
manufactured to BB&B's specifications.
BB&B operates 121 family bowling centers in the United States, Canada and
Europe, and its joint ventures operate 24 additional centers in Asia. Family
bowling centers offer bowling and, depending on size and location, the following
activities and services: billiards, video games, pro shops, children's
playrooms, conference rooms for private meetings and birthday parties,
restaurants and cocktail lounges with entertainment. All of the centers offer
Cosmic Bowling, a glow-in-the-dark feature that enhances the bowling experience.
Twenty-one of the Company's North American centers have been converted to
Brunswick Zones, which are branded, state-of-the-art facilities featuring
enhanced recreational elements and media. Approximately 50 percent of the
recreation center facilities are owned by the Company.
BB&B has a 50 percent ownership interest in Nippon Brunswick K. K., which
sells bowling equipment and operates bowling centers in Japan. In addition, BB&B
has a 50 percent ownership interest in Vulcan-Brunswick Bowling Pin Company,
which manufactures bowling pins in Antigo, Wisconsin. BB&B also has a minority
ownership interest in a joint venture in Thailand that owns and operates bowling
centers.
BB&B designs and markets billiards tables, billiards balls, cues and
related accessories under the Brunswick brand. BB&B serves the domestic and
international commercial and consumer billiards markets. The Company believes it
has the largest dollar sales volume of billiards tables in the world.
The Company's recreational products and services are sold through a variety
of channels, including mass merchandisers, distributors, dealers, bowling
centers and retailers, and directly to customers. High-end consumer fitness
equipment is sold through specialty retailers, including the Company's Omni
Fitness retail chain and other chains in which the Company has ownership
interests. Recreation segment products are distributed worldwide from regional
warehouses, sales offices and factory stocks of merchandise. Demand for the
Recreation segment's products is seasonal, with sales generally highest in the
first and fourth quarters, and is influenced by a number of factors, including,
but not limited to:
- Economic conditions and consumer confidence in the United States and
certain international regions;
- Product innovation;
- Availability of effective product distribution;
- Consumer participation in fitness activities, bowling and billiards;
- Demand from owners and operators of fitness and recreation centers for
new equipment from the segment;
- Availability of financing to the segments' dealers, retailers and
commercial customers;
- Competition from alternative forms of recreation; and
- Product and facility quality, pricing, and customer service.
The following table sets forth the net sales of the Fitness and BB&B
businesses of the Recreation segment for 2001, 2000 and 1999:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Fitness.................................................... $397.7 $348.3 $290.5
BB&B....................................................... 368.1 422.4 442.9
------ ------ ------
$765.8 $770.7 $733.4
====== ====== ======
</Table>
4
<PAGE>
DISCONTINUED OPERATIONS
During 2001 and early 2002, the Company substantially completed the
divestiture of its outdoor recreation segment, announced in June of 2000, with
the sale of its fishing, hunting sports accessories, and cooler businesses. See
NOTE 11, DISCONTINUED OPERATIONS, in the Notes to Consolidated Financial
Statements, for a description of the Company's discontinued operations.
INTERNATIONAL OPERATIONS
The Company's sales to customers in international markets were $859.2
million (25.5 percent of net sales) and $838.4 million (22.0 percent of net
sales) in 2001 and 2000, respectively. The Company's sales into international
markets are primarily denominated in local currencies, while costs of products
manufactured or sourced are typically denominated in U.S. dollars. The Company's
international sales are set forth in NOTE 3, SEGMENT INFORMATION, in the Notes
to Consolidated Financial Statements, and are also included in the table below,
which details the Company's international sales by region for 2001, 2000 and
1999:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Europe..................................................... $448.0 $432.1 $406.1
Pacific Rim................................................ 171.4 166.4 151.4
Canada..................................................... 146.0 149.9 138.2
Latin America.............................................. 64.1 59.6 60.0
Other...................................................... 29.7 30.4 29.9
------ ------ ------
$859.2 $838.4 $785.6
====== ====== ======
</Table>
Mercury Marine has a product customization plant and distribution center in
Belgium; sales and distribution centers in Australia, Brazil, Canada, China,
Japan, Malaysia, Mexico, New Zealand and Singapore; and sales offices in
Australia, Belgium, Brazil, Denmark, France, Germany, Indonesia, Italy, the
Netherlands, Norway, Russia, Sweden and Switzerland. Mercury Marine has boat
assembly plants in Australia, France, Mexico and Sweden. Mercury Marine also
operates a marina and club in China. Mercury Marine sales comprised
approximately 54 percent of the Company's total international sales in 2001.
The Boat Group's boats are manufactured predominately in the United States
and are sold worldwide through dealers. Manufacturing locations in Princeville,
Quebec, Canada and Kidderminster, United Kingdom were acquired in connection
with the acquisitions of Princecraft Boats and Sealine International,
respectively, during 2001. In addition, kits for certain runabout boat models
are sold to approved manufacturers outside the United States who then
manufacture boats to specification and sell the boats under certain Boat Group
brand names. The Boat Group has sales offices in England, France, the
Netherlands and Spain, and product display locations in Australia, Brazil and
France. The Boat Group's sales comprised approximately 18 percent of the
Company's total international sales in 2001.
Life Fitness sells its products worldwide and has sales and distribution
centers in Brazil, Germany, Hong Kong, Japan, the Netherlands, Spain and the
United Kingdom, as well as sales offices in Austria and Italy.
BB&B sells its products worldwide, has sales offices in various countries,
and a plant that manufactures pinsetters in Hungary. BB&B operates bowling
centers in Austria, Canada and Germany, has a 50 percent interest in an entity
that sells bowling equipment and operates bowling centers in Japan, and a
minority interest in a joint venture in Thailand that operates bowling centers.
Recreation segment sales comprised approximately 28 percent of the
Company's total international sales in 2001.
5
<PAGE>
RAW MATERIALS
Raw materials are purchased from various sources. At present, the Company
is not experiencing any critical raw material shortages, nor are any
anticipated. General Motors Corporation is the sole supplier of engine blocks
used to manufacture the Company's gasoline sterndrive engines.
PATENTS, TRADEMARKS AND LICENSES
The Company has, and continues to obtain, patent rights, consisting of
patents and patent licenses, covering certain features of the Company's products
and processes. The Company's patent rights, by law, have limited lives and
expire periodically.
In the Marine Engine segment, patent rights principally relate to features
of outboard engines and inboard-outboard drives, including die-cast powerheads,
cooling and exhaust systems, drive train, clutch and gearshift mechanisms,
boat/engine mountings, shock-absorbing tilt mechanisms, ignition systems,
propellers, spark plugs and fuel- and oil-injection systems. Other significant
patents relate to marine vessel control systems.
In the Recreation segment, patent rights principally relate to computerized
bowling scorers and business information systems, bowling lanes and related
equipment, bowling balls, fitness equipment and billiards table designs and
components.
While the Company believes that marine engine and fitness equipment patents
are important to its competitive position in these businesses, the Company also
believes that future success in all of its businesses is mainly dependent upon
its engineering, manufacturing and marketing capabilities.
The following are among the Company's primary trademarks or registered
trademarks: Air-Hockey, Anvilane Pro Lane, Baja, Ball Wall, Bayliner, Boston
Whaler, Brunswick, Brunswick Billiards, Brunswick Zone, Capri, CenterMaster,
Ciera, Control Max, Cosmic Bowling, DBA Products, Engine Guardian, Frameworx,
Fuze, Gold Crown, Hammer Strength, Hatteras, Jet Drive, Lifecycle, Life Fitness,
Lightworx, Mariner, Master Dealer, Maxum, MercNet, MerCruiser, Mercury,
MercuryCare, Mercury Marine, Mercury Parts Express, Mercury Precision Parts,
Mercury Propellers, Mercury Racing, Monster, MotoTron, OptiMax, ParaBody,
Precision Piloting, Princecraft, ProMax, Q Care, QuickFit, Quicksilver, Sealine,
SeaPro, Sea Ray, SmartCraft, SportJet, Teignbridge Propellers, Throbot, Trophy,
True Technologies, Typhoon, U.S. Play by Brunswick, Viz-A-Ball, WaterMouse and
Zone. These trademarks have indefinite lives. Many of these trademarks are well
known to the public and are considered valuable assets of the Company.
COMPETITIVE CONDITIONS AND POSITION
The Company believes that it has a reputation for quality in its highly
competitive lines of business. The Company competes in its various markets by
utilizing efficient production techniques, innovative technological advancements
and effective marketing, advertising and sales efforts, and by providing
high-quality products at competitive prices.
Strong competition exists with respect to each of the Company's product
groups, but no single manufacturer competes with the Company in all product
groups. In each product area, competitors range in size from large, highly
diversified companies to small, single-product businesses. The following
summarizes the Company's position in each segment.
Marine Engine. The Company believes it has the largest dollar sales volume
of recreational marine engines in the world. The marine engine market is highly
competitive among several major international companies and many smaller ones.
There are also many competitors in the marine accessories business. Competitive
advantage in the marine engine and accessories markets is a function of product
features, technological leadership, quality, service, performance and
durability, along with effective promotion, distribution and pricing.
In December 2000, Mercury Marine's largest U.S.-based competitor, Outboard
Marine Corporation (OMC), filed for bankruptcy protection. Most of OMC's assets
were acquired by other marine companies in
6
<PAGE>
connection with a bankruptcy auction of the assets conducted in February 2001.
OMC's bankruptcy increased demand for Mercury's products and resulted in market
share gains for Mercury during 2001. Although some of the former OMC engine
brands have re-emerged under different ownership, the future of the OMC assets
and their impact on Mercury's business remain unclear.
Boat. The Company believes it has the largest dollar sales volume of
pleasure boats in the world. There are hundreds of manufacturers of pleasure and
offshore fishing boats. Consequently, this business is highly competitive. The
Company competes on the basis of product features, technology, quality, dealer
service, performance, value, durability and styling, along with effective
promotion, distribution and pricing.
Recreation. The Company believes it is the world's largest manufacturer of
bowling capital equipment, billiards tables and commercial fitness equipment,
and one of the largest manufacturers of consumer fitness equipment. Certain
bowling products, such as automatic scorers and computerized management systems,
many billiards table designs and many fitness equipment products represent
innovative features and developments in the market. See ITEM 3, LEGAL
PROCEEDINGS for a description of certain litigation involving fitness equipment
patents. Competitive emphasis also is placed on product quality, marketing
activities, pricing and service. The Company believes it has the largest fitness
equipment service network in the United States. The Company operates 121 family
bowling centers in the United States, Canada and Europe, and its joint ventures
operate 24 additional centers in Asia, where emphasis is placed on maintaining
quality facilities and providing excellent customer service. The Company also
operates Omni Fitness, a chain of 63 specialty retail stores, where emphasis is
placed on providing excellent customer service and offering competitive
products.
RESEARCH AND DEVELOPMENT
The Company's research and development investments, relating to new
products or to the improvement of existing products, are shown below:
<Table>
<Caption>
2001 2000 1999
----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Marine Engine............................................... $58.2 $ 60.8 $53.3
Boat........................................................ 19.7 22.5 17.7
Recreation.................................................. 18.0 18.9 18.7
----- ------ -----
$95.9 $102.2 $89.7
===== ====== =====
</Table>
NUMBER OF EMPLOYEES
The approximate number of employees as of December 31, 2001, is shown below
by segment:
<Table>
<S> <C>
Marine Engine............................................... 6,240
Boat........................................................ 7,300
Recreation.................................................. 7,000
Corporate................................................... 160
------
20,700
======
</Table>
There are approximately 2,200 employees in the Marine Engine segment, 200
employees in the Boat segment, and 350 employees in the Recreation segment
represented by labor unions. The Company believes that it has good relations
with these labor unions.
ENVIRONMENTAL REQUIREMENTS
See ITEM 3, LEGAL PROCEEDINGS, for a description of certain environmental
proceedings in which the Company is involved.
7
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters are located in Lake Forest, Illinois. The
Company has numerous manufacturing plants, distribution warehouses, sales
offices and test sites located throughout the world. Research and development
facilities are decentralized within the Company's operating segments and most
are located at individual manufacturing sites.
THE COMPANY'S PRIMARY FACILITIES ARE IN THE FOLLOWING LOCATIONS:
MARINE ENGINE
Saint Cloud, Florida; Stillwater, Oklahoma; Fond du Lac, Milwaukee and
Oshkosh, Wisconsin; Melbourne, Australia; Petit Rechain, Belgium; Saint Cast,
France; Juarez, Mexico; Skellefthamn, Sweden; and Newton Abbot, United Kingdom.
BOAT
Edgewater, Merritt Island and Palm Coast, Florida; Cumberland and
Salisbury, Maryland; Pipestone, Minnesota; New Bern, North Carolina; Bucyrus,
Ohio; Roseburg, Oregon; Knoxville and Vonore, Tennessee; Arlington, Washington;
Princeville, Quebec, Canada; and Kidderminster, United Kingdom.
RECREATION
Paso Robles, California; Franklin Park, Illinois; Falmouth, Kentucky;
Muskegon, Michigan; Ramsey, Minnesota; Bristol, Wisconsin; Szekesfehervar,
Hungary; 121 family bowling centers in the United States, Canada and Europe; 24
family bowling centers operated by the Company's joint ventures in Asia; and 63
specialty fitness retail stores in the United States.
The Company believes its plants are suitable and adequate for its current
needs. The Company believes that all of its properties are well maintained and
in good operating condition. Most plants and warehouses are of modern,
single-story construction, providing efficient manufacturing and distribution
operations. During 2001, the Company's plants were operated at approximately 68
percent of capacity. The Company's headquarters and most of its principal plants
are owned by the Company.
Two plants where Mercury Marine boats are manufactured, in Saint Cast,
France, and Skellefthamn, Sweden, are leased.
The principal warehouse for the Life Fitness Division in Franklin Park,
Illinois, is leased through 2011. A Life Fitness plant in Paso Robles,
California, is leased until 2005.
Approximately 50 percent of BB&B's family bowling centers are leased.
ITEM 3. LEGAL PROCEEDINGS
On January 22, 2002, the United States Supreme Court granted discretionary
review of the case Sprietsma vs. Mercury Marine, a "propeller guard" case on
appeal from the Illinois Supreme Court. At issue in Sprietsma is whether federal
law preempts tort claims alleging that marine engines should be equipped with
devices designed to protect against propeller injuries. Nine federal courts and
many state courts, including the Illinois Supreme Court in Sprietsma, have
previously found such claims to be preempted by the United States Coast Guard's
1990 decision, pursuant to the Federal Boat Safety Act, not to require propeller
guards. The Company does not believe that the resolution of this matter will
have a material adverse effect on the Company's consolidated financial position
or results of operations.
On September 6, 2001, the Federal Trade Commission (FTC) informed the
Company that it had closed an investigation concerning the Company's bidding for
certain assets of Outboard Marine Corporation (OMC) as a part of OMC's
bankruptcy. On October 5, 2001, the FTC also informed the Company that it had
closed a separate investigation commenced in 1997 concerning certain of the
Company's marketing practices related to the sale of sterndrive marine engines
to boatbuilders and dealers.
8
<PAGE>
On October 26, 2000, the Company became one of 109 defendants in a suit
filed in federal court in Arizona by the Lemelson Foundation for allegedly
violating several of the Foundation's patents. The patents at issue involve
machine-vision and bar-coding technology, and the Foundation has asserted a
number of similar actions against other companies alleged to have used these
technologies in their distribution or manufacturing activities. This lawsuit has
been stayed by the Arizona court pending the outcome of a lawsuit filed against
the Foundation in Nevada. The Company does not believe that the resolution of
this matter will have a material adverse effect on the Company's consolidated
financial position or results of operations.
On October 27, 1999, the United States Tax Court upheld an Internal Revenue
Service (IRS) determination that resulted in the disallowance of capital losses
and other expenses from two partnership investments for 1990 and 1991. The
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. On
December 21, 2001, the Court of Appeals rendered a decision vacating the Tax
Court's opinion and remanded the case to the Tax Court for reconsideration in
light of an earlier Court of Appeals decision. If, on remand to the Tax Court,
the Company does not prevail, the net amount of taxes due, plus interest, net of
tax, would be approximately $135 million. The Company has settled all other
issues with the IRS on open tax years 1989 through 1994 and anticipates
favorable adjustments that would decrease the total net amount to approximately
$53 million, which would likely be payable in 2003. The Company does not believe
that the resolution of this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In 1994, one of Life Fitness' competitors, Precor, Incorporated, filed a
complaint in federal court in Seattle, Washington, involving one of Life
Fitness' treadmills. The lawsuit claimed that Life Fitness had engaged in unfair
competitive practices in violation of the Washington State Consumer Protection
Act and that certain of its treadmills infringed a design patent held by Precor.
Life Fitness then filed an infringement claim against Precor, in connection with
Life Fitness' '207 patent for its flexible treadmill deck. On October 26, 1999,
the jury awarded Precor, now a subsidiary of Illinois Tool Works, Inc.,
approximately $5.2 million in connection with Precor's design infringement claim
against the Company, as successor in interest to the predecessor entities of its
Life Fitness division. The jury also rejected Life Fitness' '207 patent claim.
Precor was awarded up to $5.3 million in attorneys' fees and prejudgment
interest on the damage award. The Company appealed the verdict and the award of
attorneys' fees to the United States Court of Appeals for the Federal Circuit.
On June 27, 2001, the Court of Appeals issued its decision upholding the lower
court's finding that Life Fitness' '207 patent claim was invalid, and reversing
the lower court's finding that Life Fitness infringed Precor's design patent.
The Court of Appeals remanded the award of attorneys' fees to the lower court
for a redetermination based on the reversal of the willful infringement finding.
On January 10, 2002, the federal court ruled that Precor is entitled only to
those attorneys' fees directly attributable to the unfair competition claims
under the Washington State Consumer Protection Act. The Company does not believe
that the resolution of this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In January 2000, Precor filed suit against Life Fitness in federal court in
Washington alleging that certain of Life Fitness' cross-trainer exercise
machines infringed Precor's Miller '829 patent. In 1999, before Precor filed its
lawsuit, the Miller '829 patent was re-examined by the U.S. Patent & Trademark
Office (PTO) and was rejected. The lawsuit was stayed while Precor sought a
reissuance of the Miller patent by the PTO. The PTO issued a modified patent on
March 5, 2002. Precor has announced that it would petition the court to lift the
stay and continue its lawsuit against Life Fitness. The Company does not believe
that its machines infringe the patent, as modified, but is unable to predict the
outcome of the second Precor case.
Vapor Corporation, a former subsidiary that the Company divested in 1990,
has been named in a number of asbestos-related lawsuits, the first of which was
filed in 1988. The Company retained certain liabilities of Vapor, requiring it
to respond to these suits. The suits, most of which involve numerous other
defendants, allege that steam generators manufactured by Vapor prior to the
Company's ownership contained small amounts of asbestos. The generators were
used to heat railroad cars and the primary means of potential exposure appears
to have been to railroad workers performing inspections or repairs to the
generators. Neither the Company nor Vapor is alleged to have manufactured
asbestos. Early in the litigation, the Company's
9
<PAGE>
insurers settled a number of claims for nominal amounts, while a number of other
claims have been dismissed. No suit has yet gone to trial. The Company does not
believe that the resolution of these lawsuits will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company learned on February 27, 2001, that the Florida Department of
Environmental Protection had initiated an investigation into the alleged
improper disposal of hazardous materials at one of the Boat Group's facilities
in Merritt Island, Florida. The Company has cooperated with the officials
conducting the investigation, and on March 4, 2002, signed a civil consent order
effectively resolving the matter.
The Company is involved in certain legal and administrative proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 and other federal and state legislation governing the generation and
disposition of certain hazardous wastes. These proceedings, which involve both
on- and off-site waste disposal 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 reserves based on a range of current cost estimates for all known
claims.
In its Marine Engine segment, the Company will continue to develop engine
technologies to reduce engine emissions to comply with present and future
restrictive requirements, including those imposed by the United States
Environmental Protection Agency and the California Air Resources Board. The Boat
segment continues to pursue fiberglass boat manufacturing technologies and
techniques to reduce air emissions at its boat manufacturing facilities.
The Company believes that compliance with federal, state and local
environmental laws will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or competitive position.
See NOTE 7, COMMITMENTS AND CONTINGENCIES, in the Notes to Consolidated
Financial Statements, for disclosure of the potential cash requirements of
environmental proceedings.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers are listed in the following table:
<Table>
<Caption>
OFFICER PRESENT POSITION AGE
------- ---------------- ---
<S> <C> <C>
George W. Buckley*...... Chairman and Chief Executive Officer 55
Peter B. Hamilton*...... Vice Chairman and President--Brunswick Bowling
& Billiards 55
Victoria J. Reich*...... Senior Vice President and Chief Financial Officer 44
William J. Barrington*.. Vice President and President--US Marine Division 51
Kathryn J. Chieger...... Vice President--Corporate and Investor Relations 53
Tzau J. Chung*.......... Vice President--Strategic Planning and 38
President--Brunswick New Technologies
William J. Gress*....... Vice President--Supply Chain Management 47
Kevin S. Grodzki*....... Vice President and President--Life Fitness Division 46
Peter G. Leemputte*..... Vice President and Controller 44
B. Russell Lockridge*... Vice President and Chief Human Resources Officer 52
Patrick C. Mackey*...... Vice President and President--Mercury Marine Group 55
Dustan E. McCoy*........ Vice President and President--Brunswick Boat Group 52
William L. Metzger...... Vice President and Treasurer 41
William E. Seeley*...... Vice President--Corporate Accounts and Distribution 54
Clifford M. Sladnick.... Vice President--Acquisitions 45
Marschall I. Smith *.... Vice President, General Counsel and Secretary 56
Cynthia M. Trudell *.... Vice President and President--Sea Ray Division 48
Judith P. Zelisko....... Vice President--Tax 51
</Table>
*Members of the Operating Committee
There are no family relationships among these officers. The term of office
of all elected officers expires May 1, 2002. The Group and Division Presidents
are appointed from time to time at the discretion of the Chief Executive
Officer.
George W. Buckley has been Chairman and Chief Executive Officer of the
Company since 2000. From May to June 2000 he was President and Chief Operating
Officer of the Company. He was President of the Mercury Marine Group from 1997
to 2000, and during that period was also an officer of the Company, holding the
following positions: Executive Vice President, February to May 2000; Senior Vice
President, 1998 to 2000; and Vice President, 1997 to 1998. Prior to joining the
Company, he was President of the U.S. Electrical Motors Division of Emerson
Electric Co., a manufacturer of electrical, electronic and electromagnetic
products, from 1996 to 1997.
Peter B. Hamilton has been Vice Chairman of the Company and President of
Brunswick Bowling & Billiards since 2000. He was Executive Vice President and
Chief Financial Officer of the Company from 1998 to 2000. He was Senior Vice
President and Chief Financial Officer of the Company from 1995 to 1998.
Victoria J. Reich has been Senior Vice President and Chief Financial
Officer of the Company since 2000. She was Vice President and Controller of the
Company from 1996 to 2000.
William J. Barrington has been Vice President of the Company since 1998. He
was named President--US Marine Division in March 2001, having previously served
as President--Sea Ray Division from 1989 to 2001.
11
<PAGE>
Kathryn J. Chieger has been Vice President--Corporate and Investor
Relations of the Company since 1996.
Tzau J. Chung has been Vice President--Strategic Planning of the Company
since 2000 and President--Brunswick New Technologies since February 2002. He was
Senior Vice President--Strategy and IT for the Company's Mercury Marine Group
from 1997 to 2000. From 1994 to 1997 he was employed by Emerson Electric Co., a
manufacturer of electrical, electronic and electromagnetic products, as
Director--International for the U.S. Electrical Motors Division.
William J. Gress was elected Vice President--Supply Chain Management of the
Company in February 2001. From February 2000 to January 2001, he was Executive
Vice President of the Company's Igloo business. Prior to that he was employed by
Mercury Marine, where he was Vice President of its MerCruiser Diesel business
from 1999 to 2000, Vice President of Business Development from 1998 to 1999,
Senior Director of Strategic Sourcing during 1997, and Director of Materials
Management from 1993 to 1997. From November 1997 to August 1998, he was Vice
President of Supplier Relations for Goss Graphics, Inc., a printing equipment
manufacturer.
Kevin S. Grodzki has been Vice President of the Company and President of
its Life Fitness Division since 2000. Prior to joining the Company, he was Vice
President of Witco Corporation, a specialty chemical company, from 1997 to 2000.
From 1977 to 1997, he was employed in a variety of capacities by E.I. DuPont
DeNemours & Co., Inc., a global chemical company, where he was Vice President
and Chairman of DuPont Fuji Electronic Imaging, Ltd., a DuPont joint venture
involved in the development and manufacture of electronic imaging equipment,
from 1995 to 1997.
Peter G. Leemputte was elected Vice President and Controller of the Company
in February 2001. From 1998 to 2000, he was Executive Vice President, Chief
Financial and Administrative Officer for Chicago Title Corporation, a national
title insurance and real estate related products company. He was Vice President
and a partner of Mercer Management Consulting, an international management
consulting firm, from 1996 to 1998.
B. Russell Lockridge has been Vice President and Chief Human Resources
Officer of the Company since 1999. From 1996 to 1999, he was Senior Vice
President--Human Resources of IMC Global, Inc., a company that produces crop
nutrients, animal feed ingredients and salt.
Patrick C. Mackey has been Vice President of the Company and President of
its Mercury Marine Division since 2000. Prior to joining the Company, he was
Executive Vice President of Witco Corporation, a specialty chemical company,
from 1998 to 1999. From 1993 to 1997, he was employed by E.I. DuPont DeNemours &
Co., Inc., as Director--Global Nylon Industrial Business, Director--Integrated
Operations and Human Resources for Nylon Europe, and Director of DuPont (UK)
Limited.
Dustan E. McCoy has been Vice President of the Company and
President--Brunswick Boat Group since 2000. From 1999 to 2000, he was Vice
President, General Counsel and Secretary of the Company. He was previously an
officer of Witco Corporation, a specialty chemical company, where he was
Executive Vice President in 1999; Senior Vice President from 1998 to 1999; and
Senior Vice President, General Counsel and Corporate Secretary from 1996 to
1998.
William L. Metzger was elected Vice President and Treasurer of the Company
in May 2001. From 2000 to 2001, he was Assistant Vice President-Corporate
Finance. From 1996 to 2000, he was Director--Corporate Accounting.
William E. Seeley was elected Vice President--Corporate Accounts and
Distribution in February 2002. He previously was employed by Mercury Marine,
where he was President of its Dealer and Retail Division from 2000 to 2002,
President of its Parts and Accessories Division from 1999 to 2000, and Senior
Vice President of Sales, Marketing and Service, and Senior Vice President of
Mercury's Canadian Business, from 1996 to 1999.
Clifford M. Sladnick was elected Vice President--Acquisitions of the
Company in February 2001. He joined the Company in February 2000 as Assistant
General Counsel. From 1990 to 1999, he was Senior Vice President, General
Counsel and Corporate Secretary of St. Paul Bancorp, Inc.
12
<PAGE>
Marschall I. Smith was elected Vice President, General Counsel and
Secretary in July 2001. Prior to joining Brunswick, he was Executive Vice
President, Corporate Development and General Counsel of Digitas, Inc., a leading
e-commerce integrator, from 1999 to 2001. He was a principal in Hamilton Holmes
Associates, a financial and legal services consultancy, from 1998 to 1999. He
held the position of Senior Vice President and General Counsel of IMC Global,
Inc., a worldwide mining and chemical manufacturer, from 1993 to 1998.
Cynthia M. Trudell was elected Vice President and President--Sea Ray
Division in April 2001. Prior to joining Brunswick, she held a number of
positions with various divisions of General Motors, including Chairman and
President--Saturn Corporation from 1999 to 2001, President--IBC Vehicles from
1996 to 1999, and plant manager, 1995-1996.
Judith P. Zelisko has been Vice President--Tax of the Company since 1998.
She was Staff Vice President--Tax from 1996 to 1998.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York, Chicago, Pacific and
London Stock Exchanges. Quarterly information with respect to the high and low
prices for the common stock and the dividends declared on the common stock is
set forth in NOTE 19, QUARTERLY DATA, in the Notes to Consolidated Financial
Statements. As of December 31, 2001, there were approximately 13,200
shareholders of record of the Company's common stock.
The Company announced in 2001 that it would begin paying dividends annually
rather than quarterly, beginning in 2002, in order to reduce administrative
costs. Future dividends, as declared at the discretion of the Board of
Directors, will be paid in December.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data presented below as of and for the
years ended December 31, 2001, 2000 and 1999, have 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, MANAGEMENT'S DISCUSSION
AND ANALYSIS, including the MATTERS AFFECTING COMPARABILITY section, contained
elsewhere within this Annual Report on Form 10-K. The selected historical
financial data presented below as of and for the years ended December 31, 1998,
1997 and 1996, have been derived from the consolidated financial statements of
the Company that are not included herein. The financial data presented below
have been restated to present the discontinued operations in accordance with
Accounting Principles Board Opinion No. 30.
<Table>
<Caption>
2001 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- --------
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA
Net sales....................................... $3,370.8 $3,811.9 $3,541.3 $3,234.9 $2,993.6 $2,792.5
-------- -------- -------- -------- -------- --------
Unusual charges................................. $ -- $ 55.1 $ 116.0 $ 50.8 $ 79.5 $ --
-------- -------- -------- -------- -------- --------
Operating earnings.............................. $ 191.1 $ 397.1 $ 274.6 $ 301.8 $ 208.1 $ 265.8
-------- -------- -------- -------- -------- --------
Earnings before income taxes.................... $ 132.2 $ 323.3 $ 219.3 $ 245.3 $ 173.8 $ 250.9
-------- -------- -------- -------- -------- --------
Earnings from continuing operations............. $ 84.7 $ 202.2 $ 143.1 $ 154.4 $ 111.3 $ 160.6
Cumulative effect of change in accounting
principles.................................... (2.9) -- -- -- (0.7) --
Discontinued operations:
Earnings (loss) from discontinued
operations.................................. -- (68.4) (105.2) 31.9 39.9 25.2
Loss from disposal of discontinued
operations.................................. -- (229.6) -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss)............................. $ 81.8 $ (95.8) $ 37.9 $ 186.3 $ 150.5 $ 185.8
-------- -------- -------- -------- -------- --------
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations............. $ 0.96 $ 2.28 $ 1.56 $ 1.57 $ 1.12 $ 1.63
Cumulative effect of change in accounting
principles.................................... (0.03) -- -- -- (0.01) --
Discontinued operations:
Earnings (loss) from discontinued
operations.................................. -- (0.77) (1.14) 0.32 0.40 0.26
Loss from disposal of discontinued
operations.................................. -- (2.59) -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss)............................. $ 0.93 $ (1.08) $ 0.41 $ 1.90 $ 1.52 $ 1.89
-------- -------- -------- -------- -------- --------
Average shares used for computation of basic
earnings per share............................ 87.8 88.7 92.0 98.3 99.2 98.3
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations............. $ 0.96 $ 2.28 $ 1.55 $ 1.56 $ 1.11 $ 1.63
Cumulative effect of change in accounting
principles.................................... (0.03) -- -- -- (0.01) --
Discontinued operations:
Earnings (loss) from discontinued
operations.................................. -- (0.77) (1.14) 0.32 0.40 0.26
Loss from disposal of discontinued
operations.................................. -- (2.59) -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss)............................. $ 0.93 $ (1.08) $ 0.41 $ 1.88 $ 1.50 $ 1.88
-------- -------- -------- -------- -------- --------
Average shares used for computation of diluted
earnings per share............................ 88.1 88.7 92.6 99.0 100.3 98.8
</Table>
14
<PAGE>
<Table>
<Caption>
2001 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- --------
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets of continuing operations................. $3,157.5 $ 3094.3 $2,685.3 $2,501.2 $2,445.8 $2,281.6
======== ======== ======== ======== ======== ========
Debt
Short-term.................................. $ 40.0 $ 172.7 $ 107.7 $ 170.1 $ 109.3 $ 112.6
Long-term................................... 600.2 601.8 622.5 635.4 645.5 455.4
-------- -------- -------- -------- -------- --------
Total debt...................................... 640.2 774.5 730.2 805.5 754.8 568.0
Common shareholders' equity..................... 1,110.9 1,067.1 1,300.2 1,311.3 1,315.0 1,197.7
-------- -------- -------- -------- -------- --------
Total capitalization............................ $1,751.1 $1,841.6 $2,030.4 $2,116.8 $2,069.8 $1,765.7
======== ======== ======== ======== ======== ========
CASH FLOW DATA
Net cash provided by operating activities of
continuing operations......................... $ 299.3 $ 251.0 $ 250.4 $ 387.4 $ 84.8 $ 140.7
Depreciation and amortization................... 160.4 148.8 141.4 135.6 132.6 119.1
Capital expenditures............................ 111.4 156.0 166.8 164.6 167.3 159.8
Acquisitions of businesses...................... 134.4 -- 4.2 32.8 331.1 39.6
Stock repurchases............................... -- 87.1 18.3 159.9 8.4 --
Cash dividends paid............................. 43.8 44.3 45.9 49.0 49.6 49.3
OTHER DATA
Dividends declared per share.................... $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50
Book value per share............................ 12.61 12.22 14.16 14.27 13.22 12.16
Return on beginning shareholders' equity........ 7.7% (7.4)% 2.9% 14.2% 12.6% 17.8%
Effective tax rate.............................. 36.0% 37.5% 34.7% 37.1% 36.0% 36.0%
Debt-to-capitalization rate..................... 36.6% 42.1% 36.0% 38.1% 36.5% 32.2%
Number of employees............................. 20,700 23,200 23,100 21,800 21,100 20,000
Number of shareholders of record................ 13,200 13,800 14,500 15,600 16,200 18,400
COMMON STOCK PRICE (NYSE SYMBOL: BC)
High........................................ $ 25.01 $ 22.13 $ 30.00 $ 35.69 $ 36.50 $ 25.75
Low......................................... 14.03 14.75 18.06 12.00 23.63 18.13
Close (last trading day).................... 21.76 16.44 22.25 24.75 30.31 24.00
</Table>
The Notes to Consolidated Financial Statements should be read in conjunction
with the above summary.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in Management's Discussion and Analysis are
forward-looking as defined in the Private Securities Litigation Reform Act of
1995. These statements are based on current expectations that are subject to
risks and uncertainties. Actual results may differ materially from expectations
as of the date of this filing because of factors discussed below under the
FORWARD-LOOKING STATEMENTS section.
OVERVIEW
GENERAL
Brunswick Corporation (the Company) is a manufacturer and marketer of
leading consumer brands including Mercury and Mariner outboard engines; Mercury
MerCruiser sterndrive and inboard engines; marine parts and accessories under
the Mercury Precision Parts and Quicksilver brands; Sea Ray, Bayliner, Maxum,
and Sealine pleasure boats; Hatteras luxury sportfishing convertibles and
motoryachts; Baja high-performance boats; Boston Whaler and Trophy offshore
fishing boats; Princecraft fishing, deck and pontoon boats; Life Fitness, Hammer
Strength and ParaBody fitness equipment; Brunswick bowling equipment and
consumer products; and Brunswick billiards tables and accessories. The Company
also owns and operates Brunswick family bowling centers across the United States
and internationally, as well as a chain of specialty fitness retail stores
concentrated in the Northeast and Pacific Northwest regions of the United
States.
The Company's strategy is to achieve growth by developing innovative
products, identifying and deploying leading-edge technologies, pursuing
aggressive marketing and brand-building activities, pursuing international
opportunities and leveraging core competencies. Further, the Company focuses on
enhancing its
15
<PAGE>
operating margins through effective cost management and investment in
technology. The Company's objective is to enhance shareholder value by achieving
returns on investments that exceed its cost of capital.
Sales in 2001 decreased 11.6 percent to $3,370.8 million on reduced sales
from the marine engine, boat and bowling capital equipment businesses due to a
generally weakened U.S. economy. Operating earnings decreased 51.9 percent to
$191.1 million, primarily attributable to the decline in product sales and the
impact of lower production of finished goods across the Company's businesses.
See the MATTERS AFFECTING COMPARABILITY section below.
The U.S. economic recession contributed to a reduction in domestic demand
for marine products during 2001, which adversely affected the results of the
Company's Boat and Marine Engine segments. The Company took actions during 2001
to stimulate retail demand and to reduce inventories by decreasing production
levels. The Company has taken, and will continue to take, additional actions, as
necessary, to keep inventories at desirable levels. The net effect of these
actions, along with the reduction in demand caused by general economic factors,
had an adverse impact on the Company's results for 2001, when compared with the
results of the prior year.
While the effects of the recession were most pronounced on the Company's
Marine Engine and Boat segments, the Recreation segment was also adversely
affected. The most evident impact was the reduction in sales of bowling capital
equipment. Also affected was the growth rate at Life Fitness, which declined
from double-digit revenue gains in 1999 and 2000 to a single-digit gain in 2001.
If weak economic conditions continue, these effects could continue to have an
adverse impact on the Company's financial performance. Conversely, if economic
conditions improve, the Company believes that the measures it has implemented to
respond to the recession, including reductions in fixed costs and inventories,
will allow the Company to improve its financial performance relative to prior
reporting periods.
MATTERS AFFECTING COMPARABILITY
The Company's operating results for 2001 include the operating results of
Omni Fitness Equipment, Inc. (Omni Fitness), a domestic retailer of fitness
equipment; Princecraft Boats Inc. (Princecraft), a manufacturer of aluminum
fishing, deck and pontoon boats; Sealine International (Sealine), a manufacturer
of luxury sports cruisers and motoryachts; and Hatteras Yachts, Inc. (Hatteras),
a manufacturer of luxury sportfishing convertibles and motoryachts. The
operating results of Omni Fitness, Princecraft, Sealine and Hatteras are
included from their respective acquisition dates of February 28, 2001, March 7,
2001, July 3, 2001, and November 30, 2001. The effect of these acquisitions was
not material to the Company's financial results.
Net earnings per diluted share totaled $0.93 in 2001 versus a net loss per
diluted share of $1.08 in 2000 and net earnings per diluted share of $0.41 in
1999. Comparisons of net earnings per diluted share are affected by several
unusual charges, as well as a change in accounting principle, which are listed
below and are discussed in detail in later sections. The effect of these items
on diluted earnings per share is as follows:
<Table>
<Caption>
2001 2000 1999
----- ------ -----
<S> <C> <C> <C>
Net earnings (loss) per diluted share -- as reported........ $0.93 $(1.08) $0.41
Unusual charges............................................. -- 0.45 0.77
Cumulative effect of change in accounting principle......... 0.03 -- --
Loss from discontinued operations........................... -- 0.77 1.14
Loss from disposal of discontinued operations............... -- 2.59 --
----- ------ -----
Net earnings per diluted share from continuing
operations -- as adjusted................................. $0.96 $ 2.73 $2.32
===== ====== =====
</Table>
There are a number of matters that affect the comparability of results
between 2001, 2000 and 1999. These matters include:
- Unusual Charges: In 2000, the Company recorded a $55.1 million charge
to operating earnings ($40.0 million after tax or $0.45 per diluted
share) to increase environmental reserves related to the cleanup of
contamination from a former manufacturing facility and to account for
the write-down of
16
<PAGE>
investments in certain Internet-related businesses. In 1999, the Company
recorded charges to operating earnings totaling $116.0 million ($71.4
million after tax or $0.77 per diluted share) relating to litigation
settlements.
- Change in Accounting Principle: Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standards (SFAS) Nos. 133/138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." Under SFAS Nos. 133/138, all derivative instruments are
recognized on the balance sheet at their fair values. As a result of the
adoption of this standard in 2001, the Company recorded a $4.7 million
loss ($2.9 million after tax or $0.03 per diluted share) as a cumulative
effect of a change in accounting principle, primarily resulting from
interest rate swaps.
- Discontinued Operations: During 2000, the Company announced its
intention to divest the businesses that comprised the former outdoor
recreation segment. In 2000, losses from the disposition of the
businesses, which were based on estimates, totaled $229.6 million after
tax, or $2.59 per diluted share. The discontinued operations generated
after-tax losses of $68.4 million and $105.2 million in 2000 and 1999,
respectively. Diluted loss per share from discontinued operations
totaled $0.77 in 2000 and $1.14 in 1999. See the DISCONTINUED OPERATIONS
section for a more detailed discussion of the operations that were
discontinued in 2000.
RESULTS OF OPERATIONS
CONSOLIDATED
The following table sets forth certain ratios and relationships calculated
from the consolidated statements of income:
<Table>
<Caption>
2001 2000 1999
-------- -------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales........................................ $3,370.8 $3,811.9 $3,541.3
Percentage increase (decrease)................... (11.6)% 7.6% 9.5%
Operating earnings............................... $ 191.1 $ 397.1 $ 274.6
Earnings from continuing operations.............. $ 84.7 $ 202.2 $ 143.1
Cumulative effect of change in
accounting principle, net of tax............... (2.9) -- --
Loss from discontinued operations,
net of tax..................................... -- (68.4) (105.2)
Loss from disposal of discontinued operations,
net of tax..................................... -- (229.6) --
-------- -------- --------
Net earnings (loss).............................. $ 81.8 $ (95.8) $ 37.9
======== ======== ========
Diluted earnings per share from
continuing operations.......................... $ 0.96 $ 2.28 $ 1.55
Cumulative effect from change in
accounting principle........................... (0.03) -- --
Diluted loss per share from
discontinued operations........................ -- (0.77) (1.14)
Diluted loss per share from disposal of
discontinued operations........................ -- (2.59) --
-------- -------- --------
Diluted earnings (loss) per share................ $ 0.93 $ (1.08) $ 0.41
======== ======== ========
EXPRESSED AS A PERCENTAGE OF NET SALES:
Gross margin..................................... 23.2% 28.6% 28.6%
Selling, general and administrative expense...... 14.7% 14.0% 15.1%
Operating margin................................. 5.7% 10.4% 7.8%
</Table>
Results for 2000 include a $55.1 million pre-tax unusual charge to
operating earnings ($40.0 million after tax or $0.45 per diluted share) to
increase environmental reserves related to the cleanup of contamination from a
former manufacturing facility and to account for the write-down of investments
in certain Internet-related businesses. Results for 1999 included a $116.0
million pre-tax charge to operating earnings
17
<PAGE>
($71.4 million after tax or $0.77 per diluted share) related to litigation
settlements. Excluding these items, the amounts are as follows:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating earnings.......................................... $191.1 $452.2 $390.6
Operating margin............................................ 5.7% 11.9% 11.0%
Earnings from continuing operations......................... $ 84.7 $242.2 $214.5
Diluted earnings per share from continuing operations....... $ 0.96 $ 2.73 $ 2.32
</Table>
In 2001, net sales of $3,370.8 million declined $441.1 million from 2000.
Excluding acquisitions completed in 2001, sales decreased 14.1 percent for the
year-over-year comparisons. The reduction in sales was experienced across all
three reportable segments, but was mainly attributable to lower sales in the
Boat and Marine Engine segments. Throughout 2001, weakened market conditions
adversely affected domestic marine sales, particularly small boats and engines.
Recreation segment sales benefited from growth in the fitness equipment business
internationally, but lower sales of consumer and commercial fitness equipment in
the United States, as well as reduced sales of bowling capital equipment and
products, more than offset the gain.
International sales increased $20.8 million to $859.2 million compared with
$838.4 million in 2000. Sales in Europe increased $15.9 million, or 3.7 percent,
to $448.0 million in 2001, reflecting stronger sales of marine engine products
and fitness equipment, which were partially offset by reduced sales of boats and
bowling capital equipment. Unfavorable currency trends also adversely affected
international revenue comparisons. Marine engine product sales comprised the
largest share of international sales in 2001.
In 2000, net sales of $3,811.9 million improved $270.6 million over 1999.
The 7.6 percent increase was primarily due to growth in the marine engine, boat
and fitness equipment businesses. Marine engine sales benefited primarily from
double-digit growth in international operations and good demand for low-emission
outboard engines. Boat revenues rose from increased sales of larger,
higher-margin boats, while increases in fitness equipment revenues resulted from
double-digit sales gains in domestic and international commercial and consumer
product markets.
The Company's international sales in 2000 increased 6.7 percent to $838.4
million, a $52.8 million increase over the prior year. Sales in Europe of $432.1
million in 2000 increased $26.0 million, or 6.4 percent, over 1999. Stronger
sales of marine engine products and on-going growth in fitness equipment
revenues offset declines in boat sales. Sales in the Pacific Rim grew $15.0
million in 2000 to $166.4 million, with the 9.9 percent increase resulting from
additional sales of marine engine products, boats and fitness equipment. Sales
in both of these regions were adversely affected by unfavorable currency
fluctuations between periods. Marine engine product sales comprised the largest
share of international sales in 2000.
Gross margin percentages decreased to 23.2 percent in 2001 from 28.6
percent in 2000. The 540 basis point decline in gross margin was principally due
to the impact of lower production rates, plant closures and extended shutdowns.
Production rates were cut to bring production in line with demand and reduce the
Company's inventory levels. Gross margins also declined as a result of a shift
in sales mix in the marine businesses toward international markets and lower
margin products.
The Company's gross margin percentage held constant at 28.6 percent in 2000
and 1999, as benefits were achieved from cost reductions, an improved sales mix
and increased production volumes. These benefits helped to mitigate the
unfavorable currency effects resulting from the sale of products that are
manufactured in the United States and sold into certain foreign markets,
primarily Europe and Australia.
Selling, general and administrative (SG&A) expenses, as a percentage of net
sales, increased 70 basis points to 14.7 percent in 2001 as compared to 14.0
percent in 2000. Excluding acquisitions, SG&A expenses as a percentage of net
sales were 13.7 percent or 30 basis points lower than in the prior year. SG&A
reductions have resulted from cost-containment efforts such as workforce
reductions, hiring and wage freezes, discretion-
18
<PAGE>
ary spending controls, and reductions in performance-based compensation, as well
as gains recognized on the sale of a testing facility and two boat plants.
In 2000, the Company's SG&A expenses were 14.0 percent of net sales versus
15.1 percent in 1999. The significant improvement resulted from overall sales
growth, as well as successful cost-containment efforts, especially in the Boat
and Marine Engine segments and the bowling business. Also contributing to this
improvement was better pension plan performance and decreased legal expenses in
2000, as well as spending on Year 2000 activities incurred in 1999, but not
repeated in 2000.
Operating earnings in 2001 totaled $191.1 million versus $397.1 million in
2000 and $274.6 million in 1999. Operating earnings included the previously
mentioned $55.1 million pretax unusual charge in 2000 and the $116.0 million
pretax litigation charges in 1999. Excluding these charges for each year, 2000
operating earnings increased 15.8 percent to $452.2 million and 1999 operating
earnings increased 10.8 percent to $390.6 million. Operating margins, excluding
unusual charges, were 5.7 percent in 2001, 11.9 percent in 2000 and 11.0 percent
in 1999. The decline in operating earnings between 2000 and 2001 was mainly due
to the decline in product sales and the reduction in gross margin, partly offset
by lower SG&A expenses.
Interest expense was $52.9 million in 2001, $67.6 million in 2000 and $61.0
million in 1999. The decrease in 2001 was primarily attributable to a decline in
the average outstanding debt levels and a lower weighted-average interest rate
on short-term borrowings of 4.76 percent compared with 6.58 percent in 2000.
Contributing to the increase in interest expense in 2000 versus 1999 was a
higher average outstanding debt balance due to increased commercial paper
borrowings to fund working capital requirements, capital expenditures and stock
repurchases, and a higher weighted-average interest rate on commercial paper.
Other expense totaled $6.0 million in 2001 and $6.2 million in 2000 versus
other income of $5.7 million in 1999. Contributing to the other expenses in 2001
were joint venture losses and unfavorable currency adjustments. Start-up costs
incurred in 2000 in connection with an equity investment, the divestiture of a
joint venture in 1999 and unfavorable currency adjustments adversely affected
other income/expense comparisons between 2000 and 1999.
The Company's effective tax rate was 36.0 percent in 2001, 37.5 percent in
2000 and 34.7 percent in 1999. Excluding the unusual charges, the effective tax
rate was 36.0 percent in all three years.
Average common shares outstanding used to calculate diluted earnings per
share were 88.1 million, 88.7 million and 92.6 million in 2001, 2000 and 1999,
respectively. The decrease in average shares outstanding in 2001 and 2000 was
due primarily to the share repurchase program that was principally completed in
the first half of 2000. See the CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
section below for additional discussion of share repurchase program activity.
MARINE ENGINE SEGMENT
The following table sets forth Marine Engine segment results:
2001 2000 1999
-------- -------- --------
(DOLLARS IN MILLIONS)
Net sales...................................... $1,561.6 $1,759.9 $1,614.8
Percentage increase (decrease)................. (11.3)% 9.0%
Operating earnings............................. $ 173.0 $ 276.0 $ 242.5
Percentage increase (decrease)................. (37.3)% 13.8%
Operating margin............................... 11.1% 15.7% 15.0%
Capital expenditures........................... $ 48.8 $ 63.8 $ 77.1
Marine Engine segment sales declined 11.3 percent to $1,561.6 million in
2001 compared with 2000, primarily due to weak U.S. market conditions,
especially for small boats. Domestic sales of sterndrive engines and outboard
engines declined compared with the prior year. On-going efforts by dealers and
boatbuilders to reduce inventory levels also contributed to the decline in
sales. International sales were up 13.3 percent for the
19
<PAGE>
year, despite adverse currency fluctuations, reflecting more favorable economic
conditions than in the domestic market and increased market share, due in part
to the bankruptcy of a competitor.
Operating earnings for the segment decreased to $173.0 million from $276.0
million, and operating margins fell 460 basis points to 11.1 percent. Lower
absorption of fixed costs from reduced production rates and extended plant
shutdowns primarily accounted for the decline in operating margins for 2001
compared with 2000. An unfavorable shift in sales mix from higher-margin
sterndrive engines to lower-margin outboard engines, along with an increase in
international sales, also accounted for some of the margin pressure. Benefits
from cost-containment efforts and a reduction in salaried headcount partially
mitigated these factors.
Net sales in the Marine Engine segment of $1,759.9 million increased 9.0
percent in 2000 versus $1,614.8 million in 1999. The increase resulted from 12.9
percent growth in international operations, despite adverse effects of
unfavorable currency exchange rates. Additionally, good demand for low-emission
outboard engines generated an increase in domestic outboard sales. Demand for
larger sterndrive engines and expanded distribution channels for parts and
accessories also contributed to the segment's sales growth in 2000.
Operating earnings in the segment increased 13.8 percent to $276.0 million
in 2000 from $242.5 million in 1999. Operating margins for 2000 improved to 15.7
percent, 70 basis points higher than 1999. These comparisons were favorably
affected by leveraging the previously mentioned increases in sales, along with
benefits from increased production volumes and continued improvements in
productivity. Spending for legal matters declined in 2000 versus 1999. These
factors helped to mitigate the adverse effect of a stronger dollar against key
currencies and the unfavorable margin differential between low-emission and
traditional outboard engine offerings due to higher initial production costs.
BOAT SEGMENT
The following table sets forth Boat segment results:
2001 2000 1999
-------- -------- --------
(DOLLARS IN MILLIONS)
Net sales................................. $1,251.3 $1,574.3 $1,476.6
Percentage increase (decrease)............ (20.5)% 6.6%
Operating earnings........................ $ 18.1 $ 148.2 $ 120.7
Percentage increase (decrease)............ (87.8)% 22.8%
Operating margin.......................... 1.4% 9.4% 8.2%
Capital expenditures...................... $ 35.5 $ 57.4 $ 46.6
In 2001, the Boat segment sales totaled $1,251.3 million, a decrease of
20.5 percent from 2000. Excluding the acquisitions of Princecraft, Sealine and
Hatteras, sales declined 24.3 percent. Weak market demand for small boats was a
leading cause for the decline, although demand for larger boats also weakened in
the second half of the year.
Boat segment operating earnings totaled $18.1 million in 2001, declining
$130.1 million from the prior year. Operating margins also declined, falling 800
basis points to 1.4 percent for the year. The decline in operating margins was
primarily attributable to the reduced absorption of fixed costs due to lower
throughput, as well as temporary shutdowns at the boat plants. These actions
were taken to balance supply with demand and to reduce inventories. The costs
associated with the plant closures and an unfavorable shift in product mix
towards smaller boats, which carry a lower gross margin, also contributed to the
decline in operating margins. A portion of the decline was offset through
efforts to enhance operating effectiveness, as well as reduced costs and
decreased headcount.
The Boat segment generated $1,574.3 million in sales in 2000, an increase
of 6.6 percent over 1999 sales results. The $97.7 million improvement in net
sales resulted primarily from a 10 percent increase in sales of larger,
higher-margin boats. Sales of smaller boats increased slightly for the year as
improvements in the first half of 2000, driven by an improved mix, were
partially offset by weakening demand experienced in the last
20
<PAGE>
half of the year. During the second half of 2000, both dealer and Company
inventories of certain boat categories increased as retail demand slowed.
In 2000, operating earnings in the Boat segment totaled $148.2 million, a
22.8 percent increase over 1999. Operating margins improved 120 basis points to
9.4 percent in 2000, up from 8.2 percent in 1999. Operating margins in 2000
benefited from a more favorable product mix resulting from increased sales of
larger, higher-margin boats and improved pricing.
RECREATION SEGMENT
The following table sets forth Recreation segment results:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $765.8 $770.7 $733.4
Percentage increase (decrease).............................. (0.6)% 5.1%
Operating earnings.......................................... $ 35.7 $ 73.1 $ 73.9
Percentage decrease......................................... (51.2)% (1.1)%
Operating margin............................................ 4.7% 9.5% 10.1%
Capital expenditures........................................ $ 25.7 $ 31.8 $ 41.9
</Table>
In 2001, the Recreation segment reported sales of $765.8 million, down 0.6
percent from $770.7 million in 2000. Excluding the acquisition of Omni Fitness,
a specialty retailer, sales for the segment declined 5.3 percent. Sales of
fitness equipment increased 15.5 percent compared with the prior year, including
the effects of Omni Fitness. Sales gains in international fitness markets were
partially offset by reduced consumer product sales, as well as lower domestic
sales of commercial products, as health club chains delayed expansion and
upgrade projects due to the weakening economy. Retail bowling center sales were
up slightly on an "equivalent center" basis. Bowling equipment sales, including
capital equipment, balls, supplies and other accessories, declined due to
weakness in domestic and international markets, along with efforts to reduce
wholesale inventories.
The Recreation segment reported operating earnings of $35.7 million in 2001
compared with $73.1 million in 2000. Operating margins declined 480 basis points
to 4.7 percent for the year-to-date period. The Recreation segment operating
margin reductions compared with 2000 primarily reflect the lower absorption of
fixed costs due to temporary plant shutdowns and production rate reductions,
partially offset by cost-containment efforts.
In 2000, the Recreation segment reported sales of $770.7 million, up 5.1
percent from $733.4 million in 1999. The segment's sales growth was driven by a
strong performance from the fitness equipment business, which reported a 20
percent increase in sales resulting from double-digit gains in both commercial
and consumer products. Revenues from commercial fitness equipment products
improved primarily due to increased sales to health clubs and the military in
the United States as well as in international markets. New product introductions
and increased distribution drove the growth in consumer exercise equipment
sales. Bowling and billiards sales were down 5 percent for the year principally
due to a reduction in sales of bowling products. Revenues from retail bowling
centers also declined; however, the decrease was due to a reduction of six
bowling centers versus the prior year. Revenues from renovated bowling centers
(Brunswick Zones) were up 10 percent over the prior year.
The Recreation segment's operating earnings totaled $73.1 million in 2000
versus $73.9 million in 1999, and operating margins fell 60 basis points to 9.5
percent in 2000. The decline in operating margins was attributable to the
unfavorable impact of a stronger dollar on the European operations in the
fitness equipment business, along with continued investment spending on new
products and market development. These factors were partially offset by
cost-containment efforts in the bowling and billiards businesses.
21
<PAGE>
DISCONTINUED OPERATIONS
During 2000, the Company announced its intention to divest the following
businesses that comprised its former outdoor recreation segment: fishing,
camping, bicycle, cooler, marine accessories and hunting sports accessories.
These businesses have been accounted for as discontinued operations and the
consolidated financial statements for all periods have been restated to present
these businesses as discontinued operations in accordance with APB Opinion No.
30.
The Company substantially completed the disposal of its discontinued
operations as of December 31, 2001. The sale of the hunting sports accessories,
cooler and North American fishing businesses were completed in 2001, and the
sale of the bicycle and camping businesses were completed in 2000. Cash
generated from these dispositions, including cash proceeds, net of costs to
sell, cash required to fund operations through disposition and related tax
benefits realized in connection with the divestitures, was approximately $275
million after tax.
Discontinued operations experienced losses of $68.4 million in 2000 and
$105.2 million in 1999. Losses from discontinued operations included the results
of operations from the hunting sports accessories, marine accessories and cooler
businesses through September 30, 2000, and from the fishing, camping and bicycle
businesses through June 30, 2000. Losses relating to these businesses subsequent
to these dates were estimated and provided for in the loss on the disposition of
these businesses.
The 2000 loss from discontinued operations of $68.4 million included the
write-off of goodwill and other long-term assets related to the camping business
($76.0 million pre-tax, $50.0 million after tax) that was recorded in the second
quarter of 2000. The write-off was necessary as the Company determined that
additional actions would not improve operating performance to levels sufficient
to recover its investment in these assets. Also included were asset write-downs
and restructuring costs, consisting primarily of severance in the fishing and
camping businesses, necessitated by a change in business conditions and the
decision to outsource the manufacture of fishing reels that were previously
produced in-house.
The loss from disposal recorded in 2000 totaled $305.3 million pre-tax and
$229.6 million after tax. The losses associated with the disposition of these
businesses were based on an estimate of cash proceeds, net of costs to sell,
along with an estimate of results of operations for these businesses from the
date the decision was made to dispose of the businesses through the actual
disposition date. The tax benefits associated with the disposal reflect the
non-deductibility of losses on the sale of the cooler business.
Losses from discontinued operations of $105.2 million for 1999 included a
$178.0 million pre-tax strategic charge ($114.0 million after tax). Despite the
Company's successful initiatives to expand distribution and reduce costs in its
bicycle business, the profitability of the business eroded as competition from
Asian imports substantially reduced market pricing for bicycles. While the price
competition affected virtually all bicycles, the effects were extremely
pronounced at the opening price points where the Company's bicycle offerings
were concentrated. Consequently, in the fourth quarter of 1999, the Company
determined that the goodwill associated with this business was impaired.
Additionally, to further reduce costs, the Company committed to plans to exit
manufacturing, reduce warehouse capacity and administrative expenses and
rationalize product offerings. As a result of these actions, the Company
recorded $178.0 million of charges in the bicycle business. These charges
included the write-off of goodwill of $133.6 million, inventory write-downs of
$27.0 million, fixed asset write-downs of $10.5 million and other incremental
costs of $6.9 million. Additional costs of $7.0 million for severance and other
incremental costs related to the 1999 charge were recorded in the first quarter
of 2000 and are part of the $68.4 million after-tax loss reported from
discontinued operations in 2000.
22
<PAGE>
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth an analysis of cash flow for the years ended
December 31, 2001, 2000 and 1999 (in millions):
<Table>
<Caption>
2001 2000 1999
------ ------- -------
<S> <C> <C> <C>
EBITDA*..................................................... $345.5 $ 594.8 $ 537.7
Changes in working capital.................................. (10.9) (163.2) (53.5)
Interest expense............................................ (52.9) (67.6) (61.0)
Tax receipts (payments)..................................... 26.6 (55.2) (115.9)
Other....................................................... (9.0) (57.8) (56.9)
------ ------- -------
Cash provided by operating activities of continuing
operations............................................. 299.3 251.0 250.4
Cash used for investing activities of continuing
operations**........................................... (85.9) (188.1) (176.1)
------ ------- -------
Free cash flow ***........................................ $213.4 $ 62.9 $ 74.3
====== ======= =======
Cash flow from discontinued operations (pre-tax).......... $107.4 $ 45.3 $ 8.9
====== ======= =======
</Table>
* EBITDA is defined as net earnings, adjusted for unusual charges and
discontinued operations (as previously described), before interest, taxes,
depreciation and amortization. EBITDA is presented to assist in the analysis
of cash from operations. However, it is not intended as an alternative
measure of operating results or cash flow from operations, as determined in
accordance with generally accepted accounting principles.
** Comprised principally of capital expenditures and excludes acquisition and
disposition activities.
*** Free cash flow is defined as cash flow from operating and investing
activities of continuing operations, excluding acquisition, disposition and
financing activities.
Cash generated from operating activities, available cash balances and
selected borrowings are the Company's major sources of funds for investments and
dividend payments.
Net cash provided by operating activities of continuing operations totaled
$299.3 million in 2001, compared with $251.0 million in 2000 and $250.4 million
in 1999. Cash provided from operating activities included changes in working
capital that resulted in a use of $10.9 million, $163.2 million and $53.5
million in 2001, 2000 and 1999, respectively. Inventories were $557.4 million at
December 31, 2001, versus $510.7 million at December 31, 2000. Inventory,
excluding acquired inventory balances, decreased $39.4 million in 2001 compared
to an increase of $104.3 million in 2000. Accounts and notes receivable totaled
$361.9 million at December 31, 2001, compared with $419.9 million at December
31, 2000. The $58.0 million decrease in net receivables versus the prior year
was due primarily to lower sales activity and weaker business conditions in
2001.
Tax receipts in 2001 reflect the realization of tax benefits associated
with the divestitures. Tax payments in 2000 reflect benefits realized from
antitrust settlement payments made in 2000 and 1999. Tax payments in 1999
reflect benefits realized on losses associated with strategic charges recorded
in 1998 and 1997. Other operating cash flow activities included payments made by
the Company for litigation settlements totaling $6.6 million in 2001, $49.4
million in 2000 and $57.6 million in 1999.
The Company invested $111.4 million, $156.0 million and $166.8 million in
capital expenditures in 2001, 2000 and 1999, respectively. The largest portion
of these expenditures was made for on-going investments to introduce new
products, expand product lines and achieve improved production efficiencies and
product quality.
Cash paid for acquisitions, net of debt and cash acquired, totaled $134.4
million for 2001, comprised primarily of consideration paid for Hatteras Yachts,
a leading manufacturer of sportfishing convertibles and motoryachts; Sealine, a
leading manufacturer of luxury sports cruisers and motoryachts; and Princecraft,
a manufacturer of aluminum fishing, deck and pontoon boats. Investments totaling
$38.1 million and $13.6 mil-
23
<PAGE>
lion for 2000 and 1999, respectively, were primarily comprised of amounts
invested in Internet-related businesses and fitness equipment distribution
alliances. In addition, in 1999 the Company invested $4.2 million to acquire two
international boat companies.
The Company anticipates spending approximately $135 million for capital
expenditures in 2002. About one-half of the capital spending is expected to be
for new and upgraded products, about one-third for necessary maintenance
spending and the balance targeted toward cost reductions and investments in
information technology. The Company will continue to evaluate acquisitions and
other investment opportunities as they arise.
Cash and cash equivalents totaled $108.5 million at the end of 2001,
compared with $125.2 million in 2000. Total debt at year-end 2001 was $640.2
million versus $774.5 million at the end of 2000. The decrease in total debt
outstanding is due principally to decreases in short-term commercial paper
borrowings. Debt-to-capitalization ratios were 36.6 percent at December 31,
2001, and 42.1 percent at December 31, 2000. The Company has a $400.0 million
long-term credit agreement with a group of banks described in NOTE 10, DEBT, in
the Notes to Consolidated Financial Statements, that serves as support for
commercial paper borrowings. There were no borrowings under the credit agreement
at December 31, 2001. Under the terms of the long-term credit agreement, the
Company has multiple borrowing options, and, if utilized, the borrowing rate, as
calculated in accordance with those terms, would have been 2.07 percent at
December 31, 2001. The Company also has $600.0 million available under a
universal shelf registration statement filed in 2001 with the Securities and
Exchange Commission for the issuance of equity and/or debt securities.
The Company announced in 2001 that it would begin paying dividends annually
rather than quarterly, beginning in 2002, in order to reduce administrative
costs. Future dividends, as declared at the discretion of the Board of
Directors, will be paid in December.
No stock repurchases occurred during 2001. For the years ended December
31, 2000 and 1999, the Company spent $87.1 million and $18.3 million,
respectively, to repurchase stock under two repurchase programs. On February 8,
2000, the Company announced a program to repurchase $100 million of its common
stock from time to time in the open market or through privately negotiated
transactions. During the first half of 2000, the Company repurchased 4.6 million
shares of its common stock for $84.7 million in open market transactions under
this program. The Company also has a program, which was initiated in 1997, to
systematically repurchase up to five million shares of its common stock to
offset shares the Company expects to issue under its stock option and other
compensation plans. Under this program, the Company repurchased 0.1 million and
0.8 million shares for $2.4 million and $18.3 million in 2000 and 1999,
respectively. A total of 2.7 million additional shares may be repurchased under
this program. Future repurchases of the Company's common stock under existing
repurchase programs will be considered; however, in the short-term the Company
intends to use excess cash to reduce debt.
The Company's financial flexibility and access to capital markets is
supported by its balance sheet position, investment-grade credit ratings and
ability to generate significant cash from operating activities. Management
believes that there are adequate sources of liquidity to meet the Company's
short-term and long-term needs.
LEGAL PROCEEDINGS
On January 22, 2002, the United States Supreme Court granted discretionary
review of the case Sprietsma vs. Mercury Marine, a "propeller guard" case on
appeal from the Illinois Supreme Court. At issue in Sprietsma is whether federal
law preempts tort claims alleging that marine engines should be equipped with
devices designed to protect against propeller injuries. Nine federal courts and
many state courts, including the Illinois Supreme Court in Sprietsma, have
previously found such claims to be preempted by the United States Coast Guard's
1990 decision, pursuant to the Federal Boat Safety Act, not to require propeller
guards. The Company does not believe that the resolution of this matter will
have a material adverse effect on the Company's consolidated financial position
or results of operations.
24
<PAGE>
On September 6, 2001, the Federal Trade Commission (FTC) informed the
Company that it had closed an investigation concerning the Company's bidding for
certain assets of Outboard Marine Corporation (OMC) as a part of OMC's
bankruptcy. On October 5, 2001, the FTC also informed the Company that it had
closed a separate investigation commenced in 1997 concerning certain of the
Company's marketing practices related to the sale of sterndrive marine engines
to boatbuilders and dealers.
On October 27, 1999, the United States Tax Court upheld an Internal Revenue
Service (IRS) determination that resulted in the disallowance of capital losses
and other expenses from two partnership investments for 1990 and 1991. The
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. On
December 21, 2001, the Court of Appeals rendered a decision vacating the Tax
Court's opinion and remanded the case to the Tax Court for reconsideration in
light of an earlier Court of Appeals decision. If, on remand to the Tax Court,
the Company does not prevail, the net amount of taxes due, plus interest, net of
tax, would be approximately $135 million. The Company has settled all other
issues with the IRS on open tax years 1989 through 1994 and anticipates
favorable adjustments that would decrease the total net amount to approximately
$53 million, which would likely be payable in 2003. The Company does not believe
that the resolution of this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In 1994, one of Life Fitness' competitors, Precor, Incorporated, filed a
complaint in federal court in Seattle, Washington, involving one of Life
Fitness' treadmills. The lawsuit claimed that Life Fitness had engaged in unfair
competitive practices in violation of the Washington State Consumer Protection
Act and that certain of its treadmills infringed a design patent held by Precor.
Life Fitness then filed an infringement claim against Precor, in connection with
Life Fitness' '207 patent for its flexible treadmill deck. On October 26, 1999,
the jury awarded Precor, now a subsidiary of Illinois Tool Works, Inc.,
approximately $5.2 million in connection with Precor's design infringement claim
against the Company, as successor in interest to the predecessor entities of its
Life Fitness division. The jury also rejected Life Fitness' '207 patent claim.
Precor was awarded up to $5.3 million in attorneys' fees and prejudgment
interest on the damage award. The Company appealed the verdict and the award of
attorneys' fees to the United States Court of Appeals for the Federal Circuit.
On June 27, 2001, the Court of Appeals issued its decision upholding the lower
court's finding that Life Fitness' '207 patent claim was invalid, and reversing
the lower court's finding that Life Fitness infringed Precor's design patent.
The Court of Appeals remanded the award of attorneys' fees to the lower court
for a redetermination based on the reversal of the willful infringement finding.
On January 10, 2002, the federal court ruled that Precor is entitled only to
those attorneys' fees directly attributable to the unfair competition claims
under the Washington State Consumer Protection Act. The Company does not believe
that the resolution of this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In January 2000, Precor filed suit against Life Fitness in federal court in
Washington alleging that certain of Life Fitness' cross-trainer exercise
machines infringed Precor's Miller '829 patent. In 1999, before Precor filed its
lawsuit, the Miller '829 patent was re-examined by the U.S. Patent & Trademark
Office (PTO) and was rejected. The lawsuit was stayed while Precor sought a
reissuance of the Miller patent by the PTO. The PTO issued a modified patent on
March 5, 2002. Precor has announced that it would petition the court to lift the
stay and continue its lawsuit against Life Fitness. The Company does not believe
that its machines infringe the patent, as modified, but is unable to predict the
outcome of the second Precor case.
Vapor Corporation, a former subsidiary that the Company divested in 1990,
has been named in a number of asbestos-related lawsuits, the first of which was
filed in 1988. The Company retained certain liabilities of Vapor, requiring it
to respond to these suits. The suits, most of which involve numerous other
defendants, allege that steam generators manufactured by Vapor prior to the
Company's ownership contained small amounts of asbestos. The generators were
used to heat railroad cars and the primary means of potential exposure appears
to have been to railroad workers performing inspections or repairs to the
generators. Neither the Company nor Vapor is alleged to have manufactured
asbestos. Early in the litigation, the Company's insurers settled a number of
claims for nominal amounts, while a number of other claims have been dismissed.
25
<PAGE>
No suit has yet gone to trial. The Company does not believe that the resolution
of these lawsuits will have a material adverse effect on the Company's
consolidated financial position or results of operations.
The Company is also involved in certain legal and administrative
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and other federal and state legislation governing the
generation and disposition of certain hazardous wastes. These proceedings,
involving 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 is also involved in a number of voluntary environmental remediation
actions addressing contamination resulting from historic activities on its
present and former plant properties. The Company has established reserves based
on a range of current cost estimates for all known claims. Refer to NOTE 7,
COMMITMENTS AND CONTINGENCIES, in the Notes to Consolidated Financial Statements
for disclosure of the potential cash requirements of environmental proceedings.
ENGINE EMISSION REGULATIONS
U.S. Environmental Protection Agency (EPA) regulations finalized in 1996
require that certain exhaust emissions from gasoline marine outboard engines be
reduced by 8.3 percent per year for nine years beginning with the 1998 model
year. The Company has implemented a plan that meets the EPA compliance schedule.
It includes both modifying automotive two-stroke direct fuel injection
technology for marine use and substituting certain two-stroke engines with
four-stroke engines. Both of these technologies yield emission reductions of 80
percent or better. More recently, the California Air Resources Board (CARB)
voted to adopt regulations more stringent than the EPA regulations. These
regulations accelerated the applicability of the EPA targeted emissions
reductions from 2006 to 2001. This affected new engines sold in California
beginning with the model year 2001, with further emission reductions scheduled
in 2004 and 2008. The Company met the 2001 requirements and believes that its
current implementation plan designed to meet the EPA exhaust emissions
regulations will allow the Company to comply with the more stringent regulations
as currently proposed by CARB. The Company expects the amount of low-emission
engine sales as a percentage of total Marine Engine segment sales to continue to
increase and anticipates that it will continue to invest in development of
low-emission engine technologies.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that all business combinations
initiated after June 30, 2001, be accounted for under the purchase method. SFAS
No. 142 requires that goodwill and indefinite-lived intangible assets no longer
be amortized to earnings, but instead reviewed annually for impairment. The
amortization of existing goodwill and indefinite-lived intangible assets at June
30, 2001, will be ceased at January 1, 2002. Goodwill on acquisitions completed
subsequent to June 30, 2001, is not amortized, but instead will be reviewed
annually for impairment. The Company is currently assessing SFAS No. 142 and has
not yet made a determination of the impact that adoption will have on the
consolidated financial statements. Amortization expense arising from goodwill
and other intangible assets that will no longer be amortized under the
provisions of the new rules was approximately $17.2 million and $15.3 million in
2001 and 2000, respectively.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes both SFAS
No. 121 and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" (Opinion 30), for the disposal of a segment of a
business (as previously defined in that Opinion). SFAS No. 144 retains the
fundamental provisions in SFAS No. 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
SFAS No. 121. SFAS No. 144 retains the basic provisions of Opinion 30 on how to
present discontinued operations in the income statement but broadens that
presentation to
26
<PAGE>
include a component of an entity (rather than a segment of a business). Unlike
SFAS 121, an impairment assessment under SFAS No. 144 will never result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS
No. 142. SFAS No. 144 is required to be adopted no later than the fiscal year
beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected
to have a material impact on the financial statements because the impairment
assessment under SFAS No. 144 is largely unchanged from SFAS No. 121.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies (legacy
currencies) and one new common currency - the Euro. The transition period for
the introduction of the Euro extends through 2002. Beginning in January 2002,
new Euro-denominated bills and coins will be issued. The Company has evaluated,
and will continue to evaluate, the effects on its operations of the conversion
to the Euro. The costs to prepare for this conversion, including the costs to
adapt information systems, have not been and are not expected to be material to
the Company's results of operations, financial position or cash flows. The
Company does not currently expect the introduction and use of the Euro to have a
material effect on its foreign exchange and hedging activities, or on its use of
derivative financial instruments. While the Company does not expect the Euro
conversion to have a material effect on its operations, some uncertainty exists
as to the effect that the conversion to the Euro will have on the markets for
the Company's products. Accordingly, the effect on the Company's operations
cannot be predicted with certainty.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report are forward-looking as defined in
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
in this Annual Report may include words such as "expect," "anticipate,"
"believe," "may," "should," "could," or "estimate." These statements involve
certain risks and uncertainties that may cause actual results to differ
materially from expectations as of the date of this filing. These risks include,
but are not limited to:
- - General economic conditions and consumer confidence, and resultant demand for
the Company's products, particularly in the United States and Europe:
Like many companies, the Company's revenues were adversely affected by
the U.S. recession. The Company's future results may continue to suffer
if general economic conditions do not improve.
- - The effect of interest rates and fuel prices on demand for marine products:
The Company's marine products particularly boats are often financed, and
higher interest rates can retard demand for these products. The
Company's marine businesses are somewhat fuel-cost-sensitive, and higher
fuel costs can also hurt demand.
- - Adverse weather conditions retarding sales of marine products:
Sales of the Company's marine products are generally more robust just
before and during spring and summer, and favorable weather during these
months tends to have a positive effect on consumer demand. Conversely,
poor weather conditions during these periods can retard demand.
- - The market impact of the liquidation of a bankrupt marine competitor's
inventory and the acquisition of that competitor's marine engine assets by
other marine companies:
The Company's Marine Engine segment has gained market share as a result
of the bankruptcy of a key competitor. The acquisition of the assets of
that competitor, however, may erode those market share gains.
- - Shifts in currency exchange rates:
The Company manufactures its products predominately in the United
States, though international manufacturing is increasing. A strong U.S.
dollar can make the Company's products less price-competitive relative
to locally produced products in international markets where currencies
are
27
<PAGE>
weaker. The Company is focusing on international manufacturing and
global sourcing in part to offset this risk.
- - Competitive pricing pressures:
Across all of the Company's product lines, introduction of lower-cost
alternatives can hurt the Company's competitive position. The Company's
efforts at cost-containment, commitment to quality products, and
excellence in operational effectiveness and customer service are
designed in part to offset this risk.
- - Inventory adjustments by the Company, its major dealers, retailers and
independent boatbuilders:
The Company's inventory reduction efforts have focused on reducing
production, which results in lower rates of absorption of fixed costs
and thus lower margins. In addition, as the Company's dealers and
retailers, as well as independent boatbuilders who purchase the
Company's marine engine products, adjust inventories downward, wholesale
demand for the Company's products diminishes. This hurts the Company's
short-term results and could hurt the Company's ability to meet
increased demand when the U.S. economy recovers and demand increases.
- - Financial difficulties experienced by dealers and independent boatbuilders:
The U.S. economic downturn has adversely affected many of the Company's
dealers. As the main channel for the Company's products, dealer health
is critical to the Company's continued success. In addition, a
substantial portion of the Company's engine sales are made to
independent boatbuilders. As a result, the Company's financial results
can be influenced by the financial well-being of these independent
boatbuilders.
- - The ability to maintain effective distribution:
The Company sells the majority of its products through third parties
such as dealers, retailers and distributors. Maintaining good
relationships with existing distribution partners, and establishing new
distribution channels where appropriate, is critical to the Company's
continued success.
- - The Company's ability to complete environmental remediation efforts at the
cost estimated:
As discussed in PART I, ITEM 3 above, the Company is subject to several
environmental proceedings, some of which involve costly remediation
efforts over extended periods of time. The Company believes that it is
adequately reserved for these environmental obligations, but significant
increases in the costs of these programs could hurt the Company's
results of operations in the period or periods in which additional
reserves or outlays are deemed necessary.
- - The Company's ability to develop product technologies which comply with
regulatory requirements:
As discussed in PART I, ITEM 3 above, the Company's Marine Engine
Segment is subject to emissions standards that require ongoing efforts
to bring the Company's engine products in line with regulatory
requirements. The Company believes that these efforts are on track and
will be successful, but unforeseen delays in these efforts could have an
adverse effect on the Company's results of operations.
- - The success of marketing and cost-management programs and the Company's
ability to develop and produce new products and technologies:
The Company is constantly subject to competitive pressures. The
Company's continuing ability to respond to these pressures, particularly
through cost-containment initiatives, marketing strategies, and the
introduction of new products and technologies, are critical to the
Company's continued success.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates, interest rates and commodity prices. The Company enters into
various hedging transactions to mitigate these risks in accordance with
guidelines established by the Company's management. The Company does not use
financial instruments for trading or speculative purposes.
28
<PAGE>
The Company uses foreign currency forward and option contracts to manage
foreign exchange exposure related to transactions, assets and liabilities that
are subject to risk from foreign currency rate changes. The Company's principal
currency exposures relate to the Euro, Canadian dollar, Japanese yen, British
pound and Australian dollar. Hedging of anticipated transactions is accomplished
with financial instruments as the maturity date of the instrument, along with
the realized gain or loss, occurs on or near the execution of the anticipated
transaction. Hedging of an asset or liability is accomplished through the use of
financial instruments as the gain or loss on the hedging instrument offsets the
gain or loss on the asset or liability.
The Company uses interest rate swap agreements to mitigate the effect of
changes in interest rates on the Company's borrowings. The Company's net
exposure to interest rate risk primarily consists of fixed-rate instruments.
Interest rate risk management is accomplished through the use of interest rate
swaps and floating-rate instruments that are benchmarked to U.S. and European
short-term money market interest rates.
Raw materials used by the Company are exposed to the effect of changing
commodity prices. Accordingly, the Company uses commodity swap agreements to
manage fluctuations in prices of anticipated purchases of certain raw materials.
The Company uses a value-at-risk (VAR) computation to estimate the maximum
one-day reduction in pre-tax earnings related to its foreign currency, interest
rate and commodity price-sensitive derivative financial instruments. The VAR
computation includes the Company's debt, foreign currency forwards, interest
rate swap agreements and commodity swap agreements.
The amounts shown below represent the estimated reduction in fair market
value that the Company could incur on its derivative financial instruments from
adverse changes in foreign exchange rates, interest rates or commodity prices
using the VAR estimation model. The VAR model uses the variance-covariance
statistical modeling technique and uses historical foreign exchange rates,
interest rates and commodity prices to estimate the volatility and correlation
of these rates and prices in future periods. It estimates a loss in fair market
value using statistical modeling techniques and includes substantially all
market risk exposures. The estimated potential losses shown in the table below
have no effect on the Company's results of operations or financial condition.
AMOUNT
IN TIME CONFIDENCE
RISK CATEGORY MILLIONS PERIOD LEVEL
- ------------- -------- ------ ----------
Foreign exchange............................. $0.3 1 day 95%
Interest rates............................... $5.8 1 day 95%
Commodity prices............................. $0.6 1 day 95%
The 95 percent confidence level signifies the Company's degree of
confidence that actual losses would not exceed the estimated losses shown above.
The amounts shown disregard the possibility that foreign currency exchange
rates, interest rates and commodity prices could move in the Company's favor.
The VAR model assumes that all movements in rates and commodity prices will be
adverse. Actual experience has shown that gains and losses tend to offset each
other over time, and it is highly unlikely that the Company could experience
losses such as these over an extended period of time. These amounts should not
be considered projections of future losses, since actual results may differ
significantly depending upon activity in global financial markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement Schedule
for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company and Section 16(a)
Beneficial Ownership Reporting Compliance will be set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 1, 2002 (the Proxy Statement). All of the foregoing information is hereby
incorporated by reference. The Company's executive officers are listed herein on
pages 11 to 13.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in the
Proxy Statement and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the securities of the Company owned by the
directors and certain officers of the Company, by the directors and officers of
the Company as a group and by the only persons known to the Company to own
beneficially more than 5 percent of the outstanding voting securities of the
Company will be set forth in the Proxy Statement, and such information is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
will be set forth in the Proxy Statement and is hereby incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedule are filed as
part of this report on pages 32 to 65.
2. The financial statement schedule listed in the accompanying Index to
Financial Statements and Financial Statement Schedule is filed as
part of this report on page 65.
3. The exhibits listed in the accompanying Index to Exhibits are filed
as part of the 10-K unless noted otherwise.
(b) Reports on Form 8-K
None
(c) Exhibits
See Exhibit Index on pages 66 to 68.
(d) Financial Statement Schedule
See Index to Financial Statements and Financial Statement Schedule on page
32.
30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<Table>
<S> <C>
BRUNSWICK CORPORATION
By: /s/ VICTORIA J. REICH By: /s/ PETER G. LEEMPUTTE
----------------------------------------- -----------------------------------------
Victoria J. Reich Peter G. Leemputte
Senior Vice President and Chief Financial Vice President and Controller
Officer
</Table>
March 8, 2002
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.
<Table>
<Caption>
SIGNATURE TITLE
- --------------------------------------------- -----------------------------------------------------
<S> <C>
GEORGE W. BUCKLEY Chairman and Chief Executive Officer
(Principal Executive Officer) and Director
VICTORIA J. REICH Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
PETER G. LEEMPUTTE Vice President and Controller (Principal Accounting
Officer)
NOLAN D. ARCHIBALD Director
DORRIT J. BERN Director
JEFFREY L. BLEUSTEIN Director
MICHAEL J. CALLAHAN Director
MANUEL A. FERNANDEZ Director
PETER B. HAMILTON Vice Chairman and President--
Brunswick Bowling & Billiards and Director
PETER HARF Director
JAY W. LORSCH Director
BETTYE MARTIN MUSHAM Director
GRAHAM H. PHILLIPS Director
ROBERT L. RYAN Director
ROGER W. SCHIPKE Director
</Table>
Peter G. Leemputte, as Principal Accounting Officer and pursuant to a Power
of Attorney (executed by each of the other officers and directors listed above
and filed with the Securities and Exchange Commission, Washington, D.C.), by
signing his name hereto does hereby sign and execute this report of Brunswick
Corporation on behalf of each of the officers and directors named above in the
capacities in which the names of each appear above.
By: /s/ PETER G. LEEMPUTTE
------------------------------------
Peter G. Leemputte
Vice President and Controller
March 8, 2002
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
BRUNSWICK CORPORATION
<Table>
<Caption>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Management........................................ 33
Report of Independent Public Accountants.................... 34
Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000 and 1999.......................... 35
Consolidated Balance Sheets at December 31, 2001 and 2000... 36
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.......................... 38
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999.............. 39
Notes to Consolidated Financial Statements.................. 40
FINANCIAL STATEMENT SCHEDULE:
Consent of Independent Public Accountants................... 64
Schedule II - Valuation and Qualifying Accounts............. 65
</Table>
32
<PAGE>
BRUNSWICK CORPORATION
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation, integrity and
objectivity of the financial statements and other financial information
presented in this report. The financial statements have been prepared in
conformity with generally accepted accounting principles and reflect the effects
of certain estimates and judgments made by management.
The Company's management maintains a system of internal controls that is
designed to provide reasonable assurance, at reasonable cost, that assets are
safeguarded and that transactions and events are recorded properly. The
Company's internal audit program includes periodic reviews of these systems and
controls and compliance therewith.
The Audit and Finance Committee of the Board of Directors, comprised
entirely of outside directors, meets regularly with the independent public
accountants, management and internal auditors to review accounting, reporting,
internal control and other financial matters. The Committee regularly meets with
both the internal and external auditors without members of management present.
<Table>
<S> <C>
/s/ GEORGE W. BUCKLEY /s/ VICTORIA J. REICH
George W. Buckley Victoria J. Reich
Chairman and Chief Executive Officer Senior Vice President and Chief Financial
Officer
</Table>
January 28, 2002
33
<PAGE>
BRUNSWICK CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Brunswick Corporation:
We have audited the accompanying consolidated balance sheets of Brunswick
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brunswick Corporation and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
As explained in Note 1 to the financial statements, effective January 1,
2001, the Company changed its method of accounting for certain derivatives
instruments and certain hedging activities to conform with Statement of
Financial Accounting Standards Nos. 133/138. As a result of the adoption, the
Company recorded a $2.9 million (after tax) loss as a cumulative effect of a
change in accounting principle.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
CHICAGO, ILLINOIS
JANUARY 28, 2002
34
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET SALES....................................... $3,370.8 $3,811.9 $3,541.3
Cost of sales................................... 2,587.4 2,723.3 2,527.3
Selling, general and administrative expense..... 496.4 534.2 533.7
Research and development expense................ 95.9 102.2 89.7
Unusual charges................................. -- 55.1 116.0
-------- -------- --------
OPERATING EARNINGS............................ 191.1 397.1 274.6
Interest expense................................ (52.9) (67.6) (61.0)
Other income (expense).......................... (6.0) (6.2) 5.7
-------- -------- --------
EARNINGS BEFORE INCOME TAXES.................. 132.2 323.3 219.3
Income tax provision............................ 47.5 121.1 76.2
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS........... 84.7 202.2 143.1
Cumulative effect of change in accounting
principle, net of tax......................... (2.9) -- --
Loss from discontinued operations, net of tax... -- (68.4) (105.2)
Loss from disposal of discontinued operations,
net of tax.................................... -- (229.6) --
-------- -------- --------
NET EARNINGS (LOSS)........................... $ 81.8 $ (95.8) $ 37.9
======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations............. $ 0.96 $ 2.28 $ 1.56
Cumulative effect of change in accounting
principle..................................... (0.03) -- --
Loss from discontinued operations............... -- (0.77) (1.14)
Loss from disposal of discontinued operations... -- (2.59) --
-------- -------- --------
Net earnings (loss)........................... $ 0.93 $ (1.08) $ 0.41
======== ======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations............. $ 0.96 $ 2.28 $ 1.55
Cumulative effect of change in accounting
principle..................................... (0.03) -- --
Loss from discontinued operations............... -- (0.77) (1.14)
Loss from disposal of discontinued operations... -- (2.59) --
-------- -------- --------
Net earnings (loss)........................... $ 0.93 $ (1.08) $ 0.41
======== ======== ========
AVERAGE SHARES USED FOR COMPUTATION OF:
Basic earnings per share........................ 87.8 88.7 92.0
Diluted earnings per share...................... 88.1 88.7 92.6
CASH DIVIDENDS DECLARED PER COMMON SHARE........ $ 0.50 $ 0.50 $ 0.50
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
35
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31
-----------------------
2001 2000
---------- ----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost, which approximates
market................................................. $ 108.5 $ 125.2
Accounts and notes receivable, less allowances of $26.1
and $21.2.............................................. 361.9 419.9
Inventories
Finished goods......................................... 317.2 288.1
Work-in-process........................................ 180.9 153.6
Raw materials.......................................... 59.3 69.0
-------- --------
Net inventories...................................... 557.4 510.7
-------- --------
Prepaid income taxes...................................... 307.5 367.8
Prepaid expenses.......................................... 38.9 48.6
Income tax refunds receivable............................. 26.7 57.4
Net assets of discontinued operations offered for sale.... -- 107.4
-------- --------
CURRENT ASSETS....................................... 1,400.9 1,637.0
-------- --------
PROPERTY
Land...................................................... 68.4 64.6
Buildings................................................. 426.3 408.6
Equipment................................................. 998.5 967.7
-------- --------
Total land, buildings and equipment.................. 1,493.2 1,440.9
Accumulated depreciation.................................. (803.8) (756.8)
-------- --------
Net land, buildings and equipment.................... 689.4 684.1
Unamortized product tooling costs......................... 116.2 119.1
-------- --------
NET PROPERTY......................................... 805.6 803.2
-------- --------
OTHER ASSETS
Goodwill.................................................. 474.4 391.8
Other intangibles......................................... 128.9 116.1
Investments............................................... 80.4 73.0
Other long-term assets.................................... 267.3 180.6
-------- --------
OTHER ASSETS......................................... 951.0 761.5
-------- --------
TOTAL ASSETS................................................ $3,157.5 $3,201.7
======== ========
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
36
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31
-----------------------
2001 2000
---------- ----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt, including current maturities of long-term
debt................................................... $ 40.0 $ 172.7
Accounts payable.......................................... 214.5 238.6
Accrued expenses.......................................... 648.2 641.8
-------- --------
CURRENT LIABILITIES.................................... 902.7 1,053.1
-------- --------
LONG-TERM DEBT
Notes, mortgages and debentures........................... 600.2 601.8
-------- --------
DEFERRED ITEMS
Income taxes.............................................. 185.2 215.4
Postretirement and postemployment benefits................ 216.1 196.5
Compensation and other.................................... 142.4 67.8
-------- --------
DEFERRED ITEMS......................................... 543.7 479.7
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common stock; authorized: 200,000,000 shares, $0.75 par
value; issued: 102,538,000 shares...................... 76.9 76.9
Additional paid-in capital................................ 316.2 314.5
Retained earnings......................................... 1,079.4 1,041.4
Treasury stock, at cost:
14,739,000 and 15,194,000 shares....................... (289.8) (296.4)
Unamortized ESOP expense and other........................ (27.1) (41.9)
Accumulated other comprehensive income (loss)............. (44.7) (27.4)
-------- --------
COMMON SHAREHOLDERS' EQUITY............................ 1,110.9 1,067.1
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $3,157.5 $3,201.7
======== ========
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
37
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
2001 2000 1999
--------- --------- ---------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)......................... $ 81.8 $ (95.8) $ 37.9
Depreciation and amortization............... 160.4 148.8 141.4
Changes in noncash current assets and
current liabilities
Change in accounts and notes
receivable.............................. 51.1 (69.4) (77.2)
Change in inventory...................... 39.4 (104.3) (39.8)
Change in prepaid expenses............... 10.7 2.6 (4.4)
Change in accounts payable............... (47.5) (10.4) 34.3
Change in accrued expense................ (64.6) 18.3 33.6
Income taxes................................ 72.4 65.9 (39.7)
Antitrust litigation settlement payments.... (6.6) (49.4) (57.6)
Unusual charge.............................. -- 55.1 116.0
Loss from discontinued operations........... -- 298.0 105.2
Other, net.................................. 2.2 (8.4) 0.7
------- ------- -------
NET CASH PROVIDED BY CONTINUING
OPERATIONS.............................. 299.3 251.0 250.4
NET CASH PROVIDED BY DISCONTINUED
OPERATIONS.............................. 31.5 5.8 48.8
------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. 330.8 256.8 299.2
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................ (111.4) (156.0) (166.8)
Investments................................. -- (38.1) (13.6)
Acquisitions of businesses, net of debt
and cash acquired.......................... (134.4) -- (4.2)
Proceeds on the sale of property, plant
and equipment.............................. 26.8 10.5 13.1
Other, net.................................. (1.3) (4.5) 17.3
------- ------- -------
NET CASH USED FOR CONTINUING OPERATIONS.. (220.3) (188.1) (154.2)
NET CASH PROVIDED BY (USED FOR)
DISCONTINUED OPERATIONS................. 75.9 39.5 (39.9)
------- ------- -------
NET CASH USED FOR INVESTING ACTIVITIES... (144.4) (148.6) (194.1)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net issuances (repayments) of commercial
paper and other short-term debt............ (144.4) 57.5 (59.7)
Payments of long-term debt including
current maturities......................... (24.7) (13.1) (15.6)
Cash dividends paid......................... (43.8) (44.3) (45.9)
Stock repurchases........................... -- (87.1) (18.3)
Stock options exercised..................... 9.8 3.2 9.1
------- ------- -------
NET CASH USED FOR FINANCING ACTIVITIES... (203.1) (83.8) (130.4)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................. (16.7) 24.4 (25.3)
Cash and cash equivalents at January 1........ 125.2 100.8 126.1
------- ------- -------
CASH AND CASH EQUIVALENTS AT DECEMBER 31...... $ 108.5 $ 125.2 $ 100.8
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................... $ 52.6 $ 71.3 $ 57.7
Income taxes paid (received), net........... $ (26.6) $ 55.2 $ 115.9
Treasury stock issued for compensation
plans and other............................ $ 12.8 $ 3.7 $ 18.1
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
38
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
ADDITIONAL UNAMORTIZED OTHER
COMMON PAID-IN RETAINED TREASURY ESOP EXPENSE COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCK AND OTHER INCOME (LOSS) TOTAL
------ ---------- -------- -------- ------------ ------------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998... $76.9 $311.5 $1,189.5 $(204.7) $(56.1) $ (5.8) $1,311.3
----- ------ -------- ------- ------ ------ --------
COMPREHENSIVE INCOME
Net earnings............... -- -- 37.9 -- -- -- 37.9
Currency translation
adjustments.............. -- -- -- -- -- (5.7) (5.7)
Other comprehensive
income................... -- -- -- -- -- 2.3 2.3
----- ------ -------- ------- ------ ------ --------
Total comprehensive income --
1999....................... -- -- 37.9 -- -- (3.4) 34.5
Stock repurchased............ -- -- -- (18.3) -- -- (18.3)
Dividends ($0.50 per common
share)..................... -- -- (45.9) -- -- -- (45.9)
Compensation plans and
other...................... -- 2.8 -- 9.0 6.8 -- 18.6
----- ------ -------- ------- ------ ------ --------
BALANCE, DECEMBER 31, 1999... $76.9 $314.3 $1,181.5 $(214.0) $(49.3) $ (9.2) $1,300.2
----- ------ -------- ------- ------ ------ --------
COMPREHENSIVE INCOME
Net loss................... -- -- (95.8) -- -- -- (95.8)
Currency translation
adjustments.............. -- -- -- -- -- (8.3) (8.3)
Other comprehensive income
(loss)................... -- -- -- -- -- (9.9) (9.9)
----- ------ -------- ------- ------ ------ --------
Total comprehensive income --
2000....................... -- -- (95.8) -- -- (18.2) (114.0)
Stock repurchased............ -- -- -- (87.1) -- -- (87.1)
Dividends ($0.50 per common
share)..................... -- -- (44.3) -- -- -- (44.3)
Compensation plans and
other...................... -- 0.2 -- 4.7 7.4 -- 12.3
----- ------ -------- ------- ------ ------ --------
BALANCE, DECEMBER 31, 2000... $76.9 $314.5 $1,041.4 $(296.4) $(41.9) $(27.4) $1,067.1
----- ------ -------- ------- ------ ------ --------
COMPREHENSIVE INCOME
Net earnings............... -- -- 81.8 -- -- -- 81.8
Currency translation
adjustments.............. -- -- -- -- -- (5.0) (5.0)
Other comprehensive income
(loss)................... -- -- -- -- -- (12.3) (12.3)
----- ------ -------- ------- ------ ------ --------
Total comprehensive income --
2001....................... -- -- 81.8 -- -- (17.3) 64.5
Dividends ($0.50 per common
share)..................... -- -- (43.8) -- -- -- (43.8)
Compensation plans and
other...................... -- 1.7 -- 6.6 14.8 -- 23.1
----- ------ -------- ------- ------ ------ --------
BALANCE, DECEMBER 31, 2001... $76.9 $316.2 $1,079.4 $(289.8) $(27.1) $(44.7) $1,110.9
===== ====== ======== ======= ====== ====== ========
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
39
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements of
Brunswick Corporation (the Company) include the accounts of all consolidated
domestic and foreign subsidiaries, after eliminating transactions between the
Company and such subsidiaries.
Reclassifications. Certain previously reported amounts have been
reclassified to conform with current-year reporting.
Use of estimates. The preparation of the consolidated financial statements
in accordance with accounting principles generally accepted in the United States
requires management to make certain estimates. Actual results could differ
materially from those estimates. These estimates affect:
- The reported amounts of assets and liabilities,
- The disclosure of contingent assets and liabilities at the date of the
financial statements, and
- The reported amounts of revenues and expenses during the reporting
periods.
Estimates in these consolidated financial statements include, but are not
limited to:
- The loss on the disposal of the discontinued operations;
- Losses on litigation and other contingencies;
- Warranty, income tax, insurance, inventory valuation and environmental
reserves;
- Allowances for doubtful accounts (both long and short term);
- Reserves for dealer allowances;
- Reserves related to restructuring activities;
- Determination of the discount rate and other actuarial assumptions for
pension and postretirement liabilities; and
- The valuation of investments.
Cash and cash equivalents. The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Inventories. Approximately 63 percent of the Company's inventories are
valued at the lower of first-in, first-out (FIFO) cost or market (replacement
cost or net realizable value). Inventories valued at last-in, first-out (LIFO)
cost were $83.6 million and $81.0 million lower than the FIFO cost of
inventories at December 31, 2001 and 2000, respectively. Inventory cost includes
material, labor and manufacturing overhead.
Property. Property, including major improvements and product tooling
costs, is recorded at cost. Maintenance and repair costs are charged against
results of operations as incurred. Depreciation is charged against results of
operations 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 fifteen years and product tooling is depreciated over a useful
life of three to eight years.
Software development costs. 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 their
estimated useful lives, beginning when the system is placed in service. Training
costs and costs to re-engineer business processes are expensed as incurred.
Goodwill and Other Intangibles. The excess of cost over net assets of
businesses acquired is recorded as goodwill and amortized using the
straight-line method over its estimated useful life, principally 40 years.
40
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accumulated goodwill amortization was $98.8 million and $83.9 million at
December 31, 2001 and 2000, respectively. The costs of other intangible assets
are amortized over their expected useful lives using the straight-line method.
Accumulated amortization of other intangible assets was $174.7 million and
$161.7 million at December 31, 2001 and 2000, respectively. At December 31, 2001
and 2000, other intangible assets included $36.1 million and $43.3 million,
respectively, which represents unamortized prior service costs, recorded as part
of the additional minimum pension liability adjustment. Acquisitions after June
30, 2001 were accounted for under Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets;" therefore, goodwill and
indefinite-lived intangible assets associated with the acquisitions will not be
amortized.
Investments. The Company accounts for its long-term investments that
represent less than 20 percent ownership using SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has investments
in certain equity securities that have readily determinable market values and
are being accounted for as Available-for-Sale equity investments in accordance
with SFAS No. 115. Therefore, these investments are recorded at market value
with changes reflected in other comprehensive income, a component of
shareholders' equity, on an after-tax basis.
Other investments for which the Company does not have the ability to
exercise significant influence and for which there is not a readily determinable
market value are accounted for under the cost method of accounting. The Company
periodically evaluates the carrying value of its investments and, at December
31, 2001 and 2000, such investments were recorded at the lower of cost or fair
value.
For investments in which the Company owns or controls from 20 percent to 50
percent of the voting shares, the equity method of accounting is used. The
Company's share of net income or losses of equity method investments is included
in the Consolidated Statements of Income and was not material in any period
presented. See NOTE 17, INVESTMENTS, in the Notes to Consolidated Financial
Statements.
Long-lived assets. In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
the Company continually evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful lives of its intangible and other
long-lived assets may warrant revision or that the remaining balance of such
assets may not be recoverable. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the asset in measuring
whether the asset is recoverable.
Other long-term assets. Other long-term assets include pension assets and
long-term notes receivable. Long-term notes receivable include cash advances
made to customers, principally boatbuilders and fitness equipment retailers, or
their owners, in connection with long-term supply arrangements. These
transactions have occurred in the normal course of business and are backed by
secured or unsecured notes receivable that are reduced as purchases of
qualifying products are made. Amounts outstanding related to these arrangements
as of December 31, 2001 and 2000, totaled $53.9 million and $65.1 million,
respectively. One boatbuilder customer and its owner comprised 69 percent and 61
percent of these amounts as of December 31, 2001 and 2000, respectively. Certain
agreements provide for the assignment of lease and other long-term receivables
originated by the Company to third parties. The assignment is not treated as a
sale of the associated receivables, but as a secured obligation under SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The associated receivables and related
obligations are included in Consolidated Balance Sheets under other long-term
assets and deferred items - compensation and other, respectively.
Advertising costs. Advertising and promotion costs are expensed in the
year in which the advertising first takes place. Advertising and promotion costs
were $67.7 million, $86.0 million and $86.3 million for the years ended December
31, 2001, 2000 and 1999, respectively.
41
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue recognition. In December 1999, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements." SAB 101 summarizes certain of the SEC
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company is in compliance with SAB 101.
The Company's revenue is derived primarily from product sales. Revenue is
recognized in accordance with the terms of the sale, specifically when delivery
has occurred, the sales price is fixed and determined and collectibility is
reasonably assured. Provisions for discounts and rebates to customers,
warranties, returns and other adjustments are provided for in the same period
the related sales are recorded.
Comprehensive income. Accumulated other comprehensive income includes
currency translation adjustments, unrealized derivative and investment gains and
losses, and minimum pension liability adjustments. The tax effect included in
these items was $28.6 million, $14.3 million, and $4.3 million for the years
ended December 31, 2001, 2000, and 1999, respectively.
Stock-based Compensation. Employee stock options are accounted for under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25). APB No. 25 requires the use of the
intrinsic value method, which measures compensation cost as the excess, if any,
of the quoted market price of the stock at date of grant over the amount an
employee must pay to acquire the stock. The Company makes pro forma disclosures
of net earnings and earnings per share as if the fair-value-based method of
accounting had been applied as required by SFAS No. 123, "Accounting for
Stock-Based Compensation."
Derivatives. The Company uses derivative financial instruments to manage
its risk associated with movements in foreign currency exchange rates, interest
rates and commodity prices. These instruments are used in accordance with
guidelines established by the Company's management and are not used for trading
or speculative purposes. See NOTE 8, FINANCIAL INSTRUMENTS, in the Notes to
Consolidated Financial Statements.
Effective January 1, 2001, the Company adopted SFAS Nos. 133/138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
Under SFAS Nos. 133/138, all derivative instruments are recognized on the
balance sheet at fair values. As a result of the adoption of this standard, on
January 1, 2001, the Company recorded a $2.9 million after-tax loss ($4.7
million pre-tax) as a cumulative effect of a change in accounting principle,
primarily resulting from interest rate swaps.
New Accounting Pronouncements. In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all
business combinations initiated after June 30, 2001, be accounted for under the
purchase method. SFAS No. 142 requires that goodwill and indefinite-lived
intangible assets no longer be amortized to earnings, but instead reviewed
annually for impairment. The amortization of existing goodwill and
indefinite-lived intangible assets at June 30, 2001, ceased at January 1, 2002.
Goodwill on acquisitions completed after June 30, 2001, is not amortized, but
instead will be reviewed annually for impairment. The Company is currently
assessing SFAS No. 142 and has not yet made a determination of the impact that
adoption will have on the consolidated financial statements. Amortization
expense arising from goodwill and other intangible assets that will no longer be
amortized under the provisions of the new rules, was approximately $17.2 million
and $15.3 million in 2001 and 2000, respectively.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes both SFAS
No. 121 and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" (Opinion 30), for the disposal of a segment of a
business (as previously defined in that Opinion). SFAS No. 144 retains the
fundamental provisions in SFAS No. 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant
42
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
implementation issues associated with SFAS No. 121. SFAS No. 144 retains the
basic provisions of Opinion 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike SFAS 121, an impairment
assessment under SFAS No. 144 will never result in a write-down of goodwill.
Rather, goodwill is evaluated for impairment under SFAS No. 142. SFAS No. 144 is
required to be adopted no later than the fiscal year beginning after December
15, 2001. The adoption of SFAS No. 144 is not expected to have a material impact
on the financial statements because the impairment assessment under SFAS No. 144
is largely unchanged from SFAS No. 121.
2. EARNINGS PER COMMON SHARE
There is no difference in the net income used to compute basic and diluted
earnings per share. The difference in the average number of shares of common
stock outstanding used to compute basic and diluted earnings per share is the
amount of potential common stock relating to employee stock options and
compensation plans. The average number of potential shares of common stock was
0.2 million in 2001, less than 0.1 million in 2000 and 0.6 million in 1999.
3. SEGMENT INFORMATION
The Company is a manufacturer and marketer of leading consumer brands.
During 2000, the Company announced its intention to divest the businesses that
comprised its former outdoor recreation segment, and realigned its remaining
segments in light of these announcements. The Company's reportable segments
following these announcements are: Marine Engine, Boat, and Recreation.
The Marine Engine segment manufactures and markets a full range of outboard
engines, sterndrive engines, inboard engines and propless water-jet propulsion
systems, which are principally sold directly to boatbuilders, including the
Company's Boat segment, or through marine retail dealers worldwide. The segment
also manufactures and distributes boats in certain international markets. The
Company's engine manufacturing plants are located primarily in the United
States, and sales are primarily in the United States and Europe.
The Boat segment manufactures and markets fiberglass pleasure boats,
high-performance boats, offshore fishing boats and aluminum fishing, deck and
pontoon boats, which are marketed primarily through dealers. The segment's boat
plants are located in the United States, Canada and United Kingdom and sales are
primarily in the United States. Sales to one dealer, with multiple locations,
comprised approximately 19 percent of Boat segment sales in 2001.
The Recreation segment manufactures, designs and markets fitness equipment,
including treadmills, total-body cross-trainers, stationary bikes and
strength-training equipment; bowling capital equipment, including lanes,
pinsetters, automatic scorers; bowling balls and other accessories; billiards
tables and accessories; and operates bowling centers. These products are
manufactured and sourced from domestic or foreign locations. Fitness equipment
is sold primarily in the United States and Europe to health clubs, military,
government, corporate and university facilities, and to consumers through
specialty retail shops. Bowling capital equipment is sold through a direct sales
force in the United States and foreign markets, primarily Europe and Asia.
Bowling balls and billiards equipment are predominantly sold in the United
States and are distributed primarily through mass merchandisers, sporting goods
stores and specialty shops.
43
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information as to the operations of the Company's three operating segments
is set forth below:
OPERATING SEGMENTS
<Table>
<Caption>
SALES TO CUSTOMERS OPERATING EARNINGS ASSETS OF CONTINUING OPERATIONS
------------------------------ ------------------------ ---------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
-------- -------- -------- ------ ------ ------ --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Engine............ $1,561.6 $1,759.9 $1,614.8 $173.0 $276.0 $242.5 $ 772.5 $ 799.0 $ 725.1
Boat..................... 1,251.3 1,574.3 1,476.6 18.1 148.2 120.7 783.9 639.7 594.1
Marine eliminations...... (207.9) (293.0) (283.5) -- -- -- -- -- --
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total Marine........... 2,605.0 3,041.2 2,807.9 191.1 424.2 363.2 1,556.4 1,438.7 1,319.2
Recreation............... 765.8 770.7 733.4 35.7 73.1 73.9 939.9 883.9 821.2
Corporate/Other.......... -- -- -- (35.7) (45.1) (46.5) 661.2 771.7 544.9
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total.................. $3,370.8 $3,811.9 $3,541.3 191.1 452.2 390.6 $3,157.5 $3,094.3 $2,685.3
======== ======== ======== ======== ======== ========
Unusual charges.......... -- (55.1) (116.0)
------ ------ ------
Operating earnings....... $191.1 $397.1 $274.6
====== ====== ======
</Table>
DEPRECIATION AND RESEARCH AND
CAPITAL EXPENDITURES AMORTIZATION DEVELOPMENT EXPENSE
-------------------- ------------------- ---------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ----- ----- ----- -----
(IN MILLIONS)
Marine Engine. $ 48.8 $ 63.8 $ 77.1 $ 58.7 $ 55.3 $ 51.5 $58.2 $ 60.8 $53.3
Boat.......... 35.5 57.4 46.6 55.5 51.0 49.3 19.7 22.5 17.7
Recreation.... 25.7 31.8 41.9 43.7 40.3 39.0 18.0 18.9 18.7
Corporate..... 1.4 3.0 1.2 2.5 2.2 1.6 -- -- --
------ ------ ------ ------ ------ ------ ----- ------ -----
Total....... $111.4 $156.0 $166.8 $160.4 $148.8 $141.4 $95.9 $102.2 $89.7
====== ====== ====== ====== ====== ====== ===== ====== =====
GEOGRAPHIC SEGMENTS
SALES TO CUSTOMERS ASSETS OF CONTINUING OPERATIONS
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- --------- --------- --------
(IN MILLIONS)
United States... $2,511.6 $2,973.5 $2,755.7 $2,073.7 $2,020.7 $1,876.3
International... 859.2 838.4 785.6 422.6 301.9 264.1
Corporate....... -- -- -- 661.2 771.7 544.9
-------- -------- -------- -------- -------- --------
Total......... $3,370.8 $3,811.9 $3,541.3 $3,157.5 $3,094.3 $2,685.3
======== ======== ======== ======== ======== ========
Operating earnings for 2000 included a $55.1 million unusual charge to
increase environmental reserves related to the cleanup of contamination from a
former manufacturing facility and to account for the write-down of investments
in certain Internet-related businesses. Operating earnings for 1999 included
$116.0 million of litigation settlement charges.
The Company evaluates performance based on several factors, of which the
primary financial measure is business segment operating earnings. Operating
earnings of segments do not include the expenses of corporate administration,
other expenses and income of a non-operating or strategic nature, or provisions
for income taxes. Corporate assets consist primarily of prepaid income taxes,
cash and marketable securities, pension assets and investments in unconsolidated
affiliates.
44
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNUSUAL CHARGES
Unusual charges consist of the following:
2001 2000 1999
---- ----- ------
(IN MILLIONS)
Environmental provisions............................ $-- $41.0 $ --
Investment write-downs.............................. -- 14.1 --
Antitrust litigation settlements.................... -- -- 116.0
--- ----- ------
Total............................................. $-- $55.1 $116.0
=== ===== ======
5. ASSET WRITE-DOWNS AND STRATEGIC CHARGES
In the third quarter of 1998, the Company recorded a pre-tax charge of
$50.8 million ($35.1 million after tax) to operating earnings. The charge
covered exit and asset disposition costs related to strategic initiatives taken
in the bowling business largely in response to the effect of the Asian economic
situation. The 1998 strategic charge includes lease termination costs, severance
costs, other incremental costs and asset disposition costs. These actions were
substantially completed during 1999.
The Company's activity relating to strategic charges, included as part of
accrued expenses, at December 31, 2001, 2000 and 1999, were as follows:
LEASE OTHER
SEVERANCE TERMINATION COSTS TOTAL
--------- ----------- ----- ------
(IN MILLIONS)
Balance at December 31, 1998......... $ 14.2 $10.1 $10.7 $ 35.0
Activity............................. (14.2) 1.0 (9.0) (22.2)
------ ----- ----- ------
Balance at December 31, 1999......... -- 11.1 1.7 12.8
Activity............................. -- -- (0.2) (0.2)
------ ----- ----- ------
Balance at December 31, 2000......... -- 11.1 1.5 12.6
Activity............................. -- (3.4) (1.4) (4.8)
------ ----- ----- ------
Balance at December 31, 2001......... $ -- $ 7.7 $ 0.1 $ 7.8
====== ===== ===== ======
The remaining reserves relate principally to the strategic actions taken in
1998. Lease termination costs are expected to be paid out over the contractual
terms of the leases.
6. ACQUISITIONS
Cash paid for acquisitions, net of debt and cash acquired, totaled $134.4
million for 2001, comprised primarily of consideration paid for Princecraft
Boats Inc. (Princecraft), a manufacturer of fishing, deck and pontoon boats;
Sealine International (Sealine), a leading manufacturer of luxury sport cruisers
and motoryachts; and Hatteras Yachts, Inc. (Hatteras), a leading manufacturer of
luxury sportfishing convertibles and motor-
yachts. The Company acquired Princecraft on March 7, 2001, and its results are
included in the Boat segment post-acquisition. The acquisition of Princecraft
has been accounted for as a purchase. The Company acquired assets including
inventory, net property, plant and equipment and a trademark. The Company
acquired the stock of Sealine on July 3, 2001, for total consideration of
approximately $68 million. Sealine's results are included in the Boat segment
since the date of acquisition. The acquisition was funded through approximately
$38 million in cash, the assumption of debt and the issuance of notes to certain
sellers. The Company acquired the stock of Hatteras on November 30, 2001, for
approximately $86 million in cash, of which $81 million was paid in 2001. The
transaction provides for an additional payment of up to $20 million based on the
financial performance of Hatteras during the period ending June 30, 2003.
Hatteras' results are included in the Boat segment since the
45
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date of acquisition. The Company has applied SFAS No. 141 and SFAS No. 142 in
connection with the acquisitions of Sealine and Hatteras. Therefore, both
acquisitions were accounted for under the purchase method and the goodwill and
indefinite-lived intangible assets associated with these transactions will not
be amortized. The fair value of the net assets acquired is subject to final
purchase accounting adjustments.
In addition, the Company also acquired the remaining interest in Omni
Fitness Equipment, Inc. (Omni Fitness), a domestic retailer of fitness
equipment, effective February 28, 2001. Omni Fitness' results are included in
the Recreation segment, and the acquisition has been accounted for as a
purchase. The Company acquired the remaining interest in satisfaction of a note
with the previous owner. The Company had previously accounted for its interest
in Omni Fitness under the equity method of accounting. The Company also acquired
some other small businesses included in the Recreation segment.
The purpose of the current year acquisitions was to follow part of the
Company's strategy for achieving growth by pursuing aggressive marketing and
brand-building activities, pursuing international opportunities and leveraging
core competencies. The 2001 acquisitions resulted in goodwill of $96.3 million.
Acquisitions in 2001 were not material to the Company's results of operations
and total assets.
No acquisitions occurred in 2000. Cash consideration paid for acquisitions
in 1999 totaled $4.2 million. The acquisitions were accounted for as purchases
and resulted in goodwill of $2.6 million in 1999. The assets and liabilities of
the acquired companies have been recorded in the Company's consolidated
financial statements at their estimated fair values at the acquisition dates.
The operating results of each acquisition are included in the Company's results
of operations since the date of acquisition.
7. COMMITMENTS AND CONTINGENCIES
Financial Commitments. The Company has entered into agreements, which are
customary in the marine industry, that provide for the repurchase of its
products from a financial institution in the event of repossession upon a
dealer's default. Repurchases and losses incurred under these agreements have
not had a significant effect on the Company's results of operations. The maximum
potential repurchase commitments were approximately $205 million at December 31,
2001, and approximately $214 million at December 31, 2000.
The Company also has various agreements with financial institutions that
provide limited recourse on bowling capital equipment, fitness equipment and
marine equipment sales. Recourse losses have not had a significant effect on the
Company's results of operations. The maximum potential recourse liabilities
outstanding under these programs at December 31, 2001 and 2000, were
approximately $47 million and $55 million, respectively. Certain of these
agreements provide for the assignment of lease and other long-term receivables
originated by the Company to third parties. The assignment is not treated as a
sale of the associated receivables, but as a secured obligation under SFAS No.
140. The associated receivables and related obligations are included in other
long-term assets and deferred items - compensation and other, respectively.
The Company had outstanding standby letters of credit and financial
guarantees of approximately $104 million and $102 million at December 31, 2001
and 2000, respectively, representing conditional commitments whereby the Company
guarantees performance to a third party. Included in the amounts for 2001 and
2000 was a $79.8 million surety bond to secure payment of tax deficiencies plus
accrued interest related to the Company's appeal of a United States Tax Court
determination and a $13.0 million surety bond to secure damages awarded in a
suit in October 1999 while the Company pursues its appeal. The remaining
commitments include guarantees of payments under certain of the Company's
insurance programs and other guarantees issued in the ordinary course of
business.
46
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Legal and Environmental. The Company is subject to certain legal and
environmental proceedings and claims that have arisen in the ordinary course of
its business.
On January 22, 2002, the United States Supreme Court granted discretionary
review of the case Sprietsma vs. Mercury Marine, a "propeller guard" case on
appeal from the Illinois Supreme Court. At issue in Sprietsma is whether federal
law preempts tort claims alleging that marine engines should be equipped with
devices designed to protect against propeller injuries. Nine federal courts and
many state courts, including the Illinois Supreme Court in Sprietsma, have
previously found such claims to be preempted by the United States Coast Guard's
1990 decision, pursuant to the Federal Boat Safety Act, not to require propeller
guards. The Company does not believe that the resolution of this matter will
have a material adverse effect on the Company's consolidated financial position
or results of operations.
On September 6, 2001, the Federal Trade Commission (FTC) informed the
Company that it had closed an investigation concerning the Company's bidding for
certain assets of Outboard Marine Corporation (OMC) as a part of OMC's
bankruptcy. On October 5, 2001, the FTC also informed the Company that it had
closed a separate investigation commenced in 1997 concerning certain of the
Company's marketing practices related to the sale of sterndrive marine engines
to boatbuilders and dealers.
In 1994, one of Life Fitness' competitors, Precor, Incorporated, filed a
complaint in federal court in Seattle, Washington, involving one of Life
Fitness' treadmills. The lawsuit claimed that Life Fitness had engaged in unfair
competitive practices in violation of the Washington State Consumer Protection
Act and that certain of its treadmills infringed a design patent held by Precor.
Life Fitness then filed an infringement claim against Precor, in connection with
Life Fitness' '207 patent for its flexible treadmill deck. On October 26, 1999,
the jury awarded Precor, now a subsidiary of Illinois Tool Works, Inc.,
approximately $5.2 million in connection with Precor's design infringement claim
against the Company, as successor in interest to the predecessor entities of its
Life Fitness division. The jury also rejected Life Fitness' '207 patent claim.
Precor was awarded up to $5.3 million in attorneys' fees and prejudgment
interest on the damage award. The Company appealed the verdict and the award of
attorneys' fees to the United States Court of Appeals for the Federal Circuit.
On June 27, 2001, the Court of Appeals issued its decision upholding the lower
court's finding that Life Fitness' '207 patent claim was invalid, and reversing
the lower court's finding that Life Fitness infringed Precor's design patent.
The Court of Appeals remanded the award of attorneys' fees to the lower court
for a redetermination based on the reversal of the willful infringement finding.
On January 10, 2002, the federal court ruled that Precor is entitled only to
those attorneys' fees directly attributable to the unfair competition claims
under the Washington State Consumer Protection Act. The Company does not believe
that the resolution of this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In January 2000, Precor filed suit against Life Fitness in federal court in
Washington alleging that certain of Life Fitness' cross-trainer exercise
machines infringed Precor's Miller '829 patent. In 1999, before Precor filed its
lawsuit, the Miller '829 patent was re-examined by the U.S. Patent & Trademark
Office (PTO) and was rejected. The lawsuit was stayed while Precor sought a
reissuance of the Miller patent by the PTO. The PTO issued a modified patent on
March 5, 2002. Precor has announced that it would petition the lower court to
lift the stay and continue its lawsuit against Life Fitness. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of the second Precor case.
Vapor Corporation, a former subsidiary that the Company divested in 1990,
has been named in a number of asbestos-related lawsuits, the first of which was
filed in 1988. The Company retained certain liabilities of Vapor, requiring it
to respond to these suits. The suits, most of which involve numerous other
defendants, allege that steam generators manufactured by Vapor prior to the
Company's ownership contained small amounts of asbestos. The generators were
used to heat railroad cars and the primary means of potential exposure appears
to have been to railroad workers performing inspections or repairs to the
generators. Neither the Company nor Vapor is alleged to have manufactured
asbestos. Early in the litigation, the Company's
47
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurers settled a number of claims for nominal amounts, while a number of other
claims have been dismissed. No suit has yet gone to trial. The Company does not
believe that the resolution of this matter will have a material adverse effect
on the Company's consolidated financial position or results of operations.
The Company is also involved in certain legal and administrative
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and other federal and state legislation governing the
generation and disposition of certain hazardous wastes. These proceedings,
involving 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 is also involved in a number of environmental remediation actions
addressing contamination resulting from historic activities on its present and
former plant properties.
The environmental remediation and clean-up projects in which the Company is
involved have an aggregate estimated range of exposure of approximately $41
million to $66 million as of December 31, 2001. At December 31, 2001 and 2000,
the Company had reserves for environmental liabilities of $62.6 million and
$65.3 million, respectively. Environmental provisions were $1.7 million, $43.1
million and $3.0 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The provision for the year ended December 31, 2000, includes a
$41.0 million charge resulting from an increase in the estimated cost of
remediation of contamination alleged to have come from a former manufacturing
facility of the Company.
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
coordination 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 reserves, the Company's environmental claims, including those
discussed, when finally resolved, will not, in the opinion of management, have a
material adverse effect on the Company's consolidated financial position or
results of operations.
8. FINANCIAL INSTRUMENTS
The Company engages in business activities involving both financial and
market risks. The Company uses derivative financial instruments to manage its
risks associated with movements in foreign currency exchange rates, interest
rates and commodity prices. Derivative instruments are not used for trading or
speculative purposes. The effects of derivative and financial instruments are
not expected to be material to the Company's financial position or results of
operations.
The carrying values of the Company's short-term financial instruments,
including cash and cash equivalents, accounts and notes receivable and
short-term debt, approximate their fair values because of the short maturity of
these instruments. At December 31, 2001 and 2000, the fair value of the
Company's long-term debt was $569.6 million and $506.2 million, respectively, as
estimated using quoted market prices or discounted cash flows based on market
rates for similar types of debt. The fair market value of derivative financial
instruments is determined through dealer quotes 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.
Forward Exchange Contracts. The Company enters into forward exchange
contracts and options to manage foreign exchange exposure related to
transactions, assets and liabilities that are subject to risk from foreign
currency rate changes. These 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, 2001 and 2000, had contract values of $18.4 million and $94.1 million,
respectively. The approximate fair value of forward exchange contracts was a
$0.1 million and $3.0 million liability at December 31, 2001 and 2000,
respectively. Option contracts outstanding at December 31, 2001,
48
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
had contract values of $49.4 million and the approximate fair value was a $0.7
million liability. There were no option contracts outstanding at December 31,
2000. The forward and options contracts outstanding at December 31, 2001, mature
during 2002 and relate primarily to the Japanese yen, Euro and British pound.
Interest Rate Swaps. The Company has entered into interest rate swap
agreements to reduce the impact of changes in interest rates on the Company's
borrowings. In 2001, the Company entered into four fixed-to-floating interest
rate swaps with a total notional amount of $150.0 million, all of which will
expire in December 2006. The estimated aggregate market value of these four
agreements was less than $0.1 million at December 31, 2001. At December 31,
2000, the Company had three outstanding floating-to-floating interest rate swap
agreements, each with a notional principal amount of $260.0 million, that were
settled in 2001. The estimated aggregate market value of these three agreements
was a loss of $2.8 million at December 31, 2000.
Commodity Swaps. The Company uses commodity swap agreements to hedge
anticipated purchases of certain raw materials. Commodity swap contracts
outstanding at December 31, 2001 and 2000, had notional values of $34.5 million
and $32.6 million, respectively. At December 31, 2001 and 2000, the estimated
fair value of these swap contracts was a net loss of $2.7 million and a net gain
of $2.8 million, respectively. The contracts outstanding at December 31, 2001,
mature throughout 2003.
Credit Risk. The Company enters into financial instruments with banks and
investment firms with which the Company has continuing business relationships
and regularly monitors the credit ratings of its counterparties. The Company
sells a broad range of active recreation products to a worldwide customer base
and extends credit to its customers based upon an on-going credit evaluation
program and security is obtained if required. Concentrations of credit risk with
respect to accounts receivable are limited, due to the large number of customers
comprising the Company's customer base and their dispersion across many
different geographic areas.
Accounting for Derivatives. Effective January 1, 2001, the Company adopted
Statement of Financial Accounting Standards (SFAS) Nos. 133/138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." Under SFAS Nos.
133/138, all derivative instruments are recognized on the balance sheet at their
fair values. As a result of the adoption of this standard, in the first quarter
of 2001, the Company recorded a $2.9 million after-tax loss ($4.7 million
pre-tax) as a cumulative effect of a change in accounting principle, primarily
resulting from interest rate swaps.
Cash Flow Hedges -- Certain derivative instruments qualify as cash flow
hedges under the requirements of SFAS Nos. 133/138. The Company executes forward
contracts and options, based on forecasted transactions, to manage foreign
exchange exposure mainly related to inventory purchase transactions. The Company
also enters into commodity swap agreements, based on anticipated purchases of
certain raw materials, to manage exposure related to risk from price changes.
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 income, an equity account, and reclassified
into earnings in the same period or periods during which the hedged transaction
affects earnings. Any ineffective portion of a derivative instrument's change in
fair value is recorded directly in other income (expense). The ineffective
portion of derivative transactions, including the premium or discount on option
contracts, was not material to the results of operations for the year ended
December 31, 2001.
49
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following activity related to cash flow hedges for the year ended
December 31, 2001, was recorded in accumulated other comprehensive income:
<Table>
<Caption>
NET CHANGE IN
ACCUMULATED
UNREALIZED
DERIVATIVE GAINS
(LOSSES)
YEAR ENDED
DECEMBER 31, 2001
--------------------
PRE-TAX AFTER TAX
------- ---------
(IN MILLIONS)
<S> <C> <C>
Net deferred transition gain................................ $ 1.6 $ 1.0
Net change associated with current period hedging
activity.................................................. (2.8) (1.7)
Net gain reclassified into earnings......................... (2.4) (1.5)
----- -----
Net accumulated unrealized derivative losses................ $(3.6) $(2.2)
===== =====
</Table>
The Company estimates that $0.6 million of after-tax net derivative losses
deferred in accumulated other comprehensive income will be realized in earnings
over the next 12 months. Approximately $0.9 million of the original after-tax
net transition gain was realized in 2001, with the remaining $0.1 million to be
recognized in 2002. At December 31, 2001, the term of derivative instruments
hedging forecasted transactions ranges from one to twenty-four months.
Fair Value Hedges -- During 2001, the Company entered into four interest
rate swaps, which qualify as fair value hedges under the requirements of SFAS
Nos. 133/138. The interest rate swaps were executed to mitigate the risk of
changes in the fair value of the Company's debt, which was attributable to
changes in the benchmark interest rate. A fair value hedge requires that the
change in the fair value of the interest rate swaps and the corresponding change
in fair value of the Company's fixed-rate, long-term debt be recorded through
earnings, with any difference reflecting the ineffectiveness of the hedge. Any
ineffective portion of a derivative instrument's change in fair value is
recorded directly in other income (expense). There was no hedge ineffectiveness
for the year ended December 31, 2001.
9. ACCRUED EXPENSES
Accrued expenses at December 31 were as follows:
<Table>
<Caption>
2001 2000
------ ------
(IN MILLIONS)
<S> <C> <C>
Product warranties.......................................... $138.7 $130.0
Accrued compensation and benefit plans...................... 127.2 143.6
Dealer allowances and discounts............................. 114.3 128.8
Insurance reserves.......................................... 68.0 55.7
Environmental reserves...................................... 62.6 65.3
Other....................................................... 137.4 118.4
------ ------
Total accrued expenses.................................... $648.2 $641.8
====== ======
</Table>
50
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DEBT
Short-term debt at December 31 consisted of the following:
<Table>
<Caption>
2001 2000
----- ------
(IN MILLIONS)
<S> <C> <C>
Commercial paper............................................ $ -- $152.0
Notes payable............................................... 13.6 2.1
Current maturities of long-term debt........................ 26.4 18.6
----- ------
Total short-term debt..................................... $40.0 $172.7
===== ======
</Table>
The weighted-average interest rate for commercial paper borrowings during
2001 and 2000 was 4.76 percent and 6.58 percent, respectively.
Long-term debt at December 31 consisted of the following:
<Table>
<Caption>
2001 2000
------ ------
(IN MILLIONS)
<S> <C> <C>
Mortgage notes and other, 3.17% to 12.0% payable through
2005...................................................... $ 29.7 $ 15.1
Notes, 6.75% due 2006, net of discount of $1.1 and $1.3..... 248.9 248.7
Notes, 7.125% due 2027, net of discount of $1.2 and $1.3.... 198.8 198.7
Debentures, 7.375% due 2023, net of discount of $0.7........ 124.3 124.3
Guaranteed ESOP debt, 8.13% payable through 2004............ 24.9 33.6
------ ------
626.6 620.4
Current maturities.......................................... (26.4) (18.6)
------ ------
Long-term debt.............................................. $600.2 $601.8
====== ======
Scheduled maturities
2003................................................... $ 22.7
2004................................................... 5.5
2005................................................... --
2006................................................... 248.9
Thereafter............................................. 323.1
------
Total................................................ $600.2
======
</Table>
The Company has a $400.0 million long-term revolving credit agreement with
a group of banks, of which $40.0 million terminates on May 22, 2002, and $360.0
million terminates on May 22, 2003. Under the terms of the agreement, the
Company has multiple borrowing options, including borrowing at the greater of
the prime rate as announced by The Chase Manhattan Bank or the federal funds
effective rate plus 0.5 percent, or a rate tied to the LIBOR rate. The Company
pays a facility fee of 8 basis points per annum. Under the terms of the
agreement, the Company is subject to a leverage test, as well as a restriction
on secured debt. The Company was in compliance with these covenants at December
31, 2001. There were no borrowings under the revolving credit agreement during
2001 or 2000, and the agreement continues to serve as support for commercial
paper borrowings when commercial paper is outstanding. At December 31, 2001, the
Company had borrowing capacity of $400.0 million under the terms of this
agreement.
51
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. DISCONTINUED OPERATIONS
During 2000, the Company announced its intention to divest the following
businesses that comprised its former outdoor recreation segment: fishing,
camping, bicycle, cooler, marine accessories and hunting sports accessories. The
consolidated financial statements for all periods have been restated to present
these businesses as discontinued operations in accordance with APB Opinion No.
30.
The Company substantially completed the disposal of its outdoor recreation
segment in 2001. The net assets of discontinued operations offered for sale was
zero at December 31, 2001, and $107.4 at December 31, 2000. Net assets of
discontinued operations offered for sale consisted of current assets and
liabilities and net property, plant and equipment for these operations net of a
reserve for disposal. Although there will be some minor settlement transactions
in the future, it is anticipated that the impact arising from these transactions
on the Company's financial statements will not be significant.
The Company completed the sale of its hunting sports accessories, North
American fishing and cooler business in 2001 and received cash proceeds of
approximately $74 million and notes which were valued at their estimated market
value of approximately $10 million. The Company completed the sale of its
bicycle and camping businesses in 2000 and received cash proceeds of
approximately $59 million and notes, which were valued at their estimated market
value of approximately $3 million.
Results from discontinued operations for the years ended December 31, 2001,
2000 and 1999 were as follows:
<Table>
<Caption>
2001 2000 1999
------ ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $313.3 $ 695.3 $ 743.4
PRE-TAX LOSS:
Loss from discontinued operations........................... $ -- $(104.6) $(164.3)
Loss from disposal of discontinued operations............... -- (305.3) --
------ ------- -------
Pre-tax loss................................................ $ -- $(409.9) $(164.3)
====== ======= =======
</Table>
Losses from discontinued operations included the results of operations from
the businesses to be disposed as follows: hunting sports accessories, marine
accessories and cooler businesses through September 30, 2000, and fishing,
camping and bicycle businesses through June 30, 2000. Losses relating to these
businesses subsequent to these dates were estimated and provided for in the loss
on the disposition of these businesses.
The 2000 loss from discontinued operations, $104.6 million pre-tax,
included the write-off of goodwill and other long-term assets related to the
camping business ($76.0 million pre-tax, $50.0 million after tax) that was
recorded in the second quarter of 2000. The write-off was necessary as the
Company determined that additional actions would not improve operating
performance to levels sufficient to recover its investment in these assets. Also
included were asset write-downs and restructuring costs, primarily severance in
the fishing and camping businesses, necessitated by a change in business
conditions and the decision to outsource the manufacture of fishing reels that
were previously manufactured in-house.
The loss from discontinued operations in 1999, $164.3 million pre-tax,
included a $178.0 million ($114.0 million after tax) strategic charge taken in
the fourth quarter of 1999 for the bicycle business. Despite the Company's
successful initiatives to expand distribution and reduce costs in its bicycle
business, the profitability of the business eroded as competition from Asian
imports substantially reduced market pricing for bicycles. While the price
competition affected virtually all bicycles, the effects were extremely
pronounced at the opening price points. Consequently, in the fourth quarter of
1999, the Company determined that the goodwill associated with this business was
impaired. Additionally, to further reduce costs, the Company committed to plans
to exit manufacturing, reduce warehouse capacity and administrative expenses and
52
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rationalize product offerings. As a result of these actions, the Company
recorded $178.0 million of charges in the bicycle business. These charges
included the write-off of goodwill of $133.6 million, inventory write-downs of
$27.0 million, fixed asset write-downs of $10.5 million and other incremental
costs of $6.9 million. Additional costs of $7.0 million for severance and other
incremental costs related to the 1999 charge were recorded in the first quarter
of 2000 and are part of the $104.6 million pre-tax loss reported from
discontinued operations in 2000.
The loss from disposal recorded in 2000 totaled $305.3 million pre-tax and
$229.6 million after tax. The losses associated with the disposition of these
businesses were based on an estimate of cash proceeds, net of costs to sell,
along with an estimate of results of operations for these businesses from the
date the decision was made to dispose of the businesses through the actual
disposition date. The tax benefits associated with the disposal reflect the
non-deductibility of losses on the sale of the cooler business. Cash generated
from these dispositions, including cash proceeds, net of costs to sell, cash
required to fund operations through disposition and related tax benefits
realized in connection with the divestitures, is approximately $275 million
after tax.
12. STOCK PLANS AND MANAGEMENT COMPENSATION
Under the 1991 Stock Plan, the Company may grant stock options, stock
appreciation rights, restricted stock and other types of awards to executives
and other management employees. Issuances under the plan may be from either
authorized but unissued shares or treasury shares. As of December 31, 2001, the
plan allows for the issuance of a maximum of 16.2 million shares. Shares
available for grant totaled 1.7 million at December 31, 2001.
Stock options issued are generally exercisable over a period of 10 years,
or as determined by the Human Resource and Compensation Committee of the Board
of Directors. Options generally vest over three to five years, or immediately in
the event of a change in control. The option price per share can not be less
than the fair market value at the date of grant. The Company has additional
stock and stock option plans to provide for compensation of nonemployee
directors. Stock option activity for all plans for the three years ended
December 31, 2001, was as follows:
<Table>
<Caption>
2001 2000 1999
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
STOCK AVERAGE STOCK AVERAGE STOCK AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE OUTSTANDING PRICE
----------- -------- ----------- -------- ----------- --------
(OPTIONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding on
January 1..... 8,874 $22.18 7,965 $22.78 7,228 $22.62
Granted......... 2,685 $20.02 1,686 $18.91 1,597 $22.68
Exercised....... (560) $17.57 (193) $16.23 (507) $18.74
Forfeited....... (518) $22.14 (584) $22.91 (353) $24.87
------ ----- -----
Outstanding on
December 31... 10,481 $21.87 8,874 $22.18 7,965 $22.78
====== ===== =====
Exercisable on
December 31... 6,067 $22.92 5,307 $23.23 4,929 $21.79
</Table>
53
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 2001:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------------- ------------- ----------- -------- ------------- --------
(OPTIONS (OPTIONS
IN THOUSANDS) IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$12.56 to 16.75......... 142 2.2 years $15.99 142 $15.99
$16.76 to 20.25......... 6,464 7.4 years $19.49 2,840 $19.32
$20.26 to 25.50......... 2,531 5.8 years $23.16 1,891 $23.23
$25.51 to 35.44......... 1,344 5.7 years $31.62 1,194 $31.81
</Table>
In accordance with APB Opinion No. 25, no compensation cost related to
stock options granted has been recognized in the Company's Consolidated
Statement of Income. If the accounting provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," had been applied over the last three years, the
Company's pro forma net income and earnings per share would have been as
follows:
<Table>
<Caption>
2001 2000 1999
-------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Earnings from continuing operations:
As reported........................ $84.7 $202.2 $143.1
Pro forma.......................... 79.0 198.0 137.4
Basic earnings per common share
from continuing operations:
As reported........................ $0.96 $ 2.28 $ 1.56
Pro forma.......................... 0.90 2.23 1.49
Diluted earnings per common share
from continuing
operations:
As reported........................ $0.96 $ 2.28 $ 1.55
Pro forma.......................... 0.90 2.23 1.48
</Table>
The weighted-average fair value of individual options granted during 2001,
2000 and 1999 is $5.46, $5.85 and $6.83, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for 2001,
2000 and 1999, respectively:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate............ 4.2% 6.1% 5.1%
Dividend yield..................... 2.8% 2.5% 2.1%
Volatility factor.................. 33.1% 32.7% 31.9%
Weighted-average expected life..... 5 YEARS 5 years 5 years
</Table>
The Company maintains a leveraged employee stock ownership plan (ESOP). In
April 1989, the ESOP borrowed $100 million to purchase 5,095,542 shares of the
Company's common stock at $19.625 per share. The debt of the ESOP is guaranteed
by the Company and is recorded in the Company's financial statements. All ESOP
shares are considered outstanding for earnings per share purposes. The ESOP
shares are
54
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maintained in a suspense account until released and allocated to participants'
accounts. Shares committed-to-be-released, allocated and remaining in suspense
at December 31 were as follows:
2001 2000
---- ----
(SHARES IN
THOUSANDS)
Committed-to-be-released.................................... 285 287
Allocated................................................... 2,131 2,083
Suspense.................................................... 822 1,150
Under the grandfather provisions of Statement of Position (SOP) 93-6, the
expense recorded by the Company is based on cash contributed or committed to be
contributed by the Company to the ESOP during the year, net of dividends
received, which are primarily used by the ESOP to pay down debt. The Company's
contributions to the ESOP, along with related expense amounts, were as follows:
2001 2000 1999
----- ----- -----
(IN MILLIONS)
Compensation expense.............................. $ 6.9 $ 6.2 $ 5.5
Interest expense.................................. 2.6 3.1 3.7
Dividends......................................... 1.7 1.9 2.0
----- ----- -----
Total debt service payments..................... $11.2 $11.2 $11.2
===== ===== =====
The Company has certain employment agreements and a severance plan that
become effective upon a change in control of the Company, which will result in
compensation expense in the period that a change in control occurs.
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has qualified and nonqualified pension plans and other
postretirement benefit plans covering substantially all of its employees. The
Company's domestic pension and retiree health care and life insurance benefit
plans are discussed below. The Company's salaried pension plan was closed to new
participants effective April 1, 1999. This plan was replaced with a defined
contribution plan for certain employees not meeting age and service requirements
and for new hires. The Company's foreign benefit plans are not significant
individually or in the aggregate.
Pension and other postretirement benefit (income) costs included the
following components for 2001, 2000 and 1999:
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
-------------------------- -----------------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------- ------- -------
(IN MILLIONS)
Service cost......... $ 16.9 $ 15.4 $ 18.6 $ 1.9 $ 1.5 $ 1.7
Interest cost........ 55.9 51.6 47.6 4.2 3.8 3.7
Expected return
on plan assets...... (69.6) (74.6) (66.7) -- -- --
Amortization of
prior service cost.. 5.9 3.1 3.6 (0.5) (0.5) (0.5)
Amortization of net
(gain) loss......... 0.6 (2.7) 0.6 (0.9) (1.5) (0.8)
------ ------ ------ ----- ----- -----
Net pension and
other benefit
(income) costs.... $ 9.7 $ (7.2) $ 3.7 $ 4.7 $ 3.3 $ 4.1
====== ====== ====== ===== ===== =====
55
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the changes in the plans' benefit obligations and fair
value of assets over the two-year period ending December 31, 2001, and a
statement of the funded status at December 31 for these years for the Company's
domestic pension plans follows:
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------------- ---------------
2001 2000 2001 2000
------- ------ ------ -------
(IN MILLIONS)
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at previous December 31.. $ 764.2 $663.6 $ 64.6 $ 60.8
Service cost................................ 16.9 15.4 1.9 1.5
Interest cost............................... 55.9 51.6 4.2 3.8
Participant contributions................... -- -- 2.6 1.6
Plan amendments............................. -- 29.7 (0.2) (0.4)
Actuarial loss.............................. 26.6 43.8 18.1 2.4
Benefit payments............................ (43.0) (39.9) (6.9) (5.1)
------- ------ ------ ------
Benefit obligation at December 31............. $ 820.6 $764.2 $ 84.3 $ 64.6
------- ------ ------ ------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at January 1...... $ 753.5 $803.8 $ -- $ --
Actual return on plan assets................ (12.3) (12.6) -- --
Employer contributions...................... 12.5 2.2 4.3 3.5
Participant contributions................... -- -- 2.6 1.6
Benefit payments............................ (43.0) (39.9) (6.9) (5.1)
------- ------ ------ ------
Fair value of plan assets at December 31...... $ 710.7 $753.5 $ -- $ --
------- ------ ------ ------
FUNDED STATUS:
Funded status at December 31................ $(109.9) $(10.7) $(84.3) $(64.6)
Unrecognized prior service cost (credit).... 43.8 50.2 (4.2) (4.5)
Unrecognized actuarial (gain) loss.......... 127.8 20.0 (3.2) (22.1)
------- ------ ------ ------
Prepaid (accrued) benefit cost................ $ 61.7 $ 59.5 $(91.7) $(91.2)
======= ====== ====== ======
Pension plan assets include 1.8 million shares of the Company's common
stock at December 31, 2001. Plan amendments totaling $29.7 million in 2000,
principally relate to increased benefit levels resulting from union negotiations
in the Marine Engine segment.
The amounts included in the Company's balance sheets as of December 31 were
as follows:
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- ---------------
2001 2000 2001 2000
------- ------ ------ ------
(IN MILLIONS)
Prepaid benefit cost....................... $ 92.9 $ 88.4 $ -- $ --
Accrued benefit liability.................. (101.4) (81.9) (91.7) (91.2)
Intangible asset........................... 36.1 43.3 -- --
Accumulated other comprehensive income..... 34.1 9.7 -- --
------- ------ ------ ------
Net amount recognized.................... $ 61.7 $ 59.5 $(91.7) $(91.2)
======= ====== ====== ======
56
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's unfunded, nonqualified pension plan had projected and
accumulated benefit obligations of $44.1 million and $34.4 million,
respectively, at December 31, 2001, and $39.8 million and $32.4 million,
respectively, at December 31, 2000. One of the Company's qualified plans had an
accumulated benefit obligation in excess of plan assets at December 31, 2001.
The projected and accumulated benefit obligations for this plan were $183.1
million and the fair value of assets was $150.7 million at December 31, 2001.
Three of the Company's qualified plans had an accumulated benefit obligation in
excess of plan assets at December 31, 2000. The projected and accumulated
benefit obligations for these plans were $172.3 million and the fair value of
assets was $161.5 million at December 31, 2000. The Company's other
postretirement benefit plans are not funded.
The Company recorded an additional minimum pension liability adjustment of
$17.2 million and $52.7 million in 2001 and 2000, respectively, in accordance
with SFAS No. 87, "Employers' Accounting for Pensions." In recognizing an
additional minimum pension liability, SFAS No. 87 requires an intangible asset
equal to the unrecognized prior service cost to be recognized, with the excess
reported in accumulated other comprehensive income, net of tax.
Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Accumulated gains and losses in
excess of 10 percent of the greater of the benefit obligation or the
market-related value of assets are amortized over the remaining service period
of active plan participants. Benefit obligations were determined using assumed
discount rates of 7.25 percent in 2001 and 7.5 percent in 2000 and an assumed
compensation increase of 5.5 percent in 2001 and 2000. The assumed long-term
rate of return on plan assets was 9.5 percent in 2001 and 2000.
The health care cost trend rate for 2002 for pre-65 benefits was assumed to
be 10.0 percent, gradually declining to 5.0 percent in 2006 and remaining at
that level thereafter. The trend rate for post-65 benefits was assumed to be
12.0 percent, gradually declining to 5.0 percent in 2008 and remaining at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. A one percent increase in the assumed health
care trend rate would increase the combined service and interest cost components
of net postretirement health care benefit cost by $1.1 million in 2001 and
increase the health care component of the accumulated postretirement benefit
obligation by $8.2 million at December 31, 2001. A one percent decrease in the
assumed health care trend rate would decrease the service and interest cost
components of net postretirement health care benefit cost by $0.9 million in
2001 and the health care component of the accumulated postretirement benefit
obligation by $7.1 million at December 31, 2001. 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.
The Company also has defined contribution retirement plans covering most of
its employees. The Company's contributions to these plans 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 these plans
was $19.4 million, $22.6 million and $19.1 million in 2001, 2000 and 1999,
respectively.
14. INCOME TAXES
The sources of earnings before income taxes are as follows:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
United States............................................... $120.8 $316.1 $209.6
Foreign..................................................... 11.4 7.2 9.7
------ ------ ------
Earnings before income taxes........................... $132.2 $323.3 $219.3
====== ====== ======
</Table>
57
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision for continuing operations consisted of the
following:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
CURRENT TAX EXPENSE:
U.S. Federal.............................................. $(14.1) $109.4 $118.4
State and local........................................... 10.1 21.1 16.6
Foreign................................................... 3.2 8.6 6.8
------ ------ ------
Total current........................................ (0.8) 139.1 141.8
------ ------ ------
DEFERRED TAX EXPENSE:
U.S. Federal.............................................. 48.4 (6.9) (55.9)
State and local........................................... (3.9) (6.7) (10.3)
Foreign................................................... 3.8 (4.4) 0.6
------ ------ ------
Total deferred....................................... 48.3 (18.0) (65.6)
------ ------ ------
Total provision...................................... $ 47.5 $121.1 $ 76.2
====== ====== ======
</Table>
Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities at December 31 were as follows:
<Table>
<Caption>
2001 2000
------ ------
(IN MILLIONS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Product warranties........................................ $ 63.0 $ 60.1
Dealer allowances and discounts........................... 35.7 48.6
Insurance reserves........................................ 22.6 26.2
Discontinued operations................................... 32.4 95.0
Litigation and environmental reserves..................... 28.9 29.7
Loss carryforwards........................................ 29.1 21.1
Other..................................................... 96.1 87.4
Valuation allowance....................................... (0.3) (0.3)
------ ------
Total deferred tax assets............................ $307.5 $367.8
====== ======
DEFERRED TAX LIABILITIES (ASSETS):
Depreciation and amortization............................. $ 84.6 $108.7
Postretirement and postemployment benefits................ (22.5) (24.4)
Other assets and investments.............................. 87.2 92.8
Other..................................................... 35.9 38.3
------ ------
Total deferred tax liabilities....................... $185.2 $215.4
====== ======
</Table>
No other valuation allowances were deemed necessary, as all deductible
temporary differences will be utilized primarily by carry back to prior years'
taxable income or as charges against reversals of future taxable temporary
differences. Based upon prior earnings history, it is expected that future
taxable income will be more than sufficient to utilize the remaining deductible
temporary differences. Deferred taxes have been provided, as required, on the
undistributed earnings of foreign subsidiaries and unconsolidated affiliates.
58
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the actual income tax provision and the tax
provision computed by applying the statutory Federal income tax rate to earnings
before taxes is attributable to the following:
<Table>
<Caption>
2001 2000 1999
----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Income tax provision at 35%................................. $46.3 $113.1 $76.8
State and local income taxes, net of Federal income tax
effect.................................................... 4.0 9.4 4.1
Foreign sales corporation benefit........................... (4.0) (4.9) (4.2)
Taxes related to foreign income, net of credits............. 1.4 2.6 2.8
Goodwill and other amortization............................. 2.0 1.6 1.2
Other....................................................... (2.2) (0.7) (4.5)
----- ------ -----
Actual income tax provision............................ $47.5 $121.1 $76.2
===== ====== =====
Effective tax rate.......................................... 36.0% 37.5% 34.7%
</Table>
On October 27, 1999, the United States Tax Court upheld an Internal Revenue
Service (IRS) determination that resulted in the disallowance of capital losses
and other expenses from two partnership investments for 1990 and 1991. The
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. On
December 21, 2001, the Court of Appeals rendered a decision vacating the Tax
Court's opinion and remanded the case to the Tax Court for reconsideration in
light of an earlier Court of Appeals decision. If, on remand to the Tax Court,
the Company does not prevail, the net amount of taxes due, plus interest, net of
tax, would be approximately $135 million. The Company has settled all other
issues with the IRS on open tax years 1989 through 1994 and anticipates
favorable adjustments that would decrease the total net amount to approximately
$53 million, which would likely be payable in 2003. The Company does not
anticipate any material adverse effects on its consolidated financial position
or results of operations in the event of an unfavorable resolution of this
matter.
15. LEASES
The Company has various lease agreements for offices, branches, factories,
distribution and service facilities, certain Company-operated bowling centers
and certain personal property. The longest of these obligations extends through
2032. Most leases contain renewal options and some contain purchase options.
Many leases for Company-operated bowling centers contain escalation clauses, and
many provide for contingent rentals based on percentages of gross revenue. No
leases contain restrictions on the Company's activities concerning dividends,
additional debt or further leasing. Rent expense consisted of the following:
<Table>
<Caption>
2001 2000 1999
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Basic expense............................................... $40.3 $37.5 $34.0
Contingent expense.......................................... 1.0 0.3 0.4
Sublease income............................................. (1.4) (2.1) (2.3)
----- ----- -----
Rent expense, net........................................... $39.9 $35.7 $32.1
===== ===== =====
</Table>
59
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments at December 31, 2001, under agreements
classified as operating leases with non-cancelable terms in excess of one year,
were as follows:
<Table>
<Caption>
(IN MILLIONS)
-------------
<S> <C>
2002........................................................ $ 30.3
2003........................................................ 25.9
2004........................................................ 21.8
2005........................................................ 17.9
2006........................................................ 15.2
Thereafter.................................................. 39.0
------
Total (not reduced by minimum sublease rentals of $2.4
million).............................................. $150.1
======
</Table>
16. PREFERRED SHARE PURCHASE RIGHTS
In February 1996, the Board of Directors declared a dividend of one
Preferred Share Purchase Right (Right) on each outstanding share of the
Company's common stock. Under certain conditions, each holder of Rights may
purchase one one-thousandth of a share of a new series of junior participating
preferred stock at an exercise price of $85 for each Right held. The Rights
expire on April 1, 2006.
The Rights become exercisable at the earlier of (1) a public announcement
that a person or group acquired or obtained the right to acquire 15 percent or
more of the Company's common stock or (2) 15 days (or such later time as
determined by the Board of Directors) after commencement or public announcement
of an offer for more than 15 percent of the Company's common stock. After a
person or group acquires 15 percent or more of the common stock of the Company,
other shareholders may purchase additional shares of the Company at 50 percent
of the current market price. These Rights may cause substantial ownership
dilution to a person or group who attempts to acquire the Company without
approval of the Company's Board of Directors.
The Rights, which do not have any voting rights, may be redeemed by the
Company at a price of $.01 per Right at any time prior to a person's or group's
acquisition of 15 percent or more of the Company's common stock. A Right also
will be issued with each share of the Company's common stock that becomes
outstanding prior to the time the Rights become exercisable or expire.
In the event that the Company is acquired in a merger or other business
combination transaction, provision will be made so that each holder of Rights
will be entitled to buy the number of shares of common stock of the surviving
Company that at the time of such transaction would have a market value of two
times the exercise price of the Rights.
60
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. INVESTMENTS
The Company has certain unconsolidated foreign and domestic affiliates that
are accounted for using the equity method. Summary financial information of the
unconsolidated equity method affiliates for the year ended December 31 is
presented below:
<Table>
<Caption>
2001 2000 1999
------ ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $231.7 $ 266.8 $ 409.0
Gross margin................................................ $ 40.0 $ 45.3 $ 67.1
Net earnings (loss)......................................... $ 0.2 $ (5.9) $ 10.8
Company's share of net earnings (loss)...................... $ (4.0) $ (3.6) $ 4.8
Current assets.............................................. $ 59.1 $ 99.4 $ 108.6
Noncurrent assets........................................... 88.7 121.0 115.8
------ ------- -------
Total assets................................................ 147.8 220.4 224.4
Current liabilities......................................... (83.4) (120.9) (139.1)
Noncurrent liabilities...................................... (22.0) (45.8) (7.7)
------ ------- -------
Net assets.................................................. $ 42.4 $ 53.7 $ 77.6
====== ======= =======
</Table>
The Company's sales to and purchases from the above investments, along with
the corresponding receivables and payables, were not material to the Company's
overall results of operations for the three years ended December 31, 2001, and
its financial position as of December 31, 2001 and 2000. In 2001, the Company
recorded impairment charges and purchase accounting adjustments of $4.2 million
on certain investments, which were not recorded in the affiliates net earnings.
The Company had Available-for-Sale equity investments with a fair market
value of $19.8 million and $10.9 million at December 31, 2001 and 2000,
respectively. The unrealized loss, recorded net of deferred taxes, has been
included as a separate component of shareholders' equity and was $2.1 million at
December 31, 2001 and $6.1 million at December 31, 2000.
In 2000, the Company made $38.1 million of investments in Internet-related
businesses and fitness equipment distribution alliances. Investments of $13.6
million in 1999 principally related to fitness equipment distribution alliances.
Also in 2000, the Company recorded a charge of $14.1 million to write-down
investments in certain Internet-related businesses.
In October 1999, the Company sold its minority position in a boat company
partnership to the majority partner for cash of $26.1 million and other
consideration. This transaction did not have a material effect on the Company's
1999 results. Income recorded related to this partnership in 1999 totaled $3.4
million.
61
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. TREASURY AND PREFERRED STOCK
Treasury stock activity for the past three years was as follows:
2001 2000 1999
------ ------ ------
(SHARES IN THOUSANDS)
Balance at January 1................... 15,194 10,727 10,669
Compensation plans and other........... (455) (257) (709)
Stock repurchases...................... -- 4,724 767
------ ------ ------
Balance at December 31................. 14,739 15,194 10,727
====== ====== ======
At December 31, 2001, 2000 and 1999, the Company had no preferred stock
outstanding (authorized: 12.5 million shares, $0.75 par value at December 31,
2001, 2000 and 1999).
19. QUARTERLY DATA (UNAUDITED)
QUARTER
------------------------------
1ST 2ND 3RD 4TH YEAR
------ ------ ------ ------ --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
2001
Net sales............................. $913.2 $928.8 $811.0 $717.8 $3,370.8
------ ------ ------ ------ --------
Gross margin.......................... $225.8 $228.0 $178.7 $150.9 $ 783.4
------ ------ ------ ------ --------
Earnings from continuing operations... $ 39.5 $ 41.5 $ 6.3 $ (2.6) $ 84.7
Cumulative effect of change in
accounting principle................ (2.9) -- -- -- (2.9)
------ ------ ------ ------ --------
Net earnings (loss)................... $ 36.6 $ 41.5 $ 6.3 $ (2.6) $ 81.8
------ ------ ------ ------ --------
BASIC EARNINGS (LOSS)
PER COMMON SHARE:
Earnings from continuing operations... $ 0.45 $ 0.47 $ 0.07 $(0.03) $ 0.96
Cumulative effect of change in
accounting principle................ (0.03) -- -- -- (0.03)
------ ------ ------ ------ --------
Net earnings (loss)................... $ 0.42 $ 0.47 $ 0.07 $(0.03) $ 0.93
------ ------ ------ ------ --------
DILUTED EARNINGS (LOSS)
PER COMMON SHARE:
Earnings from continuing operations... $ 0.45 $ 0.47 $ 0.07 $(0.03) $ 0.96
Cumulative effect of change in
accounting principle................ (0.03) -- -- -- (0.03)
------ ------ ------ ------ --------
Net earnings (loss)................... $ 0.42 $ 0.47 $ 0.07 $(0.03) $ 0.93
------ ------ ------ ------ --------
Dividends declared.................... $0.125 $0.125 $0.125 $0.125 $ 0.50
COMMON STOCK PRICE
(NYSE SYMBOL: BC):
High................................ $23.00 $25.01 $24.60 $22.25 $ 25.01
Low................................. $14.81 $18.76 $14.03 $16.70 $ 14.03
62
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTER
------------------------------------
1ST 2ND 3RD 4TH YEAR
------ -------- ------- ------ --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
2000
Net sales.............................. $955.4 $1,040.8 $ 939.1 $876.6 $3,811.9
------ -------- ------- ------ --------
Gross margin........................... $273.7 $ 313.7 $ 270.6 $230.6 $1,088.6
------ -------- ------- ------ --------
Earnings from continuing operations(1) $ 60.7 $ 81.5 $ 17.7 $ 42.3 $ 202.2
Loss from discontinued operations...... (2.0) (61.0) (5.4) -- (68.4)
Loss from disposal of discontinued
operations........................... -- (125.0) (104.6) -- (229.6)
------ -------- ------- ------ --------
Net earnings (loss) (1)................ $ 58.7 $ (104.5)$ (92.3)$ 42.3 $ (95.8)
------ -------- ------- ------ --------
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations(1) $ 0.66 $ 0.93 $ 0.20 $ 0.48 $ 2.28
Loss from discontinued operations..... (0.02) (0.69) (0.06) -- (0.77)
Loss from disposal of discontinued
operations.......................... -- (1.42) (1.19) -- (2.59)
------ -------- ------- ------ --------
Net earnings (loss) (1)............... $ 0.64 $ (1.19)$ (1.05)$ 0.48 $ (1.08)
------ -------- ------- ------ --------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations(1) $ 0.66 $ 0.93 $ 0.20 $ 0.48 $ 2.28
Loss from discontinued operations..... (0.02) (0.69) (0.06) -- (0.77)
Loss from disposal of discontinued
operations.......................... -- (1.42) (1.19) -- (2.59)
------ -------- ------- ------ --------
Net earnings (loss) (1)............... $ 0.64 $ (1.19)$ (1.05)$ 0.48 $ (1.08)
------ -------- ------- ------ --------
Dividends declared.................... $0.125 $ 0.125 $ 0.125 $0.125 $ 0.50
COMMON STOCK PRICE (NYSE SYMBOL: BC):
High................................ $22.13 $ 20.00 $ 21.06 $19.81 $ 22.13
Low................................. $14.75 $ 16.31 $ 16.44 $15.50 $ 14.75
(1) Includes a charge of $55.1 million pre-tax ($40.0 million after tax) in the
third quarter to increase environmental reserves related to the cleanup of
contamination from a former manufacturing facility and to account for the
write-down of investments in certain Internet-related businesses.
63
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated January 28, 2002 included in this Form 10-K, into the
Company's previously filed registration statements on Form S-3 (File No.
333-71344), Form S-8 (File No. 33-55022), Form S-3 (File No. 33-61512), Form S-8
(File No. 33-56193), Form S-8 (File No. 33-61835), Form S-8 (File No. 33-65217),
Form S-8 (File No. 333-04289), Form S-3 (File No. 333-9997), Form S-8 (File No.
333-27157), Form S-8 (File No. 333-77431), and Form S-8 (File No. 333-77457).
/s/ Arthur Andersen LLP
Chicago, Illinois
March 8, 2002
64
<PAGE>
BRUNSWICK CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<Table>
<Caption>
ALLOWANCES FOR BALANCE AT CHARGES TO
POSSIBLE LOSSES BEGINNING PROFIT BALANCE AT
ON RECEIVABLES OF PERIOD AND LOSS WRITE-OFFS RECOVERIES OTHER END OF PERIOD
- --------------- ---------- ---------- ---------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
2001............ $21.2 $13.7 $(13.1) $0.5 $ 3.8 $26.1
===== ===== ====== ==== ===== =====
2000............ $18.4 $11.4 $ (8.9) $1.0 $(0.7) $21.2
===== ===== ====== ==== ===== =====
1999............ $16.8 $ 8.7 $ (6.8) $ -- $(0.3) $18.4
===== ===== ====== ==== ===== =====
</Table>
This schedule reflects only the financial information of continuing
operations.
<Table>
<Caption>
DEFERRED TAX BALANCE AT CHARGES TO
ASSET VALUATION BEGINNING PROFIT BALANCE AT
ALLOWANCE OF PERIOD AND LOSS WRITE-OFFS RECOVERIES OTHER END OF PERIOD
- --------------- ---------- ---------- ---------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
2001........... $ 0.3 $ -- $ -- $ -- $ -- $0.3
===== ===== ====== ==== ===== ====
2000........... $ 0.3 $ -- $ -- $ -- $ -- $0.3
===== ===== ====== ==== ===== ====
1999........... $ 0.3 $ -- $ -- $ -- $ -- $0.3
===== ===== ====== ==== ===== ====
</Table>
This schedule reflects only the financial information of continuing
operations.
65
<PAGE>
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company filed
as Exhibit 19.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1987, and hereby
incorporated by reference.
3.2 Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for 1995, and
hereby incorporated by reference.
3.3 By-Laws of the Company.
4.1 Indenture dated as of March 15, 1987, between the Company
and Continental Illinois National Bank and Trust Company of
Chicago filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1987,
and hereby incorporated by reference.
4.2 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, and hereby incorporated
by reference.
4.3 Form of the Company's $250,000,000 principal amount of
6 3/4% Notes due December 15, 2006, filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated December 10,
1996, and hereby incorporated by reference.
4.4 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 dated August 4, 1997,
and hereby incorporated by reference.
4.5 The Company's agreement to furnish additional debt
instruments upon request by the Securities and Exchange
Commission filed as Exhibit 4.10 to the Company's Annual
Report on Form 10-K for 1980, and hereby incorporated by
reference.
4.6 Rights Agreement dated as of February 5, 1996, between the
Company and Harris Trust and Savings Bank filed as Exhibit 1
to the Company's Registration Statement for Preferred Share
Purchase Rights on Form 8-A dated March 13, 1996, and hereby
incorporated by reference.
4.7 Credit Agreement dated as of May 22, 1997 setting forth the
terms of the Company's $400,000,000 Revolving Credit and
Competitive Advance Facility with Chase Manhattan Bank,
administrative agent, and other lenders identified in the
Credit Agreement.
10.1* Amended and Restated Employment Agreement dated January 4,
1999, by and between the Company and Peter N. Larson filed
as Exhibit 10.1 to the Company's Annual Report on Form 10-K
for 1998, and hereby incorporated by reference.
10.2* Employment Agreement dated December 1, 1995, by and between
the Company and Peter B. Hamilton filed as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for 1995, and
hereby incorporated by reference.
10.3* Amendment dated as of October 9, 1998, to Employment
Agreement by and between the Company and Peter B. Hamilton
filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, and
hereby incorporated by reference.
10.4* Form of Change of Control Agreement by and between the
Company and each of W.J. Barrington, K.J. Chieger, T.J.
Chung, W.J. Gress, K.S. Grodzki, P.B. Hamilton, P.G.
Leemputte, B.R. Lockridge, P.C. Mackey, D.E. McCoy, W.L.
Metzger, V.J. Reich, W.E. Seeley, C.M. Sladnick, M.I. Smith,
C.M. Trudell and J.P. Zelisko, filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000, and hereby incorporated by reference.
</Table>
66
<PAGE>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.5* Form of Change of Control Agreement by and between the
Company and G.W. Buckley filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000, and hereby incorporated by reference.
10.6* 1994 Stock Option Plan for Non-Employee Directors filed as
Exhibit A to the Company's definitive Proxy Statement dated
March 25, 1994, for the Annual Meeting of Stockholders on
April 27, 1994, and hereby incorporated by reference.
10.7* 1995 Stock Plan for Non-Employee Directors filed as Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, and hereby incorporated by
reference.
10.8* Supplemental Pension Plan filed as Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and hereby incorporated by
reference.
10.9* Form of insurance policy issued for the life of each of the
Company's executive officers, together with the
specifications for each of these policies, filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K for 1980,
and hereby incorporated by reference. The Company pays the
premiums for these policies and will recover these premiums,
with some exceptions, from the policy proceeds.
10.10* Form of Indemnification Agreement by and between the Company
and each of N.D. Archibald, D.J. Bern, J.L. Bleustein, M.J.
Callahan, M.A. Fernandez, P. Harf, J.W. Lorsch, B. Martin
Musham, G.H. Phillips, R.L. Ryan and R.W. Schipke filed as
Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1986, and hereby
incorporated by reference.
10.11* Form of Indemnification Agreement by and between the Company
and each of G.W. Buckley, W.J. Barrington, K.J. Chieger,
T.J. Chung, W.J. Gress, K.S. Grodzki, P.B. Hamilton, P.G.
Leemputte, B.R. Lockridge, P.C. Mackey, D.E. McCoy, W.L.
Metzger, V.J. Reich, W.E. Seeley, C.M. Sladnick, M.I. Smith,
C.M. Trudell and J.P. Zelisko, filed as Exhibit 19.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1986, and hereby incorporated by
reference.
10.12* 1991 Stock Plan filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, and hereby incorporated by reference.
10.13* Change in Control Severance Plan filed as Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and hereby incorporated by
reference.
10.14* Brunswick Performance Plan for 2000 filed as Exhibit 10.17
to the Company's Annual Report on Form 10-K for 1999, and
hereby incorporated by reference.
10.15* Brunswick Performance Plan for 2001 filed as Exhibit 10.18
to the Company's Annual Report on Form 10-K for 1999, and
hereby incorporated by reference.
10.16* Brunswick Performance Plan for 2002.
10.17* Brunswick Strategic Incentive Plan for 1999-2000 filed as
Exhibit 10.19 to the Company's Annual Report on Form 10-K
for 1998, and hereby incorporated by reference.
10.18* Brunswick Strategic Incentive Plan for 2000-2001 filed as
Exhibit 10.21 to the Company's Annual Report on Form 10-K
for 1999, and hereby incorporated by reference.
10.19* Brunswick Strategic Incentive Plan for 2001-2002.
10.20* 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, and hereby incorporated by
reference.
</Table>
67
<PAGE>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.21* Elective Deferred Compensation Plan filed as Exhibit 10.8 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and hereby incorporated by
reference.
10.22* Automatic Deferred Compensation Plan filed as Exhibit 10.9
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, and hereby incorporated by
reference.
10.23* Promissory Note dated March 2, 2001, by and between George
W. Buckley and the Company filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for 2000, and hereby
incorporated by reference.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Public Accountants is on page 64 of
this Report.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</Table>
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of
this Report.
68
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>3
<FILENAME>c67590ex3-3.txt
<DESCRIPTION>BY-LAWS OF THE COMPANY
<TEXT>
<PAGE>
EXHIBIT 3.3
BRUNSWICK CORPORATION
BY-LAWS
(As Amended Through December 4, 2001)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The corporation may also have offices in the City of Lake
Forest, State of Illinois, and at such other places as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. An annual meeting of stockholders shall be held at such time and
on such day in the month of April or in such other month as the board of
directors may specify by resolution. At the annual meeting the stockholders
shall elect by a plurality vote of those stockholders voting at the meeting, by
ballot, a board of directors, and transact such other business as may properly
be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of meeting shall be given not less than ten nor more than sixty days before
the date of the meeting to each stockholder entitled to vote at such meeting.
Section 4. At least ten days before every election of directors, a complete
list of the stockholders entitled to vote at said election arranged in
alphabetical order, shall be prepared or caused to be prepared by the secretary.
Such list shall be open at the place where the election is to be held for said
ten days, to the examination of any stockholder, and shall be produced and kept
at the time and place of election during the whole time thereof, and subject to
the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the chairman of the board and shall be called by
the president or secretary at the request in writing of a majority of the board
of directors. Such request shall state the purpose or purposes of the proposed
meeting.
<PAGE>
Section 6. Written notice of a special meeting of stockholders stating the
place, date and hour of meeting, and the purpose or purposes for which the
meeting is called shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the shares of the capital stock of
the corporation, issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall be requisite and shall constitute a quorum
at all meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of incorporation or by these
by-laws. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 9. When a quorum is present or represented at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation or of these by-laws, a different vote is
required, in which case such express provisions shall govern and control the
decision of such question.
Section 10. At any meeting of the stockholders every stockholder having the
right to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not more
than three years prior to said meeting, unless said instrument provides for a
longer period. Each stockholder shall have one vote for each share of stock
having voting power, registered in his name on the books of the corporation.
Except where the transfer books of the corporation shall have been closed or a
date shall have been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted on at any
election for directors which shall have been transferred on the books of the
corporation within twenty days next proceeding such election of directors.
-2-
<PAGE>
ARTICLE III
DIRECTORS
Section 1. The number of directors shall be fourteen, but the number of
directors may, from time to time, be altered by amendment of these by-laws in
accordance with the certificate of incorporation.
Section 2. Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the board of directors
or a committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the secretary of the corporation not later than (a) with respect to
an election to be held at an annual meeting of stockholders, ninety days prior
to the anniversary date of the immediately preceding annual meeting, and (b)
with respect to an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the tenth day following the
date on which notice of such meeting is first given to stockholders. Each such
notice shall set forth: (i) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (ii) a
representation that the stockholder is the holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (v)
the consent of each nominee to serve as a director of the corporation if so
elected. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Section 3. The property and business of the corporation shall be managed by
its board of directors, which may exercise all such powers of the corporation
and do all such lawful acts and things as are not by statute or by the
certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
-3-
<PAGE>
Section 5. The first meeting of each newly elected board shall be held
immediately after, and at the same place as, the annual meeting of stockholders
at which such board shall have been elected, for the purpose of electing
officers, and for the consideration of any other business that may properly be
brought before the meeting. No notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present.
Section 6. Regular meetings of the board of directors shall be held on such
dates, not less often than once each calendar quarter, as may be fixed from time
to time by resolution of the board of directors. No notice need be given of such
meetings, provided that notice of such resolution has been furnished to each
director. Such meetings shall be held at the Lake Forest office of the
corporation or at such other place as is stated in the notice of the meeting.
Upon the assent, given either verbally or in writing, of a majority of the whole
board, any regular meeting may be cancelled, the time changed, or may be held at
such other place and time, as a majority of the whole board may designate,
either verbally or in writing, upon reasonable notice given to each director,
either personally or by mail or by telegram.
Section 7. Special meetings of the board of directors may be called by the
chairman of the board, or by the secretary on the written request of two
directors, to be held either at the Lake Forest office of the corporation or at
such other place as may be convenient and may be designated by the officer
calling the meeting. Reasonable notice of such special meeting shall be given to
each director, either personally or by mail or telegram; provided, that a
majority of the whole board of directors present at a meeting called by any of
said officers, in matters requiring prompt attention by the board, may hold a
valid meeting and transact business without the giving of notice to each
director as above provided.
Section 8. At all meetings of the board the presence of a majority of the
whole board shall be necessary and sufficient to constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation or by these by-laws. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
EXECUTIVE COMMITTEE
Section 9. (a) The board of directors of the corporation at the annual or
any regular or special meeting may, by resolution adopted by a majority of the
whole board, designate three or more directors, one of whom shall be either the
chairman of the board or the president of the corporation, to constitute an
executive committee. Vacancies in the executive committee may be filled at any
meeting of the board of directors. Each member of the executive committee shall
hold office until his successor shall have been duly elected, or until his
death, or until he shall resign or shall have been removed from office or shall
cease to be a director. Any member of the executive committee
-4-
<PAGE>
may be removed by resolution adopted by a majority of the whole board of
directors whenever in its judgment the best interests of the corporation would
be served thereby. The compensation, if any, of members of the executive
committee shall be established by resolution of the board of directors.
(b) The executive committee shall have and may exercise all of the
authority of the board of directors in the management of the corporation,
provided such committee shall not have the authority of the board of directors
in reference to amending the certificate of incorporation, adopting a plan of
merger or consolidation with another corporation or corporations, recommending
to the stockholders the sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the property and assets of the
corporation if not made in the usual and regular course of its business,
recommending to the stockholders a voluntary dissolution of the corporation or a
revocation thereof, amending, altering or repealing the by-laws of the
corporation, electing or removing officers of the corporation or members of the
executive committee, fixing the compensation of officers, directors, or any
member of the executive committee, declaring dividends, amending, altering or
repealing any resolution of the board of directors which by its terms provides
that it shall not be amended, altered or repealed by the executive committee,
the acquisition or sale of companies, businesses or fixed assets where the fair
market value thereof or the consideration therefor exceeds $10,000,000,
authorizing the issuance of any shares of the corporation, or authorizing the
creation of any indebtedness for borrowed funds, in excess of $2,000,000.
(c) The executive committee shall have power to authorize the seal of the
corporation to be affixed to all papers which may require it. Minutes of all
meetings of the executive committee shall be submitted to the board of directors
of the corporation at each meeting following a meeting of the executive
committee. The minute books of the executive committee shall at all times be
open to the inspection of any director.
(d) The executive committee shall meet at the call of the chairman of the
executive committee, chairman of the board, the president, or any two members of
the executive committee. Three members of the executive committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present shall constitute the act of the committee.
AUDIT AND FINANCE COMMITTEE
Section 10. (a) The board of directors of the corporation at the annual or
any regular or special meeting shall, by resolution adopted by a majority of the
whole board, designate three or more independent directors to constitute an
audit and finance committee and appoint one of the directors so designated as
the chairman of the audit and finance committee. Membership on the audit and
finance committee shall be restricted to those directors who are independent of
the management of the corporation and are free from any relationship that, in
the opinion of the corporation's board of directors, would interfere with the
exercise of independent judgment as a member of the committee. Vacancies in the
committee may be filled at any meeting of the board of
-5-
<PAGE>
directors. Each member of the committee shall hold office until his successor
shall have been duly elected, or until his death, or until he shall resign or
shall have been removed from the audit and finance committee by the board or
shall cease to be a director. Any member of the audit and finance committee may
be removed from the committee by resolution adopted by a majority of the whole
board of directors whenever in its judgment (1) such person is no longer an
independent director or free from any relationship with the corporation or any
of its officers prohibited by this section, or (2) the best interests of the
corporation would be served thereby. The compensation, if any, of members of the
committee shall be established by resolution of the board of directors.
(b) The audit and finance committee shall be responsible for recommending
to the board of directors the appointment or discharge of independent auditors,
reviewing with management and the independent auditors the terms of engagement
of independent auditors, including the fees, scope and timing of the audit and
any other services rendered by such independent auditors; reviewing with
independent auditors and management the corporation's policies and procedures
with respect to internal auditing, accounting and financial controls, and
dissemination of financial information; reviewing with management, the
independent auditors and the internal auditors, the corporation's financial
statements, audit results and reports and the recommendations made by the
auditors with respect to changes in accounting procedures and internal controls;
reviewing the results of studies of the corporation's system of internal
accounting controls; and performing any other duties or functions deemed
appropriate by the board of directors. The committee shall have such powers and
rights as may be necessary or desirable to fulfill these responsibilities
including, the power and right to consult with legal counsel and to rely upon
the opinion of such legal counsel. The audit and finance committee is authorized
to communicate directly with the corporation's financial officers and employees,
internal auditors and independent auditors on such matters as it deems desirable
and to have the internal auditors and independent auditors perform such
additional procedures as it deems appropriate. The audit and finance committee
shall periodically report to the board of directors on its activities.
(c) Minutes of all meetings of the audit and finance committee shall be
submitted to the board of directors of the corporation. The minute books of the
committee shall at all times be open to the inspection of any director.
(d) The audit and finance committee shall meet at the call of its chairman
or any two members of the committee. Two members of the audit and finance
committee shall constitute a quorum for the transaction of business and the act
of a majority of those present, but no less than two members, shall constitute
the act of the committee.
HUMAN RESOURCE AND COMPENSATION COMMITTEE
Section 11. (a) The board of directors of the corporation at the annual or
any regular or special meeting shall, by resolution adopted by a majority of the
whole board, designate three or more directors to constitute a human resource
and compensation committee and appoint one of the
-6-
<PAGE>
directors so designated as the chairman of the human resource and compensation
committee. Membership on the human resource and compensation committee shall be
restricted to disinterested persons which for this purpose shall mean any
director, who, during the time he is a member of the human resource and
compensation committee is not eligible, and has not at any time within one year
prior thereto been eligible, for selection to participate in any of the
compensation plans administered by the human resource and compensation
committee. Vacancies in the committee may be filled at any meeting of the board
of directors. Each member of the committee shall hold office until his successor
shall have been duly elected, or until his death or resignation, or until he
shall have been removed from the committee by the board of directors, or until
he shall cease to be a director or a disinterested person. Any member of the
human resource and compensation committee may be removed by resolution adopted
by a majority of the whole board of directors whenever in its judgment the best
interests of the corporation would be served thereby. A majority of the human
resource and compensation committee shall constitute a quorum and an act of the
majority of the members present at any meeting at which a quorum is present, or
an act approved in writing by each of the members of the committee without a
meeting, shall be the act of the human resource and compensation committee.
(b) The human resource and compensation committee shall administer the
Brunswick Performance Plan, Strategic Incentive Plan, 1991 Stock Plan, and
Supplemental Pension Plan. The human resource and compensation committee shall
have the power and authority vested in it by any plan of the corporation, which
the committee administers. The human resource and compensation committee shall
from time to time recommend to the board of directors the compensation of the
officers of the corporation except for assistant officers whose compensation
shall be fixed by the officers of the corporation.
CORPORATE GOVERNANCE COMMITTEE
Section 12. (a) The board of directors of the corporation at the annual or
any regular or special meeting shall, by resolution adopted by a majority of the
whole board, designate three or more directors to constitute a corporate
governance committee of the board of directors and appoint one of the directors
so designated as its chairman. Members on the corporate governance committee of
the board of directors shall be restricted to disinterested persons which for
this purpose shall mean any director who, during the time the director is a
member of the corporate governance committee of the board of directors, is
neither an officer or employee of the corporation. Vacancies in the committee
may be filled at any meeting of the board of directors. Each member of the
committee shall hold office until his successor shall have been duly elected, or
until his death or resignation, or until he shall have been removed from the
committee by the board of directors, or until he shall cease to be a director.
Any member of the corporate governance committee of the board of directors may
be removed by resolution of the whole board of directors whenever in its
judgment the best interests of the corporation would be served thereby. A
majority of the corporate governance committee of the board of directors shall
constitute a quorum and an act of the majority
-7-
<PAGE>
of the members present at any meeting at which a quorum is present, or an act
approved in writing by each of the members of the committee without a meeting,
shall be the act of the corporate governance committee. The compensation, if
any, of members of the committee shall be established by resolution of the board
of directors.
(b) The corporate governance committee of the board of directors shall be
responsible for all matters of corporate governance and director affairs
including, but not limited to:
(i) considering and making recommendations to the board with regard
to changes in the size of the board;
(ii) developing and maintaining appropriate criteria for the
composition of the board of directors and its nominees;
(iii) overseeing the selection of and making recommendations to the
board regarding nominees for election as directors to be
submitted to the stockholders and nominees to fill vacancies on
the board of directors as they occur;
(iv) coordinating an annual evaluation by the board, with input from
senior management, of the structure of the board and its
committees and the processes employed in their deliberations;
and
(v) periodically evaluating the performance of members of the board.
(c) Nothing in this by-law is intended to prevent any individual director
from making a recommendation of a person to be a director of the corporation
either to the corporate governance committee or to the board.
OTHER COMMITTEES
Section 13. The board of directors may from time to time create and
appoint such committees in addition to the executive, audit and finance, human
resource and compensation and corporate governance committees as it deems
desirable. Each additional committee shall bear such designation, shall have
such powers and shall perform such duties, not inconsistent with these by-laws
or with law, as may be assigned to it by the board of directors; provided that
no such additional committee may exercise the powers of the board of directors
in the management of the business and affairs of the corporation except such as
shall be expressly delegated to it. The board of directors shall have the power
to change the members of any such additional committee at any time, to fill
vacancies, and to discharge any such additional committee at any time. The
compensation, if any, of members of any such committee shall be established by
resolution of the board of directors.
-8-
<PAGE>
COMPENSATION OF DIRECTORS
Section 14. Directors shall receive such fees and reimbursement of
reasonable expenses as may be fixed from time to time by resolution of the
board. Members of special or standing committees shall also be allowed such fees
and reimbursements for reasonable expenses in connection with service on such
committees as may from time to time be fixed by resolution of the board. Such
fees may be fixed on the basis of meetings attended or on an annual basis or
both and may be payable currently or deferred.
ACTION BY WRITTEN CONSENT
Section 15. Any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
ACTION BY TELEPHONE OR OTHER COMMUNICATIONS EQUIPMENT
Section 16. Directors may participate in a meeting of the board or any
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
ALTERNATE COMMITTEE MEMBERS
Section 17. The board of directors may designate one or more directors as
alternate members of any committee, any of whom may be selected by the chairman
of a committee to replace any absent or disqualified member at any meeting of a
committee. In the absence or disqualification of a member of a committee and of
the alternate members of such committee, the member or members thereof present
at any meeting and not disqualified from voting, whether or not such member or
members constitutes a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in place of any such absent or
disqualified member.
ARTICLE IV
NOTICES
Section 1. Except as may be otherwise provided for in these by-laws,
whenever under the provisions of the statutes or of the certificate of
incorporation or of these by-laws, notice is required to be given to any
director or stockholder, it shall not be construed to mean personal notice, but
such notice may be given in writing, by mail, addressed to such director or
stockholder at such address as appears on the books of the corporation, and such
notice shall be deemed to be given at the time when the same shall be mailed.
Notice to directors may also be given by telegram or telex.
-9-
<PAGE>
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation, or of these by-laws, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The Board of Directors shall elect a Chairman of the Board from
among its members. The Board of Directors shall also elect a Chief Executive
Officer and such other officers as the Board of Directors determines, none of
whom need to be members of the Board of Directors.
Section 2. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer of the corporation may be removed
at any time by the affirmative vote of a majority of the whole board of
directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. The corporation may indemnify to the fullest extent that is
lawful, any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines, taxes, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding.
Section 2. The corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he would be entitled to indemnity against the same liability
under the provisions of this article.
Section 3. The corporation may enter into an indemnity agreement with any
director, officer, employee or agent of the corporation, upon terms and
conditions that the board of directors deems appropriate, as long as the
provisions of the agreement are not inconsistent with this article.
-10-
<PAGE>
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by the chairman
of the board, the president or a vice president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation. If
the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, designations, preferences and relative,
participating, optional and other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions or such
preferences and rights shall be set forth in full or summarized on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock; provided, however, that, to the full extent allowed by
law, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests the designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and rights.
Section 2. If such certificate is countersigned (1) by a transfer agent, or
(2) by a registrar, any other signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may authorize the transfer agents and
registrars of the corporation to issue and register, respectively, new
certificates in place of any certificates alleged to have been lost, stolen or
destroyed, and in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems necessary to protect the corporation and
said transfer agents and registrars.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
-11-
<PAGE>
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the party of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. The board of directors shall present at each annual meeting and
when called for by vote of the stockholders at any special meeting of the
stockholders, a full and clear statement of the business and condition of the
corporation.
-12-
<PAGE>
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate. The board of directors,
in its discretion, may delegate its responsibilities contained in this section
to any officer or officers of the corporation.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall begin on the first day
of January, and terminate on the thirty-first day of December, in each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Incorporated Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE IX
TENNESSEE AUTHORIZED CORPORATION PROTECTION ACT
Section 1. This corporation shall be subject to Section 404(a) of the
Tennessee Authorized Corporation Protection Act.
ARTICLE X
AMENDMENTS
Section 1. The holders of shares of capital stock of the corporation
entitled at the time to vote for the election of directors shall have the power
to adopt, alter, amend, or repeal the by-laws of the corporation by vote of such
percentage of such shares as is required by the Certificate of Incorporation, or
if no percentage is specified by the Certificate of Incorporation, by vote of
not less than 66-2/3% of such shares. The board of directors shall also have the
power to adopt, alter, amend or repeal the by-laws of the corporation by vote of
such percentage of the entire board as is required by the Certificate of
Incorporation, or if no percentage is specified by the Certificate of
Incorporation, by vote of not less than a majority of the entire board.
-13-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7
<SEQUENCE>4
<FILENAME>c67590ex4-7.txt
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 4.7
[EXECUTION COPY]
================================================================================
CREDIT AGREEMENT
dated as of
May 22, 1997
among
BRUNSWICK CORPORATION,
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
$400,000,000 REVOLVING CREDIT AND COMPETITIVE ADVANCE FACILITY
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Page
Definitions ----
1.01. Defined Terms ............................................. 1
1.02. Classification of Loans and Borrowings .................... 13
1.03. Terms Generally ........................................... 13
1.04. Accounting Terms; GAAP .................................... 14
ARTICLE II
The Credits
2.01. Commitments .................................................. 14
2.02. Loans and Borrowings ......................................... 14
2.03. Requests for Revolving Borrowings ............................ 15
2.04. Competitive Bid Procedure .................................... 16
2.05. Extension of Maturity Date ................................... 18
2.06. Letters of Credit ............................................ 19
2.07. Funding of Borrowings ........................................ 23
2.08. Interest Elections ........................................... 24
2.09. Termination Reduction and Increase of Commitments ............ 25
2.10. Repayment of Loans; Evidence of Debt ......................... 27
2.11. Prepayment of Loans .......................................... 28
2.12. Fees ......................................................... 28
2.13. Interest ..................................................... 29
2.14. Alternate Rate of Interest ................................... 30
2.15. Increased Costs .............................................. 31
2.16. Break Funding Payments ....................................... 32
2.17. Taxes ........................................................ 32
2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs... 33
2.19. Mitigation Obligations; Replacement of Lenders ............... 35
ARTICLE III
Representations and Warranties
3.01. Organization; Powers ......................................... 36
3.02. Authorization; Enforceability ................................ 36
3.03. Governmental Approvals; No Conflicts ......................... 36
3.04. Financial Condition; No Material Adverse Change .............. 36
3.05. Litigation; Etc .............................................. 37
3.06. Investment and Holding Company Status ........................ 37
3.07. Taxes ........................................................ 37
<PAGE>
Page
----
3.08. ERISA ............................................................... 37
3.09. Disclosure .......................................................... 37
3.10. Margin Stock ........................................................ 38
3.11. Material Agreements ................................................. 38
ARTICLE IV
Conditions
4.01. Effective Date ...................................................... 38
4.02. Each Credit Event ................................................... 39
ARTICLE V
Affirmative Covenants
5.01. Financial Reporting ................................................. 40
5.02. Use of Proceeds ..................................................... 41
5.03. Notice of Default ................................................... 41
5.04. Corporate Standing .................................................. 41
5.05. Taxes and Other Obligations ......................................... 41
5.06. Insurance ........................................................... 41
5.07. Compliance with Laws ................................................ 42
5.08. Maintenance of Properties ........................................... 42
5.09. Books and Records; Inspection........................................ 42
ARTICLE VI
Negative Covenants
6.01. Maximum Leverage Ratio .............................................. 42
6.02. Merger .............................................................. 42
6.03. Sales of Assets ..................................................... 42
6.04. Limitation on Secured Debt .......................................... 43
ARTICLE VII
Events of Default .................................. 43
ARTICLE VIII
The Administrative Agent ........................... 45
ARTICLE IX
<PAGE>
Page
----
Miscellaneous
9.01. Notices ............................................................. 47
9.02. Waivers; Amendments ................................................. 48
9.03. Expenses; Indemnity: Damage Waiver .................................. 48
9.04. Successors and Assigns .............................................. 49
9.05. Survival ............................................................ 51
9.06. Counterparts; Integration; Effectiveness ............................ 52
9.07. Severability ........................................................ 52
9.08. Right of Setoff ..................................................... 52
9.09. Governing Law; Jurisdiction; Consent to Service of Process .......... 52
9.10. WAIVER OF JURY TRIAL ................................................ 53
9.11. Headings ............................................................ 54
9.12. Confidentiality ..................................................... 54
9.13. Interest Rate Limitation ............................................ 54
9.14. Judgment Currency ................................................... 55
9.15. Termination of Commitments under the Long-Term Credit Agreement ..... 55
SCHEDULES:
Schedule 2.01 - Commitments
Schedule 3.05 - Litigation
EXHIBITS:
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Opinion of Borrower's Counsel
Exhibit C - Form of Extension Request
Exhibit D - Form of Notice of Extension of Maturity Date
Exhibit E - Form of Assumption Agreement
<PAGE>
CREDIT AGREEMENT dated as of May 22, 1997 among:
BRUNSWICK CORPORATION, a corporation organized under the laws
of the State of Delaware (the "Borrower");
the financial institutions and other lenders named in Schedule
2.01 hereto (collectively, the "Initial Lenders"); and
THE CHASE MANHATTAN BANK, as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Administrative Agent").
The parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurocurrency
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means Chase, in its capacity as
administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
Credit Agreement
<PAGE>
-2-
"Alternate Currency" means any currency other than U.S.
Dollars that is freely transferrable and convertible into U.S. Dollars and as to
which deposits in such currency are then generally being offered in the London
interbank market.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day, with respect to any
Eurocurrency Revolving Loan, or with respect to the facility fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "Eurocurrency Spread" or "Facility Fee Rate", as the case may
be, based upon the ratings by Moody's and S&P, respectively, set forth below
under the caption "Index Debt Ratings" applicable on such date to the Index
Debt:
Index Debt Ratings: Eurocurrency Facility Fee
Spread Rate
- --------------------------------------------------------------------------------
Category 1: 0.135% 0.065%
Greater than or equal
to A2/A
- --------------------------------------------------------------------------------
Category 2: 0.175% 0.075%
A3/A-
- --------------------------------------------------------------------------------
Category 3: 0.195% 0.080%
Baal/BBB+
- --------------------------------------------------------------------------------
Category 4: 0.225% 0.100%
Baa2/BBB
- --------------------------------------------------------------------------------
Category 5: 0.250% 0.150%
Baa3/BBB-
- --------------------------------------------------------------------------------
Category 6: 0.325% 0.175%
Less than Baa3/BBB-
- --------------------------------------------------------------------------------
For purposes of the foregoing: (i) if either Moody's or S&P shall not have in
effect a rating for the Index Debt (other than by reason of the circumstances
referred to in the last sentence of this definition), then such rating agency
shall be deemed to have established a rating in Category 6; (ii) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall fall within different Categories, the Applicable Rate shall be based
on the higher of the two ratings; and (iii) if the ratings established or deemed
to have been established by Moody's and S&P for the Index Debt shall be changed
(other than as a result of a change in the rating system of Moody's or S&P),
such change shall be effective as of the date on which it is first announced by
the applicable rating agency. Each change in the Applicable Rate shall apply
during the period commencing on the effective date of such change and ending on
the date immediately preceding the effective date of the next such change. If
the rating system of Moody's or S&P shall change, or if either such rating
agency shall cease to be in the business of rating corporate debt obligations,
the
Credit Agreement
<PAGE>
-3-
Borrower and the Lenders shall negotiate in good faith to amend this definition
to reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable Rate shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Assuming Lender" means a Person not previously a Lender that
becomes a Lender hereunder pursuant to Section 2.05(c) or 2.09(d).
"Assumption Agreement" means an agreement, in substantially
the form of Exhibit E hereto, pursuant to which a Person agrees to become an
Assuming Lender hereunder pursuant to Section 2.09(d).
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrowing" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurocurrency Loans,
as to which a single Interest Period is in effect or (b) a Competitive Loan or
group of Competitive Loans of the same Type and Currency made on the same date
and as to which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurocurrency Loan denominated in any Currency, the term "Business Day" shall
also exclude any day on which banks are not open for dealings in deposits in
such Currency in the London interbank market.
"Capitalized Lease Obligations" means the amount of the
obligations of the Borrower and its Restricted Subsidiaries under Financing
Leases which would be shown as a liability on a balance sheet of the Borrower or
a Restricted Subsidiary, prepared in accordance with GAAP.
"Change in Control means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Exchange Act and the rules of the SEC thereunder as
in effect on the date hereof), of shares representing 30% or more of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Borrower; (b) with respect to a tender offer (for which a
filing has been made with the SEC which purports to comply with the requirements
of the Exchange Act and the rules of the SEC thereunder as in effect on the date
hereof) made for the shares of the Borrower, which tender offer has not been
Credit Agreement
<PAGE>
-4-
negotiated and approved by the board of directors of the Borrower, the earlier
of (i) any Business Day during such tender offer when the Person or group making
such tender offer owns, directly or indirectly, beneficially or of record,
and/or has accepted for payment shares representing 25% or more of the aggregate
voting power represented by the issued and outstanding capital stock of the
Borrower and (ii) three Business Days before such tender offer is to terminate
unless the tender offer is withdrawn first if the Person or group making such
tender offer could own, by the terms of the tender offer plus any shares owned
by such Person or group, shares representing 50% or more of the aggregate voting
power representing by the issued and outstanding capital stock of the Borrower
when such tender offer terminates; (c) occupation of a majority of the seats
(other than vacant seats) on the board of directors of the Borrower by Persons
who were neither (i) nominated by the board of directors of the Borrower nor
(ii) appointed by directors so nominated; or (d) the acquisition of direct or
indirect Control of the Borrower by any Person or group.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of
such Lender or by such Lender's or the Issuing Bank's holding company, if any)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"Chase" means The Chase Manhattan Bank, together with its
successors.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans and to acquire participations
in Letters of Credit hereunder, expressed as an amount representing the maximum
aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such
commitment may be (a) reduced or increased from time to time pursuant to Section
2.09 and (b) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 9.04. The initial amount of each Initial
Lender's Commitment is set forth on Schedule 2.01.
"Commitment Extension Date" has the meaning assigned to that
term in Section 2.05.
"Commitment Increase" has the meaning assigned to that term
in Section 2.09(d).
"Commitment Increase Date" has the meaning assigned to that
term in Section 2.09(d).
"Competitive Bid" means an offer by a Lender to make a
Competitive Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive
Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making
such Competitive Bid.
Credit Agreement
<PAGE>
-5-
"Competitive Bid Request" means a request by the Borrower for
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
Competitive Loans may be denominated in any Currency.
"Consolidated Net Worth" means, at any date of determination,
an amount equal to common shareholders' equity determined on a consolidated
basis for the Borrower and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Total Debt" means and includes without
duplication the sum of (i) Indebtedness plus (ii) Contingent Obligations to the
extent that Contingent Obligations exceed in the aggregate $50,000,000.
"Continent Obligations" means (i) any agreement, undertaking
or arrangement by which the Borrower or any Restricted Subsidiary assumes,
guarantees, endorses (excluding endorsement of negotiable instruments for
collection in the ordinary course of business), contingently agrees to purchase
or provide funds for the payment of, or otherwise becomes liable upon, any Third
Party Indebtedness, or agrees to maintain the net worth or working capital or
other financial condition of any person other than the Borrower or a Restricted
Subsidiary or otherwise assures any creditor of any person other than the
Borrower or a Restricted Subsidiary against loss and (ii) any take-or-pay
contract to which the Borrower or any Restricted Subsidiary is a party.
Notwithstanding the foregoing, inventory repurchase and recourse obligations of
the Borrower and its Restricted Subsidiaries to their respective dealers and
such dealers' respective financial institutions incurred in the ordinary course
of business and as described in the Borrower's annual audited financial
statements shall not be deemed to be Contingent Obligations under this
Agreement. The amount of any Contingent Obligation shall, at any date of
determination thereof, be equal to the amount of the obligation so guaranteed or
otherwise supported on such date of determination, provided that, if the
liability of the Borrower or Restricted Subsidiary extending such guaranty or
support is limited with respect thereto to an amount less than the obligations
guaranteed or supported, or is limited to recourse against a particular asset or
assets of the Borrower or Restricted Subsidiary, the amount of the corresponding
Contingent Obligation shall be limited (a) in the case of a guaranty or other
support limited by amount, to such lesser amount, or (b) in the case of a
guaranty or other support limited by recourse to a particular asset or assets,
to the higher of (1) the fair market value of such asset or assets at such date
of determination and (2) the value at which such asset or assets would, in
conformity with GAAP, be reflected on, or valued for the purposes of preparing,
a consolidated balance sheet of the Borrower or Restricted Subsidiary as at such
date of determination.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Currency" means U.S. Dollars or any Alternate Currency.
"Declining Lender" has the meaning assigned to that term in
Section 2.05(b).
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
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"Derivative Transaction" means (a) any "swap agreement"
(within the meaning given to such term in Section 101(53B) of the United States
Bankruptcy Code, as amended), (b) any "qualified financial contract" (within the
meaning given to such term by Section 11 (e)(8)(D) of the Federal Deposit
Insurance Act, as amended), (c) any option with respect to any of the foregoing
transactions and (d) any combination of any of the foregoing transactions.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources or to the management, release or threatened release of any Hazardous
Material.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
Credit Agreement
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"Eurocurrency", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Adjusted LIBO Rate
(or, in the case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in
Article VII.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.05(c), 2.09(d) or 2.19(b)), any withholding tax that is
imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement or is attributable to such Foreign
Lender's failure or inability to comply with Section 2.17(e), except to the
extent that such Foreign Lender's assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from the Borrower with respect to such
withholding tax pursuant to Section 2.17(a).
"Extending Lender" has the meaning assigned to that term in
Section 2.05(a).
"Extension Request" has the meaning assigned to that term in
Section 2.05(a).
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the Borrower.
"Financing Lease" means any lease of property which would be
capitalized on a balance sheet of the Borrower or a Restricted Subsidiary,
prepared in accordance with GAAP.
"Fixed Rate" means, with respect to any Competitive Loan
(other than a Eurocurrency Loan), the fixed rate of interest per annum specified
by the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at
a Fixed Rate.
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"Foreign Lender" means any Lender that is organized under
the laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means, subject to Section 1.04, generally accepted
accounting principles in the United States of America.
"Governmental Authority" means the government of the
United States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Increasing Lender" has the meaning assigned to that term
in Section 2.09(d).
"Indebtedness" means the Borrower's and each Restricted
Subsidiary's (i) obligations for borrowed money, (ii) obligations representing
the deferred purchase price of property other than accounts payable arising in
connection with the purchase of inventory on terms customary in the trade, (iii)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by the
Borrower or any Restricted Subsidiary and (iv) Capitalized Lease Obligations.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term
indebtedness for borrowed money of the Borrower that is not guaranteed by any
other Person or subject to any other credit enhancement.
"Interest Election Request" means a request by the
Borrower to convert or continue a Revolving Borrowing in accordance with Section
2.08.
"Interest Payment Date" means (a) with respect to any ABR
Loan, the last day of each March, June, September and December, (b) with respect
to any Eurocurrency Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurocurrency
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period and (c) with
respect to any Fixed Rate Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate
Borrowing with an Interest Period of more than 90 days' duration (unless
otherwise specified in the applicable Competitive Bid Request), each day prior
to the last day of such Interest Period that occurs at intervals of 90 days'
duration after the first day of such Interest Period, and any other dates that
are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing.
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"Interest Period" means (a) with respect to any Eurocurrency
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months (or such other integral number of calendar months as shall be agreed
by the Borrower and each Lender or, in the case of a Borrowing of a Competitive
Loan, the Lender making such Loan) thereafter, as the Borrower may elect and (b)
with respect to any Fixed Rate Borrowing, the period (which shall not be less
than seven days or more than 180 days) commencing on the date of such Borrowing
and ending on the date specified in the applicable Competitive Bid Request;
provided that (i) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of a Eurocurrency Borrowing only, such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period pertaining to a Eurocurrency Borrowing that commences on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of such
Interest Period. For purposes hereof, the date of a Borrowing initially shall be
the date on which such Borrowing is made and, in the case of a Revolving
Borrowing, thereafter shall be the effective date of the most recent conversion
or continuation of such Borrowing.
"Issuing Bank" means Chase, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.06(i).
"LC Disbursement" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Lender at any
time shall be its Applicable Percentage of the total LC Exposure at such time.
"Lender" means (i) any Initial Lender, (ii) any Person that
shall become a Lender party hereto pursuant to an Assumption Agreement and (iii)
any Person that shall become a Lender party hereto pursuant to an Assignment and
Acceptance, but shall exclude any Person that ceases to be a Lender party hereto
pursuant to an Assignment and Acceptance.
"Letter of Credit" means any letter of credit issued pursuant
to this Agreement.
"Leverage Ratio" means, on any date, the ratio of (a)
Consolidated Total Debt on such date to (b) the sum of (i) Consolidated Total
Debt on such date plus (ii) Consolidated Net Worth on such date.
"LIBO Rate" means, with respect to any Eurocurrency Borrowing
in any Currency for any Interest Period, the rate appearing on Dow Jones Markets
Page 3750 or 3740, as applicable (or on any successor or substitute page
provided by Dow Jones Markets, or any successor thereto, for the purpose of
providing quotations of interest rates applicable to deposits in such Currency
in the London interbank market), or, if such page is not available or such rate
does not appear on such page, the rate appearing on the "LIBO Page" so
designated on the Reuter Monitor Money Rates Service (or on any successor or
substitute page provided by the Reuter Monitor Money Markets Service, or any
successor
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thereto, for the purpose of providing quotations of interest rates applicable to
deposits in such Currency in the London interbank market) at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such Interest
Period, as the rate for deposits in such Currency with a maturity comparable to
such Interest Period. In the event that such rate is not available at such time
for any reason, then the "LIBO Rate" with respect to such Eurocurrency Borrowing
for such Interest Period shall be the rate at which deposits of $5,000,000 (or,
in the case of a Eurocurrency Competitive Borrowing denominated in an Alternate
Currency, the equivalent thereof in such Alternate Currency, rounded to the
nearest 1,000 units of such Alternate Currency) and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means any security interest, mortgage, pledge, lien,
claim, charge, encumbrance, title retention agreement, lessor's interest under a
Financing Lease or analogous instrument, in, of or on any property of the
Borrower or any Restricted Subsidiary.
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Long-Term Credit Agreement" has the meaning assigned to that
term in Section 4.01(e).
"Margin" means, with respect to any Competitive Loan bearing
interest at a rate based on the LIBO Rate, the marginal rate of interest, if
any, to be added to or subtracted from the LIBO Rate to determine the rate of
interest applicable to such Competitive Loan, as specified by the Lender making
such Loan in its related Competitive Bid.
"Material Adverse Effect" means a material adverse effect on
(a) the business, financial condition, prospects or results of operations of the
Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower
to perform any of its obligations under this Agreement or (c) the rights of or
benefits available to the Lenders or the Administrative Agent under this
Agreement.
"Material Indebtedness" means Indebtedness (other than the
Loans and Letters of Credit) or Contingent Obligations of any one or more of the
Borrower and the Subsidiaries in an aggregate principal amount exceeding
$25,000,000.
"Maturity Date" means May 22, 2002 or such later date to which
the Maturity Date shall have been extended pursuant to Section 2.05.
"Moody's" means Moody's Investors Service, Inc., or any
successor nationally recognized statistical rating organization.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
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"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04.
"Related Parties" means, with respect to any specified Person,
such Person's affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having
Revolving Credit Exposures and unused Commitments representing more than 50% of
the sum of the total Revolving Credit Exposures and unused Commitments at such
time; provided that, for purposes of declaring the Loans to be due and payable
pursuant to Article VII, and for all purposes after the Loans become due and
payable pursuant to Article VII or the Commitments expire or terminate, the
outstanding Competitive Loans of the Lenders shall be included in their
respective Revolving Credit Exposures in determining the Required Lenders.
"Restricted Subsidiary" means any Subsidiary which is
consolidated in the audited financial statements of the Borrower, but excluding
each Subsidiary which is a general partner in a partnership formed to own, lease
or operate bowling centers.
"Revolving Credit Exposure" means, with respect to any Lender
at any time, the sum of the outstanding principal amount of such Lender's
Revolving Loans and its LC Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
Revolving Loans may only be denominated in U.S. Dollars.
"S&P" means Standard & Poor's Ratings Services, or any
successor nationally recognized statistical rating organization.
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"SEC" means the United States Securities and Exchange
Commission, together with any successor agency responsible for the
administration and enforcement of the Securities Act of 1933, as amended from
time to time, and the Exchange Act.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Lender that is the
Administrative Agent is subject for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurocurrency Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D or any comparable regulation. The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Substantial Portion" means, with respect to the property of
the Borrower and the Subsidiaries, such property which (i) represents more than
20% of the consolidated assets of the Borrower and the Subsidiaries as would be
shown in the consolidated financial statements of the Borrower and the
Subsidiaries as at the end of the twelve-month period ending with the most
recent calendar quarter ended at least 30 days prior to the date when such
determination is made, or (ii) is responsible for more than 20% of the
consolidated net sales of the Borrower and the Subsidiaries as reflected in the
financial statements referred to in clause (i) above.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Third Party Indebtedness" means, with respect to any Person
other than the Borrower or any Restricted Subsidiary, such Person's (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of property other than accounts payable arising in connection
with the purchase of inventory on terms customary in the trade, (iii)
obligations, whether or not assumed, secured by any security interest, mortgage,
pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's
interest under any lease of property which would be capitalized on a balance
sheet of such Person prepared in accordance with GAAP, or analogous instrument,
in, of or on any property of such Person, or payable out of the proceeds or
production from property now or
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hereafter owned or acquired by such Person and (iv) obligations under leases of
property which would be capitalized and shown as a liability on a balance sheet
of such Person, prepared in accordance with GAAP.
"Transactions" means the execution, delivery and performance
by the Borrower of this Agreement, the borrowing of Loans, the use of the
proceeds thereof and the issuance of Letters of Credit hereunder.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate, the
Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO
Rate or a Fixed Rate.
"Unrestricted Subsidiary" means any Subsidiary which is not
consolidated in the audited financial statements of the Borrower and any
Subsidiary which is a general partner in a partnership formed to own, lease or
operate bowling centers.
"U.S. Dollar Equivalent" means, in respect of any Competitive
Loan denominated in an Alternate Currency, the equivalent in U.S. Dollars of the
principal amount of such Competitive Loan, calculated for value on the date
specified therefor.
"U.S. Dollars" and "$" mean lawful money of the United States
of America.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
Section 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurocurrency Loan") or by Class
and Type (e.g., a "Eurocurrency Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurocurrency Borrowing") or by Class and Type (e.g., a "Eurocurrency
Revolving Borrowing").
Section 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the
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same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
Section 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
Section 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Revolving Loans to the Borrower
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Revolving Credit Exposure
exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit
Exposures plus the aggregate principal amount of outstanding Competitive Loans
exceeding the total Commitments. Within the foregoing limits and subject to the
terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Revolving Loans. For the purposes of determining the aggregate
principal amount of outstanding Competitive Loans as aforesaid on the date of
any Borrowing of Revolving Loans, each Loan of such Lender that is outstanding
in an Alternate Currency shall be equivalent to a Loan in a principal amount
equal to the U.S. Dollar Equivalent of such Loan determined as of the date of
such Borrowing.
Section 2.02. Loans and Borrowings.
(a) Each Revolving Loan shall be made as part of a Borrowing
consisting of Revolving Loans made by the Lenders ratably in accordance with
their respective Commitments. Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.04. The failure of any Lender to make
any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments and Competitive Bids of the
Lenders are several and no Lender shall be responsible for any other Lender's
failure to make Loans as required.
(b) Subject to Section 2.14, (i) each Revolving Borrowing
shall be comprised entirely of ABR Loans or Eurocurrency Loans denominated in
U.S. Dollars as the Borrower may request in accordance herewith, and (ii) each
Competitive Borrowing shall be comprised entirely of Eurocurrency Loans or Fixed
Rate Loans denominated in any Currency as the Borrower may request in accordance
herewith. Each Lender at its option may make any Eurocurrency Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such
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option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for
Eurocurrency Revolving Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $10,000,000. At the
time that each ABR Revolving Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$10,000,000; provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Commitments or
that is required to finance the reimbursement of an LC Disbursement as
contemplated by Section 2.06(e). Each Competitive Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$10,000,000 (or, in the case of a Competitive Borrowing denominated in an
Alternate Currency, the equivalent thereof in such Alternate Currency, rounded
to the nearest 1,000 units of such Alternate Currency). Borrowings of more than
one Type, Currency and Class may be outstanding at the same time; provided that
there shall not at any time be more than a total of 15 Eurocurrency Borrowings
outstanding (for which purpose, Eurocurrency Borrowings of different Classes or
denominated in different Currencies shall be deemed to be different Borrowings).
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date then in effect.
Section 2.03. Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Borrower shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurocurrency Borrowing, not later than
11:00 a.m., New York City time, three Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, on the date of the proposed Borrowing; provided that
any such notice of an ABR Revolving Borrowing to finance the reimbursement of an
LC Disbursement as contemplated by Section 2.06(e) shall be given not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurocurrency Borrowing;
(iv) in the case of a Eurocurrency Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account
maintained with the Administrative Agent in New York City to which funds are to
be disbursed, which shall comply with the requirements of Section 2.07.
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If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurocurrency Revolving Borrowing,
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration. Promptly following receipt of a Borrowing Request in
accordance with this Section, the Administrative Agent shall advise each Lender
of the details thereof and of the amount of such Lender's Revolving Loan to be
made as part of the requested Borrowing.
Section 2.04. Competitive Bid Procedure.
(a) Subject to the terms and conditions set forth herein, from
time to time during the Availability Period the Borrower may request Competitive
Bids and may (but shall not have any obligation to) accept Competitive Bids and
borrow Competitive Loans; provided that the sum of the total Revolving Credit
Exposures plus the aggregate principal amount of outstanding Competitive Loans
at any time shall not exceed the total Commitments. For the purposes of
determining the aggregate principal amount of outstanding Competitive Loans as
aforesaid on the date of any Borrowing of Competitive Loans, each Loan of such
Lender that is outstanding in an Alternate Currency shall be equivalent to a
Loan in a principal amount equal to the U.S. Dollar Equivalent of such Loan
determined as of the date of such Borrowing. To request Competitive Bids, the
Borrower shall notify the Administrative Agent of such request by telephone, (i)
in the case of a Eurocurrency Borrowing denominated in any Currency or a Fixed
Rate Borrowing denominated in an Alternate Currency, not later than 10:00 a.m.,
New York City time, four Business Days before the date of the proposed Borrowing
and (ii) in the case of a Fixed Rate Borrowing denominated in U.S. Dollars, not
later than 10:00 a.m., New York City time, one Business Day before the date of
the proposed Borrowing; provided that (x) the Borrower may submit up to (but not
more than) five Competitive Bid Requests on the same day, but a Competitive Bid
Request shall not be made within five Business Days after the date of any
previous Competitive Bid Request, unless any and all such previous Competitive
Bid Requests shall have been withdrawn or all Competitive Bids received in
response thereto rejected, and (y) there shall not at any time be more than a
total of 15 Eurocurrency Borrowings outstanding (for which purpose, Eurocurrency
Borrowings of different Classes and denominated in different Currencies shall be
deemed to be different Borrowings). Each such telephonic Competitive Bid Request
shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent of a written Competitive Bid Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Competitive Bid Request shall specify the following information in
compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurocurrency Borrowing
or a Fixed Rate Borrowing;
(iv) the Currency of such Borrowing;
(v) the Interest Period to be applicable to such Borrowing,
which shall be a period contemplated by the definition of the term
"Interest Period"; and
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(vi) the location and number of the Borrower's account
maintained with the Administrative Agent in New York City (if such
Borrowing is denominated in U.S. Dollars) and in the principal
financial center for the relevant Alternate Currency (if such Borrowing
is denominated in any Alternate Currency) to which funds are to be
disbursed, which shall comply with the requirements of Section 2.07.
Promptly following receipt of a Competitive Bid Request in
accordance with this Section, the Administrative Agent shall notify the Lenders
of the details thereof by telecopy, inviting the Lenders to submit Competitive
Bids.
(b) Each Lender may (but shall not have any obligation to)
make one or more Competitive Bids to the Borrower in response to a Competitive
Bid Request (which may be in an amount up to or in excess of such Lender's
Commitment). Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, (i) in the case of a Eurocurrency Competitive Borrowing or a Fixed
Rate Borrowing denominated in an Alternate Currency, not later than 10:00 a.m.,
New York City time, three Business Days before the proposed date of such
Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing denominated
in U.S. Dollars, not later than 10:00 a.m., New York City time, on the proposed
date of such Competitive Borrowing. Competitive Bids that do not conform
substantially to the form approved by the Administrative Agent may be rejected
by the Administrative Agent, and the Administrative Agent shall notify the
applicable Lender as promptly as practicable. Each Competitive Bid shall specify
(i) the principal amount (which shall be a minimum of $10,000,000 and an
integral multiple of $1,000,000 (or, in the case of a Competitive Bid
denominated in an Alternate Currency, the equivalent thereof in such Alternate
Currency, rounded to the nearest 1,000 units of such Alternate Currency) and
which may equal the entire principal amount of the Competitive Borrowing
requested by the Borrower) of the Competitive Loan or Loans that the bidding
Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the
bidding Lender is prepared to make such Loan or Loans (expressed as a percentage
rate per annum in the form of a decimal to no more than four decimal places) and
(iii) the Interest Period applicable to each such Loan and the last day thereof.
(c) The Administrative Agent shall promptly notify the
Borrower by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Lender that shall have
made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, the
Borrower may accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, (i) in the case of a Eurocurrency Competitive
Borrowing or a Fixed Rate Borrowing denominated in an Alternate Currency, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing denominated in U.S. Dollars, not later than 11:00 a.m., New York City
time, on the proposed date of the Competitive Borrowing; provided, that (i) the
failure of the Borrower to give such notice shall be deemed to be a rejection of
each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made
at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid
made at a lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by the Borrower shall not exceed the aggregate amount
of the requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, the
Borrower may accept
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Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in
the case of multiple Competitive Bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such Competitive Bid, and
(v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $10,000,000 and an integral multiple of $1,000,000 (or, in the case of
a Competitive Loan denominated in an Alternate Currency, the equivalent thereof
in such Alternate Currency, rounded to the nearest 1,000 units of such Alternate
Currency); provided further that if a Competitive Loan must be in an amount less
than $10,000,000 because of the provisions of clause (iv) above, such
Competitive Loan may be for a minimum of $1,000,000 or any integral multiple
thereof (or, in the case of a Competitive Loan denominated in an Alternate
Currency, the equivalent thereof in such Alternate Currency, rounded to the
nearest 1,000 units of such Alternate Currency), and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 (or, in the case of a Competitive
Loan denominated in an Alternate Currency, the equivalent thereof in such
Alternate Currency, rounded to the nearest 1,000 units of such Alternate
Currency) in a manner determined by the Borrower. A notice given by the Borrower
pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Lender by telecopy whether or not its Competitive Bid has been accepted
(and, if so, the amount and Competitive Bid Rate so accepted), and each
successful bidder will thereupon become bound, subject to the terms and
conditions hereof, to make the Competitive Loan in respect of which its
Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such Competitive
Bid directly to the Borrower at least one quarter of an hour earlier than the
time by which the other Lenders are required to submit their Competitive Bids to
the Administrative Agent pursuant to paragraph (b) of this Section.
Section 2.05. Extension of Maturity Date.
(a) The Borrower may, at its option, by written notice to the
Administrative Agent in substantially the form of Exhibit C hereto (an
"Extension Request") no earlier than 45 days and no later than 30 days prior to
the date four years prior to the Maturity Date then in effect, request that the
Lenders extend such Maturity Date to the date one year after the Maturity Date
then in effect, such extension to be effective as of such date four years prior
to the Maturity Date then in effect (the "Commitment Extension Date"); provided
that no more than two such extensions may be requested by the Borrower. Such
request shall be irrevocable and binding upon the Borrower. The Administrative
Agent shall promptly notify each Lender of such request. If a Lender agrees, in
its individual and sole discretion, to so extend its Commitment (each such
Lender being an "Extending Lender"), it shall deliver to the Administrative
Agent a written notice in substantially the form of Exhibit D hereto of its
agreement to do so no earlier than 25 days and no later than 15 days prior to
the Commitment Extension Date specified in the Extension Request, and the
Administrative Agent shall notify the Borrower in writing of such Extending
Lender's agreement to extend its Commitment no later than 10 days prior to such
Commitment Extension Date. Subject to the satisfaction of the conditions set
forth in Section 4.02 as of such Commitment Extension Date, if Lenders holding
more than 66-2/3% of the aggregate Commitments consent in writing to such
extension, the Maturity Date shall, effective as of
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such Commitment Extension Date, be extended to the date one year after the
Maturity Date then in effect.
(b) If any Lender does not consent, or fails to respond within
the time period set forth in Section 2.05(a), to a request by the Borrower for
an extension of the Maturity Date then in effect (each such Lender being a
"Declining Lender"), such Declining Lender's Commitment shall (unless assigned
to another Lender that is not a Declining Lender in accordance with Section
2.05(c)) be reduced to zero on the Maturity Date then in effect. All outstanding
Loans provided by such Declining Lender shall (unless all of such Loans are
assigned to another Lender that is not a Declining Lender in accordance with
Section 2.05(c)) mature no later than the Maturity Date in effect prior to
giving effect to such extension described in this Section 2.05.
(c) During the period from but excluding the date 15 days
prior to, but not more than 90 days after, the Commitment Extension Date, any
Declining Lender, may, at the Borrower's option, be replaced with one or more
Extending Lenders and/or Assuming Lenders (each of which Assuming Lenders shall
be deemed to have consented to the Extension Request as of that Commitment
Extension Date), provided that, (x) with respect to each such Extending Lender
or Assuming Lender, the Administrative Agent shall have received an appropriate
Assignment and Acceptance in substantially the form of Exhibit A hereto, duly
executed by the relevant Declining Lender (which the Declining Lender hereby
agrees to execute and deliver upon receipt of payment of an amount equal to the
outstanding principal of its Loans and participations in LC Disbursements,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder) and such Extending Lender or Assuming Lender in accordance with
Section 9.04 an (y) with respect to each such Assuming Lender, the Borrower
shall have paid, or caused such Assuming Lender to pay, the processing and
recordation fee referred to in Section 9.04(b). Upon its receipt of an
Assignment and Acceptance, duly executed and completed as aforesaid in the form
specified above, the Administrative Agent shall (x) accept such Assignment and
Acceptance, (y) record the information contained therein in the Register and (z)
give prompt notice thereof to the Borrower.
Section 2.06. Letters of Credit.
(a) General. Subject to the terms and conditions set forth
herein, the Borrower may request the issuance of Letters of Credit for its own
account, in a form reasonably acceptable to the Administrative Agent and the
Issuing Bank, at any time and from time to time during the Availability Period.
In the event of any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by the Borrower to, or entered into by
the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms
and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, the date of issuance, amendment, renewal or extension, the
date on which such Letter of Credit is to expire (which shall comply with
paragraph (c) of this Section), the amount of such Letter of Credit, whether
such Letter of Credit is a commercial
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letter of credit or standby letter of credit, the name and address of the
beneficiary thereof and such other information as shall be necessary to prepare,
amend, renew or extend such Letter of Credit. If requested by the Issuing Bank,
the Borrower also shall submit a letter of credit application on the Issuing
Bank's standard form in connection with any request for a Letter of Credit. A
Letter of Credit shall be issued, amended, renewed or extended only if (and upon
issuance, amendment, renewal or extension of each Letter of Credit the Borrower
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment renewal or extension (i) the LC Exposure shall not exceed
$30,000,000 and (ii) the sum of the total Revolving Credit Exposures plus the
aggregate principal amount of outstanding Competitive Loans shall not exceed the
total Commitments. For the purposes of determining the aggregate principal
amount of outstanding Competitive Loans as aforesaid on the date of issuance of
any Letter of Credit, each Loan of such Lender that is outstanding in an
Alternate Currency shall be equivalent to a Loan in a principal amount equal to
the U.S. Dollar Equivalent of such Loan determined as of the date of issuance of
such Letter of Credit.
(c) Expiration Date. Each Letter of Credit shall expire at or
prior to the close of business on the date that is five Business Days prior to
the Maturity Date then in effect.
(d) Participations. By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Lender, and each Lender hereby acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Lender's
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and in furtherance of the foregoing, each
Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage
of each LC Disbursement made by the Issuing Bank and not reimbursed by the
Borrower on the date due as provided in paragraph (e) of this Section with a
Borrowing from such Lender, or of any reimbursement payment required to be
refunded to the Borrower for any reason. Each Lender acknowledges and agrees
that its obligation to acquire participations pursuant to this paragraph in
respect of Letters of Credit is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including any amendment, renewal or
extension of any Letter of Credit or the occurrence and continuance of a Default
or reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such
LC Disbursement not later than 12:00 noon, New York City time, on (i) the
Business Day that the Borrower receives notice of such LC Disbursement, if such
notice is received prior to 10:00 a.m., New York City time, on the day of
receipt, or (ii) the Business Day immediately following the day that the
Borrower receives such notice, if such notice is not received prior to such time
on the day of receipt; provided that the Borrower may, subject to the conditions
to borrowing set forth herein, request in accordance with Section 2.03 that such
payment be financed with an ABR Revolving Borrowing in an equivalent amount and,
to the extent so financed, the Borrower's obligation to make such payment shall
be discharged and replaced by the resulting ABR Revolving Borrowing. If the
Borrower fails to make such payment when due, the Administrative Agent shall
notify each Lender of the applicable LC Disbursement, the payment then due from
the Borrower in respect thereof and such Lender's Applicable Percentage thereof.
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in
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Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall
apply, mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear. Any payment made by a Lender pursuant to
this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Revolving Loans as contemplated above) shall not constitute a
Loan and shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
strictly with the terms of such Letter of Credit, or (iv) any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section, constitute a legal or equitable
discharge of the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing
Bank, nor any of their Related Parties, shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission
or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from
causes beyond the control of the Issuing Bank; provided that the foregoing shall
not be construed to excuse the Issuing Bank from liability to the Borrower to
the extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank's
failure to exercise the standard of care agreed hereunder to be applicable when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that
such standard of care shall be as follows, and that the Issuing Bank shall be
deemed to have exercised such standard of care in the absence of gross
negligence or willful misconduct on its part (as determined by a court of
competent jurisdiction): (i) the Issuing Bank may accept documents that appear
on their face to be in substantial compliance with the terms of a Letter of
Credit without responsibility for further investigation, regardless of any
notice or information to the contrary, and may make payment upon presentation of
documents that appear on their face to be in substantial compliance with the
terms of such Letter of Credit; and (ii) the Issuing Bank shall have the right,
in its sole discretion, to decline to accept such documents and to make such
payment if such documents are not in strict compliance with the terms of such
Letter of Credit.
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(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.13(d) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing
Bank shall be for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.12(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent or the Required Lenders (or, if the maturity of
the Loans has been accelerated, Lenders with LC Exposure representing more than
50% of the total LC Exposure) demanding the deposit of cash collateral pursuant
to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. Such deposit shall be
held by the Administrative Agent as collateral for the payment and performance
of the obligations of the Borrower under this Agreement. The Administrative
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits, which investments shall be made at the option and
sole discretion of the Administrative Agent and at the Borrower's risk and
expense, such deposits shall not bear
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interest. Interest or profits, if any, on such investments shall accumulate in
such account. Moneys in such account shall be applied by the Administrative
Agent to reimburse the Issuing Bank for LC Disbursements for which it has not
been reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated (but
subject to the consent of Lenders with LC Exposure representing more than 50% of
the total LC Exposure), be applied to satisfy other obligations of the Borrower
under this Agreement. If the Borrower is required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, such
amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three Business Days after all Events of Default have been cured
or waived.
Section 2.07. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds by 12:00 noon, New York City time, to the account of the Administrative
Agent most recently designated by it for such purpose by notice to the Lenders.
The Administrative Agent will make such Loans available to the Borrower by
promptly crediting the amounts so received, in like funds, to an account of the
Borrower maintained with the Administrative Agent in New York City (if such
Borrowing is denominated in U.S. Dollars) or in the principal financial center
for the relevant Currency (if such Borrowing is denominated in an Alternate
Currency) and designated by the Borrower in the applicable Borrowing Request or
Competitive Bid Request; provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be
remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the Federal Funds Effective Rate if such Loan
is denominated in U.S. Dollars) or at the overnight London interbank offered
rate for the relevant Alternate Currency determined by the Administrative Agent
in good faith (if such Loan is denominated in such Currency) or (ii) in the case
of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays
such amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing (and such Lender shall, subject to
clause (i) above, be entitled to interest paid by the Borrower on such Borrowing
from the date thereof). With respect to any share of a Borrowing not made
available by a Lender as contemplated above, if such Lender subsequently pays
its share of such Borrowing to the Administrative Agent, then the Administrative
Agent shall promptly repay any corresponding amount paid by the Borrower to the
Administrative Agent as provided in this Section 2.07(b).
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Section 2.08. Interest Elections.
(a) Each Revolving Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurocurrency
Revolving Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing
to a different Type or to continue such Borrowing and, in the case of a
Eurocurrency Revolving Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The Borrower may elect different options with respect
to different portions of the affected Borrowing, in which case each such portion
shall be allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing. This Section shall not apply to Competitive Borrowings,
which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Revolving Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurocurrency Borrowing; and
(iv) if the resulting Borrowing is a Eurocurrency Borrowing,
the Interest Period to be applicable thereto after giving effect to
such election, which shall be a period contemplated by the definition
of the term "Interest Period".
If any such Interest Election Request requests a Eurocurrency
Borrowing but does not specify an Interest Period, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
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(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurocurrency Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurocurrency Borrowing
and (ii) unless repaid, each Eurocurrency Revolving Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 2.09. Termination, Reduction and Increase of
Commitments.
(a) Unless previously terminated, the Commitments shall
terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to
time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $25,000,000
and (ii) the Borrower shall not terminate or reduce the Commitments if, after
giving effect to any concurrent prepayment of the Loans in accordance with
Section 2.11, the sum of the Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans would exceed the total
Commitments.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
(d) (i) The Borrower may at any time, by notice to the
Administrative Agent, propose that the total amount of the Commitments be
increased (each such proposed increase being a "Commitment Increase"),
effective as of a date (the "Commitment Increase Date") that shall be specified
in such notice and that shall be not later than the fifth anniversary of the
date hereof; provided that:
(A) the Borrower may not propose more than one Commitment
Increase during any calendar quarter,
(B) the proposed Commitment Increase in respect of the
Commitment of either (i) any Increasing Lender or (ii) any Assuming
Lender for each Commitment Increase Date shall be in the total amount
of no less than $10,000,000 and an integral multiple of $1,000,000 in
excess thereof,
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(C) in no event shall the total amount of the Commitments
after giving effect to such Commitment Increase exceed $600,000,000,
(D) no Default shall have occurred and be continuing on such
Commitment Increase Date or shall result from the proposed Commitment
Increase,
(E) the representations and warranties contained in Article
III shall be correct on and as of the Commitment Increase Date as if
made on and as of such date,
(F) immediately after giving effect to such Commitment
Increase, no Lender shall hold more than 20% of the total amount of the
Commitments, and
(G) no Commitment Increase may, unless the Borrower shall
indemnify each Lender for any loss, cost and expense attributable to
such Commitment Increase in accordance with Section 2.16, be effected
other than on a day (x) on which no Eurocurrency Loans are outstanding
or (y) that is the last day of an Interest Period for all outstanding
Eurocurrency Loans.
The Administrative Agent shall notify the Lenders of a proposed Commitment
Increase promptly upon its receipt of any notice from the Borrower with respect
to such proposed Commitment Increase. It shall be in each Lender's sole
discretion whether to increase its Commitment hereunder in connection with any
proposed Commitment Increase. No later than 10 Business Days after its receipt
of the Borrower's notice proposing a Commitment Increase, each Lender that is
willing to increase its Commitment hereunder (each such Lender being an
"Increasing Lender") shall deliver to the Administrative Agent a notice in which
such Lender shall set forth the maximum increase in its Commitment to which such
Lender is willing to agree, and the Administrative Agent shall promptly provide
to the Borrower a copy of such Increasing Lender's notice.
(ii) If agreement is reached prior to the relevant Commitment
Increase Date with any Increasing Lenders and Assuming Lenders, if any, as to a
Commitment Increase, the Borrower shall deliver, no later than one Business Day
prior to such Commitment Increase Date, a notice of such agreement in reasonable
detail to the Administrative Agent (and the Administrative Agent shall give
notice thereof to the Lenders, including any Assuming Lenders). The Assuming
Lenders, if any, shall become Lenders hereunder as of such Commitment Increase
Date and the Commitments of any Increasing Lenders and such Assuming Lenders
shall become or be, as the case may be, as of such Commitment Increase Date, the
amounts specified in the notice delivered by the Borrower to the Administrative
Agent; provided that:
(x) the Administrative Agent shall have received on or prior
to 9:00 A.M. (New York City time) on such Commitment Increase Date a
certificate of a duly authorized officer of the Borrower stating that
each of the applicable conditions to such Commitment Increase set forth
in clause (i) of this Section 2.09(d) has been satisfied;
(y) with respect to each Assuming Lender, the Administrative
Agent shall have received, on or prior to 9:00 A.M. (New York City
time) on such Commitment Increase Date, an appropriate Assumption
Agreement in substantially the form of Exhibit E hereto, duly executed
by such Assuming Lender and the Borrower and acknowledged by the
Administrative Agent; and
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(z) each Increasing Lender shall have delivered to the
Administrative Agent, on or prior to 9:00 A.M. (New York City time) on
such Commitment Increase Date, confirmation in writing satisfactory to
the Administrative Agent as to its increased Commitment, with a copy of
such confirmation to the Borrower.
(iii) In the event that the Administrative Agent shall have
received notice from the Borrower as to any agreement with respect to a
Commitment Increase or shall have received an Assumption Agreement from any
Assuming Lender on or prior to the relevant Commitment Increase Date and the
actions provided for in clauses (ii)(x) through (ii)(z) above shall have
occurred by 9:00 A.M. (New York City time) on such Commitment Increase Date, the
Administrative Agent shall (x) notify the Lenders (including any Assuming
Lenders) and the Borrower of the occurrence of such Commitment Increase Date
promptly and in any event by 10:00 A.M. (New York City time) on such date by
facsimile transmission, (y) with respect to any Assuming Lender, (A) accept the
Assumption Agreement referred to in clause (ii)(y) above and (B) record the
information contained therein in the Register and (z) with respect to any
Increasing Lender, record the information contained in the confirmation referred
to in clause (ii)(z) above in the Register. Each Increasing Lender and each
Assuming Lender shall, before 11:00 A.M. (New York City time) on such Commitment
Increase Date, make available for the account of its lending office to the
Administrative Agent at the account of the Administrative Agent specified for
Loans denominated in U.S. Dollars, in same day funds, an amount equal to such
Increasing Lender's or such Assuming Lender's ratable portion of the Revolving
Borrowings then outstanding (calculated based on its Commitment as a percentage
of the aggregate Commitments outstanding after giving effect to the relevant
Commitment Increase). After the Administrative Agent's receipt of such funds,
the Administrative Agent will promptly thereafter cause to be distributed like
funds to the Lenders for the account of their respective lending offices in an
amount to each Lender such that the aggregate amount of the outstanding
Revolving Loans owing to each Lender after giving effect to such distribution
equals such Lender's ratable portion of the Revolving Borrowings then
outstanding (calculated based on its Applicable Percentage after giving effect
to the relevant Commitment Increase).
Section 2.10. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay (i) to
the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Revolving Loan on the Maturity Date and (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Competitive Loan on the last day of the Interest Period
applicable to such Loan.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
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(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
Section 2.11. Prepayment of Loans.
(a) The Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to prior
notice in accordance with paragraph (b) of this Section; provided that the
Borrower shall not have the right to prepay any Competitive Loan without the
prior consent of the Lender thereof.
(b) The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment of any Revolving Borrowing
hereunder (i) in the case of prepayment of a Eurocurrency Revolving Borrowing,
not later than 11:00 a.m., New York City time, three Business Days before the
date of repayment or (ii) in the case of prepayment of an ABR Revolving
Borrowing, not later than 11:00 a.m., New York City time, on the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid; provided that, if a notice of prepayment is given in connection with
a conditional notice of termination of the Commitments as contemplated by
Section 2.09, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.09. Promptly following
receipt of any such notice relating to a Revolving Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.
Section 2.12. Fees.
(a) The Borrower agrees to pay to the Administrative Agent for
the account of each Lender a facility fee, which shall accrue at the Applicable
Rate on the daily amount of the Commitment of such Lender (whether used or
unused) during the period from and including the date hereof to but excluding
the date on which such Commitment terminates; provided that, if such Lender
continues to have any Revolving Credit Exposure after its Commitment terminates,
then such facility fee shall continue to accrue on the daily amount of such
Lender's Revolving Credit Exposure from and including the date on which its
Commitment terminates to but excluding the date on which such Lender ceases to
have any Revolving Credit Exposure. Accrued facility fees shall be payable in
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arrears on the last day of March, June, September and December of each year and
on the date on which the Commitments terminate, commencing on the first such
date to occur after the date hereof; provided that any facility fees accruing
after the date on which the Commitments terminate shall be payable on demand.
All facility fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at a rate per annum
equal to the Applicable Rate applicable to interest on Eurocurrency Revolving
Loans on the average daily amount of such Lender's LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the period
from and including the Effective Date to but excluding the later of the date on
which such Lender's Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee,
which shall accrue at the rate or rates per annum separately agreed upon between
the Borrower and the Issuing Bank on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure, as well as the Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the third Business Day
following such last day, commencing on the first such date to occur after the
Effective Date; Provided that all such fees shall be payable on the date on
which the Commitments terminate and any such fees accruing after the date on
which the Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
facility fees and participation fees, to the Lenders. Fees paid shall not be
refundable under any circumstances.
Section 2.13. Interest
(a) The Loans comprising each ABR Borrowing shall bear
interest at a rate per annum equal to the Alternate Base Rate.
(b) The Loans comprising each Eurocurrency Borrowing shall
bear interest at a rate per annum equal to (i) in the case of a Eurocurrency
Revolving Loan, the Adjusted LIBO Rate for the Interest Period in effect for
such Borrowing plus the Applicable Rate, or (ii) in the case of a Eurocurrency
Competitive Loan, the LIBO Rate for the Interest Period in effect for such
Borrowing plus (or minus, as applicable) the Margin applicable to such Loan.
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(c) Each Fixed Rate Loan shall bear interest at a rate per
annum equal to the Fixed Rate applicable to such Loan.
(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided above
or (ii) in the case of any other amount, 2% plus the rate applicable to ABR
Loans as provided above.
(e) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan; provided that (i) interest accrued
pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment, (iii) in the event of any conversion of any
Eurocurrency Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion and (iv) all accrued interest shall be payable upon
termination of the Commitments.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.
Section 2.14. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurocurrency Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO
Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders (or, in the case of a Eurocurrency Competitive Loan, the Lender
that is required to make such Loan) that the Adjusted LIBO Rate or the
LIBO Rate, as applicable, for such Interest Period will not adequately
and fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for
such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurocurrency Borrowing shall be
ineffective, (ii) if any Borrowing Request requests a Eurocurrency Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any
request by the Borrower for a Eurocurrency Competitive Borrowing shall be
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ineffective; provided that (A) if the circumstances giving rise to such notice
do not affect all the Lenders, then requests by the Borrower for Eurocurrency
Competitive Borrowings may be made to Lenders that are not affected thereby and
(B) if the circumstances giving rise to such notice affect only one Type of
Borrowing, then the other Type of Borrowing shall be permitted.
Section 2.15. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurocurrency Loans or Fixed Rate Loans made by such Lender or any
Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurocurrency Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to increase the cost to
such Lender or the Issuing Bank of participating in, issuing or maintaining any
Letter of Credit or to reduce the amount of any sum received or receivable by
such Lender or the Issuing Bank hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as
the case may be, such additional amount or amounts as will compensate such
Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender's
or the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such compensation;
provided that the Borrower shall not be required to
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compensate a Lender or the Issuing Bank pursuant to this Section for any
increased costs or reductions incurred more than six months prior to the date
that such Lender or the Issuing Bank, as the case may be, notifies the Borrower
of the Change in Law giving rise to such increased costs or reductions and of
such Lender's or the Issuing Bank's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the six-month period referred to above shall
be extended to include the period of retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section,
a Lender shall not be entitled to compensation pursuant to this Section in
respect of any Competitive Loan if the Change in Law that would otherwise
entitle it to such compensation shall have been publicly announced prior to
submission of the Competitive Bid pursuant to which such Loan was made.
Section 2.16. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than
on the last day of an Interest Period applicable thereto (including as a result
of an Event of Default), (b) the conversion of any Eurocurrency Loan other than
on the last day of the Interest Period applicable thereto, (c) the failure to
borrow, convert, continue or prepay any Revolving Loan on the date specified in
any notice delivered pursuant hereto (regardless of whether such notice is
permitted to be revocable under Section 2.11(b) and is revoked in accordance
herewith), (d) the failure to borrow any Competitive Loan after accepting the
Competitive Bid to make such Loan or (e) the assignment of any Eurocurrency Loan
or Fixed Rate Loan other than on the last day of the Interest Period applicable
thereto as a result of the exercise by the Borrower of its rights under any of
Section 2.05(c), 2.09(d) or 2.19, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurocurrency Loan, the loss to any Lender attributable
to any such event shall be deemed to include an amount determined by such Lender
to be equal to the excess, if any, of (i) the amount of interest that such
Lender would pay for a deposit equal to the principal amount of such Loan for
the period from the date of such payment, conversion, failure or assignment to
the last day of the then current Interest Period for such Loan (or, in the case
of a failure to borrow, convert or continue, the duration of the Interest Period
that would have resulted from such borrowing, conversion or continuation) if the
interest rate payable on such deposit were equal to the Adjusted LIBO Rate for
such Interest Period, over (ii) the amount of interest that such Lender would
earn on such principal amount for such period if such Lender were to invest such
principal amount for such period at the interest rate that would be bid by such
Lender (or an affiliate of such Lender) for deposits in the relevant Currency
from other banks in the London interbank market at the commencement of such
period. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.17. Taxes.
(a) Any and all payments by or on account of any obligation of
the Borrower hereunder shall be made free and clear of and without deduction for
any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Person entitled to receive such payment receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and
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(iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
each Lender and the Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) paid by the Administrative Agent, such
Lender or the Issuing Bank, as the case may be, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not
such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Lender or the
Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a
Lender or the Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or at a reduced rate.
Section 2.18. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs.
(a) The Borrower shall make each payment required to be made
by it hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00
noon local time in New York (in the case of payments in U.S. Dollars) or in the
principal financial center for the relevant Alternate Currency (in the case of
payments in such Alternate Currency), on the date when due, in immediately
available funds, without set-off or counterclaim except as expressly provided in
Section 9.08(b). Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent by wire transfer of
immediately available funds by 12:00 noon local time in New York (in the case of
payments in U.S. Dollars) or in the principal financial center for the relevant
Alternate Currency (in the case of payments in such Alternate Currency), to the
account of the Administrative Agent most recently designated by it for such
purpose by notice to the Borrower, except payments to be made directly to the
Issuing Bank as expressly provided herein and except that payments pursuant to
Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
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received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, to pay interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, to pay principal and
unreimbursed LC Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements
resulting in such Lender receiving payment of a greater proportion of the
aggregate amount of its Revolving Loans and participations in LC Disbursements
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans and participations in LC
Disbursements of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective
Revolving Loans and participations in LC Disbursements; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this paragraph shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with such interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the Federal Funds Effective Rate (if
such Loan is denominated in U.S. Dollars) or at the overnight
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London interbank offered rate for the relevant Alternate Currency (if such Loan
is denominated in an Alternate Currency).
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.06(d) or (e), 2.07(b) or 2.18(d), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
Section 2.19. Mitigation Obligations: Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.15, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be,
in the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Borrower shall have received the
prior written consent of the Administrative Agent (and, if a Commitment is being
assigned, the Issuing Bank), which consent shall not unreasonably be withheld,
(ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans (other than Competitive Loans) and
participations in LC Disbursements, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts), (iii) the Borrower shall have paid, or caused
such assignee to pay, the processing and recordation fee referred to in Section
9.04(b) and (iv) in the case of any such assignment resulting from a claim for
compensation under Section 2.15 or payments required to be made pursuant to
Section 2.17, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
(c) If any Person becomes a Lender, or assumes all or any
portion of the Commitment of another Lender, pursuant to Section 2.05(c) or
2.09(d), then the Administrative Agent and the Lenders shall purchase (for cash
at face value) direct interests in the Revolving Loans and participations in LC
Disbursements of other Lenders (together with related claims for interest and
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facility fee) to the extent necessary so that, immediately after giving effect
thereto, the percentage interest held by each Lender in each Revolving Borrowing
and each participation in an LC Disbursement is equal to such Lender's
Applicable Percentage. The Borrower consents to the foregoing. Any such purchase
of an interest in a Eurocurrency Revolving Loan, and any purchase by an
Extending Lender or an Assuming Lender of an interest in a Fixed Rate Loan, is
subject to Section 2.16.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
Section 3.01. Organization; Powers. Each of the Borrower and
the Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
Section 3.02. Authorization; Enforceability. The Borrower has
the corporate power and authority and legal right to execute and deliver this
Agreement, consummate the Transactions and to perform its obligations hereunder.
The execution and delivery by the Borrower of this Agreement, the consummation
of the Transactions and the performance of its obligations hereunder have been
duly authorized by proper corporate proceedings, and this Agreement and the
Transactions constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
Section 3.03. Governmental Approvals; No Conflicts. Neither
the execution and delivery by the Borrower of this Agreement, nor the
consummation of the Transactions, nor compliance with the provisions hereof,
will violate any law, rule, regulation, order, writ, judgment, injunction,
decree or award of any Governmental Authority binding on the Borrower or any
Subsidiary or the Borrower's or any Subsidiary's articles of incorporation or
by-laws or the provisions of any indenture, instrument or agreement to which the
Borrower or any Subsidiary is a party or is subject, or by which it, or its
property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the property of
the Borrower or a Subsidiary pursuant to the terms of any such indenture,
instrument or agreement. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
Governmental Authority, is required to authorize, or is required in connection
with the execution, delivery and performance of, or the legality, validity,
binding effect or enforceability of, this Agreement or the consummation of the
Transactions.
Section 3.04. Financial Condition; No Material Adverse Change.
(a) The December 31, 1996 audited consolidated financial
statements of the Borrower and the Subsidiaries, and the March 31, 1997
unaudited consolidated financial statements of the Borrower and the
Subsidiaries, heretofore delivered to the Lenders were prepared in accordance
with GAAP in effect on the date such statements were prepared, fairly present
the consolidated financial
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condition and operations of the Borrower and the Subsidiaries at their
respective dates and the consolidated results of their operations for the fiscal
year and fiscal quarter, respectively, then ended and are true, accurate and
complete in all material respects.
(b) Since December 31, 1996, there has been no material
adverse change in the business, financial condition, prospects or results of
operations of the Borrower and the Subsidiaries, taken as a whole.
Section 3.05. Litigation; Etc.
(a) Schedule 3.05 hereto describes certain pending litigation,
and as of the date hereof the Borrower does not expect such litigation to have a
Material Adverse Effect. There is no other litigation or proceeding pending or,
to the knowledge of any of their officers, threatened against or affecting the
Borrower or any Subsidiary which has a substantial likelihood of having a
Material Adverse Effect.
(b) Except with respect to any matters that, individually or
in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect, neither the Borrower nor any of the Subsidiaries (i) has failed
to comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii)
has become subject to any Environmental Liability, (iii) has received notice of
any claim with respect to any Environmental Liability or (iv) knows of any basis
for any Environmental Liability.
Section 3.06. Investment and Holding Company Status. Neither
the Borrower nor any of the Subsidiaries is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940,
as amended, or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935, as amended.
Section 3.07. Taxes. The Borrower and its consolidated
Subsidiaries have filed all United States federal tax returns and all other tax
returns which are currently due and required to be filed and have paid all taxes
due pursuant to said returns or pursuant to any assessment received by the
Borrower or any Subsidiary, except such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided in conformity
with GAAP. The United States income tax returns of the Borrower and the
Subsidiaries have been audited by the Internal Revenue Service through the
calendar year ended December 31, 1988. No tax liens have been filed and the
reserves on the books of the Borrower and the Subsidiaries in respect of any
taxes or other governmental charges are, to the best of the Borrower's
knowledge, adequate.
Section 3.08. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect.
Section 3.09. Disclosure. The Borrower has disclosed to the
Lenders all agreements, instruments and corporate or other restrictions to which
it or any of the Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Borrower to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or delivered hereunder (as modified or
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supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Section 3.10. Margin Stock. Margin stock (as defined in
Regulation U of the Board) constitutes less than 25% of those assets of the
Borrower and the Subsidiaries which are subject to any limitation on sale,
pledge, or other restriction hereunder.
Section 3.11. Material Agreements. Neither the Borrower nor
any Subsidiary is a party to any agreement or instrument or subject to any
charter or other corporate restriction materially and adversely affecting its
business, properties or assets, operations or condition (financial or
otherwise). Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (i) any agreement to which it is a party, which default
might have a material adverse effect on the business, properties or assets,
operations, or condition (financial or otherwise) of the Borrower and the
Subsidiaries or (ii) any agreement or instrument evidencing or governing
Indebtedness.
ARTICLE IV
Conditions
Section 4.01. Effective Date. The obligations of the Lenders
to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Mary D. Allen, Esq., Vice President
and General Counsel, substantially in the form of Exhibit B, and
covering such other matters relating to the Borrower, this Agreement or
the Transactions as the Required Lenders shall reasonably request. The
Borrower hereby requests such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and
good standing of the Borrower, the authorization of the Transactions
and any other legal matters relating to the Borrower, this Agreement or
the Transactions, all in form and substance satisfactory to the
Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
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(e) The Administrative Agent shall have received evidence of
the termination of all commitments to extend credit under, the
termination or replacement of all letters of credit issued under, and
the payment of all principal, interest, fees and other amounts owing
under, the Long-Term Credit Agreement dated as of November 8, 1993 (the
"Long-Term Credit Agreement") among the Borrower, the banks party
thereto and The First National Bank of Chicago, as agent.
(f) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the
Borrower hereunder.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 3:00 p.m., New York City time, on May 30, 1997 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).
Section 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, of each Extending Lender with
respect to the extension of the Maturity Date then in effect pursuant to Section
2.05 and of the Issuing Bank to issue, amend, renew or extend any Letter of
Credit, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower set
forth in this Agreement (other than in Section 3.04(b) or, insofar as
clause (a) of the definition of "Material Adverse Effect" is concerned,
Section 3.05(a)) shall be true and correct on and as of the date of
such Borrowing, extension of the Maturity Date or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as
applicable.
(b) At the time of and immediately after giving effect to such
Borrowing, the extension of the Maturity Date or the issuance,
amendment, renewal or extension of such Letter of Credit, as
applicable, no Default shall have occurred and be continuing.
Each Borrowing, each extension of the Maturity Date and each issuance,
amendment, renewal or extension of a Letter of Credit shall be deemed to
constitute a representation and warranty by the Borrower on the date thereof as
to the matters specified in paragraphs (a) and (b) of this Section. The
extension of the Maturity Date pursuant to Section 2.05 for each Extending
Lender, if any, shall be subject to the further conditions precedent that the
other applicable conditions precedent to such extension set forth in Section
2.05 shall have been satisfied (and the giving by the Borrower of the Extension
Request shall be deemed to constitute a representation and warranty by the
Borrower that on the date of such extension such conditions will be satisfied).
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ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:
Section 5.01. Financial Reporting. The Borrower will
maintain, for itself and each Subsidiary, a system of accounting established and
administered in accordance with GAAP, and furnish to the Lenders:
(a) Within 90 days after and as of the close of each fiscal year,
financial statements, examined and reported on by independent
certified public accountants chosen by the Borrower and acceptable
to the Lenders, including a consolidated balance sheet and
consolidated statements of results of operations, shareholders'
equity and cash flows of the Borrower and the Subsidiaries,
accompanied by a certificate of the independent accountants that,
in the course of their examination of the Borrower's financial
statements, in accordance with generally accepted auditing
standards, they have obtained no knowledge of any Default, or if,
in the opinion of such accountants, any Default shall exist,
stating the nature and status thereof. Each such audit report shall
be unqualified, except as to qualifications relating to changes in
accounting principles with which such accountants concur;
(b) Within 60 days after and as of the close of each of the first three
quarters of the Borrower's fiscal years, interim unaudited
consolidated balance sheets and consolidated statements of results
of operations and cash flows of the Borrower and the Subsidiaries,
certified by its principal Financial Officer as presenting fairly
in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments and the absence of
footnotes;
(c) Together with the financial statements required hereunder, a
compliance certificate signed by its principal Financial Officer
showing the calculations necessary to determine compliance with
Section 6.01 of this Agreement and stating that no Default exists,
or if any Default exists, stating the nature and status thereof;
(d) Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished;
(e) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports,
excluding exhibits and attachments to such registration statements
and reports which are too voluminous to furnish which the Borrower
or any Subsidiary files with the SEC;
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(f) Promptly after the Borrower or any Subsidiary obtains knowledge
thereof, notice of any Default, accompanied by a statement of a
Financial Officer or other executive officer of the Borrower
setting forth the details of the event or development requiring
such notice and any action taken or proposed to be taken with
respect thereto;
(g) Promptly after the Borrower or any Subsidiary obtains knowledge
thereof, notice of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected
to result in liability of the Borrower and the Subsidiaries in an
aggregate amount exceeding $10,000,000; and
(h) Promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition
of the Borrower or any Subsidiary, or compliance with the terms of
this Agreement, as the Administrative Agent or any Lender may
reasonably request.
Section 5.02. Use of Proceeds. The Borrower will use the
proceeds of the Loans and will use the Letters of Credit solely for general
corporate purposes. The Borrower will not, nor will it permit any Subsidiary to,
use any of the proceeds of the Loans or use the Letters of Credit to purchase or
carry any "margin stock" in violation of Regulation U of the Board.
Section 5.03. Notice of Default. The Borrower will, and will
cause each Subsidiary to, give prompt notice in writing to the Lenders of the
occurrence of any Default and of any other development, financial or otherwise,
which might materially adversely affect its business, properties or affairs or
the ability of the Borrower to repay the Obligations, in each case, stating the
nature and status thereof.
Section 5.04. Corporate Standing. The Borrower will, and will
cause each Subsidiary to, do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation, maintain all requisite authority to conduct its
business in each jurisdiction in which its business is conducted and preserve,
renew and keep in full force and effect the rights, licenses, permits,
privileges and franchises material to the conduct of its business.
Section 5.05. Taxes and Other Obligations. The Borrower will,
and will cause each Subsidiary to, pay when due its obligations, including all
taxes, assessments and governmental charges and levies upon it or its income,
profits or property, that, if not paid, could result in a Material Adverse
Effect before the same shall become delinquent or in default, except those
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves in accordance with GAAP have been set aside;
provided that failure to make payment pending such contest could not reasonably
be expected to result in a Material Adverse Effect.
Section 5.06. Insurance. The Borrower will, and will cause
each Subsidiary to, maintain insurance with financially sound and reputable
insurance companies on all their property in such amounts and covering such
risks, casualties and contingencies and in such types and amounts as is
consistent with sound business practice, and the Borrower will furnish to any
Lender upon request full information as to the insurance carried.
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Section 5.07. Compliance with Laws. The Borrower will, and
will cause each Subsidiary to, comply with all laws (including, without
limitation, Environmental Laws), rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
Section 5.08. Maintenance of Properties. The Borrower will,
and will cause each Subsidiary to, do all things necessary to maintain,
preserve, protect and keep its properties in good repair, working order and
condition, and make all necessary and proper repairs, renewals and replacements
so that its business carried on in connection therewith may be properly
conducted at all times.
Section 5.09. Books and Records; Inspection. The Borrower
will, and will cause each of the Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each Subsidiary to, permit the Lenders, by their respective
representatives and agents, to inspect any of the properties, corporate books
and financial records of the Borrower and each Subsidiary, to examine and make
copies of the books of accounts and other financial records of the Borrower and
each Subsidiary, and to discuss the affairs, finances and accounts of the
Borrower and each Subsidiary with, and to be advised as to the same by, their
respective officers at such reasonable times and intervals as the Lenders may
designate.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:
Section 6.01. Maximum Leverage Ratio. The Borrower shall not
permit the Leverage Ratio on any date to exceed 0.55 to 1.
Section 6.02. Merger. The Borrower will not merge or
consolidate with any other corporation, except that the Borrower may merge with
any other corporation, provided that (x) the Borrower shall be the continuing or
surviving corporation, and (y) immediately after any such merger or
consolidation, no Default shall have occurred and be continuing.
Section 6.03. Sales of Assets. The Borrower will not, nor will
it permit any Subsidiary to, lease, sell or otherwise dispose of its property to
any other Person except for (i) sales of inventory in the ordinary course of
business, (ii) leases, sales or other dispositions of its property that,
together with all other property of the Borrower and the Subsidiaries previously
leased, sold or disposed of (other than inventory in the ordinary course of
business) as permitted by this Section during the twelve-month period ending
with the month in which any such lease, sale or other disposition occurs, do not
constitute a Substantial Portion of the property of the Borrower and the
Subsidiaries and (iii) the sale or other transfer by the Borrower or any
Subsidiary of property in
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connection with an asset securitization or other similar transaction, program or
arrangement so long as (x) the aggregate amount of proceeds received by the
Borrower or any Subsidiary in connection with all asset securitizations and
other similar transactions effected pursuant to this clause (iii) shall not
exceed $100,000,000 and (y) such aggregate amount of proceeds is deemed to be
Indebtedness incurred by the Borrower for the purpose of Section 6.01.
Section 6.04. Limitation on Secured Debt. The Borrower will
perform, comply with and observe for the benefit of the Lenders the restrictions
on Secured Debt (as defined in the Indenture hereinafter referred to) set forth
in Section 5.05 of the Indenture dated March 15, 1987 (the "Indenture") relating
to the issuance of the Brunswick Corporation 7 3/8% Debentures due September 1,
2023. For purposes of this Section 6.04, the provisions of the Indenture,
together with related definitions and ancillary provisions, in each case as in
effect on the date hereof, are hereby incorporated herein by reference, mutatis
mutandis, and shall be deemed to continue in effect for the benefit of the
Lenders as in effect on the date hereof, whether or not said provisions
otherwise remain in effect or are modified.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement, when and as the same
shall become due and payable, and such failure shall continue
unremedied for a period of five days;
(c) any representation or warranty made or deemed made by or
on behalf of the Borrower or any Subsidiary in or in connection with
this Agreement or any amendment or modification hereof, or in any
report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or
modification hereof, shall prove to have been incorrect when made or
deemed made or furnished;
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 or
5.04 (with respect to the Borrower's existence) or in Article VI;
(e) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a), (b), (c) or (d) of this Article),
and such failure shall continue unremedied for a period of 30 days
after notice thereof from the Administrative Agent (given at the
request of any Lender) to the Borrower,
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(f) the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become
due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any
Restricted Subsidiary or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Restricted
Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) the Borrower or any Restricted Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Restricted
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) the Borrower or any Restricted Subsidiary shall become
unable, admit in writing its inability or fail generally to pay its
debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $25,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets
of the Borrower or any Subsidiary to enforce any such judgment;
(l) the Borrower or any of the Subsidiaries shall: (i) default
in making any payment, delivery or exchange, or in the performance of
any of its other obligations, under one or more agreements or
instruments (individually or collectively) governing or otherwise
relating to one or more Derivative Transactions, which shall default
shall have resulted in early termination, liquidation or other similar
payments in an aggregate amount not less than
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$25,000,000 becoming, or becoming capable at such time (after giving
effect to any applicable notice requirement or grace period) of being
declared or designated, due and payable by one or more of the Borrower
and the Subsidiaries; or (ii) default (after giving effect to any
applicable notice requirement or grace period) in making any payment or
delivery due on the last payment, delivery or exchange date of, or on
the early termination or liquidation of, one or more Derivative
Transactions and such default relates to one or more payments or
deliveries of cash or property having an aggregate value of not less
than $25,000,000;
(m) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Borrower and its Subsidiaries in an aggregate amount exceeding
(i) $10,000,000 in any year or (ii) $25,000,000 for all periods; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower, and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
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The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing (a) the Administrative Agent shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders,
and (c) except as expressly set forth herein, the Administrative Agent shall not
have any, duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Borrower or any of the Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders or in the absence of its own gross negligence or wilful
misconduct. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and the Administrative Agent
shall not be responsible for or have any duty to ascertain or inquire into (i)
any statement, warranty or representation made in or in connection with this
Agreement, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent
may, and if the Administrative Agent shall fail to perform any of its
obligations hereunder the Administrative Agent upon request of the Required
Lenders shall, resign at any time by notifying the Lenders, the Issuing Bank and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right, in consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders and the Issuing Bank, appoint a successor Administrative
Agent which shall be a bank with an office in New York,
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New York with a combined capital and surplus of at least $500,000,000, or an
Affiliate of any such bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
Section 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 1 N. Field Ct., Lake Forest,
Illinois 60045, Attention of Richard S. O'Brien, Vice President and
Treasurer (Telecopy No. 847-735-4359);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, 8th Floor,
New York, New York 10081, Attention of Amy Labinger (Telephone No.
212-552-4025; Telecopy No. 212-552-7500);
(c) if to the Issuing Bank, to it at 270 Park Avenue, New
York, New York 10017, Attention of Rebecca McNally (Telecopy No.
212-638-8200, -8201);
(d) if to any Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
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Section 9.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent, the
Issuing Bank or any Lender in exercising any right or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of this Agreement or consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan or
issuance of Letter of Credit shall not be construed as a waiver of any Default,
regardless of whether the Administrative Agent, any Lender or the Issuing Bank
may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, or (v) change any of the provisions of this
Section or the definition of "Required Lenders" or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender, provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Issuing Bank hereunder without the prior written
consent of the Administrative Agent or the Issuing Bank, as the case may be.
Section 9.03. Expenses; Indemnity: Damage Waiver.
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all
out-of-pocket expenses incurred by the Issuing Bank in connection with the
issuance, amendment, renewal or extension of any Letter of Credit or any demand
for payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative Agent, the
Issuing Bank or any Lender, in connection with the enforcement or protection of
its rights in connection with this Agreement, including its rights under this
Section, or in
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connection with the Loans made or Letters of Credit issued hereunder, including
in connection with any workout, restructuring or negotiations in respect
thereof.
(b) The Borrower shall indemnify the Administrative Agent, the
Issuing Bank and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee, incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of this
Agreement or any agreement or instrument contemplated hereby, the performance by
the parties hereto of their respective obligations hereunder or the consummation
of the Transactions or any other transactions contemplated hereby, (ii) any Loan
or Letter of Credit or the use of the proceeds therefrom (including any refusal
by the Issuing Bank to honor a demand for payment under a Letter of Credit if
the documents presented in connection with such demand do not strictly comply
with the terms of such Letter of Credit), (iii) any actual or alleged presence
or release of Hazardou