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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950137-03-001370.txt : 20030311
<SEC-HEADER>0000950137-03-001370.hdr.sgml : 20030311
<ACCEPTANCE-DATETIME>20030311170020
ACCESSION NUMBER: 0000950137-03-001370
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030311
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-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-01043
FILM NUMBER: 03599773
BUSINESS ADDRESS:
STREET 1: ONE N FIELD CT
STREET 2: C/O LLOYD CHATFIELD
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-K
<SEQUENCE>1
<FILENAME>c74671e10vk.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
<Table>
<S> <C> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-1043
</Table>
---------------------
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
As of JUNE 28, 2002, the aggregate market value of the voting stock of the
registrant held by non-affiliates was $2,506,325,164. 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 6, 2003, was 90,247,722.
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 APRIL 30, 2003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 35
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 37
Item 11. Executive Compensation...................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 37
Item 13. Certain Relationships and Related Transactions.............. 37
Item 14. Controls and Procedures..................................... 37
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 38
</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; Sea Ray, Bayliner, Maxum, Meridian,
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; MotorGuide trolling
motors; Mercury Precision Parts; Quicksilver and Swivl-Eze marine-related
components and accessories; Integrated Dealer Systems dealer management systems;
MotoTron engine control systems; Northstar marine navigation systems; Life
Fitness, Hammer Strength and ParaBody fitness equipment; Brunswick bowling
products, including capital equipment, parts, supplies and consumer products;
and Brunswick billiards tables and accessories. The Company also owns and
operates Brunswick bowling centers across the United States and internationally,
and Omni Fitness, a chain of specialty fitness retail stores.
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, enhancing its distribution
channels, seizing 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.
CHANGE IN SEGMENT REPORTING
The Company previously reported its Life Fitness and Brunswick Bowling &
Billiards divisions as a single segment, the Recreation segment. During the
fourth quarter of 2002, the Company re-evaluated the composition of its
reportable segments to account for the anticipated divergence in the future
growth trends and economic characteristics of these operating units. The Company
determined that its reportable segments are Marine Engine, Boat, Fitness and
Bowling & Billiards. The financial information for these segments has been
reclassified for all periods presented under the new basis of segmentation. 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, which had net sales of $1,705.2 million in 2002,
consists of the Mercury Marine Group and Brunswick New Technologies. 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 water-jet propulsion systems under the
Mercury, Mariner, Mercury MerCruiser, Mercury Racing, Mercury SportJet and
Mercury Jet Drive brand names. A portion of Mercury Marine's outboard engines
and parts and accessories, including marine electronics and control integration
systems, steering systems, instruments, controls, propellers, service aids and
marine lubricants, are sold to end-users through a global network of
approximately 12,000 marine dealers and distributors, specialty marine
retailers, and marine service centers. The remaining outboard engines and a
substantial number of the sterndrives, inboard engines and water-jet propulsion
systems are sold either to independent boatbuilders or to the Company's
operations that comprise the Brunswick Boat Group.
Mercury Marine has six 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 over a nine-year period beginning with the 1998 model year and ending in
2006. These emissions reductions were implemented to comply with U.S.
Environmental Protection Agency (EPA) requirements. Mercury's product line of
low-emission engines includes 13 four-stroke
1
<PAGE>
outboard engine models ranging from 4 to 115 horsepower and one 225-horsepower
model. 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 50 to 225 horsepower are also three-star rated.
Mercury Marine's outboard engines and sterndrive engines are produced
primarily in Fond du Lac, Wisconsin, and Stillwater, Oklahoma, respectively.
Certain small outboard engines are manufactured in Asia by a Mercury Marine
joint venture. Mercury Marine also manufactures engine component parts at plants
in St. Cloud, Florida, and Juarez, Mexico, and has a facility in Petit Rechain,
Belgium, which customizes engines for sales into Europe.
In addition to its marine engine operations, Mercury's product offerings in
international markets include a wide range of aluminum, fiberglass and
inflatable boats produced either by, or for, Mercury in Australia, Finland,
France, Norway, Poland, Portugal and Sweden. These boats, which are marketed
under the brand names Armor, Arvor, Askaladden, Bermuda, Mercury, Ornvik,
Quicksilver, Savage, Uttern and Valiant, are typically equipped with engines
manufactured by Mercury Marine and often include other parts and accessories
supplied by Mercury Marine.
During 2002, Mercury Marine continued to leverage its core competency in
aluminum metal castings by expanding the markets served by this business. The
effort to expand Mercury's castings business began in 1999, and by 2002 Mercury
had secured business in a variety of industries and applications, including
motorcycles, agricultural implements and off-road recreational vehicles. The
Company anticipates that Mercury's castings business will continue to grow, and
intends to identify other areas of expertise across its businesses that can be
similarly leveraged in industries beyond the Company's core businesses.
On February 14, 2002, Mercury Marine established a joint venture with
Cummins Marine, a division of Cummins Inc., to supply integrated diesel
propulsion systems to the worldwide recreational and commercial marine markets.
The Company and Cummins each own 50 percent of the joint venture, Cummins
MerCruiser Diesel Marine LLC, which is headquartered in Charleston, South
Carolina. Through the joint venture, Mercury is able to offer a full range of
diesel marine propulsion systems.
In February 2002, Mercury Marine acquired Teignbridge Propellers, Ltd.
(Teignbridge), a manufacturer of custom and standard propellers and underwater
stern gear for inboard-powered vessels. Located in Newton Abbot, United Kingdom,
Teignbridge has allowed Mercury to extend its product offerings to include a
full line of propellers and related accessories.
Mercury's SmartCraft system, a total marine electronics and controls
integration system, was introduced in 2000. SmartCraft leverages Mercury's
advanced engine technology by linking all essential boat functions, including
power, controls, and internal and external sensors, to provide synchronized data
and control over all essential boat functions. SmartCraft systems also allow
Mercury and its customers to take advantage of advancements in communications,
entertainment and navigation electronics by providing a platform to integrate
these technologies to enhance the boating experience. SmartCraft was introduced
on a number of Mercury engine offerings beginning in 2000 and 2001, and is now
offered on a wide range of Mercury, Mercury MerCruiser and Cummins MerCruiser
Diesel engines.
The Company established Brunswick New Technologies (BNT) during 2002 to
expand the Company's product offerings in marine electronics, engine controls,
navigation systems, dealer management systems and related equipment for use in
both marine and non-marine applications. The genesis for BNT was Mercury
Marine's MotoTron operation, which leverages the Company's expertise in engine
controls. BNT represents the Company's commitment to expand its business and
expertise in electronics, controls and systems. As part of BNT's expansion in
these areas, during the fourth quarter of 2002 the Company acquired Northstar
Technologies, Inc., a world leader in premium marine navigation electronics, and
Monolith Corporation/
2
<PAGE>
Integrated Dealer Systems (IDS), a leading developer of dealer management
systems for dealers of marine products and recreational vehicles. Earlier in
2002, the Company established a joint venture between BNT's MotoTron business
and Woodward Governor Company to develop and produce engine and vehicle control
systems, and opened a research and testing facility in Singapore to support
BNT's various development activities.
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;
- Competition from other manufacturers of marine engines;
- 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 Mercury Marine's independent
boatbuilders, dealers and the Company's own boat operations;
- The segment's ability to make technological and quality advancements to
meet customer demands;
- The segment's ability to develop and market competitive products;
- Consumer demand for the Company's boat offerings and those of other major
boatbuilders;
- Fuel costs;
- Prevailing interest rates; and
- Consumer interest in recreational boating.
BOAT SEGMENT
The Boat segment consists of the Brunswick Boat Group (Boat Group), which
markets and manufactures fiberglass pleasure boats, high-performance boats,
offshore fishing boats, and aluminum fishing, deck and pontoon boats. The
Company believes its Boat Group, which had net sales of $1,405.3 million during
2002, has the largest dollar sales volume of pleasure boats in the world.
The Boat Group was formed in 2000 to manage the Company's boat brands;
increase the Company's boat portfolio by identifying recreational boat product
segments in which the Company was not participating; expand the Company's
involvement in recreational boating services and activities to enhance the
consumer experience and dealer profitability; speed the introduction of new
technologies into boat manufacturing processes and the Company's boat products;
and leverage the Company's extensive knowledge and involvement in boat design,
manufacturing and distribution.
During 2002, the Boat Group established offices in Knoxville, Tennessee, to
provide shared services to the Company's boat brands, which include Hatteras
luxury sportfishing convertibles and motoryachts; Sea Ray, Maxum and Sealine
yachts, sport yachts, cruisers and runabouts; Bayliner cruisers and runabouts;
Meridian motoryachts; Boston Whaler and Trophy offshore fishing boats; Baja
high-performance boats; and Princecraft aluminum fishing, deck and pontoon
boats. The Boat Group also operates a commercial and governmental sales unit
that sells products to the United States Government and state, local and foreign
governments for military, law enforcement and other governmental uses, and to
commercial customers for use in a variety of applications. Sales of Boston
Whaler, Baja and various inflatable boats represent the majority of the Boat
Group's governmental and commercial sales. The Boat Group procures most of its
outboard motors, gasoline sterndrives and gasoline inboard engines from the
Mercury Marine Group, and diesel engines from Cummins MerCruiser Diesel Marine
LLC, the Company's joint venture with Cummins Inc.
During 2002, the Company began manufacturing entry-level runabouts at a new
facility opened in Reynosa, Mexico. The Company believes the initial model
manufactured at this facility, a 17.5-foot Bayliner, is the lowest-cost new boat
in its class, due in large part to the Company's procurement and operational
efficiencies.
During the fourth quarter of 2002, the Company launched an initiative to
develop its marine parts and accessories business to better serve dealers and
consumers of the Company's boat products. Working with its
3
<PAGE>
existing boat dealer network, the Company will strive to improve quality,
distribution and delivery of parts and accessories to enhance the boating
experience.
The Boat Group's products are sold to end users through a global network of
approximately 950 dealers and distributors, each of which carries one or more of
the Company's boat brands. Sales to the Boat Group's largest dealer, which has
multiple locations and carries a number of the Boat Group's product lines,
comprised approximately 21 percent of Boat Group sales in 2002. 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 Group's
products, including, but not limited to:
- Economic conditions, consumer confidence and the strength of equity
markets;
- 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 Boat Group's ability to develop and market competitive products;
- Competition from other boatbuilders;
- Fuel costs;
- Effectiveness of distribution;
- Prevailing interest rates and availability of financing for consumers and
boat dealers;
- Consumer interest in recreational boating; and
- Access to water and marina facilities in urban areas.
FITNESS SEGMENT
The Company's Fitness segment is comprised of the Life Fitness division,
which designs, markets and manufactures a full line of reliable, high-quality
cardiovascular fitness equipment (including treadmills, total body cross
trainers, stair climbers and stationary exercise bicycles) and strength-training
equipment under the Life Fitness, Hammer Strength and ParaBody brands.
The Company believes that the Fitness segment, which had net sales of
$456.7 million during 2002, has the largest dollar sales volume of commercial
fitness equipment in the world. Life Fitness' commercial sales are primarily to
private health clubs and fitness facilities operated by professional sports
teams, the military, governmental agencies, corporations, hotels, schools and
universities. Commercial sales are made directly to certain commercial customers
as well as through dealers and distributors.
Life Fitness also sells its products into the high-end consumer markets.
Approximately 15 percent of the Fitness segment's 2002 sales were made through
Omni Fitness, a chain of specialty fitness retail stores owned and operated by
the Company since 2001. Omni Fitness sells Life Fitness products as well as
complementary products manufactured by other companies. Most of Life Fitness'
remaining consumer sales are sold to other specialty retailers, including other
chains in which the Company has ownership interests.
The Fitness segment's principal manufacturing facilities are located in
California, Illinois, Kentucky and Minnesota. The Fitness segment also operates
63 Omni Fitness specialty fitness retail stores located primarily in the
Northeast and Pacific Northwest regions of the United States.
During 2002, Life Fitness introduced more than 40 new fitness products,
including new elliptical cross trainers, treadmills, stationary bikes,
stairclimbers, home gym products, commercial selectorized strength training
equipment and a series of cable motion machines.
Fitness products are distributed worldwide from regional warehouses, sales
offices and factory stocks of merchandise. Demand for fitness 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;
- Consumer demand for health clubs and other exercise facilities;
- Availability of effective product distribution;
- Consumer participation in fitness activities;
4
<PAGE>
- Demand from owners and operators of fitness centers for new equipment;
- Competition from other manufacturers and alternative forms of recreation;
and
- Product quality, pricing, and customer service.
BOWLING & BILLIARDS SEGMENT
The Bowling & Billiards segment is comprised of the Brunswick Bowling &
Billiards division (BB&B), which had net sales of $377.7 million during 2002.
BB&B is the leading full-line designer and producer of bowling products,
including bowling balls, after-market products and parts, and capital equipment,
which includes bowling lanes, automatic pinsetters, ball returns, furniture
units, and scoring and center-management systems. BB&B also designs and markets
a full line of high-quality billiards tables and accessories.
BB&B operates 118 bowling centers in the United States, Canada and Europe,
and its joint ventures operate 18 additional centers in Asia. Bowling centers
offer bowling and, depending on size and location, the following activities and
services: billiards, video games, pro shops, children's playrooms, restaurants
and cocktail lounges. All of the North American centers offer Cosmic Bowling, an
enhanced form of bowling with integrated sound systems and glow-in-the-dark
effects. A number of BB&B's centers have been converted into Brunswick Zones,
modernized bowling centers that offer a full array of family-oriented
entertainment activities. The entertainment offerings available at Brunswick
Zones are designed to appeal to a broader audience, including both recreational
bowlers and non-traditional league bowlers. BB&B intends to convert additional
centers into Brunswick Zones, supporting the Company's strategy to increase
market share. Approximately 50 percent of BB&B's bowling center facilities are
owned by the Company and the other half are leased.
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's billiards business was established in 1845, and is the oldest
business operated by the Company. BB&B designs and markets billiards tables,
billiards balls, cues and related accessories under the Brunswick brand, and
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 bowling and billiards products are sold through a variety of
channels, including distributors, dealers, mass merchandisers, bowling centers
and retailers, and directly to consumers. BB&B products are distributed
worldwide from regional warehouses, sales offices and factory stocks of
merchandise. Demand for the Bowling & Billiards segment's products is influenced
by a number of factors, including, but not limited to:
- Economic conditions in the United States and key international regions,
particularly Asia, Canada and Europe;
- The segment's ability to develop and market competitive products;
- Prevailing interest rates and availability of financing for purchasers of
bowling capital equipment;
- Product innovation;
- Availability of effective product distribution;
- Consumer participation in bowling and billiards;
- Demand from owners and operators of recreation centers for new equipment
from the segment;
- Competition from other manufacturers as well as alternative forms of
recreation;
- Product and facility quality, pricing, and customer service; and
- Adverse weather in key geographical areas, including excessive snow and
summers with prolonged periods of below-average rain.
5
<PAGE>
FINANCIAL SERVICES
The Company established a joint venture in 2002 with Transamerica
Distribution Finance to provide financial products and services to customers of
the Company's domestic marine businesses. The venture, Brunswick Acceptance
Company, LLC (BAC), will provide secured wholesale floor-plan financing to the
Company's boat dealers and may provide other financial services in support of
the Company's marine businesses. In addition, the parties contemplate that BAC
will purchase and service a portion of Mercury Marine's domestic accounts
receivable for its boatbuilder customers. The Company owns a 15 percent interest
in the joint venture initially, but will increase its ownership to 49 percent by
July 15, 2003. BAC became operational in January 2003.
DISTRIBUTION
The Company depends on distributors, dealers and retailers (Dealers) for
the majority of its recreational boat sales, and significant portions of its
marine engine, fitness and bowling and billiards products. The Company has
approximately 14,000 Dealers serving its business segments worldwide. The
Company's marine Dealers typically carry boats, engines and related parts and
accessories from the Company's Marine Engine and Boat segments.
Most of the Company's Dealers consist of independent companies and
proprietors that range in size from small, family-owned dealerships to large,
publicly traded organizations with substantial revenues and multiple locations.
Some of the Company's Dealers sell the Company's products exclusively, while
others also carry competing products. In some cases, the Company owns equity in
select Dealers, including minority interests in certain marine Dealers and 100
percent ownership of Omni Fitness, an exercise equipment retailer that is
operated by the Company's Life Fitness division.
A significant portion of the Company's products are seasonal, and a number
of the Company's Dealers are relatively small and often highly leveraged. As a
result, many of the Company's Dealers require financial support to remain in
business and provide a stable outlet for the Company's products. To ensure the
stability of its distribution channels, the Company provides various financial
incentives and support to its Dealers from time to time. This support includes
loans, loan guarantees and inventory repurchase commitments, under which the
Company is obligated to repurchase inventory in the event of a Dealer's default.
The Company believes that these investments and obligations are in the Company's
best interest, but its financial support of its Dealers does expose the Company
to credit risks and business risks. The Company's business units maintain active
credit operations to manage this financial exposure on an ongoing basis, and the
Company continues to seek opportunities to improve and sustain its various
distribution channels. See NOTE 7, COMMITMENTS AND CONTINGENCIES, in the Notes
to Consolidated Financial Statements.
DISCONTINUED OPERATIONS
During 2001, the Company substantially completed the divestiture of its
outdoor recreation segment, originally announced in June of 2000, with the sale
of its North American 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 $1,004.7
million (27.1 percent of net sales) and $859.2 million (25.5 percent of net
sales) in 2002 and 2001, respectively. The Company generally transacts its sales
in international markets in local currencies, and denominates its costs of
products manufactured or sourced in U.S. dollars. The Company's international
sales are set forth in NOTE 3, SEGMENT
6
<PAGE>
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 2002, 2001 and 2000:
<Table>
<Caption>
2002 2001 2000
-------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Europe.................................................... $ 552.1 $448.0 $432.1
Pacific Rim............................................... 174.7 171.4 166.4
Canada.................................................... 166.9 146.0 149.9
Latin America............................................. 74.0 64.1 59.6
Other..................................................... 37.0 29.7 30.4
-------- ------ ------
$1,004.7 $859.2 $838.4
======== ====== ======
</Table>
Mercury Marine sales comprised approximately 50 percent of the Company's
total international sales in 2002. Mercury Marine's primary international
operations include the following:
- A product customization plant and distribution center in Belgium;
- A propeller and underwater stern-gear manufacturing plant in Newton
Abbot, United Kingdom;
- Sales offices and distribution centers in Australia, Brazil, Canada,
China, Japan, Malaysia, Mexico, New Zealand and Singapore;
- Sales offices in Belgium, Denmark, France, Germany, Indonesia, Italy, the
Netherlands, Norway, Russia, Sweden and Switzerland;
- Boat assembly plants in Australia, Mexico and Sweden; and
- A marina and club in China.
The Brunswick Boat Group's sales comprised approximately 24 percent of the
Company's total international sales in 2002. The Boat Group's products are
manufactured or assembled in the United States, Bulgaria, Canada, Mexico, Poland
and the United Kingdom, and are sold worldwide through dealers. The Boat Group
also sells kits for certain runabout boat models 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 Brazil, England, France, the Netherlands and Spain, and product display
locations in Australia and the Netherlands.
Fitness segment sales comprised approximately 18 percent of the Company's
total international sales in 2002. 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.
Bowling & Billiards segment sales comprised approximately 8 percent of the
Company's total international sales in 2002. BB&B sells its products worldwide,
has sales offices in Germany, Hong Kong and the United Kingdom, and has a plant
that assembles pinsetters in Hungary. BB&B operates bowling centers in Austria,
Canada and Germany, and holds a 50 percent interest in an entity that sells
bowling equipment and operates bowling centers in Japan.
RAW MATERIALS
Raw materials are purchased from various sources. At present, the Company
is not experiencing any critical raw material shortages, nor are any currently
anticipated. General Motors Corporation is the sole supplier of engine blocks
used to manufacture the Company's gasoline sterndrive engines.
During 2002, the Company expanded its global procurement operations to
leverage the Company's purchasing power across its divisions and improve supply
chain efficiencies. In conjunction with the Brunswick Boat Group, in 2002 the
Company's global procurement team helped establish a boat manufacturing facility
in Reynosa, Mexico, using the Company's proprietary PRO(TM) (Process Resource
Optimization) System. The PRO System consists of three key elements: global
manufacturing, global sourcing of high-quality parts and components, and
institutionalizing a world-class quality assurance system. The PRO System allows
the Company to take advantage of local sourcing, labor and logistical
efficiencies to manufacture quality products
7
<PAGE>
at lower costs, and the Company intends to deploy the system in additional
locations to continue to improve its cost advantages.
PATENTS, TRADEMARKS AND LICENSES
The Company has, and continues to obtain, patent rights covering certain
features of the Company's products and processes. By law, the Company's patent
rights, which consist of patents and patent licenses, 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; marine vessel control systems; and fuel and oil injection systems.
In the Boat segment, patent rights principally relate to processes for
manufacturing fiberglass hulls, decks and components for the Company's boat
products, as well as patent rights related to boat seats, interiors and other
boat features and components.
In the Fitness segment, patent rights principally relate to fitness
equipment designs and components, including patents covering internal processes,
programming functions, displays, design features and styling. See ITEM 3, LEGAL
PROCEEDINGS, for a description of certain litigation involving fitness equipment
patents.
In the Bowling & Billiards segment, patent rights principally relate to
computerized bowling scorers and bowling center management systems, bowling
lanes and related equipment, bowling balls, and billiards table designs and
components.
While the Company believes that its patent rights are important to its
competitive position, the Company also believes that future success in all of
its businesses is mainly dependent upon its engineering, manufacturing and
marketing capabilities, its cost advantages, its ability to continue to develop
and manufacture high-quality, innovative, and competitive products, and the
effectiveness of its distribution channels.
The following are among the Company's primary trademarks or registered
trademarks:
Marine Engine Segment: Arvor, Astra, Bermuda, Chartus, IDS, Mariner,
MercNet, MerCruiser, Mercury, MercuryCare, Mercury Marine, Mercury Parts
Express, Mercury Precision Parts, Mercury Propellers, Mercury Racing,
MotorGuide, MotoTron, OptiMax, Northstar, Ornvik, Pinpoint, ProMax, QuickFit,
Quicksilver, Savage, SeaPro, SmartCraft, SportJet, Teignbridge Propellers,
Typhoon, Uttern and WaterMouse.
Boat Segment: Baja, Bayliner, Boston Whaler, Capri, Ciera, Hatteras,
Master Dealer, Maxum, Meridian, Precision Piloting, Princecraft, Sea Ray,
Sealine, Swivl-Eze and Trophy.
Fitness Segment: Flex Deck, Hammer Strength, Lifecycle, Life Fitness, Omni
Fitness and ParaBody.
Bowling & Billiards Segment: Air-Hockey, Anvilane Pro Lane, Ball Wall,
Brunswick, Brunswick Billiards, Brunswick Pavilion, Brunswick Zone, Centennial,
CenterMaster, Cosmic Bowling, DBA Products, Dominion, Frameworx, Fuze, Gold
Crown, Inferno, IQ, Lane Shield, Lightworx, Monster, Throbot, U.S. Play by
Brunswick, Viz-A-Ball and Zone.
The Company's trademarks have indefinite lives, and 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.
8
<PAGE>
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 competitive position in each
segment.
Marine Engine Segment: 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 that
comprise the majority of the market, and several smaller companies. There are
also many competitors in the marine accessories, electronics, engine controls
and navigation systems businesses. 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.
Boat Segment: The Company believes it has the largest dollar sales volume
of pleasure boats in the world. There are several major manufacturers of
pleasure and offshore fishing boats, along with hundreds of smaller
manufacturers. Consequently, this business is both highly competitive and highly
fragmented. The Company believes it has the broadest range of boat product
offerings in the world, with boats ranging from 12 to 100 feet. In all of its
boat operations, 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.
Fitness Segment: The Company believes it is the world's largest
manufacturer of commercial fitness equipment and a leading manufacturer of
high-quality consumer fitness equipment. Many of the Company's fitness equipment
products feature industry-leading product innovations, and the Company places
significant emphasis on new product introductions. Competitive emphasis is also
placed on product quality, marketing activities, pricing and 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.
Bowling & Billiards Segment: The Company believes it is the world's
leading full-line designer and producer of bowling products and billiards
tables. Competitive emphasis is placed on product innovation, quality, marketing
activities, pricing and service. The Company also operates 136 retail bowling
centers worldwide, including those operated by the Company's joint ventures,
where emphasis is placed on enhancing the bowling and entertainment experience,
maintaining quality facilities and providing excellent customer service.
RESEARCH AND DEVELOPMENT
The Company strives to bolster its competitive position in all of its
segments by continuously investing in research and development. The Company's
research and development investments support the introduction of new products
and enhancements to existing products. The Company's research and development
investments are shown below:
<Table>
<Caption>
2002 2001 2000
------ ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Marine Engine............................................... $ 61.7 $58.2 $ 60.8
Boat........................................................ 22.1 19.7 22.5
Fitness..................................................... 14.4 12.9 13.6
Bowling & Billiards......................................... 4.6 5.1 5.3
------ ----- ------
Total....................................................... $102.8 $95.9 $102.2
====== ===== ======
</Table>
9
<PAGE>
NUMBER OF EMPLOYEES
The approximate number of employees as of March 1, 2003, is shown below by
segment:
<Table>
<S> <C>
Marine Engine............................................... 6,400
Boat........................................................ 7,400
Fitness..................................................... 1,780
Bowling & Billiards......................................... 5,250
Corporate................................................... 185
------
Total....................................................... 21,015
======
</Table>
As of March 1, 2003, there were approximately 2,200 employees in the Marine
Engine segment, 400 employees in the Boat segment, 140 employees in the Fitness
segment, and 200 employees in the Bowling & Billiards 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.
AVAILABLE INFORMATION
The Company maintains an Internet web site at http://www.brunswick.com that
includes links to the Company's Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports.
These reports are available without charge as soon as reasonably practicable
following the time that they are filed with or furnished to the SEC.
Shareholders and other interested parties may request email notification of the
posting of these documents through the Investor Information section of the
Company's web site.
ITEM 2. PROPERTIES
The Company's headquarters are located in Lake Forest, Illinois. The
Company also maintains administrative offices in Chicago, Illinois. The Company
has numerous manufacturing plants, distribution warehouses, retail stores, 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 believes its facilities 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. The Company's manufacturing facilities are operating at
approximately 75 percent of current capacity. The Company's headquarters and
most of its principal plants are owned by the Company.
The Company's primary facilities are in the following locations:
Marine Engine Segment: St. Cloud, Florida; Chicago, Illinois; Acton,
Massachusetts; Raleigh, North Carolina; Stillwater and Tulsa, Oklahoma; Fond du
Lac, Milwaukee and Oshkosh, Wisconsin; Melbourne, Australia; Petit Rechain,
Belgium; Mississauga and Pickering, Ontario, Canada; Saint Cast, France; Juarez,
Mexico; Singapore; Skellefthamn, Sweden; and Newton Abbot, United Kingdom. The
Chicago, Illinois; Acton, Massachusetts; Raleigh, North Carolina; Pickering,
Ontario, Canada; Saint Cast, France; and Skellefthamn, Sweden, facilities are
leased. The remaining facilities are owned by the Company.
Boat Segment: 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;
Lancaster, Texas; Arlington, Washington; Princeville, Quebec, Canada; Reynosa,
10
<PAGE>
Mexico; and Kidderminster, United Kingdom. All of these facilities are owned by
the Company with the exception of the Lancaster, Texas, facility, which is
leased.
Fitness Segment: Paso Robles, California; Franklin Park, Illinois;
Falmouth, Kentucky; Ramsey, Minnesota; and 63 Omni Fitness retail stores in the
United States. All of the Omni Fitness stores, the Paso Robles, California,
facility and a portion of the Franklin Park, Illinois, facility are leased. The
remaining facilities are owned by the Company.
Bowling & Billiards Segment: Lake Forest, Illinois; Muskegon, Michigan;
Bristol, Wisconsin; Szekesfehervar, Hungary; and 118 Company-operated bowling
recreation centers in the United States, Canada and Europe. Approximately 50
percent of BB&B's bowling centers are leased. The remaining facilities are owned
by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company accrues for litigation exposure based upon its assessment, made
in consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company's litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company's consolidated financial position. If current
estimates for the cost of resolving any claims are later determined to be
inadequate, results of operations could be adversely affected in the period in
which additional provisions are required.
On April 18, 2002, the Company, in cooperation with the United States
Consumer Products Safety Commission (CPSC), announced a recall of approximately
103,000 bicycles that were sold by the Company's former bicycle division. The
bicycles had been equipped with suspension forks that were purchased from a
third party supplier. Some of the forks were found to have been defectively
manufactured and were involved in approximately 55 reported incidents. The 2002
recall was an expansion of a prior recall involving the suspension forks, and
allows consumers who purchased bicycles with an affected fork to return the fork
in exchange for $65 or a replacement bicycle. In addition to the costs of
administering the recall, the Company anticipates that it will incur additional
costs to resolve litigation stemming from the sale of the bike forks, and faces
a potential fine from the CPSC based on inadvertent delays in reporting several
of the incidents involving the forks. 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 April 22, 2002, a federal court in Seattle lifted a stay in a lawsuit
filed against Life Fitness by Precor Incorporated (Precor). The suit, which
alleges that certain of Life Fitness' cross trainer exercise machines infringe
Precor's Miller '829 patent, was stayed by the court pending re-examination of
the patent by the U.S. Patent and Trademark Office (PTO). The PTO issued a
modified Miller '829 patent to Precor on March 5, 2002, which led to the lifting
of the stay. Trial is scheduled for July 14, 2003. This matter was initiated in
January 2000 and seeks monetary damages and injunctive relief. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of this matter.
In a separate lawsuit between the Company and Precor, a federal court in
Seattle awarded Precor approximately $230,000 in attorneys' fees on June 14,
2002. The award was reduced from $5.3 million in light of an appellate court
ruling in the case. This matter was originally filed in 1994 and sought monetary
damages and injunctive relief. The Company believes that this matter has been
finally concluded.
During the fourth quarter of 2002, the Company settled a patent
infringement lawsuit filed against it by CCS Fitness, Inc. (CCS). CCS had
alleged that a front-drive cross trainer manufactured by Life Fitness infringed
a patent held by CCS. This matter was initiated in 1998 and sought monetary
damages and injunctive relief. In light of the settlement, the matter was
dismissed with prejudice.
On May 30, 2002, Leiserv, Inc. (Leiserv), a Company subsidiary operated by
the Bowling & Billiards segment, was sued in the Circuit Court of St. Louis
County, Missouri, for alleged violations of the federal Telephone Consumer
Protection Act. The lawsuit was brought as a putative class action seeking
monetary damages on behalf of all people and entities within two area codes in
the St. Louis area who allegedly received unsolicited faxes from a service
provider retained by Leiserv. Because this case remains in the early stages of
11
<PAGE>
litigation and raises legal issues that have not yet been fully resolved by the
courts, the Company is unable to predict the outcome of this matter.
On December 3, 2002, the United States Supreme Court reversed an Illinois
Supreme Court decision that had been entered in the Company's favor in Sprietsma
vs. Mercury Marine, a "propeller guard" case. In its decision, the U.S. Supreme
Court rejected one of the defenses the Company had successfully asserted in
Sprietsma and other cases based on federal preemption of state law. The case,
which was initiated in July 1996 and sought monetary damages, was remanded to
the Illinois court for further consideration. The Company believes that it has a
number of other valid defenses to the claims asserted in Sprietsma, and 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 has been named in a number of asbestos-related lawsuits, the
majority of which involve Vapor Corporation, a former subsidiary which the
Company divested in 1990. Virtually all of the asbestos suits against the
Company involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, that included
asbestos, and seek monetary damages from the Company. Neither the Company nor
Vapor is alleged to have manufactured asbestos. The Company's insurers have
settled a number of asbestos 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.
In 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. In 2000, 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. In late
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 February 2003,
the Tax Court on remand ruled that the Company did not have a non-tax business
purpose for forming the two partnerships and that they were therefore not valid
for tax purposes. The Company will appeal this decision to the United States
Court of Appeals for the District of Columbia. If, on appeal, the Company does
not prevail, the Company will owe approximately $135 million, consisting of $60
million in taxes due plus $75 million of interest, net of tax. The Company has
previously settled a number of other issues with the IRS on open tax years 1989
through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
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. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.
The Company is involved in certain legal and administrative proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 and other federal and state legislation governing the generation and
disposal of certain hazardous wastes. These proceedings, which involve both on-
and off-site waste disposal or other contamination, in many instances seek
compensation or remedial action from the Company as a waste generator under
Superfund legislation, which authorizes action regardless of fault, legality of
original disposition or ownership of a disposal site. The Company has
established 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
emissions requirements. The costs associated with these activities and the
introduction of low-emission engines will have an adverse effect on Marine
Engine segment operating margins and may affect short-term operating results.
The Boat segment continues to pursue fiberglass boat manufacturing technologies
and techniques to reduce air emissions at its boat manufacturing facilities.
12
<PAGE>
The Company does not believe that compliance with federal, state and local
environmental laws will have a material adverse effect on the Company's
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.
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 56
Peter B. Hamilton*................ Vice Chairman and President--Brunswick Bowling & Billiards 56
Victoria J. Reich*................ Senior Vice President and Chief Financial Officer 45
Kathryn J. Chieger................ Vice President--Corporate and Investor Relations 54
Tzau J. Chung*.................... Vice President and President--Brunswick New Technologies 39
William J. Gress*................. Vice President--Supply Chain Management 48
Kevin S. Grodzki*................. Vice President and President--Life Fitness Division 47
Peter G. Leemputte*............... Vice President and Controller 45
B. Russell Lockridge*............. Vice President and Chief Human Resources Officer 53
Patrick C. Mackey*................ Vice President and President--Mercury Marine Group 56
Dustan E. McCoy*.................. Vice President and President--Brunswick Boat Group 53
William L. Metzger................ Vice President and Treasurer 42
Clifford M. Sladnick.............. Vice President--Acquisitions 46
Marschall I. Smith*............... Vice President, General Counsel and Secretary 57
Dale B. Tompkins*................. Vice President--Strategy and Corporate Development 41
Cynthia Trudell *................. Vice President and President--Sea Ray Division 49
Judith P. Zelisko................. Vice President--Tax 52
</Table>
*Members of the Operating Committee
There are no familial relationships among these officers. The term of
office of all elected officers expires April 30, 2003. 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.
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.
Kathryn J. Chieger has been Vice President--Corporate and Investor
Relations of the Company since 1996.
13
<PAGE>
Tzau J. Chung has been a Vice President of the Company since 2000 and was
named President--Brunswick New Technologies, in February 2002. Prior to that he
was Vice President--Strategic Planning of the Company from 2000 to 2002, and was
Senior Vice President--Strategy and IT, for the Company's Mercury Marine Group
from 1997 to 2000.
William J. Gress has been Vice President--Supply Chain Management of the
Company since 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 that, he was Vice President of
Witco Corporation, a specialty chemical company, from 1997 to 2000.
Peter G. Leemputte has been Vice President and Controller of the Company
since 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 Group since 2000. Prior to that, he was Executive Vice
President of Witco Corporation, a specialty chemical company, from 1998 to 1999.
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 has been Vice President and Treasurer of the Company
since 2001. From 2000 to 2001, he was Assistant Vice President--Corporate
Finance. From 1996 to 2000, he was Director--Corporate Accounting.
Clifford M. Sladnick has been Vice President--Acquisitions of the Company
since 2001. He joined the Company in 2000 as Assistant General Counsel. From
1990 to 1999, he was Senior Vice President, General Counsel and Corporate
Secretary of St. Paul Bancorp, Inc.
Marschall I. Smith has been Vice President, General Counsel and Secretary
of the Company since 2001. He joined Brunswick from Digitas Inc., a leading
e-commerce integrator. Prior to that assignment, he spent five years as Senior
Vice President and General Counsel of IMC Global Inc.
Dale B. Tompkins was named Vice President--Strategy and Corporate
Development in January 2003. He joined the Company in 2000 as Vice
President--Strategy and Business Development for the Mercury Marine Group.
Previously, he was employed by Giddings & Lewis LLC, where he was Vice
President--Planning and Development from 1999 to 2000, and Director--Strategic
Planning from 1997 to 1999.
Cynthia Trudell has been Vice President and President--Sea Ray Division
since 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, and President--IBC Vehicles, from 1996 to 1999.
Judith P. Zelisko has been Vice President--Tax of the Company since 1998.
She was Staff Vice President--Tax from 1996 to 1998.
14
<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 21, QUARTERLY DATA, in the Notes to Consolidated Financial
Statements. As of March 3, 2003, there were approximately 16,580 shareholders of
record of the Company's common stock.
The Company announced in 2001 that, beginning in 2002, it would convert to
an annual dividend rather than pay dividends quarterly to reduce administrative
costs. Future dividends, 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, 2002, 2001 and 2000, 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, 1999,
1998 and 1997, 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 (APB) No. 30, "Reporting the Results of
Operations -- Reporting the Effects of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
<Table>
<Caption>
2002(1) 2001(2) 2000 1999 1998 1997(3)
-------- -------- -------- -------- -------- --------
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA
Net sales................................... $3,711.9 $3,370.8 $3,811.9 $3,541.3 $3,234.9 $2,993.6
-------- -------- -------- -------- -------- --------
Unusual charges............................. $ -- $ -- $ 55.1 $ 116.0 $ 50.8 $ 79.5
-------- -------- -------- -------- -------- --------
Operating earnings.......................... $ 196.6 $ 191.1 $ 397.1 $ 274.6 $ 301.8 $ 208.1
-------- -------- -------- -------- -------- --------
Earnings before income taxes................ $ 161.6 $ 132.2 $ 323.3 $ 219.3 $ 245.3 $ 173.8
-------- -------- -------- -------- -------- --------
Earnings from continuing operations......... $ 103.5 $ 84.7 $ 202.2 $ 143.1 $ 154.4 $ 111.3
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax.................. -- -- (68.4) (105.2) 31.9 39.9
Loss from disposal of discontinued
operations, net of tax.................. -- -- (229.6) -- -- --
Cumulative effect of change in accounting
principles, net of tax.................... (25.1) (2.9) -- -- -- (0.7)
-------- -------- -------- -------- -------- --------
Net earnings (loss)......................... $ 78.4 $ 81.8 $ (95.8) $ 37.9 $ 186.3 $ 150.5
======== ======== ======== ======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations......... $ 1.15 $ 0.96 $ 2.28 1.56 $ 1.57 $ 1.12
DISCONTINUED OPERATIONS:
Earnings (loss) from discontinued
operations, net of tax.................. -- -- (0.77) (1.14) 0.32 0.40
Loss from disposal of discontinued
operations, net of tax.................. -- -- (2.59) -- -- --
Cumulative effect of change in accounting
principles, net of tax.................... (0.28) (0.03) -- -- -- (0.01)
-------- -------- -------- -------- -------- --------
Net earnings (loss)......................... $ 0.87 $ 0.93 $ (1.08) $ 0.41 $ 1.90 $ 1.52
======== ======== ======== ======== ======== ========
Average shares used for computation of basic
earnings per share........................ 90.0 87.8 88.7 92.0 98.3 99.2
</Table>
15
<PAGE>
<Table>
<Caption>
2002(1) 2001(2) 2000 1999 1998 1997(3)
-------- -------- -------- -------- -------- --------
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations......... $ 1.14 $ 0.96 $ 2.28 $ 1.55 $ 1.56 $ 1.11
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax.................. -- -- (0.77) (1.14) 0.32 0.40
Loss from disposal of discontinued
operations, net of tax.................. -- -- (2.59) -- -- --
Cumulative effect of change in accounting
principles, net of tax.................... (0.28) (0.03) -- -- -- (0.01)
-------- -------- -------- -------- -------- --------
Net earnings (loss)......................... $ 0.86 $ 0.93 $ (1.08) $ 0.41 $ 1.88 $ 1.50
======== ======== ======== ======== ======== ========
Average shares used for computation of
diluted earnings per share................ 90.7 88.1 88.7 92.6 99.0 100.3
</Table>
- ---------------
(1) Refer to NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to
Consolidated Financial Statements for a discussion on Goodwill and Other
Intangibles.
(2) Refer to NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to
Consolidated Financial Statements for a discussion on Derivatives.
(3) In 1997, the Company adopted the provisions of Emerging Issues Task Force
No. 97-13, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project that Combines Business Process
Re-engineering and Information Technology Transformation." This resulted in
a one-time charge for the cumulative effect of a change in accounting
principle totaling $0.7 million after-tax, ($1.1 million pre-tax).
<Table>
<Caption>
2002 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- --------
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets of continuing operations............. $3,407.1 $3,157.5 $3,094.3 $2,685.3 $2,501.2 $2,445.8
======== ======== ======== ======== ======== ========
Debt
Short-term................................ $ 28.9 $ 40.0 $ 172.7 $ 107.7 $ 170.1 $ 109.3
Long-term................................. 589.5 600.2 601.8 622.5 635.4 645.5
-------- -------- -------- -------- -------- --------
Total debt.................................. 618.4 640.2 774.5 730.2 805.5 754.8
Common shareholders' equity................. 1,101.8 1,110.9 1,067.1 1,300.2 1,311.3 1,315.0
-------- -------- -------- -------- -------- --------
Total capitalization........................ $1,720.2 $1,751.1 $1,841.6 $2,030.4 $2,116.8 $2,069.8
======== ======== ======== ======== ======== ========
CASH FLOW DATA
Net cash provided by operating activities of
continuing operations..................... $ 413.0 $ 299.3 $ 251.0 $ 250.4 $ 387.4 $ 84.8
Depreciation and amortization............... 148.4 160.4 148.8 141.4 135.6 132.6
Capital expenditures........................ 112.6 111.4 156.0 166.8 164.6 167.3
Acquisitions of businesses.................. 21.2 134.4 -- 4.2 32.8 331.1
Stock repurchases........................... -- -- 87.1 18.3 159.9 8.4
Cash dividends paid......................... 45.1 43.8 44.3 45.9 49.0 49.6
OTHER DATA
Dividends declared per share................ $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50
Book value per share........................ 12.15 12.61 12.22 14.16 14.27 13.22
Return on beginning shareholders' equity.... 7.0% 7.7% (7.4)% 2.9% 14.2% 12.6%
Effective tax rate.......................... 36.0% 36.0% 37.5% 34.7% 37.1% 36.0%
Debt-to-capitalization rate................. 35.9% 36.6% 42.1% 36.0% 38.1% 36.5%
Number of employees......................... 21,015 20,700 23,200 23,100 21,800 21,100
Number of shareholders of record............ 16,605 13,200 13,800 14,500 15,600 16,200
COMMON STOCK PRICE (NYSE)
High...................................... $ 30.01 $ 25.01 $ 22.13 $ 30.00 $ 35.69 $ 36.50
Low....................................... 18.30 14.03 14.75 18.06 12.00 23.63
Close (last trading day).................. 19.86 21.76 16.44 22.25 24.75 30.31
</Table>
The Notes to Consolidated Financial Statements should be read in conjunction
with the above summary.
16
<PAGE>
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; Sea Ray, Bayliner, Maxum, Meridian,
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; MotorGuide trolling
motors; Mercury Precision Parts; Quicksilver and Swivl-Eze marine-related
components and accessories; Integrated Dealer Systems, dealer management
systems; MotoTron engine control systems; Northstar marine navigation systems;
Life Fitness, Hammer Strength and ParaBody fitness equipment; Brunswick bowling
products, including capital equipment, parts and supplies; and Brunswick
billiards tables and accessories. The Company also owns and operates Brunswick
bowling centers across the United States and internationally, and Omni Fitness,
a chain of specialty fitness retail stores.
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, enhancing its distribution
channels, seizing 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 the fourth quarter of 2002, the Company re-evaluated the composition
of its reportable segments to account for the anticipated divergence in the
future growth trends and economic characteristics of the operating units within
what was formerly known as the Recreation segment. The Company determined that
its reportable segments are Marine Engine, Boat, Fitness and Bowling &
Billiards. The segment information for all periods presented has been
reclassified for consistent presentation.
Sales in 2002 increased 10.1 percent to $3,711.9 million primarily due to
additional growth in the marine engine and exercise equipment businesses and the
incremental sales associated with the acquisitions of boat companies completed
in 2001. Operating earnings increased 2.9 percent to $196.6 million, primarily
attributable to the increase in product sales, the incremental sales associated
with the acquisitions completed in 2001 and cost reduction improvements
partially offset by higher variable compensation and pension costs. See the
MATTERS AFFECTING COMPARABILITY section below.
MATTERS AFFECTING COMPARABILITY
The Company's operating results for 2002 include the operating results of
Teignbridge Propellers, Ltd. (Teignbridge), a manufacturer of custom and
standard propellers and underwater stern gear for inboard-powered vessels;
Monolith Corporation/Integrated Dealer Systems (IDS), a developer of dealer
management systems for dealers of marine products and recreational vehicles; and
Northstar Technologies, Inc. (Northstar), a supplier of premium marine
navigation electronics, from the acquisition dates of February 10, 2002, October
1, 2002, and December 16, 2002, respectively.
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 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
17
<PAGE>
convertibles and motoryachts, from the acquisition dates of February 28, 2001,
March 7, 2001, July 3, 2001, and November 30, 2001, respectively.
Net earnings per diluted share totaled $0.86 in 2002 compared with net
earnings per diluted share of $0.93 in 2001 and a net loss per diluted share of
$1.08 in 2000. Comparisons of net earnings per diluted share are affected by
changes in accounting principles, unusual charges and discontinued operations,
which are listed below. The effect of these items on diluted earnings per share
is as follows:
<Table>
<Caption>
2002 2001 2000
----- ----- ------
<S> <C> <C> <C>
Net earnings (loss) per diluted share -- as reported........ $0.86 $0.93 $(1.08)
Unusual charges............................................. -- -- 0.45
Loss from discontinued operations........................... -- -- 0.77
Loss from disposal of discontinued operations............... -- -- 2.59
Goodwill and indefinite-lived intangible amortization....... -- 0.12 0.11
Cumulative effect of change in accounting principle......... 0.28 0.03 --
----- ----- ------
Net earnings per diluted share from continuing
operations -- as adjusted................................. $1.14 $1.08 $ 2.84
===== ===== ======
</Table>
There are a number of matters that affect the comparability of results
between 2002, 2001 and 2000. These matters include:
- Change in Accounting Principle: Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 requires that
goodwill and certain other intangible assets deemed to have indefinite
useful lives are no longer amortized but are reviewed annually for
impairment. SFAS No. 142 does not require retroactive restatement for all
periods presented; however, it does require the disclosure of prior year
effects adjusted for the elimination of amortization of goodwill and
indefinite-lived intangible assets. The effect on diluted earnings per
share for the elimination of amortization of goodwill and indefinite-
live intangible assets would have been $0.12 and $0.11 per diluted share
for 2001 and 2000, respectively. In connection with the adoptions of SFAS
No. 142, the Company completed its impairment testing and recorded the
cumulative effect of the change in accounting principle as a one-time,
non-cash charge of $29.8 million pre-tax ($25.1 million after-tax or
$0.28 per diluted share) to reduce its carrying amount of goodwill. Refer
to NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, 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 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. Refer to NOTE 8, FINANCIAL INSTRUMENTS, in the Notes
to Consolidated Financial Statements.
- 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 investments in certain Internet-related businesses. Refer
to NOTE 4, UNUSUAL CHARGES, in the Notes to Consolidated Financial
Statements.
- 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 in 2000, or $0.77 per diluted
share. See the DISCONTINUED OPERATIONS section for a more detailed
discussion of the operations that were discontinued in 2000.
18
<PAGE>
RESULTS OF OPERATIONS
CONSOLIDATED
The following table sets forth certain ratios and relationships calculated
from the consolidated statements of income:
<Table>
<Caption>
2002 2001 2000
------------ ------------ ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $3,711.9 $3,370.8 $3,811.9
Percentage increase (decrease).............................. 10.1% (11.6)% 7.6%
Operating earnings.......................................... $ 196.6 $ 191.1 $ 397.1
Earnings from continuing operations......................... $ 103.5 $ 84.7 $ 202.2
Loss from discontinued operations, net of tax............... -- -- (68.4)
Loss from disposal of discontinued operations, net of tax... -- -- (229.6)
Cumulative effect of change in accounting principle, net of
tax....................................................... (25.1) (2.9) --
-------- -------- --------
Net earnings (loss)......................................... $ 78.4 $ 81.8 $ (95.8)
======== ======== ========
Diluted earnings per share from continuing operations....... $ 1.14 $ 0.96 $ 2.28
Diluted loss per share from discontinued operations......... -- -- (0.77)
Diluted loss per share from disposal of discontinued
operations................................................ -- -- (2.59)
Cumulative effect of change in accounting principle......... (0.28) (0.03) --
-------- -------- --------
Diluted earnings (loss) per share........................... $ 0.86 $ 0.93 $ (1.08)
======== ======== ========
EXPRESSED AS A PERCENTAGE OF NET SALES:
Gross margin................................................ 23.2% 23.2% 28.6%
Selling, general and administrative expense................. 15.1% 14.7% 14.0%
Operating margin............................................ 5.3% 5.7% 10.4%
</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. Excluding these items, the amounts are
as follows:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating earnings.......................................... $196.6 $191.1 $452.2
Operating margin............................................ 5.3% 5.7% 11.9%
Earnings from continuing operations......................... $103.5 $ 84.7 $242.2
Diluted earnings per share from continuing operations....... $ 1.14 $ 0.96 $ 2.73
</Table>
In 2002, net sales increased $341.1 million to $3,711.9 million when
compared with 2001. Excluding acquisitions completed in 2002 and 2001, sales
increased 4.4 percent in 2002. The sales increase, excluding acquisitions, was
mainly attributable to an increase in sales in the Marine Engine, Fitness and
Bowling & Billiards segments partially offset by a decline in sales in the Boat
segment. Marine Engine segment sales increased due to higher domestic outboard
and sterndrive engine sales, improved pricing, and higher revenues from
international markets due in part to favorable currency trends. Fitness segment
sales increased primarily due to higher sales of consumer and commercial fitness
equipment in domestic and international markets. Bowling & Billiards segment
sales increased due to higher volumes of consumer products and after-market
parts and supplies. Boat segment sales, excluding acquisitions, decreased due to
lower sales of larger cruisers and yachts.
International sales increased $145.5 million to $1,004.7 million in 2002
compared with $859.2 million in 2001. The increase in sales was experienced
across all reportable segments. Sales in Europe increased
19
<PAGE>
$104.1 million, or 23.2 percent, to $552.1 million, primarily due to the
incremental sales associated with the Sealine acquisition, the benefit of a
weakening dollar that resulted in favorable currency trends in the Marine Engine
and Fitness segments and increased sales of commercial fitness equipment. Marine
engine product sales comprised the largest share of international sales in 2002
and 2001.
In 2001, net sales of $3,370.8 million declined $441.1 million, or 11.6
percent, from 2000. Excluding the boat acquisitions completed in 2001, sales
decreased 14.1 percent for the year-over-year comparison. The reduction in
sales, excluding acquisitions, was experienced across all reportable segments
but was mainly attributed 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. Fitness segment sales benefited
from growth in the fitness equipment business internationally, but was partially
offset by lower sales of consumer and commercial fitness equipment in the United
States. The Bowling & Billiards segment sales were affected by the decrease in
the sales of bowling capital equipment due to the economic recession.
International sales increased $20.8 million to $859.2 million in 2001
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 and 2000.
Gross margin percentage of 23.2 percent in 2002 was unchanged from 2001. In
2002, gross margin percentages were affected by favorable pricing, cost
reductions and favorable currency trends, offset by a shift to lower-margin
products in the Marine Engine and Boat segments and an increase in variable
compensation and pension costs.
The Company's gross margin percentage decreased 540 basis points to 23.2
percent in 2001 from 28.6 percent in 2000, 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, as well as unfavorable currency trends.
Selling, general and administrative (SG&A) expenses, as a percentage of net
sales, increased 40 basis points to 15.1 percent in 2002 compared with 14.7
percent in 2001. Excluding acquisitions completed in 2002 and 2001, SG&A
expenses as a percentage of net sales were 15.2 percent and 14.7 percent in 2002
and 2001, respectively. The 50 basis point increase in SG&A expenses compared
with 2001 is a result of higher variable compensation, pension and insurance
costs.
SG&A expenses, as a percentage of net sales, increased 70 basis points to
14.7 percent in 2001 compared with 14.0 percent in 2000. SG&A expenses increased
due to the Company's overall reduction in sales, offset by cost-containment
efforts, including workforce reductions, hiring and wage freezes, and reductions
in performance-based compensation, as well as a $10.6 million gain on the sale
of a testing facility.
Operating earnings in 2002 totaled $196.6 million versus $191.1 million in
2001 and $397.1 million in 2000. Operating earnings in 2000 included the
previously mentioned $55.1 million pre-tax unusual charge. Excluding this
charge, operating earnings were $452.2 million in 2000. Operating margins,
excluding unusual charges, were 5.3 percent in 2002, 5.7 percent in 2001 and
11.9 percent in 2000. The decline in operating margins between 2002 and 2001 was
mainly due to higher SG&A expenses, as a percentage of net sales, partially
offset by increased leverage from higher product sales and the elimination of
amortization of goodwill and indefinite-lived intangible assets as a result of
the adoption of SFAS No. 142.
Interest expense was $43.3 million in 2002, $52.9 million in 2001 and $67.6
million in 2000. The decrease in 2002 and 2001 was primarily attributable to a
decline in the average outstanding debt levels and a lower interest rate
environment. The weighted-average interest rate on short-term borrowings was
2.45 percent in 2002, 4.76 percent in 2001 and 6.58 percent in 2000.
Other income totaled $8.3 million in 2002 compared with other expense of
$6.0 million and $6.2 million in 2001 and 2000, respectively. The increase in
other income in 2002 compared with other expense in 2001 is
20
<PAGE>
due to improved results from joint venture investments and favorable currency
adjustments from a weakening U.S. dollar. Contributing to the other expenses in
2001 and 2000 were joint venture losses, the write-down of certain investments,
unfavorable currency adjustments and start-up costs incurred in 2000 in
connection with an equity investment.
The Company's effective tax rate was 36.0 percent in 2002, 36.0 percent in
2001 and 37.5 percent in 2000. Excluding the 2000 unusual charge, the effective
tax rate was 36.0 percent in all three years.
Average common shares outstanding used to calculate diluted earnings per
share were 90.7 million, 88.1 million and 88.7 million in 2002, 2001 and 2000,
respectively. The increase in average shares outstanding in 2002 was due
primarily to the effects of stock options exercised, as well as an increase in
common stock equivalents related to unexercised employee stock options driven by
an increase in the Company's average stock price. The decrease in average shares
outstanding in 2001 compared to 2000 was primarily due 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:
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $1,705.2 $1,561.6 $1,759.9
Percentage increase (decrease).............................. 9.2% (11.3)%
Operating earnings.......................................... $ 170.9 $ 173.0 $ 276.0
Percentage decrease......................................... (1.2)% (37.3)%
Operating margin............................................ 10.0% 11.1% 15.7%
Capital expenditures........................................ $ 44.8 $ 48.8 $ 63.8
</Table>
Marine Engine segment sales increased $143.6 million, or 9.2 percent, to
$1,705.2 million in 2002, compared with 2001. The increase in sales was
primarily due to an increase in unit shipments of sterndrive and outboard
engines in the domestic market. These higher shipments in 2002 were largely due
to a change in the rate at which dealers and boatbuilders adjusted their engine
inventories, rather than higher retail sales. In 2001, dealers and boatbuilders
significantly reduced their wholesale purchases to lower their inventory levels.
Reductions in dealer and boatbuilder inventories during 2002 occurred at a much
lower rate. Improved pricing in the domestic market, increased parts and
accessories sales, and an increase in international sales, due in part to
favorable currency trends from a weakening U.S. dollar, also helped drive sales
growth in the Marine Engine segment in 2002.
Operating earnings for the segment decreased $2.1 million, or 1.2 percent,
to $170.9 million in 2002, compared with 2001. Operating margins as a percentage
of sales fell 110 basis points to 10.0 percent when compared with 2001. The
decline in operating earnings and margins in 2002 was primarily due to higher
variable compensation, pension and insurance costs, and a change in the mix of
product sold toward low-emission two-stroke and four-stroke outboard engines,
which carry lower profit margins. Increased SG&A expenses associated with the
formation and operation of Brunswick New Technologies, which is included in the
Marine Engine segment, also reduced operating earnings. Items partially
offsetting these unfavorable trends include the increase in sales in 2002,
improved pricing and favorable currency trends from a weakening U.S. dollar.
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 retail sales of sterndrive and outboard
engines declined compared with the prior year due to a weakening economy. As
discussed above, efforts by dealers and boatbuilders to reduce their inventory
levels in 2001 also contributed to the decline in wholesale shipments.
International sales were up 13.3 percent for the year, despite adverse currency
21
<PAGE>
fluctuations, reflecting more favorable economic conditions than in the domestic
market and increased market share, due in part to the bankruptcy of a
competitor.
In 2001, 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, compared with 2000. Lower shipments combined with the lower absorption
of fixed costs from reduced production rates and extended plant shutdowns were
the primary driver for this decline in operating earnings. An unfavorable shift
in sales mix from higher-margin sterndrive engines to lower-margin outboard
engines, along with an increase in lower margin international sales, also
accounted for some of the margin pressure. Benefits from cost-containment
efforts, including reductions in performance based incentives and a reduction in
salaried headcount, partially mitigated these factors.
BOAT SEGMENT
The following table sets forth Boat segment results:
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $1,405.3 $1,251.3 $1,574.3
Percentage increase (decrease).............................. 12.3% (20.5)%
Operating earnings.......................................... $ 19.0 $ 18.1 $ 148.2
Percentage increase (decrease).............................. 5.0% (87.8)%
Operating margin............................................ 1.4% 1.4% 9.4%
Capital expenditures........................................ $ 41.0 $ 35.5 $ 57.4
</Table>
Sales in the Boat segment increased $154.0 million, or 12.3 percent, to
$1,405.3 million in 2002 compared with 2001. The increase in sales was primarily
due to a full year of sales from the acquisitions of Princecraft, Sealine and
Hatteras, which were completed in 2001. Excluding these acquisitions, sales
declined 2.0 percent. This sales decline was driven by weak retail demand, most
notably for larger cruisers and yachts. In addition, boat dealers continued to
lower their inventories, further reducing wholesale demand for the Boat
segment's products.
Boat segment operating earnings increased $0.9 million to $19.0 million
compared with 2001. Earnings contributions from acquisitions completed in 2001
and a reduction in operating losses from the Boat segment's US Marine division,
discussed below, were largely offset by the reduction in sales of larger
cruisers and yachts in 2002. Operating margins in 2002 were adversely affected
by the mix shift toward smaller boats, which carry lower margins.
In 2001, Boat segment sales totaled $1,251.3 million, a decrease of 20.5
percent from 2000. Excluding the acquisition of Princecraft, Sealine and
Hatteras, sales declined 24.3 percent. Significantly reduced retail demand for
smaller boats was a leading cause of the decline, although demand for larger
cruisers and yachts also weakened in the second half of the year. As retail
sales of boats weakened, dealers started to lower their own inventories, further
reducing wholesale demand.
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 in 2001. The decline in operating earnings was
primarily attributable to reduced sales and the operating losses experienced at
the Company's US Marine division. Reduced absorption of fixed costs due to lower
production and temporary shutdowns at the boat plants also impacted operating
earnings. A portion of the operating earnings decline was offset by efforts to
enhance operating effectiveness, as well as reduced costs and decreased
headcount.
The overall performance of the Boat Segment was adversely affected in both
2002 and 2001 by operations at the Company's US Marine division, which
manufactures Bayliner, Maxum and Meridian pleasure boats and Trophy offshore
fishing boats. Operating losses for the division were $29.0 million and $37.3
million for the years ended 2002 and 2001, respectively, compared with operating
earnings of $38.0 million in 2000. In 2002 and 2001, losses at US Marine were
primarily due to sales reductions, operating inefficiencies associated
22
<PAGE>
with shifting boat production from five facilities closed throughout 2001 to
remaining manufacturing plants, the launch of the Meridian yacht brand, and the
start up of a new plant in Mexico to manufacture small boats. The decrease in
the operating loss for 2002 is due to reduced discounting and higher sales.
FITNESS SEGMENT
The following table sets forth Fitness segment results:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $456.7 $397.7 $348.3
Percentage increase......................................... 14.8% 14.2%
Operating earnings.......................................... $ 44.9 $ 28.4 $ 31.2
Percentage increase (decrease).............................. 58.1% (9.0)%
Operating margin............................................ 9.8% 7.1% 9.0%
Capital expenditures........................................ $ 9.4 $ 9.9 $ 13.3
</Table>
In 2002, Fitness segment sales increased 14.8 percent to $456.7 million
compared with 2001. Domestic sales increased 18.3 percent in 2002 compared with
2001. This increase was primarily due to increased commercial sales to health
club chains, governmental agencies and the military, as well as increased sales
of consumer products. International sales increased 9.8 percent in 2002 compared
with 2001, driven by higher commercial fitness equipment sales into Europe and
the benefit of favorable currency trends from a weakening U.S. dollar. Both
domestic and international business benefited from share gains attributable in
part to the success of new product launches in treadmills, cross trainers, and
stationary bikes.
Fitness segment operating earnings increased 58.1 percent to $44.9 million
in 2002 relative to 2001, and operating margins increased 270 basis points to
9.8 percent. Operating earnings increased primarily due to the impact of higher
sales and the elimination of amortization of goodwill and indefinite-lived
intangible assets as a result of the adoption of SFAS No. 142, partially offset
by higher variable compensation expenses.
In 2001, Fitness segment sales increased 14.2 percent to $397.7 million
compared with 2000. Domestic sales increased 8.8 percent in 2001 compared with
2000, primarily due to the acquisition of Omni Fitness, a specialty fitness
equipment retailer. Excluding the acquisition of Omni Fitness, domestic sales
decreased 7.6 percent. This decrease was a result of reduced sales of consumer
and commercial products as health club chains delayed expansion and upgrade
projects due to the weakening economy. International sales increased 23.2
percent in 2001 compared with 2000. This increase related primarily to improved
sales of commercial and consumer products despite adverse currency fluctuations.
The Fitness segment reported operating earnings of $28.4 million in 2001
compared with $31.2 million in 2000. Operating margins declined 190 basis points
to 7.1 percent in 2001. The reduction in operating earnings reflected the lower
absorption of fixed costs that resulted from temporary plant shutdowns necessary
to adjust production rates. Increased distribution expenses, higher warranty
costs and adverse foreign currency trends also contributed to lower operating
earnings, but these factors were partially mitigated by other cost-containment
efforts. In addition, Omni Fitness, whose results are included after the
acquisition on February 28, 2001, reported a slight operating loss for the year.
23
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BOWLING & BILLIARDS SEGMENT
The following table sets forth Bowling & Billiards segment results:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $377.7 $368.1 $422.4
Percentage increase (decrease).............................. 2.6% (12.9)%
Operating earnings.......................................... $ 21.4 $ 7.3 $ 41.9
Percentage increase (decrease).............................. 193.2% (82.6)%
Operating margin............................................ 5.7% 2.0% 9.9%
Capital expenditures........................................ $ 15.7 $ 15.8 $ 18.5
</Table>
In 2002, Bowling & Billiards segment sales increased 2.6 percent to $377.7
million compared with 2001. Sales of bowling products increased 3.5 percent in
2002 due to improved volumes in consumer products and after-market parts and
supplies, and favorable pricing associated with capital equipment. Sales of
billiards tables and accessories increased 8.9 percent in 2002 largely due to
market share gains. Sales at bowling retail centers were essentially flat
between 2002 and 2001.
Operating earnings for the Bowling & Billiards segment increased $14.1
million in 2002 to $21.4 million, and operating margins increased 370 basis
points to 5.7 percent. The increase in operating earnings primarily related to
the segment's bowling products business. Key drivers included significant
efforts to reduce costs through global sourcing initiatives, and headcount and
other expense reductions, as well as reduced bad debt expense from the level
seen in 2001.
In 2001, Bowling & Billiards segment sales decreased 12.9 percent to $368.1
million compared with 2000. Retail bowling center results were flat between 2001
and 2000. Billiards sales were modestly higher comparing 2001 with 2000. Bowling
product sales, including capital equipment, balls, supplies and other
accessories, declined due to a reduction in demand as bowling center proprietors
deferred investments in new lane packages and upgrades of existing facilities as
a result of the recession in both domestic and international markets. Sales of
bowling equipment were also down as a result of supply chain efforts to reduce
wholesale inventories.
The Bowling & Billiards segment reported operating earnings of $7.3 million
in 2001 compared with $41.9 million in 2000. Operating margins declined 790
basis points to 2.0 percent for 2001. Operating earnings declined in 2001
compared with 2000 due to the decline in sales volume, lower absorption of fixed
costs due to lower production, increased bad debt expenses associated with the
weakened international economy, and severance expenses from a workforce
reduction, as well as reduced gains related to the divestiture of certain retail
bowling centers.
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, hunting sports accessories and marine 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 was completed in 2001, and the sale
of the bicycle and camping businesses was 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
through December 31, 2001. On December 31, 2002, the Company decided to retain
its marine accessories businesses after efforts to sell these operations proved
unsuccessful. The financial results of these businesses,
24
<PAGE>
operating under the brand names MotorGuide, Pinpoint and Swivl-Eze, were not
material to the Company's consolidated financial statements.
Discontinued operations experienced losses of $68.4 million in 2000. Losses
from discontinued operations included the results of operations from the cooler,
hunting sports accessories and marine accessories 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.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth an analysis of cash flow for the years ended
December 31, 2002, 2001 and 2000 (in millions):
<Table>
<Caption>
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
EBITDA*..................................................... $ 353.3 $ 345.5 $ 594.8
Changes in working capital.................................. 90.8 (10.9) (163.2)
Interest expense............................................ (43.3) (52.9) (67.6)
Tax receipts (payments)..................................... 6.2 26.6 (55.2)
Other....................................................... 6.0 (9.0) (57.8)
------- ------- -------
Cash provided by operating activities of continuing
operations........................................... 413.0 299.3 251.0
Cash used for investing activities of continuing
operations**......................................... (108.5) (85.9) (188.1)
------- ------- -------
Free cash flow ***..................................... $ 304.5 $ 213.4 $ 62.9
======= ======= =======
Cash flow from discontinued operations (pretax)........... $ -- $ 107.4 $ 45.3
======= ======= =======
</Table>
* EBITDA is defined as net earnings, adjusted for the effect of changes in
accounting principles, unusual charges and discontinued operations (as
previously described), and 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.
The Company's major sources of funds for investments and dividend payments
are cash generated from operating activities, available cash balances and
selected borrowings.
Net cash provided by operating activities of continuing operations totaled
$413.0 million in 2002 compared with $299.3 million in 2001 and $251.0 million
in 2000. The $113.7 million increase in net cash provided by operating
activities of continuing operations in 2002 versus the prior year was generated
25
<PAGE>
principally from a decrease in working capital. Cash provided from operating
activities included changes in working capital that generated cash of $90.8
million in 2002 compared with a use of cash of $10.9 million and $163.2 million
in 2001 and 2000, respectively.
The change in working capital was the result of an increase in accounts
payable and accrued expenses, as well as a reduction in inventories. Accounts
payable increased to $291.2 million at December 31, 2002, from $214.5 million at
December 31, 2001, which can be attributed to the increased production levels in
the fourth quarter of 2002 compared with 2001, as well as efforts to improve
cash management. Accrued expenses increased to $685.5 million in 2002 from
$648.2 million in 2001, as a result of recording accruals for variable
compensation plans in 2002, whereas the Company did not accrue any significant
bonuses based on 2001 performance. Inventories, excluding acquisitions,
decreased $35.1 million in 2002 compared with 2001. The decrease in inventories
was driven primarily by the Boat segment's inventory reduction program. Accounts
and notes receivable of $401.4 million at December 31, 2002, increased from
$361.9 million at December 31, 2001. The increase in accounts and notes
receivable is primarily due to an increase in sales in the fourth quarter of
2002 versus the fourth quarter of 2001.
Net tax receipts in 2002 reflect the realization of tax benefits associated
with the divestiture of the cooler business in late 2001 partially offset by tax
payments associated with net earnings. Net tax receipts in 2001 reflect benefits
realized from the Company's divestiture of the other outdoor recreation
businesses in late 2000 partially offset by tax payments associated with net
earnings. Other operating cash flow activities included payments made by the
Company for litigation settlements totaling $0.2 million in 2002, $6.6 million
in 2001, and $49.4 million in 2000.
The Company invested $112.6 million, $111.4 million and $156.0 million in
capital expenditures in 2002, 2001 and 2000, 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 cash acquired, totaled $21.2 million for
2002, comprised primarily of consideration paid for Teignbridge, a manufacturer
of custom and standard propellers and underwater stern gear for inboard-powered
vessels; IDS, a developer of management systems for marine and recreational
vehicle dealers; Northstar, a supplier of premium marine navigation electronics;
and additional consideration relating to the November 30, 2001, acquisition of
Hatteras. Teignbridge, IDS and Northstar were acquired on February 10, 2002,
October 1, 2002, and December 16, 2002, respectively, and their results of
operations are included in the Marine Engine segment post-acquisition. In 2001,
the company invested $134.4 million in Boat segment acquisitions, to acquire
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 $8.9 million for 2002 were primarily related
to the Cummins MerCruiser Diesel Marine LLC joint venture. Investments totaling
$38.1 million for 2000 were primarily comprised of amounts invested in
Internet-related businesses and fitness equipment distribution alliances.
The Company anticipates spending approximately $150.0 million for capital
expenditures in 2003. About one-half of the capital spending covers investments
in new and upgraded products, about one-third for necessary enhancements 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 $351.4 million at the end of 2002
compared with $108.5 million in 2001. Total debt at year-end 2002 was $618.4
million versus $640.2 million at the end of 2001. The decrease in total debt
outstanding is principally due to decreases in short-term borrowings and
payments related to the Company's ESOP debt. Debt-to-capitalization ratios were
35.9 percent at December 31, 2002, and 36.6 percent at December 31, 2001. The
Company has a $350.0 million long-term credit agreement with a group of banks as
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 revolving credit agreement during 2002. The Company has the ability to
issue up to $100.0 million in letters of credit within the revolving
26
<PAGE>
credit facility, with $66.1 million in outstanding letters of credit at December
31, 2002. The Company had borrowing capacity of $283.9 million under the terms
of this agreement and if utilized, the Company has multiple borrowing options.
The borrowing rate, as calculated in accordance with those terms, would have
been 2.02 percent at December 31, 2002. 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, beginning in 2002, it would convert to
an annual dividend rather than pay dividends quarterly to reduce administrative
costs. Future dividends, declared at the discretion of the Board of Directors,
will be paid in December. A dividend of $0.50 per share was declared in October
and paid in December of 2002.
During 2002, the Company received $40.3 million from stock options
exercised compared with $9.8 million and $3.2 million in 2001 and 2000,
respectively. No stock repurchases occurred during 2002 and 2001. For the year
ended December 31, 2000, the Company spent $87.1 million, to repurchase 4.7
million shares of 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 shares for $2.4 million
in 2000. A total of 2.7 million additional shares may be repurchased under this
program.
The adverse conditions in the equity markets, along with the low interest
rate environment, have had an unfavorable impact on the funded status of the
Company's domestic qualified defined benefit pension plans. While there was no
legal requirement under the Employee Retirement Income Security Act (ERISA) to
contribute to these plans in 2002, the Company contributed $45.0 million in cash
to the qualified pension plans and funded $8.3 million to cover benefit payments
in the unfunded nonqualified pension plan. Additional contributions may be made
to pension plans in 2003 to achieve the Company's funding objectives.
The Company established a joint venture in 2002 with Transamerica
Distribution Finance to provide financial products and services to customers of
the Company's domestic marine businesses. The venture, Brunswick Acceptance
Company, LLC (BAC), will provide secured wholesale floor-plan financing to the
Company's boat dealers and may provide other financial services in support of
the Company's marine businesses. In addition, the parties contemplate that BAC
will purchase and service a portion of Mercury Marine's domestic accounts
receivable for its boatbuilder customers. The Company owns a 15 percent interest
in the joint venture initially, but will increase its ownership to 49 percent by
July 15, 2003. BAC became operational in January 2003. The Company expects to
receive approximately $60 to $85 million resulting from the initial sale of
select Mercury Marine domestic receivables in mid-2003 and intends to contribute
approximately $30 million to fund its share of BAC's equity requirements in
2003. See NOTE 19, FINANCIAL SERVICES, in the Notes to Consolidated Financial
Statements.
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
The Company accrues for litigation exposure based upon its assessment, made
in consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company's litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company's consolidated financial position. If current
estimates for the cost of resolving any claims are later determined to be
inadequate, results of operations could be adversely affected in the period in
which additional provisions are required.
27
<PAGE>
On April 18, 2002, the Company, in cooperation with the United States
Consumer Products Safety Commission (CPSC), announced a recall of approximately
103,000 bicycles that were sold by the Company's former bicycle division. The
bicycles had been equipped with suspension forks that were purchased from a
third party supplier. Some of the forks were found to have been defectively
manufactured and were involved in approximately 55 reported incidents. The 2002
recall was an expansion of a prior recall involving the suspension forks, and
allows consumers who purchased bicycles with an affected fork to return the fork
in exchange for $65 or a replacement bicycle. In addition to the costs of
administering the recall, the Company anticipates that it will incur additional
costs to resolve litigation stemming from the sale of the bike forks, and faces
a potential fine from the CPSC based on inadvertent delays in reporting several
of the incidents involving the forks. 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 April 22, 2002, a federal court in Seattle lifted a stay in a lawsuit
filed against Life Fitness by Precor Incorporated (Precor). The suit, which
alleges that certain of Life Fitness' cross trainer exercise machines infringe
Precor's Miller '829 patent, was stayed by the court pending reexamination of
the patent by the U.S. Patent and Trademark Office (PTO). The PTO issued a
modified Miller '829 patent to Precor on March 5, 2002, which led to the lifting
of the stay. Trial is scheduled for July 14, 2003. This matter was initiated in
January 2000 and seeks monetary damages and injunctive relief. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of this matter.
In a separate lawsuit between the Company and Precor, a federal court in
Seattle awarded Precor approximately $230,000 in attorneys' fees on June 14,
2002. The award was reduced from $5.3 million in light of an appellate court
ruling in the case. This matter was originally filed in 1994 and sought monetary
damages and injunctive relief. The Company believes that this matter has been
finally concluded.
During the fourth quarter of 2002, the Company settled a patent
infringement lawsuit filed against it by CCS Fitness, Inc. (CCS). CCS had
alleged that a front-drive cross trainer manufactured by Life Fitness infringed
a patent held by CCS. This matter was initiated in 1998 and sought monetary
damages and injunctive relief. In light of the settlement, the matter was
dismissed with prejudice.
On May 30, 2002, Leiserv, Inc. (Leiserv), a Company subsidiary operated by
the Bowling & Billiards segment, was sued in the Circuit Court of St. Louis
County, Missouri, for alleged violations of the federal Telephone Consumer
Protection Act. The lawsuit was brought as a putative class action seeking
monetary damages on behalf of all people and entities within two area codes in
the St. Louis area who allegedly received unsolicited faxes from a service
provider retained by Leiserv. Because this case remains in the early stages of
litigation and raises legal issues that have not yet been fully resolved by the
courts, the Company is unable to predict the outcome of this matter.
On December 3, 2002, the United States Supreme Court reversed an Illinois
Supreme Court decision that had been entered in the Company's favor in Sprietsma
vs. Mercury Marine, a "propeller guard" case. In its decision, the U.S. Supreme
Court rejected one of the defenses the Company had successfully asserted in
Sprietsma and other cases based on federal preemption of state law. The case,
which was initiated in July 1996 and sought monetary damages, was remanded to
the Illinois court for further consideration. The Company believes that it has a
number of other valid defenses to the claims asserted in Sprietsma, and 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 has been named in a number of asbestos-related lawsuits, the
majority of which involve Vapor Corporation, a former subsidiary which the
Company divested in 1990. Virtually all of the asbestos suits against the
Company involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, that included
asbestos, and seek monetary damages from the Company. Neither the Company nor
Vapor is alleged to have manufactured asbestos. The Company's insurers have
settled a number of asbestos 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.
28
<PAGE>
In 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. In 2000, 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. In late
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 February 2003,
the Tax Court on remand ruled that the Company did not have a non-tax business
purpose for forming the two partnerships and that they were therefore not valid
for tax purposes. The Company will appeal this decision to the United States
Court of Appeals for the District of Columbia. If, on appeal, the Company does
not prevail, the Company will owe approximately $135 million, consisting of $60
million in taxes due plus $75 million of interest, net of tax. The Company has
previously settled a number of other issues with the IRS on open tax years 1989
through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
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. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.
The Company is involved in certain legal and administrative proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 and other federal and state legislation governing the generation and
disposal of certain hazardous wastes. These proceedings, which involve both on-
and off-site waste disposal or other contamination, in many instances seek
compensation or remedial action from the Company as a waste generator under
Superfund legislation, which authorizes action regardless of fault, legality of
original disposition or ownership of a disposal site. The Company has
established 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
emissions requirements. The costs associated with these activities and the
introduction of low-emission engines will have an adverse effect on Marine
Engine segment operating margins and may affect short-term operating results.
The Boat segment continues to pursue fiberglass boat manufacturing technologies
and techniques to reduce air emissions at its boat manufacturing facilities.
The Company does not believe that compliance with federal, state and local
environmental laws will have a material adverse effect on the Company's
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.
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 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.
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.
29
<PAGE>
EFFECTS OF THREATENED EUROPEAN COMMUNITIES TARIFF INCREASES
On April 19, 2002, the Commission of the European Communities announced its
intention to increase tariffs on certain U.S. exports to the countries
comprising the European Communities (EC), including many categories of
recreational boats. The proposed EC tariff increase was announced in response to
increases by the United States on certain steel tariffs. If the EC tariffs
become effective, a substantial portion of the Company's boats imported into the
EC could be subject to an additional duty of up to 30 percent. The proposed
tariffs are scheduled to become effective on March 20, 2005, or five days
following a ruling from the World Trade Organization (WTO) that the U.S. steel
tariffs are incompatible with WTO standards, whichever is sooner. A ruling from
the WTO is expected during 2003, but the Company is unable to predict what that
ruling will be. Although it is not possible to determine the likely effects of
the EC proposal, the Company is carefully monitoring developments concerning
this matter and will continue to evaluate potential strategies for mitigating
any adverse effects of the proposed tariffs. The Company's sales of U.S.
produced boats into the EC during 2002 totaled approximately $50 million.
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. Beginning in January 2002,
new Euro-denominated bills and coins were issued. The costs to prepare for this
conversion, including the costs to adapt information systems, were not material
to the Company's results of operations, financial position or cash flows.
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amount of
reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and revenues
and expenses during the periods reported. Actual results may differ from those
estimates. The Company discussed the development and selection of the critical
accounting policies with the audit committee of the board of directors and
believes the following are the most critical accounting policies that could have
an effect on the Company's reported results.
Revenue Recognition and Sales Incentives. The Company's revenue is derived
primarily from product sales. Revenue is recognized in accordance with the terms
of the sale, primarily upon shipment to customers, once the sales price is fixed
or determinable, and collectibility is reasonably assured. The Company offers
discounts and sales incentives that include retail promotional activities,
rebates and manufacturer coupons. The estimated liability for sales incentives
is recorded at the later of when the program has been communicated to the
customer or at the time of sale in accordance with Emerging Issues Task Force
(EITF) No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of a Vendor's Products)." The liability is estimated based
on the costs for the incentive program, the planned duration of the program and
historical experience. If actual costs are different from estimated costs, the
liability could be affected.
Allowances for Doubtful Accounts. The Company records an allowance for
uncollectible receivables based upon past transaction history with customers,
customer payment practices and economic conditions. Actual collection experience
may differ from the current estimate of net receivables. A change to the
allowance for uncollectible amounts may be required if a future event or other
change in circumstances results in a change in the estimate of the ultimate
collectibility of a specific account.
Reserve for Excess and Obsolete Inventories. The Company records a reserve
for excess and obsolete inventories in order to ensure inventories are carried
at the lower of cost or fair market value. Fair market value can be affected by
assumptions about market demand, market conditions, historical usage rates,
model changes and new product introductions. If model changes or new product
introductions create less than favorable market conditions, the reserve for
excess and obsolete inventories may need to increase. Refer to
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<PAGE>
NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to Consolidated Financial
Statements for further discussion on the basis of accounting for inventories.
Litigation. The Company accrues for litigation exposure based upon its
assessment, made in consultation with counsel, of the likely range of exposure
stemming from the claim. In light of existing reserves, the Company's litigation
claims, when finally resolved, will not, in the opinion of management, have a
material adverse effect on the Company's consolidated financial position. If
current estimates for the cost of resolving any claims are later determined to
be inadequate, results of operations could be adversely affected in the period
in which additional provisions are required. The Company estimates a range of
losses when the amount and range of loss can be estimated. In the event that no
amount within the range is a better estimate, the Company records at least the
minimum amount in the range. The Company records a loss when it is probable that
a loss has been incurred and the loss can be reasonably estimated.
Warranty Reserves. The Company records a liability for standard product
warranties at the time revenue is recognized. The liability is estimated using
historical warranty experience, projected claim rates and expected costs per
claim. If necessary, the Company adjusts its liability for specific warranty
matters when they become known and are reasonably estimable. The Company's
warranty reserves are affected by product failure rates and material usage and
labor costs incurred in correcting a product failure. If these estimated costs
differ from actual product failure rates, and actual material usage and labor
costs, a revision to the warranty reserve would be required. Refer to NOTE 7,
COMMITMENTS AND CONTINGENCIES, in the Notes to Consolidated Financial Statements
for additional information.
Self-Insurance Reserves. The Company records a liability for
self-insurance obligations, which include employee-related health care benefits
and claims for workers' compensation, product liability, general liability and
auto liability. The liability is estimated based on claims incurred as of the
date of the financial statements. In estimating the obligations associated with
self-insurance reserves, the Company primarily uses loss development factors
based on historical claim experience. These loss development factors are used to
estimate ultimate losses on incurred claims. Actual costs associated with a
specific claim can vary from an earlier estimate. If the facts were to change,
the liability recorded for expected costs associated with a specific claim may
need to be revised.
Pension and Postretirement Benefit Reserves. Pension, postretirement and
postemployment costs and obligations are actuarially determined and are affected
by assumptions including the discount rate, the estimated future return on plan
assets, the annual rate of increase in compensation for plan employees, the
increase in costs of health care benefits and other factors. The Company
evaluates assumptions used on a periodic basis and makes adjustments to these
liabilities as necessary.
The Company utilizes the Moody's Aa long-term corporate bond yield as a
basis for determining the discount rate with a yield adjustment made for the
longer duration of the Company's obligations. As a result of the decline in
Moody's Aa long-term corporate bond yield and the overall declining interest
rate environment, the Company lowered its discount rate assumption used to
determine pension obligations from 7.25 percent to 6.75 percent at December 31,
2001 and 2002, respectively. The Company evaluates its assumption regarding the
estimated long-term rate of return on plan assets based on the historical
experience and future expectations on investment returns. The Company chooses a
rate of return on plan assets that it believes is an appropriate long-term
average return. The expected return on plan assets takes into account estimated
future investment returns for various asset classes held in the plans'
portfolio. The Company lowered its investment return assumptions in determining
pension cost to 9.0 percent in 2002 compared with 9.5 percent in 2001 and 2000.
As a result of the lower discount rate, the reduced return on plan assets and
the increased unrecognized actuarial losses in 2002, pension expense is expected
to increase to approximately $44 million in 2003, from $22.0 million in 2002 and
$9.7 million in 2001.
Under current accounting guidelines, if individual pension plans are underfunded
on an accumulated benefit obligation basis, the shortfall in assets is required
to be recorded as an additional minimum liability. In recognizing an additional
minimum liability, an intangible asset equal to the unrecognized prior service
cost is recorded with the excess reported in common shareholders' equity, net of
tax. In 2002, the Company recorded a non-cash reduction in equity of $115.7
million, net of tax. If equity market returns do not improve in 2003
31
<PAGE>
and if interest rates remain at current levels, the Company could be required to
record an additional non-cash reduction in equity.
Pension, postretirement and postemployment benefit reserves are determined
in accordance with SFAS No. 87, "Employers' Accounting for Pensions," SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
respectively. Refer to NOTE 13, PENSION AND OTHER POSTRETIREMENT BENEFITS, in
the Notes to Consolidated Financial Statements for additional information
regarding the assumptions used and for changes in the accrued benefit.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted 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," for the disposal of a segment of a business (as
previously defined in that Opinion). The adoption of SFAS No. 144 did not have a
material impact on the financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company
believes the adoption of SFAS No. 146 will not have a material impact on the
financial statements.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - An Interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34."
This interpretation clarifies the requirements for a guarantor's accounting for
and disclosures of certain guarantees issued and outstanding. FIN 45 also
clarifies the requirements related to the recognition of a liability by a
guarantor at the inception of a guarantee. FIN 45 is effective for guarantees
entered into or modified after December 31, 2002. The Company has not determined
the impact FIN 45 will have on the financial statements.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities - An Interpretation of Accounting
Research Bulletin (ARB) No. 51." This interpretation clarifies how to identify
variable interest entities and how the Company should assess its interests in a
variable interest entity to decide whether to consolidate the entity. FIN 46
applies to variable interest entities created after January 31, 2003, in which
the Company obtains an interest after that date. Also, FIN 46 applies in the
first fiscal quarter or interim period beginning after June 15, 2003, to
variable interest entities in which the Company holds a variable interest that
it acquired before February 1, 2003. The Company has not determined the impact
FIN 46 will have on the financial statements.
SUBSEQUENT EVENTS
In January 2003, the Company purchased a 36 percent equity interest in
Bella-Veneet OY (Bella), a boat manufacturer located in Finland. The Company
will account for this investment using the equity method and will have the
option to acquire the remaining equity interest of Bella in 2007.
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
32
<PAGE>
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, a weakened stock market 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 have been, and continue to
be, affected by weak domestic and international market conditions and
the fluctuating stock market. The threat of war in the Middle East and
other global political events may adversely affect consumer confidence
during 2003 and beyond. 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.
- - Shifts in currency exchange rates:
The Company manufactures its products predominately in the United
States, though international manufacturing and sourcing are increasing.
A strong U.S. dollar can make the Company's products less
price-competitive relative to locally produced products in international
markets. 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 by other companies can hurt the Company's competitive
position. The Company's efforts toward 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 their inventories downward,
wholesale demand for the Company's products diminishes. Inventory
reduction can hurt the Company's short-term results of operations and
limit the Company's ability to meet increased demand when the U.S.
economy recovers.
- - Financial difficulties experienced by dealers and independent boatbuilders:
The U.S. economic downturn has adversely affected some of the Company's
dealers. As the main distribution 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 availability of capital and the
financial health 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 superior 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 and
resolve claims and litigation at the cost estimated:
As discussed in PART I, ITEM 3 above, the Company is subject to claims
and litigation in the ordinary course of operations. These claims
include several environmental proceedings, some of which involve
33
<PAGE>
costly remediation efforts over extended periods of time, as well as
certain litigation matters which if not resolved in the Company's favor,
could require significant expenditures by the Company. The Company
believes that it is adequately reserved for these obligations, but
significant increases in the anticipated costs associated with these
matters 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 competitive 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, is critical to the
Company's continued success.
- - The ability to maintain product quality and service standards expected by the
Company's customers:
The Company's consumers demand high quality products and excellent
customer service. The Company's ability to meet these demands through
continuous quality improvement across all of its businesses will
significantly impact the Company's future results.
- - The Company's ability to maintain market share and volume in key high-margin
product lines, particularly in its marine engine segment:
The Company derives a significant portion of its earnings from sales of
higher-margin products, especially in its marine engine business.
Changes in sales mix to lower-margin products, including low-emission
engines, as well as increased competition in these product lines, could
adversely impact the Company's future operating results. The Company is
focusing on cost-containment efforts, new product development and global
sourcing initiatives, as well as operational improvements, to offset
this risk.
- - The ability to successfully integrate acquisitions:
The Company has acquired several new businesses since 2000 and intends
to continue to acquire additional businesses to complement its existing
portfolio. The Company's success in effectively integrating these
operations, including their financial, operational and distribution
practices and systems, will affect the contribution of these businesses
to the Company's consolidated results.
- - Adverse foreign economic conditions:
As the Company continues to focus on international growth, it will
become increasingly vulnerable to the effects of political instability,
economic conditions and war in key world regions.
- - The effect of weak financial markets on pension expense and funding levels:
The Company has made, and will continue to make as necessary,
contributions to meet its pension funding obligations. The Company's
pension expense is affected by the performance of financial markets
where pension assets are invested. These costs will continue to increase
if the performance of financial markets weaken further.
- - The success of global sourcing and supply chain management initiatives:
The Company has launched a number of initiatives to strengthen its
sourcing and supply chain management activities. The success of these
initiatives will play a critical role in the Company's continuing
ability to reduce costs.
34
<PAGE>
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.
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 that
changes in interest rates have on the fair market value of the Company's debt
and to lower the Company's borrowing costs. The Company's net exposure to
interest rate risk is primarily attributable to fixed-rate debt 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. In the fourth quarter of 2002, the
Company deferred a realized gain of $12.2 million on the termination of interest
rate swaps in advance of their scheduled termination date. The deferred gain
will be amortized through 2006 based upon the underlying debt, in effect
decreasing interest expense associated with the Company's borrowings.
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 Monte Carlo simulation
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.
<Table>
<Caption>
AMOUNT
IN TIME CONFIDENCE
RISK CATEGORY MILLIONS PERIOD LEVEL
- ------------- -------- ------ ----------
<S> <C> <C> <C>
Foreign exchange............................................ $0.9 1 day 95%
Interest rates.............................................. $5.0 1 day 95%
Commodity prices............................................ $0.4 1 day 95%
</Table>
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, as actual results may differ
significantly depending upon activity in global financial markets.
35
<PAGE>
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
On March 13, 2002, the Company terminated the engagement of Arthur Andersen
LLP (Arthur Andersen) as its independent auditor. The decision to terminate the
engagement of Arthur Andersen was recommended by the Company's Audit and Finance
Committee (now Audit Committee) and approved by its Board of Directors. Arthur
Andersen's report on the financial statements of the Company for each of the
years ended December 31, 2000, and December 31, 2001, did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 31, 2000, and December 31, 2001, and the interim period between
December 31, 2001, and March 13, 2002, there were no disagreements between the
Company and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report. During the years ended December 31, 2000, and
December 31, 2001, and the interim period between December 31, 2001, and March
13, 2002, there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K promulgated by the Securities and Exchange Commission). A letter
from Arthur Andersen was attached as Exhibit 16.1 to a Report on Form 8-K filed
by the Company on March 15, 2002.
The Company engaged Ernst & Young LLP (Ernst & Young) as its new
independent auditor effective March 14, 2002. The engagement of Ernst & Young
was recommended by the Company's Audit and Finance Committee (now Audit
Committee) and approved by its Board of Directors. During the years ended
December 31, 2000, and December 31, 2001, and the interim period between
December 31, 2001, and March 13, 2002, the Company did not consult with Ernst &
Young regarding (i) the application of accounting principles to a specified
transaction, either completed or proposed, (ii) the type of audit opinion that
might be rendered on the Company's financial statements or (iii) any matter that
was either the subject of a disagreement (as described above) or a reportable
event.
36
<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
April 30, 2003 (the Proxy Statement). All of the foregoing information is hereby
incorporated by reference. The Company's executive officers are listed herein on
pages 13 to 14.
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 AND
RELATED STOCKHOLDER MATTERS
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.
Information required with respect to the securities authorized for issuance
under the Company's equity compensation plans, including plans that have
previously been approved by the Company's stockholders and plans that have not
previously been approved by the Company's stockholders, 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.
ITEM 14. CONTROLS AND PROCEDURES
The Chairman and Chief Executive Officer and the Chief Financial Officer of
the Company (its principal executive officer and principal financial officer,
respectively) have evaluated the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within
90 days of the date of the filing of this Report on Form 10-K. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information required to be included in the
Company's periodic SEC filings relating to the Company (including its
consolidated subsidiaries). There were no significant changes in the Company's
internal controls, or in other factors that could significantly affect these
controls, subsequent to the date of such evaluation.
37
<PAGE>
PART IV
ITEM 15. 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 43 to 81.
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 81.
3. The exhibits listed in the accompanying Index to Exhibits are filed
as part of the 10-K unless noted otherwise.
4. All other schedules are omitted because they are not required or are
not applicable, or the required information is shown in the
Consolidated Financial Statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on pages 82 to 84.
(d) Financial Statement Schedule
See Index to Financial Statements and Financial Statement Schedule on page
42.
38
<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 11, 2003
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
RALPH C. STAYER 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 11, 2003
39
<PAGE>
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, George W. Buckley, certify that:
1. I have reviewed this annual report on Form 10-K of Brunswick
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 11, 2003
/s/ GEORGE W. BUCKLEY
--------------------------------------
George W. Buckley
Chief Executive Officer
40
<PAGE>
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Victoria J. Reich, certify that:
1. I have reviewed this annual report on Form 10-K of Brunswick
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 11, 2003
/s/ VICTORIA J. REICH
--------------------------------------
Victoria J. Reich
Chief Financial Officer
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
BRUNSWICK CORPORATION
<Table>
<Caption>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Management........................................ 43
Report of Independent Auditors.............................. 44
Report of Independent Public Accountants.................... 45
Consolidated Statements of Income for the Years Ended
December 31, 2002, 2001 and 2000.......................... 46
Consolidated Balance Sheets at December 31, 2002 and 2001... 47
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.......................... 49
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2002, 2001 and 2000.............. 50
Notes to Consolidated Financial Statements.................. 51
FINANCIAL STATEMENT SCHEDULE:
Consent of Independent Auditors............................. 80
Schedule II - Valuation and Qualifying Accounts............. 81
</Table>
42
<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 accounting principles generally accepted in the United States
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 Committee of the Board of Directors, comprised entirely of
independent 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, 2003
43
<PAGE>
BRUNSWICK CORPORATION
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Brunswick Corporation
We have audited the accompanying consolidated balance sheet of Brunswick
Corporation as of December 31, 2002, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended. Our audit
also included the financial statement schedule for the year ended December 31,
2002, listed in the Index at Item 15(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit. The financial statements and schedule of Brunswick Corporation as of
December 31, 2001 and for each of the two years in the period ended December 31,
2001 were audited by other auditors who have ceased operations and whose report
dated January 28, 2002 expressed an unqualified opinion on those statements
before the disclosure and restatement adjustments described in Notes 1 and 3,
respectively.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brunswick Corporation at December 31, 2002, and the consolidated results of its
operations and its cash flows for the year then ended in accordance with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As described in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill and
other intangible assets to conform with FASB Statement No. 142, Goodwill and
Other Intangible Assets.
As discussed above, the financial statements of Brunswick Corporation as of
December 31, 2001, and for each of the two years in the period ended December
31, 2001, were audited by other auditors who have ceased operations. As
described in Note 1, these financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting Standards
(Statement) No. 142, which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 3 with respect to 2001
and 2000 included (a) agreeing the previously reported net income to the
previously issued financial statements and the adjustments to reported net
income representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill to the Company's underlying
records obtained from management, and (b) testing the mathematical accuracy of
the reconciliation of adjusted net income to reported net income, and the
related earnings-per-share amounts. Also, as described in Note 3, the Company
changed the composition of its reportable segments in 2002, and the amounts in
the 2001 and 2000 financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable segments. We audited
the adjustments that were applied to restate the disclosures for reportable
segments reflected in the 2001 and 2000 financial statements. Our procedures
included (a) agreeing the adjusted amounts of segment revenues, operating income
and assets to the Company's underlying records obtained from management, and (b)
testing the mathematical accuracy of the reconciliations of segment amounts to
the consolidated financial statements. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 and 2000 financial statements
of the Company other than with respect to such disclosures and adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 and 2000 financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
CHICAGO, ILLINOIS
January 28, 2003
44
<PAGE>
NOTE: THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP ("ARTHUR ANDERSEN") IN CONNECTION WITH BRUNSWICK CORPORATION'S FORM 10-K
FILING FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001. THE INCLUSION OF THIS
PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT IS PURSUANT TO THE "TEMPORARY FINAL
RULE AND FINAL RULE REQUIREMENTS FOR ARTHUR ANDERSEN LLP AUDITING CLIENTS,"
ISSUED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION IN MARCH 2002. NOTE THAT
THIS PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT INCLUDES REFERENCES TO CERTAIN
FISCAL YEARS THAT ARE NOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31,
2001 AND 2000. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN IN
CONNECTION WITH THIS FILING ON FORM 10-K.
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
45
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------
2002 2001 2000
---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET SALES................................................... $3,711.9 $3,370.8 $3,811.9
Cost of sales............................................... 2,852.0 2,587.4 2,723.3
Selling, general and administrative expense................. 560.5 496.4 534.2
Research and development expense............................ 102.8 95.9 102.2
Unusual charges............................................. -- -- 55.1
-------- -------- --------
OPERATING EARNINGS........................................ 196.6 191.1 397.1
Interest expense............................................ (43.3) (52.9) (67.6)
Other income (expense)...................................... 8.3 (6.0) (6.2)
-------- -------- --------
EARNINGS BEFORE INCOME TAXES.............................. 161.6 132.2 323.3
Income tax provision........................................ 58.1 47.5 121.1
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS....................... 103.5 84.7 202.2
Loss from discontinued operations, net of tax............... -- -- (68.4)
Loss from disposal of discontinued operations, net of tax... -- -- (229.6)
Cumulative effect of change in accounting principle, net of
tax....................................................... (25.1) (2.9) --
-------- -------- --------
NET EARNINGS (LOSS)....................................... $ 78.4 $ 81.8 $ (95.8)
======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations......................... $ 1.15 $ 0.96 $ 2.28
Loss from discontinued operations........................... -- -- (0.77)
Loss from disposal of discontinued operations............... -- -- (2.59)
Cumulative effect of change in accounting principle......... (0.28) (0.03) --
-------- -------- --------
Net earnings (loss)....................................... $ 0.87 $ 0.93 $ (1.08)
======== ======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations......................... $ 1.14 $ 0.96 $ 2.28
Loss from discontinued operations........................... -- -- (0.77)
Loss from disposal of discontinued operations............... -- -- (2.59)
Cumulative effect of change in accounting principle......... (0.28) (0.03) --
-------- -------- --------
Net earnings (loss)....................................... $ 0.86 $ 0.93 $ (1.08)
======== ======== ========
AVERAGE SHARES USED FOR COMPUTATION OF:
Basic earnings per share.................................... 90.0 87.8 88.7
Diluted earnings per share.................................. 90.7 88.1 88.7
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.
46
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31
-----------------------
2002 2001
---------- ----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost, which approximates
market................................................. $ 351.4 $ 108.5
Accounts and notes receivable, less allowances of $31.8
and $26.1.............................................. 401.4 361.9
Inventories
Finished goods......................................... 272.5 317.2
Work-in-process........................................ 201.6 180.9
Raw materials.......................................... 72.8 59.3
-------- --------
Net inventories...................................... 546.9 557.4
-------- --------
Prepaid income taxes...................................... 305.1 307.5
Prepaid expenses.......................................... 49.5 38.9
Income tax refunds receivable............................. 5.9 26.7
-------- --------
CURRENT ASSETS....................................... 1,660.2 1,400.9
-------- --------
PROPERTY
Land...................................................... 68.3 68.4
Buildings and improvements................................ 478.2 460.0
Equipment................................................. 998.2 964.8
-------- --------
Total land, buildings and improvements and
equipment........................................... 1,544.7 1,493.2
Accumulated depreciation.................................. (871.0) (803.8)
-------- --------
Net land, buildings and improvements and equipment... 673.7 689.4
Unamortized product tooling costs......................... 119.0 116.2
-------- --------
NET PROPERTY......................................... 792.7 805.6
-------- --------
OTHER ASSETS
Goodwill.................................................. 452.8 474.4
Other intangibles......................................... 117.5 128.9
Investments............................................... 95.4 80.4
Other long-term assets.................................... 288.5 267.3
-------- --------
OTHER ASSETS......................................... 954.2 951.0
-------- --------
TOTAL ASSETS................................................ $3,407.1 $3,157.5
======== ========
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
47
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31
-----------------------
2002 2001
---------- ----------
(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................................................... $ 28.9 $ 40.0
Accounts payable.......................................... 291.2 214.5
Accrued expenses.......................................... 685.5 648.2
-------- --------
CURRENT LIABILITIES.................................... 1,005.6 902.7
-------- --------
LONG-TERM DEBT
Notes, mortgages and debentures........................... 589.5 600.2
-------- --------
DEFERRED ITEMS
Income taxes.............................................. 144.1 185.2
Postretirement and postemployment benefits................ 399.3 216.1
Other..................................................... 166.8 142.4
-------- --------
DEFERRED ITEMS......................................... 710.2 543.7
-------- --------
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................................ 308.9 316.2
Retained earnings......................................... 1,112.7 1,079.4
Treasury stock, at cost:
12,377,000 and 14,739,000 shares....................... (228.7) (289.8)
Unamortized ESOP expense and other........................ (22.2) (27.1)
Accumulated other comprehensive loss:
Foreign currency translation........................... (9.9) (20.0)
Minimum pension liability.............................. (136.5) (20.8)
Unrealized investment gains (losses)................... 2.7 (1.7)
Unrealized losses on derivatives....................... (2.1) (2.2)
-------- --------
Total accumulated other comprehensive loss............. (145.8) (44.7)
-------- --------
COMMON SHAREHOLDERS' EQUITY............................ 1,101.8 1,110.9
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $3,407.1 $3,157.5
======== ========
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
48
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
2002 2001 2000
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)....................................... $ 78.4 $ 81.8 $ (95.8)
Depreciation and amortization............................. 148.4 160.4 148.8
Change in accounting principle, net of tax................ 25.1 2.9 --
Changes in noncash current assets and current liabilities
Change in accounts and notes receivable................ (35.1) 51.1 (69.4)
Change in inventory.................................... 35.1 39.4 (104.3)
Change in prepaid expenses............................. (9.7) 10.7 2.6
Change in accounts payable............................. 71.0 (47.5) (10.4)
Change in accrued expense.............................. 29.5 (64.6) 18.3
Income taxes.............................................. 64.3 74.1 65.9
Antitrust litigation settlement payments.................. (0.2) (6.6) (49.4)
Unusual charge............................................ -- -- 55.1
Loss from discontinued operations......................... -- -- 298.0
Other, net................................................ 6.2 (2.4) (8.4)
------- ------- -------
NET CASH PROVIDED BY CONTINUING OPERATIONS............. 413.0 299.3 251.0
NET CASH PROVIDED BY DISCONTINUED OPERATIONS........... -- 31.5 5.8
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 413.0 330.8 256.8
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (112.6) (111.4) (156.0)
Investments............................................... (8.9) -- (38.1)
Acquisitions of businesses, net of debt and cash
acquired............................................... (21.2) (134.4) --
Proceeds on the sale of property, plant and equipment..... 13.2 26.8 10.5
Other, net................................................ (0.2) (1.3) (4.5)
------- ------- -------
NET CASH USED FOR CONTINUING OPERATIONS................ (129.7) (220.3) (188.1)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS........... -- 75.9 39.5
------- ------- -------
NET CASH USED FOR INVESTING ACTIVITIES................. (129.7) (144.4) (148.6)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net issuances (repayments) of commercial paper and other
short-term debt........................................ (9.4) (144.4) 57.5
Payments of long-term debt including current maturities... (26.2) (24.7) (13.1)
Cash dividends paid....................................... (45.1) (43.8) (44.3)
Stock repurchases......................................... -- -- (87.1)
Stock options exercised................................... 40.3 9.8 3.2
------- ------- -------
NET CASH USED FOR FINANCING ACTIVITIES................. (40.4) (203.1) (83.8)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 242.9 (16.7) 24.4
Cash and cash equivalents at January 1...................... 108.5 125.2 100.8
------- ------- -------
CASH AND CASH EQUIVALENTS AT DECEMBER 31.................... $ 351.4 $ 108.5 $ 125.2
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................. $ 43.3 $ 52.6 $ 71.3
Income taxes paid (received), net......................... $ (6.2) $ (26.6) $ 55.2
Treasury stock issued for compensation plans and other.... $ 56.0 $ 12.8 $ 3.7
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
49
<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, 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)
Unrealized losses on
investments.............. -- -- -- -- -- (3.9) (3.9)
Minimum pension liability
adjustment............... -- -- -- -- -- (6.0) (6.0)
----- ------ -------- ------- ------ ------- --------
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)
Unrealized gains on
investments.............. -- -- -- -- -- 4.4 4.4
Unrealized loss on
derivative instruments... -- -- -- -- -- (2.1) (2.1)
Minimum pension liability
adjustment............... -- -- -- -- -- (14.6) (14.6)
----- ------ -------- ------- ------ ------- --------
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
----- ------ -------- ------- ------ ------- --------
COMPREHENSIVE INCOME
Net earnings............... -- -- 78.4 -- -- -- 78.4
Currency translation
adjustments.............. -- -- -- -- -- 10.1 10.1
Unrealized gains on
investments.............. -- -- -- -- -- 4.4 4.4
Unrealized gains on
derivative instruments... -- -- -- -- -- 0.1 0.1
Minimum pension liability
adjustment............... -- -- -- -- -- (115.7) (115.7)
----- ------ -------- ------- ------ ------- --------
Total comprehensive income --
2002....................... -- -- 78.4 -- -- (101.1) (22.7)
Dividends ($0.50 per common
share)..................... -- -- (45.1) -- -- -- (45.1)
Compensation plans and
other...................... -- (7.3) -- 61.1 4.9 -- 58.7
----- ------ -------- ------- ------ ------- --------
BALANCE, DECEMBER 31, 2002... $76.9 $308.9 $1,112.7 $(228.7) $(22.2) $(145.8) $1,101.8
===== ====== ======== ======= ====== ======= ========
</Table>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
50
<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:
- Losses on litigation and other contingencies;
- Warranty, extended warranties, income tax, insurance, inventory valuation
and environmental reserves;
- Allowances for doubtful accounts;
- Reserves for dealer allowances;
- Reserves related to restructuring activities;
- Determination of the discount rate and other actuarial assumptions for
pension, postretirement and postemployment liabilities;
- The valuation of investments, and;
- The loss on the disposal of the discontinued operations.
Cash and cash equivalents. The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Accounts Receivable and Allowance for Doubtful Accounts. The Company
carries its accounts receivable at their face amounts less an allowance for
doubtful accounts. On a regular basis, the Company records an allowance for
uncollectible receivables based upon past transaction history with customers,
customer payment practices and economic conditions. Actual collection experience
may differ from the current estimate of net receivables. A change to the
allowance for uncollectible amounts may be required if a future event or other
change in circumstances results in a change in the estimate of the ultimate
collectibility of a specific account.
Inventories. Inventories are valued at the lower of cost or market, with
market based on replacement cost or net realizable value. Approximately 63
percent of the Company's inventories were determined by the first-in, first-out
method (FIFO). Inventories valued at the last-in, first-out method (LIFO) were
$85.7 million and $83.6 million lower than the FIFO cost of inventories at
December 31, 2002 and 2001, respectively. Inventory cost includes material,
labor and manufacturing overhead.
Property. Property, including major improvements and product tooling
costs, is recorded at cost. Product tooling costs principally comprise the cost
to acquire and construct various long-lived molds, dies and other tooling owned
by the Company and used in its manufacturing processes. Design and prototype
development costs associated with product tooling are expensed as incurred.
Maintenance and repair costs are also expensed as incurred. Depreciation is
recorded over the estimated service lives of the related assets, principally
using the straight-line method. Buildings and improvements are depreciated over
a useful life of five to forty years. Equipment is depreciated over a useful
life of two to twenty years. Product tooling costs are amortized over the
shorter of the useful life of the tooling or the useful life of the applicable
product, for a period not to exceed eight years. Gains and losses recognized on
the sale of property are included in selling,
51
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
general and administrative (SG&A) expenses. The amount of gains and losses
included in SG&A as of December 31 were as follows (in millions):
<Table>
<Caption>
2002 2001 2000
----- ----- ----
<S> <C> <C> <C>
Gains on the sale of property............................... $ 1.5 $16.9 $7.2
Losses on the sale of property.............................. (2.0) (4.2) (0.1)
----- ----- ----
Net gains (losses) on sale of property.................... $(0.5) $12.7 $7.1
===== ===== ====
</Table>
The gains on the sale of property in 2001 included gains recognized on the
sale of a marine engine testing facility for $10.6 million. Gains on the
divestiture of certain bowling centers were $2.7 million and $6.0 million in
2001 and 2000, respectively.
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 three to seven
years, 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. Goodwill and other intangible assets
generally result from business acquisitions. The excess of cost over net assets
of businesses acquired is recorded as goodwill.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," which requires that, effective
January 1, 2002, goodwill and certain other intangible assets deemed to have an
indefinite useful life are no longer amortized. SFAS No. 142 does not require
retroactive restatement for all periods presented; however, the comparative pro
forma information below for 2001 and 2000 assumes that SFAS No. 142 was in
effect beginning January 1, 2000.
PRO FORMA INFORMATION
<Table>
<Caption>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
2002 2001 2000
----- ----- ------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Reported net earnings (loss)................................ $78.4 $81.8 $(95.8)
Goodwill and indefinite-lived intangible amortization....... -- 10.8 9.6
----- ----- ------
Adjusted net earnings (loss)................................ $78.4 $92.6 $(86.2)
===== ===== ======
BASIC EARNINGS PER COMMON SHARE:
Reported net earnings (loss)................................ $0.87 $0.93 $(1.08)
Goodwill and indefinite-lived intangible amortization....... -- 0.12 0.11
----- ----- ------
Adjusted net earnings (loss)................................ $0.87 $1.05 $(0.97)
===== ===== ======
DILUTED EARNINGS PER COMMON SHARE:
Reported net earnings (loss)................................ $0.86 $0.93 $(1.08)
Goodwill and indefinite-lived intangible amortization....... -- 0.12 0.11
----- ----- ------
Adjusted net earnings (loss)................................ $0.86 $1.05 $(0.97)
===== ===== ======
</Table>
52
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under SFAS No. 142, while amortization of goodwill and certain other
intangible assets is no longer permitted, these accounts must be reviewed
annually for impairment. The impairment test for goodwill is a two-step process.
The first step is to identify when goodwill impairment has occurred by comparing
the fair value of a reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying amount, goodwill of
the reporting unit is not considered impaired. If the carrying amount of the
reporting unit exceeds its fair value, the second step of the goodwill test
should be performed to measure the amount of the impairment loss, if any. In
this second step, the implied fair value of the reporting unit's goodwill is
compared with the carrying amount of the goodwill. If the carrying amount of the
reporting unit's goodwill exceeds the implied fair value of that goodwill, an
impairment loss should be recognized in an amount equal to that excess, not to
exceed the carrying amount of the goodwill.
The Company completed both steps of the process described above in the
second quarter of 2002 and recorded a one-time, non-cash charge of $25.1 million
after-tax ($29.8 million pre-tax) to reduce the carrying amount of its goodwill
effective January 1, 2002. Such charge is reflected as a cumulative effect of
change in accounting principle in the accompanying Consolidated Statements of
Income. In calculating the impairment charge, the fair value of the impaired
reporting units underlying the segments was estimated using a discounted cash
flow methodology.
All of the $25.1 million after-tax goodwill impairment charge is associated
with the Fitness and Bowling & Billiards segments. Various bowling products
businesses acquired in 1996 account for $11.7 million of the after-tax goodwill
impairment ($13.3 million pre-tax). The remaining $13.4 million after-tax charge
($16.5 million pre-tax) is associated with a fitness equipment retailer acquired
beginning in 1999.
Other intangibles consist of the following (in millions):
<Table>
<Caption>
DECEMBER 31, 2002* DECEMBER 31, 2001*
--------------------- ---------------------
GROSS ACCUMULATED GROSS ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Amortized intangible assets:
Dealer network............................. $195.2 $(166.6) $205.7 $(155.3)
Other...................................... 11.2 (1.8) 7.9 (2.0)
------ ------- ------ -------
Total................................... $206.4 $(168.4) $213.6 $(157.3)
====== ======= ====== =======
Indefinite-lived intangible assets:
Trademarks/tradenames...................... $ 64.5 $ (17.4) $ 53.9 $ (17.4)
Pension intangible asset................... 32.4 -- 36.1 --
------ ------- ------ -------
Total................................... $ 96.9 $ (17.4) $ 90.0 $ (17.4)
====== ======= ====== =======
</Table>
* Gross amounts and related accumulated amortization amounts include adjustments
related to the impact of foreign currency translation and changes in the fair
value of net assets subject to purchase accounting adjustments, primarily
arising from the Teignbridge Propellers, Ltd. (Teignbridge), Integrated Dealer
Systems, Inc. (IDS) and Northstar Technologies, Inc., (Northstar) acquisitions
completed in 2002 and the Sealine International (Sealine) and Hatteras Yachts,
Inc. (Hatteras) acquisitions completed in the third and fourth quarters of
2001, respectively.
The costs of definite-lived intangible assets are amortized over their
expected useful lives using the straight-line method. Aggregate amortization
expense for other intangibles was $12.0 million, $13.5 million and $12.4 million
for the years ended December 31, 2002, 2001 and 2000, respectively.
53
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated amortization expense for definite-lived intangibles for each of
the next five years is as follows (in millions):
<Table>
<S> <C>
For year ended December 31, 2003............................ $12.3
For year ended December 31, 2004............................ $12.2
For year ended December 31, 2005............................ $ 1.4
For year ended December 31, 2006............................ $ 1.3
For year ended December 31, 2007............................ $ 1.3
</Table>
The reduction in estimated amortization expense in 2005 relates to the
completion of intangible amortization assigned to dealer network costs from the
1986 acquisition of the Boat segment's Sea Ray operations.
A summary of changes in the Company's goodwill during the period ended
December 31, 2002, by segment is as follows (in millions):
<Table>
<Caption>
GOODWILL
--------------------------------------------------------
JANUARY 1, ACQUISITIONS & DECEMBER 31,
2002 ADJUSTMENTS* IMPAIRMENTS 2002
---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Marine Engine......................... $ 9.0 $7.7 $ -- $ 16.7
Boat.................................. 173.5 (0.7) -- 172.8
Fitness............................... 277.3 1.1 (16.5) 261.9
Bowling & Billiards................... 14.6 0.1 (13.3) 1.4
------ ---- ------ ------
Total................................. $474.4 $8.2 $(29.8) $452.8
====== ==== ====== ======
</Table>
* Adjustments primarily relate to the impact of foreign currency translation and
changes in the fair value of net assets subject to purchase accounting
adjustments, primarily arising from the Teignbridge, IDS and Northstar
acquisitions completed in 2002 and the Sealine and Hatteras acquisitions
completed in the third and fourth quarters of 2001, respectively.
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, 2002 and 2001, 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 earnings or losses from equity method investments is
outlined in NOTE 17, INVESTMENTS, and is included in the Consolidated Statements
of Income.
Long-lived assets. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the Company continually evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful lives of its intangible assets, excluding goodwill, and other
long-lived assets, may warrant revision or that the remaining balance of such
assets may not be recoverable. The
54
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
which are discussed in NOTE 13, PENSION AND OTHER POSTRETIREMENT BENEFITS, 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. Credits earned by these customers through
qualifying purchases are applied to the outstanding note balance in lieu of
payment. The reduction in the note receivable balance is recorded as a reduction
in the Company's sales revenue as a sales discount. In the event sufficient
orders are not received, the outstanding balance remaining under the notes is
subject to full collection. Amounts outstanding related to these arrangements as
of December 31, 2002 and 2001, totaled $46.0 million and $53.9 million,
respectively. One boatbuilder customer and its owner comprised 69 percent of
these amounts as of both December 31, 2002 and 2001.
Other long-term notes receivable also include certain agreements that
provide for the assignment of lease and other long-term receivables originated
by the Company to third parties. Refer to NOTE 7, FINANCIAL COMMITMENTS, for
further discussion. 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 - Other,
respectively.
Advertising costs. Advertising and promotion costs, included in selling,
general and administrative expenses, are expensed in the year in which the
advertising first takes place. Advertising and promotion costs were $55.3
million, $67.7 million and $86.0 million for the years ended December 31, 2002,
2001 and 2000, respectively.
Revenue recognition. The Company's revenue is derived primarily from
product sales. Revenue is recognized in accordance with the terms of the sale,
primarily upon shipment to customers, once the sales price is fixed or
determinable, and collectibility is reasonably assured. The Company offers
discounts and sales incentives that include retail promotional activities,
rebates and manufacturer coupons. The estimated liability for sales incentives
is recorded at the later of when the program has been communicated to the
customer or at the time of sale in accordance with Emerging Issues Task Force
(EITF) No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of a Vendor's Products)." Shipping and handling costs are
included as a part of Cost of Sales in the Consolidated Statements of Income.
Comprehensive income. Accumulated other comprehensive income includes
minimum pension liability adjustments, currency translation adjustments, and
unrealized derivative and investment gains and losses. The net effect of these
items reduced Shareholders' equity on a cumulative basis by $145.8 million in
2002 and $44.7 million in 2001. The $101.1 million change from 2001 to 2002 is
primarily due to the Company recording a minimum pension liability adjustment of
$115.7 million in 2002. The tax effect included in accumulated other
comprehensive income was $93.0 million, $28.6 million, and $14.3 million for the
years ended December 31, 2002, 2001 and 2000, respectively. Refer to NOTE 13,
PENSION AND OTHER POSTRETIREMENT BENEFITS, for further discussion on the
recognition of the additional minimum pension liability adjustment.
Stock-based Compensation. See NOTE 12, STOCK PLANS AND MANAGEMENT
COMPENSATION, for a description of the Company's stock-based compensation plans.
Effective December 31, 2002, the Company adopted the disclosure provisions of
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." As it relates to stock options, the Company continues to apply the
provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees." Under APB No. 25, no compensation cost related to
stock options granted has been recognized in the Company's Consolidated
55
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Income because the option terms are fixed and the exercise price
equals the market price of the underlying stock on the grant date. In accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," the fair value of
option grants is estimated on the date of grant using the Black-Scholes option
pricing model for pro forma footnote purposes.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to all its outstanding stock option plans as of December 31:
<Table>
<Caption>
2002 2001 2000
------ ----- ------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Earnings from continuing operations:
As reported............................................... $103.5 $84.7 $202.2
Less: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of tax..................................... 5.3 5.7 4.2
------ ----- ------
Pro forma................................................. $ 98.2 $79.0 $198.0
====== ===== ======
Basic earnings per common share from continuing operations:
As reported............................................... $ 1.15 $0.96 $ 2.28
Pro forma................................................. 1.09 0.90 2.23
Diluted earnings per common share from continuing
operations:
As reported............................................... $ 1.14 $0.96 $ 2.28
Pro forma................................................. 1.08 0.90 2.23
</Table>
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, for further
discussion.
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.
Recent Accounting Pronouncements. Effective January 1, 2002, the Company
adopted 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", for
the disposal of a segment of a business (as previously defined in that Opinion).
The adoption of SFAS No. 144 did not have a material impact on the financial
statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company
believes the adoption of, FAS No. 146 will not have a material impact on the
financial statements.
56
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - An Interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34."
This interpretation clarifies the requirements for a guarantor's accounting for
and disclosures of certain guarantees issued and outstanding. FIN 45 also
clarifies the requirements related to the recognition of a liability by a
guarantor at the inception of a guarantee. FIN 45 is effective for guarantees
entered into or modified after December 31, 2002. The Company has not determined
the impact FIN 45 will have on the financial statements.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities - An Interpretation of Accounting
Research Bulletin (ARB) No. 51." This interpretation clarifies how to identify
variable interest entities and how the Company should assess its interests in a
variable interest entity to decide whether to consolidate the entity. FIN 46
applies to variable interest entities created after January 31, 2003, in which
the Company obtains an interest after that date. Also, FIN 46 applies in the
first fiscal quarter or interim period beginning after June 15, 2003, to
variable interest entities in which the Company holds a variable interest that
it acquired before February 1, 2003. The Company has not determined the impact
FIN 46 will have on the financial statements.
2. EARNINGS PER COMMON SHARE
There is no difference in the net earnings 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
primarily the amount of common stock equivalents relating to unexercised
outstanding employee stock options. The average number of shares of common stock
equivalents was 0.7 million in 2002, 0.3 million in 2001 and less than 0.1
million in 2000.
3. SEGMENT INFORMATION
The Company is a manufacturer and marketer of leading consumer brands. In
the fourth quarter of 2002, the Company re-evaluated the composition of its
reportable segments and determined that its four reportable segments are Marine
Engine, Boat, Fitness and Bowling & Billiards. The segment information for all
periods presented has been reclassified for consistent presentation.
The Marine Engine segment manufactures and markets a full range of outboard
engines, sterndrive engines, inboard engines, water-jet propulsion systems and
parts and accessories, 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,
Europe and Asia.
The Boat segment designs, 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, Mexico and the United
Kingdom and sales are primarily in the United States. Sales to one dealer, with
multiple locations, comprised approximately 21 percent of Boat segment sales in
2002.
The Fitness segment designs, manufactures, and markets fitness equipment,
including treadmills, total-body cross-trainers, stationary bikes and
strength-training equipment. These products are manufactured or sourced from
domestic or foreign locations. Fitness equipment is sold primarily in the United
States, Europe and Asia to health clubs, military, government, corporate and
university facilities, and to consumers through specialty retail shops.
57
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bowling & Billiards segment manufactures, designs and markets bowling
capital equipment and associated parts and supplies, including lanes,
pinsetters, automatic scorers; bowling balls and other accessories; billiards
tables and accessories; and operates bowling centers. Products are manufactured
or sourced from domestic and foreign locations. Bowling products are sold
through a direct sales force in the United States and through distributors in
foreign markets, primarily Europe and Asia. Billiards equipment is predominantly
sold in the United States and is distributed primarily through dealers.
Information as to the operations of the Company's operating segments is set
forth below:
OPERATING SEGMENTS
<Table>
<Caption>
SALES TO CUSTOMERS OPERATING EARNINGS TOTAL ASSETS
------------------------------ ------------------------ -------------------
2002 2001 2000 2002 2001 2000 2002 2001
-------- -------- -------- ------ ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Engine.............. $1,705.2 $1,561.6 $1,759.9 $170.9 $173.0 $276.0 $ 860.1 $ 772.5
Boat....................... 1,405.3 1,251.3 1,574.3 19.0 18.1 148.2 772.1 783.9
Marine eliminations........ (233.0) (207.9) (293.0) -- -- -- -- --
-------- -------- -------- ------ ------ ------ -------- --------
Total Marine............. 2,877.5 2,605.0 3,041.2 189.9 191.1 424.2 1,632.2 1,556.4
Fitness.................... 456.7 397.7 348.3 44.9 28.4 31.2 577.1 589.7
Bowling & Billiards........ 377.7 368.1 422.4 21.4 7.3 41.9 317.5 350.2
Corporate/Other............ -- -- -- (59.6) (35.7) (45.1) 880.3 661.2
-------- -------- -------- ------ ------ ------ -------- --------
Total.................... $3,711.9 $3,370.8 $3,811.9 196.6 191.1 452.2 $3,407.1 $3,157.5
======== ======== ======== ======== ========
Unusual charges*........... -- -- (55.1)
------ ------ ------
Operating earnings......... $196.6 $191.1 $397.1
====== ====== ======
</Table>
* For a description of the unusual charges in 2000, refer to NOTE 4, UNUSUAL
CHARGES.
<Table>
<Caption>
DEPRECIATION AMORTIZATION
------------------------ ---------------------
2002 2001 2000 2002 2001 2000
------ ------ ------ ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Marine Engine................................ $ 56.7 $ 57.4 $ 54.0 $ 0.1 $ 1.3 $ 1.3
Boat......................................... 44.5 40.0 36.1 11.4 15.5 14.9
Fitness...................................... 12.2 11.6 9.5 0.5 9.5 7.6
Bowling & Billiards.......................... 20.3 21.2 21.4 0.1 1.4 1.8
Corporate.................................... 2.6 2.5 2.2 -- -- --
------ ------ ------ ----- ----- -----
Total...................................... $136.3 $132.7 $123.2 $12.1 $27.7 $25.6
====== ====== ====== ===== ===== =====
</Table>
<Table>
<Caption>
RESEARCH AND DEVELOPMENT
CAPITAL EXPENDITURES EXPENSE
------------------------ --------------------------
2002 2001 2000 2002 2001 2000
------ ------ ------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Marine Engine.............................. $ 44.8 $ 48.8 $ 63.8 $ 61.7 $58.2 $ 60.8
Boat....................................... 41.0 35.5 57.4 22.1 19.7 22.5
Fitness.................................... 9.4 9.9 13.3 14.4 12.9 13.6
Bowling & Billiards........................ 15.7 15.8 18.5 4.6 5.1 5.3
Corporate.................................. 1.7 1.4 3.0 -- -- --
------ ------ ------ ------ ----- ------
Total.................................... $112.6 $111.4 $156.0 $102.8 $95.9 $102.2
====== ====== ====== ====== ===== ======
</Table>
58
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC SEGMENTS
<Table>
<Caption>
SALES TO CUSTOMERS TOTAL ASSETS
------------------------------ -------------------
2002 2001 2000 2002 2001
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
United States.............................. $2,707.2 $2,511.6 $2,973.5 $2,086.0 $2,073.7
International.............................. 1,004.7 859.2 838.4 440.8 422.6
Corporate/Other............................ -- -- -- 880.3 661.2
-------- -------- -------- -------- --------
Total.................................... $3,711.9 $3,370.8 $3,811.9 $3,407.1 $3,157.5
======== ======== ======== ======== ========
</Table>
The Company evaluates performance based on 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.
4. UNUSUAL CHARGES
Unusual charges included a $55.1 million pre-tax unusual charge recorded in
the third quarter of 2000 to increase environmental reserves ($41.0 million)
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 ($14.1 million).
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, 2002, 2001 and 2000, were as follows (in
millions):
<Table>
<Caption>
LEASE OTHER
TERMINATION COSTS TOTAL
----------- ----- -----
<S> <C> <C> <C>
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
Activity................................................... (1.4) (0.1) (1.5)
----- ---- -----
Balance at December 31, 2002............................... $ 6.3 $ -- $ 6.3
===== ==== =====
</Table>
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
The Company adopted SFAS No. 141, "Business Combinations," which requires
that all business combinations initiated after June 30, 2001, be accounted for
under the purchase method.
59
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash paid for acquisitions, net of cash acquired, totaled $21.2 million for
2002, comprised primarily of consideration paid for Teignbridge, a manufacturer
of custom and standard propellers and underwater stern gear for inboard-powered
vessels; IDS, a developer of management systems for marine and recreational
vehicle dealers; Northstar, a supplier of premium marine navigation electronics;
and additional consideration relating to the November 30, 2001, acquisition of
Hatteras. Teignbridge, IDS and Northstar were acquired on February 10, 2002,
October 1, 2002, and December 16, 2002, respectively, and their results of
operations are included in the Marine Engine segment post-acquisition.
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 aluminum fishing, deck and pontoon
boats; Sealine, a leading manufacturer of luxury sports cruisers; and Hatteras,
a leading manufacturer of luxury sportfishing convertibles and motoryachts. The
Company acquired Princecraft on March 7, 2001. 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. 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.
Princecraft, Sealine and Hatteras' results are included in the Boat segment
since the date of their acquisition. All three acquisitions have been accounted
for as a purchase.
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 Fitness 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
bowling centers included in the Bowling & Billiards segment, which were not
material to the Company.
The purpose of the acquisitions was to achieve growth by pursuing
aggressive marketing and brand-building activities, pursuing international
opportunities and leveraging core competencies. The acquisitions of Northstar
and IDS were to build Brunswick New Technologies (BNT), which was established in
2002 and are included in the Marine Engine segment. BNT will expand the
Company's product offerings in marine electronics, engine controls, navigation
systems, management systems and related equipment for use in the marine industry
and in non-marine applications. Acquisitions in 2002 were not material to the
Company's results of operations and total assets. 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.
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 $189 million at December 31,
2002, and approximately $205 million at December 31, 2001.
The Company also has various agreements with financial institutions that
provide limited recourse on customer obligations relating to 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,
2002 and 2001, were approximately $41 million and $47 million, respectively.
60
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other long-term notes include certain agreements that 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 - Other, respectively, and totaled $91.7 million and $88.5
million at December 31, 2002 and 2001, respectively.
The Company had outstanding standby letters of credit, surety bonds and
other financial guarantees of $167.0 million and $182.6 million at December 31,
2002 and 2001, respectively, representing conditional commitments whereby a
third party has guaranteed the Company's ability to satisfy certain liabilities
or obligations. Included in the amounts for 2002 and 2001 is 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. Refer to
NOTE 14, INCOME TAXES, for a description of the Company's reserve established in
connection with the Tax Court matter. The Company also has $60.4 million and
$50.2 million of standby letters of credit and surety bonds outstanding at
December 31, 2002 and 2001, respectively, primarily in connection with its
self-insurance workers' compensation program as required by its insurance
companies and various state agencies. Under certain circumstances, such as an
event of default under the Company's revolving credit facility, described
further in NOTE 10, DEBT, or in the case of surety bonds, a ratings downgrade
below investment grade, the Company could be required to post collateral to
support the outstanding letters of credit and surety bonds. Included in the
amount for 2001 was a $13.0 million surety bond to secure damages awarded in
October 1999 in a suit against the Company, pertaining to the Fitness segment,
while the Company pursued an appeal. In 2002, the lawsuit was settled and the
surety bond relinquished. The remaining letters of credit, surety bonds and
other financial guarantees are comprised of guarantees of payment for subsidiary
debt, certain performance obligations and other guarantees issued in the
ordinary course of business.
Product Warranties. The Company records a liability for standard product
warranties at the time revenue is recognized. The liability is estimated using
historical warranty experience, projected claim rates and expected costs per
claim. The Company adjusts its liability for specific warranty matters when they
become known and are reasonably estimable. The Company's warranty reserves are
affected by product failure rates and material usage and labor costs incurred in
correcting a product failure. If these estimated costs differ from actual
product failure rates, and actual material usage and labor costs, a revision to
the warranty reserve would be required.
Additionally, the Company's customers may purchase a warranty contract that
extends product protection beyond the standard product warranty period. A
deferred liability is recorded based on the amount of contracts sold, and
recognized into income over the contract period in proportion to the costs
expected to be incurred.
The following activity related to product warranty liabilities at December
31, 2002, was recorded in Accrued Expenses and Deferred Items-Other (in
millions):
<Table>
<Caption>
2002
------
<S> <C>
Balance at January 1........................................ $157.5
Payments made............................................... (87.4)
Provisions for contracts issued during 2002................. 96.0
Aggregate changes for preexisting warranties................ 2.2
------
Balance at December 31...................................... $168.3
======
</Table>
Legal and Environmental. The Company accrues for litigation exposure based
upon its assessment, made in consultation with counsel, of the likely range of
exposure stemming from the claim. In light of existing reserves, the Company's
litigation claims, when finally resolved, will not, in the opinion of
management, have a material adverse effect on the Company's consolidated
financial position. If current
61
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimates for the cost of resolving any claims are later determined to be
inadequate, results of operations could be adversely affected in the period in
which additional provisions are required.
On April 18, 2002, the Company, in cooperation with the United States
Consumer Products Safety Commission, announced a recall of approximately 103,000
bicycles that were sold by the Company's former bicycle division. The bicycles
had been equipped with suspension forks that were purchased from a third party
supplier. Some of the forks were found to have been defectively manufactured and
were involved in approximately 55 reported incidents. The 2002 recall was an
expansion of a prior recall involving the suspension forks, and allows consumers
who purchased bicycles with an affected fork to return the fork in exchange for
$65 or a replacement bicycle. In addition to the costs of administering the
recall, the Company anticipates that it will incur additional costs to resolve
litigation stemming from the sale of the bike forks, and faces a potential fine
from the CPSC based on inadvertent delays in reporting several of the incidents
involving the forks. 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 April 22, 2002, a federal court in Seattle lifted a stay in a lawsuit
filed against Life Fitness by Precor Incorporated (Precor). The suit, which
alleges that certain of Life Fitness' cross trainer exercise machines infringe
Precor's Miller '829 patent, was stayed by the court pending reexamination of
the patent by the U.S. Patent and Trademark Office (PTO). The PTO issued a
modified Miller '829 patent to Precor on March 5, 2002, which led to the lifting
of the stay. Trial is scheduled for July 14, 2003. This matter was initiated in
January 2000 and seeks monetary damages and injunctive relief. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of this matter.
In a separate lawsuit between the Company and Precor, a federal court in
Seattle awarded Precor approximately $230,000 in attorneys' fees on June 14,
2002. The award was reduced from $5.3 million in light of an appellate court
ruling in the case. This matter was originally filed in 1994 and sought monetary
damages and injunctive relief. The Company believes that this matter, which was
originally filed in 1994, has been finally concluded.
During the fourth quarter of 2002, the Company settled a patent
infringement lawsuit filed against it by CCS Fitness, Inc. (CCS). CCS had
alleged that a front-drive cross trainer manufactured by Life Fitness infringed
a patent held by CCS. This matter was initiated in 1998 and sought monetary
damages and injunctive relief. In light of the settlement, the matter was
dismissed with prejudice.
On May 30, 2002, Leiserv, Inc. (Leiserv), a Company subsidiary operated by
the Bowling & Billiards segment, was sued in the Circuit Court of St. Louis
County, Missouri, for alleged violations of the federal Telephone Consumer
Protection Act. The lawsuit was brought as a putative class action seeking
monetary damages on behalf of all people and entities within two area codes in
the St. Louis area who allegedly received unsolicited faxes from a service
provider retained by Leiserv. Because this case remains in the early stages of
litigation and raises legal issues that have not yet been fully resolved by the
courts, the Company is unable to predict the outcome of this matter.
On December 3, 2002, the United States Supreme Court reversed an Illinois
Supreme Court decision that had been entered in the Company's favor in Sprietsma
vs. Mercury Marine, a "propeller guard" case. In its decision, the U.S. Supreme
Court rejected one of the defenses the Company had successfully asserted in
Sprietsma and other cases based on federal preemption of state law. The case,
which was initiated in July 1996 and sought monetary damages, was remanded to
the Illinois court for further consideration. The Company believes that it has a
number of other valid defenses to the claims asserted in Sprietsma, and 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.
62
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has been named in a number of asbestos-related lawsuits, the
majority of which involve Vapor Corporation, a former subsidiary which the
Company divested in 1990. Virtually all of the asbestos suits against the
Company involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, that included
asbestos, and seek monetary damages from the Company Neither the Company nor
Vapor is alleged to have manufactured asbestos. The Company's insurers have
settled a number of asbestos 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.
In 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. In 2000, 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. In late
2001, the Court of Appeals rendered a decision vacating the Tax Court's opinion
and remanded the case to the Tax Court for reconsideration. If the Company does
not ultimately prevail, it will owe approximately $135 million, consisting of
$60 million in taxes due plus $75 million of interest, net of tax. The Company
has previously settled a number of other issues with the IRS on open tax years
1989 through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments, to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
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. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.
The Company is involved in certain legal and administrative proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 and other federal and state legislation governing the generation and
disposal of certain hazardous wastes. These proceedings, which involve both on-
and off-site waste disposal or other contamination, in many instances seek
compensation or remedial action from the Company as a waste generator under
Superfund legislation, which authorizes action regardless of fault, legality of
original disposition or ownership of a disposal site. The Company has
established reserves based on a range of current cost estimates for all known
claims.
The environmental remediation and clean-up projects in which the Company is
involved have an aggregate estimated range of exposure of approximately $36.3
million to $68.5 million as of December 31, 2002. At December 31, 2002 and 2001,
the Company had reserves for environmental liabilities of $61.7 million and
$62.6 million, respectively. Environmental provisions were $0.5 million, $1.7
million and $43.1 million for the years ended December 31, 2002, 2001 and 2000,
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, 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
63
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2002 and 2001, the fair value of the
Company's long-term debt was $602.1 million and $569.6 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 market-based valuations and may not be
representative of the actual gains or losses that will be recorded when these
instruments mature due to future fluctuations in the markets in which they are
traded.
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, 2002 and 2001, had contract values of $54.3 million and $18.4 million,
respectively. The approximate fair value of forward exchange contracts was a
$1.7 million and $0.1 million liability at December 31, 2002 and 2001,
respectively. Option contracts outstanding at December 31, 2002 and 2001, had
contract values of $96.4 million and $49.4 million, respectively. The
approximate fair value of options contracts outstanding was a $1.7 million and
$0.7 million liability at December 31, 2002 and 2001, respectively. The forward
and options contracts outstanding at December 31, 2002, mature during 2003 and
relate primarily to the Japanese yen, Euro and British pound.
Interest Rate Swaps. The Company enters into interest rate swap agreements
to reduce the impact of changes in interest rates on the Company's borrowings.
The Company did not enter into any interest rate swap agreements in 2002. In
2001, the Company entered into four fixed-to-floating interest rate swaps with a
notional amount of $150.0 million, which were terminated during 2002 in advance
of their scheduled termination date in 2006. The Company recognized a deferred
gain of $12.2 million, which is included in long-term debt, and will be
amortized through 2006 based upon the underlying debt obligation. The estimated
aggregate market value of these four agreements was a gain of less than $0.1
million at December 31, 2001.
Commodity Swaps. The Company uses commodity swap agreements to hedge
anticipated purchases of certain raw materials. Commodity swap contracts
outstanding at December 31, 2002 and 2001, had notional values of $31.2 million
and $34.5 million, respectively. At December 31, 2002 and 2001, the estimated
fair value of these swap contracts was a net liability of $1.2 million and $2.7
million, respectively. The contracts outstanding at December 31, 2002, mature
throughout 2003 and 2004.
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 not material to the Company's financial
position, due to the large number of customers comprising the Company's customer
base and their dispersion across many different geographic areas, with the
exception of one boatbuilder customer who had long-term notes and accounts
receivable outstanding of $47.7 million and $50.1 million at December 31, 2002
and 2001, respectively.
Accounting for Derivatives. 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 their fair values. As a result of
64
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2002.
The following activity related to cash flow hedges for the year ended
December 31, 2002, was recorded in accumulated other comprehensive loss (in
millions):
<Table>
<Caption>
ACCUMULATED
UNREALIZED
DERIVATIVE GAINS
(LOSSES)
YEAR ENDED
DECEMBER 31, 2002
-------------------
PRE-TAX AFTER-TAX
------- ---------
<S> <C> <C>
Beginning balance........................................... $(3.6) $(2.1)
Net change associated with current period hedging
activity.................................................. (3.2) (2.1)
Net amount reclassified into earnings....................... 3.6 2.2
----- -----
Net accumulated unrealized derivative losses................ $(3.2) $(2.0)
===== =====
</Table>
The Company estimates that $0.2 million of after-tax net derivative losses
deferred in accumulated other comprehensive loss will be realized in earnings
over the next 12 months. At December 31, 2002, the term of derivative
instruments hedging forecasted transactions ranges from one to twenty-four
months.
Fair Value Hedges -- During 2002, the Company entered into foreign currency
forward contracts, which qualify as fair value hedges under the requirements of
SFAS Nos. 133/138. The Company enters into foreign currency forward contracts to
hedge the changes in the fair value of receivables or payables associated with
changes in the exchange rates of foreign currencies. A fair value hedge requires
that the change in the fair value of the forward contract and the corresponding
change in the fair value of the receivable or payable of the Company's 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) and was not material to the
results of operations for the year ended December 31, 2002.
65
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCRUED EXPENSES
Accrued expenses at December 31 were as follows (in millions):
<Table>
<Caption>
2002 2001
------ ------
<S> <C> <C>
Accrued compensation and benefit plans...................... $158.9 $127.2
Product warranties.......................................... 139.6 138.7
Dealer allowances and discounts............................. 111.3 114.3
Insurance reserves.......................................... 71.3 68.0
Environmental reserves...................................... 61.7 62.6
Other....................................................... 142.7 137.4
------ ------
Total accrued expenses.................................... $685.5 $648.2
====== ======
</Table>
10. DEBT
Short-term debt at December 31 consisted of the following (in millions):
<Table>
<Caption>
2002 2001
------ ------
<S> <C> <C>
Notes payable............................................... $ 4.1 $ 13.6
Current maturities of long-term debt........................ 24.8 26.4
------ ------
Total short-term debt..................................... $ 28.9 $ 40.0
====== ======
</Table>
Long-term debt at December 31 consisted of the following (in millions):
<Table>
<Caption>
2002 2001
------ ------
<S> <C> <C>
Notes, 6.75% due 2006, net of discount of $0.9 and $1.1..... $249.1 $248.9
Notes, 7.125% due 2027, net of discount of $1.2............. 198.8 198.8
Debentures, 7.375% due 2023, net of discount of $0.6 and
$0.7...................................................... 124.4 124.3
Guaranteed ESOP debt, 8.13% payable through 2004............ 15.5 24.9
Notes, 3.17% to 4.50% payable through 2004.................. 14.1 29.3
Fair value adjustments and other............................ 12.4 0.4
------ ------
614.3 626.6
Current maturities.......................................... (24.8) (26.4)
------ ------
Long-term debt.............................................. $589.5 $600.2
====== ======
Scheduled maturities
2004...................................................... $ 5.6
2005...................................................... 0.1
2006...................................................... 260.6
2007...................................................... --
Thereafter................................................ 323.2
------
Total................................................ $589.5
======
</Table>
In the fourth quarter of 2002, the Company deferred a realized gain of
$12.2 million on the termination of interest rate swaps in advance of their
scheduled termination date. This amount was reported in long-term debt and is
included in Fair value adjustments and other. The deferred gain will be
amortized through 2006
66
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based upon the underlying debt, reducing interest expense. The amount of
deferred gain included in Fair value adjustments and other was $11.5 million at
December 31, 2002.
The Company has a $350.0 million long-term revolving credit agreement with
a group of banks, which terminates on November 15, 2005. Under the terms of the
agreement, the Company has multiple borrowing options, including borrowing at
the greater of the prime rate as announced by JPMorgan Chase 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 15 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, 2002. There were no borrowings under the revolving credit agreement during
2002, and the agreement continues to serve as support for commercial paper
borrowings when commercial paper is outstanding. The Company has the ability to
issue up to $100.0 million in letters of credit within the revolving credit
facility, with $66.1 million in letters of credit outstanding at December 31,
2002. The Company had borrowing capacity of $283.9 million under the terms of
this agreement at December 31, 2002, net of outstanding letters of credit.
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 were
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. On December 31, 2002, the Company decided to retain its
marine accessories businesses after efforts to sell were unsuccessful. The
financial results of these businesses operating under the brand names
MotorGuide, Pinpoint and Swivl-Eze, were not material to the Company's
consolidated financial statements.
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, 2002,
2001 and 2000 were as follows (in millions):
<Table>
<Caption>
2002 2001 2000
------ ------ -------
<S> <C> <C> <C>
Net sales................................................. $ -- $313.3 $ 695.3
PRE-TAX LOSS:
Loss from discontinued operations......................... $ -- $ -- $(104.6)
Loss from disposal of discontinued operations............. -- -- (305.3)
------ ------ -------
Pre-tax loss.............................................. $ -- $ -- $(409.9)
====== ====== =======
</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.
67
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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, was approximately $275 million
after-tax through December 31, 2001.
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, 2002, the
plan allows for the issuance of a maximum of 16.2 million shares. Shares
available for grant totaled 0.6 million at December 31, 2002.
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 cannot 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, was as
follows:
<Table>
<Caption>
2002 2001 2000
---------------------- ---------------------- ----------------------
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....... 10,481 $21.87 8,874 $22.18 7,965 $22.78
Granted........................ 1,013 $25.10 2,685 $20.02 1,686 $18.91
Exercised...................... (2,045) $20.06 (560) $17.57 (193) $16.23
Forfeited...................... (183) $28.21 (518) $22.14 (584) $22.91
------ ------ -----
Outstanding on December 31..... 9,266 $22.51 10,481 $21.87 8,874 $22.18
====== ====== =====
Exercisable on December 31..... 5,793 $23.24 6,067 $22.92 5,307 $23.23
</Table>
68
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 2002:
<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 IN THOUSANDS) (OPTIONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$12.56 to 18.50.......... 449 3.8 years $18.20 402 $18.23
$18.51 to 19.99.......... 4,043 7.2 years $19.55 1,999 $19.49
$20.00 to 25.00.......... 3,284 6.3 years $22.99 2,083 $22.86
$25.01 to 35.44.......... 1,490 5.0 years $30.79 1,309 $31.10
</Table>
The weighted-average fair value of individual options granted during 2002,
2001 and 2000 is $8.33, $5.46 and $5.85, 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 2002,
2001 and 2000, respectively:
<Table>
<Caption>
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate..................................... 4.2% 4.2% 6.1%
Dividend yield.............................................. 2.0% 2.8% 2.5%
Volatility factor........................................... 37.4% 33.1% 32.7%
Weighted-average expected life.............................. 5 YEARS 5 years 5 years
</Table>
The Company maintains a leveraged employee stock ownership plan (ESOP) that
covers all domestic employees of the Company who have been employed by the
Company on or before the first day of the ESOP's year and on December 1 of the
ESOP's year and have completed at least 1,000 hours of service during the year.
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 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:
<Table>
<Caption>
2002 2001
----- -----
(SHARES IN
THOUSANDS)
<S> <C> <C>
Committed-to-be-released.................................... 272 285
Allocated................................................... 2,219 2,131
Suspense.................................................... 493 822
</Table>
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. Dividends 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 (in millions):
<Table>
<Caption>
2002 2001 2000
----- ----- -----
<S> <C> <C> <C>
Compensation expense........................................ $ 7.7 $ 6.9 $ 6.2
Interest expense............................................ 1.7 2.6 3.1
Dividends................................................... 1.8 1.7 1.9
----- ----- -----
Total debt service payments............................... $11.2 $11.2 $11.2
===== ===== =====
</Table>
69
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of the unearned ESOP shares was approximately $9.8 million
and $17.9 million at December 31, 2002 and 2001, respectively. The ESOP
agreement terminates in 2004.
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 in which a change in control occurs.
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has qualified and nonqualified pension plans, defined
contribution 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 2002, 2001 and 2000 (in millions):
<Table>
<Caption>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------------- ---------------------
2002 2001 2000 2002 2001 2000
------ ------ ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Service cost................................. $ 15.7 $ 16.9 $ 15.4 $ 1.8 $ 1.9 $ 1.5
Interest cost................................ 57.8 55.9 51.6 5.4 4.2 3.8
Expected return on plan assets............... (62.1) (69.6) (74.6) -- -- --
Amortization of prior service cost........... 5.7 5.9 3.1 (0.5) (0.5) (0.5)
Amortization of net (gain) loss.............. 3.2 0.6 (2.7) (0.1) (0.9) (1.5)
Settlement/curtailment (gain) loss........... 1.7 -- -- (1.5) -- --
------ ------ ------- ----- ----- -----
Net pension and other benefit costs
(income)................................ $ 22.0 $ 9.7 $ (7.2) $ 5.1 $ 4.7 $ 3.3
====== ====== ======= ===== ===== =====
</Table>
A reconciliation of the changes in the plans' benefit obligations and fair
value of assets over the two-year period ending December 31, 2002, and a
statement of the funded status at December 31 for these years for the Company's
domestic pension plans follow (in millions):
<Table>
<Caption>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- ---------------------
2002 2001 2002 2001
------- ------- -------- --------
<S> <C> <C> <C> <C>
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at previous December 31....... $ 820.6 $ 764.2 $ 84.3 $ 64.6
Service cost..................................... 15.7 16.9 1.8 1.9
Interest cost.................................... 57.8 55.9 5.4 4.2
Curtailment gain................................. -- -- (1.5) --
Participant contributions........................ -- -- 2.3 2.6
Plan amendments.................................. 0.2 -- (12.9) (0.2)
Actuarial (gain) loss............................ 25.5 26.6 (0.5) 18.1
Benefit payments................................. (44.1) (43.0) (6.3) (6.9)
Settlement payment............................... (5.9) -- -- --
------- ------- ------ ------
Benefit obligation at December 31.................. $ 869.8 $ 820.6 $ 72.6 $ 84.3
------- ------- ------ ------
</Table>
70
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- ---------------------
2002 2001 2002 2001
------- ------- -------- --------
<S> <C> <C> <C> <C>
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at January 1........... $ 710.7 $ 753.5 $ -- $ --
Actual return on plan assets..................... (75.1) (12.3) -- --
Employer contributions........................... 53.3 12.5 4.0 4.3
Participant contributions........................ -- -- 2.3 2.6
Benefit payments................................. (44.1) (43.0) (6.3) (6.9)
Settlement payment............................... (5.9) -- -- --
------- ------- ------ ------
Fair value of plan assets at December 31........... $ 638.9 $ 710.7 $ -- $ --
------- ------- ------ ------
FUNDED STATUS:
Funded status at December 31..................... $(230.9) $(109.9) $(72.6) $(84.3)
Unrecognized prior service cost (credit)......... 38.3 43.8 (16.7) (4.2)
Unrecognized actuarial (gain) loss............... 285.6 127.8 (3.5) (3.2)
------- ------- ------ ------
Prepaid (accrued) benefit cost..................... $ 93.0 $ 61.7 $(92.8) $(91.7)
======= ======= ====== ======
</Table>
Pension plan assets include 1.8 million shares of the Company's common
stock with a market value of $36.7 million at December 31, 2002. Dividends
received on the Company's common stock totaled $0.9 million in 2002. The $5.9
million settlement payment in 2002 represents a lump sum distribution to a
former executive for benefits earned in the Company's unfunded, nonqualified
pension plan. Plan amendments totaling $12.9 million included in Other
Postretirement Benefits in 2002 principally relate to plan design changes
including the reduction of medical and life insurance benefits for certain
employees.
The amounts included in the Company's balance sheets as of December 31 were
as follows (in millions):
<Table>
<Caption>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------ ---------------------
2002 2001 2002 2001
------- ------- -------- --------
<S> <C> <C> <C> <C>
Prepaid benefit cost................................. $ 119.4 $ 92.9 $ -- $ --
Accrued benefit liability............................ (282.3) (101.4) (92.8) (91.7)
Intangible asset..................................... 32.4 36.1 -- --
Accumulated other comprehensive income............... 223.5 34.1 -- --
------- ------- ------ ------
Net amount recognized.............................. $ 93.0 $ 61.7 $(92.8) $(91.7)
======= ======= ====== ======
</Table>
Three of the Company's five qualified pension plans had accumulated benefit
obligations in excess of plan assets at December 31, 2002. The projected and
accumulated benefit obligations for these plans were $781.9 million and $749.1
million, respectively, and the fair value of assets for these plans was $589.5
million at December 31, 2002. The Company's unfunded, nonqualified pension plan
had projected and accumulated benefit obligations of $38.5 million and $30.3
million, respectively, at December 31, 2002, and $44.1 million and $34.4
million, respectively, at December 31, 2001. One of the Company's qualified
pension 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. The Company's other postretirement benefit plans are not
funded.
Adverse conditions in the equity markets, along with the low interest rate
environment, have had an unfavorable impact on the funded status of the
Company's qualified pension plans. As a result, the Company was required to
record a minimum pension liability adjustment in accordance with SFAS No. 87,
"Employers'
71
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Pensions," in Total Accumulated Other Comprehensive Income of
$189.4 million pre tax ($115.7 million after-tax), $24.4 million pre-tax ($14.6
million after-tax) and $9.4 million pre-tax ($6.0 million after-tax) at December
31, 2002, 2001 and 2000, respectively.
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 the
following assumptions:
<Table>
<Caption>
2002 2001
---- ----
<S> <C> <C>
Discount rate............................................... 6.75% 7.25%
Long-term rate of return on plan assets..................... 9.0% 9.5%
Rate of compensation increase............................... 4.5% 5.5%
</Table>
The Company utilizes the Moody's Aa long-term corporate bond yield as a
basis for determining the discount rate with a yield adjustment made for the
longer duration of the Company's obligations. As a result of the decline in
Moody's Aa long-term corporate bond yield and the overall declining interest
rate environment, the Company lowered its discount rate assumption used to
determine pension obligations from 7.25 percent to 6.75 percent at December 31,
2001 and 2002, respectively. The Company evaluates its assumption regarding the
estimated long-term rate of return on plan assets based on the historical
experience and future expectations on investment returns. The Company chooses a
rate of return on plan assets that it believes is an appropriate long-term
average return. The expected return on plan assets takes into account estimated
future investment returns for various asset classes held in the plan's
portfolio. The Company lowered its investment return assumptions in determining
pension cost to 9.0 percent in 2002 compared with 9.5 percent in 2001 and 2000.
The health care cost trend rate for 2003 for pre-65 benefits was assumed to
be 9.0 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 11.0
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 $0.6 million in 2002 and increase the
health care component of the accumulated postretirement benefit obligation by
$6.2 million at December 31, 2002. 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 $0.5 million in 2002 and decrease the
health care component of the accumulated postretirement benefit obligation by
$5.5 million at December 31, 2002. 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 $26.2 million, $21.3 million and $22.6 million in 2002, 2001 and 2000,
respectively. Company contributions to multiemployer plans were $1.4 million,
$1.9 million and $1.7 million in 2002, 2001 and 2000, respectively.
72
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES
The sources of earnings before income taxes are as follows (in millions):
<Table>
<Caption>
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
United States............................................... $150.7 $120.8 $316.1
Foreign..................................................... 10.9 11.4 7.2
------ ------ ------
Earnings before income taxes.............................. $161.6 $132.2 $323.3
====== ====== ======
</Table>
The income tax provision for continuing operations consisted of the
following (in millions):
<Table>
<Caption>
2002 2001 2000
----- ------ ------
<S> <C> <C> <C>
CURRENT TAX EXPENSE:
U.S. Federal.............................................. $30.1 $(14.1) $109.4
State and local........................................... (5.0) 10.1 21.1
Foreign................................................... (0.6) 3.2 8.6
----- ------ ------
Total current........................................ 24.5 (0.8) 139.1
----- ------ ------
DEFERRED TAX EXPENSE:
U.S. Federal.............................................. 16.0 48.4 (6.9)
State and local........................................... 12.7 (3.9) (6.7)
Foreign................................................... 4.9 3.8 (4.4)
----- ------ ------
Total deferred....................................... 33.6 48.3 (18.0)
----- ------ ------
Total provision...................................... $58.1 $ 47.5 $121.1
===== ====== ======
</Table>
73
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities at December 31 were as follows (in millions):
<Table>
<Caption>
2002 2001
------ ------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS:
Bad debts................................................. $ 15.8 $ 15.2
Standard and extended product warranties.................. 71.5 63.0
Dealer allowances and discounts........................... 38.2 35.7
Insurance reserves........................................ 23.4 22.6
Discontinued operations................................... 18.0 32.4
Litigation and environmental reserves..................... 29.5 28.9
Loss carryforwards........................................ 28.9 29.1
Other..................................................... 80.1 80.9
Valuation allowance....................................... (0.3) (0.3)
------ ------
Total current deferred tax assets.................... $305.1 $307.5
====== ======
NON-CURRENT DEFERRED TAX LIABILITIES (ASSETS):
Depreciation and amortization............................. $ 73.7 $ 84.6
Other assets and investments.............................. 92.0 87.2
Pension................................................... 35.4 22.5
Postretirement benefits................................... (46.1) (45.0)
Minimum pension liability adjustment...................... (87.0) (13.3)
Other..................................................... 76.1 49.2
------ ------
Total non-current deferred tax liabilities........... $144.1 $185.2
====== ======
</Table>
At December 31, 2002, the Company has state tax net operating loss (NOL)
carryforwards totaling $28.9 million available to reduce future taxable income.
The NOL carryforward expires at various intervals between the years 2003 and
2021.
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.
74
<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>
2002 2001 2000
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Income tax provision at 35%................................. $56.5 $46.3 $113.1
State and local income taxes, net of Federal income tax
effect.................................................... 5.0 4.0 9.4
Foreign sales corporation benefit........................... (2.5) (4.0) (4.9)
Taxes related to foreign income, net of credits............. 0.2 1.4 2.6
Goodwill and other amortization............................. (0.4) 2.0 1.6
Other....................................................... (0.7) (2.2) (0.7)
----- ----- ------
Actual income tax provision............................ $58.1 $47.5 $121.1
===== ===== ======
Effective tax rate.......................................... 36.0% 36.0% 37.5%
</Table>
In 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. In 2000, 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. In late
2001, the Court of Appeals rendered a decision vacating the Tax Court's opinion
and remanded the case to the Tax Court for reconsideration. If the Company does
not ultimately prevail, it will owe approximately $135 million, consisting of
$60 million in taxes due plus $75 million of interest, net of tax. The Company
has previously settled a number of other issues with the IRS on open tax years
1989 through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
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. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.
15. LEASES
The Company has various lease agreements for offices, branches, factories,
distribution and service facilities, certain Company-operated bowling centers,
fitness retail locations, and certain personal property. The longest of these
obligations extends through 2025. Most leases contain renewal options and some
contain purchase options. Many leases for Company-operated bowling centers
contain escalation clauses, and many provide for contingent rentals based on
percentages of gross revenue. No leases contain restrictions on the Company's
activities concerning dividends, additional debt or further leasing. Rent
expense consisted of the following (in millions):
<Table>
<Caption>
2002 2001 2000
----- ----- -----
<S> <C> <C> <C>
Basic expense............................................... $42.5 $40.3 $37.5
Contingent expense.......................................... 1.9 1.0 0.3
Sublease income............................................. (1.1) (1.4) (2.1)
----- ----- -----
Rent expense, net........................................... $43.3 $39.9 $35.7
===== ===== =====
</Table>
75
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments at December 31, 2002, under agreements
classified as operating leases with non-cancelable terms in excess of one year,
were as follows (in millions):
<Table>
<S> <C>
2003........................................................ $ 28.7
2004........................................................ 23.4
2005........................................................ 19.8
2006........................................................ 15.8
2007........................................................ 11.8
Thereafter.................................................. 35.4
------
Total (not reduced by minimum sublease rentals of $1.7
million).............................................. $134.9
======
</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.
76
<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 (in millions):
<Table>
<Caption>
2002 2001 2000
------ ------ -------
<S> <C> <C> <C>
Net sales................................................... $241.8 $231.7 $ 266.8
Gross margin................................................ $ 24.4 $ 40.0 $ 45.3
Net earnings (loss)......................................... $ 6.1 $ 0.2 $ (5.9)
Company's share of net earnings (loss)...................... $ 3.0 $ (4.0) $ (3.6)
Current assets.............................................. $ 82.4 $ 59.1 $ 99.4
Noncurrent assets........................................... 71.1 88.7 121.0
------ ------ -------
Total assets................................................ 153.5 147.8 220.4
Current liabilities......................................... (80.3) (83.4) (120.9)
Noncurrent liabilities...................................... (27.5) (22.0) (45.8)
------ ------ -------
Net assets.................................................. $ 45.7 $ 42.4 $ 53.7
====== ====== =======
</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 years ended December 31, 2002, 2001 and
2000, respectively, and its financial position as of December 31, 2002 and 2001.
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 $38.4 million and $38.5 million at December 31, 2002 and 2001,
respectively. The unrealized gain, recorded net of deferred taxes, has been
included as a separate component of shareholders' equity and was $2.7 million at
December 31, 2002, compared to an unrealized loss, net of deferred taxes, of
$1.7 million at December 31, 2001.
In 2000, the Company made $38.1 million of investments in Internet-related
businesses and 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.
18. TREASURY AND PREFERRED STOCK
Treasury stock activity for the past three years was as follows:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1....................................... 14,739 15,194 10,727
Compensation plans and other............................... (2,362) (455) (257)
Stock repurchases.......................................... -- -- 4,724
------ ------ ------
Balance at December 31..................................... 12,377 14,739 15,194
====== ====== ======
</Table>
At December 31, 2002, 2001 and 2000, the Company had no preferred stock
outstanding (12.5 million shares authorized, $0.75 par value at December 31,
2002, 2001 and 2000).
77
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. FINANCIAL SERVICES
The Company established a joint venture in 2002 with Transamerica
Distribution Finance to provide financial products and services to customers of
the Company's domestic marine businesses. The venture, Brunswick Acceptance
Company, LLC (BAC), will provide secured wholesale floor-plan financing to the
Company's boat dealers and may provide other financial services in support of
the Company's marine businesses. In addition, the parties contemplate that BAC
will purchase and service a portion of Mercury Marine's accounts receivable for
its boatbuilder customers. The Company owns a 15 percent interest in the joint
venture initially, but will increase its ownership to 49 percent by July 15,
2003. BAC became operational in January 2003.
20. SUBSEQUENT EVENTS
In January 2003, the Company purchased a 36 percent equity interest in
Bella-Veneet OY (Bella), a boat manufacturer located in Finland. The Company
will account for this investment using the equity method and will have the
option to acquire the remaining equity interest of Bella in 2007.
21. QUARTERLY DATA (UNAUDITED)
<Table>
<Caption>
QUARTER
----------------------------------------
1ST 2ND 3RD 4TH YEAR
----------- -------- ------ ------ --------
(RESTATED)*
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
2002
Net sales.................................... $866.7 $1,017.2 $900.0 $928.0 $3,711.9
------ -------- ------ ------ --------
Gross margin................................. $191.4 $ 239.8 $205.6 $223.1 $ 859.9
------ -------- ------ ------ --------
Earnings from continuing operations.......... $ 13.2 $ 46.2 $ 23.6 $ 20.5 $ 103.5
Cumulative effect of change in accounting
principle, net of tax...................... (25.1) -- -- -- (25.1)
------ -------- ------ ------ --------
Net earnings (loss).......................... $(11.9) $ 46.2 $ 23.6 $ 20.5 $ 78.4
------ -------- ------ ------ --------
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations.......... $ 0.15 $ 0.51 $ 0.26 $ 0.23 $ 1.15
Cumulative effect of change in accounting
principle, net of tax...................... (0.28) -- -- -- (0.28)
------ -------- ------ ------ --------
Net earnings (loss).......................... $(0.13) $ 0.51 $ 0.26 $ 0.23 $ 0.87
------ -------- ------ ------ --------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations.......... $ 0.15 $ 0.51 $ 0.26 $ 0.22 $ 1.14
Cumulative effect of change in accounting
principle, net of tax...................... (0.28) -- -- -- (0.28)
------ -------- ------ ------ --------
Net earnings (loss).......................... $(0.13) $ 0.51 $ 0.26 $ 0.22 $ 0.86
------ -------- ------ ------ --------
Dividends declared........................... $ -- $ -- $ -- $ 0.50 $ 0.50
COMMON STOCK PRICE (NYSE SYMBOL: BC):
High....................................... $28.25 $ 30.01 $28.20 $22.53 $ 30.01
Low........................................ $21.51 $ 24.68 $18.30 $18.48 $ 18.30
</Table>
78
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
QUARTER
----------------------------------------
1ST 2ND 3RD 4TH YEAR
----------- -------- ------ ------ --------
(RESTATED)*
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
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 (loss) from continuing operations... $ 39.5 $ 41.5 $ 6.3 $ (2.6) $ 84.7
Cumulative effect of change in accounting
principle, net of tax...................... (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, net of tax...................... (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, net of tax...................... (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
</Table>
* Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," and accordingly no longer amortizes goodwill and
other certain intangible assets, but tests these assets annually for
impairment. In the second quarter of 2002, the Company completed its
impairment testing and recorded as a cumulative effect of a change in
accounting principle a one-time non-cash charge of $29.8 million pre-tax
($25.1 million after-tax, or $0.28 per diluted share) to reduce the carrying
amount of goodwill. The Company has restated the first quarter of 2002 to
reflect the impairment charge effective January 1, 2002, as required under
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements."
79
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 333-71344, No. 33-61512, and No. 333-9997 and Forms S-8 No.
33-55022, No. 33-56193, No. 33-61835, No. 33-65217, No. 333-04289, No.
333-27157, No. 333-77431, and No. 333-77457), as amended, and in the related
Prospectus of Brunswick Corporation of our report dated January 28, 2003, with
respect to the 2002 consolidated financial statements and schedule of Brunswick
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 2002.
/s/ Ernst & Young LLP
Chicago, Illinois
March 11, 2003
80
<PAGE>
BRUNSWICK CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<Table>
<Caption>
ALLOWANCES FOR BALANCE AT
POSSIBLE LOSSES ON BEGINNING CHARGES TO BALANCE AT
RECEIVABLES OF PERIOD PROFIT AND LOSS WRITE-OFFS RECOVERIES OTHER YEAR END OF
- ------------------ ---------- --------------- ---------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
2002.......................... $26.1 $10.8 $ (6.6) $0.8 $(0.7) $31.8
===== ===== ====== ==== ===== =====
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
===== ===== ====== ==== ===== =====
</Table>
This schedule reflects only the financial information of continuing
operations.
<Table>
<Caption>
BALANCE AT
DEFERRED TAX ASSET BEGINNING CHARGES TO BALANCE AT
VALUATION ALLOWANCE OF PERIOD PROFIT AND LOSS WRITE-OFFS RECOVERIES OTHER END OF YEAR
- ------------------- ---------- --------------- ---------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
2002.......................... $0.3 $ -- $ -- $ -- $ -- $0.3
==== ===== ===== ===== ===== ====
2001.......................... $0.3 $ -- $ -- $ -- $ -- $0.3
==== ===== ===== ===== ===== ====
2000.......................... $0.3 $ -- $ -- $ -- $ -- $0.3
==== ===== ===== ===== ===== ====
</Table>
This schedule reflects only the financial information of continuing
operations.
81
<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, filed as Exhibit 4.7 to the Company's
Annual Report on Form 10-K for 2001, and hereby incorporated
by reference.
4.8 Credit Agreement dated as of November 15, 2002, setting
forth the terms of the Company's $350,000,000 Revolving
Credit and Competitive Bid Loan Facility with JPMorgan Chase
Bank, administrative agent, and other lenders identified in
the Credit Agreement.
10.1* 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.
10.2* 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.
10.3* Form of Change of Control Agreement by and between the
Company and each of 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, C. M. Sladnick, M. I. Smith, D. B. Tompkins, C.
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.
10.4* 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.
</Table>
82
<PAGE>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.5* 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.
10.6* 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.
10.7* 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.
10.8* 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 premiums paid
prior to July 30, 2002, with some exceptions, from the
policy proceeds.
10.9* 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, R. C. Stayer, 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.
10.10* Form of Indemnification Agreement by and between the Company
and each of G. W. Buckley, 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, C. M. Sladnick, M. I. Smith, D. B. Tompkins, C.
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.
10.11* 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.
10.12* 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.
10.13* Brunswick Performance Plan for 2001 filed as Exhibit 10.18
to the Company's Annual Report on Form 10-K for 2000, and
hereby incorporated by reference.
10.14* Brunswick Performance Plan for 2002 filed as Exhibit 10.16
to the Company's Annual Report on Form 10-K for 2001, and
hereby incorporated by reference.
10.15* Brunswick Performance Plan for 2003.
10.16* 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.
10.17* Brunswick Strategic Incentive Plan for 2001-2002 filed as
Exhibit 10.19 to the Company's Annual Report on Form 10-K
for 2000, and hereby incorporated by reference.
10.18* Brunswick Strategic Incentive Plan for 2002-2003.
10.19* 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.
10.20* 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.
10.21* 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.
10.22* 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.
</Table>
83
<PAGE>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
12.1 Statement regarding computation of ratios.
16.1 Letter of Arthur Andersen LLP regarding change in certifying
accountant filed as Exhibit 16.1 to the Company's Report on
Form 8-K filed March 15, 2002, and hereby incorporated by
reference.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Auditors is on page 80 of this
Report.
24.1 Powers of Attorney.
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
</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.
84
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>3
<FILENAME>c74671exv3w3.txt
<DESCRIPTION>BY-LAWS OF THE COMPANY
<TEXT>
<PAGE>
Exhibit 3.3
BRUNSWICK CORPORATION
BY-LAWS
AS AMENDED FEBRUARY 4, 2003
EFFECTIVE APRIL 30, 2003
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, if
any, 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. The board of
directors may, in its sole discretion, determine that the meeting shall not be
held at any place, but shall be held solely by means of remote communication,
subject to such guidelines and procedures as the board of directors may adopt,
as permitted by applicable law.
Section 2. (a) 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.
(b) For business to be properly brought before the meeting, it must be: (i)
authorized by the board of directors and specified in the notice, or a
supplemental notice, of the meeting, (ii) otherwise brought before the meeting
by or at the direction of the board of directors or the chairman of the meeting,
or (iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given written notice thereof to the Secretary of the
corporation, delivered or mailed to and received at the principal executive
offices of the corporation not less than ninety days nor more than 120 days
prior to the anniversary date of the immediately preceding annual meeting;
provided, however, that in the event that no annual meeting was held in the
previous year or the annual meeting is called for a date that is not within
thirty days from the anniversary date of the preceding year's annual meeting
date, written notice by a stockholder in order to be timely must be received not
later than the close of
<PAGE>
business on the tenth day following the day on which the first public disclosure
of the date of the annual meeting was made. Delivery shall be by hand or by
certified or registered mail, return receipt requested. In no event shall the
public disclosure of an adjournment of an annual meeting commence a new time
period for the giving of stockholder's notice as described above. A
stockholder's notice to the Secretary shall set forth as to each item of
business the stockholder proposes to bring before the meeting: (1) a description
of such item and the reasons for conducting such business at the meeting, (2)
the name and address, as they appear on the corporation's records, of the
stockholder proposing such business, (3) a representation that the stockholder
is a holder of record of shares of stock of the corporation entitled to vote
with respect to such business and intends to appear in person or by proxy at the
meeting to move the consideration of such business, (4) the class and number of
shares of stock of the Corporation which are beneficially owned by the
stockholder (for purposes of the regulations under Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended), and (5) any material interest of
the stockholder in such business. No business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this paragraph
(b). The chairman of the meeting at which any business is proposed by a
stockholder shall, if the facts warrant, determine and declare to the meeting
that such business was not properly brought before the meeting in accordance
with the provisions of this paragraph (b), and, in such event, the business not
properly before the meeting shall not be transacted.
Section 3. Written notice of the annual meeting stating the place, if any,
date, hour of meeting, and the means of remote communications, if any, by which
stockholders and proxyholders may be deemed to be present in person and vote at
such 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. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the corporation.
Section 4. 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.
Section 5. Written notice of a special meeting of stockholders stating the
place, if any, date, hour of meeting, the means of remote communications, if
any, by which stockholders and proxyholders may be deemed to be present in
person and vote at such 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. If mailed, such notice shall be deemed to be given when deposited in
the mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the corporation.
Section 6. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 7. If authorized by the board of directors in accordance with these
by-laws and applicable law, stockholders and proxyholders not physically present
at a meeting of stockholders may, by means of remote communication, (1)
participate in a meeting of stockholders and (2) be deemed present in person and
vote at a meeting of stockholders, whether such meeting is to be held
2
<PAGE>
at a designated place or solely by means of remote communication, provided that
(i) the corporation shall implement reasonable measures to verify that each
person deemed present and permitted to vote at the meeting by means of remote
communication is a stockholder or proxyholder, (ii) the corporation shall
implement reasonable measures to provide such stockholders and proxyholders a
reasonable opportunity to participate in the meeting and to vote on matters
submitted to the stockholders, including an opportunity to read or hear the
proceedings of the meeting substantially concurrently with such proceedings, and
(iii) if any stockholder or proxyholder votes or takes other action at the
meeting by means of remote communication, a record of such vote or other action
shall be maintained by the corporation.
Section 8. The Secretary shall prepare, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting for a period of at least ten days prior to the meeting: (i) on a
reasonably accessible electronic network, provided that the information required
to gain access to such list is provided with the notice of the meeting, or (ii)
during ordinary business hours, at the principal place of business of the
corporation. In the event that the corporation determines to make the list
available on an electronic network, the corporation may take reasonable steps to
ensure that such information is available only to stockholders of the
corporation. If the meeting is to be held at a place, the list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. If the meeting
is to be held solely by means of remote communication, the list shall be open to
the examination of any stockholder during the whole time thereof on a reasonably
accessible electronic network, and the information required to access such list
shall be provided with the notice of the meeting. The stock ledger shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list of stockholders or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
Section 9. Any annual or special meeting of stockholders may be adjourned
from time to time to reconvene at the same or some other place, if any, and
notice need not be given of any such adjourned meeting if the date, time and
place, if any, thereof and the means of remote communication, if any, by which
stockholders and proxyholders may be deemed present in person and vote at such
adjourned meeting are announced at the meeting at which the adjournment is
taken. At the adjourned meeting any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting in accordance
with Section 3 or Section 5 of this Article II as the case may be.
Section 10. 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 a quorum is present when a meeting is convened, the subsequent
withdrawal of stockholders, even though less than a quorum remains, shall not
affect the ability of the remaining stockholders lawfully to transact business.
If, however, such quorum shall not be present or
3
<PAGE>
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 11. 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 12. (a) At any meeting of the stockholders every stockholder having
the right to vote shall be entitled to vote in person. 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 by the board
of directors 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.
(b) Voting at meetings of stockholders need not be by written ballot and
need not be conducted by inspectors of election unless so required by Section 14
of Article II of these by-laws or so determined by the holders of stock having a
majority of the votes which could be cast by the holders of all outstanding
stock entitled to vote which are present in person or by proxy at such meeting.
(c) Stock of the corporation standing in the name of another corporation
and entitled to vote may be voted by such officer, agent or proxy as the by-laws
or other internal regulations of such other corporation may prescribe or, in the
absence of such provision, as the board of directors or comparable body of such
other corporation may determine.
(d) Stock of the corporation standing in the name of a deceased person, a
minor, an incompetent or a debtor in a case under Title 11, United States Code,
and entitled to vote may be voted by an administrator, executor, guardian,
conservator, debtor-in-possession or trustee, as the case may be, either in
person or by proxy, without transfer of such shares into the name of the
official or other person so voting.
(e) A stockholder whose voting stock of the corporation is pledged shall be
entitled to vote such stock unless on the transfer records of the corporation
the pledgor has expressly empowered the pledgee to vote such shares, in which
case only the pledgee, or such pledgee's proxy, may represent such shares and
vote thereon.
(f) If voting stock is held of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
4
<PAGE>
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (i) if only
one votes, such act binds all; (ii) if more than one vote, the act of the
majority so voting binds all; and (iii) if more than one votes, but the vote is
evenly split on any particular matter each faction may vote such stock
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery of the State of Delaware or such other court as
may have jurisdiction to appoint an additional person to act with the persons so
voting the stock, which shall then be voted as determined by a majority of such
persons and the person appointed by the Court. If the instrument so filed shows
that any such tenancy is held in unequal interests, a majority or even split for
the purpose of this subsection shall be a majority or even split in interest.
(g) Stock of the corporation belonging to the corporation, or to another
corporation a majority of the shares entitled to vote in the election of
directors of which are held by the corporation, shall not be voted at any
meeting of stockholders and shall not be counted in the total number of
outstanding shares for the purpose of determining whether a quorum is present.
Nothing in this Section 12(g) shall limit the right of the corporation to vote
shares of stock of the corporation held by it in a fiduciary capacity.
Section 13. (a) Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such stockholder
by proxy filed with the Secretary before or at the time of the meeting. No such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing with the Secretary an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date.
(b) A stockholder may authorize another person or persons to act for such
stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, partner, employee or agent
(or, if the stock is held in a trust or estate, by a trustee, executor or
administrator thereof) signing such writing or causing his or her signature to
be affixed to such writing by any reasonable means, including, but not limited
to, facsimile signature, or (ii) by transmitting or authorizing the transmission
of a telegram, cablegram or other means of electronic transmission (a
"Transmission") to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
Transmission; provided that any such Transmission must either set forth or be
submitted with information from which it can be determined that such
Transmission was authorized by such stockholder.
(c) Any inspector or inspectors appointed pursuant to Section 14 of Article
II of these by-laws shall examine Transmissions to determine if they are valid.
If no inspector or inspectors are so appointed, the Secretary or such other
person or persons as shall be appointed from time to time by the board of
directors shall examine Transmissions to determine if they are valid. If it is
determined that a Transmission is valid, the person or persons making that
determination shall specify the information upon which such person or persons
relied. Any copy, facsimile telecommunication or other reliable reproduction of
such a writing or Transmission may be
5
<PAGE>
substituted or used in lieu of the original writing or Transmission for any and
all purposes for which the original writing or Transmission could be used;
provided that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or Transmission.
Section 14. (a) If the corporation has a class of voting stock that is (i)
listed on a national securities exchange, (ii) authorized for quotation on an
interdealer quotation system of a registered national securities association or
(iii) held of record by more than 2,000 stockholders, the board of directors
shall, in advance of any meeting of stockholders, appoint one or more inspectors
(individually an "Inspector," and collectively the "Inspectors") to act at such
meeting and make a written report thereof. The board of directors may designate
one or more persons as alternate Inspectors to replace any Inspector who shall
fail to act. If no Inspector or alternate is able to act at such meeting, the
chairman of the meeting shall appoint one or more other persons to act as
Inspectors. Each Inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
Inspector with strict impartiality and according to the best of his or her
ability.
(b) The Inspectors shall (i) ascertain the number of shares of stock of the
corporation outstanding and the voting power of each, (ii) determine the number
of shares of stock of the corporation present in person or by proxy at such
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by the Inspectors
and (v) certify their determination of the number of such shares present in
person or by proxy at such meeting and their count of all votes and ballots. The
Inspectors may appoint or retain other persons or entities to assist them in the
performance of their duties.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
such meeting. No ballots, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the Inspectors after the closing of the
polls unless the Court of Chancery of the State of Delaware upon application by
any stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the
Inspectors shall be limited to an examination of the proxies, any envelopes
submitted with such proxies, any information referred to in paragraphs (b) and
(c) of Section 13 of Article II of these by-laws, ballots and the regular books
and records of the corporation, except that the Inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by a
stockholder of record to cast or more votes than such stockholder holds of
record. If the Inspectors consider other reliable information for the limited
purpose permitted herein, the Inspectors, at the time they make their
certification pursuant to paragraph (b) of this Section 14, shall specify the
precise information considered by them, including the person or persons from
whom such information was obtained, when and the means by which such information
was obtained and the basis for the Inspectors' belief that such information is
accurate and reliable.
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Section 15. (a) In order that the corporation may determine the
stockholders entitled (i) to notice of or to vote at any meeting of stockholders
or any adjournment thereof, (ii) to receive payment of any dividend or other
distribution or allotment of any rights, (iii) to exercise any rights in respect
of any change, conversion or exchange of stock or (iv) to take, receive or
participate in any other action, the board of directors may fix a record date,
which shall not be earlier than the date upon which the resolution fixing the
record date is adopted by the board of directors and which (1) in the case of a
determination of stockholders entitled to notice of or to vote at any meeting of
stockholders or adjournment thereof, shall, unless otherwise required by law, be
not more than sixty nor less than ten days before the date of such meeting; and
(2) in the case of any other action, shall be not more than sixty days before
such action.
(b) If no record date is fixed, (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
(c) 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,
but the board of directors may fix a new record date for the adjourned meeting.
ARTICLE III
DIRECTORS
Section 1. The number of directors shall be twelve, 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, not less than
ninety days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event that
no annual meeting was held in the previous year or the annual meeting is called
for a date that is not within thirty days from the anniversary date of the
preceding year's annual meeting date, written notice by the stockholder in order
to be timely must be so received not later than the close of business on the
tenth day following the day on which public disclosure of the date of the annual
meeting was made, 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 public disclosure of such meeting is
first given to stockholders. Delivery shall be by hand, or by
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certified or registered mail, return receipt requested. In no event shall the
public announcement of an adjournment of any annual or special meeting commence
a new time period for giving of a stockholder notice as described above. Each
such notice shall set forth: (i) the name and address of the stockholder who
intends to make the nomination; (ii) the name, principal occupation, age,
business address and residence address of the person or persons to be nominated;
(iii) the class and number of shares of stock of the corporation which are
beneficially owned by the stockholder and each nominee (for the purposes of the
regulations under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended); (iv) 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; (v) 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; (vi) 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 had the nominee been nominated by the board of directors; and (vii)
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.
Section 5. The first meeting of each newly elected board shall be held
immediately after, and at the same place, if any, 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.
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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, if any, 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, 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. (a) 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.
(b) A director who is directly or indirectly a party to a contract or
transaction with the corporation, or is a director or officer of or has a
financial interest in any other corporation, partnership, association or other
organization which is a party to a contract or transaction with the corporation,
may be counted in determining whether a quorum is present at any meeting of the
board of directors or a committee thereof at which such contract or transaction
is considered or authorized, and such director may participate in such meeting
and vote on such authorization to the extent permitted by applicable law,
including Section 144 of the General Corporation Law of the State of Delaware.
COMMITTEES
Section 9. The board of directors may, by resolution passed by a majority
of the whole board of directors, designate one or more committees, each
committee to consist of one or more directors of the corporation. The board of
directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members present at any meeting and not disqualified from voting,
whether or not 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. Any such committee, to the extent permitted by law and provided in these
by-laws or in the resolution of the board of directors designating such
committee, or an amendment to such resolution, shall have and may exercise all
the powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
Section 10. Unless the board of directors otherwise provides, each
committee designated by the board of directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the board of directors conducts
its business pursuant to this Article III of these by-laws.
ALTERNATE COMMITTEE MEMBERS
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Section 11. 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.
COMPENSATION OF DIRECTORS
Section 12. 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 13. 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 (which may be in counterparts) or by electronic transmission,
and the written consent or consents or electronic transmission or transmissions
are filed with the minutes of proceedings of the board of directors or such
committee. Such filing shall be made in paper form if the minutes of the
corporation are maintained in paper form and shall be in electronic form if the
minutes are maintained in electronic form.
ACTION BY TELEPHONE OR OTHER COMMUNICATIONS EQUIPMENT
Section 14. 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.
PRESUMPTION OF ASSENT
Section 15. Unless otherwise provided by the laws of the State of Delaware,
a director who is present at a meeting of the board of directors or a committee
thereof at which action is taken on any matter shall be presumed to have
assented to the action taken unless his or her dissent shall be entered in the
minutes of such meeting or unless he or she shall file his or her written
dissent to such action with the person acting as Secretary of such meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary immediately after the adjournment of such meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
ARTICLE IV
NOTICES
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Section 1. (a) Except as otherwise provided by law, the certificate of
incorporation or these by-laws, whenever notice is required to be given to any
stockholder, director or member of any committee of the board of directors, such
notice may be given by (i) personal delivery, (ii) depositing it, in a sealed
envelope, in the United States mails, first class, postage prepaid, addressed,
(iii) delivering to a company for overnight or second day mail or delivery, (iv)
delivering it to a telegraph company, charges prepaid, for transmission, or by
transmitting it via telecopier, or (v) any other reliable means permitted by
applicable law (including electronic or Internet mail or transmission) in each
case to such stockholder, director or member, either at the address of such
stockholder, director or member as it appears on the records of the corporation
or, in the case of such a director or member, at his or her business address;
and such notice shall be deemed to be given at the time when it is thus
personally delivered, deposited, delivered or transmitted, as the case may be.
Such requirement for notice shall also be deemed satisfied, except in the case
of stockholder meetings, if actual notice is received orally or by other writing
by the person entitled thereto as far in advance of the event with respect to
which notice is being given as the minimum notice period required by law or
these by-laws.
(b) Without limiting the foregoing, any notice to stockholders given by the
corporation pursuant to these by-laws shall be effective if given by a form of
electronic transmission consented to by the stockholder to whom the notice is
given. Any such consent shall be revocable by the stockholder by written notice
to the corporation and shall also be deemed revoked if (1) the corporation is
unable to deliver by electronic transmission two consecutive notices given by
the corporation in accordance with such consent and (2) such inability becomes
known to the Secretary of the corporation, the transfer agent or other person
responsible for the giving of notice; provided, however, that the inadvertent
failure to treat such inability as a revocation shall not invalidate any meeting
or other action. Notice given by a form of electronic transmission in accordance
with these by-laws shall be deemed given: (i) if by facsimile telecommunication,
when directed to a number at which the stockholder has consented to receive
notice; (ii) if by electronic mail, when directed to an electronic mail address
at which the stockholder has consented to receive notice; (iii) if by a posting
on an electronic network, together with separate notice to the stockholder of
such specific posting, upon the later of such posting and the giving of such
separate notice; and (iv) if by another form of electronic transmission, when
directed to the stockholder.
Section 2. (a) Whenever notice is required to be given by law, the
certificate of incorporation or these by-laws to any stockholder to whom (i)
notice of two consecutive annual meetings of stockholders and all notices of
meetings of stockholders during the period between such two consecutive annual
meetings, or (ii) all, and at least two, payments (if sent by first class mail)
of dividends or interest on securities of the corporation during a 12-month
period, have been mailed addressed to such stockholder at the address of such
stockholder as shown on the records of the corporation and have been returned
undeliverable, the giving of such notice to such stockholder shall not be
required. Any action or meeting which shall be taken or held without notice to
such stockholder shall have the same force and effect as if such notice had been
duly given. If any such stockholder shall deliver to the corporation a written
notice setting forth the then current address of such stockholder, the
requirement that notice be given to such stockholder shall be reinstated.
(a) Whenever notice is required to be given by law, the certificate of
incorporation or these by-laws to any person with whom communication is
unlawful, the giving of such notice to such person shall not be required, and
there shall be no duty to apply to any governmental authority or
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agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given.
Section 3. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee or directors need be specified in any written waiver of notice.
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, Secretary 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.
Section 3. The officers of the corporation shall have such powers and
duties in the management of the corporation as may be prescribed by the board of
directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the board of directors. The board
of directors may require any officer, agent or employee to give security for the
faithful performance of his or her duties.
Section 4. The Chief Executive Officer of the corporation shall in general
supervise and control all of the business affairs of the corporation, subject to
the direction of the board of directors. The Chief Executive Officer may
execute, in the name and on behalf of the corporation, any deeds, mortgages,
bonds, contracts or other instruments which the board of directors or a
committee thereof has authorized to be executed, except in cases where the
execution shall have been expressly delegated by the board of directors or a
committee thereof to some other officer or agent of the corporation.
Section 5. In addition to such other duties, if any, as may be assigned to
the Secretary by the board of directors, the Chairman of the Board, or the Chief
Executive Officer, the Secretary shall (i) keep the minutes of proceedings of
the stockholders, the board of directors and any committee of the board of
directors in one or more books provided for that purpose; (ii) see that all
notices are duly given in accordance with the provisions of these by-laws or as
required by law; (iii) be the custodian of the records and seal of the
corporation; (iv) affix or cause to be affixed the seal of the corporation or a
facsimile thereof, and attest the seal by his or her signature, to all
certificates for shares of stock of the corporation and to all other documents
the execution of which under seal is
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authorized by the board of directors; and (v) unless such duties have been
delegated by the board of directors to a transfer agent of the corporation, keep
or cause to be kept a register of the name and address of each stockholder, as
the same shall be furnished to the Secretary by such stockholder, and have
general charge of the stock transfer records of the corporation.
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.
Section 4. The corporation may pay or reimburse the reasonable expenses
incurred in defending any proceeding in advance of its final disposition if the
corporation has received in advance an undertaking by the person receiving such
payment or reimbursement to repay all amounts advanced if it should be
ultimately determined that he or she is not entitled to be indemnified under
this Article VI or otherwise. The corporation may require security for any such
undertaking.
Section 5. The rights conferred on any person by this Article VI shall not
be exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 6. If a claim for indemnification or payment of expenses under this
Article VI is not paid in full within sixty days after a written claim therefor
has been received by the corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the
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corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
Section 7. The corporation's obligation, if any, to indemnify any person
who was or is serving at its request as a director, officer, employee, partner
or agent of another corporation, partnership, joint venture or other enterprise
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture or other enterprise.
Section 8. Any repeal or modification of the foregoing provisions of this
Article VI shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
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.
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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.
REGISTERED STOCKHOLDERS
Section 5. 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.
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
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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.
DEFINITIONS
Section 7. (a) For purposes of these by-laws, "electronic transmission"
means any form of communication, not directly involving the physical
transmission of paper, that creates a record that may be retained, retrieved and
reviewed by a recipient thereof, and that may be directly reproduced in paper
form by such a recipient through an automated process.
(b) For purposes of these by-laws, "public disclosure" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, or in a document publicly filed by
the corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
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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.
17
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.8
<SEQUENCE>4
<FILENAME>c74671exv4w8.txt
<DESCRIPTION>CREDIT AGREEMENT DATED AS OF 11/15/02
<TEXT>
<PAGE>
Exhibit 4.8
EXECUTION COPY
===============================================================================
CREDIT AGREEMENT
dated as of
November 15, 2002
between
BRUNSWICK CORPORATION,
The SUBSIDIARY ACCOUNT PARTIES Party Hereto,
The LENDERS Party Hereto
and
JPMORGAN CHASE BANK,
as Administrative Agent
-------------------
$350,000,000
-------------------
J.P. MORGAN SECURITIES INC.,
as Lead Arranger and Joint Bookrunner
BANC ONE CAPITAL MARKETS, INC.,
as Lead Arranger and Joint Bookrunner
BANK ONE, NA,
as Syndication Agent
BANK OF AMERICA, N.A.,
THE BANK OF NEW YORK
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Documentation Agents
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS...............................................................................1
SECTION 1.01. Defined Terms..................................................................1
SECTION 1.02. Classification of Loans and Borrowings........................................21
SECTION 1.03. Terms Generally...............................................................21
SECTION 1.04. Accounting Terms; GAAP; Fiscal Year...........................................21
SECTION 1.05. Currencies; Currency Equivalents..............................................22
ARTICLE II THE CREDITS.............................................................................22
SECTION 2.01. The Commitments...............................................................22
SECTION 2.02. Loans and Borrowings..........................................................23
SECTION 2.03. Requests for Syndicated Borrowings............................................23
SECTION 2.04. Competitive Bid Procedure.....................................................24
SECTION 2.05. Letters of Credit.............................................................27
SECTION 2.06. Funding of Borrowings.........................................................33
SECTION 2.07. Interest Elections............................................................34
SECTION 2.08. Termination, Reduction and Increase of the Commitments........................35
SECTION 2.09. Repayment of Loans; Evidence of Debt..........................................37
SECTION 2.10. Prepayment of Loans...........................................................38
SECTION 2.11. Fees..........................................................................39
SECTION 2.12. Interest......................................................................41
SECTION 2.13. Alternate Rate of Interest....................................................42
SECTION 2.14. Increased Costs...............................................................42
SECTION 2.15. Break Funding Payments........................................................44
SECTION 2.16. Taxes.........................................................................44
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs...................46
SECTION 2.18. Mitigation Obligations; Replacement of Lenders................................49
ARTICLE III REPRESENTATIONS AND WARRANTIES.........................................................50
SECTION 3.01. Organization; Powers..........................................................50
SECTION 3.02. Authorization; Enforceability.................................................50
SECTION 3.03. Governmental Approvals; No Conflicts..........................................51
SECTION 3.04. Financial Condition; No Material Adverse Change...............................51
SECTION 3.05. Properties....................................................................51
SECTION 3.06. Litigation and Environmental Matters..........................................52
SECTION 3.07. Investment and Holding Company Status.........................................52
SECTION 3.08. Taxes.........................................................................52
SECTION 3.09. ERISA.........................................................................52
SECTION 3.10. Disclosure....................................................................53
SECTION 3.11. Use of Credit.................................................................53
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE IV CONDITIONS..............................................................................53
SECTION 4.01. Effective Date................................................................53
SECTION 4.02. Each Credit Event.............................................................54
ARTICLE V AFFIRMATIVE COVENANTS....................................................................55
SECTION 5.01. Financial Statements; Ratings Change and Other Information....................55
SECTION 5.02. Notices of Material Events....................................................56
SECTION 5.03. Existence; Conduct of Business................................................57
SECTION 5.04. Taxes and Other Obligations...................................................57
SECTION 5.05. Maintenance of Properties; Insurance..........................................57
SECTION 5.06. Books and Records; Inspection Rights..........................................57
SECTION 5.07. Compliance with Laws and Obligations..........................................57
SECTION 5.08. Use of Proceeds and Letters of Credit.........................................58
ARTICLE VI NEGATIVE COVENANTS......................................................................58
SECTION 6.01. Liens.........................................................................58
SECTION 6.02. Mergers, Consolidations, Etc..................................................59
SECTION 6.03. Dispositions..................................................................59
SECTION 6.04. Transactions with Affiliates..................................................60
SECTION 6.05. Leverage Ratio................................................................60
ARTICLE VII EVENTS OF DEFAULT......................................................................60
ARTICLE VIII THE ADMINISTRATIVE AGENT..............................................................63
ARTICLE IX GUARANTEE...............................................................................65
SECTION 9.01. The Guarantee.................................................................65
SECTION 9.02. Obligations Unconditional.....................................................65
SECTION 9.03. Reinstatement.................................................................66
SECTION 9.04. Subrogation...................................................................66
SECTION 9.05. Remedies......................................................................66
SECTION 9.06. Instrument for the Payment of Money...........................................67
SECTION 9.07. Continuing Guarantee..........................................................67
ARTICLE X MISCELLANEOUS............................................................................67
SECTION 10.01. Notices......................................................................67
SECTION 10.02. Waivers; Amendments..........................................................68
SECTION 10.03. Expenses; Indemnity; Damage Waiver...........................................69
SECTION 10.04. Successors and Assigns.......................................................70
SECTION 10.05. Survival.....................................................................73
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 10.06. Counterparts; Integration; Effectiveness.....................................73
SECTION 10.07. Severability.................................................................74
SECTION 10.08. Right of Setoff..............................................................74
SECTION 10.09. Governing Law; Jurisdiction; Judicial Proceedings; Etc.......................74
SECTION 10.10. WAIVER OF JURY TRIAL.........................................................76
SECTION 10.11. Judgment Currency............................................................76
SECTION 10.12. Headings.....................................................................76
SECTION 10.13. Confidentiality..............................................................76
SECTION 10.14. Termination of Commitments under Existing Credit Agreement...................77
</TABLE>
SCHEDULE 1.01 - Commitments
SCHEDULE 2.05(l) - Existing Letters of Credit
SCHEDULE 3.06(a) - Litigation
SCHEDULE 3.06(b) - Environmental Matters
SCHEDULE 6.01 - Liens
EXHIBIT A - Form of Assignment and Assumption
EXHIBIT B - Form of Subsidiary Joinder Agreement
EXHIBIT C - Form of Opinion of Counsel to the Borrower
EXHIBIT D - Form of Opinion of Special New York Counsel to JPMCB
EXHIBIT E - Form of Process Agent Acceptance Letter
EXHIBIT F - Form of Subsidiary Account Party Termination Notice
-iii-
<PAGE>
CREDIT AGREEMENT dated as of November 15, 2002, between BRUNSWICK
CORPORATION, certain SUBSIDIARIES of Brunswick Corporation that shall become
SUBSIDIARY ACCOUNT PARTIES from time to time pursuant to Section 2.05(m), the
LENDERS party hereto and JPMORGAN CHASE BANK, as Administrative Agent.
The Borrower (as hereinafter defined) has requested that the Lenders (as
so defined) make loans and extend credit to it and certain of its Subsidiaries
in an aggregate principal or face amount not exceeding $350,000,000 at any one
time outstanding. The Lenders are prepared to extend such credit upon the terms
and conditions hereof, and, accordingly, 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 constituting such Borrowing, are denominated in Dollars
and bearing interest at a rate determined by reference to the Alternate Base
Rate.
"Account Party" means any of the Borrower and the Subsidiary Account
Parties, as the context may require, and "Account Parties" means all of the
foregoing.
"Adjusted LIBO Rate" means, for the Interest Period for any Syndicated
Eurocurrency Borrowing, 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 for such Interest Period.
"Administrative Agent" means JPMCB, in its capacity as administrative
agent for the Lenders hereunder.
"Administrative Agent's Account" means, for each Currency, an account in
respect of such Currency designated by the Administrative Agent in a notice to
the Borrower, the Subsidiary Account Parties and the Lenders.
"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; provided
that, notwithstanding the foregoing, the TCFC Joint Venture shall be deemed an
Affiliate of the Borrower and its Subsidiaries.
<PAGE>
-2-
"Agreed Foreign Currency" means, at any time, any of Pounds Sterling,
euro and, with the agreement of each Lender (with respect to the denomination of
Loans hereunder) or the Administrative Agent and the relevant Issuing Lender
(with respect to the denomination of any Letter of Credit to be issued by such
Issuing Lender hereunder), any other Foreign Currency, so long as, in respect of
any such specified Currency or other Foreign Currency, at such time (a) such
Currency is dealt with in the London interbank deposit market, (b) such Currency
is freely transferable and convertible into Dollars in the London foreign
exchange market and (c) no central bank or other governmental authorization in
the country of issue of such Currency (including, in the case of the euro, any
authorization by the European Central Bank) is required to permit use of such
Currency (i) by any Lender for making any Loan hereunder and/or to permit the
Borrower to borrow and repay the principal thereof and to pay the interest
thereon or (ii) by any Issuing Lender for issuing or making any disbursement
with respect to any Letter of Credit hereunder and/or to permit the applicable
Account Party to reimburse any Issuing Lender for any such disbursement or pay
the interest thereon or to permit any Lender to acquire a participation interest
in any Letter of Credit or make any payment to the Issuing Lender in
consideration therefor, unless in each case such authorization has been obtained
and is in full force and effect.
"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 for such day plus 0.50%. 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, as the case may be.
"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 Syndicated
Eurocurrency Loan, or with respect to the facility fees or participation fees in
respect of Letters of Credit payable hereunder, as the case may be, the
applicable rate per annum set forth below under the caption "Eurocurrency
Spread", "Facility Fee Rate" or "Letter of Credit Rate", respectively, based
upon the ratings by Moody's and S&P, respectively, applicable on such date to
the Index Debt:
<PAGE>
-3-
<TABLE>
<CAPTION>
Index Debt Ratings Eurocurrency Facility Letter of
(S&P/Moody's) Spread Fee Rate Credit Rate
------------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Category 1 greater than or equal to A- / A3 0.40% 0.10% 0.525%
Category 2 greater than or equal to BBB+ / Baa1 0.50% 0.125% 0.625%
Category 3 greater than or equal to BBB / Baa2 0.60% 0.15% 0.725%
Category 4 greater than or equal to BBB- / Baa3 0.80% 0.20% 0.925%
Category 5 less than BBB- / Baa3 1.00% 0.25% 1.125%
</TABLE>
For purposes of the foregoing, (i) 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 that are one Category apart, the Applicable Rate shall be
determined by reference to the Category of the higher of the two ratings; (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 that are more than one
Category apart, the Applicable Rate shall be determined by reference to the
Category next below that of the higher of the two ratings; (iii) if only one of
Moody's and S&P shall have in effect a rating for the Index Debt, the Applicable
Rate shall be determined by reference to the Category of such rating; (iv) if
neither Moody's nor S&P shall 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 the applicable rating shall be determined by reference to
Category 5; and (v) 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, irrespective of when notice of such change shall have
been furnished by the Borrower to the Administrative Agent and the Lenders
pursuant to Section 5.01 or otherwise. 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 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.
"Approved Fund" means any Person (other than a natural person) that is
engaged in making, purchasing, holding or investing in bank loans and similar
extensions of credit in the ordinary course of its business and that is
administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.
<PAGE>
-4-
"Approving Issuing Lender" means (a) with respect to any Subsidiary
Account Party that is a Foreign Subsidiary and is listed under the caption
"Subsidiary Account Parties" on the signature pages hereof, each of JPMCB and
Bank One, NA, in its capacity as an Issuing Lender, and any other Issuing Lender
which shall have approved the designation of such Foreign Subsidiary as a
Subsidiary Account Party, (b) with respect to any Subsidiary Account Party that
is a Foreign Subsidiary and has been designated as a "Subsidiary Account Party"
pursuant to Section 2.05(m), each Issuing Lender that shall have approved such
designation and (c) with respect to any Subsidiary Account Party that is not a
Foreign Subsidiary, each Issuing Lender.
"Assignment and Assumption" means an assignment and assumption entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 10.04), and accepted by the Administrative Agent, in the
form of Exhibit A or any other form approved by the Administrative Agent.
"Assuming Lender" has the meaning set forth in Section 2.08(e).
"Availability Period" means the period from and including the Effective
Date to but excluding the earlier of the Commitment Termination 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.
"Borrower" means Brunswick Corporation, a Delaware corporation.
"Borrowing" means (a) all ABR Loans made, converted or continued on the
same date or (b) all Syndicated Eurocurrency Loans or Competitive Loans of the
same Class, Type and Currency that have the same Interest Period (or any single
Competitive Loan that does not have the same Interest Period as any other
Competitive Loan of the same Type).
"Borrowing Request" means a request by the Borrower for a Syndicated
Borrowing in accordance with Section 2.03.
"Business Day" means any day (a) that is not a Saturday, Sunday or (other
than with respect to determining any Interest Period) other day on which
commercial banks in New York City are authorized or required by law to remain
closed, (b) if such day relates to a Competitive Bid Request or Competitive Bid
for a Competitive Eurocurrency Loan, or to a borrowing of, a payment or
prepayment of principal of or interest on, a continuation or conversion of or
into, or the Interest Period for, a Eurocurrency Borrowing, or to a notice by
the Borrower with respect to any such borrowing, payment, prepayment,
continuation, conversion, or Interest Period, that is also a day on which
dealings in deposits denominated in the Currency of such Borrowing are carried
out in the London interbank market and (c) (i) if such day relates to a
borrowing or continuation of, a payment or prepayment of principal of or
interest on, or the Interest Period for, any Eurocurrency Borrowing denominated
in any Foreign Currency (other than euro), or to a notice by the Borrower with
respect to any such borrowing, continuation, payment, prepayment or Interest
Period, or to a notice with respect to any Letter of Credit denominated in any
Foreign Currency, that is also a day on which commercial banks and the London
foreign exchange market settle payments in the Principal Financial Center for
such
<PAGE>
-5-
Foreign Currency or (ii) if such day relates to a borrowing or continuation
of, a payment or prepayment of principal of or interest on, or the Interest
Period for, any Eurocurrency Borrowing denominated in euro, or to a notice by
the Borrower with respect to any such borrowing, continuation, payment,
prepayment or Interest Period, that is also a TARGET Day.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined 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 Equity Interests representing more than 30% of the
aggregate ordinary voting power represented by the issued and outstanding Equity
Interests 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 Equity Interests of the Borrower, which tender offer has not
been 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 Equity Interests representing 25% or
more of the aggregate voting power represented by the issued and outstanding
Equity Interests 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 Equity Interests owned by such Person or group, Equity Interests
representing 50% or more of the aggregate voting power representing by the
issued and outstanding Equity Interests 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 any Issuing
Lender (or, for purposes of Section 2.14(b), by any lending office of such
Lender or such Issuing Lender or by such Lender's or such Issuing Lender'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.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans constituting such Borrowing, are Syndicated
Loans or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE>
-6-
"Commitment" means, with respect to each Lender, the commitment of such
Lender to make Syndicated Loans and to acquire participations in Letters of
Credit hereunder, expressed as an amount representing the maximum aggregate
amount of such Lender's Credit Exposure hereunder, as such commitment may be (a)
reduced from time to time pursuant to Section 2.08(b), (b) increased from time
to time pursuant to Section 2.08(e), and (c) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 10.04. The
initial amount of each Lender's Commitment is set forth on Schedule I, in an
agreement entered into by such Lender pursuant to Section 2.08(e) or in the
Assignment and Assumption pursuant to which such Lender shall have assumed its
Commitment, as applicable. The initial aggregate amount of the Lenders'
Commitments is $350,000,000.
"Commitment Increase" has the meaning set forth in Section 2.08(e).
"Commitment Increase Date" has the meaning set forth in Section 2.08(e).
"Commitment Termination Date" means November 15, 2005.
"Commitment Utilization Day" means any day on which the sum of the total
Credit Exposures plus the aggregate principal amount of outstanding Competitive
Loans equals or exceeds 33-1/3% of the total Commitments (or at any time
following the termination of the Commitments, the total Commitments in effect
immediately prior to such termination).
"Competitive", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans constituting such Borrowing, are made pursuant
to Section 2.04.
"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.
"Competitive Bid Request" means a request by the Borrower for Competitive
Bids in accordance with Section 2.04.
"Consolidated EBITDA" means, for any period, the sum, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) Consolidated Net Income for such
period plus (b) without duplication and to the extent deducted in determining
such Consolidated Net Income, the sum of (i) Consolidated Interest Expense for
such period, (ii) income tax expense for such period, (iii) all amounts
attributable to depreciation and amortization for such period and (iv) all
non-cash charges to the extent deducted in determining Consolidated Net Income,
and minus (c) without duplication and to the extent included in determining such
Consolidated Net Income, any non-cash gains for such period. For the purposes of
calculating Consolidated EBITDA for any period of four consecutive fiscal
quarters (each, a "Reference Period") pursuant to any determination of the
Leverage Ratio, if during such Reference Period the Borrower or any Subsidiary
shall have made a Material Acquisition, Consolidated EBITDA for such Reference
Period shall be calculated after giving pro forma effect thereto as if such
Material Acquisition occurred on the first day of
<PAGE>
-7-
such Reference Period. As used in this definition, "Material Acquisition" means
any acquisition of property or series of related acquisitions of property that
(I) constitutes assets comprising all or substantially all of an operating unit
of a business or constitutes all or substantially all of the Equity Interests of
a Person and (II) involves the payment of consideration by the Borrower and its
Subsidiaries in excess of $100,000,000.
"Consolidated Interest Expense" means, for any period, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), all interest in respect of Indebtedness (including the
interest component of any payments in respect of Capital Lease Obligations)
accrued or capitalized during such period (whether or not actually paid during
such period).
"Consolidated Net Income" means, for any period, the net income or loss
of the Borrower and its Subsidiaries (determined on a consolidated basis in
accordance with GAAP) for such period; provided that there shall be excluded (a)
the income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with the Borrower
or any of its Subsidiaries, (b) the income (or deficit) of any Person (other
than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or any organizational or governing documents, any law, treaty, rule or
regulation or any determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to such Subsidiary.
"Consolidated Tangible Assets" means, as of any date, the aggregate of
all assets of the Borrower and its Subsidiaries (determined on a consolidated
basis in accordance with GAAP) after deducting related depreciation,
amortization and other valuation reserves and excluding (a) any capital
write-ups resulting from reappraisals of assets or of other investments after
June 30, 2002 (other than a write-up of any assets constituting part of the
assets and business of another Person made in connection with the acquisition,
direct or indirect, of the assets and business of such other Person) except as
permitted in accordance with GAAP, (b) treasury stock and (c) patent and
trademark rights, goodwill, unamortized discounts and expenses and any other
intangible items, all in accordance with GAAP, in each case as shown in the
consolidated financial statements of the Borrower and its Subsidiaries for the
most recent fiscal quarter ended at least 30 days prior to such date.
"Consolidated Total Indebtedness" means, as of any date, without
duplication, the sum of (a) Indebtedness for Borrowed Money (determined on a
consolidated basis without duplication in accordance with GAAP) as of such date
plus (b) Contingent Obligations as of such date to the extent that such
Contingent Obligations exceed in the aggregate $50,000,000.
"Contingent Obligations" means (a) 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),
<PAGE>
-8-
contingently agrees to purchase or provide funds for the payment of, or
otherwise becomes liable upon, any Indebtedness of any Person (other than the
Borrower or any Restricted Subsidiary), or agrees to maintain the net worth or
working capital or other financial condition of any such Person or otherwise
assures any creditor of any such Person against loss and (b) any take-or-pay
contract to which the Borrower or any Restricted Subsidiary is a party.
Notwithstanding the foregoing, the following shall not be deemed to be
Contingent Obligations: (x) inventory repurchase and recourse obligations of the
Borrower and its Restricted Subsidiaries incurred in the ordinary course of
business and as described in the Borrower's annual audited consolidated
financial statements; (y) all contingent obligations of the Borrower and its
Restricted Subsidiaries as an account party or applicant in respect of standby
letters of credit; and (z) the TCFC Joint Venture Obligations. The amount of any
Contingent Obligation shall, as of any date, be equal to the amount of the
obligation so guaranteed or otherwise supported on such date; provided that, if
the liability of the Borrower or any 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 such Restricted Subsidiary, the
amount of the corresponding Contingent Obligation shall be limited (i) in the
case of a guaranty or other support limited by amount, to such lesser amount, or
(ii) in the case of a guaranty or other support limited by recourse to a
particular asset or assets, to the higher of (A) the fair market value of such
asset or assets as of such date and (B) 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 such Restricted
Subsidiary as of such date.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"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.
"Credit Exposure" means, with respect to any Lender at any time, the sum
of the Dollar Amount of such Lender's Syndicated Loans and its LC Exposure at
such
time.
"Currency" means Dollars or any Foreign Currency.
"Currency Valuation Notice" has the meaning set forth in Section 2.10(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.
"Disposition" means any sale, lease, license, transfer, assignment or
other disposition of all or any portion of the business, assets, rights,
revenues or property, real, personal or mixed, tangible or intangible, of the
Borrower or any of its Subsidiaries.
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"Dollar Amount" means (a) with respect to any Loan or Borrowing, (i) if
such Loan or Borrowing is denominated in Dollars, the outstanding principal
amount thereof and (ii) if such Loan or Borrowing is denominated in a Foreign
Currency, the Dollar Equivalent thereof, (b) with respect to any Letter of
Credit, (i) if such Letter of Credit is denominated in Dollars, the undrawn
amount thereof and (ii) if such Letter of Credit is denominated in a Foreign
Currency, the Dollar Equivalent thereof and (c) with respect to any LC
Disbursement, (i) if such LC Disbursement is denominated in Dollars, the amount
thereof and (ii) if such LC Disbursement is denominated in a Foreign Currency,
the Dollar Equivalent thereof.
"Dollar Equivalent" means:
(a) with respect to any Borrowing or Loan denominated in any Foreign
Currency, the amount of Dollars that would be required to purchase an amount of
such Foreign Currency equal to the outstanding principal amount of such
Borrowing or Loan if such purchase were made (i) in the case of any
determination made on any Quarterly Date under Section 2.10(b), on such
Quarterly Date, (ii) in the case of any determination made upon receipt by the
Administrative Agent of any Currency Valuation Notice under Section 2.10(b), (A)
if such Currency Valuation Notice is received by the Administrative Agent prior
to 11:00 a.m., New York City time, on a Business Day, on such Business Day or
(B) if such Currency Valuation Notice is otherwise received, on the first
Business Day after such Currency Valuation Notice is received, (iii) in the case
of any redenomination under the last sentence of Section 2.17(a), on the date of
such redenomination or (iv) in any other case, on the date two Business Days
prior to the date of such Borrowing or Loan, determined in accordance with the
last sentence of the definition of the term "Interest Period";
(b) with respect to any Letter of Credit denominated in any Foreign
Currency, the amount of Dollars that would be required to purchase an amount of
such Foreign Currency equal to the undrawn amount of such Letter of Credit if
such purchase were made (i) in the case of any determination made on any
Quarterly Date under Section 2.10(b), on such Quarterly Date, (ii) in the case
of any determination made upon receipt by the Administrative Agent of any
Currency Valuation Notice under Section 2.10(b), (A) if such Currency Valuation
Notice is received by the Administrative Agent prior to 11:00 a.m., New York
City time, on a Business Day, on such Business Day or (B) if such Currency
Valuation Notice is otherwise received, on the first Business Day after such
Currency Valuation Notice is received or (iii) in any other case, on the date
two Business Days prior to the date of issuance of (or, if later, on the date of
any Issuing Lender's LC Disbursement with respect to) such Letter of Credit;
(c) with respect to any LC Disbursement denominated in any Foreign
Currency, the amount of Dollars that would be required to purchase an amount of
such Foreign Currency equal to the amount of such LC Disbursement if such
purchase were made (i) in the case of any determination of the amount which any
Lender is obligated to pay to the applicable Issuing Lender pursuant to Section
2.05(e) in respect of any such LC Disbursement, on the date of the request by
such Issuing Lender for such payment or, if earlier, on the date of any
redenomination under the last sentence of Section 2.17(a) or (ii) in any other
case, on the date of such LC Disbursement; and
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(d) with respect to any reimbursement obligation of any Account Party
denominated in any Foreign Currency that is redenominated pursuant to the last
sentence of Section 2.17(a), the amount of Dollars that would be required to
purchase an amount of such Foreign Currency equal to the amount of such
reimbursement obligation (before giving effect to such redenomination) if such
purchase were made on the date of such redenomination, in each case based upon
the spot selling rate at which the Person serving as the Administrative Agent
offers to sell such Foreign Currency for Dollars in the London foreign exchange
market at approximately 11:00 a.m., London time, for delivery two Business Days
later.
"Dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 10.02).
"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.
"Equity Interests" means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
equity interest.
"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
<PAGE>
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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 other than PBGC premiums due but not delinquent
under Section 4007 of ERISA; (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.
"Eurocurrency", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans constituting such Borrowing, are bearing
interest at a rate determined by reference to (a) in the case of a Syndicated
Loan or a Syndicated Borrowing, the Adjusted LIBO Rate, or (b) in the case of a
Competitive Loan or a Competitive Borrowing, the LIBO Rate.
"euro" means the single currency of Participating Member States of the
European Union, which shall be an Agreed Foreign Currency and a Foreign Currency
under this Agreement.
"Event of Default" has the meaning set forth 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 or any
Lender, or with respect to any payment to be made to any recipient thereof by or
on account of any obligation of the Borrower or any Subsidiary Account Party
hereunder or under any other Loan Document, (a) income or franchise taxes
imposed on (or measured by) such Person's net income by the United States of
America, or by the jurisdiction under the laws of which such Person is organized
or in which such Person's 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 or any Subsidiary Account Party
is located and (c) in the case of a Lender (other than an assignee pursuant to a
request by the Borrower under Section 2.18(b)), any withholding tax that is
imposed on amounts payable to such Lender at the earlier of the time such Lender
becomes a party to this Agreement or the time such Lender becomes a party to any
other Loan Document or is attributable to such Lender's failure or inability
(other than as a result of a Change in Law) to comply with Section 2.16(e),
except to the extent that such Lender's assignor (if any) was entitled, at the
time of assignment, to receive additional amounts from the Borrower or any
Subsidiary Account Party with respect to such withholding tax pursuant to
Section 2.16(a).
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"Existing Credit Agreement" means the Credit Agreement dated as of May
22, 1997 among the Borrower, the Lenders party thereto and JPMCB (formerly known
as The Chase Manhattan Bank), as Administrative Agent, as amended and in effect
on the date hereof.
"Existing Letters of Credit" has the meaning set forth in Section
2.05(l).
"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.
"Fixed Rate" means, with respect to any Competitive Loan (other than a
Competitive Eurocurrency Loan), the fixed rate of interest per annum specified
by the Lender making such Competitive Loan in its related Competitive Bid. When
used in reference to any Loan or Borrowing, "Fixed Rate" refers to whether such
Loan, or the Loans constituting such Borrowing, are Competitive Loans bearing
interest at a Fixed Rate.
"Foreign Currency" means at any time any Currency other than Dollars.
"Foreign Currency Equivalent" means, with respect to any amount in
Dollars, the amount of any Foreign Currency that could be purchased with such
amount of Dollars using the reciprocal of the foreign exchange rate(s) specified
in the definition of the term "Dollar Equivalent", as determined by the
Administrative Agent.
"Foreign Lender" means any Lender that is not a "United States Person" as
defined in Section 7701(a)(30) of the Code.
"Foreign Subsidiary" means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any State
thereof.
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Authority" means the government of the United States of
America, or of 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.
"Guaranteed Obligations" has the meaning set forth in Section 9.01.
<PAGE>
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"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 set forth in Section 2.08(e).
"Indebtedness" means, without duplication, (a) with respect to any Person
(including the Borrower and its Restricted Subsidiaries), all indebtedness,
liabilities and other monetary obligations of such Person for (i) obligations
for borrowed money or evidenced by bonds, debentures, notes or similar
instruments, (ii) obligations representing the deferred purchase price of
property or services other than accounts payable arising in connection with the
purchase of inventory on terms customary in the trade, (iii) Capital Lease
Obligations and (iv) obligations (other than Contingent Obligations) in respect
of bankers' acceptances and (b) with respect to the Borrower and its Restricted
Subsidiaries only, all indebtedness, liabilities and other monetary obligations
of such Person for (i) amounts deemed to be Indebtedness under Section 6.03(d)
and (ii) the TCFC Joint Venture Obligations (but only to the extent such
obligations constitute "Indebtedness" within the meaning of this definition
(other than clause (b) hereof) and to the extent the Borrower or any Restricted
Subsidiary shall be liable in respect thereof).
"Indebtedness for Borrowed Money" means, without duplication, the sum for
the Borrower and each of its Restricted Subsidiaries of Indebtedness of such
Person described in clauses (a)(i), (a)(iii) and (b)(i) of the definition of
"Indebtedness", but shall exclude (a) notes, bills and checks presented in the
ordinary course of business by such Person to banks for collection or deposit
and (b) with respect to the Borrower and its Restricted Subsidiaries, all
obligations of the Borrower and its Restricted Subsidiaries of the character
referred to in this definition to the extent owing to the Borrower or any of its
Restricted Subsidiaries.
"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 Syndicated Borrowing in accordance with Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan, each
Quarterly Date, (b) with respect to any Eurocurrency Loan, the last day of each
Interest Period therefor and, in the case of any Interest Period for a
Eurocurrency Loan of more than three months' duration, each day prior to the
last day of such Interest Period that occurs at three-month intervals after the
first day of such Interest Period and (c) with respect to any Fixed Rate Loan,
the last day of the Interest Period therefor and, in the case of any Interest
Period for a Fixed Rate Loan 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 90-day intervals
<PAGE>
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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 Loan.
"Interest Period" means:
(a) for any Syndicated Eurocurrency Loan or Borrowing, the period
commencing on the date of such Loan or Borrowing and ending (i) fourteen days
thereafter or (ii) on the numerically corresponding day in the calendar month
that is one, two, three, six or (with the consent of each Lender) nine months
thereafter, or, with respect to such portion of any Syndicated Eurocurrency Loan
or Borrowing denominated in a Foreign Currency that is scheduled to be repaid on
the Commitment Termination Date, a period of less than one month's duration
commencing on the date of such Loan or Borrowing and ending on the Commitment
Termination Date, as specified in the applicable Borrowing Request or Interest
Election Request;
(b) for any Competitive Eurocurrency Loan or Borrowing, the period
commencing on the date of such Loan or Borrowing and ending fourteen days
thereafter, on the numerically corresponding day in the calendar month that is
one, two, three, six or nine months thereafter or, with respect to such portion
of any Competitive Eurocurrency Loan or Borrowing denominated in a Foreign
Currency that is scheduled to be repaid on the Commitment Termination Date a
period of less than one month's duration commencing on the date of such Loan or
Borrowing and ending on the Commitment Termination Date, as specified in the
applicable Competitive Bid Request; and
(c) for any Fixed Rate Loan or Borrowing, the period (which shall not be
less than seven days or more than 360 days) commencing on the date of such Loan
or 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 (other than an Interest
Period pertaining to a Eurocurrency Borrowing denominated in a Foreign Currency
that ends on the Commitment Termination Date that is permitted to be of less
than one month's duration as provided in this definition) 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 Loan initially shall be the
date on which such Loan is made and, in the case of a Syndicated Loan,
thereafter shall be the effective date of the most recent conversion or
continuation of such Loan, and the date of a Syndicated Borrowing comprising
Loans that have been converted or continued shall be the effective date of the
most recent conversion or continuation of such Loans.
"Issuing Lender" means JPMCB, Bank One, NA and each other Lender
designated by the Borrower as an "Issuing Lender" hereunder that has agreed to
such designation (and is reasonably acceptable to the Administrative Agent),
each in its capacity as an issuer of one or more Letters of Credit hereunder,
and its successors in such capacity as provided in
<PAGE>
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Section 2.05(j), in each case so long as such Person shall remain an Issuing
Lender hereunder. Any Issuing Lender may, in its discretion, arrange for one or
more Letters of Credit to be issued by Affiliates of such Issuing Lender, in
which case the term "Issuing Lender" shall include any such Affiliate with
respect to Letters of Credit issued by such Affiliate.
"JPMCB" means JPMorgan Chase Bank.
"LC Disbursement" means a payment made by any Issuing Lender pursuant to
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate Dollar
Amount of all outstanding Letters of Credit at such time plus (b) the aggregate
Dollar Amount of all LC Disbursements that have not yet been reimbursed by or on
behalf of the Account Parties 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.
"Lenders" means the Persons listed on Schedule 1.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and Assumption
or as an Assuming Lender pursuant to Section 2.08(e), other than any such Person
that ceases to be a party hereto pursuant to an Assignment and Assumption.
Without limiting the foregoing, for purposes of the definitions of "Excluded
Taxes" and "Foreign Lender" and for purposes of Sections 2.05(k), 2.16 and 2.18,
the term "Lenders" shall include the Lenders in their respective capacities as
Issuing Lenders (if any), unless the context otherwise requires.
"Letter of Credit" means any standby letter of credit issued or continued
pursuant to this Agreement.
"Letter of Credit Documents" means, with respect to any Letter of Credit,
collectively, any application therefor and any other agreements, instruments,
guarantees or other documents (whether general in application or applicable only
to such Letter of Credit) governing or providing for (a) the rights and
obligations of the parties concerned or at risk with respect to such Letter of
Credit or (b) any collateral security for any of such obligations, each as the
same may be modified and supplemented and in effect from time to time.
"Leverage Ratio" means, as of any date, the ratio of (a) Consolidated
Total Indebtedness as of such date to (b) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending on or most recently ended prior to such
date.
"LIBO Rate" means, for the Interest Period for any Eurocurrency Borrowing
denominated in any Currency, the rate appearing on the Screen at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, as LIBOR for deposits denominated in such Currency with a
maturity comparable to such Interest Period. In the event that such rate is not
available on the Screen at such time for any reason, then the LIBO Rate for such
Interest Period shall be the rate at which deposits in such Currency in the
amount of $5,000,000 (or the Foreign Currency Equivalent) and for a maturity
comparable to such Interest Period are offered by the principal London office of
the Person serving as the Administrative Agent in immediately available funds in
the London interbank market at
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approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LIBOR" means, for any Currency, the rate at which deposits denominated
in such Currency are offered to leading banks in the London interbank market.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset and (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset.
"Loan Documents" means, collectively, (a) this Agreement, (b) with
respect to any Subsidiary Account Party, the Subsidiary Joinder Agreement to
which it is a party and (c) the Letter of Credit Documents.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
"Local Time" means (a) with respect to any Loan or Letter of Credit
denominated in or any payment to be made in Dollars, New York City time, (b)
with respect to any Loan or Letter of Credit denominated in or any payment to be
made in any Foreign Currency (other than euro), the local time in the Principal
Financial Center for the currency in which such Loan or Letter of Credit is
denominated or such payment is to be made and (c) with respect to any Loan or
Letter of Credit denominated in or any payment to be made in euro, the local
time in London, England.
"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 Loan, as specified by the Lender making such Loan in its
related Competitive Bid.
"Margin Stock" means "margin stock" within the meaning of Regulations T,
U and X of the Board.
"Material Adverse Effect" means a material adverse effect on (a) the
business, financial condition, prospects or results of operations of the
Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower
or any Subsidiary Account Party to perform any of its obligations under this
Agreement or any of the other Loan Documents or (c) the rights of or benefits
available to the Lenders under this Agreement or any of the other Loan
Documents.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit) or Contingent Obligations, or obligations in respect of one
or more Swap Agreements, of any one or more of the Borrower and its Restricted
Subsidiaries in an aggregate principal amount exceeding $50,000,000. For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of any Person in respect of any Swap Agreement at any time shall be
the maximum aggregate amount (giving effect to any netting agreements) that such
Person would be required to pay if such Swap Agreement were terminated at such
time.
<PAGE>
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"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA which is contributed to by either the Borrower or an ERISA
Affiliate.
"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 under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document but excluding
Excluded Taxes.
"Participant" has the meaning set forth in Section 10.04.
"Participating Member State" means any member state of the European
Community that adopts or has adopted the euro as its lawful currency in
accordance with the legislation of the European Union relating to the European
Monetary Union.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Periodic Reports" has the meaning set forth in Section 3.06(a).
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes, assessments or governmental charges
or levies on property that are not yet due or thereafter can be paid without
penalty or are being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
servicemen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 60 days or are being contested in compliance with Section 5.04;
(c) pledges and deposits (including letters of credit, surety bonds and
other escrowed or trust holdings) made in the ordinary course of business in
compliance with workers' compensation laws, unemployment, general liability
and other insurance, old age pensions and other social security or
retirement benefits, or similar laws or regulations;
(d) Liens incurred over cash deposits and other investments to secure the
performance of bids, trade contracts, leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature,
in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (j) of Article VII;
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(f) easements, zoning restrictions, rights-of-way and similar
encumbrances or charges on real property imposed by law or arising in the
ordinary course of business that do not materially detract from the value of
the affected property or interfere with the ordinary conduct of business of
the Borrower or any Subsidiary; and
(g) bankers' liens and rights of setoff arising by operation of law and
contractual rights of setoff.
"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 JPMCB 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.
"Principal Financial Center" means, in the case of any Currency, the
principal financial center where such Currency is cleared and settled, as
determined by the Administrative Agent.
"Quarterly Dates" means the last Business Day of March, June, September
and December in each year, the first of which shall be the first such day after
the date hereof.
"Register" has the meaning set forth in Section 10.04(b).
"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 Credit Exposures
and unused Commitments representing more than 50% of the sum of the total 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 Credit Exposures in determining
the Required Lenders).
"Restricted Subsidiary" means any Subsidiary other than each Subsidiary
which is a general partner in a partnership formed to own, lease or operate
bowling centers.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
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"Screen" means, for any Currency, the relevant display page for LIBOR for
such Currency (as determined by the Administrative Agent) on the Telerate
Service; provided that, if the Administrative Agent determines that there is no
such relevant display page for LIBOR for such Currency, "Screen" means the
relevant display page for LIBOR for such Currency (as determined by the
Administrative Agent) on the Reuters Monitor Money Rates Service.
"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, for the Interest Period for any
Syndicated Eurocurrency Borrowing, 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 arithmetic mean, taken over each day in such Interest Period, of
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 person serving as 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 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. Unless otherwise specified, "Subsidiary"
means a Subsidiary of the Borrower.
"Subsidiary Account Party" means each Subsidiary of the Borrower that is
listed under the caption "Subsidiary Account Parties" on the signature pages
hereof and each other Subsidiary of the Borrower that shall become a Subsidiary
Account Party pursuant to Section 2.05(m), so long as such Subsidiary shall
remain a Subsidiary Account Party hereunder.
"Subsidiary Joinder Agreement" means a Subsidiary Joinder Agreement
entered into by the Borrower and a Subsidiary of the Borrower pursuant to
Section 2.05(m), substantially in the form of Exhibit B or any other form
approved by the Administrative Agent.
"Substantial Portion" means, with respect to the property of the Borrower
and its Subsidiaries, such property which (a) represents more than 20% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries for
the most recent fiscal quarter ended at least 30 days prior to the
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date when such determination is made, or (b) is responsible for more than 20% of
the consolidated net sales of the Borrower and its Subsidiaries as reflected in
the financial statements of the Borrower and its Subsidiaries for the
twelve-month period ending on the last day of the fiscal quarter referred to in
clause (a) above.
"Swap Agreement" means any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement involving, or
settled by reference to, one or more rates, currencies, commodities, equity or
debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services
provided by current or former directors, officers, employees or consultants of
the Borrower or the Subsidiaries shall be a Swap Agreement.
"Syndicated", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans constituting such Borrowing, are made pursuant
to Section 2.01.
"TARGET Day" means any day on which the Trans-European Automated
Real-time Gross Settlement Express Transfer payment system (or any successor
settlement system as determined by the Administrative Agent) is open for the
settlement of payments in euro.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"TCFC Joint Venture" means a joint venture company (a majority of the
Equity Interest of which shall be owned by Transamerica Commercial Finance
Corporation or one of its Subsidiaries and remainder thereof by the Borrower
and/or any Subsidiary of the Borrower) in connection with an asset
securitization, financing or other similar transaction, program or arrangement
to be undertaken by such joint venture company.
"TCFC Joint Venture Obligations" means any and all agreements,
undertakings, arrangements and other contractual obligations of the Borrower and
its Subsidiaries to make loans or advances, or guarantee the obligations of, or
purchase or otherwise acquire any capital stock, obligations or other securities
of, make any capital contribution to, or otherwise invest in, the TCFC Joint
Venture.
"Transactions" means the execution, delivery and performance by the
Borrower and each Subsidiary Account Party of this Agreement and the other Loan
Documents, 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 constituting 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.
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"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
"Competitive Loan"), by Type (e.g., a "Eurocurrency Loan") or by Class and Type
(e.g., a "Competitive Eurocurrency Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Competitive Borrowing"), by Type (e.g., a
"Eurocurrency Borrowing") or by Class and Type (e.g., a "Competitive
Eurocurrency Borrowing"). Loans and Borrowings may also be identified by
Currency.
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 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; Fiscal Year. 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 any change in the application
of GAAP 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. To enable the ready and consistent determination of compliance with
the covenants set forth in Article VI, the Borrower will not change its fiscal
year from a fiscal year consisting of four fiscal quarters ending on December
31, each fiscal quarter of which is comprised of three fiscal months consisting
of a first fiscal month of four calendar weeks, a second fiscal month of four
calendar weeks and a third fiscal month of five calendar weeks.
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SECTION 1.05. Currencies; Currency Equivalents. (a) At any time, any
reference in the definition of the term "Agreed Foreign Currency" or in any
other provision of this Agreement to the Currency of any particular country
means the lawful currency of such country at such time whether or not the name
of such Currency is the same as it was on the date hereof.
(b) Wherever in this Agreement in connection with a Borrowing or Loan an
amount, such as a required minimum or multiple amount, is expressed in Dollars,
but such Borrowing or Loan is denominated in a Foreign Currency, such amount
shall be the relevant Foreign Currency Equivalent of such Dollar amount (rounded
to the nearest 1,000 units of such Foreign Currency).
(c) Each obligation hereunder of any party hereto that is denominated in
a Currency of a country that is not a Participating Member State on the date
hereof shall, effective from the date on which such country becomes a
Participating Member State, be redenominated in euro in accordance with the
legislation of the European Union applicable to the European Monetary Union;
provided that, if and to the extent that any such legislation provides that any
such obligation of any such party payable within such Participating Member State
by crediting an account of the creditor can be paid by the debtor either in euro
or such Currency, such party shall be entitled to pay or repay such amount
either in euro or in such Currency. If the basis of accrual of interest or fees
expressed in this Agreement with respect to an Agreed Foreign Currency of any
country that becomes a Participating Member State after the date on which such
currency becomes an Agreed Foreign Currency shall be inconsistent with any
convention or practice in the interbank market for the basis of accrual of
interest or fees in respect of the euro, such convention or practice shall
replace such expressed basis effective as of and from the date on which such
country becomes a Participating Member State; provided that, with respect to any
Borrowing denominated in such currency that is outstanding immediately prior to
such date, such replacement shall take effect at the end of the Interest Period
therefor. Without prejudice to the respective liabilities of the Borrower and
the Subsidiary Account Parties to the Lenders and of the Lenders to the Borrower
and the Subsidiary Account Parties under or pursuant to this Agreement, each
provision of this Agreement shall be subject to such reasonable changes of
construction as the Administrative Agent may from time to time reasonably
specify to be necessary or appropriate to reflect the introduction or changeover
to the euro in any country that becomes a Participating Member State after the
date hereof.
ARTICLE II
THE CREDITS
SECTION 2.01. The Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Syndicated Loans in Dollars or in any
Agreed Foreign Currency 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 Credit Exposure exceeding such Lender's Commitment, (b) the
aggregate Dollar Amount of all Syndicated Loans denominated in Agreed Foreign
Currencies exceeding $100,000,000 or (c) the sum of the total Credit Exposures
plus the aggregate principal amount of outstanding Competitive Loans exceeding
the total
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Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Syndicated Loans.
SECTION 2.02. Loans and Borrowings.
(a) Obligations of Lenders. Each Syndicated Loan shall be made as part of
a Borrowing consisting of Loans of the same Currency and Type 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) Type of Loans. Subject to Section 2.13, each Syndicated Borrowing
shall be constituted entirely of ABR Loans or of Eurocurrency Loans denominated
in a single Currency as the Borrower may request in accordance herewith. Each
ABR Loan and each Competitive Loan shall be denominated in Dollars. 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 option shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of this Agreement.
(c) Minimum Amounts; Limitation on Number of Borrowings. Each Syndicated
Eurocurrency Borrowing shall be in an aggregate amount of $5,000,000 or a larger
multiple of $1,000,000. Each ABR Borrowing shall be in an aggregate amount equal
to $5,000,000 or a larger multiple of $1,000,000; provided that an ABR 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 2.05(f). Each Competitive Borrowing
shall be in an aggregate amount equal to $5,000,000 or a larger multiple of
$1,000,000. Borrowings of more than one Class, Currency and Type may be
outstanding at the same time; provided that there shall not at any time be more
than a total of eight Syndicated Eurocurrency Borrowings outstanding.
(d) Limitations on Interest Periods. Notwithstanding any other provision
of this Agreement, the Borrower shall not be entitled to request (or to elect to
convert to or continue as a Syndicated Eurocurrency Borrowing) any Borrowing if
the Interest Period requested therefor would end after the Commitment
Termination Date.
SECTION 2.03. Requests for Syndicated Borrowings.
(a) Notice by the Borrower. To request a Syndicated Borrowing, the
Borrower shall notify the Administrative Agent of such request by telephone (i)
in the case of a Syndicated Eurocurrency Borrowing denominated in Dollars, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing, (ii) in the case of a Syndicated Eurocurrency
Borrowing denominated in a Foreign Currency, not later than 11:00 a.m., London
time, four Business Days before the date of the proposed Borrowing or (iii) 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. Each such telephonic Borrowing Request shall
be irrevocable and shall be
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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.
(b) Content of Borrowing Requests. Each telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:
(i) the Currency and the aggregate amount (denominated in such Currency)
of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) in the case of a Syndicated Borrowing denominated in Dollars,
whether such Borrowing is to be an ABR Borrowing or a Eurocurrency
Borrowing;
(iv) in the case of a Syndicated Eurocurrency Borrowing, the Interest
Period therefor, which shall be a period contemplated by the definition of
the term "Interest Period" and permitted under Section 2.02(d); and
(v) the location and number of the Borrower's account to which funds are
to be disbursed, which shall comply with the requirements of Section 2.06.
(c) Notice by the Administrative Agent to the Lenders. 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 Loan to be made as part of the requested Borrowing.
(d) Failure to Elect. If no election as to the Currency of a Syndicated
Borrowing is specified, then the requested Syndicated Borrowing shall be
denominated in Dollars. If no election as to the Type of a Syndicated Borrowing
is specified, then the requested Borrowing shall be an ABR Borrowing unless an
Agreed Foreign Currency has been specified, in which case the requested
Syndicated Borrowing shall be a Eurocurrency Borrowing denominated in such
Agreed Foreign Currency. If no Interest Period is specified with respect to any
requested Syndicated Eurocurr