Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. BRUNSWICK CORP (14930) 10-Q published on May 01, 2019 at 12:50 pm
Reporting Period: Mar 29, 2019
The Company determines if an arrangement is a lease at lease inception. Operating lease right-of-use (ROU) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's lease contracts do not include an implicit rate, the Company uses its incremental borrowing rate based on information available at commencement date in determining the present value of future payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The operating lease ROU asset also includes any initial direct costs and lease payments made prior to lease commencement, and excludes lease incentives incurred.
Net sales increased during the first quarter of 2019 when compared with the first quarter of 2018 as a result of strong sales increases in the Marine Engine segment, partially offset by slight declines in the Boat segment and declines in the Fitness segment. Growth in the Marine Engine segment was led by benefits from the Power Products acquisition and a healthy demand for recently introduced higher horsepower outboard products. Additionally, the organic marine parts and accessories business continued its steady performance, with weather negatively influencing U.S. market growth in the quarter. Boat segment net sales decreased slightly and were negatively affected by the wind down of Sport Yacht and Yacht operations in 2018, partially offset by gains in premium offerings including Sea Ray Sport Boats and Sport Cruisers. Average selling prices expanded due to positive mix benefits and increased content on boats, along with inflationary price increases. As anticipated, Fitness segment revenues declined due to lower sales to value-oriented clubs along with softness in certain international markets. International net sales for the Company increased 4 percent in the first quarter of 2019 on a GAAP basis when compared with the first quarter of 2018, and increased 5 percent on a constant currency basis and excluding the impact of acquisitions. International sales increases were driven by Rest-of-World regions, Europe and Canada, partially offset by slight declines in Asia-Pacific.
As a result of the early adoption of ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment as discussed in Note 1 – Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements, the Company no longer uses the two-step goodwill impairment test described in the 2018 Form 10-K. Previously, the first step of the goodwill impairment test compared the fair value of a reporting unit with its carrying value. If the carrying amount exceeded fair value, a second step was performed to measure the implied fair value of goodwill and compare it with the carrying value of goodwill. Under the new standard, the second step is not performed; the goodwill impairment is simply measured as the carrying value of the reporting unit less its fair value, not to exceed the carrying value of goodwill. The Company applied the new standard in calculating the $137.2 million goodwill impairment recorded within the Fitness segment in the first quarter of 2019 as discussed in Note 9 – Goodwill and Other Intangibles in the Notes to Condensed Consolidated Financial Statements.
Certain statements in this Quarterly Report on Form 10-Q are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations, estimates and projections about Brunswick’s business and by their nature address matters that are, to different degrees, uncertain. Words such as “may,” “could,” “expect,” “intend,” “target,” “plan,” “goal,” “seek,” “estimate,” “believe,” “predict,” “outlook,” “anticipates” and similar expressions are intended to identify forward-looking statements. Such statements are not guarantees of future performance and involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this quarterly report. These risks include, but are not limited to: the effect of adverse general economic conditions, including the amount of disposable income consumers have available for discretionary spending, tight consumer credit markets, and the level of consumer confidence on the demand for our products and services; our ability to successfully implement our strategic plan and growth initiatives; our ability to integrate targeted acquisitions, including the Global Marine & Mobile Business of Power Products; the possibility that the proposed Fitness business separation may not provide business benefits, or may not be consummated within the anticipated time period or at all; having to record an impairment to the value of goodwill and other assets; changes to U.S. trade policy and tariffs; the inability to identify and complete targeted acquisitions; the risk that strategic divestitures may not provide business benefits; the potential for disruption to our business in connection with the Fitness business separation or Power Products acquisition, making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred in connection with these transactions; the possibility that the expected synergies and value creation from these transactions will not be realized or will not be realized within the expected time period; negative currency trends, including shifts in exchange rates; fiscal policy concerns; adequate financing access for dealers and customers and our ability to access capital and credit markets; maintaining effective distribution; adverse economic, credit, and capital market conditions; loss of key customers; attracting and retaining skilled labor and implementing succession plans for key leadership; inventory reductions by dealers, retailers, or independent boat builders; requirements for us to repurchase inventory; actual or anticipated increases in costs, disruptions of supply, or defects in raw materials, parts, or components we purchase from third parties, including as a the result of new tariffs on raw materials, increased demand for shipping carriers, and transportation disruptions; higher energy and fuel costs; our ability to protect our brands and intellectual property; absorbing fixed costs in production; managing our manufacturing footprint; outages, breaches, or other cybersecurity events regarding our technology systems, which could result in lost or stolen information and associated remediation costs; our ability to meet pension funding obligations; managing our share repurchases; competitive pricing pressures; our ability to develop new and innovative products and services at a competitive price, in legal compliance with existing rules; maintaining product quality and service standards; product liability, warranty, and other claims risks; legal and regulatory compliance, including increased costs, fines, and reputational risks; changes in income tax legislation or enforcement; certain divisive shareholder activist actions; joint ventures that do not operate solely for our benefit; international business risks; and weather and catastrophic event risks.
The proposed separation may not achieve the intended results, or results may take longer to realize than expected. The anticipated benefits of the separation are based on a number of factors that we cannot predict. In the first quarter of 2019, the Company recorded a $137.2 million ($103.0 million after tax) goodwill impairment within the Fitness segment. If the separation results in a sale, the proceeds may be different than our current assumptions, or the assumptions underlying the income approach may vary, including possible declines in future operating results, resulting in the need for an additional impairment charge. It is difficult to predict the valuation outcome in the event of a sale. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for the purposes of the first quarter impairment will prove to be an accurate prediction as of the time of the separation.