BRUNSWICK CORPORATION Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations ofBrunswick Corporation (we, us, our) are forward-looking statements. Forward-looking statements are based on current expectations, estimates, and projections about our business and by their nature address matters that are, to different degrees, uncertain. Actual results may differ materially from expectations and projections as of the date of this filing due to various risks and uncertainties. For additional information regarding forward-looking statements, refer to Forward-Looking Statements below. Certain statements in Management's Discussion and Analysis are based on non-GAAP financial measures. GAAP refers to generally accepted accounting principles inthe United States . A "non-GAAP financial measure" is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the consolidated statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. For example, the discussion of our cash flows includes an analysis of free cash flows and total liquidity; the discussion of our net sales includes net sales on a constant currency basis; the discussion of our earnings includes a presentation of operating earnings and operating margin excluding restructuring, exit and impairment charges, purchase accounting amortization, acquisition-related costs and other applicable charges and of diluted earnings per common share, as adjusted. Non-GAAP financial measures do not include operating and statistical measures. We include non-GAAP financial measures in Management's Discussion and Analysis as management believes these measures and the information they provide are useful to investors because they permit investors to view our performance using the same tools that management uses to evaluate our ongoing business performance. In order to better align our reported results with the internal metrics management uses to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to thePower Products andFreedom Boat Club acquisitions. We do not provide forward-looking guidance for certain financial measures on a GAAP basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These items may include restructuring, exit and impairment costs, special tax items, acquisition-related costs, and certain other unusual adjustments.
Impact of COVID-19
All global manufacturing and distribution facilities continue to focus on rigorously applying, evolving, and automating COVID-19 mitigation procedures, while continuing to ramp-up global production to meet unprecedented demand as consumers continue to take advantage of more flexible work schedules allowing for more leisure time. The strong demand environment for our products experienced during the second half of 2020 has continued into 2021. Despite elevated production levels consistent with our plan, the continued surge in retail demand combined with market share gains continue to drive historically low pipeline inventory levels with 50 percent fewer boats in dealer inventory at the end of the second quarter versus the same period last year. We will continue to actively monitor the impact of COVID-19 and may take further actions that alter business operations as legally required or that we determine are in the best interests of our employees, customers, dealers, suppliers, and other stakeholders. The full extent of the impact of COVID-19 on our business, operations, and financial results will depend on evolving factors that we cannot accurately predict. Refer to Item 1A. Risk Factors in our 2020 Form 10-K for further information. Discontinued Operations
On
Our results for all periods presented, as discussed in Management's Discussion
and Analysis, are presented on a continuing operations basis, unless otherwise
noted. Refer to Note 3 - Discontinued Operations in the Notes to Condensed
Financial Statements for further information.
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Acquisitions
On June 23, 2021 , the Company entered into a definitive agreement to acquire
Navico for $1.05 billion . The Company intends to use a combination of debt and
cash to fund the acquisition, which is expected to close during the second half
of 2021 subject to usual and customary closing conditions as well as regulatory
review and approval. Navico is a privately held global company based in
Egersund, Norway , and is a global leader in marine electronics and sensors,
including multi-function displays, fish finders, autopilots, sonar, radar, and
cartography.
Overview
Net sales increased 57 percent during the second quarter of 2021 when compared
with the second quarter of 2020, primarily attributable to outstanding operating
performance across all segments together with strong global demand for marine
products. In the Propulsion segment, we continue to gain significant retail
market share in outboard engines, especially in higher horsepower categories
where we have focused higher levels of investment in recent years. In the Parts
and Accessories segment, aftermarket sales remained elevated due to strong
participation trends and service needs and favorable weather conditions, and
increased OEM orders resulting from accelerating retail demand. Boat segment
sales also increased across all brands, when compared to the second quarter of
2020, due to the strong retail demand surge. Our international net sales
increased 62 percent and 49 percent in the second quarter on a GAAP and constant
currency basis, respectively, with growth in all regions.
Net sales increased 53 percent during the first half of 2021, when compared with
the first half of 2020, due to the same factors described above. Our
international net sales increased 57 percent and 46 percent in the first half on
a GAAP and constant currency basis, respectively, with growth in all regions.
Operating earnings in the second quarter of 2021 were
Operating earnings in the first half of 2021 were
Matters Affecting Comparability
Changes in Foreign Currency Rates. Percentage changes in net sales expressed in
constant currency reflect the impact that changes in currency exchange rates had
on comparisons of net sales. To determine this information, net sales transacted
in currencies other than U.S. dollars have been translated to U.S. dollars using
the average exchange rates that were in effect during the comparative period.
The percentage change in net sales expressed on a constant currency basis better
reflects the changes in the underlying business trends, excluding the impact of
translation arising from foreign currency exchange rate
fluctuations. Approximately 25 percent of our annual net sales are transacted in
a currency other than the U.S. dollar. Our most material exposures include sales
in Euros, Canadian dollars, Australian dollars and Chinese Yuan.
The table below summarizes the impact of changes in currency exchange rates on
our net sales:
Three Months Ended Six Months Ended
Net Sales 2021 vs. 2020 Net Sales 2021 vs. 2020
July 3, June 27, Currency July 3, June 27,
(in millions) 2021 2020 GAAP impact 2021 2020 GAAP Currency impact
Propulsion $ 649.5 $ 395.4 64.3% 5.1% $ 1,307.3 $ 844.0 54.9% 3.8%
Parts & Accessories 548.9 386.5 42.0% 3.8% 1,008.5 688.1 46.6% 3.6%
Boat 449.1 249.9 79.7% 3.5% 868.6 541.4 60.4% 2.6%
Segment Eliminations (92.7) (44.0) 110.7% 2.0% (196.4) (120.2) 63.4% 1.5%
Total $ 1,554.8 $ 987.8 57.4% 4.3% $ 2,988.0 $ 1,953.3 53.0% 3.5%
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Results of Operations
Consolidated
The following table sets forth certain amounts, ratios and relationships calculated from the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended:
Three Months Ended 2021 vs. 2020 Six Months Ended 2021 vs. 2020
(in millions, except per share July 3, June 27, $ % Jul 3, Jun 27, $ %
data) 2021 2020 Change Change 2021 2020 Change Change
Net sales $ 1,554.8 $ 987.8 $ 567.0 57.4% $ 2,988.0 $ 1,953.3 $ 1,034.7 53.0%
Gross margin(A) 461.5 256.0 205.5 80.3% 878.8 499.8 379.0 75.8%
Restructuring, exit and
impairment charges 0.2 2.1 (1.9) (90.5%) 0.7 2.5 (1.8) (72.0)%
Operating earnings 250.2 107.0 143.2 133.8% 482.1 210.2 271.9 129.4%
Net earnings from continuing
operations 179.4 71.2 108.2 152.0% 348.8 141.9 206.9 145.8%
Diluted earnings per common
share from continuing operations $ 2.29 $ 0.89 $ 1.40 157.3% $ 4.44 $ 1.77 Expressed as a percentage of Net sales: Gross margin (A) 29.7% 25.9% 380 bps 29.4% 25.6% 380 bps Selling, general and administrative expense 11.2% 12.1% (90) bps 10.9% 11.8% (90) bps Research and development expense 2.4% 2.8% (40) bps 2.4% 2.9% (50) bps Restructuring, exit and impairment charges 0.0% 0.2% (20) bps 0.0% 0.1% (10) bps Operating margin 16.1% 10.8% 530 bps 16.1% 10.8% 530 bps bps = basis points
(A)Gross margin is defined as Net sales less Cost of sales as presented in the Condensed Consolidated Statements of Comprehensive Income.
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The following is a summary of Adjusted operating earnings and Adjusted diluted
earnings per common share from continuing operations for the three and six
months ended when compared with the same prior year comparative period:
Three Months Ended Six Months Ended
Diluted Earnings (Loss) Per Diluted Earnings (Loss) Per
Operating Earnings Share Operating Earnings Share
(in millions, except per July 3, June 27, July 3, June 27, July 3, June 27, July 3, June 27,
share data) 2021 2020 2021 2020 2021 2020 2021 2020
GAAP $ 250.2 $ 107.0 $ 2.29 $ 0.89 $ 482.1 $ 210.2 $ 4.44 $ 1.77
Restructuring, exit, and
impairment charges 0.2 2.1 0.00 0.02 0.7 2.5 0.00 0.02
Purchase accounting
amortization 7.6 7.6 0.08 0.07 15.1 15.1 0.15 0.15
Sport Yacht & Yachts 1.3 - 0.01 - 3.8 - 0.04 -
Acquisition, integration,
and IT related costs 7.1 1.2 0.07 0.01 8.4 2.6 0.08 0.03
Palm Coast reclassified
from held-for-sale - - - - 0.8 - 0.01 -
Gain on sale of assets - - - - (1.5) - (0.01) -
Pension settlement benefit - - - (0.01) - - - (0.01)
Special tax items - - 0.07 0.01 - - 0.05 (0.00)
As Adjusted $ 266.4 $ 117.9 $ 2.52 $ 0.99 $ 509.4 $ 230.4 $ 4.76 $ 1.96 GAAP operating margin 16.1% 10.8% 16.1% 10.8% Adjusted operating margin 17.1% 11.9% 17.0% 11.8% Net sales increased 57 percent and 53 percent during the second quarter and first half of 2021, respectively, when compared with the same prior year period. Refer to the Propulsion, Parts and Accessories, and Boat segments for further details on the drivers of net sales changes. Gross margin percentage increased 380 basis points in both the second quarter and first half of 2021 when compared with the same prior year period, with all segments benefiting from increased sales resulting from strong global demand, favorable factory absorption from increased production, and favorable changes in foreign currency exchange rates. Selling, general and administrative expense (SG&A) increased during the second quarter and second half of 2021 when compared with the same prior year period. Excluding certain one-time items presented above, SG&A as a percentage of sales was lower in the second quarter and first half of 2021 compared with the same prior year periods, reflecting the strong increase in net sales, partially offset by higher variable compensation costs and increased spending on sales and marketing and ACES/other growth initiatives. Research and development expense increased in 2021 versus 2020, reflecting continued investment in new products in all segments. We recorded restructuring, exit and impairment charges of$0.2 million and$0.7 million during the three and six months endedJuly 3, 2021 , respectively, and recorded$2.1 million and$2.5 million during the three and six months endedJune 27, 2020 , respectively. Refer to Note 4 - Restructuring, Exit and Impairment Activities in the Notes to Condensed Consolidated Financial Statements for further information. We recorded Equity earnings of$0.4 million and$1.2 million in the three and six months endedJuly 3, 2021 , respectively, which were mainly related to our marine and technology-related joint ventures. This compares with Equity earnings of$1.1 million and$2.9 million in the three and six months endedJune 27, 2020 , respectively. We recognized$(1.5) million and$(2.8) million in Other expense, net in the three and six months endedJuly 3, 2021 , respectively. This compares with$(0.9) million and$(0.2) million recognized in Other expense, net in the three and six months endedJune 27, 2020 , respectively. Other expense, net primarily includes other postretirement benefit costs and remeasurement gains and losses resulting from changes in foreign currency rates. Net interest expense decreased for the three and six months endedJuly 3, 2021 when compared with the same prior year period due to reduction in average daily debt outstanding, which was influenced by the timing of debt retirements and debt issuances. Refer to Note 14 - Debt in the Notes to Condensed Consolidated Financial Statements and Note 16 in the Notes to Consolidated Financial Statements in the 2020 Form 10-K. 27 -------------------------------------------------------------------------------- Table of Contents Income tax provision for the three and six months endedJuly 3, 2021 was$55.2 million and$102.6 million , respectively, compared to$17.6 million and$36.0 million for the three and six months endedJune 27, 2020 , respectively. The increase compared with the same prior year periods is primarily due to increased earnings before income taxes. The effective tax rate, which is calculated as the income tax provision as a percentage of earnings before income taxes, for the three and six months endedJuly 3, 2021 , was 23.5 percent and 22.7 percent, respectively. The effective tax rate for the three and six months endedJune 27, 2020 was 19.8 percent and 20.2 percent, respectively. Due to the factors described in the preceding paragraphs, operating earnings, net earnings from continuing operations, and diluted earnings per common share from continuing operations increased during the second quarter and first half of 2021 when compared with the same prior year periods.
Propulsion Segment
The following table sets forth Propulsion segment results for the three and six
months ended:
Three Months Ended 2021 vs. 2020 Six Months Ended 2021 vs. 2020
July 3, June 27, $ % July 3, June 27, $ %
(in millions) 2021 2020 Change Change 2021 2020 Change Change
Net sales $ 649.5 $ 395.4 $ 254.1 64.3% $ 1,307.3 $ 844.0 $ 463.3 54.9%
Operating earnings 122.1 47.7 74.4 156.0% 246.6 109.0 137.6 126.2%
Operating margin 18.8% 12.1%
670 bps 18.9% 12.9% 600 bps
bps = basis points
Propulsion segment net sales increased $254.1 million , or 64 percent, in the
second quarter of 2021 compared to the second quarter of 2020 as a result of
strong global demand for all product categories and continued market share
gains. The Propulsion segment gained substantial U.S. retail market share in
every outboard engine horsepower category in excess of 75 horsepower, with
outsized gains in engines over 200 horsepower, and also experienced continued
strong sales growth in international markets. Our increased capacity enabled
continued elevated sales to the independent OEM and international channels.
Propulsion segment net sales increased $463.3 million , or 55 percent, in the
first half of 2021 versus prior year as a result of the same factors described
above.
International sales were 38 percent of the segment's net sales during the second
quarter of 2021 and increased 44 percent from the prior year on a GAAP basis. On
a constant currency basis, international net sales increased 32 percent, with
increases across all regions. International sales were 37 percent of the
segment's net sales through the first half of 2021 and increased 47 percent from
the prior year on a GAAP basis. On a constant currency basis, international
sales increased 37 percent through the first half of 2021, with increases across
all regions.
Propulsion segment operating earnings in the second quarter of 2021 were
$122.1 million , an increase of 156 percent when compared to the second quarter
of 2020, as a result of increased net sales in addition to the factors affecting
all of our segments previously mentioned. Operating earnings for the first half
of 2021 were $246.6 million , an increase of 126 percent as a result of the same
factors described above.
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Parts & Accessories Segment
The following table sets forth Parts and Accessories (P&A) segment results for the three and six months ended:
Three Months Ended 2021 vs. 2020 Six Months Ended 2021 vs. 2020
July 3, June 27, $ % July 3, June 27, $ %
(in millions) 2021 2020 Change Change 2021 2020 Change Change
Net sales $ 548.9 $ 386.5 $ 162.4 42.0% $ 1,008.5 $ 688.1 $ 320.4 46.6%
GAAP operating earnings $ 114.4 $ 80.1 $ 34.3 42.8% $ 206.3 $ 126.3 $ 80.0 63.3%
Restructuring, exit and
impairment charges 0.2 - 0.2 NM 0.7 0.3 0.4 133.3%
Purchase accounting
amortization 7.2 7.2 - NM 14.4 14.4 - NM
Acquisition, integration and
IT costs 5.8 - 5.8 NM 5.8 - 5.8 NM
Gain on sale of assets - - - NM (1.5) - (1.5) NM
Adjusted operating earnings $ 127.6 $ 87.3 $ 40.3 46.2% $ 225.7 $ 141.0 $ 84.7 60.1%
GAAP operating margin 20.8% 20.7% 10 bps 20.5% 18.4% 210 bps Adjusted operating margin 23.2% 22.6% 60 bps 22.4% 20.5% 190 bps NM = not meaningful bps = basis points P&A segment net sales increased$162.4 million , or 42 percent in the second quarter of 2021 versus the second quarter of 2020 due to strong sales growth across all product categories. Net sales increases in our aftermarket business were driven by a continued increase in boating participation, which elevated parts and service needs, and favorable weather conditions in many areas. Net sales also increased in the OEM component of the business, as we leveraged investments in technology to take advantage of strong demand from boat builders as they continued to increase production.
P&A segment net sales increased
International sales were 29 percent of the P&A segment's net sales in the second quarter of 2021 and increased 70 percent year over year on a GAAP basis. On a constant currency basis, international net sales increased 54 percent, with increases across all regions. International sales were 30 percent of the P&A segment's net sales in the first half of 2021 and increased 66 percent year over year on a GAAP basis. On a constant currency basis, international net sales increased 53 percent through the first half of 2021, with increases across all regions. P&A segment operating earnings were$114.4 million in the second quarter of 2021, an increase of 43 percent when compared to the second quarter of 2020, as a result of strong sales increases in addition to the factors affecting all of our segments previously mentioned. Operating earnings for the first half of 2021 were$206.3 million , an increase of 63 percent, as a result of the same factors described above. 29 -------------------------------------------------------------------------------- Table of Contents Boat Segment The following table sets forth Boat segment results for the three and six months ended: Three Months Ended 2021 vs. 2020 Six Months Ended 2021 vs. 2020 July 3, June 27, $ % July 3, June 27, $ % (in millions) 2021 2020 Change Change 2021 2020 Change Change Net sales$ 449.1 $ 249.9 $ 199.2 79.7%$ 868.6 $ 541.4 $ 327.2 60.4% GAAP operating earnings$ 44.2 $ 2.0 $ 42.2 NM$ 85.0 $ 7.1 $ 77.9 NM Restructuring, exit and impairment charges - 0.3 (0.3) (100.0)% - 0.3 (0.3) (100.0)% Sport Yacht & Yachts 1.3 - 1.3 NM 3.8 - 3.8 NM Acquisition, integration, and IT related costs 1.3 0.6 0.7 116.7% 2.6 1.3 1.3 100.0%Palm Coast reclassified from held-for-sale - - - NM 0.8 - 0.8 NM Purchase accounting amortization 0.4 0.4 - NM 0.7 0.7 - NM Adjusted operating earnings$ 47.2 $ 3.3 $ 43.9 NM$ 92.9 $ 9.4 $ 83.5 NM GAAP operating margin 9.8% 0.8% 900 bps 9.8% 1.3% 850 bps Adjusted operating margin 10.5% 1.3% 920 bps 10.7% 1.7% 900 bps NM = not meaningful bps = basis points
Boat segment net sales increased
Boat segment net sales increased
International sales were 30 percent of the segment's net sales in the second quarter of 2021 and increased 102 percent on a GAAP basis. On a constant currency basis, international sales increased 89 percent, with increases across all regions. International sales were 28 percent of the segment's net sales in the first half of 2021 and increased 70 percent on a GAAP basis. On a constant currency basis, international sales increased 60 percent through the first half of 2021, with increases across all regions. Boat segment operating earnings in the second quarter of 2021 were$44.2 million , an increase of$42.2 million when compared to the second quarter of 2020, due to increased sales, lower retail discount levels, and success in mitigating supply chain challenges, in addition to the factors affecting all of our segments. Operating earnings in the first half of 2021 were$85.0 million , an increase of$77.9 million , as a result of the same factors described above. 30 -------------------------------------------------------------------------------- Table of Contents Corporate/Other The following table sets forth Corporate/Other results for the three and six months ended: Three Months Ended 2021 vs. 2020 Six Months Ended 2021 vs. 2020 July 3, June 27, $ % July 3, June 27, $ % (in millions) 2021 2020 Change Change 2021 2020 Change Change GAAP operating loss$ (30.5) $ (22.8) $ (7.7) 33.8%$ (55.8) $ (32.2) $ (23.6) 73.3% Restructuring, exit and impairment charges - 1.8 (1.8) (100.0)% - 1.9 (1.9) (100.0)% Acquisition, integration, and IT related costs - 0.6 (0.6) (100.0)% - 1.3 (1.3) (100.0)% Adjusted operating loss$ (30.5) $ (20.4) $ (10.1) 49.5%$ (55.8) $ (29.0) $ (26.8) 92.4% NM = not meaningful
Corporate operating expenses in the second quarter of 2021 were
Corporate operating expenses increased 73 percent in the first half of 2021 versus 2020, resulting from the same factors described above.
Cash Flow, Liquidity and Capital Resources
The following table sets forth an analysis of free cash flow for the six months
ended:
July 3, June 27,
(in millions) 2021 2020
Net cash provided by operating activities of continuing operations $ 350.5 $ 215.7
Net cash (used for) provided by:
Plus: Capital expenditures (110.3) (90.7)
Plus: Proceeds from the sale of property, plant and equipment 4.6 1.6
Plus: Effect of exchange rate changes (0.5) (2.4)
Total free cash flow (A) $ 244.3 $ 124.2
(A) We define "Free cash flow" as cash flow from operating and investing
activities of continuing operations (excluding cash provided by or used for
acquisitions, investments, purchases or sales/maturities of marketable
securities and other investing activities) and the effect of exchange rate
changes on cash and cash equivalents. Free cash flow is not intended as an
alternative measure of cash flow from operations, as determined in accordance
with GAAP in the United States . We use this financial measure both in presenting
our results to shareholders and the investment community and in our internal
evaluation and management of our businesses. Management believes that this
financial measure and the information it provides are useful to investors
because it permits investors to view our performance using the same tool that
management uses to gauge progress in achieving its goals. Management believes
that the non-GAAP financial measure "Free cash flow" is also useful to investors
because it is an indication of cash flow that may be available to fund
investments in future growth initiatives.
Our major sources of funds for capital investments, acquisitions, share
repurchase programs and dividend payments are cash generated from operating
activities, available cash and marketable securities balances, and potential
borrowings. We evaluate potential acquisitions, divestitures and joint ventures
in the ordinary course of business.
2021 Cash Flow
Net cash provided by operating activities of continuing operations in the first six months of 2021 totaled$350.5 million versus$215.7 million in the comparable period of 2020. The increase is primarily due to higher net earnings during the first half of 2021, partially offset by working capital. Working capital is defined as Accounts and notes receivable, Inventories and Prepaid expenses and other, net of Accounts payable and Accrued expenses as presented in the Condensed Consolidated Balance Sheets, excluding the impact of acquisitions and non-cash adjustments. The primary drivers of net cash provided by operating activities of continuing operations in 2021 were net earnings, net of non-cash items, partially offset by the seasonal impact of increasing working capital. Accounts and notes receivable increased 31 -------------------------------------------------------------------------------- Table of Contents$167.5 million primarily due to increased sales across all segments. Inventory increased$129.9 million , driven by increases to support higher production volumes. Accounts payable increased$129.8 million primarily due to timing of payments and higher inventory levels across all reportable segments. Accrued expenses increased$42.1 million primarily driven by increases in program-related volume discounts and rebates. Net cash used for investing activities of continuing operations was$75.6 million , which primarily included capital expenditures of$110.3 million , offset by sales of marketable securities of$55.9 million . Our capital spending was focused on investments in new products and technologies. Net cash used for financing activities was$195.7 million and primarily related to payments of long-term debt including current maturities, common stock repurchases, and cash dividends paid to common shareholders. Refer to Note 14 -Debt in the Notes to Condensed Consolidated Financial Statements for further details on our debt activity during the quarter.
2020 Cash Flow
Net cash provided by operating activities of continuing operations in the first six months of 2020 totaled$215.7 million . The primary driver of cash used for operating activities of continuing operations was favorable working capital usage, which was partially offset by net earnings net of non-cash expense items. During the first six months of 2020, Inventory decreased$146.2 million due to higher net sales in the period and production disruptions due to COVID-19. Accounts and notes receivable increased$129.6 million primarily due to the seasonal changes in net sales. Accounts payable decreased$49.6 million primarily due to timing of payments and lower production levels across all reportable segments due to temporary production suspensions in response to COVID-19. Accrued expenses decreased$6.3 million , primarily driven by the impact of payments of the prior year's variable compensation, which had been accrued as ofDecember 31, 2019 .
Net cash used for investing activities of continuing operations was
Net cash provided by financing activities was$97.2 million and primarily related to net proceeds from short-term debt, which exceeded common stock repurchases and cash dividends paid to common shareholders. Refer to Note 16 - Debt in the Notes to Consolidated Financial Statements in the 2020 Form 10-K, for further details on our 2020 debt activity.
Liquidity and Capital Resources
We view our highly liquid assets as ofJuly 3, 2021 ,December 31, 2020 andJune 27, 2020 as: July 3, December 31, June 27, (in millions) 2021 2020 2020 Cash and cash equivalents$ 590.2 $ 519.6 $ 541.5 Short-term investments in marketable securities 0.8 56.7 0.8
Total cash, cash equivalents and marketable securities
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The following table sets forth an analysis of total liquidity as of
July 3, December 31, June 27,
(in millions) 2021 2020 2020
Cash, cash equivalents and marketable securities
395.0 202.9 Total liquidity (B)$ 988.2 $ 971.3 $ 745.2 (A) See Note 14 - Debt in the Notes to Condensed Consolidated Financial Statements for further details on our lending facility. (B) We define Total liquidity as Cash and cash equivalents and Short-term investments in marketable securities as presented in the Condensed Consolidated Balance Sheets, plus amounts available for borrowing under its lending facilities. Total liquidity is not intended as an alternative measure to Cash and cash equivalents and Short-term investments in marketable securities as determined in accordance with GAAP inthe United States . We use this financial measure both in presenting our results to shareholders and the investment community and in our internal evaluation and management of our businesses. Management believes that this financial measure and the information it provides are useful to investors because it permits investors to view our performance using the same metric that management uses to gauge progress in achieving our goals. Management believes that the non-GAAP financial measure "Total liquidity" is also useful to investors because it is an indication of our available highly liquid assets and immediate sources of financing. Cash, cash equivalents and marketable securities totaled$591.0 million as ofJuly 3, 2021 , an increase of$14.7 million from$576.3 million as ofDecember 31, 2020 , and an increase of$48.7 million from$542.3 million as ofJune 27, 2020 . Total debt as ofJuly 3, 2021 ,December 31, 2020 andJune 27, 2020 was$875.5 million ,$951.4 million and$1,285.7 million , respectively. Our debt-to-capitalization ratio was 33.1 percent as ofJuly 3, 2021 , down from 38.7 percent as ofDecember 31, 2020 and from 48.5 percent as ofJune 27, 2020 .
We believe that we have adequate sources of liquidity to meet our short-term (for at least the next twelve months) and foreseeable long-term needs.
There was no borrowing activity under the Credit Facility during the first half of 2021, and we did not have any borrowings outstanding as ofJuly 3, 2021 . Available borrowing capacity totaled$397.2 million , net of$2.8 million of letters of credit outstanding under the Credit Facility. During the first half of 2021, there was no borrowing activity under our unsecured commercial paper program (CP Program), pursuant to which we may issue short-term, unsecured commercial paper notes. Refer to Note 14 - Debt in the Notes to Condensed Consolidated Financial Statements and Note 16 - Debt in the Notes to Consolidated Financial Statements in the 2020 Form 10-K, for further details.
The level of borrowing capacity under our Credit Facility and CP Program is limited by both a leverage and interest coverage test. These covenants also pertain to termination provisions included in our wholesale financing joint venture arrangements with Wells Fargo Distribution Finance. Based on our anticipated earnings generation throughout the year, we expect to maintain sufficient cushion against the existing debt covenants.
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2021 Capital Strategy
In anticipation of the acquisition of
Aside from financing related to the acquisition ofNavico , our capital strategy assumptions have not materially changed since last quarter. We have taken steps to strengthen our overall liquidity and shareholder return profile. In July, we extended and expanded our revolving credit agreement, which is now in effect throughJuly 2026 and provides for$500 million of borrowing capacity, an increase of$100 million . Refer to Note 15 - Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further details. OnJuly 20, 2021 , our Board of Directors approved a$350 million increase to our share repurchase authorization, and we now have over$400 million approved for repurchases, which we plan to systemically deploy consistent with our capital strategy, including between$80 million and$120 million of repurchases in 2021. These actions follow the increase of our dividend to33.5 cents a share, a 24 percent dividend increase that was approved by the Board of Directors inApril 2021 , as we continue to balance increases in shareholder return and investment and growth initiatives. We are planning for capital expenditures in the range of approximately$270 million to$300 million to support, and in some cases accelerate, growth initiatives throughout our organization. This spending will be directed to new product investments in all of our businesses, cost reduction and automation projects, and select additional capacity-related initiatives to support demand and future growth, primarily in the Propulsion business. Additionally, we plan to retire approximately$100 million of our long-term debt obligations.
Financing Joint Venture
OnMarch 10, 2021 , through ourBrunswick Financial Services Corporation subsidiary, we entered into an amended and restated joint venture agreement withWells Fargo Commercial Distribution Finance to extend the term of our financial services joint venture,Brunswick Acceptance Company, LLC (BAC), throughDecember 31, 2025 . The amendment did not otherwise materially change the terms of the agreement. BAC is detailed further in the 2020 Form 10-K.
Off-Balance Sheet Arrangements and Contractual Obligations
Our off-balance sheet arrangements and contractual obligations as ofDecember 31, 2020 are detailed in the 2020 Form 10-K. There have been no material changes in these arrangements and obligations outside the ordinary course of business sinceDecember 31, 2020 . Environmental Regulation
There were no material changes in our environmental regulatory requirements since the filing of our 2020 Form 10-K.
Critical Accounting Policies
There were no further material changes in our critical accounting policies since the filing of our 2020 Form 10-K.
As discussed in the 2020 Form 10-K, the preparation of the consolidated
financial statements in conformity with GAAP 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.
34
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Table of Contents
Recent Accounting Pronouncements
Recent accounting pronouncements that have been adopted during the three months
ended July 3, 2021 , or will be adopted in future periods, are included in Note 1
-Significant Accounting Policies in the Notes to Condensed Consolidated
Financial Statements.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements 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," "should," "expect," "anticipate," "project," "position," "intend," "target," "plan," "seek," "estimate," "believe," "predict," "outlook," and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this 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; changes in currency exchange rates; fiscal policy concerns; adverse economic, credit, and capital market conditions; higher energy and fuel costs; competitive pricing pressures; the coronavirus (COVID-19) pandemic and the emergence of variant strains; managing our manufacturing footprint; adverse weather conditions, climate change events, and other catastrophic event risks; international business risks; our ability to develop new and innovative products and services at a competitive price; our ability to meet demand in a rapidly changing environment; loss of key customers; 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 result of pressures due to the pandemic; supplier manufacturing constraints, increased demand for shipping carriers, and transportation disruptions; absorbing fixed costs in production; risks associated with joint ventures that do not operate solely for our benefit; our ability to successfully implement our strategic plan and growth initiatives; the possibility that the announced acquisition ofNavico will not be consummated within the anticipated time period or at all, including as the result of regulatory, market, or other factors; our ability to integrate acquisitions, includingNavico ; the potential for disruption to our business in connection with theNavico acquisition, making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred in connection with theNavico transaction; the possibility that the expected synergies and value creation from theNavico transaction will not be realized or will not be realized within the expected time period; attracting and retaining skilled labor, implementing succession plans for key leadership, and executing organizational and leadership changes; our ability to identify, complete, and integrate targeted acquisitions; the risk that strategic divestitures will not provide business benefits; maintaining effective distribution; adequate financing access for dealers and customers; requirements for us to repurchase inventory; inventory reductions by dealers, retailers, or independent boat builders; risks related to theFreedom Boat Club franchise business model; outages, breaches, or other cybersecurity events regarding our technology systems, which could affect manufacturing and business operations and could result in lost or stolen information and associated remediation costs; our ability to protect our brands and intellectual property; changes toU.S. trade policy and tariffs; any impairment to the value of goodwill and other assets; 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; managing our share repurchases; and risks associated with certain divisive shareholder activist actions. Additional risk factors are included in the 2020 Form 10-K. Forward -looking statements speak only as of the date on which they are made, and Brunswick does not undertake any obligation to update them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
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