Brunswick Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

Financial Instruments

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company operates globally with manufacturing and sales facilities around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and market risks. The Company utilizes normal operating and financing activities, along with derivative financial instruments, to minimize these risks. See Note 14 in the Notes to Consolidated Financial Statements in the 2017 Form 10-K for further details regarding the Company's financial instruments and hedging policies.

Foreign Currency Derivatives. Forward exchange contracts outstanding at March 31, 2018, December 31, 2017 and April 1, 2017 had notional contract values of $436.0 million, $312.6 million and $263.1 million, respectively. Option contracts outstanding at March 31, 2018, December 31, 2017 and April 1, 2017 had notional contract values of $18.0 million, $18.0 million and $0.5 million, respectively. The forward and option contracts outstanding at March 31, 2018 mature through 2019 and mainly relate to the Euro, Japanese yen, Canadian dollar and Australian dollar. As of March 31, 2018, the Company estimates that during the next 12 months, it will reclassify approximately $5.1 million of net losses (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate Derivatives. The Company enters into fixed-to-floating interest rate swaps to convert a portion of the Company's long-term debt from fixed to floating rate debt. As of March 31, 2018, December 31, 2017 and April 1, 2017, the outstanding swaps had notional contract values of $200.0 million, of which $150.0 million corresponds to the Company's 4.625 percent Senior notes due 2021 and $50.0 million corresponds to the Company's 7.375 percent Debentures due 2023. These instruments have been designated as fair value hedges, with the fair value recorded in long-term debt.

As of March 31, 2018, December 31, 2017 and April 1, 2017, the Company had $3.2 million, $3.4 million and $4.2 million, respectively, of net deferred losses associated with all settled forward-starting interest rate swaps, which were designated as cash flow hedges with gains and losses included in Accumulated other comprehensive loss. As of March 31, 2018, the Company estimates that during the next 12 months, it will reclassify approximately $0.8 million of net losses resulting from settled forward-starting interest rate swaps from Accumulated other comprehensive loss to Interest expense.

As of March 31, 2018, December 31, 2017 and April 1, 2017, the fair values of the Company’s derivative instruments were:



(in millions)
	Derivative Assets							Derivative Liabilities
Instrument	Balance Sheet Location	Fair Value						Balance Sheet Location	Fair Value
		Mar 31, 2018		Dec 31, 2017		Apr 1, 2017			Mar 31, 2018		Dec 31, 2017		Apr 1, 2017
Derivatives Designated as Cash Flow Hedges
Foreign exchange contracts	Prepaid expenses and other	$	2.8	$	2.5	$	3.3	Accrued expenses	$	5.8	$	5.5	$	1.8

Derivatives Designated as Fair Value Hedges
Interest rate contracts	Prepaid expenses and other	$	2.9	$	2.1	$	2.9	Accrued expenses	$	2.6	$	1.8	$	2.3
Interest rate contracts	Other long-term assets	—		0.7		1.4		Other long-term liabilities	2.8		0.3		0.0
Total		$	2.9	$	2.8	$	4.3		$	5.4	$	2.1	$	2.3

Other Hedging Activity
Foreign exchange contracts	Prepaid expenses and other	$	0.4	$	0.7	$	0.2	Accrued expenses	$	0.5	$	0.1	$	0.7

The effect of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and April 1, 2017 was:



(in millions)
Derivatives Designated as Cash Flow Hedging Instruments	Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss (Effective Portion)						Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)
	Mar 31, 2018			Apr 1, 2017				Mar 31, 2018			Apr 1, 2017
Interest rate contracts	$	—		$	—		Interest expense	$	(0.3	)	$	(0.3	)
Foreign exchange contracts	(3.6		)	(2.5		)	Cost of sales	(2.6		)	1.0
Total	$	(3.6	)	$	(2.5	)		$	(2.9	)	$	0.7



Derivatives Designated as Fair Value Hedging Instruments	Location of Gain on Derivatives Recognized in Earnings	Amount of Gain on Derivatives Recognized in Earnings
		Mar 31, 2018		Apr 1, 2017
Interest rate contracts	Interest expense	$	0.2	$	0.6



Other Hedging Activity	Location of Gain (Loss) on Derivatives Recognized in Earnings	Amount of Gain (Loss) on Derivatives Recognized in Earnings
		Mar 31, 2018			Apr 1, 2017
Foreign exchange contracts	Cost of sales	$	(3.7	)	$	(2.8	)
Foreign exchange contracts	Other income (expense), net	(1.1		)	(0.7		)
Total		$	(4.8	)	$	(3.5	)

Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents and accounts and notes receivable approximate their fair values because of the short maturity of these instruments. At March 31, 2018, December 31, 2017 and April 1, 2017, the fair value of the Company’s long-term debt was approximately $497.6 million, $492.1 million and $494.2 million, respectively, and was determined using Level 1 and Level 2 inputs described in Note 7 to the Notes to Consolidated Financial Statements in the 2017 Form 10-K. The carrying value of long-term debt, including current maturities, was $438.8 million, $439.1 million and $441.3 million as of March 31, 2018, December 31, 2017 and April 1, 2017, respectively.