Brunswick Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Acquisitions

Acquisitions

12 Months Ended

Dec. 31, 2018

2018 Acquisitions

On August 9, 2018, the Company completed its acquisition of the Global Marine & Mobile business of Power Products Holdings, LLC (Power Products) for $909.6 million in cash, on a cash-free, debt-free basis. Brunswick used proceeds from a combination of 364-day, three-year and five-year term loans (Term Loans) totaling $800.0 million as described in Note 17 – Debt along with cash on hand to fund this acquisition.

Power Products is a leading provider of electrical products to marine and other recreational and specialty vehicle markets. The acquisition advances Brunswick’s leadership by adding integrated electrical systems solutions to the marine market and an array of other mobile, specialty vehicle and industrial applications. Power Products is managed as part of the Marine Engine segment.

The Company accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Brunswick being the acquiring entity, and reflecting estimates and assumptions deemed appropriate by Company management. Transaction costs related to the acquisition were expensed as incurred within Selling, general and administrative expense and totaled $13.8 million for the year ended December 31, 2018. The net sales and operating earnings of Power Products included in Brunswick's consolidated financial statements since the date of acquisition were $82.8 million and $1.9 million, respectively, for the year ended December 31, 2018. Operating earnings included $21.2 million of purchase accounting amortization.

The purchase price allocation for the assets acquired and liabilities assumed is preliminary and subject to change within the allowed measurement period as the Company finalizes its fair value estimates. The following table is a summary of the assets acquired, liabilities assumed and net cash consideration paid for the Power Products acquisition during 2018:



(in millions)	Fair Value		Useful Life
Accounts and notes receivable	$	38.3
Inventory	64.3
Goodwill ^(A)	344.2
Trade names	111.0		Indefinite
Customer relationships	430.0		15 years
Property and equipment	10.6
Other assets	5.6
Total assets acquired	1,004.0

Accounts payable	23.5
Accrued expenses	16.2
Deferred tax liabilities	54.7
Total liabilities assumed	94.4

Net cash consideration paid ^(B)	$	909.6

(A) The goodwill recorded for the acquisition of Power Products is partially deductible for tax purposes.

(B) Net cash consideration paid includes a purchase price adjustment of $0.4 million.

Pro Forma Financial Information (Unaudited)

Prior to the acquisition, Power Products utilized a fiscal year ending August 31, and Brunswick’s fiscal year ends on December 31 of each year. As the Brunswick and Power Products fiscal years differ by more than 93 days, pursuant to Rule 11-02(c)(3) of Regulation S-X, Power Products’ historical unaudited financial information was adjusted for the purpose of presenting the Unaudited Pro Forma Net sales and Net earnings for the year ended December 31, 2017. The Unaudited Pro Forma Net sales and Net earnings for the year ended December 31, 2017 was prepared using Power Products’ historical unaudited Net sales and Net earnings for the year ended February 28, 2018.

The pro forma information has been prepared as if the Power Products acquisition and the related debt financing had occurred on January 1, 2017. These pro forma results are based on estimates and assumptions which the Company believes to be reasonable. They are not the results that would have been realized had the acquisition actually occurred on January 1, 2017 and are not necessarily indicative of Brunswick's consolidated results of net earnings in future periods. The pro forma results include adjustments primarily related to interest expense on the Term Loans and amortization of intangible assets. Additionally, the pro forma adjustments include the following non-recurring amounts:

(A) Transaction costs of $13.8 million and;

(B) Expense related to the estimated fair value adjustment to inventory of $9.2 million recognized as part of the application of purchase accounting.



	Years Ended December 31
(in millions)	2018		2017
Pro forma Net sales	$	5,309.4	$	5,048.9
Pro forma Operating earnings	409.5		296.9
Pro forma Net earnings	283.8		125.7

The effective income tax rate included in the pro forma results reflects 17.3 percent and 47.3 percent for the periods ended 2018 and 2017, respectively.

2017 Acquisitions

On September 1, 2017, the Company acquired 100 percent of Lankhorst Taselaar B.V. (Lankhorst Taselaar), a leading marine parts and accessories distribution company based in the Netherlands and Germany. The acquisition augments the marine parts and accessories businesses through a broader product line and an expanded distribution network. Lankhorst Taselaar is managed as part of the Company's Marine Engine segment.

The net cash consideration the Company paid to acquire Lankhorst Taselaar was $15.5 million. The preliminary opening balance sheet included $4.6 million of identifiable intangible assets, including customer relationships and trade names for $3.2 million and $1.4 million, respectively, along with $5.5 million for goodwill which is not deductible for tax purposes. The amount assigned to Lankhorst Taselaar's customer relationships will be amortized over its estimated useful life of approximately 15 years.

The following table is a summary of the net cash consideration paid and the goodwill and intangible assets acquired during the years ended December 31, 2018 and 2017:



(in millions)					Fair Value of Identifiable Intangible Assets Acquired
Year	Net Cash Consideration Paid		Goodwill		Total		Intangible Asset			Useful Life
2018	$	909.6	$	344.2	$	541.0	Trade names	$	111.0	Indefinite
							Customer relationships	430.0		15 years
2017	15.5		5.5		4.6		Trade names	1.4		Indefinite
							Customer relationships	3.2		15 years

The 2017 Lankhorst Taselaar acquisition is not material to the Company's net sales, results of operations or total assets during any period presented. Accordingly, the Company's consolidated results from operations do not differ materially from historical performance as a result of this acquisition and, therefore, pro forma results are not presented.