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. 28, 2020

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 2019 Form 10-K for further details regarding the Company's financial instruments and hedging policies.

Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum. As of March 28, 2020, the notional value of commodity swap contracts outstanding was $1.2 million and the contracts mature through 2021. The Company had no outstanding commodity swap contracts at both December 31, 2019 and March 30, 2019. The amount of gain or loss associated with the change in fair value of these instruments is deferred in Accumulated other comprehensive loss and recognized

in Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of March 28, 2020, the Company estimates that during the next 12 months it will reclassify approximately $0.1 million in net losses (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

Foreign Currency Derivatives. Forward exchange contracts outstanding at March 28, 2020, December 31, 2019 and March 30, 2019 had notional contract values of $281.1 million, $332.5 million and $375.6 million, respectively. The notional contract values of option contracts outstanding totaled $17.8 million at both March 28, 2020 and December 31, 2019. The Company had no outstanding option contracts as of March 30, 2019. The forward contracts outstanding at March 28, 2020 mature through 2021 and mainly relate to the Euro, Canadian dollar, Australian dollar and Japanese yen. As of March 28, 2020, the Company estimates that during the next 12 months, it will reclassify approximately $8.8 million of net gains (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate Derivatives. The Company previously entered into fixed-to-floating interest rate swaps to convert a portion of its long-term debt from fixed to floating rate debt. In the second half of 2019, the Company settled its fixed-to-floating interest rate swaps, resulting in a net deferred gain of $2.5 million included within Debt. The Company will reclassify $0.7 million of net deferred gains from Debt to Interest expense during the next 12 months. As a result, there are no outstanding interest rate swaps as of March 28, 2020 or December 31, 2019. As of March 30, 2019, the outstanding swaps had a total notional contract value of $200.0 million. These instruments have been designated as fair value hedges, with the fair value recorded in long-term debt.

As of March 28, 2020, December 31, 2019 and March 30, 2019, the Company had $1.8 million, $2.0 million and $2.4 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 28, 2020, the Company estimates that during the next 12 months, it will reclassify approximately $0.6 million of net losses resulting from settled forward-starting interest rate swaps from Accumulated other comprehensive loss to Interest expense.

As of March 28, 2020, December 31, 2019 and March 30, 2019, 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 28, 2020		Dec 31, 2019		Mar 30, 2019			Mar 28, 2020		Dec 31, 2019		Mar 30, 2019
Derivatives Designated as Cash Flow Hedges
Foreign exchange contracts	Prepaid expenses and other	$	9.7	$	4.1	$	5.9	Accrued expenses	$	3.3	$	2.3	$	0.2
Commodity contracts	Prepaid expenses and other	—		—		—		Accrued expenses	0.1		—		—
Total		$	9.7	$	4.1	$	5.9		$	3.4	$	2.3	$	0.2

Derivatives Designated as Fair Value Hedges
Interest rate contracts	Prepaid expenses and other	$	—	$	—	$	—	Accrued expenses	$	—	$	—	$	0.2
Interest rate contracts	Other long-term assets	—		—		0.9		Other long-term liabilities	—		—		0.4
Total		$	—	$	—	$	0.9		$	—	$	—	$	0.6

Other Hedging Activity
Foreign exchange contracts	Prepaid expenses and other	$	2.6	$	0.1	$	1.0	Accrued expenses	$	0.2	$	0.9	$	0.0

The effect of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 28, 2020 and March 30, 2019 was:



(in millions)
Derivatives Designated as Cash Flow Hedging Instruments	Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss					Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings
	Mar 28, 2020			Mar 30, 2019			Mar 28, 2020			Mar 30, 2019
Interest rate contracts	$	—		$	—	Interest expense	$	(0.1	)	$	(0.1	)
Foreign exchange contracts	9.5			1.5		Cost of sales	2.7			2.8
Commodity contracts	(0.1		)	—		Cost of sales	—			—
Total	$	9.4		$	1.5		$	2.6		$	2.7



Derivatives Designated as Fair Value Hedging Instruments	Location of Gain (Loss) on Derivatives Recognized in Earnings	Amount of Gain (Loss) on Derivatives Recognized in Earnings
		Mar 28, 2020		Mar 30, 2019
Interest rate contracts	Interest expense	$	0.2	$	(0.1	)



Other Hedging Activity	Location of Gain (Loss) on Derivatives Recognized in Earnings	Amount of Gain (Loss) on Derivatives Recognized in Earnings
		March 28, 2020		March 30, 2019
Foreign exchange contracts	Cost of sales	$	4.8	$	1.5
Foreign exchange contracts	Other income (expense), net	1.1		0.0
Total		$	5.9	$	1.5

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 28, 2020, December 31, 2019 and March 30, 2019, the fair value of the Company’s long-term debt, including short-term debt and current maturities, was approximately $1,503.0 million, $1,214.6 million and $1,363.0 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 2019 Form 10-K. The carrying value of long-term debt, including short-term debt and current maturities, was $1,516.6 million, $1,131.6 million and $1,310.1 million as of March 28, 2020, December 31, 2019 and March 30, 2019, respectively.