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

Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

Financial Instruments

9 Months Ended

Oct. 01, 2022

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 2021 Form 10-K for further details regarding the Company's financial instruments and hedging policies.

Cross-Currency Swaps. The Company enters into cross-currency swaps to hedge Euro currency exposures of the net investment in certain foreign subsidiaries. As of October 1, 2022, December 31, 2021 and October 2, 2021, the notional value of cross-currency swap contracts outstanding was $250.0 million, $200.0 million and $200.0 million, respectively. The cross-currency swaps were designated as net investment hedges, with the amount of gain or loss associated with the change in fair value of these instruments deferred in Accumulated other comprehensive loss and recognized upon termination of the respective investment. In the first quarter of 2022, the Company settled $200.0 million of cross-currency swap contracts resulting in a deferred gain of $16.7 million within Accumulated other comprehensive loss.

Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum. As of October 1, 2022, December 31, 2021 and October 2, 2021, the notional value of commodity swap contracts outstanding was $22.3 million, $25.3 million and $9.6 million, respectively, and the contracts mature through 2024. 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 October 1, 2022, the Company estimates that, during the next 12 months, it will reclassify approximately $3.8 million in net losses (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

Foreign Currency Derivatives. Forward exchange contracts outstanding as of October 1, 2022, December 31, 2021 and October 2, 2021 had notional contract values of $544.4 million, $519.8 million and $454.1 million, respectively. The forward contracts outstanding as of October 1, 2022 mature through 2024 and mainly relate to the Euro, Australian dollar, Canadian dollar, and Japanese yen. As of October 1, 2022, the Company estimates that during the next 12 months, it will reclassify approximately $35.5 million of net gains (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest-Rate Derivatives. During the first quarter of 2021, the Company entered into forward-starting interest-rate swaps to hedge the interest-rate risk associated with anticipated debt issuances. On August 4, 2021, the Company settled these interest-rate swaps, resulting in a net deferred loss of $1.6 million. As a result, there were no forward-starting interest-rate swaps outstanding as of October 1, 2022, December 31, 2021 and October 2, 2021.

During the first quarter of 2022, the Company entered into and settled a series of treasury-lock swaps to hedge the interest-rate risk associated with debt issuances, resulting in a net deferred gain of $5.1 million. As a result, there were no treasury-lock swaps outstanding as of October 1, 2022, December 31, 2021 or October 2, 2021.

The Company had net deferred gains (losses) associated with the forward-starting interest-rate swaps and treasury-lock swaps discussed above of $3.1 million, $(2.4) million, and $(2.6) million as of October 1, 2022, December 31, 2021, and October 2, 2021, respectively. These instruments were designated as cash flow hedges with gains and losses included in Accumulated other comprehensive loss. As of October 1, 2022, the Company estimates that during the next 12 months, it will reclassify approximately $0.2 million of net losses from Accumulated other comprehensive loss to Interest expense.

As of October 1, 2022, December 31, 2021 and October 2, 2021, the fair values of the Company’s derivative instruments were:



(in millions)	Fair Value
Asset Derivatives	October 1, 2022		December 31, 2021		October 2, 2021
Derivatives Designated as Cash Flow Hedges
Foreign exchange contracts	$	37.3	$	8.8	$	7.3
Commodity contracts	—		1.9		2.8


Total	$	37.3	$	10.7	$	10.1

Derivatives Designated as Net Investment Hedges
Cross-currency swaps	$	26.6	$	14.3	$	10.3



Other Hedging Activity
Foreign exchange contracts	$	1.3	$	0.1	$	0.2

Liability Derivatives
Derivatives Designated as Cash Flow Hedges
Foreign exchange contracts	$	3.5	$	2.6	$	2.2
Commodity contracts	4.0		—		—

Total	$	7.5	$	2.6	$	2.2









Other Hedging Activity
Foreign exchange contracts	$	—	$	0.3	$	—

As of October 1, 2022, December 31, 2021 and October 2, 2021, asset derivatives are included within Prepaid expenses and other and Other long-term assets, and liability derivatives are included within Accrued expenses and Other long-term liabilities in the Condensed Consolidated Balance Sheets.

The effect of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 1, 2022 and October 2, 2021 is as shown in the tables below.

The amount of gain (loss) on derivatives recognized in Accumulated other comprehensive loss was as follows:


(in millions)	Three Months Ended				Nine Months Ended
Derivatives Designated as Cash Flow Hedging Instruments	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Interest-rate contracts	$	—	$	(4.4)	$	5.3	$	(1.6)
Foreign exchange contracts	20.7		8.1		48.6		8.5
Commodity contracts	(3.2)		1.3		(3.9)		5.6
Total	$	17.5	$	5.0	$	50.0	$	12.5

Derivatives Designated as Net Investment Hedging Instruments
Cross-currency swaps	$	12.4	$	4.4	$	29.0	$	10.3

The amount of gain (loss) reclassified from Accumulated other comprehensive loss into earnings was as follows:


(in millions)		Three Months Ended				Nine Months Ended
Derivatives Designated as Cash Flow Hedging Instruments	Location of Gain (Loss)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Interest-rate contracts	Interest expense	$	(0.1)	$	(0.2)	$	(0.2)	$	(0.5)
Foreign exchange contracts	Cost of sales	7.7		(1.7)		15.7		(8.8)
Commodity contracts	Cost of sales	(0.8)		1.6		3.1		3.1
Total		$	6.8	$	(0.3)	$	18.6	$	(6.2)

Derivatives Designated as Fair Value Hedging Instruments
Interest-rate contracts	Interest expense	$	0.2	$	0.2	$	0.5	$	0.5

Other Hedging Activity
Foreign exchange contracts	Cost of sales	$	0.3	$	1.1	$	2.1	$	0.1
Foreign exchange contracts	Other expense, net	0.6		(1.3)		0.8		(3.7)
Total		$	0.9	$	(0.2)	$	2.9	$	(3.6)

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. As of October 1, 2022, December 31, 2021 and October 2, 2021, the fair value of the Company’s long-term debt, including short-term debt and current maturities, was approximately $2,132.8 million, $1,914.7 million and $1,941.1 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 2021 Form 10-K. The carrying value of long-term debt, including short-term debt and current maturities, was $2,536.2 million, $1,843.1 million and $1,848.1 million as of October 1, 2022, December 31, 2021 and October 2, 2021, respectively.