February 22, 2008
D EA R FELLOW SH A R EH O LD ER S:
By any measure, 2007 was a difficult year for the marine industry, where Brunswick Corporation customarily
derives more than 80 percent of its net sales and operating earnings. Excluding special items, we generated
earnings of $1.23 per diluted share from continuing operations for the year, notwithstanding the difficult market
conditions. Those special items included trade name impairment charges and special tax items, that are further
explained in the accompanying Annual Report on Form 10-K. Given the volatile economic conditions during the
year, we are very proud of our approximately 27,000 employees around the globe who delivered these results.
Considering the weak marine markets and steadily declining economic conditions in the United States, we
undertook a number of initiatives to cut costs, better control the marine pipeline, and generate sales and earnings
from markets outside the U.S. in addition to sales generated by our Fitness and Bowling & Billiards segments.
For example:
▪ During 2007, we continued to reduce costs. Over the past two years we have closed four boat plants,
consolidated production, achieved sourcing savings, quality improvements, head count reductions, product
rationalizations, completed Lean Six Sigma projects, and countless other activities. These cost reduction
activities have been integral to our results, although the extent of the benefits has been masked by the
production volume reductions we have initiated as we react to economic conditions.
▪ Much of our focus during the year was to trim and better control the marine pipeline – which reflects the
number of boats at our dealers. It is important that we keep our product pipeline as thin as possible to ensure
the continued health and future prospects for our dealers. At the end of 2007, the number of fiberglass boat
units in the pipeline was down 10 percent versus 2006, and was back to 2004 levels. The number of aluminum
boat units in the pipeline was down more than 5 percent versus 2006. So we are doing a good job of managing
the pipeline, but it came at the expense of earnings, and further reductions in production will be required in
2008 as marine markets remain under stress.
▪ Our continuing global growth was positive as sales outside the United States in 2007 constituted 36 percent of
our total sales, up from 32 percent in 2006. Our engine, boat and fitness businesses all posted double-digit
percentage growth versus 2006 for sales outside the United States. Our ability to transform our businesses from
U.S.-based and focused to globally-integrated is continuing successfully and is important for our future growth.
▪ Throughout the year, we have been steadily investing in our fitness business and began to see the positive
contributions from new products and its greater global focus. For the year, both sales and earnings were up for
the Fitness segment.
▪ Our Bowling & Billiards business finished the year strongly, partly due to the success of our Brunswick Zone
XL retail bowling centers. Larger and offering more recreation options than a traditional Brunswick Zone,
these centers will be an important part of our growth moving forward as we plan to accelerate the pace at
which we open new Zone XL centers.
Brunswick Corporation 1 N. Field Court Lake Forest, IL 60045-4811
Telephone 847.735.4700
▪ During 2007, we also did a good job of generating cash, which remains a priority with aggressive working
capital targets. While we are planning for less capital spending in 2008 than 2007, we have not materially
lowered our spending for new product and innovation, keys to creating excitement in the marketplace.
The marine market picture for 2008 remains cloudy at this writing. Consumer uneasiness, the housing market,
tightening credit availability, and regional economic variances in many of the key boating markets are all cause
for concern. The impact of an economic stimulus package, lower interest rates, and other factors could enable
marine markets to stabilize. We are not, however, counting on that as we proceed through 2008. In our planning
for the year, we are assuming that marine retail will be down again, and we have developed production schedules
at levels below those of 2007. The number of boats and engines we ultimately produce, however, will be
governed by developing retail demand over the coming months. The key for us is to remain nimble and be
prepared to vary our production schedules as required to meet market needs. Reducing our costs and improving
our productivity continue to be necessities in this weak marine market. We expect that as we take action to lower
our costs in 2008, we will incur charges from time-to-time. These actions will position us well when the marine
markets improve.
As we forge ahead in 2008, Brunswick is not alone operating in difficult markets and challenging economic
conditions. All businesses designing, producing and selling large consumer durable products are under stress. We
must take what economic and market conditions give us, and then identify and pursue opportunities that are not
now readily visible or available. We will continue to work on important strategic activities as well as support
growth in our fitness and bowling retail center operations. And while we cannot “control” the ebbs and flows of
the marine market, we can affect our performance and destiny by staying focused on the task at hand and
operating our businesses well. To my colleagues at Brunswick, my heartfelt thanks for your efforts; and to you,
our shareholders, I offer my deepest gratitude for your continued support.
Sincerely,
Dustan E. McCoy
Chairman and Chief Executive Officer
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1043
_______________
Brunswick Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation
or organization)
36-0848180
(I.R.S. Employer Identification No.)
1 N. Field Court, Lake Forest, Illinois
(Address of principal executive offices)
60045-4811
(Zip Code)
(847) 735-4700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($0.75 par value)
Name of each exchange
on which registered
New York and Chicago
Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act: None
______________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of June 30, 2007, the aggregate market value of the voting stock of the registrant held by non-affiliates was $2,891,550,032. Such
number excludes stock beneficially owned by officers and directors. This does not constitute an admission that they are affiliates.
The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of February 15, 2008 was 87,567,242.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates by reference certain information that will be set forth in the
Company’s definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 7, 2008.
BRUNSWICK CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2007
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director
Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Page
1
9
11
11
12
14
15
17
19
40
41
41
41
42
42
42
42
42
42
Item 1. Business
PART I
Brunswick Corporation (Brunswick or the Company) is a leading global manufacturer and marketer of recreation
products including boats, marine engines, fitness equipment and bowling and billiards equipment. Brunswick’s boat
offerings include fiberglass pleasure boats; luxury sportfishing convertibles and motoryachts; high-performance boats;
offshore fishing boats; aluminum fishing, deck and pontoon boats; rigid inflatable boats; and marine parts and accessories.
The Company’s engine products include outboard, sterndrive and inboard engines; trolling motors; propellers; marine dealer
management systems; and engine control systems. Brunswick’s fitness products include both cardiovascular and strength
training equipment. Brunswick’s bowling offerings include products such as capital equipment, aftermarket and consumer
products; and billiards offerings include billiards tables and accessories, Air Hockey tables and foosball tables. The Company
also owns and operates Brunswick bowling centers in the United States and other countries, and retail billiards stores in the
United States.
Brunswick’s strategy is to introduce the highest quality product with the most innovative technology and styling at a rate
faster than its competitors; to distribute products through a model that benefits its partners – dealers and distributors – and
provides world-class service to its customers; to develop and maintain low-cost manufacturing, to continually improve
productivity and efficiency; to manufacture and distribute products globally with local and regional styling; and to attract and
retain the best and the brightest people. In addition, the Company pursues growth from expansion of existing businesses and
acquisitions. The Company’s objective is to enhance shareholder value by achieving returns on investments that exceed its
cost of capital.
Refer to Note 5 – Segment Information and Note 2 – Discontinued Operations in the Notes to Consolidated Financial
Statements for additional information regarding the Company’s segments and discontinued operations, including net sales,
operating earnings and total assets by segment for 2007, 2006 and 2005.
Boat Segment
The Boat segment consists of the Brunswick Boat Group (Boat Group), which manufactures and markets fiberglass
pleasure boats, luxury sportfishing convertibles and motoryachts, high-performance boats, offshore fishing boats, aluminum
fishing, pontoon and deck boats; manufactures and distributes marine parts and accessories; and offers marine dealer
management systems. The Company believes that its Boat Group, which had net sales of $2,690.9 million during 2007, has
the largest dollar sales and unit volume of pleasure boats in the world.
The Boat Group manages most of Brunswick’s boat brands, evaluates and enhances the Company’s boat portfolio,
expands the Company’s involvement in recreational boating services and activities to enhance the consumer experience and
dealer profitability, and speeds the introduction of new technologies into boat manufacturing processes.
The Boat Group is comprised of the following boat brands: Albemarle, Cabo and Hatteras luxury sportfishing
convertibles and motoryachts; Sea Ray and Sealine yachts, sport yachts, cruisers and runabouts; Bayliner and Maxum
cruisers and runabouts; Meridian motoryachts; Boston Whaler, Sea Pro, Sea Boss, Palmetto, Triton and Trophy fiberglass
fishing boats; Baja high-performance boats; Crestliner, Harris, Lowe, Lund, Princecraft and Triton aluminum fishing,
pontoon and deck boats; and Kayot deck and runabout boats. The Boat Group also includes Integrated Dealer Systems, a
leading developer of management systems for dealers of marine products and recreational vehicles; a commercial and
governmental sales unit that sells products to the United States Government, state, local and foreign governments, and
commercial customers; and several brands comprising its boat parts and accessories business, including Attwood and Land
‘N’ Sea. The Boat Group procures most of its outboard engines, gasoline sterndrive engines and gasoline inboard engines
from Brunswick’s Marine Engine segment. The Boat Group also purchases a portion of its diesel engines from Cummins
MerCruiser Diesel Marine LLC (CMD), a joint venture of Brunswick’s Mercury Marine division with Cummins Marine, a
division of Cummins Inc.
1
The Boat Group has manufacturing facilities in California, Florida, Indiana, Maryland, Michigan, Minnesota, Missouri,
North Carolina, Ohio, Oregon, South Carolina, Tennessee, Washington, Canada, China, Mexico and the United Kingdom.
The Boat Group also utilizes contract manufacturing facilities in Poland. In July 2007, Brunswick announced that it would
expand its manufacturing capabilities with the purchase of a boat manufacturing facility in Navassa, North Carolina. The
purchase offers Brunswick additional capacity to build larger boats as well as the ability to manufacture several brands of
cruisers, resulting in increased production flexibility, productivity and efficiency. Due to this acquisition, the Boat Group
was also able to close down the Salisbury, Maryland, plant and transfer cruiser production to the new North Carolina facility.
In September 2007, the Boat Group announced the closure of its aluminum boat manufacturing facility in Aberdeen,
Mississippi, and shifted production to other aluminum boat manufacturing facilities as part of an ongoing strategy to integrate
past acquisitions and achieve improved operating efficiencies. Brunswick also expects to mothball the facility in Swansboro,
North Carolina in the summer of 2008.
The Boat Group’s products are sold to end users through a global network of approximately 2,300 dealers and
distributors, each of which carries one or more of Brunswick’s boat brands. Sales to the Boat Group’s largest dealer,
MarineMax Inc., which has multiple locations and carries a number of the Boat Group’s product lines, represented
approximately 21 percent of Boat Group sales in 2007. Domestic retail demand for pleasure boats is seasonal, with sales
generally highest in the second calendar quarter of the year.
Marine Engine Segment
The Marine Engine segment, which had net sales of $2,357.5 million in 2007, consists of the Mercury Marine Group. The
Company believes its Marine Engine segment has the largest dollar sales volume of recreational marine engines in the world.
Mercury Marine manufactures and markets a full range of sterndrive propulsion systems, inboard engines, outboard
engines and water jet propulsion systems under the Mercury, Mercury MerCruiser, Mariner, Mercury Racing, Mercury
SportJet and Mercury Jet Drive brand names. In addition, Mercury Marine manufactures and markets engine parts and
Marine accessories under the Quicksilver, Mercury Precision Parts, Mercury Propellers and Motorguide brand names,
including marine electronics and control integration systems, steering systems, instruments, controls, propellers, trolling
motors, service aids and marine lubricants. Mercury Marine’s sterndrive and inboard engines, outboard engines and water jet
propulsion systems are sold either to independent boat builders; local, state or foreign governments; or to the Boat Group. In
addition, Mercury Marine’s outboard engines and parts and accessories are sold to end-users through a global network of
approximately 7,000 marine dealers and distributors, specialty marine retailers and marine service centers. Mercury Marine,
through CMD, supplies integrated diesel propulsion systems to the worldwide recreational and commercial marine markets,
including the Boat Group. Mercury Marine’s operations also include MotoTron, a designer and supplier of sophisticated
engine control and vehicle networking systems.
Mercury Marine manufactures two-stroke OptiMax outboard engines ranging from 75 to 350 horsepower, all of which
feature Mercury’s direct fuel injection (DFI) technology, and four-stroke outboard engine models ranging from 2.5 to 350
horsepower. All of these low-emission engines are in compliance with U.S. Environmental Protection Agency (EPA)
requirements, which required a 75 percent reduction in outboard engine emissions over a nine-year period, ending with the
2006 model year. Mercury Marine’s four-stroke outboard engines include Verado, a series of supercharged outboards
ranging from 135 to 350 horsepower, and Mercury’s naturally aspirated four-stroke outboards, which are based on Verado
technology, ranging from 75 to 115 horsepower. In addition, Brunswick’s sterndrive and inboard engines are now available
with catalytic converters that comply with environmental regulations that the State of California adopted effective on January
1, 2008, and the Company expects that the EPA will enforce in the remaining states by 2010.
To promote advanced propulsion systems with improved handling, performance and efficiency, Mercury Marine, both
directly and through its joint venture, CMD, has introduced and is continuing to develop engines and propulsion systems
under the brand names of Zeus, Axius and MerCruiser 360.
Mercury Marine’s sterndrive and outboard engines are produced primarily in Oklahoma and Wisconsin, respectively.
Mercury Marine manufactures 40, 50 and 60 horsepower four-stroke outboard engines in a facility in China, and, in a joint
venture with its partner, Tohatsu Corporation, produces smaller outboard engines in Japan. Some engine components are
sourced from Asian suppliers. Mercury Marine also manufactures engine component parts at plants in Florida and Mexico.
Diesel marine propulsion systems are manufactured in South Carolina by CMD. Further, Mercury Marine operates a
remanufacturing business for engines and service parts in Wisconsin.
2
In addition to its marine engine operations, Mercury Marine serves markets outside the United States with a wide range of
aluminum, fiberglass and inflatable boats produced either by, or for, Mercury in Australia, China, New Zealand, Poland,
Portugal, Russia and Sweden. These boats, which are marketed under the brand names Arvor, Bermuda, Guernsey, Legend,
Lodestar, Mercury, Örnvik, Passport, Protector, Quicksilver, Savage, Uttern and Valiant, are typically equipped with engines
manufactured by Mercury Marine and often include other parts and accessories supplied by Mercury Marine. Mercury
Marine has equity ownership interests in companies that manufacture boats under the brand names Aquador, Bella and
Flipper in Finland, and Askeladden in Norway. From July 2003 until August 2007, the Company had a 49 percent equity
interest in Rayglass Sales & Marketing Limited (Rayglass). In August 2007, the Company exercised its option to purchase
the remaining 51 percent interest in Rayglass for $4.6 million, expanding the global manufacturing footprint of the
Company’s marine operations and developing additional international sales opportunities. Mercury Marine also
manufactures propellers and underwater sterngear for inboard-powered vessels, under the Teignbridge brand, in the United
Kingdom.
Domestic retail demand for the Marine Engine segment’s products is seasonal, with sales generally highest in the second
calendar quarter of the year.
Fitness Segment
Brunswick’s Fitness segment is comprised of its Life Fitness division, which designs, manufactures and markets a full
line of reliable, high-quality cardiovascular fitness equipment (including treadmills, total body cross-trainers, stair climbers
and stationary exercise bicycles) and strength-training equipment under the Life Fitness, Hammer Strength and ParaBody
brands.
The Company believes that its Fitness segment, which had net sales of $653.7 million during 2007, is the world’s largest
manufacturer of commercial fitness equipment and a leading manufacturer of high-end consumer fitness equipment. Life
Fitness’ commercial sales are primarily to private health clubs and fitness facilities operated by professional sports teams, the
military, governmental agencies, corporations, hotels, schools and universities. Commercial sales are made to customers
either directly, through domestic dealers or through international distributors. Consumer products are sold through specialty
retailers and on Life Fitness’ website.
The Fitness segment’s principal manufacturing facilities are located in Illinois, Kentucky, Minnesota and Hungary. Life
Fitness distributes its products worldwide from regional warehouses and production facilities. Domestic retail demand for
Life Fitness’ products is seasonal, with sales generally highest in the first and fourth calendar quarters of the year.
During 2007, Life Fitness launched its Elevation series of commercial cardiovascular training equipment in the United
States. These new Elevation series treadmills and elliptical cross-trainers deliver state of the art styling and feature seamless
iPod integration through their consoles. In addition, Life Fitness introduced a number of other new fitness products during
the year, including consumer elliptical cross-trainers, treadmills and home gym products, as well as additional commercial
selectorized and core strength-training equipment.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of the Brunswick Bowling & Billiards division (BB&B), which had net
sales of $446.9 million during 2007. BB&B believes it is the leading full-line designer, manufacturer and marketer of
bowling products, including bowling balls and bowling pins, aftermarket products and parts, and capital equipment, which
includes bowling lanes, automatic pinsetters, ball returns, furniture units, and scoring and center management systems.
Through licensing arrangements, BB&B also offers an array of bowling consumer products, including bowling shoes, bags
and accessories. BB&B also designs and markets a full line of high-quality consumer and commercial billiards tables, Air
Hockey table games, foosball tables and related accessories.
3
BB&B operates 108 bowling centers in the United States, Canada and Europe. Since 1960, BB&B has been a partner in a
joint venture in which BB&B operates 14 additional centers in Japan, however, BB&B expects to exit this joint venture in the
first quarter of 2008. BB&B bowling centers offer bowling and, depending on size and location, the following activities and
facilities: billiards, video, redemption and other games of skill, laser tag, pro shops, meeting and party rooms, restaurants and
cocktail lounges. Substantially all of the North American and European centers offer Cosmic Bowling, an enhanced form of
bowling with integrated sound systems and glow-in-the-dark effects. To date, 46 of BB&B’s centers have been converted
into Brunswick Zones, which are modernized bowling centers that offer an array of family-oriented entertainment activities.
The entertainment offerings available at Brunswick Zones are designed to appeal to a broad audience, including families and
other recreational bowlers, as well as traditional league bowlers. BB&B has further enhanced the Brunswick Zone concept
with expanded Brunswick Zone family entertainment centers, branded Brunswick Zone XL, which are approximately 50
percent larger than typical Brunswick Zones and feature multiple-venue entertainment offerings such as laser tag games,
expanded game rooms and are ideal for customer events such as child and adult birthday parties, team building events and
corporate parties. BB&B operates eight Brunswick Zone XL centers, located in the Chicago, Denver, Minneapolis,
Philadelphia, Phoenix and St. Louis markets. BB&B intends to accelerate the pace of Brunswick Zone XL openings.
BB&B’s billiards business was established in 1845 and is Brunswick’s oldest enterprise. BB&B designs and markets
billiards tables, balls and cues, as well as billiards furniture and related accessories, under the Brunswick and Contender
brands. These products are sold worldwide in both commercial and consumer billiards markets. BB&B also operates Valley-
Dynamo, a leading manufacturer of commercial and consumer billiards and coin-operated pool tables, Air Hockey table
games and foosball tables. The Company believes it has the largest dollar sales volume of billiards tables in the world. In
2003, BB&B opened Brunswick Home & Billiard, its first retail store, in a northern suburb of Chicago, followed in 2005
with three new stores in the Boston and Denver markets. These stores feature billiards tables and other products for the
home.
BB&B’s primary manufacturing and distribution facilities are located in Mexico, Michigan, Texas and Hungary. In 2006,
Brunswick moved its bowling ball manufacturing operations from Muskegon, Michigan, to Reynosa, Mexico and in early
2007 Brunswick transitioned its Valley-Dynamo manufacturing operations from Richland Hills, Texas, to a facility in
Reynosa, Mexico. Additionally, in January 2008, Brunswick closed its bowling pin production plant in Antigo, Wisconsin,
and going forward will source bowling pins from a third party.
Brunswick’s bowling and billiards products are sold through a variety of channels, including distributors, dealers, mass
merchandisers, bowling centers and retailers, and directly to consumers on the Internet and through other outlets. BB&B
products are distributed worldwide from regional warehouses, sales offices and factory stocks of merchandise. Domestic
retail demand for BB&B’s products is seasonal, with sales generally highest in the first and fourth calendar quarters of the
year.
Discontinued Operations
On April 27, 2006, the Company announced its intention to sell the majority of its Brunswick New Technologies (BNT)
business unit, which was established in 2002 and consisted of: (i) marine electronics sold under the Northstar, Navman and
MX Marine brands; (ii) portable navigation devices (PND) for automotive markets, which are based on global positioning
systems technology; and (iii) a wireless fleet tracking business. In accordance with the criteria of Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” Brunswick
reclassified the operations of BNT to discontinued operations and shifted reporting for the retained businesses from the
Marine Engine segment to the Boat, Marine Engine and Fitness segments.
In March 2007, Brunswick completed the sales of BNT’s marine electronics and PND businesses to Navico International
Ltd. and MiTAC International Corporation, respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain was
recognized with the divestiture of these businesses in 2007.
In July 2007, the Company completed the sale of BNT’s wireless fleet tracking business to Navman Wireless Holdings
L.P. for net proceeds of $28.8 million, resulting in an after-tax gain of $25.8 million.
The Company has now completed the divestiture of the BNT discontinued operations. With the net asset impairment
taken prior to the disposition of the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the
subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales, the net impact to the Company of these
dispositions was a net loss of $55.8 million, after-tax.
4
Financial Services
A Company subsidiary, Brunswick Financial Services Corporation (BFS), has a 49 percent ownership interest in a joint
venture, Brunswick Acceptance Company, LLC (BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital
Corporation, owns the remaining 51 percent. Under the terms of the joint venture agreement, BAC provides secured
wholesale floor-plan financing to the Company’s boat and engine dealers. BAC also purchases and services a portion of
Mercury Marine’s domestic accounts receivable relating to its boat builder and dealer customers. Additionally, Brunswick’s
marine dealers can offer extended product warranties to retail customers through Brunswick Product Protection Corporation.
In October 2006, the Company acquired Blue Water Dealer Services, Inc. and its affiliates, a provider of retail financial
services to marine dealers, to allow Brunswick to offer a more complete line of financial services to its boat and marine
engine dealers and their customers.
Refer to Note 9 – Financial Services in the Notes to Consolidated Financial Statements for more information about the
Company’s financial services.
Distribution
Brunswick depends on distributors, dealers and retailers (Dealers) for the majority of its boat sales and significant
portions of marine engine, fitness and bowling and billiards products sales. Brunswick has approximately 7,000 Dealers
serving its business segments worldwide. Brunswick’s marine Dealers typically carry boats, engines and related parts and
accessories.
Brunswick’s Dealers are independent companies or proprietors that range in size from small, family-owned businesses to
large, publicly traded corporations with substantial revenues and multiple locations. Some Dealers sell Brunswick’s products
exclusively, while others also carry competitors’ products. Brunswick works with its boat dealer network to improve quality,
distribution and delivery of parts and accessories to enhance the boating customer’s experience.
Brunswick owns Land ‘N’ Sea Corporation, Benrock Inc., Kellogg Marine Inc. and Diversified Marine Products L.P., the
primary parts and accessories distribution platforms for the Boat Group. These companies are the leading distributors of
marine parts and accessories throughout the North American marine industry with 15 distribution warehouses throughout the
United States and Canada offering same-day or next-day service to a broad array of marine service facilities.
Demand for a significant portion of Brunswick’s products is seasonal, and a number of Brunswick’s Dealers are relatively
small or highly leveraged. As a result, many Dealers require financial assistance to support their businesses and provide
stable channels for Brunswick’s products. In addition to the financial services offered by BAC, the Company provides its
Dealers with assistance, including incentive programs, loans, loan guarantees and inventory repurchase commitments, under
which the Company is obligated to repurchase inventory from a finance company in the event of a Dealer’s default. The
Company believes that these arrangements are in its best interest; however, the financial support of its Dealers does expose
the Company to credit and business risk. Brunswick’s business units, along with BAC, maintain active credit operations to
manage this financial exposure, and the Company seeks opportunities to sustain and improve its various distribution
channels. Refer to Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for
further discussion of these arrangements.
International Operations
Brunswick’s sales from continuing operations to customers in markets other than the United States were $2,016.4 million
(36 percent of net sales) and $1,802.4 million (32 percent of net sales) in 2007 and 2006, respectively. The Company
transacts most of its sales in non-U.S. markets in local currencies, and the cost of its products is generally denominated in
U.S. dollars. Future strengthening or weakening of the U.S. dollar can affect the financial results of Brunswick’s non-U.S.
operations.
5
Non-U.S. sales from continuing operations are set forth in Note 5 – Segment Information in the Notes to Consolidated
Financial Statements and are also included in the table below, which details Brunswick’s non-U.S. sales by region:
(in millions)
2007
2006
2005
Europe
Canada
Pacific Rim
Latin America
Africa & Middle East
$ 1,038.9
344.6
338.2
196.6
98.1
$ 925.1
328.6
303.2
158.3
87.2
$ 926.4
311.7
315.6
133.7
72.9
$ 2,016.4
$ 1,802.4
$ 1,760.3
Marine Engine segment sales represented approximately 46 percent of Brunswick’s non-U.S. sales in 2007. The
segment’s primary operations include the following:
(cid:129) A propeller and underwater sterngear manufacturing plant in the United Kingdom;
(cid:129) Sales offices and distribution centers in Australia, Belgium, Brazil, Canada, China, Japan, Malaysia, Mexico, New
Zealand, Singapore and the United Arab Emirates;
(cid:129) Sales offices in Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, Switzerland and the
United Kingdom;
(cid:129) Boat manufacturing plants in Australia, China, New Zealand, Portugal and Sweden;
(cid:129) An outboard engine assembly plant in Suzhou, China; and
(cid:129) A marina and boat club in Suzhou, China, on Lake Taihu.
Boat segment sales comprised approximately 34 percent of Brunswick’s non-U.S. sales in 2007. The Boat Group’s
products are manufactured or assembled in the United States, Canada, China, Mexico, Poland and the United Kingdom, and
are sold worldwide through dealers. The Boat Group has sales offices in France and the Netherlands.
Fitness segment sales comprised approximately 15 percent of Brunswick’s non-U.S. sales in 2007. Life Fitness sells its
products worldwide and has sales and distribution centers in Brazil, Germany, Hong Kong, Japan, the Netherlands, Spain and
the United Kingdom, as well as sales offices in Hong Kong and Italy. The Fitness segment also manufactures strength-
training equipment and select lines of cardiovascular equipment in Hungary for the European market.
Bowling & Billiards segment sales comprised approximately 5 percent of Brunswick’s non-U.S. sales in 2007. BB&B
sells its products worldwide; has sales offices in Germany, Hong Kong and Tokyo; and operates a plant that manufactures
automatic pinsetters in Hungary. BB&B commenced bowling ball manufacturing in Reynosa, Mexico in 2006 and completed
the transition of manufacturing operations from Muskegon, Michigan in 2007. In addition, BB&B’s Valley-Dynamo
segment commenced operating at a manufacturing facility in Reynosa, Mexico in early 2007. BB&B operates bowling
centers in Austria, Canada and Germany, and, although slated for disposal in early 2008, currently holds a 50 percent interest
in an entity that sells bowling equipment and operates bowling centers in Japan.
Raw Materials
Brunswick purchases raw materials from various sources. The Company is not currently experiencing any critical raw
material shortages, nor does it anticipate any shortages. General Motors Corporation is the sole supplier of engine blocks
used in the manufacture of Brunswick’s gasoline sterndrive and inboard engines. Brunswick experienced increases in the cost
of oil, aluminum, steel and resins used in its manufacturing processes during 2007. The Company continues to expand its
global procurement operations to leverage its purchasing power across its divisions and improve supply chain and cost
efficiencies.
Intellectual Property
Brunswick has, and continues to obtain, patent rights covering certain features of its products and processes. By law,
Brunswick’s patent rights, which consist of patents and patent licenses, have limited lives and expire periodically. The
Company believes that its patent rights are important to its competitive position in all of its business segments.
In the Boat segment, patent rights principally relate to processes for manufacturing fiberglass hulls, decks and
components for boat products, as well as patent rights related to boat seats, interiors and other boat features and components.
6
In the Marine Engine segment, patent rights principally relate to features of outboard engines and inboard-outboard
drives, including die-cast powerheads; cooling and exhaust systems; drivetrain, clutch and gearshift mechanisms; boat/engine
mountings; shock-absorbing tilt mechanisms; ignition systems; propellers; marine vessel control systems; fuel and oil
injection systems; supercharged engines; outboard mid-section structures; segmented cowls; hydraulic trim, tilt and steering;
screw compressor charge air cooling systems; and airflow silencers.
In the Fitness segment, patent rights principally relate to fitness equipment designs and components, including patents
covering internal processes, programming functions, displays, design features and styling.
In the Bowling & Billiards segment, patent rights principally relate to computerized bowling scorers and bowling center
management systems, bowling center furniture, bowling lanes, lane conditioning machines and related equipment, bowling
balls, and billiards table designs and components.
The following are Brunswick’s primary trademarks for its continuing operations:
Boat Segment: Albemarle, Attwood, Baja, Bayliner, Boston Whaler, Cabo, Crestliner, Diversified Marine, Harris,
Hatteras, IDS, Kayot, Kellogg Marine, Laguna, Land ‘N’ Sea, Lowe, Lund, Master Dealer, Maxum, Meridian, Palmetto,
Princecraft, Sea Boss, Sea Pro, Sea Ray, Seachoice, Sealine, Swivl-Eze, Total Command, Triton and Trophy.
Marine Engine Segment: Axius, Mariner, MercNet, MerCruiser, MerCruiser 360 Control, Mercury, MercuryCare,
Mercury Marine, Mercury Parts Express, Mercury Precision Parts, Mercury Propellers, Mercury Racing, MotorGuide,
MotoTron, OptiMax, Pinpoint, Quicksilver, Rayglass, SeaPro, SmartCraft, SportJet, Teignbridge Propellers, Valiant, Verado
and Zeus.
Fitness Segment: Elevation, Flex Deck, Hammer Strength, Lifecycle, Life Fitness and ParaBody.
Bowling & Billiards Segment: Air Hockey, Anvilane, Brunswick, Brunswick Billiards, Brunswick Home and Billiard,
Brunswick Pavilion, Brunswick Zone, Brunswick Zone XL, Centennial, Contender, Cosmic Bowling, DBA Products,
Dynamo, Gold Crown, Inferno, Lane Shield, Lightworx, Pro Lane, Throbot, Tornado, U.S. Play by Brunswick, Valley,
Vector, Virtual Bowling by Brunswick, Viz-A-Ball and Zone.
Brunswick’s trademark rights have indefinite lives, and many are well known to the public and considered valuable
assets.
Competitive Conditions and Position
The Company believes that it has a reputation for quality in its highly competitive lines of business. Brunswick competes
in its various markets by utilizing efficient production techniques; innovative technological advancements; effective
marketing, advertising and sales efforts; providing high-quality products at competitive prices; and offering extensive after-
market services.
Strong competition exists in each of Brunswick’s product groups, but no single manufacturer competes with Brunswick in
all product groups. In each product area, competitors range in size from large, highly diversified companies to small, single-
product businesses. Brunswick also competes with businesses that seek to attract customers’ leisure time but do not compete
in Brunswick’s product groups.
The following summarizes Brunswick’s competitive position in each segment:
Boat Segment: The Company believes it has the largest dollar sales and unit volume of pleasure boats in the world. There
are several major manufacturers of pleasure and offshore fishing boats, along with hundreds of smaller manufacturers.
Consequently, this business is both highly competitive and highly fragmented. The Company believes it has the broadest
range of boat product offerings in the world, with boats ranging from 10 to 100 feet, along with a parts and accessories
business. In all of its boat operations, Brunswick competes on the basis of product features, technology, quality, dealer
service, performance, value, durability and styling, along with effective promotion, distribution and pricing.
Marine Engine Segment: The Company believes it has the largest dollar sales volume of recreational marine engines in
the world. The marine engine market is highly competitive among several major international companies that comprise the
majority of the market, and several smaller companies. Competitive advantage in this segment is a function of product
features, technological leadership, quality, service, performance and durability, along with effective promotion, distribution
and pricing.
7
Fitness Segment: The Company believes it is the world’s largest manufacturer of commercial fitness equipment and a
leading manufacturer of high-quality consumer fitness equipment. There are a few large manufacturers of fitness equipment
and hundreds of small manufacturers, which create a highly fragmented competitive landscape. Many of Brunswick’s fitness
equipment products feature industry-leading product innovations, and the Company places significant emphasis on new
product introductions. Competitive focus is also placed on product quality, marketing activities, pricing and service.
Bowling & Billiards Segment: The Company believes it is the world’s leading designer, manufacturer and marketer of
bowling products and billiards tables. There are several large manufacturers of bowling products and competitive emphasis is
placed on product innovation, quality, service, marketing activities and pricing. The billiards industry is experiencing
increased competitive pressure from low-cost billiards operations outside the United States. In 2007, Brunswick also operated
122 retail bowling centers worldwide, including those operated by its joint venture in Japan. The bowling retail market is
highly fragmented, but Brunswick is one of the larger competitors in the North America bowling retail market, with an
emphasis on larger, upscale, full service family entertainment centers. The bowling retail business emphasizes enhancing the
bowling and entertainment experience, maintaining quality facilities and providing excellent customer service.
Research and Development
The Company strives to improve its competitive position in all of its segments by continuously investing in research and
development to drive innovation in its products and manufacturing technologies. Brunswick’s research and development
investments support the introduction of new products and enhancements to existing products. Research and development
expenses for continuing operations are shown below:
(in millions)
2007
2006
2005
Boat
Marine Engine
Fitness
Bowling & Billiards
$ 39.8
68.1
21.6
5.0
$ 38.0
70.3
18.4
5.5
$ 36.1
67.3
14.2
5.9
Total
$ 134.5
$ 132.2
$ 123.5
Number of Employees
The approximate number of employees worldwide as of December 31, 2007, is shown below by segment:
Total
Union
Boat
Marine Engine
Fitness
Bowling & Billiards
Corporate
12,650
6,300
2,000
5,850
250
57
2,591
135
87
—
Total
27,050
2,870
The Marine Engine Segment's Fond du Lac, Wisconsin, facility has a union contract with the International Association of
Machinists Winnebago Lodge 1947 that expires in June 2008. The Company believes that the relationships between
employees, union and the Company are good.
See Item 3 of this report for a description of certain environmental proceedings.
Environmental Requirements
Available Information
Brunswick maintains an Internet web site at http://www.brunswick.com that includes links to Brunswick’s Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports (SEC
Reports). The SEC Reports are available without charge as soon as reasonably practicable following the time that they are
filed with, or furnished to, the SEC. Shareholders and other interested parties may request email notification of the posting of
these documents through the Investors section of Brunswick’s website.
8
Item 1A. Risk Factors
General economic conditions, particularly in the United States and Europe, affect Brunswick’s results.
Brunswick’s revenues are affected by economic conditions and consumer confidence worldwide, but especially in the
United States and Europe. In times of economic uncertainty, consumers tend to defer expenditures for discretionary items,
which affects demand for Brunswick’s products, especially in its marine and billiards businesses. Brunswick’s marine
businesses are cyclical in nature, and their success is dependent upon favorable economic conditions, the overall level of
consumer confidence and discretionary income levels. Any substantial deterioration in general economic conditions that
diminishes consumer confidence or discretionary income can reduce Brunswick’s sales and adversely affect its financial
results including the potential for future impairments. The impact of weakening consumer credit markets; corporate
restructurings; layoffs; declines in the value of investments and residential real estate, especially in large boating markets
such as Florida and California; higher fuel prices and increases in federal and state taxation all can negatively affect
Brunswick’s results.
Brunswick’s profitability may suffer as a result of competitive pricing pressures.
The introduction of lower-priced alternative products by other companies can hurt Brunswick’s competitive position in all
of its businesses. The Company is constantly subject to competitive pressures, particularly in the outboard engine market, in
which Asian manufacturers often have pursued a strategy of aggressive pricing. Such pricing pressure can limit the
Company’s ability to increase prices for its products in response to raw material and other cost increases.
Brunswick’s growth depends on the successful introduction of new product offerings.
Brunswick’s ability to grow may be adversely affected by difficulties or delays in product development, such as an
inability to develop viable new products, gain market acceptance of new products or obtain adequate intellectual property
protection for new products. To meet ever-changing consumer demands, the timing of market entry and pricing of new
products are critical.
Establishing low-cost manufacturing facilities is critical to its operating and financial results.
Brunswick has historically derived a significant portion of its earnings from sales of higher-margin products, especially in
its outboard engine business. The Marine Engine segment has now completed a transition to manufacturing primarily low-
emission four-stroke outboard engines, which have lower margins than the two-stroke products they are replacing. The
Company has addressed this margin pressure in part by relocating some outboard engine manufacturing to lower-cost areas
such as China, consolidating boat manufacturing facilities to improve efficiency, shifting its bowling pin production to a
contract manufacturer and relocating its bowling ball and Valley-Dynamo billiards table manufacturing to Mexico, where it
already manufactures boats. Brunswick’s inability to achieve lower-cost manufacturing, as well as increased competition in
the product lines affected, could adversely affect its future operating and financial results.
Brunswick’s financial results may be adversely affected if the Company is unable to maintain effective distribution.
Because Brunswick sells the majority of its products through third parties such as dealers and distributors, the financial
health of its distribution network is critical to Brunswick’s success. Brunswick’s results can be negatively affected if dealers
and distributors experience higher operating costs, which can result from rising interest rates, higher rents, labor costs and
taxes, and compliance with regulations. In addition, a substantial portion of Brunswick’s marine engine sales are made to
boat manufacturers not affiliated with Brunswick. Accordingly, the results of the Marine Engine segment can be influenced
by the financial health of these independent boat builders, which depends on their access to capital, ability to develop new
products and ability to compete effectively in the marketplace. Brunswick’s independent boat builder customers also can
react negatively to the competition created by the various Boat Group brands, which can lead them to seek marine engine
supplies from competing marine engine manufacturers.
Inventory adjustments by major dealers, retailers and independent boat builders adversely affect Brunswick’s operating
margins.
If Brunswick’s dealers and retailers, as well as independent boat builders who purchase Brunswick’s marine engine
products, adjust their inventories downward in response to weakness in retail demand, wholesale demand for Brunswick’s
products diminishes. In turn, the Company must reduce production, which results in lower rates of absorption of fixed costs
in its manufacturing facilities and thus lower margins. Inventory reduction by dealers and customers can hurt Brunswick’s
short-term sales and results of operations and limit its ability to meet increased demand when economic conditions improve.
9
Adverse weather conditions can have a negative effect on marine and retail bowling center revenues.
Weather conditions can have a significant effect on Brunswick’s operating and financial results, especially in the marine
and bowling retail businesses. Sales of Brunswick’s marine products are generally stronger just before and during spring and
summer, and favorable weather during these months generally has a positive effect on consumer demand. Conversely,
unseasonably cool weather, excessive rainfall or drought conditions during these periods can reduce demand. Hurricanes and
other storms can result in the disruption of the Company’s distribution channel, as occurred in 2004 and 2005 on the U.S.
Atlantic and Gulf coasts. Since many of Brunswick’s boat products are used on lakes and reservoirs, the viability of these for
boating is important to the Boat segment. In addition, severely inclement weather on weekends and holidays, particularly
during the winter months, can adversely affect patronage of Brunswick’s bowling centers and, therefore, revenues in the
bowling retail business.
Licensing requirements and limited access to water can inhibit Brunswick’s ability to grow its marine businesses.
Environmental restrictions, permitting and zoning requirements and the increasing cost of and competition for waterfront
property can limit access to water for boating, as well as marina and storage space. Brunswick’s Boat and Marine Engine
segments can be adversely affected in areas that do not have sufficient marina and storage capacity to satisfy demand.
Certain jurisdictions both in and outside the United States require a license to operate a recreational boat, which can deter
potential customers.
Brunswick’s marine engines may be subject to more stringent environmental regulations.
The State of California has adopted regulations requiring catalytic converters on sterndrive and inboard engines by
January 1, 2008, which the Company expects will be expanded to all states by 2010. Compliance with these regulations will
increase the cost of these products. Other environmental regulatory bodies in the United States or other countries also may
impose higher emissions standards in the future for engines. These standards could require catalytic converters, increasing
the cost of engines, which could in turn reduce consumer demand for Brunswick’s marine products. As a result, any increase
in the cost of Brunswick’s engines or unforeseen delays in compliance with environmental regulations affecting these
products could have an adverse effect on Brunswick’s results of operations.
Higher energy costs can adversely affect Brunswick’s results, especially in the marine and bowling center businesses.
Higher energy costs result in increases in operating expenses at the Company’s manufacturing facilities and in the cost of
shipping products to customers. In addition, increases in energy costs can adversely affect the pricing and availability of
petroleum-based raw materials such as resins and foam that are used in many of Brunswick’s marine products. Also, higher
fuel costs may have an adverse affect on demand for marine retail products as fuel costs are a significant component of retail
marine ownership. Finally, because heating, air conditioning and electricity comprise a significant part of the cost of
operating a bowling center, any increase in the price of energy could adversely affect the operating margins of Brunswick
bowling centers.
Tighter credit markets can reduce demand, especially for marine products.
Customers often finance purchases of Brunswick’s marine products, particularly boats. Rising interest rates can have an
adverse effect on dealers’ and consumers’ ability to finance boat purchases, which can adversely affect the Company’s ability
to sell boats and engines and the profitability of its financing activities, including Brunswick Acceptance Company.
Changes in currency exchange rates can adversely affect Brunswick’s growth rate.
Because the Company derives approximately 36 percent of its revenues from outside the United States, its ability to
realize projected growth rates can be adversely affected when the U.S. dollar strengthens against other currencies. Brunswick
manufactures its products primarily in the United States, and the costs of its products are generally denominated in U.S.
dollars, although the manufacture and sourcing of products and materials outside the United States is increasing. A strong
U.S. dollar can make Brunswick’s products less price-competitive relative to local products outside the United States.
Brunswick’s business is vulnerable to adverse international conditions.
As Brunswick continues to focus on international growth, including in developing countries, and on lower-cost
manufacturing outside the United States, it may become increasingly vulnerable to the effects of political instability, adverse
economic conditions and the possibility of terrorism, insurrection and military conflict around the world.
10
Brunswick competes with a variety of other activities for consumers’ scarce leisure time.
The vast majority of Brunswick’s products are used for recreational purposes, and demand for its products can be
adversely affected by competition from other activities that occupy consumers’ leisure time, including other forms of
recreation as well as religious, cultural and community activities. A decrease in leisure time can reduce consumers’
willingness to purchase and enjoy Brunswick’s products.
The Company’s ability to integrate acquisitions successfully may affect its financial results.
Since 2001, Brunswick has acquired a number of new businesses and entered into joint ventures, and it intends to
continue to pursue other strategic investments to complement its existing product portfolio. The Company’s success in
achieving the requisite investment return and effectively integrating the financial, operational and distribution practices and
systems of these businesses can affect Brunswick’s financial performance. There can be no assurance that any future
acquisitions or joint ventures will be beneficial to Brunswick.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Brunswick’s headquarters are located in Lake Forest, Illinois. The Company also maintains administrative offices in
Chicago, Illinois. Brunswick has numerous manufacturing plants, distribution warehouses, retail stores, sales offices and
product test sites around the world. Research and development facilities are decentralized within Brunswick’s operating
segments, and most are located at manufacturing sites.
The Company believes its facilities are suitable and adequate for its current needs and are well maintained and in good
operating condition. Most plants and warehouses are of modern, single-story construction, providing efficient manufacturing
and distribution operations. The Company believes its manufacturing facilities have the capacity to meet current and
anticipated demand. Brunswick owns its Lake Forest, Illinois, headquarters and most of its principal plants.
The primary facilities used in Brunswick’s continuing operations are in the following locations:
Boat Segment: Adelanto, Los Angeles and Sacramento, California; Old Lyme, Connecticut; Edgewater, Merritt Island,
Palm Coast, Pompano Beach and St. Petersburg, Florida; Fort Wayne, Indiana; Lowell, Michigan; Little Falls, New York
Mills and Pipestone, Minnesota; Lebanon, Missouri; Edenton, New Bern, Raleigh, Navassa and Swansboro, North Carolina;
Bucyrus, Ohio; Roseburg, Oregon; Newberry, South Carolina; Ashland City, Knoxville and Vonore, Tennessee; Lancaster,
Texas; Arlington, Washington; Pickering, Ontario, Canada; Princeville, Quebec, Canada; Toronto, Ontario, Canada; Zhuhai,
People’s Republic of China; Reynosa, Mexico; and Kidderminster, United Kingdom. Brunswick owns all of these facilities
with the exception of the Pompano Beach, Florida; Lowell, Michigan; Raleigh, North Carolina; Lancaster, Texas; and
Pickering, Ontario, Canada, facilities, which are leased.
Marine Engine Segment: Miramar, Panama City and St. Cloud, Florida; Stillwater and Tulsa, Oklahoma; Brookfield,
Fond du Lac and Oshkosh, Wisconsin; Melbourne and Sydney, Australia; Petit Rechain, Belgium; Suzhou, People’s
Republic of China; Juarez, Mexico; Auckland and Christchurch, New Zealand; Vila Nova de Cerveira, Portugal; Singapore;
Skelleftea, Sweden; and Newton Abbot, United Kingdom. The Sydney, Australia; Auckland and Christchurch, New
Zealand; and Skelleftea, Sweden facilities are leased. The remaining facilities are owned by Brunswick.
Fitness Segment: Franklin Park and Schiller Park, Illinois; Falmouth, Kentucky; Ramsey, Minnesota; and Kiskoros and
Szekesfehervar, Hungary. The Schiller Park office and a portion of the Franklin Park facility are leased. The remaining
facilities are owned by Brunswick or, in the case of the Kiskoros, Hungary, facility, by a company in which Brunswick is the
majority owner.
Bowling & Billiards Segment: Lake Forest, Illinois; Muskegon, Michigan; Richland Hills, Texas; Bristol, Wisconsin;
Szekesfehervar, Hungary; and Reynosa, Mexico; 108 bowling recreation centers in the United States, Canada and Europe,
and retail billiards stores in the suburbs of Chicago, Denver and Boston. Approximately 50 percent of BB&B’s bowling
centers, as well as the Richland Hills and Reynosa manufacturing facilities and the retail billiards stores and warehouses, are
leased. The remaining facilities are owned by Brunswick.
11
Item 3. Legal Proceedings
The Company accrues for litigation exposure based upon its assessment, made in consultation with counsel, of the likely
range of exposure stemming from the claim. In light of existing reserves, the Company’s litigation claims, when finally
resolved, will not, in the opinion of management, have a material adverse effect on the Company’s consolidated financial
statements. If current estimates for the cost of resolving any claims are later determined to be inadequate, results of
operations could be adversely affected in the period in which additional provisions are required.
Tax Case
In February 2003, the United States Tax Court issued a ruling upholding the disallowance by the Internal Revenue Service
(IRS) of capital losses and other expenses for 1990 and 1991 related to two partnership investments entered into by the
Company. In 2003 and 2004, the Company made payments to the IRS comprised of $33 million in taxes due and $39 million
of pre-tax interest (approximately $25 million after-tax) to avoid future interest costs. Subsequently, the Company and the
IRS settled all issues involved in and related to this case. As a result, the Company reversed $42.6 million of tax reserves in
2006, primarily related to the reassessment of underlying exposures, received a refund of $12.9 million from the IRS, and
recorded an additional tax receivable of $4.1 million for interest related to these tax years. Additionally, these tax years will
be subject to tax audits by various state jurisdictions to determine the state tax effect of the IRS's audit adjustments.
Environmental Matters
Brunswick is involved in certain legal and administrative proceedings under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and other federal and state legislation governing the generation and
disposal of certain hazardous wastes. These proceedings, which involve both on- and off-site waste disposal or other
contamination, in many instances seek compensation or remedial action from Brunswick as a waste generator under
Superfund legislation, which authorizes action regardless of fault, legality of original disposition or ownership of a disposal
site. Brunswick has established reserves based on a range of cost estimates for all known claims.
The environmental remediation and clean-up projects in which Brunswick is involved have an aggregate estimated range
of exposure of approximately $38.6 million to $58.7 million as of December 31, 2007. At December 31, 2007 and 2006,
Brunswick had reserves for environmental liabilities of $48.0 million and $49.4 million, respectively. There were
environmental provisions of $0.7 million, $0.0 million and $1.5 million for the years ended December 31, 2007, 2006 and
2005, respectively.
Brunswick accrues for environmental remediation related activities for which commitments or clean-up plans have been
developed and for which costs can be reasonably estimated. All accrued amounts are generally determined in coordination
with third-party experts on an undiscounted basis and do not consider recoveries from third parties until such recoveries are
realized. In light of existing reserves, the Company’s environmental claims, when finally resolved, will not, in the opinion of
management, have a material adverse effect on the Company’s consolidated financial position or results of operations.
Asbestos Claims
Brunswick’s subsidiary, Old Orchard Industrial Corp., is a defendant in more than 8,000 lawsuits involving claims of
asbestos exposure from products manufactured by Vapor Corporation (Vapor), a former subsidiary that the Company
divested in 1990. Virtually all of the asbestos suits involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, which included asbestos, and seek monetary damages.
Neither Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand claims have been dismissed with
no payment and no claim has gone to jury verdict. In a few cases, claims have been filed against other Brunswick entities,
with a majority of these suits being either dismissed or settled for nominal amounts. The Company does not believe that the
resolution of these lawsuits will have a material adverse effect on the Company’s consolidated financial position or results of
operations.
12
Australia Trade Practices Investigation
In January 2005, Brunswick received a notice to furnish information and documents to the Australian Competition and
Consumer Commission (ACCC). A subsequent notice was received in October of 2005. Following the completion of its
investigation in December 2006, the ACCC commenced proceedings against a Brunswick subsidiary, Navman Australia Pty
Limited, with respect to its compliance with the Trade Practices Act of 1974 as it pertains to Navman Australia’s sales
practices from 2001 to 2005. The ACCC had alleged that Navman Australia engaged in resale price maintenance in breach
of the Act. In December 2007, the Australian courts approved a settlement in favor of ACCC for approximately $1.3 million.
Chinese Supplier Dispute
Brunswick was involved in an arbitration proceeding in Hong Kong arising out of a commercial dispute with a former
contract manufacturer in China, Shanghai Zhonglu Industrial Company Limited (Zhonglu). The Company filed the
arbitration seeking damages based on Zhonglu's breach of a supply and distribution agreement pursuant to which Zhonglu
agreed to manufacture bowling equipment. Zhonglu had asserted counterclaims seeking damages for alleged breach of
contract among other claims in August 2007. The arbitration tribunal issued a ruling in the Company’s favor for a net
amount of approximately $0.1 million.
Patent Infringement Dispute
In October 2006, Brunswick was sued by Electromotive, Inc. (Electromotive) in the United States District Court for the
Northern District of Virginia. Electromotive claimed that a number of engines sold by Brunswick’s Mercury Marine
business had infringed on an expired patent held by Electromotive related to a method for ignition timing. On July 27, 2007,
a jury returned a verdict in favor of Electromotive in the amount of approximately $3 million. In October 2007, the
Company and Electromotive subsequently reached an agreement to settle the case in lieu of pursuing respective appeals at a
level below the verdict.
Brazilian Customs Dispute
In June 2007, the Brazilian Customs Office issued an assessment against a Company subsidiary in the amount of
approximately $14 million related to the importation of Life Fitness products into Brazil. The assessment was based on a
determination by Brazilian customs officials that the proper import value of Life Fitness equipment imported into Brazil
should be the manufacturer’s suggested retail price of those goods in the United States. The assessment consists of duties,
penalties and interest on the importation of Life Fitness products into Brazil over the past five years. Brunswick believes that
this determination by the Brazilian Customs Office is without merit and has appealed the assessment. The Company does not
believe that the resolution of this dispute will have a material adverse effect on its consolidated financial condition or results
of operations.
Refer to Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for disclosure
of the potential cash requirements of environmental proceedings and other legal proceedings.
13
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2007.
Brunswick’s executive officers are listed in the following table:
Executive Officers of the Registrant
Officer
Present Position
Age
Dustan E. McCoy
Patrick C. Mackey(A)
Chairman and Chief Executive Officer
Executive Vice President, Chief Operating Officer – Marine
Peter G. Leemputte
Lloyd C. Chatfield II
Warren N. Hardie
B. Russell Lockridge
Alan L. Lowe
George T. Neill
John E. Stransky
and President – Mercury Marine Group
Senior Vice President and Chief Financial Officer
Vice President, General Counsel and Secretary
Vice President and President – Brunswick Bowling & Billiards
Vice President and Chief Human Resources Officer
Vice President and Controller
Vice President and Chief Marketing Officer
Vice President and President – Life Fitness Division
58
61
50
39
57
58
56
41
56
(A) Mr. Mackey will retire effective March 1, 2008.
There are no familial relationships among these officers. The term of office of all elected officers expires May 7, 2008.
The Executive Officers are appointed from time to time at the discretion of the Chief Executive Officer.
Dustan E. McCoy was named Chairman and Chief Executive Officer of Brunswick in December 2005. He was Vice
President of Brunswick and President – Brunswick Boat Group from 2000 to 2005. From 1999 to 2000, he was Vice
President, General Counsel and Secretary of Brunswick.
Patrick C. Mackey was named Executive Vice President and Chief Operating Officer – Marine in January 2007 and was
President of Brunswick’s Mercury Marine Group since 2000. From 2000 to January 2007, he was Vice President of the
Company. He will retire from the Company effective March 1, 2008.
Peter G. Leemputte has been Senior Vice President and Chief Financial Officer of Brunswick since August 2003. He was
Vice President and Controller of Brunswick from 2001 to 2003.
Lloyd C. Chatfield II was named Vice President, General Counsel and Secretary of Brunswick in July 2007. He has been
with Brunswick Corporation since 2000 serving in various capacities, most recently as Deputy General Counsel and
Managing Director of Mergers and Acquisitions.
Warren N. Hardie was named President – Brunswick Bowling & Billiards in February 2006. Previously, he was
President – Bowling Retail from 1998 to February 2006.
B. Russell Lockridge has been Vice President and Chief Human Resources Officer of Brunswick since 1999.
Alan L. Lowe has been Vice President and Controller of Brunswick since September 2003. Prior to joining Brunswick, he
held a number of senior financial positions with FMC Technologies, Inc., including, most recently, Director – Financial
Control.
George T. Neill has been Vice President and Chief Marketing Officer of Brunswick since November 2007. Prior to
joining Brunswick, he was the Corporate Vice President of Global Marketing for Motorola, Inc. from July 2005 to September
2007. Before he joined Motorola, Inc., he was the Senior Director of Worldwide Marketing Communications with Apple
Computer from April 2001 to February 2005.
John E. Stransky was named Vice President and President – Life Fitness Division in February 2006. He was President –
Brunswick Bowling & Billiards from February 2005 to February 2006 and President of the Billiards division from 1998 to
2005.
14
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Brunswick’s common stock is traded on the New York and Chicago Stock Exchanges. Quarterly information with respect
to the high and low prices for the common stock and the dividends declared on the common stock is set forth in Note 20 –
Quarterly Data in the Notes to Consolidated Financial Statements. As of February 15, 2008, there were 12,999 shareholders
of record of the Company’s common stock.
In October 2007, Brunswick announced its annual dividend on its common stock of $0.60 per share, payable in December
2007. Brunswick intends to continue to pay annual dividends at the discretion of the Board of Directors, subject to continued
capital availability and a determination that cash dividends continue to be in the best interest of the Company’s stockholders.
Brunswick’s dividend policy may be affected by, among other things, the Company’s views on potential future capital
requirements, including those relating to investments and acquisitions.
The Company continues to repurchase shares of its common stock under a program initiated in 2005. Under this program,
approximately 11.7 million shares have been repurchased for $397.4 million with a remaining authorization of $240.4 million
as of December 31, 2007. The Company expects to repurchase shares on the open market or in private transactions from time
to time, depending on market conditions. Brunswick repurchased approximately 4.1 million shares under this program during
2007 for $125.8 million as discussed in Note 19 – Share Repurchase Program in the Notes to Consolidated Financial
Statements. Set forth below is the information regarding the Company’s share repurchases during the fourth quarter of the
year ended December 31, 2007:
Issuer Purchases of Equity Securities
Total Number
of Shares
(or Units)
Purchased
Average
Price Paid
per Share
(or Unit)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
(in thousands)
—
305,300
194,700
500,000
$ —
$ 21.42
$ 19.43
$ 20.64
—
305,300
194,700
500,000
$ 250,733
$ 244,194
$ 240,411
$ 240,411
Period
10/01/07 – 10/28/07
10/29/07 – 11/25/07
11/26/07 – 12/31/07
Total Share Repurchases
15
16Performance Graph Comparison of Five-Year Cumulative Total Return among Brunswick, S&P 500 Index and S&P 500 Global Industry Classification Standard (GICS) Consumer Discretionary Index50.0075.00100.00125.00150.00175.00200.00225.00250.00275.00200220032004200520062007BrunswickS&P 500 IndexS&P 500 GICS Consumer Discretionary Index2002 2003 2004 2005 2006 2007 Brunswick 100.00 163.37 257.82 214.59 171.14 93.72 S&P 500 Index 100.00 126.38 137.75 141.88 161.21 166.89 S&P 500 GICS Consumer Discretionary Index 100.00 136.08 152.61 141.38 165.75 142.01 The basis of comparison is a $100 investment at December 31, 2002, in each of (i) Brunswick, (ii) the S&P 500 Index, and (iii) the S&P 500 GICS Consumer Discretionary Index. All dividends are assumed to be reinvested. The S&P 500 GICS Consumer Discretionary Index encompasses industries including automotive, household durable goods, textiles and apparel, and leisure equipment. Brunswick is included in this index and believes the other companies included in this index provide a representative sample of enterprises that are in primary lines of business that are similar to Brunswick. Item 6. Selected Financial Data
The selected historical financial data presented below as of and for the years ended December 31, 2007, 2006 and 2005,
have been derived from, and should be read in conjunction with, the historical consolidated financial statements of the
Company, including the notes thereto, and Item 7 of this report, including the Matters Affecting Comparability section.
The selected historical financial data presented below as of and for the years ended December 31, 2004, 2003 and 2002, have
been derived from the consolidated financial statements of the Company that are not included herein. The financial data
presented below have been restated to present discontinued operations in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
(in millions, except per share data)
2007
2006
2005
2004
2003
2002
Results of operations data
Net sales
Operating earnings
Earnings before interest and taxes
Earnings before income taxes
Earnings from continuing operations
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax (A)
Cumulative effect of changes in accounting
principle, net of tax (B)
$ 5,671.2
107.2
136.3
92.7
79.6
$ 5,665.0
341.2
354.2
309.7
263.2
$ 5,606.9 $ 5,058.1
394.8
408.4
373.3
263.8
468.7
524.1
485.9
371.1
$ 4,063.6
223.5
233.6
204.0
137.0
$ 3,711.9
197.4
200.7
162.4
104.1
32.0
(129.3)
14.3
6.0
(1.8)
(0.6)
— — — — — (25.1)
Net earnings
$ 111.6
$ 133.9
$ 385.4
$ 269.8
$ 135.2
$ 78.4
Basic earnings (loss) per common share:
Earnings from continuing operations before
accounting change
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax
Cumulative effect of changes in accounting
principle, net of tax (B)
$ 0.88
$ 2.80
$ 3.80 $ 2.76 $ 1.50
$ 1.16
0.36
(1.38)
0.15
0.06
(0.02)
(0.01)
—
—
—
—
—
(0.28)
Net earnings
$ 1.24
$ 1.42
$ 3.95
$ 2.82
$ 1.48
$ 0.87
Average shares used for computation of
basic earnings per share
Diluted earnings (loss) per common share:
Earnings from continuing operations before
accounting change
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax
Cumulative effect of changes in accounting
principle, net of tax (B)
89.8
94.0
97.6
95.6
91.2
90.0
$ 0.88
$ 2.78 $ 3.76
$ 2.71
$ 1.49 $ 1.15
0.36
(1.37)
0.14
0.06
(0.02)
(0.01)
— — — — — (0.28)
Net earnings
$ 1.24 $ 1.41 $ 3.90 $ 2.77
$ 1.47 $ 0.86
Average shares used for computation of
diluted earnings per share
90.2
94.7
98.8
97.3
91.9
90.7
(A) Earnings (loss) from discontinued operations in 2007 include net gains of $29.8 million related to the sales of the discontinued businesses.
Earnings (loss) from discontinued operations in 2006 includes an $85.6 million impairment charge ($73.9 million pre-tax) related to the
Company’s announcement in December 2006 that proceeds from the sale of BNT were expected to be less than its book value. See Note 2 –
Discontinued Operations in the Notes to Consolidated Financial Statements for further details.
(B)
In 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which resulted in a $25.1 million ($0.28 per share)
charge as the cumulative effect of the change in accounting principle.
17
(in millions, except per share and other data)
2007
2006
2005
2004
2003
2002
Balance sheet data
Assets of continuing operations
Debt
Short-term
Long-term
Total debt
Common shareholders’ equity (C)
Total capitalization (C)
Cash flow data
Net cash provided by operating activities of
continuing operations
Depreciation and amortization
Capital expenditures
Acquisitions of businesses
Investments
Stock repurchases
Cash dividends paid
Other data
Dividends declared per share
Book value per share (C)
Return on beginning shareholders’ equity
Effective tax rate
Debt-to-capitalization rate (C)
Number of employees
Number of shareholders of record
Common stock price (NYSE)
High
Low
Close (last trading day)
$ 4,365.6
$ 4,312.0
$ 4,414.8
$ 4,198.9
$ 3,523.4
$ 3,306.4
$ 0.8
727.4
728.2
1,892.9
$ 0.7
725.7
726.4
1,871.8
$ 1.1
723.7
724.8
1,978.8
$ 10.7
728.4
739.1
1,712.3
$
23.8
583.8
607.6
1,323.0
$
28.9
589.5
618.4
1,101.8
$ 2,621.1
$ 2,598.2
$ 2,703.6
$ 2,451.4
$ 1,930.6
$ 1,720.2
$ 344.1
180.1
207.7
6.2
(4.1)
125.8
52.6
$ 351.0
167.3
205.1
86.2
(6.1)
195.6
55.0
$ 421.6
156.3
223.8
130.3
18.1
76.0
57.3
$ 424.4
153.6
163.8
248.2
16.2
—
58.1
$ 0.60
20.99
6.0 %
14.1 %
27.8 %
27,050
13,052
$ 0.60
19.76
6.8 %
15.0 %
28.0 %
28,000
13,695
$ 0.60
20.03
22.5 %
23.6 %
26.8 %
26,500
14,143
$ 0.60
17.60
20.4 %
29.3 %
30.2 %
24,745
14,952
$ 34.80
17.05
17.05
$ 42.30
27.56
31.90
$ 49.50
35.09
40.66
$ 49.85
31.25
49.50
$
$
$
405.7
149.4
157.7
140.0
39.3
—
45.9
$
413.4
148.4
112.6
16.4
8.9
—
45.1
0.50
14.40
12.3 %
32.8 %
31.5 %
22,525
15,373
32.08
16.35
31.83
$
0.50
12.15
7.0 %
36.0 %
35.9 %
20,815
16,605
30.01
18.30
19.86
$
(C) Effective December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R),” which resulted in a $60.7 million decrease to
Common shareholders’ equity. The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes,” (FIN 48) effective on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized an $8.7 million decrease
in the net liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007, balance of retained earnings.
The Notes to Consolidated Financial Statements should be read in conjunction with the above summary.
18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in Management’s Discussion and Analysis are based on non-GAAP financial measures. Specifically,
the discussion of the Company’s cash flows includes an analysis of free cash flows. GAAP refers to generally accepted
accounting principles in the United States. Certain other statements in Management’s Discussion and Analysis are forward-
looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current
expectations that are subject to risks and uncertainties. Actual results may differ materially from expectations as of the date of
this filing because of factors discussed in Item 1A of this Annual Report on Form 10-K.
Overview and Outlook
General
In 2007, Brunswick made significant progress toward achieving its strategic objective to solidify its leadership position in
the marine, fitness and bowling & billiards industries by:
(cid:129)
Introducing high-quality and reliable products with innovative and new technologies in all of Brunswick’s market
segments;
(cid:129) Distributing products through a model that benefits the Company’s dealers and distributors by providing additional
products and services that will make them more successful, improve the customer experience and, in turn, make
Brunswick more successful;
(cid:129)
Focusing on cost reduction initiatives through global sourcing and realignment of Brunswick’s manufacturing
operations and organizational structure; and
(cid:129) Continuing to expand and enhance Brunswick’s global manufacturing footprint to achieve best-cost positions.
Accomplishments in support of the Company’s strategic objectives in 2007 include:
New products:
(cid:120) A suite of products collectively referred to as "MerCruiser 360" and branded Zeus, Axius and Total Command,
which focus on maneuverability and handling of recreational marine vessels across a broad range of pod, sterndrive
and inboard vessel applications to address the challenge of handling and close quarters maneuverability of marine
vessels;
(cid:120)
The transition of sterndrive and inboard engines that now incorporate catalytic converters, which reduce their
environmental impact and bring the engines into compliance with the regulations adopted by the State of California;
(cid:120) New boat models across all boat brands, many of which utilize Brunswick’s High Performance Product
Development (HPPD) process to integrate the design, engineering and manufacturing processes from start to finish;
(cid:120) New cardiovascular and strength training fitness product offerings, including Life Fitness’ all-new Elevation series
of treadmills and upgraded cardiovascular equipment that deliver seamless iPod integration; and
(cid:120)
Continued expansion of the larger Brunswick Zone XL family bowling entertainment centers.
19
Manufacturing realignment:
(cid:120) Adjustments to the manufacturing footprint to streamline operations, including the purchase of a manufacturing
facility in Navassa, North Carolina, to expand its capacity to build larger boats and to allow for the closure of the
Salisbury, Maryland, facility;
(cid:120) Announcement of the closure of the aluminum manufacturing facility in Aberdeen, Mississippi, and shifting of
production to other existing aluminum facilities;
(cid:120)
(cid:120)
Completion of the transition of bowling ball manufacturing operations from Muskegon, Michigan, to Reynosa,
Mexico; and
Completion of the relocation of Brunswick’s Valley-Dynamo manufacturing operations from Richland Hills, Texas,
to Reynosa, Mexico, where production commenced in 2007.
Acquisitions:
(cid:120)
The Company exercised its option to purchase the remaining 51 percent interest of Rayglass Sales & Marketing
Limited (Rayglass), a New Zealand company, which expands the global manufacturing footprint of the Company’s
marine operations and develops additional international sales opportunities.
International Operations:
(cid:120)
Increased investments in operations in Europe, the Pacific Rim and Latin America supporting international sales,
which now represent approximately 36 percent of net sales from continuing operations.
Returning Value to Shareholders:
(cid:120)
(cid:120)
Continued purchases under a $500 million share repurchase program, buying back approximately 4.1 million shares
of Brunswick common stock for approximately $126 million during 2007; and
Payment of an annual dividend of $0.60 per share.
Despite its success in executing these objectives, Brunswick saw a decline in its financial performance due to difficult
marine market conditions. Net sales from continuing operations in 2007 increased slightly to $5,671.2 million from $5,665.0.
Net sales in 2007 were comparable with 2006 net sales as the strong performance outside the United States, growth in the
Fitness segment and higher sales of marine parts and accessories were mostly offset by the continued reduction in United
States marine industry demand. Organic sales, defined as sales from the Company’s businesses that have operating results in
comparable periods, declined 0.3 percent from 2006.
Operating earnings from continuing operations for 2007 of $107.2 million, and operating margins of 1.9 percent,
decreased from 2006 operating earnings from continuing operations of $341.2 and operating margins of 6.0 percent,
primarily as a result of lower sales from the Boat segment, reduced fixed-cost absorption as a result of reduced production
rates in the Company’s marine businesses in an effort to achieve appropriate levels of dealer pipeline inventories, higher raw
material and production costs, increased promotional incentives at the Boat segment, and unfavorable mix factors. Also
contributing to the decline in both operating earnings and margins was a $66.4 million pre-tax indefinite-lived intangible
asset impairment charge recorded during the third quarter of 2007, as discussed in Note 7 – Goodwill and Other Intangible
Assets in the Notes to Consolidated Financial Statements. These factors were partially offset by successful cost-reduction
initiatives, as discussed in Note 3 – Restructuring Activities in the Notes to Consolidated Financial Statements and the
favorable effect of foreign currency translation. The Company also incurred additional costs for investments in research and
development, marketing for new product launches and international operations to support future growth. See the Results of
Operations section below for further discussion.
20
Discontinued Operations
As discussed in Note 2 – Discontinued Operations in the Notes to Consolidated Financial Statements, on April 27, 2006,
the Company announced its intention to sell the majority of the Brunswick New Technologies (BNT) business unit,
consisting of the Company’s marine electronics, portable navigation device (PND) and wireless fleet tracking businesses.
During the second quarter of 2006, Brunswick began reporting the results of these BNT businesses, which were previously
reported in the Marine Engine segment, as discontinued operations for all periods presented. The Company’s results, as
discussed in Management’s Discussion and Analysis, reflect continuing operations only, unless otherwise noted.
In March 2007, Brunswick completed the sales of BNT’s marine electronics and PND businesses to Navico International
Ltd. and MiTAC International Corporation, respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain was
recognized with the divestiture of these businesses in 2007.
In July 2007, the Company completed the sale of BNT’s wireless fleet tracking business to Navman Wireless Holdings
L.P. for net proceeds of $28.8 million, resulting in an after-tax gain of $25.8 million.
The Company has now completed the divestiture of the BNT discontinued operations. With the net asset impairment
taken prior to the disposition of the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the
subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales, the net impact to the Company of these
dispositions was a net loss of $55.8 million, after-tax.
Outlook for 2008
Looking ahead to 2008, the Company expects domestic marine retail demand to be down as compared to 2007. As a
result of this reduction in retail demand, Brunswick will continue its efforts to achieve appropriate levels of dealer inventories
by reducing production of boats and marine engines. However, the Company anticipates that sales will benefit from the
introduction of new products and the continued growth of sales outside the United States. Sales for 2008 in both the Fitness
and Bowling & Billiards segments are expected to increase as a result of new product launches at the Fitness segment and the
continued roll-out of the Brunswick Zone XL model at Bowling & Billiards. These factors provide some insight to expected
2008 sales, which will largely depend on the United States marine industry retail demand, which is difficult to predict.
Operating earnings and margins for 2008 will be adversely affected by the reduction in marine retail demand and the
corresponding continued production declines, as discussed above. These actions will have an unfavorable effect on margins
due to lower fixed-cost absorption. Additionally, with the restructuring of specific business operations and the potential for
further reduction in marine retail demand in 2008, an impairment review of affected business assets may be required. An
adverse outcome from a future review could directly affect operating earnings and margins. These factors, along with
continued increases in raw materials, production, and freight and distribution costs, are not expected to be fully offset by
growth in international operations and cost containment efforts during 2008. Excluding the effect of any tax-related items
that may occur, Brunswick’s effective tax rate in 2008 is expected to increase into the mid-30 percent range as Congress has
not yet extended the research and development tax credit into 2008.
21
Matters Affecting Comparability
As described above, certain statements in Management’s Discussion and Analysis are based on non-GAAP financial
measures. 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 statement of income, balance sheet or statement 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. Operating and statistical measures are not non-GAAP financial measures.
The Company has used the non-GAAP financial measures that are included in Management’s Discussion and Analysis for
several years. Brunswick’s management believes that these measures and the information they provide are useful to investors
because they permit investors to view Brunswick’s performance using the same tools that Brunswick uses and to better
evaluate its ongoing business performance.
Acquisitions. Approximately 0.4 percent of Brunswick’s sales during 2007 can be attributed to incremental sales from the
following acquisitions:
Date
2/16/06
4/26/06
8/24/07
Description
Segment
Cabo Yachts, Inc. (Cabo)
Diversified Marine Products, L.P. (Diversified)
Boat
Boat
Rayglass Sales & Marketing Limited (Rayglass) – 51 percent
Marine Engine
Cabo complements the Company’s previous acquisitions of Hatteras Yachts, Inc. and Albemarle Boats, Inc., allowing
Brunswick to offer a full range of sportfishing convertibles and motoryachts from 24 to 100 feet. Diversified complements
Brunswick’s previous acquisitions of Benrock, Inc., Land ‘N’ Sea Corporation and Kellogg Marine Inc., allowing Brunswick
to provide same- or next-day delivery of marine parts and accessories nationwide by expanding the Company’s parts and
accessories business to the West Coast of the United States. Rayglass expands the global manufacturing footprint of the
marine operations and develops additional international sales opportunities.
Approximately 3.7 percent of Brunswick’s sales during 2006 can be attributed to incremental sales from the following
acquisitions:
Date
2/28/05
5/27/05
6/20/05
7/07/05
9/16/05
2/16/06
4/26/06
Description
Segment
Albemarle Boats, Inc. (Albemarle)
Triton Boat Company, L.P. (Triton)
Boat
Boat
Supra-Industria Textil, Lda. (Valiant) – 51 percent
Marine Engine
Kellogg Marine, Inc. (Kellogg)
Harris Kayot Marine, LLC (Harris Kayot)
Cabo Yachts, Inc.
Diversified Marine Products, L.P.
Boat
Boat
Boat
Boat
Albemarle provides the Company with the opportunity to offer a more complete range of offshore sportfishing boats,
building on offerings of the Hatteras brand. Triton adds bass boats to Brunswick’s product lineup, as well as a broader range
of saltwater and aluminum fishing boats. The Valiant brand of rigid inflatable boats enhances Brunswick’s product offerings
in Europe. Kellogg complements Brunswick’s previous acquisitions of Benrock, Inc. and Land ‘N’ Sea Corporation and
provides an essential distribution hub in the northeastern United States. Harris Kayot advances Brunswick’s position in the
pontoon market and complements the Company’s existing boat portfolio with premium runabout and deck boat product lines.
Refer to Note 6 – Acquisitions in the Notes to Consolidated Financial Statements for a detailed description of these
acquisitions.
Impairment Charges. The Company experienced a decline in marine industry demand during 2007. As a result of this
decline, Brunswick lowered its estimates of the fair value of certain trade names and incurred impairment charges on these
indefinite-lived intangible assets. See Note 7 – Goodwill and Other Intangible Assets in the Notes to Consolidated
Financial Statements for further discussion.
22
Tax Items. The Company reduced its tax provision for the year ended December 31, 2007, by $9.8 million, or $0.11 per
diluted share. This was due to favorable deferred tax and tax reserve reassessments of $14.1 million, or $0.16 per diluted
share, $2.0 million of benefits recognized in the first quarter related to the Company’s election to apply the indefinite reversal
criterion of Accounting Principles Board No. 23, “Accounting for Income Taxes – Special Areas” (APB 23), or $0.02 per
diluted share, and $1.4 million of benefits related to amended return filings, or $0.02 per diluted share. These benefits were
partially offset by expense related to changes in estimates in prior years’ tax return filings of $5.2 million, or $0.06 per
diluted share, and the impact of foreign jurisdiction tax rate reductions on the underlying net deferred tax assets of $2.5
million, or $0.03 per diluted share. See Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for
further details.
During 2006, the Company reduced its tax provision primarily due to $47.0 million of tax benefits ($0.50 per diluted
share), consisting of $40.2 million of tax reserve reassessments of underlying exposures. Refer to Note 11 – Commitments
and Contingencies in the Notes to Consolidated Financial Statements for further detail.
In 2005, Brunswick reduced its tax provision by $30.8 million ($0.31 per diluted share), primarily as a result of
refinements in the calculation of prior years’ extraterritorial income tax benefit, tax reserve reassessments of underlying
exposures and the Company’s election to apply the indefinite reversal criterion of, APB 23 to the undistributed net earnings
of certain foreign subsidiaries. The Company determined that approximately $37 million of undistributed net earnings from
continuing operations, as well as the future net earnings, of these foreign subsidiaries will be indefinitely reinvested in
operations outside the United States. These earnings provided Brunswick with the opportunity to continue to expand its
global manufacturing footprint, fund future growth in foreign locations and shift Brunswick’s acquisition focus to Europe and
Asia. The Company’s current intentions satisfy the indefinite reversal criterion of APB 23. In addition, Brunswick’s 2005
tax rate benefited from the utilization of previously unrecognized capital loss carryforwards applied in connection with the
MarineMax, Inc. (Marine Max), investment sale gain discussed below. See Note 10 – Income Taxes in the Notes to
Consolidated Financial Statements for further details.
Investment Sale Gain. On February 23, 2005, the Company sold its investment of 1,861,200 shares in MarineMax, its
largest boat dealer, for $56.8 million, net of $4.1 million of selling costs, which included $1.1 million of accrued expenses.
The sale was made pursuant to a registered public offering by MarineMax. As a result of this sale, the Company recorded an
after-tax gain of $31.5 million ($0.32 per diluted share) after utilizing previously unrecognized capital loss carryforwards.
23
Results of Operations
Consolidated
The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of
Income for the years ended December 31, 2007, 2006 and 2005:
(in millions, except per share data)
2007
2006
2005
2007 vs. 2006
Increase/(Decrease)
$
%
2006 vs. 2005
Increase/(Decrease)
$
%
Net sales
Gross margin (A) (B)
Impairment charges
Operating earnings (B)
Net earnings
$ 5,671.2
$ 1,143.1
$ 66.4
$ 107.2
$ 79.6
$ 5,665.0
$ 1,225.7
$ —
$ 341.2
$ 263.2
$ 5,606.9
$ 1,321.6
$ —
$ 468.7
$ 371.1
$ 6.2
$ (82.6)
$ 66.4
$ (234.0)
$ (183.6)
0.1 % $ 58.1
(6.7)% $ (95.9)
NM $ —
(68.6)% $ (127.5)
(69.8)% $ (107.9)
1.0 %
(7.3)%
— %
(27.2)%
(29.1)%
Diluted earnings per share
$ 0.88
$ 2.78
$ 3.76
$ (1.90)
(68.3)% $ (0.98)
(26.1)%
Expressed as a percentage of Net sales
Gross margin (B)
Selling, general and administrative expense (B)
Impairment charges
Research & development expense
Operating margin (B)
__________
bpts = basis points
NM = not meaningful
20.2 % 21.6 % 23.6 %
14.7 % 13.3 % 13.0 %
1.2 % — % — %
2.4 % 2.3 % 2.2 %
1.9 % 6.0 % 8.4 %
(140) bpts
140 bpts
120 bpts
10 bpts
(410) bpts
(200) bpts
30 bpts
— bpts
10 bpts
(240) bpts
(A) Gross margin is defined as Net sales less Cost of sales as presented in the Consolidated Statements of Income.
(B)
Operating earnings for the year ended December 31, 2007, included a $22.2 million pre-tax restructuring charge, of which $14.7 million was recorded
as Cost of sales and reflected in Gross margin. Operating earnings for the year ended December 31, 2006, included a $17.1 million pre-tax
restructuring charge, of which $7.6 million was recorded as Cost of sales and reflected in Gross margin. Total pre-tax restructuring charges were
$18.9 million, with the remaining $1.8 million balance recorded against equity earnings. See Note 3 – Restructuring Activities in the Notes to
Consolidated Financial Statements for further details regarding these charges.
2007 vs. 2006
The increase in net sales was primarily due to the strong performance of boat and engine sales outside the United States,
higher Fitness segment sales resulting from increased sales volumes, higher sales of marine parts and accessories, and sales
gains at bowling retail centers. These factors slightly outpaced the impact of continued reduction in United States marine
industry demand. Organic sales decreased 0.3 percent in 2007 compared with 2006, primarily due to lower United States
retail demand for marine products.
Sales outside the United States increased $214.0 million to $2,016.4 million in 2007, with the largest contributions
coming from the European region, which increased $113.9 million to $1,038.9 million, the Latin American region, which
increased $38.3 million to $196.6 million, and the Asia Pacific region, which increased $35.0 million to $338.2 million. This
growth was largely attributable to higher sales of engines, fitness equipment and boats.
Brunswick’s gross margin percentage decreased 140 basis points in 2007 to 20.2 percent from 21.6 percent in 2006. This
decrease was the result of lower fixed-cost absorption and inefficiencies due to reduced production rates as a result of the
Company’s effort to achieve appropriate levels of marine customer pipeline inventories in light of lower retail demand;
higher raw material and component costs; increased promotional incentives, restructuring expenses and unfavorable warranty
experiences in the Boat segment; and a mix shift toward lower horsepower four-stroke engines manufactured by a joint
venture that carry lower margins. These unfavorable factors were partially offset by successful cost-reduction efforts, the
benefit of a weaker dollar and increased world-wide sales volume in the Fitness segment.
Operating expenses increased $151.4 million to $1,035.9 million in 2007, due to the $66.4 million impairment charge
taken on indefinite-lived intangible assets, as discussed in Note 7 – Goodwill and Other Intangible Assets in the Notes to
Consolidated Financial Statements, higher variable compensation expense, inflation and the effects of a weaker dollar, the
absence of the gains on sales of property sold in 2006 and the absence of a favorable settlement with an insurance carrier on
environmental coverage received in 2006.
24
Operating earnings decreased to $107.2 million in 2007 from $341.2 million in 2006. The decrease in operating earnings
was mainly due to the decline in Boat segment sales volumes and the unfavorable factors affecting gross margin and
operating expenses discussed above.
Equity earnings increased $6.4 million to $21.3 million in 2007. The increase in equity earnings was mainly the result of
additional earnings from the Company’s CMD joint venture.
In August 2007, the Company settled a legal claim against a third-party service provider. The settlement resulted in $7.1
million of income, net of legal fees, and was reflected in Other income (expense), net for the period.
Interest expense decreased $8.2 million to $52.3 million in 2007 compared with 2006, primarily as a result of lower debt
levels in 2007. In July 2006, the Company issued $250 million of notes due in 2009 to fund the maturity of $250 million of
notes due in December 2006, as described in Note 14 – Debt in the Notes to Consolidated Financial Statements. Interest
income decreased $7.3 million to $8.7 million in 2007 compared with 2006 primarily as a result of income earned in 2006 on
the proceeds from the aforementioned notes issued in July 2006.
In 2007, the Company’s effective tax rate of 14.1 percent was lower than the statutory rate primarily due to benefits from
$12.7 million related to reassessments of the deductibility of restructuring reserves and depreciation timing differences;
foreign earnings in tax jurisdictions with lower effective tax rates; and a research and development tax credit. These benefits
were partially offset by $3.8 million of additional taxes related to changes in estimates related to prior year’s filings, as
discussed in Note 10 – Income Taxes in the Notes to Consolidated Financial Statements.
During the year ended December 31, 2006, the Company recognized tax benefits of $47.0 million, consisting primarily
of $40.2 million of tax reserve reassessments of underlying exposures, as discussed in Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements.
Net earnings and diluted earnings per share decreased primarily due to the same factors discussed above in operating
earnings.
Weighted average common shares outstanding used to calculate diluted earnings per share decreased to 90.2 million in
2007 from 94.7 million in 2006. The decrease in average shares outstanding was primarily due to the repurchase of 4.1
million shares during 2007, as discussed in Note 19 – Share Repurchase Program in the Notes to Consolidated Financial
Statements.
Sales from discontinued operations were $99.7 million during 2007, compared with $306.3 million during 2006. Sales
declined significantly as a result of the sales of BNT’s marine electronics and PND businesses, which were disposed of
during the first quarter of 2007 and the BNT wireless fleet tracking business, which was sold in July 2007. The July sale
completed the disposal of the BNT businesses. The discontinued operations generated after-tax earnings from the BNT
business operations, excluding the gains on the sales of the businesses, of $2.2 million in 2007, compared with after-tax
operating losses, which include impairment charges of $85.6 million after-tax, of $43.7 million during 2006. The 2007
earnings from these operations were almost exclusively related to post-closing income tax adjustments as a result of the
finalization of BNT sales agreements. The comparable 2006 loss was the result of costs associated with reducing inventories
and maintaining competitive pricing in the marketplace.
In March 2007, Brunswick completed the sales of BNT’s marine electronics and PND businesses to Navico International
Ltd. and MiTAC International Corporation, respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain was
recognized with the divestiture of these businesses in 2007.
In July 2007, the Company completed the sale of BNT’s wireless fleet tracking business to Navman Wireless Holdings
L.P. for net proceeds of $28.8 million, resulting in an after-tax gain of $25.8 million.
The Company has now completed the divestiture of the BNT discontinued operations. With the net asset impairment
taken prior to the disposition of the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the
subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales, the net impact to the Company of these
dispositions was a net loss of $55.8 million, after-tax.
25
2006 vs. 2005
The increase in sales was primarily due to $210.2 million from acquisitions completed in 2006 and 2005 in the Boat and
Marine Engine segments, higher Fitness segment sales resulting from increased sales volumes and improved product mix,
and sales gains at bowling retail centers. Organic sales decreased 2.7 percent in 2006, primarily due to lower retail demand
for marine products compared with 2005, especially with respect to sales of domestic outboard engines and fiberglass boats.
These decreases were partially offset by growth in non-U.S. sales in the Boat, Marine Engine and Fitness segments, as well
as favorable pricing.
Non-U.S. sales increased $42.1 million to $1,802.4 million in 2006, with the largest contributions coming from the Latin
American region, which increased $24.6 million to $158.3 million, and the Africa and Middle East region, which increased
$14.3 million to $87.2 million. This growth was largely attributable to higher sales of fitness equipment, boats and outboard
engines.
Brunswick’s gross margin percentage decreased 200 basis points in 2006 to 21.6 percent from 23.6 percent in 2005. This
decrease was the result of higher raw material and component costs; lower fixed-cost absorption and inefficiencies due to
reduced production rates as a result of the Company’s effort to achieve appropriate levels of marine customer pipeline
inventories in light of lower retail demand; and the full-year effect of the transition to low-emission outboard engines, which
carry lower margins than the carbureted two-stroke outboards they replaced. Gross margin also decreased due to a shift in
product mix, as sales volumes decreased in some of the higher-margin fiberglass boat lines, and higher sales from acquired
businesses, which have lower margins than Brunswick’s core brands. Also contributing to the decrease in gross margin
percentage was a restructuring charge of $7.6 million recorded during the fourth quarter of 2006 for severance costs, asset
write-downs and other costs associated with workforce reductions, plant shutdowns and distribution realignment actions.
Total pre-tax restructuring charges recognized during the fourth quarter under this initiative were $18.9 million, of which
$9.5 million was recorded in operating expenses. The remaining balance of $1.8 million was related to asset write-downs
associated with a joint venture and recorded against equity earnings. These unfavorable factors were partially offset by
favorable pricing and lower variable compensation expense.
Operating expenses increased $31.6 million to $884.5 million in 2006, primarily due to the effect of acquisitions; the $9.5
million restructuring charge recorded in the fourth quarter of 2006 as discussed above; the unfavorable effect of inflation on
wages and benefits; the absence of a reduction in Marine Engine segment bad debt reserves that occurred in the third quarter
of 2005 resulting from improved credit experience in international markets; a reduction in gains associated with the sale of
bowling centers; and increased investments in research and development expenses, particularly in the Marine Engine and
Fitness segments. These increases were partially offset by reduced variable compensation expense; a favorable settlement
with an insurance carrier on environmental coverage; the absence of legal expenses incurred in 2005 related to a dispute with
a supplier in China as discussed in Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial
Statements; lower costs associated with the transition of bowling ball production from Michigan to Reynosa, Mexico; and
other cost-reduction initiatives.
Operating earnings decreased to $341.2 million in 2006 from $468.7 million in 2005. The decrease in operating earnings
was mainly due to the decline in sales volumes and the factors affecting gross margin and operating expenses discussed
above. The decrease was partially offset by contributions from acquisitions, the benefit of a weaker dollar and cost-reduction
initiatives.
In the first quarter of 2005, Brunswick sold 1,861,200 shares of common stock of MarineMax, its largest boat dealer.
Proceeds from this stock sale totaled $56.8 million, net of $4.1 million of selling expenses, which included $1.1 million of
accrued expenses. Brunswick recorded a pre-tax gain of $38.7 million on the sale. Refer to Note 8 – Investments in the
Notes to Consolidated Financial Statements for details on the sale of this investment.
Interest expense increased $7.3 million in 2006 compared with 2005, primarily due to additional interest incurred on the
$250 million floating rate notes issued in July 2006, as described in Note 14 – Debt in the Notes to Consolidated Financial
Statements, coupled with the unfavorable effects of higher short-term interest rates compared with the prior year. Interest
income increased $1.0 million in 2006 from 2005 due to a higher average invested cash balance as a result of proceeds from
the floating rate notes issuance during the second half of 2006, as well as increasing rates of return on invested cash balances.
Brunswick’s effective tax rate in 2006 decreased to 15.0 percent from 23.6 percent in 2005, mostly due to higher tax
benefits in 2006 compared with the prior year. During the year ended December 31, 2006, the Company recognized tax
benefits of $47.0 million, consisting primarily of $40.2 million of tax reserve reassessments of underlying exposures, as
discussed in Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements.
26
In 2005, the Company recognized $30.8 million of tax benefits, primarily due to refinements in the calculation of prior
years’ extraterritorial income tax benefit, the reassessment of tax reserves for underlying exposures and the Company’s APB
23 assertion to indefinitely reinvest the undistributed net earnings of certain foreign subsidiaries, as discussed above. In
addition, Brunswick utilized previously unrecognized capital loss carryforwards on the gain on the sale of MarineMax stock
as discussed above. The 2005 tax rate was further affected by foreign earnings in lower effective tax rate jurisdictions. Refer
to Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for further details with respect to these tax
benefits. Both the 2006 and 2005 effective tax rates were lower than the statutory rate as a result of the research and
development tax credit and the extraterritorial income tax benefit.
Net earnings and diluted earnings per share decreased primarily due to the same factors discussed above in operating
earnings.
Weighted average common shares outstanding used to calculate diluted earnings per share decreased to 94.7 million in
2006 from 98.8 million in 2005. The decrease in average shares outstanding was primarily due to the repurchase of
approximately 5.6 million shares during 2006, as well as the full-year benefit of 2005 share repurchases, as discussed in Note
19 – Share Repurchase Program in the Notes to Consolidated Financial Statements.
Sales from discontinued operations decreased to $306.3 million in 2006 from $325.0 million in 2005, as BNT took
necessary discounting and promotional actions to meet competitive pricing pressures, especially in the European consumer
portable navigation device market. Pre-tax operating losses from discontinued operations in 2006, before impairment, were
$65.0 million, compared with pre-tax operating earnings of $9.9 million in 2005. In addition to the factors affecting sales, the
reduction in pre-tax operating earnings from discontinued operations was also due to efforts to reduce inventory for BNT as
well as for its dealers and to maintain competitive pricing in anticipation of new product launches in late 2006, in addition to
certain investment write-offs that were recorded during the year. Additionally, based on Brunswick’s December 2006
announcement that the proceeds from the sale of BNT were expected to be less than its book value at that time, BNT
recognized a non-cash impairment charge of $73.9 million, $85.6 million after-tax, in the fourth quarter of 2006. The after-
tax impairment amount reflects the reversal of previously recorded tax-benefited operating losses.
27
Segments
The Company operates in four reportable segments: Boat, Marine Engine, Fitness and Bowling & Billiards. Refer to
Note 5 – Segment Information in the Notes to Consolidated Financial Statements for details on the operations of these
segments.
Boat Segment
The following table sets forth Boat segment results for the years ended December 31, 2007, 2006 and 2005:
(in millions)
2007
2006
2005
$
%
$
%
2007 vs. 2006
Increase/(Decrease)
2006 vs. 2005
Increase/(Decrease)
Net sales
$ 2,690.9
Impairment charges
$ 66.4
Operating earnings (A) $ (81.4)
Operating margin (A)
Capital expenditures $ 94.9
__________
$ 2,864.4
$ —
$ 135.6
$ 2,783.4
$ —
$ 192.5
$ (173.5)
$ 66.4
$ (217.0)
(6.1)% $ 81.0
NM $ —
NM $ (56.9)
(3.0)%
4.7 % 6.9 %
(770) bpts
$ 75.8
$ 74.7
$ 19.1
25.2 % $ 1.1
2.9 %
— %
(29.6)%
(220) bpts
1.5 %
bpts=basis points
NM = not meaningful
(A) Consolidated operating earnings for the years ended December 31, 2007 and 2006, included restructuring charges, as discussed in the
Consolidated Results of Operations above, of which $15.9 million and $4.2 million were recorded in the Boat segment for the years ended
December 31, 2007 and 2006, respectively.
2007 vs. 2006
The decrease in Boat segment net sales was largely attributable to the impact of reduced marine retail demand in United
States markets and lower shipments to dealers in an effort to achieve appropriate levels of pipeline inventories. Increased
promotional incentives also contributed to lower net sales. Sales were positively affected by growth outside the United States
and gains in the Boat segment’s parts and accessories business. Additionally, sales were favorably affected by acquisitions
completed in 2007 and 2006. Excluding incremental sales of $14.5 million from acquired businesses, organic Boat segment
sales declined by 6.6 percent.
Boat segment operating earnings decreased from 2006, primarily due to a decrease in sales volume and the $66.4 million
pre-tax impairment charges taken on certain indefinite-lived intangible assets, as discussed in Note 7 – Goodwill and Other
Intangible Assets in the Notes to Consolidated Financial Statements. Additionally, increased promotional incentives, higher
raw material costs, higher restructuring costs, increased variable compensation expense and additional warranty costs also
contributed to the decline in operating earnings.
Capital expenditures increased in 2007 as a result of the acquisition of a boat manufacturing facility in Navassa, North
Carolina, which offers the Company the ability to manufacture cruisers and other large boats as well as increased
manufacturing flexibility, productivity and efficiency. Other than the acquisition of the manufacturing facility in 2007 and a
marina in 2006, the 2007 and 2006 capital expenditures were largely attributable to tooling costs for the production of new
models across all boat brands.
2006 vs. 2005
The increase in Boat segment sales was mainly attributable to $201.1 million from acquisitions completed in 2006 and
2005. Organic Boat segment sales declined by 4.3 percent from the prior year primarily due to reduced marine retail demand
in domestic markets, as well as lower shipments to dealers in an effort to achieve appropriate levels of pipeline inventories.
Increased promotional incentives, particularly for some higher-margin fiberglass boat lines, also contributed to lower sales.
The sales decrease was partially offset by favorable pricing and improved sales in non-U.S. markets, most notably Canada
and Latin America.
28
Boat segment operating earnings decreased from 2005 as the favorable effect of slightly higher sales, together with
successful cost control efforts and lower variable compensation expense, was more than offset by $24.1 million of operating
expenses from acquisitions, lower fixed-cost absorption as a result of reduced production levels across the segment’s brands,
an unfavorable shift in product mix as sales volumes decreased in some of the higher-margin fiberglass boat lines, higher raw
material and production costs and increased freight expenses. In addition, a $4.2 million restructuring charge was recorded
against Boat segment operating earnings during the fourth quarter of 2006, related to the consolidation of certain US Marine
and Lund boat manufacturing facilities, sales offices and distribution centers to streamline operations.
Capital expenditures in 2006 and 2005 were primarily related to tooling costs for the production of new models.
Additionally, capital expenditures in 2006 included the acquisition of an interest in a marina. Capital expenditures in 2005
were also related to the acquisition of a boat plant in North Carolina in 2005 to expand capacity for the production of Hatteras
sportfishing convertibles and motoryachts, as well as the expansion of a boat manufacturing plant in Reynosa, Mexico.
Marine Engine Segment
The following table sets forth Marine Engine segment results for the years ended December 31, 2007, 2006 and 2005:
(in millions)
2007
2006
2005
$
%
$
%
2007 vs. 2006
Increase/(Decrease)
2006 vs. 2005
Increase/(Decrease)
Net sales
$ 2,357.5
Operating earnings (A) $ 183.7
Operating margin (A)
Capital expenditures $ 54.8
__________
$ 2,271.3
$ 193.8
$ 2,300.6
$ 250.5
$ 86.2
$ (10.1)
3.8 % $ (29.3)
(5.2)% $ (56.7)
7.8 %
8.5 %
10.9 %
(70) bpts
$ 72.5
$ 91.5
$ (17.7)
(24.4)% $ (19.0)
(1.3)%
(22.6)%
(240) bpts
(20.8)%
bpts=basis points
(A) Consolidated operating earnings for the years ended December 31, 2007 and 2006, included restructuring charges, as discussed in the
Consolidated Results of Operations above, of which $3.4 million and $9.5 million were recorded in the Marine Engine segment for the years
ended December 31, 2007 and 2006, respectively.
2007 vs. 2006
Net sales recorded by the Marine Engine segment increased compared with 2006. The increase was the result of sales
growth outside the United States across all major regions, volume increases in the low horsepower four-stroke engines
manufactured by a joint venture, the favorable effect of foreign currency translation and higher engine pricing. This increase
was partially offset by a slight decline in sales within the United States.
Marine Engine segment operating earnings decreased in 2007 as a result of increases in raw materials costs and other
inflationary effects, concentration of sales in lower margin products, higher variable compensation expense, costs related to
inventory adjustments, an adverse settlement related to a patent infringement lawsuit and the absence of a favorable
settlement with an insurance carrier on environmental coverage received in 2006. This decrease was partially offset by the
impact of increased net sales outside the United States, the favorable effect of foreign currency translation, increased
manufacturing efficiencies in outboard engine manufacturing, favorable warranty experience in 2007 and reduced
promotional incentives.
The decrease in capital expenditures was primarily attributable to investments in 2006 associated with the completion of
a second four-stroke outboard production line, plant expansions for die cast operations and investments in information
technology.
2006 vs. 2005
Sales recorded by the Marine Engine segment decreased slightly from 2005, mainly due to a decline in domestic outboard
engine sales volume compared with a stronger marine environment in the prior year, as well as efforts to reduce pipeline
inventories held by customers. These factors were partially offset by higher engine pricing; international sales growth,
especially in European and Latin American markets; an acquisition completed in 2005; a greater mix of low-emission
outboard engines, which have higher prices; and the favorable effect of foreign currency translation.
29
The decrease in operating earnings for the Marine Engine segment was largely attributable to the lower sales volumes
discussed above, as well as higher raw material costs; lower fixed-cost absorption due to reduced production levels to
maintain appropriate dealer and customer pipeline inventories; the full-year effect of the mix shift to low-emission outboard
engines; the absence of a reduction in bad debt reserves that occurred in the third quarter of 2005 resulting from improved
credit experience in international markets; and costs to ramp up Asian manufacturing facilities. The positive effects of lower
variable compensation expense, successful cost-reduction initiatives, a gain on the sale of property in the first quarter of 2006
and a favorable settlement with an insurance carrier on environmental coverage in the second quarter were partially offset by
higher research and development expenses. In addition, a $9.5 million restructuring charge was recorded against Marine
Engine segment operating earnings during the fourth quarter of 2006, primarily related to severance costs, asset write-downs
and other expenses associated with actions to improve the Company’s cost structure and streamline sales operations.
The decrease in capital expenditures was largely due to investments in 2005 for the development of the new line of 75, 90
and 115 horsepower naturally aspirated four-stroke outboard engines, as well as the completion of tooling for the four-
cylinder supercharged Verado engines. The decrease was partially offset by expenditures in 2006 for the completion of a
second four-stroke outboard production line and plant expansions for die cast operations, as well as investments in
information technology.
Fitness Segment
The following table sets forth Fitness segment results for the years ended December 31, 2007, 2006 and 2005:
(in millions)
2007
2006
2005
$
%
$
%
2007 vs. 2006
Increase/(Decrease)
2006 vs. 2005
Increase/(Decrease)
Net sales
Operating earnings
Operating margin
Capital expenditures $ 11.8
__________
$ 653.7
$ 59.7
$ 593.1
$ 57.8
$ 551.4
$ 56.1
$ 60.6
$ 1.9
10.2 % $ 41.7
3.3 % $ 1.7
9.1 %
9.7 %
10.2 %
(60) bpts
$ 11.0
$ 11.2
$ 0.8
7.3 % $ (0.2)
7.6 %
3.0 %
(50) bpts
(1.8)%
bpts=basis points
2007 vs. 2006
The increase in Fitness segment net sales was largely attributable to commercial equipment sales growth in the United
States and Europe, as health clubs continued to expand, as well as consumer equipment sales growth in Europe. Additionally,
favorable foreign currency translation led to higher sales in 2007 as compared with 2006. The sales growth in 2007 was
partially offset by competitive pricing pressures in markets outside the United States.
The Fitness segment benefited from sales volume growth in commercial products, higher contributions from the resale of
certified pre-owned fitness equipment in Europe and a decline in United States freight and installation costs. These benefits
to operating earnings were partially offset by a mix shift in sales toward lower margin products in the United States and
Europe, the unfavorable effect of inflation on wages and benefits, higher research and development and marketing costs
related to the launch of new cardiovascular products and higher product warranty costs.
2007 capital expenditures were related to continued investments in a new line of cardiovascular products while capital
expenditures in 2006 were primarily related to investment in an engineering research and development facility.
2006 vs. 2005
The increase in Fitness segment sales was largely attributable to higher domestic sales and increased international
commercial sales volumes, particularly in the Pacific Rim, as health clubs continued to expand. Sales momentum for
consumer fitness products grew in all markets with the successful introduction of new cardiovascular and strength equipment.
Sales growth in domestic markets was partially offset by competitive pricing pressures in international markets.
30
Fitness segment operating earnings benefited from the higher sales volumes discussed above, as well as from lower
variable compensation expense and cost-reduction initiatives. These factors were partially offset by a shift in mix toward
strength equipment, which has lower margins than cardiovascular product lines, as well as higher raw materials, freight and
distribution costs, increased research and development investments for new product introductions and the unfavorable effect
of inflation on wages and benefits.
Capital expenditures in 2006 and 2005 were primarily related to tooling for new products and software development.
Additionally, capital expenditures in 2006 included investments in a new engineering research and development facility to
drive future product improvements. Capital expenditures in 2005 included equipment expenditures associated with
expansion at the Company’s Hungarian manufacturing facility.
Bowling & Billiards Segment
The following table sets forth Bowling & Billiards segment results for the years ended December 31, 2007, 2006 and
2005:
(in millions)
2007
2006
2005
$
%
$
%
2007 vs. 2006
Increase/(Decrease)
2006 vs. 2005
Increase/(Decrease)
Net sales
$ 446.9
Operating earnings (A) $ 16.5
Operating margin (A)
Capital expenditures $ 41.6
__________
$ 458.3
$ 22.1
$ 464.5
$ 37.2
$ (11.4)
$ (5.6)
(2.5)% $ (6.2)
(25.3)% $ (15.1)
3.7 %
4.8 %
8.0 %
(110) bpts
$ 43.7
$ 36.8
$ (2.1)
(4.8)% $ 6.9
(1.3)%
(40.6)%
(320) bpts
18.8 %
bpts=basis points
(A) Consolidated operating earnings for the years ended December 31, 2007 and 2006, included restructuring charges, as discussed in the
Consolidated Results of Operations above, of which $2.8 million and $2.7 million were recorded in the Bowling & Billiards segment for the
years ended December 31, 2007 and 2006, respectively.
2007 vs. 2006
Bowling & Billiards segment net sales in 2007 decreased from prior year levels, primarily due to declines in sales of
bowling products as a result of difficult market conditions; operational inefficiencies at the Reynosa, Mexico bowling ball
facility; the absence of sales related to instant redemption games, where Brunswick’s supplier modified its distribution
channel and began selling directly to retail entertainment centers; the loss of sales from divested bowling centers and a
decline in Valley-Dynamo coin-operated billiards table sales. This decrease has been partially offset by increased sales at
three new Brunswick Zone XL centers and higher revenues at existing bowling centers.
The decrease in 2007 operating earnings was attributable to lower sales, additional costs associated with operational
inefficiencies of the Reynosa bowling ball plant, write-downs taken on certain bowling center fixed assets where the carrying
value was not expected to be fully recoverable, the absence of earnings from the instant redemption games discussed above,
the lack of gains from sales of bowling centers in 2006 and higher costs associated with the start-up of three new Brunswick
Zone XL centers noted above. This decrease was partially offset by the absence of 2006 losses from bowling centers disposed
of during 2007 and improved warranty experience related to bowling products.
Decreased capital expenditures in 2007 were driven by reduced spending for the new bowling ball manufacturing facility
in Reynosa, Mexico, partially offset by capital expenditures associated with three new Brunswick Zone XL centers opened in
2007 compared with one in 2006.
31
2006 vs. 2005
Bowling & Billiards segment sales decreased from prior year levels as the benefits of increased bowling center revenues
and higher sales volumes of home billiards tables were offset by lower sales of bowling equipment and Valley-Dynamo coin-
operated billiards tables. Sales growth at bowling retail centers was primarily due to improved traffic at existing retail
centers, as well as the addition of two new Brunswick Zone XL centers, partially offset by operating five fewer bowling
centers in 2006 versus the prior year. Bowling equipment sales decreased from 2005, when there were several large one-time
shipments to international customers. In addition, bowling equipment sales were adversely affected by start-up production
inefficiencies related to the transition of bowling ball manufacturing from Muskegon, Michigan to Reynosa, Mexico.
The decrease in operating earnings was largely attributable to a reduction in gains associated with the sale of bowling
centers in 2006, compared with 2005, and start-up costs associated with the transition of the segment’s bowling ball and
Valley-Dynamo manufacturing operations to Reynosa, Mexico. Bowling ball production at the Reynosa facility commenced
in 2006, while Valley-Dynamo operations in Reynosa commenced in early 2007. Additionally, a $2.7 million restructuring
charge was recorded against Bowling & Billiards segment operating earnings during the fourth quarter of 2006, primarily
related to severance costs and other expenses associated with actions to streamline operations. These items were partially
offset by reduced variable compensation expenses and the absence of legal fees incurred in 2005 related to a dispute with a
supplier in China as discussed in Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial
Statements.
Increased capital expenditures in 2006 were driven by higher investments in the new manufacturing facilities in Reynosa
as well as higher capital spending for new Brunswick Zone XL bowling centers.
32
Cash Flow, Liquidity and Capital Resources
For the year ended December 31, 2007, the Company changed its presentation of the consolidated statements of cash
flows to include net earnings and net earnings (loss) from discontinued operations. Accordingly, the Company revised the
2006 and 2005 consolidated statements of cash flows. Net cash flows from operating, investing and financing activities have
not changed.
The following table sets forth an analysis of free cash flow for the years ended December 31, 2007, 2006 and 2005:
(in millions)
Net cash provided by operating activities of continuing operations
Net cash provided by (used for):
Capital expenditures
Proceeds from investment sale
Proceeds from the sale of property, plant and equipment
Other, net
Free cash flow from continuing operations *
__________
2007
2006
2005
$ 344.1
$ 351.0
$ 421.6
(207.7)
—
10.1
25.6
(205.1)
—
7.2
(0.4)
(223.8)
57.9
13.4
(1.2)
$ 172.1
$ 152.7
$ 267.9
* The Company defines Free cash flow from continuing operations as cash flow from operating and investing activities of continuing operations
(excluding acquisitions and investments) and excluding financing activities. Free cash flow from continuing operations is not intended as an
alternative measure of cash flow from operations, as determined in accordance with generally accepted accounting principles (GAAP) in the United
States. The Company uses this financial measure, both in presenting its results to shareholders and the investment community and in its internal
evaluation and management of its businesses. Management believes that this financial measure and the information it provides are useful to
investors because it permits investors to view the Company’s 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 from continuing operations” is also useful to investors
because it is an indication of cash flow that may be available to fund further investments in future growth initiatives.
Brunswick’s major sources of funds for investments, acquisitions and dividend payments are cash generated from
operating activities, available cash balances and selected borrowings. The Company evaluates potential acquisitions,
divestitures and joint ventures in the ordinary course of business.
2007 vs. 2006
In 2007, net cash provided by operating activities of continuing operations totaled $344.1 million, compared with $351.0
million in 2006. This decrease was caused by a $142.1 million decline in net earnings from continuing operations, adjusted
for the non-cash pre-tax impairment charge of $66.4 million ($41.5 million after-tax). The decrease in net earnings from
continuing operations was primarily offset by more favorable changes in working capital between periods as the Company
experienced a $3.5 million decrease in working capital, defined as non-cash current assets less current liabilities, in 2007
versus a $92.8 million increase in 2006. The favorable change in working capital was driven by a decrease in cash variable
compensation payouts during 2007, as well as increased accrued promotional incentives in the Boat and Engine segments,
compared with prior year. These factors were partially offset by operating cash used to fund inventory increases in 2007,
compared with 2006. Although production rates were lowered to help achieve reduced levels of marine pipeline inventories,
increases in inventory balances exceeded those in the prior year as a result of the reduction in retail demand for both boats
and engines, higher engine inventories to support growth in markets outside the United States, acquisitions completed during
2006 and the ramp up of production at the Company’s Hatteras facility in Swansboro, North Carolina, which opened in late
2005, as well as the Navassa facility acquired in July 2007. Additionally, accounts receivable balances increased due to
growth in marine sales outside the United States, which carry longer terms.
Cash flows from investing activities included capital expenditures of $207.7 million in 2007, which increased from
$205.1 million in 2006. Significant capital expenditures in 2007 included the purchase of a new boat manufacturing facility
in Navassa, North Carolina, tooling expenditures for new models and product innovations in the Boat and Fitness segments
and higher capital spending for new Brunswick Zone XL centers and existing bowling centers.
The Company expects investments for capital expenditures in 2008 to be below 2007 levels. Approximately 60 percent
of the capital spending is anticipated to be for investments in new and upgraded products and the construction of new
Brunswick Zone XL centers, with the remainder targeted towards cost reductions, plant capacity expansions and investments
in information technology.
33
Cash paid for acquisitions, net of cash acquired, totaled $6.2 million and $86.2 million in 2007 and 2006, respectively.
See Note 6 – Acquisitions in the Notes to Consolidated Financial Statements for further details on Brunswick’s acquisitions.
Brunswick received $4.1 million from its joint ventures, net of investments, in 2007 compared with $6.1 million, net of
investments, in 2006. Additionally, cash flows from investing activities in 2007 benefited from the Company’s receipt of
proceeds on notes associated with divestitures that occurred in previous years.
Cash flows from financing activities of continuing operations resulted in a use of cash of $167.8 million in 2007
compared with $235.7 million in 2006. This change was primarily due to the Company’s share repurchase program, under
which the Company repurchased 4.1 million shares for $125.8 million in 2007, compared with repurchases of approximately
5.6 million shares for $195.6 million in 2006. See Note 19 – Share Repurchase Program in the Notes to Consolidated
Financial Statements for further details. The Company received $10.8 million from stock options exercised in 2007,
compared with $15.9 million during the same period in 2006. An annual dividend of $0.60 per share was declared and paid
in both 2007 and 2006, resulting in dividend payments of $52.6 million and $55.0 million, respectively.
Cash and cash equivalents totaled $331.4 million as of December 31, 2007, an increase of $48.0 million from $283.4
million at December 31, 2006. Total debt as of December 31, 2007, and December 31, 2006, was $728.2 million and $726.4
million, respectively. Brunswick’s debt-to-capitalization ratio decreased slightly to 27.8 percent as of December 31, 2007,
from 28.0 percent as of December 31, 2006.
The Company has a $650.0 million long-term revolving credit facility (Facility) with a group of banks, as described in
Note 14 - Debt in the Notes of Consolidated Financial Statements, that serves as support for commercial paper borrowings.
The Facility has a term of five years, with provisions to extend the term for an additional one year on each anniversary of the
Facility, with consent of the lenders. In May 2007, the Company amended the Facility agreement, resulting in a one-year
extension of the term through May 5, 2012. Of the $650.0 million Facility, there are $55.0 million of commitments which
expire on May 5, 2011; however, the Company has the right to replace these commitments with new lenders at any time.
There were no borrowings under the Facility during 2007 or 2006, and the Facility continues to serve as support for any
outstanding commercial paper borrowings. The Company has the ability to issue up to $150.0 million in letters of credit
under the Facility. At December 31, 2007, the Company had $53.8 million in outstanding letters of credit under the Facility
compared with $63.2 million at December 31, 2006. The Company had borrowing capacity of $596.2 million under the
terms of this agreement as of December 31, 2007, net of outstanding letters of credit. Under the terms of the Facility,
Brunswick is subject to a leverage test, as well as restrictions on secured debt. The Company was in compliance with these
covenants at December 31, 2007. The borrowing rate, as calculated in accordance with the Facility, was 5.1 percent as of
December 31, 2007. In addition, the Company has $200.0 million available under its universal shelf registration statement
filed in 2001 with the SEC for the issuance of equity and/or debt securities.
The aggregate funded status of the Company’s qualified pension plans, measured as a percentage of the projected benefit
obligation, improved to 99.9 percent in 2007 from 96.7 percent in 2006 primarily as a result of positive asset returns in 2007,
and the favorable impacts of an increase in the discount rate and demographic gains on the determination of the projected
benefit obligation in 2007, partially offset by the impact of updating expected mortality assumptions. As of December 31,
2007, the Company’s qualified pension plans were underfunded on an aggregate projected benefit obligation basis by a net
balance of $0.1 million. See Note 15 – Postretirement Benefits in the Notes to Consolidated Financial Statements for more
details.
The Company contributed $2.6 million and $2.4 million to fund benefit payments in its nonqualified plan in 2007 and
2006, respectively. The Company was not required to make contributions to its qualified pension plans in 2007. During
2006, the Company funded $15.0 million of discretionary contributions into its qualified pension plans.
Brunswick’s financial flexibility and access to capital markets are supported by its balance sheet position, investment-
grade credit ratings and ability to generate significant cash from operating activities. Management believes that there are
adequate sources of liquidity to meet the Company’s short-term and long-term needs.
2006 vs. 2005
In 2006, net cash provided by operating activities of continuing operations totaled $351.0 million, compared with $421.6
million in 2005. This decrease was primarily caused by a $107.9 million decline in net earnings from continuing operations,
including a $31.5 million after-tax gain from the sale of the Company’s investment in MarineMax recognized in 2005. The
proceeds recognized on this sale are presented in investing activities. See Note 8 – Investments in the Notes to Consolidated
Financial Statements for details on the sale of this investment.
34
Brunswick also used operating cash flow to increase working capital by $92.8 million in 2006 versus a $53.6 million
increase in 2005. The cash used to fund working capital in 2006 was primarily due to lower variable compensation accruals
year over year and an increase in inventory, as domestic retail demand for marine products slowed in 2006. Inventory
balances also increased as a result of acquisitions completed during the year; higher raw material and work-in-process
balances associated with increased order rates at the Company’s Hatteras facility in Swansboro, North Carolina, which
opened in 2005; and sales growth and new product introductions in the Fitness segment.
Cash flows from investing activities of continuing operations included capital expenditures of $205.1 million in 2006,
which decreased from $223.8 million in 2005. Significant capital expenditures in 2006 were attributable to tooling
expenditures for new models and product innovations in the Boat segment, the completion of a second four-stroke outboard
production line in the Marine Engine segment; the acquisition of an interest in a marina in St. Petersburg, Florida; capital
spending for new Brunswick Zone XL and existing bowling centers; investments in the new bowling ball manufacturing
facility in Reynosa, Mexico; and completion of the Life Fitness engineering design facility.
Cash paid for acquisitions, net of debt and cash acquired, totaled $86.2 million and $130.3 million in 2006 and 2005,
respectively. See Note 6 – Acquisitions in the Notes to Consolidated Financial Statements for further details on Brunswick’s
acquisitions. Additionally, Brunswick received $6.1 million from its joint ventures, net of investments, in 2006 compared
with net investments of $18.1 million in 2005. These joint ventures are discussed further in Note 8 – Investments in the
Notes to Consolidated Financial Statements.
In 2005, Brunswick sold 1,861,200 shares of common stock of MarineMax, its largest boat dealer. Pre-tax proceeds from
this stock sale totaled $56.8 million, net of $4.1 million of selling expenses, which included $1.1 million of accrued expenses.
This sale generated $51.5 million of after-tax cash flow for the Company, which was used for general corporate purposes.
See Note 8 – Investments in the Notes to Consolidated Financial Statements for details on the sale of this investment.
Cash flows from financing activities of continuing operations used cash of $235.7 million in 2006, compared with $122.2
million in 2005. This change was primarily due to the Company’s stock repurchase plan, which resulted in expenditures of
$195.6 million to buy back approximately 5.6 million shares of Brunswick’s common stock in 2006, compared to the 2005
buyback of $76.0 million for approximately 1.9 million shares. The Company received $15.9 million from stock options
exercised in 2006, compared with $17.1 million during 2005. An annual dividend of $0.60 per share was declared and paid
in both 2006 and 2005, resulting in dividend payments of $55.0 million and $57.3 million, respectively.
Cash and cash equivalents totaled $283.4 million as of December 31, 2006, a decrease of $204.3 million from the $487.7
balance in 2005. Total debt as of December 31, 2006, increased $1.6 million to $726.4 million versus $724.8 million at
December 31, 2005. Brunswick’s debt-to-capitalization ratio increased to 28.0 percent as of December 31, 2006, compared
with 26.8 percent as of December 31, 2005. The increase was largely attributable to the Company’s adoption of SFAS No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106, and 132(R),” which resulted in a $60.7 million decrease to common shareholders’ equity, as
described in Note 15 – Postretirement Benefits in the Notes to Consolidated Financial Statements.
Brunswick has a $650.0 million revolving credit facility, as described in Note 14 – Debt in the Notes to Consolidated
Financial Statements, that serves as support for commercial paper borrowings. There were no borrowings under the Facility
during 2006. The Company has the ability to issue up to $150.0 million in letters of credit under the Facility. At December
31, 2006, the Company had $63.2 million in outstanding letters of credit under the Facility, including $46.4 million for
continuing operations. Net of these issued letters of credit, the Company had borrowing capacity of $586.8 million under the
terms of the Facility at December 31, 2006. Under the terms of the Facility, Brunswick is subject to a leverage test, as well
as restrictions on secured debt. The Company was in compliance with these covenants at December 31, 2006. The
borrowing rate, as calculated in accordance with the Facility, was 5.62 percent as of December 31, 2006. Brunswick also has
$200.0 million available under a universal shelf registration statement filed in 2001 with the SEC for the issuance of equity
and/or debt securities.
In July 2006, Brunswick issued senior unsubordinated floating rate notes in the aggregate principal amount of $250
million, receiving proceeds of approximately $249 million, net of discount and before an estimated $0.4 million of expenses.
The notes mature on July 24, 2009, and interest on the notes is required to be paid quarterly at a rate tied to three-month
LIBOR plus 65 basis points. After July 24, 2007, the Company has the option to redeem some or all of the notes at par, plus
accrued interest, prior to maturity. The net proceeds of the notes were used to retire the Company’s $250 million principal
amount of 6.75% notes, which was due December 15, 2006.
35
For 2006, Brunswick contributed $17.4 million into its defined benefit plans, compared with $27.4 million of
contributions in 2005. These amounts include contributions to fund payments made under the nonqualified plans of $2.4
million in 2006 and 2005. See Note 15 – Postretirement Benefits in the Notes to Consolidated Financial Statements for
more details.
The funded status of the Company’s qualified pension plans, measured as a percentage of the projected benefit obligation,
improved to 96.7 percent in 2006 from 91.8 percent in 2005 as a result of positive equity market returns and discretionary
pension contributions made in 2006. As of December 31, 2006, on a projected benefit obligation basis, the Company’s
qualified pension plans were underfunded by a net balance of $34.0 million.
Financial Services
A Company subsidiary, Brunswick Financial Services Corporation (BFS), owns 49 percent of a joint venture, Brunswick
Acceptance Company, LLC (BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC) owns the
remaining 51 percent. Under the terms of the joint venture agreement, BAC provides secured wholesale floor-plan financing
to Brunswick’s boat and engine dealers. BAC also purchases and services a portion of Mercury Marine’s domestic accounts
receivable relating to its boat builder and dealer customers.
BFS’s contributed equity is adjusted monthly to maintain a 49 percent equity interest in accordance with the capital
provisions of the joint venture agreement. BFS’s investment in BAC is accounted for by the Company under the equity
method and is recorded as a component of Investments in its Consolidated Balance Sheets. The Company’s investment in
BAC is determined by cash contributions and reinvested earnings. In 2007, the Company received a net distribution of $3.6
million compared with a net distribution of $1.6 million in 2006 and a net contribution of $16.3 million in 2005. The
Company records BFS’s share of income or loss in BAC based on its ownership percentage in the joint venture in Equity
earnings in its Consolidated Statements of Income.
BAC is funded in part through a loan from GE Commercial Distribution Finance Corporation and a securitization facility
arranged by GECC, and in part by a cash equity investment from both partners. BFS’s total investment in BAC at December
31, 2007 and 2006 was $47.0 million and $50.6 million, respectively. BFS’s exposure to losses associated with BAC is
limited to its funded equity in BAC.
BFS recorded income related to the operations of BAC of $12.7 million, $13.2 million and $9.7 million for the years
ended December 31, 2007, 2006 and 2005, respectively. These amounts exclude the discount expense on the sale of Mercury
Marine’s accounts receivable to the joint venture noted below.
Accounts receivable totaling $887.3 million, $832.0 million and $913.3 million were sold to BAC in 2007, 2006 and 2005
respectively. Discounts of $8.0 million, $7.6 million and $7.0 million for the years ended December 31, 2007, 2006 and
2005, respectively, have been recorded as an expense in Other expense, net, in the Consolidated Statements of Income. The
outstanding balance of receivables sold to BAC was $93.1 million as of December 31, 2007, up from $80.0 million as of
December 31, 2006. Pursuant to the joint venture agreement, BAC reimbursed Mercury Marine $2.7 million, $2.2 million
and $2.6 million in 2007, 2006 and 2005, respectively, for the related credit, collection and administrative costs incurred in
connection with the servicing of such receivables.
As of December 31, 2007 and 2006, the Company had a retained interest in $46.4 million and $31.5 million of the total
outstanding accounts receivable sold to BAC, respectively. The Company’s maximum exposure as of December 31, 2007
and 2006, related to these amounts was $28.9 million and $16.9 million, respectively. In accordance with SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” the Company treats the sale
of receivables in which the Company retains an interest as a secured obligation. Accordingly, the amount of the Company’s
maximum exposure was recorded in Accounts and notes receivable, and Accrued expenses in the Consolidated Balance
Sheets. These balances are included in the amounts in Note 11 – Commitments and Contingencies.
Off-Balance Sheet Arrangements
Guarantees. Based on historical experience and current facts and circumstances, and in accordance with Financial
Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others — An Interpretation of FASB Statements No. 5, 57,
and 107 and Rescission of FASB Interpretation No. 34,” the Company has reserves to cover potential losses associated with
guarantees and repurchase obligations. Historical cash requirements and losses associated with these obligations have not
been significant. See Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for a
description of these arrangements.
36
Contractual Obligations
The following table sets forth a summary of the Company’s contractual cash obligations for continuing operations as of
December 31, 2007:
(in millions)
Contractual Obligations
Long-term debt (1)
Interest payments on long-term debt
Operating leases (2)
Purchase obligations (3)
Deferred management compensation (4)
Other tax liabilities (5)
Other long-term liabilities (6)
Payments due by period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$ 728.2
469.0
201.6
248.3
58.0
2.9
210.3
$ 0.8
42.5
49.2
242.5
9.2
1.2
23.9
$ 251.5
67.4
76.7
4.0
15.3
1.7
78.3
$ 151.8 $ 324.1
309.1
50.0
35.5
40.2
—
1.8
7.3
26.2
— —
86.2
21.9
Total contractual obligations
$ 1,918.3
$ 369.3
$ 494.9
$ 273.0 $ 781.1
__________
(1) See Note 14 – Debt in the Notes to Consolidated Financial Statements for additional information on the Company’s debt.
(2) See Note 18 – Leases in the Notes to Consolidated Financial Statements for additional information on the Company’s operating leases.
(3) Purchase obligations represent agreements with suppliers and vendors at the end of 2007 for raw materials and other supplies as part of the
normal course of business.
(4) Amounts primarily represent long-term deferred compensation plans for Company management. Payments are assumed to be equal to the
remaining liability and to be primarily paid out more than five years from December 31, 2007.
(5) Represents the liability reported in accordance with the Company’s adoption of the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes.” As of December 31, 2007, the Company’s liability for uncertain income tax positions was $44.4 million including
interest. Due to the high degree of uncertainty regarding the timing of potential future cash outflows associated with these liabilities, other than
the items included in the table above, the Company was unable to make a reasonably reliable estimate of the amount and period in which these
remaining liabilities might be paid.
(6) Other long-term liabilities include amounts reflected on the balance sheet, which primarily includes certain agreements that provide for the
assignment of lease and other long-term receivables originated by the Company to third parties and are treated as a secured obligation under
SFAS No. 140, postretirement benefit obligations, and obligations under deferred revenue arrangements.
Legal Proceedings
See Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for disclosure of the
potential cash requirements related to legal and environmental proceedings.
Environmental Regulation
In its Marine Engine segment, Brunswick will continue to develop engine technologies to reduce engine emissions to
comply with current and future emissions requirements. The costs associated with these activities may have an adverse effect
on Marine Engine segment operating margins and may affect short-term operating results. The State of California adopted
regulations that required catalytic converters on sterndrive and inboard engines that became effective on January 1, 2008.
Other environmental regulatory bodies in the United States and other countries may also impose higher emissions standards
than are currently in effect for those regions. The Company expects to comply fully with these regulations, but compliance
will increase the cost of these products for the Company and the industry. The Boat segment continues to pursue fiberglass
boat manufacturing technologies and techniques to reduce air emissions at its boat manufacturing facilities. The Company
does not believe that compliance with federal, state and local environmental laws will have a material adverse effect on
Brunswick’s competitive position.
37
Critical Accounting Policies
The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in
the United States 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. If current estimates for the
cost of resolving any specific matters are later determined to be inadequate, results of operations could be adversely affected
in the period in which additional provisions are required. The Company records a reserve when it is probable that a loss has
been incurred and the loss can be reasonably estimated. The Company establishes its reserve based on its best estimate within
a range of losses. If the Company is unable to identify the best estimate, the Company records the minimum amount in the
range. The Company discussed the development and selection of the critical accounting policies with the Audit Committee
of the Board of Directors and believes the following are the most critical accounting policies that could have an effect on
Brunswick’s reported results.
Revenue Recognition and Sales Incentives. The Company’s revenue is derived primarily from the sale of boats, marine
engines, fitness equipment, bowling products and billiards tables. Revenue is recognized in accordance with the terms of the
sale, primarily upon shipment to customers, once the sales price is fixed or determinable and collectibility is reasonably
assured. Brunswick offers discounts and sales incentives that include retail promotional activities and rebates. The estimated
liability for sales incentives is recorded at the later of the time of program communication to the customer or at the time of
sale in accordance with Emerging Issues Task Force (EITF) No. 01-9, “Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of a Vendor’s Products).” The liability is estimated based on the costs for the incentive
program, the planned duration of the program and historical experience. If actual costs are different from estimated costs, the
recorded value of the liability and revenue is adjusted.
Allowances for Doubtful Accounts. The Company records an allowance for uncollectible trade receivables based upon
currently known bad debt risks and provides reserves based on loss history, customer payment practices and economic
conditions. Actual collection experience may differ from the current estimate of reserves. The Company also provides a
reserve based on historical, current and estimated future purchasing levels in connection with its long-term notes receivables
for Brunswick’s supply agreements. These assumptions are re-evaluated considering the customer’s financial position and
product purchase volumes. Changes to the allowance for doubtful accounts may be required if a future event or other
circumstance result in a change in the estimate of the ultimate collectibility of a specific account or note.
Reserve for Excess and Obsolete Inventories. The Company records a reserve for excess and obsolete inventories in order
to ensure inventories are carried at the lower of cost or fair market value. Fair market value can be affected by assumptions
about market demand and conditions, historical usage rates, model changes and new product introductions. If model changes
or new product introductions create more or less than favorable market conditions, the reserve for excess and obsolete
inventories may need to be adjusted.
Warranty Reserves. The Company records a liability for standard product warranties at the time revenue is recognized.
The liability is recorded using historical warranty experience to estimate projected claim rates and expected costs per claim.
If necessary, the Company adjusts its liability for specific warranty matters when they become known and are reasonably
estimable. The Company’s warranty reserves are affected by product failure rates and material usage and labor costs incurred
in correcting a product failure. If these estimated costs differ from actual product failure rates and actual material usage and
labor costs, a revision to the warranty reserve would be required.
Goodwill and Indefinite-lived Intangible Assets. In assessing the value of goodwill and indefinite-lived intangible assets,
management relies on a number of factors to value anticipated future cash flows including operating results, business plans
and present value techniques. Rates used to value and discount cash flows are dependent upon royalty rate assumptions,
interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and
management’s judgment in applying them to the analysis of intangible asset impairment. It is possible that operating results
or assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the
future.
Litigation. In the normal course of business, the Company is subject to claims and litigation, including obligations
assumed or retained as part of acquisitions and divestitures. The Company accrues for litigation exposure based upon its
assessment, made in consultation with counsel, of the likely range of exposure stemming from the claim. In light of existing
reserves, the Company’s litigation claims, when finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position.
38
Environmental. The Company accrues for environmental remediation-related activities for which commitments or clean-
up plans have been developed and for which costs can be reasonably estimated. Accrued amounts are generally determined in
coordination with third-party experts on an undiscounted basis and do not consider recoveries from third parties until such
recoveries are realized. In light of existing reserves, the Company’s environmental claims, when finally resolved, will not, in
the opinion of management, have a material adverse effect on the Company’s consolidated financial position or results of
operations.
Self-Insurance Reserves. The Company records a liability for self-insurance obligations, which include employee-related
health care benefits and claims for workers’ compensation, product liability, general liability and auto liability. The liability
is estimated based on claims incurred as of the date of the financial statements. In estimating the obligations associated with
self-insurance reserves, the Company primarily uses loss development factors based on historical claim experience, which
incorporate anticipated exposure for losses incurred, but not yet reported. These loss development factors are used to estimate
ultimate losses on incurred claims. Actual costs associated with a specific claim can vary from an earlier estimate. If the facts
were to change, the liability recorded for expected costs associated with a specific claim may need to be revised.
Postretirement Benefit Reserves. Postretirement costs and obligations are actuarially determined and are affected by
assumptions, including the discount rate, the estimated future return on plan assets, the annual rate of increase in
compensation for plan employees, the increase in costs of health care benefits and other factors. The Company evaluates
assumptions used on a periodic basis and makes adjustments to these liabilities as necessary. Postretirement benefit reserves
are determined in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions.” Effective December 31, 2006, the Company adopted the
provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and 132(R).”
Income Taxes. Deferred taxes are recognized for the future tax effects of temporary differences between financial and
income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The Company
historically provided deferred taxes on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates. As
of July 3, 2005, the Company determined that certain foreign subsidiaries’ undistributed net earnings were to be indefinitely
reinvested in operations outside the United States, and accordingly, U.S. income taxes are no longer provided for the earnings
of those foreign subsidiaries. The Company estimates its tax obligations based on historical experience and current tax laws
and litigation. The judgments made at any point in time may change based on the outcome of tax audits and settlements of
tax litigation, as well as changes due to new tax laws and regulations and the Company’s application of those laws and
regulations. These factors may cause the Company’s tax rate and deferred tax balances to increase or decrease.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The adoption of SFAS 157 is not expected to have a material impact on the Company’s financial
statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities
– Including an amendment of FASB Statement No. 115,” (SFAS 159). SFAS 159 permits entities to choose to measure
certain financial assets and financial liabilities at fair value at specified election dates. Unrealized gains and losses on items
for which the fair value option has been elected are to be reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not believe that the adoption of SFAS 159 will have a material
impact on its financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (SFAS 141(R)). SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree.
This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the impact that the adoption of SFAS 141(R) will have on the financial statements.
39
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51,” (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently
evaluating the impact that the adoption of SFAS 160 will have on the financial statements.
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K (Annual Report) are forward-looking as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements in this Annual Report may include words such as
“expect,” “anticipate,” “believe,” “may,” “should,” “could” or “estimate.” These statements involve certain risks and
uncertainties that may cause actual results to differ materially from expectations as of the date of this filing. These risks
include, but are not limited to, those set forth under Item 1A of this report.
Caution should be taken not to place undue reliance on the Company’s forward-looking statements, which represent the
Company’s views only as of the date this report is filed. The Company undertakes no obligation to update publicly or revise
any forward-looking statement, whether as a result of new information, future events or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates and commodity
prices. The Company enters into various hedging transactions to mitigate these risks in accordance with guidelines
established by the Company’s management. The Company does not use financial instruments for trading or speculative
purposes.
The Company uses foreign currency forward and option contracts to manage foreign exchange exposure related to
anticipated transactions, and assets and liabilities that are subject to risk from foreign currency rate changes. The Company’s
principal currency exposures relate to the Euro, Japanese yen, Canadian dollar, Australian dollar, British pound and New
Zealand dollar. Hedging of anticipated transactions is accomplished with financial instruments whose maturity date, along
with the realized gain or loss, occurs on or near the execution of the anticipated transaction. The Company manages foreign
currency exposure of assets or liabilities through the use of derivative financial instruments such that the gain or loss on the
derivative financial instrument offsets the loss or gain recognized on the asset or liability, respectively.
The Company uses interest rate swap agreements to mitigate the effect that changes in interest rates have on the fair
market value of the Company’s debt and to lower the Company’s borrowing costs on current or anticipated issuances of debt.
The Company’s net exposure to interest rate risk is primarily attributable to its outstanding debt. Interest rate risk
management is accomplished through the use of fixed-to-floating interest rate swaps, forward starting floating-to-fixed
interest rate swaps and floating rate instruments that are benchmarked to U.S. and European short-term money market
interest rates.
Raw materials used by the Company are exposed to the effect of changing commodity prices. Accordingly, the Company
uses commodity swap agreements, futures contracts and supplier agreements to manage fluctuations in prices of anticipated
purchases of certain raw materials, including aluminum and natural gas.
The following analyses provide quantitative information regarding the Company’s exposure to foreign currency exchange
rate risk, interest rate risk and commodity price risk. The Company uses a model to evaluate the sensitivity of the fair value
of financial instruments with exposure to market risk that assumes instantaneous, parallel shifts in exchange rates, interest
rate yield curves and commodity prices. For options and instruments with nonlinear returns, models appropriate to the
instrument are utilized to determine the impact of market shifts. There are certain shortcomings inherent in the sensitivity
analyses presented, primarily due to the assumption that exchange rates change in a parallel fashion and that interest rates
change instantaneously.
40
The amounts shown below represent the estimated reduction in fair market value that the Company would incur on its
derivative financial instruments from a 10 percent adverse change in quoted foreign currency rates, interest rates, and
commodity prices.
(in millions)
Risk Category
Foreign exchange
Interest rates
Commodity prices
2007
2006
$ 37.7
$ 5.3
$ 2.0
$ 34.3
$ 1.0
$ 2.2
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedule on page 43.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer
and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively),
the Company has evaluated its disclosure controls and procedures (as defined in Securities Exchange Act Rules 12a -15(e)
and 15d -15(e)) as of the end of the period covered by this annual report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in
ensuring that all material information required to be filed has been made known in a timely manner.
Management’s Report on Internal Control Over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included a report of management’s assessment
of the design and effectiveness of its internal controls as part of this Annual Report for the fiscal year ended December 31,
2007. Management’s report is included in the Company’s 2007 Financial Statements under the captions entitled “Report of
Management on Internal Control Over Financial Reporting” and is incorporated herein by reference.
The Audit Committee of the Board of Directors, comprised entirely of independent directors, meets regularly with the
independent public accountants, management and internal auditors to review accounting, reporting, internal control and other
financial matters. The Committee regularly meets with both the internal and external auditors without members of
management present.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the fourth quarter ended
December 31, 2007, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
41
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information pursuant to this Item with respect to the Directors of the Company is incorporated by reference from the
discussion under the headings Proposal No. 1: Election of Directors and Corporate Governance in the Company’s proxy
statement for the 2008 Annual Meeting of Stockholders (Proxy Statement). Information pursuant to this Item with respect to
the Company’s Audit Committee and the Company’s code of ethics is incorporated by reference from the discussion under
the heading Corporate Governance in the Proxy Statement. Information pursuant to this Item with respect to compliance
with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from the discussion under the heading
Section 16(a) Beneficial Ownership Reporting Requirements in the Proxy Statement.
The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive
Officers of the Registrant” following Item 4 in Part I of this Annual Report.
Item 11. Executive Compensation
Information pursuant to this Item with respect to compensation paid to Directors of the Company is incorporated by
reference from the discussion under the heading Director Compensation in the Proxy Statement. Information pursuant to this
Item with respect to executive compensation is incorporated by reference from the discussion under the heading Executive
Compensation in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information pursuant to this Item with respect to the securities of the Company owned by the Directors and certain
officers of the Company, by the Directors and officers of the Company as a group and by the persons known to the Company
to own beneficially more than 5 percent of the outstanding voting securities of the Company is incorporated by reference
from the discussion under the heading Stock Held By Directors, Executive Officers And Principal Shareholders in the Proxy
Statement. Information pursuant to this Item with respect to securities authorized for issuance under the Company’s equity
compensation plans is hereby incorporated by reference from the discussion under the heading Equity Compensation Plan
Information in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information pursuant to this Item with respect to certain relationships and related transactions is incorporated from the
discussion under the heading Corporate Governance in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information pursuant to this Item with respect to fees for professional services rendered by the Company’s independent
registered public accounting firm and the Audit Committee’s policy on pre-approval of audit and permissible non-audit
services of the Company’s independent registered public accounting firm is incorporated by reference from the discussion
under the headings Proposal No. 2: Ratification of Independent Registered Public Accounting Firm–Fees Incurred for
Services of Ernst & Young and Proposal No. 2: Ratification of Independent Registered Public Accounting Firm–Approval of
Services Provided by Independent Registered Public Accounting Firm in the Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
PART IV
The financial statements and schedule filed as part of this Annual Report are listed in the accompanying Index to
Financial Statements and Financial Statement Schedule on page 43. The exhibits filed as a part of this Annual Report are
listed in the accompanying Exhibit Index on page 91.
42
Index to Financial Statements and Financial Statement Schedule
Brunswick Corporation
Financial Statements:
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005
Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Page
44
45
46
47
48
50
51
52
90
43
BRUNSWICK CORPORATION
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for the preparation, integrity and objectivity of the financial statements and other
financial information presented in this report. The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States and reflect the effects of certain estimates and judgments made by
management.
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, the Company
conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the Company’s evaluation under the framework in Internal Control – Integrated Framework, management
concluded that internal control over financial reporting was effective as of December 31, 2007. The effectiveness of internal
control over financial reporting as of December 31, 2007, has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report, which is included herein.
Brunswick Corporation
Lake Forest, Illinois
February 22, 2008
/s/ DUSTAN E. McCOY
Dustan E. McCoy
Chairman and Chief Executive Officer
/s/ PETER G. LEEMPUTTE
Peter G. Leemputte
Senior Vice President and Chief Financial Officer
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
BRUNSWICK CORPORATION
Board of Directors and Shareholders
Brunswick Corporation
We have audited Brunswick Corporation’s internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Brunswick Corporation’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing a risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Brunswick Corporation maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Brunswick Corporation as of December 31, 2007 and 2006, and the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31,
2007, of Brunswick Corporation and our report dated February 22, 2008, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 22, 2008
45
BRUNSWICK CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Brunswick Corporation
We have audited the accompanying consolidated balance sheets of Brunswick Corporation as of December 31, 2007 and
2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item
15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Brunswick Corporation at December 31, 2007 and 2006, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 2007, in accordance with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, on January 1, 2007, Brunswick Corporation changed its
method of accounting for uncertain tax positions to conform with Financial Accounting Standards Board Interpretation No.
48, “Accounting for Uncertainty in Income Taxes.” On January 1, 2006, Brunswick Corporation changed its method of
accounting for share-based awards to conform with Statement of Financial Accounting Standards (SFAS) No. 123(R),
“Share-Based Payment.” Additionally, on December 31, 2006, Brunswick Corporation changed its method of accounting for
defined benefit pension and other postretirement benefit plans to conform with SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Brunswick Corporation's internal control over financial reporting as of December 31, 2007, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 22, 2008, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 22, 2008
46
BRUNSWICK CORPORATION
Consolidated Statements of Income
(in millions, except per share data)
Net sales
Cost of sales
Selling, general and administrative expense
Research and development expense
Impairment charges
Operating earnings
Equity earnings
Investment sale gain
Other income (expense), net
Earnings before interest and income taxes
Interest expense
Interest income
Earnings before income taxes
Income tax provision
Net earnings from continuing operations
For the Years Ended December 31
2006
2005
2007
$ 5,671.2
4,528.1
835.0
134.5
66.4
107.2
21.3
–
$ 5,665.0
4,439.3
752.3
132.2
–
341.2
14.9
–
7.8
136.3
(52.3)
8.7
92.7
13.1
79.6
(1.9)
354.2
(60.5)
16.0
309.7
46.5
263.2
$ 5,606.9
4,285.3
729.4
123.5
–
468.7
18.1
38.7
(1.4)
524.1
(53.2)
15.0
485.9
114.8
371.1
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax
Gain on disposal of discontinued operations, net of tax
Impairment charges on assets held for sale, net of tax
Net earnings (loss) from discontinued operations
2.2
29.8
(43.7)
–
–
32.0
(85.6)
(129.3)
14.3
–
–
14.3
Net earnings
$ 111.6 $ 133.9
$ 385.4
Earnings per common share:
Basic
Earnings from continuing operations
Earnings (loss) from discontinued operations
$ 0.88
0.36
$ 2.80
(1.38)
$ 3.80
0.15
Net earnings
$ 1.24
$ 1.42
$ 3.95
Diluted
Earnings from continuing operations
Earnings (loss) from discontinued operations
$ 0.88
0.36
$ 2.78
(1.37)
$ 3.76
0.14
Net earnings
$ 1.24
$ 1.41
$ 3.90
Weighted average shares used for computation of:
Basic earnings per share
Diluted earnings per share
89.8
90.2
94.0
94.7
97.6
98.8
Cash dividends declared per common share
$ 0.60
$ 0.60
$ 0.60
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
47
BRUNSWICK CORPORATION
Consolidated Balance Sheets
(in millions)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates market
Accounts and notes receivable, less allowances of $31.2 and $29.7
Inventories
Finished goods
Work-in-process
Raw materials
Net inventories
Deferred income taxes
Prepaid expenses and other
Current assets held for sale
Current assets
Property
Land
Buildings and improvements
Equipment
Total land, buildings and improvements and equipment
Accumulated depreciation
Net land, buildings and improvements and equipment
Unamortized product tooling costs
Net property
Other assets
Goodwill
Other intangibles
Investments
Other long-term assets
Long-term assets held for sale
Other assets
Total assets
As of December 31
2007
2006
$ 331.4 $ 283.4
492.3
572.4
446.7
323.4
136.6
906.7
249.9
53.9
–
2,114.3
103.5
697.4
1,205.7
2,006.6
(1,117.8)
888.8
164.0
1,052.8
678.9
245.6
132.1
141.9
–
1,198.5
410.4
308.4
143.1
861.9
249.9
85.4
105.5
2,078.4
91.7
631.6
1,181.7
1,905.0
(1,046.3)
858.7
156.2
1,014.9
663.6
322.6
142.9
195.1
32.8
1,357.0
$ 4,365.6 $ 4,450.3
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
48
BRUNSWICK CORPORATION
Consolidated Balance Sheets
(in millions, except share data)
Liabilities and shareholders’ equity
Current liabilities
Current maturities of long-term debt
Accounts payable
Accrued expenses
Current liabilities held for sale
Current liabilities
Long-term liabilities
Debt
Deferred income taxes
Postretirement benefits
Other
Long-term liabilities held for sale
Long-term liabilities
Shareholders’ equity
Common stock; authorized: 200,000,000 shares,
$0.75 par value; issued: 102,538,000 shares
Additional paid-in capital
Retained earnings
Treasury stock, at cost: 15,092,000 and 11,671,000 shares
Accumulated other comprehensive income (loss), net of tax:
Foreign currency translation
Defined benefit plans:
Prior service costs
Net actuarial losses
Unrealized investment gains (losses)
Unrealized gains (losses) on derivatives
Total accumulated other comprehensive loss
Shareholders’ equity
As of December 31
2007
2006
$ 0.8
437.3
858.1
–
1,296.2
$ 0.7
448.6
748.9
95.0
1,293.2
727.4
12.3
192.8
244.0
–
1,176.5
725.7
86.3
224.2
240.4
8.7
1,285.3
76.9
409.0
1,888.4
(428.7)
76.9
378.7
1,820.7
(315.5)
50.8
38.8
(9.2)
(92.6)
1.5
(3.2)
(52.7)
1,892.9
(11.2)
(121.7)
(0.2)
5.3
(89.0)
1,871.8
Total liabilities and shareholders’ equity
$ 4,365.6
$ 4,450.3
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
49
BRUNSWICK CORPORATION
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities
Net earnings
Less: net earnings (loss) from discontinued operations
Net earnings from continuing operations
Depreciation and amortization
Changes in noncash current assets and current liabilities
Change in accounts and notes receivable
Change in inventory
Change in prepaid expenses and other
Change in accounts payable
Change in accrued expenses
Income taxes
Impairment charges
Other, net
Net cash provided by operating activities
of continuing operations
Net cash used for operating activities of discontinued operations
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Acquisitions of businesses, net of cash acquired
Investments
Proceeds from investment sale
Proceeds from the sale of property, plant and equipment
Other, net
Net cash used for investing activities
of continuing operations
Net cash provided by (used for) investing activities
of discontinued operations
Net cash used for investing activities
Cash flows from financing activities
Net repayments of commercial paper and other short-term debt
Net proceeds from issuance of long-term debt
Payments of long-term debt including current maturities
Cash dividends paid
Stock repurchases
Stock options exercised
Net cash used for financing activities of continuing operations
Net cash used for financing activities of discontinued operations
Net cash used for financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
For the Years Ended December 31
Revised
Revised
2005
2006
2007
$ 111.6
32.0
79.6
180.1
(45.9)
(42.9)
3.3
(13.5)
102.5
6.4
66.4
8.1
344.1
(29.8)
314.3
(207.7)
(6.2)
4.1
–
10.1
25.6
$ 133.9
(129.3)
263.2
167.3
$ 385.4
14.3
371.1
156.3
(4.3)
(28.7)
0.8
9.5
(70.1)
(25.5)
–
38.8
(9.5)
(22.8)
0.9
29.7
(51.9)
(3.1)
–
(49.1)
351.0
(35.7)
315.3
421.6
11.3
432.9
(205.1)
(86.2)
6.1
–
7.2
(0.4)
(223.8)
(130.3)
(18.1)
57.9
13.4
(1.2)
(174.1)
(278.4)
(302.1)
75.6
(98.5)
(5.5)
(283.9)
(20.7)
(322.8)
–
0.7
(0.9)
(52.6)
(125.8)
10.8
(167.8)
–
(167.8)
48.0
283.4
(0.2)
250.3
(251.1)
(55.0)
(195.6)
15.9
(235.7)
–
(235.7)
(0.6)
1.3
(6.7)
(57.3)
(76.0)
17.1
(122.2)
–
(122.2)
(204.3)
487.7
(12.1)
499.8
Cash and cash equivalents at December 31
$ 331.4
$ 283.4
$ 487.7
Supplemental cash flow disclosures:
Interest paid
Income taxes paid, net
$ 54.8
$ 6.7
$ 61.2
$ 72.0
$ 54.6
$ 113.4
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
50
BRUNSWICK CORPORATION
Consolidated Statements of Shareholders’ Equity
(in millions, except per share data)
Additional
Common Paid-in
Capital
Stock
Retained
Earnings
Treasury
Stock
Unearned
Compensation
and Other
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, December 31, 2004
$ 76.9 $ 358.8 $ 1,413.7 $ (76.5)
$ (6.3)
$ (54.3)
$ 1,712.3
Net earnings
Translation adjustments, net of tax
Realized gain from investment sale, net of tax
Unrealized investment gains, net of tax
Unrealized gains on derivatives, net of tax
Minimum pension liability adjustment, net of tax
Comprehensive income (loss)
Dividends ($0.60 per common share)
Stock repurchases
Tax benefit relating to stock options
Compensation plans and other
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
385.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.6
3.9
385.4
(57.3)
—
—
—
—
—
(76.0)
—
16.5
—
—
—
—
0.2
—
(18.1)
(24.2)
0.9
19.9
9.7
(11.8)
—
—
—
—
385.4
(18.1)
(24.2)
0.9
19.9
9.7
373.6
(57.3)
(76.0)
5.6
20.6
Balance, December 31, 2005
76.9
368.3
1,741.8
(136.0)
(6.1)
(66.1)
1,978.8
Net earnings
Translation adjustments, net of tax
Unrealized investment losses, net of tax
Unrealized losses on derivatives, net of tax
Minimum pension liability adjustment, net of tax
Comprehensive income
Adoption of FASB Statement No. 158, net of tax
Dividends ($0.60 per common share)
Stock repurchases
Tax benefit relating to stock options
Adoption of FASB Statement No. 123(R)
Compensation plans and other
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
133.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.9
(6.1)
13.6
133.9
—
(55.0)
—
—
—
—
—
—
—
(195.6)
—
—
16.1
—
—
—
—
—
6.1
—
—
24.7
(0.1)
(2.6)
15.8
37.8
(60.7)
—
—
—
—
—
133.9
24.7
(0.1)
(2.6)
15.8
171.7
(60.7)
(55.0)
(195.6)
2.9
—
29.7
Balance, December 31, 2006
76.9
378.7
1,820.7
(315.5)
—
(89.0)
1,871.8
Net earnings
Translation adjustments, net of tax
Unrealized investment gains, net of tax
Unrealized losses on derivatives, net of tax
Defined benefit plans:
Prior service costs, net of tax
Net actuarial gains, net of tax
Comprehensive income
Adoption of FASB Interpretation No. 48
Dividends ($0.60 per common share)
Stock repurchases
Tax benefit relating to stock options
Compensation plans and other
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.2
29.1
111.6
—
—
—
—
—
111.6
8.7
—
—
—
(125.8)
—
12.6
(52.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12.0
1.7
(8.5)
2.0
29.1
36.3
—
—
—
—
—
111.6
12.0
1.7
(8.5)
2.0
29.1
147.9
8.7
(52.6)
(125.8)
1.2
41.7
Balance, December 31, 2007
$ 76.9 $ 409.0 $ 1,888.4 $ (428.7)
$ —
$ (52.7)
$ 1,892.9
The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
51
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 1 – Significant Accounting Policies
Basis of Presentation. The consolidated financial statements of Brunswick Corporation (Brunswick or the Company)
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain
previously reported amounts have been reclassified to conform to the current-period presentation. As indicated in Note 2 –
Discontinued Operations, Brunswick’s results as discussed in the financial statements reflect continuing operations only,
unless otherwise noted.
Revisions. For the year ended December 31, 2007, the Company changed its presentation of the consolidated statements
of cash flows to include net earnings and net earnings (loss) from discontinued operations. Accordingly, the Company
revised the 2006 and 2005 consolidated statements of cash flows. Net cash flows from operating, investing and financing
activities have not changed.
Principles of Consolidation. The consolidated financial statements of Brunswick include the accounts of all consolidated
domestic and foreign subsidiaries, after eliminating transactions between the Company and such subsidiaries.
Use of Estimates. The preparation of the consolidated financial statements in accordance with accounting principles
generally accepted in the United States (GAAP) requires management to make certain estimates. Actual results could differ
materially from those estimates. These estimates affect:
(cid:120)
(cid:120)
(cid:120)
The reported amounts of assets and liabilities;
The disclosure of contingent assets and liabilities at the date of the financial statements; and
The reported amounts of revenues and expenses during the reporting periods.
Estimates in these consolidated financial statements include, but are not limited to:
(cid:120) Allowances for doubtful accounts;
(cid:120)
(cid:120)
Inventory valuation reserves;
Reserves for dealer allowances;
(cid:120) Warranty related reserves;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Losses on litigation and other contingencies;
Environmental reserves;
Insurance reserves;
Income tax reserves;
Reserves related to restructuring activities; and
Postretirement benefit liabilities.
The Company records a reserve when it is probable that a loss has been incurred and the loss can be reasonably estimated.
The Company establishes its reserve based on its best estimate within a range of losses. If the Company is unable to identify
the best estimate, the Company records the minimum amount in the range.
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
52
Brunswick Corporation
Notes to Consolidated Financial Statements
Accounts Receivable and Allowance for Doubtful Accounts. The Company carries its accounts receivable at their face
amounts less an allowance for doubtful accounts. On a regular basis, the Company records an allowance for uncollectible
receivables based upon known bad debt risks and past loss history, customer payment practices and economic conditions.
Actual collection experience may differ from the current estimate of net receivables. A change to the allowance for doubtful
accounts may be required if a future event or other change in circumstances result in a change in the estimate of the ultimate
collectibility of a specific account.
Accounts receivable also include domestic accounts receivable sold with full and partial recourse by Brunswick’s Marine
Engine segment to Brunswick Acceptance Company LLC, as discussed in Note 9 – Financial Services. As of December 31,
2007 and 2006, the Company had a retained interest in $46.4 million and $31.5 million of the total outstanding accounts
receivable sold to BAC, respectively, as a result of recourse provisions. The Company’s maximum exposure as of December
31, 2007 and 2006, related to these amounts was $28.9 million and $16.9 million, respectively. In accordance with Statement
of Financial Accounting Standards (SFAS) No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” the Company treats the sale of receivables in which the Company retains an interest as a
secured obligation. Accordingly, the amount of receivables subject to recourse was recorded in Accounts and notes
receivable with an offsetting amount recorded in Accrued expenses in the Consolidated Balance Sheets. These balances are
included in the amounts in Note 11 – Commitments and Contingencies.
Inventories. Inventories are valued at the lower of cost or market, with market based on replacement cost or net realizable
value. Approximately 63 percent and 62 percent of Brunswick’s inventories were determined by the first-in, first-out method
(FIFO) at December 31, 2007 and 2006, respectively. Inventories valued at the last-in, first-out method (LIFO), which results
in a better matching of costs and revenue, were $116.2 million and $107.6 million lower than the FIFO cost of inventories at
December 31, 2007 and 2006, respectively. Inventory cost includes material, labor and manufacturing overhead.
Property. Property, including major improvements and product tooling costs, is recorded at cost. Product tooling costs
principally comprise the cost to acquire and construct various long-lived molds, dies and other tooling owned by the
Company and used in its manufacturing processes. Design and prototype development costs associated with product tooling
are expensed as incurred. Maintenance and repair costs are also expensed as incurred. Depreciation is recorded over the
estimated service lives of the related assets, principally using the straight-line method. Buildings and improvements are
depreciated over a useful life of five to forty years. Equipment is depreciated over a useful life of two to twenty years.
Product tooling costs are amortized over the shorter of the useful life of the tooling or the useful life of the applicable
product, for a period not to exceed eight years. Gains and losses recognized on the sale of property are included in Selling,
general and administrative (SG&A) expenses. The amount of gains and losses included in SG&A for the years ended
December 31 was as follows:
(in millions)
2007
2006
2005
Gains on the sale of property
Losses on the sale of property
$ 4.2
(2.5)
$ 3.3
(2.2)
$ 7.1
(2.2)
Net gains on sale of property
$ 1.7
$ 1.1
$ 4.9
Software Development Costs. The Company expenses all software development and implementation costs incurred until
the Company has determined that the software will result in probable future economic benefit and management has
committed to funding the project. Once this is determined, external direct costs of material and services, payroll-related costs
of employees working on the project and related interest costs incurred during the application development stage are
capitalized. These capitalized costs are amortized over three to seven years. Training costs and costs to re-engineer business
processes are expensed as incurred.
53
Brunswick Corporation
Notes to Consolidated Financial Statements
Goodwill and Other Intangibles. Goodwill and other intangible assets primarily result from business acquisitions. The
excess of cost over net assets of businesses acquired is recorded as goodwill. Under SFAS No. 142, “Goodwill and Other
Intangible Assets,” (SFAS 142), while amortization of goodwill and indefinite-lived intangible assets is no longer permitted,
these accounts must be reviewed annually for impairment. The impairment test for goodwill is a two-step process. The first
step is to identify when goodwill impairment has occurred by comparing the fair value of a reporting unit with its carrying
amount, including goodwill. The Company considers the Boat segment, Marine Engine segment, Fitness segment, bowling
products business, bowling retail business and billiards business to be reporting units for goodwill testing. If the fair value of
a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount
of the reporting unit exceeds its fair value, the second step of the goodwill test is performed to measure the amount of the
impairment loss, if any. In this second step, the implied fair value of the reporting unit’s goodwill is compared with the
carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the
goodwill.
The Company’s primary intangible assets are customer relationships and trademarks acquired in business combinations.
The costs of amortizable intangible assets are amortized over their expected useful lives, typically between 3 and 15 years, to
their estimated residual values using the straight-line method. Intangible assets that are subject to amortization are evaluated
for impairment using a process similar to that used to evaluate long-lived assets described below. Intangible assets not
subject to amortization are assessed for impairment at least annually and as triggering events may occur. The impairment test
for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying
amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset.
The fair value of trademarks is measured using a relief-from-royalty approach, which assumes the value of the trademark is
the discounted cash flows of the amount that would be paid had the Company not owned the trademark and instead licensed
the trademark from another company.
The Company tests indefinite-lived intangible assets (which consist of acquired trade names) and goodwill for
impairment in the fourth quarter of each year unless triggering events suggest that the assets may be impaired. During the
third quarter of 2007, the Company experienced continued declines in marine industry demand and revised its strategic plan
accordingly. This decline has led to reduced revenue forecasts and adverse adjustments to projected royalty rates for certain
trade names which, in turn, indicated that certain outboard boat trade names were subject to impairment. The Company
performed an impairment analysis in the third quarter, resulting in a $66.4 million pre-tax impairment charge or $41.5
million, after-tax, in the Boat Segment. Refer to Note 7 – Goodwill and Other Intangible Assets for further details.
Effective December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R),”
(SFAS 158), eliminating the minimum liability concept under which any adjustments to recognize the Company’s additional
minimum liability were offset with the recognition of an intangible asset. Refer to Note 15 – Postretirement Benefits for
further details regarding the Company’s adoption of SFAS 158.
Investments. For investments in which Brunswick owns or controls from 20 percent to 50 percent of the voting shares,
which includes all of Brunswick’s unconsolidated joint venture investments, the equity method of accounting is used. The
Company’s share of net earnings or losses from equity method investments is included in the Consolidated Statements of
Income. The Company accounts for its long-term investments that represent less than 20 percent ownership using SFAS No.
115, “Accounting for Certain Investments in Debt and Equity Securities,” (SFAS 115). The Company has investments in
certain equity securities that have readily determinable market values and are being accounted for as available-for-sale equity
investments in accordance with SFAS 115. Therefore, these investments are recorded at fair market value with changes
reflected in Accumulated other comprehensive income (loss), a component of Shareholders’ equity, on an after-tax basis.
Other investments for which the Company does not have the ability to exercise significant influence and for which there is
not a readily determinable market value are accounted for under the cost method of accounting. The Company periodically
evaluates the carrying value of its investments, and at December 31, 2007 and 2006, such investments were recorded at the
lower of cost or fair value.
54
Brunswick Corporation
Notes to Consolidated Financial Statements
Long-Lived Assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” the Company continually evaluates whether events and circumstances have occurred that indicate the remaining
estimated useful lives of its definite-lived intangible assets, excluding goodwill, and other long-lived assets may warrant
revision or that the remaining balance of such assets may not be recoverable. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the asset in measuring whether the asset is recoverable. The Company
tested its long-lived asset balances for impairment as triggering events occurred during 2007 and 2006, resulting in
impairment charges of $4.8 million and $1.8 million, respectively.
Other Long-Term Assets. Other long-term assets include pension assets, which are discussed in Note 15 –
Postretirement Benefits, and long-term notes receivable. Long-term notes receivable include cash advances made to
customers, principally boat builders and fitness equipment customers, or their owners, in connection with long-term supply
arrangements. These transactions have occurred in the normal course of business and are backed by secured or unsecured
notes receivable. Credits earned by these customers through qualifying purchases are applied to the outstanding note balance
in lieu of payment. The reduction in the note receivable balance is recorded as a reduction in the Company’s sales revenue as
a sales discount. In the event sufficient product purchases are not made, the outstanding balance remaining under the notes is
subject to full collection. Amounts outstanding related to these arrangements as of December 31, 2007 and 2006, totaled
$25.2 million and $32.8 million, respectively. One boat builder customer and its owner comprised approximately 50 percent
and 53 percent of both of these amounts as of December 31, 2007 and 2006, respectively.
Other long-term notes receivable also include leases and other long-term receivables originated by the Company and
assigned to third parties. As of December 31, 2007 and 2006, these amounts totaled $57.6 million and $108.5 million,
respectively. Under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” the assignment is treated as a secured obligation as a result of the Company’s commitment to repurchase the
obligation in the event of customer non-payment. Accordingly, these amounts were recorded in the Consolidated Balance
Sheets under Other long-term assets and Long-term liabilities — Other.
Revenue Recognition. Brunswick’s revenue is derived primarily from the sale of boats, marine engines, marine parts and
accessories, fitness equipment, bowling products and billiards tables. Revenue is recognized in accordance with the terms of
the sale, primarily upon shipment to customers, once the sales price is fixed or determinable and collectibility is reasonably
assured. Brunswick offers discounts and sales incentives that include retail promotional activities, rebates and manufacturer
coupons. The estimated liability for sales incentives is recorded at the later of when the program has been communicated to
the customer or at the time of sale in accordance with Emerging Issues Task Force (EITF) No. 01-9, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of a Vendor’s Products).” Revenues from freight are
included as a part of Net sales in the Consolidated Statements of Income, whereas shipping, freight and handling costs are
included in Cost of sales.
Advertising Costs. Advertising and promotion costs, included in SG&A expenses, are expensed when the advertising first
takes place. Advertising and promotion costs were $71.8 million, $67.7 million and $65.8 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
Foreign Currency. The functional currency for the majority of Brunswick’s operations is the U.S. dollar. All assets and
liabilities of operations with a functional currency other than the U.S. dollar are translated at current rates. The resulting
translation adjustments are charged to Accumulated other comprehensive income (loss) in the Consolidated Statements of
Shareholders’ Equity, net of tax. Revenues and expenses of operations with a functional currency other than the U.S. dollar
are translated at the average exchange rates for the period.
Comprehensive Income. Accumulated other comprehensive income (loss) includes prior service costs and net actuarial
gains and losses for defined benefit plans, currency translation adjustments and unrealized derivative and investment gains
and losses, all net of tax. The net effect of these items reduced Shareholders’ equity on a cumulative basis by $52.7 million
and $89.0 million as of December 31, 2007 and 2006, respectively. The change from 2006 to 2007 was primarily due to a
net decrease in actuarial losses and recognition of prior service costs related to the Company’s pension and postretirement
benefit plans totaling $31.1 million and favorable foreign currency translation adjustments of $12.0 million. These items
were partially offset by an increase in unrealized losses on derivatives of $8.5 million. The tax effect included in
Accumulated other comprehensive income (loss) was $42.5 million and $59.5 million for the years ended December 31, 2007
and 2006, respectively.
55
Brunswick Corporation
Notes to Consolidated Financial Statements
The $60.7 million decrease to Accumulated other comprehensive income (loss) resulting from the Company’s adoption of
SFAS 158 at December 31, 2006, included the elimination of the Company’s $72.2 million minimum pension liability, offset
by the recognition of prior service costs and net actuarial losses of $11.2 million and $121.7 million, net of tax, respectively.
Refer to Note 15 – Postretirement Benefits for further details regarding the Company’s adoption of SFAS 158.
Stock-Based Compensation. On January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004),
“Share-Based Payment,” (SFAS 123R), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.”
SFAS 123R supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,”
and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123R requires all share-based payments to employees,
including grants of stock options and the compensatory elements of employee stock purchase plans, to be recognized in the
income statement based upon their fair values. Share-based employee compensation cost (benefit) is recognized as a
component of selling, general and administrative expense in the Consolidated Statements of Income. See Note 16 – Stock
Plans and Management Compensation for a description of the Company’s accounting for stock-based compensation plans.
Derivatives. The Company uses derivative financial instruments to manage its risk associated with movements in foreign
currency exchange rates, interest rates and commodity prices. These instruments are used in accordance with guidelines
established by the Company’s management and are not used for trading or speculative purposes. All derivatives are recorded
on the consolidated balance sheet at fair value. See Note 12 – Financial Instruments for further discussion.
Recent Accounting Pronouncements. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS 157 is not expected to have a
material impact on the Company’s financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities
– Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits entities to choose to measure
certain financial assets and financial liabilities at fair value at specified election dates. Unrealized gains and losses on items
for which the fair value option has been elected are to be reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not believe that the adoption of SFAS 159 will have a material
impact on its financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS 141(R)). SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree.
This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the impact that the adoption of SFAS 141(R) will have on the financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51” (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently
evaluating the impact that the adoption of SFAS 160 will have on the financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes ", which
clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with
SFAS No. 109, "Accounting for Income Taxes." FIN 48 also provides guidance on the derecognition of uncertain positions,
financial statement classification, accounting for interest and penalties, accounting for interim periods and adds new
disclosure requirements. FIN 48 is effective as of the beginning of an entity's first fiscal year that begins after December 15,
2006. The Company adopted this Interpretation on January 1, 2007 and the effects of the adoption are discussed in Note 10 –
Income Taxes.
56
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 2 – Discontinued Operations
On April 27, 2006, the Company announced its intention to sell the majority of its Brunswick New Technologies (BNT)
business unit, which consisted of the Company’s marine electronics, portable navigation device (PND) and wireless fleet
tracking businesses. Accordingly, the Company has reported these BNT businesses as discontinued operations in accordance
with the criteria of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” related to the
classification of assets to be disposed of by sale. These criteria include reclassifying the operations of BNT for all periods
presented. In 2007, the Company completed the disposition of the businesses comprising BNT.
In March 2007, Brunswick completed the sales of BNT’s marine electronics and PND businesses to Navico International
Ltd. and MiTAC International Corporation, respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain was
recognized with the divestiture of these businesses in 2007.
In July 2007, the Company completed the sale of BNT’s wireless fleet tracking business to Navman Wireless Holdings
L.P. for net proceeds of $28.8 million, resulting in an after-tax gain of $25.8 million.
The Company has now completed the divestiture of the BNT discontinued operations. With the net asset impairment
taken prior to the disposition of the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the
subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales, the net impact to the Company of these
dispositions was a net loss of $55.8 million, after-tax.
The following table discloses the results of operations for BNT, including the gain on the divestitures, reported as
discontinued operations for years ended December 31, 2007, 2006 and 2005, respectively:
(in millions)
2007
2006
2005
Net sales
Earnings (loss) before income taxes (A)
Income tax (benefit) provision
Earnings (loss) from operations
Gain on divestitures, net of tax (B)
Net earnings (loss)
$ 99.7
(2.4)
(4.6)
2.2
29.8
$ 32.0
$ 306.3
(138.9)
(9.6)
(129.3)
—
$ (129.3)
$ 325.0
9.9
(4.4)
14.3
—
$ 14.3
(A) Earnings (loss) before income taxes in 2006 include a pre-tax impairment charge of $73.9 million with an after-tax effect of
$85.6 million.
(B) The Gain on divestitures in 2007 includes pre-tax net gains of $26.3 million and net tax benefits of $3.5 million.
57
Brunswick Corporation
Notes to Consolidated Financial Statements
There are no remaining net assets available for sale as of December 31, 2007. The following table reflects the financial
position of the net assets of BNT disaggregated and reported as discontinued operations as of December 31, 2006:
(in millions)
Accounts receivable
Inventory
Other current assets
Total current assets
Goodwill and intangible assets
Investments
Property, plant and equipment
Total assets
Accounts payable
Accrued expenses
Total current liabilities
Long-term liabilities
Total liabilities
Net assets
December 31,
2006
$ 51.5
52.5
1.5
105.5
19.8
6.1
6.9
138.3
46.4
48.6
95.0
8.7
103.7
$ 34.6
Note 3 – Restructuring Activities
In November 2006, Brunswick announced initiatives to improve the Company’s cost structure, better utilize overall
capacity and improve general operating efficiencies. These actions reflect the Company’s response to difficult marine market
conditions, as the Company continues to reduce production volumes to achieve appropriate dealer pipeline inventories, and
include the consolidation of certain boat manufacturing facilities, sales offices and distribution warehouses, as well as
reductions in the Company’s global workforce. In addition, these efforts include the streamlining of certain sales and other
operations throughout the Company.
The Company announced further initiatives in 2007 to consolidate certain boat manufacturing facilities in connection
with the purchase of a manufacturing facility in North Carolina, close a manufacturing facility in Mississippi and shift boat
production to Indiana and Minnesota, and eliminate assembly operations for certain engines in Europe.
58
Brunswick Corporation
Notes to Consolidated Financial Statements
Restructuring charges recorded during 2007 were included in the Consolidated Statements of Income as follows:
(in millions)
Cost of sales:
Severance
Asset write-downs
Facility closures and other
Total
Selling, general and administrative
expense:
Severance
Asset write-downs
Other
Total
Boat
Segment
Marine
Engine
Segment
Fitness
Segment
Bowling &
Billiards
Segment
Corporate
Total
$ 0.7
2.0
8.8
11.5
$ 1.6
—
1.5
3.1
$ —
—
—
—
$ —
—
—
—
$ — $ 2.3
2.0
—
10.3
—
14.6
—
2.9
0.3
— —
—
1.5
0.3
4.4
—
—
— 2.8
—
—
— 2.8
0.1
—
—
0.1
3.3
2.8
1.5
7.6
Total restructuring charges
$ 15.9
$ 3.4
$ —
$ 2.8
$ 0.1
$ 22.2
Restructuring charges recorded during 2006 were included in the Consolidated Statements of Income as follows:
(in millions)
Cost of sales:
Severance
Asset write-downs
Other
Total
Selling, general and administrative
expense:
Severance
Asset write-downs
Other
Total
Equity earnings:
Asset write-downs
Boat
Segment
Marine
Engine
Segment
Fitness
Segment
Bowling &
Billiards
Segment
Corporate
Total
$ 0.6
0.5
0.3
1.4
$ 3.0
—
2.3
5.3
$ —
—
—
—
$ 0.9
—
—
0.9
$ —
—
—
—
$ 4.5
0.5
2.6
7.6
1.5
0.4
0.9
2.8
3.2
0.9
0.1
4.2
—
—
—
—
0.5
1.3
—
1.8
0.7
—
—
0.7
5.9
2.6
1.0
9.5
—
—
—
1.8
—
1.8
Total restructuring charges
$ 4.2
$ 9.5
$ —
$ 4.5
$ 0.7
$ 18.9
The Company anticipates that it will incur total costs of approximately $48 million under these initiatives, which will be
completed in 2008. The remaining $7 million of restructuring costs under these initiatives are all expected to occur in the
Boat segment during 2008.
59
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 4 – Earnings per Common Share
The Company calculates earnings per share in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per
share is calculated by dividing net earnings by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is calculated similarly, except that the calculation includes the dilutive effect of stock
options and nonvested stock awards. Weighted average basic shares decreased by 4.2 million shares in 2007 compared with
2006, primarily due to the share repurchase program (as discussed in Note 19 – Share Repurchase Program). The decrease
was partially offset by shares issued upon the exercise of employee stock options. Average basic shares decreased by 3.6
million in 2006 compared with 2005, primarily due to the share repurchase program and partially offset by shares issued
upon the exercise of employee stock options.
Basic and diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 are calculated as follows:
(in millions, except per share data)
2007
2006
2005
Net earnings from continuing operations
Net earnings (loss) from discontinued operations,
net of tax
$ 79.6
$ 263.2
$ 371.1
32.0
(129.3)
14.3
Net earnings
$ 111.6
$ 133.9
$ 385.4
Average outstanding shares – basic
Dilutive effect of common stock equivalents
Average outstanding shares – diluted
89.8
0.4
90.2
94.0
0.7
94.7
97.6
1.2
98.8
Basic earnings (loss) per share
Continuing operations
Discontinued operations
$ 0.88
0.36
$ 2.80
(1.38)
$ 3.80
0.15
Net earnings
$ 1.24
$ 1.42
$ 3.95
Diluted earnings (loss) per share
Continuing operations
Discontinued operations
$ 0.88
0.36
$ 2.78
(1.37)
$ 3.76
0.14
Net earnings
$ 1.24
$ 1.41
$ 3.90
As of December 31, 2007, there were 4.2 million options outstanding, of which 2.4 million were exercisable. As of
December 31, 2007, 2006 and 2005, there were 2.9 million, 2.0 million and 0.8 million, respectively, of common stock
options outstanding excluded from the computation of diluted earnings per share as the exercise price of the options was
greater than the average market price of the Company’s shares for the period then ended.
Note 5 – Segment Information
Brunswick is a manufacturer and marketer of leading consumer brands, and operates in four reportable segments: Boat,
Marine Engine, Fitness and Bowling & Billiards. The Company’s segments are defined by management reporting structure
and operating activities.
The Boat segment designs, manufactures and markets fiberglass pleasure boats, high-performance boats, offshore fishing
boats and aluminum fishing, deck and pontoon boats, which are sold primarily through dealers. The segment also owns and
operates marine parts and accessories distribution and manufacturing businesses. The Boat segment’s products are
manufactured primarily in the United States. Sales to the segment’s largest boat dealer, MarineMax, which has multiple
locations, comprised approximately 21 percent of Boat segment sales in 2007, approximately 26 percent in 2006 and
approximately 18 percent in 2005.
60
Brunswick Corporation
Notes to Consolidated Financial Statements
The Marine Engine segment manufactures and markets a full range of sterndrive engines, inboard engines, outboard
engines, water jet propulsion systems, and parts and accessories, which are principally sold directly to boat builders,
including Brunswick’s Boat segment, or through marine retail dealers worldwide. Mercury Marine also manufactures and
distributes boats in certain markets outside the United States. The Company’s engine manufacturing plants are located
primarily in the United States, China and Japan, with sales primarily to United States, European and Asian markets.
The Fitness segment designs, manufactures and markets fitness equipment, including treadmills, total body cross-trainers,
stair climbers, stationary bikes and strength-training equipment. These products are manufactured primarily in the United
States or sourced from international locations. Fitness equipment is sold primarily in North America, Europe and Asia to
health clubs, military, government, corporate and university facilities, and to consumers through specialty retail shops.
The Bowling & Billiards segment designs, manufactures and markets bowling capital equipment and associated parts and
supplies, including lanes, automatic pinsetters and scorers; bowling balls and other accessories; billiards, Air Hockey and
foosball tables and accessories; and operates bowling centers. Products are manufactured or sourced from domestic and
international locations. Bowling products and commercial billiards, Air Hockey and foosball tables are sold through a direct
sales force or distributors in the United States and through distributors in non-U.S. markets, primarily Europe and Asia.
Consumer billiards equipment is predominantly sold in the United States and distributed primarily through dealers.
As discussed in Note 2 – Discontinued Operations, during the second quarter of 2006, Brunswick began reporting the
majority of its BNT businesses as discontinued operations. These businesses were previously reported in the Marine Engine
segment. Segment results have been restated for all periods presented to reflect the change in Brunswick’s reported
segments. Additionally, the BNT businesses that are being retained are now reported as part of the Boat, Marine Engine and
Fitness segments, consistent with the manner in which Brunswick’s management views these businesses.
The Company evaluates performance based on business segment operating earnings. Operating earnings of segments do
not include the expenses of corporate administration, earnings from equity affiliates, other expenses and income of a non-
operating nature, interest expense and income or provisions for income taxes.
Corporate/Other results include items such as corporate staff and overhead costs as well as the financial results of the
Company’s joint venture, Brunswick Acceptance Company, LLC (BAC), which is discussed in further detail in Note 9 –
Financial Services. Corporate/Other assets consist primarily of cash and marketable securities, prepaid income taxes and
investments in unconsolidated affiliates. Marine eliminations are eliminations between the Marine Engine and Boat
segments for sales transactions consummated at established arm’s length transfer prices.
61
Brunswick Corporation
Notes to Consolidated Financial Statements
Information as to the operations of Brunswick’s operating segments is set forth below:
Operating Segments
(in millions)
Boat
Marine Engine
Marine eliminations
Total Marine
Fitness
Bowling & Billiards
Eliminations
Corporate/Other
2007
$ 2,690.9
2,357.5
(477.6)
4,570.8
653.7
446.9
(0.2)
—
Net Sales
2006
$ 2,864.4
2,271.3
(521.8)
4,613.9
593.1
458.3
(0.3)
—
2005
$ 2,783.4
2,300.6
(491.6)
4,592.4
551.4
464.5
(1.4)
—
Operating Earnings
2006
2007
2005
Total Assets
2007
2006
$ (81.4)
183.7
$ 135.6
193.8
— —
329.4
57.8
22.1
— —
102.3
59.7
16.5
$ 192.5
250.5
—
443.0
56.1
37.2
$ 1,515.6
959.1
—
2,474.7
695.4
409.2
$ 1,540.4
894.8
—
2,435.2
693.1
392.2
—
—
—
(71.3)
(68.1)
(67.6)
786.3
791.5
Total
$ 5,671.2
$ 5,665.0
$ 5,606.9
$ 107.2
$ 341.2
$ 468.7
$ 4,365.6
$ 4,312.0
(in millions)
Depreciation
2006
2007
2005
Amortization
2006
2007
2005
Boat
$ 60.4
Marine Engine
66.5
Fitness
10.0
Bowling & Billiards 24.0
Corporate/Other
4.4
$ 52.1
63.4
10.8
21.8
5.0
$ 50.2
58.9
11.9
20.5
4.3
$ 11.0
$ 11.2
2.0
0.6
0.3
0.3
0.9
2.7
— —
$ 8.8
0.6
0.2
0.9
—
Total
$ 165.3
$ 153.1
$ 145.8
$ 14.8
$ 14.2
$ 10.5
(in millions)
Capital Expenditures
2005
2006
2007
Research & Development
Expense
2006
2005
2007
$ 94.9 $ 75.8
Boat
54.8 72.5
Marine Engine
Fitness
11.8 11.0
Bowling & Billiards 41.6 43.7
4.6 2.1
Corporate/Other
$ 74.7
91.5
11.2
36.8
9.6
$ 36.1
$ 38.0
$ 39.8
67.3
70.3
68.1
14.2
18.4
21.6
5.9
5.5
5.0
— — —
Total
$ 207.7 $ 205.1
$ 223.8
$ 134.5
$ 132.2
$ 123.5
Geographic Segments
(in millions)
2007
Net Sales
2006
2005
Long-Lived Assets
2007
2006
United States
International
Corporate/Other
$ 3,862.6
$ 3,654.8
1,802.4
2,016.4
— —
$3,846.6
1,760.3
—
$ 1,002.3
139.1
185.3
$ 1,016.9
134.3
201.7
Total
$ 5,671.2
$ 5,665.0
$5,606.9
$ 1,326.7
$ 1,352.9
62
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 6 – Acquisitions
All acquisitions are accounted for under the purchase method and in accordance with SFAS No. 141, “Business
Combinations.”
In 2007, consideration paid for acquisitions, net of cash acquired, and other consideration provided was as follows:
(in millions)
Date
Name/Description
Net Cash
Consideration(A)
Other
Consideration
Total
Consideration
4/04/07
8/24/07
Various
Marine Innovations Warranty Corporation
Rayglass Sales & Marketing Limited (51 percent)
Miscellaneous
$ 1.5
4.6
0.1
$ –
–
0.5
$ 1.5
4.6
0.6
$ 6.2
$ 0.5
$ 6.7
(A) Net cash consideration is subject to subsequent changes resulting from final purchase agreement adjustments.
The Company made an additional payment of $1.5 million for the April 1, 2004, acquisition of Marine Innovations
Warranty Corporation (Marine Innovations), an administrator of extended warranty contracts for the marine industry. This
was the final payment required under the purchase agreement as Marine Innovations fulfilled earnings targets. The post-
acquisition results of Marine Innovations are included in the Boat segment.
Brunswick purchased a 49 percent equity interest in Rayglass Sales & Marketing Limited (Rayglass), a manufacturer of
boats and marine equipment located in New Zealand, on July 15, 2003, for $5.5 million. On August 24, 2007, the Company
exercised its option to purchase the remaining 51 percent interest in the New Zealand company for $4.6 million. The
acquisition expands the global manufacturing footprint of the marine operations and develops additional international sales
opportunities. The post-acquisition results of Rayglass are included in the Marine Engine segment.
These acquisitions were not and would not have been material to Brunswick’s net sales, results of operations or total
assets in the years ended December 31, 2007 and 2006. Accordingly, Brunswick’s consolidated results from operations do
not differ materially from historical performance as a result of these acquisitions, and therefore, pro forma results are not
presented.
In 2006, consideration paid for acquisitions, net of cash acquired, was as follows:
(in millions)
Date
2/16/06
3/24/06
4/26/06
9/20/06
10/19/06
Name/Description
Cabo Yachts, Inc.
Marine Innovations Warranty Corporation
Diversified Marine Products, L.P.
Protokon LLC (13.3 percent)
Blue Water Dealer Services, Inc.
Net Cash
Consideration(A)
$ 60.6
2.3
14.2
5.6
3.5
$ 86.2
(A)
Net cash consideration is subject to subsequent changes resulting from final purchase agreement adjustments.
Brunswick acquired certain assets of Cabo Yachts, Inc. (Cabo) for $60.6 million. Cabo manufactures offshore
sportfishing boats ranging from 31 to 52 feet. The purchase of Cabo complements Brunswick’s previous acquisitions of
Hatteras Yachts, Inc. and Albemarle Boats, Inc. (Albemarle), discussed below, and allows the Company to offer a full range
of sportfishing convertibles and motoryachts from 24 to 100 feet. The post-acquisition results of Cabo are included in the
Boat segment.
The Company made an additional payment of $2.3 million for the April 1, 2004, acquisition of Marine Innovations. This
payment was required under the purchase agreement as Marine Innovations fulfilled earnings targets. The post-acquisition
results of Marine Innovations are included in the Boat segment.
63
Brunswick Corporation
Notes to Consolidated Financial Statements
On April 26, 2006, Brunswick acquired the outstanding stock of Diversified Marine Products, L.P. (Diversified) for $14.2
million. Diversified is a leading wholesale distributor of marine parts and accessories headquartered in Los Angeles,
California. The acquisition of Diversified complements Brunswick’s previous acquisitions of Benrock, Inc. (Benrock), Land
‘N’ Sea Corporation and Kellogg Marine, Inc. (Kellogg) and allows Brunswick to provide same- or next-day delivery of
marine parts and accessories nationwide by expanding its parts and accessories business to the West Coast of the United
States. The post-acquisition results of Diversified are included in the Boat Segment.
On September 20, 2006, the Company acquired an additional 13.3 percent of the outstanding stock of Protokon LLC
(Protokon), a Hungarian equipment manufacturer, for $5.6 million. Brunswick previously purchased 80 percent of the
outstanding stock of Protokon in 2003 and has the option to acquire the remaining 6.7 percent interest in Protokon under
certain circumstances. The acquisition of Protokon has allowed Brunswick to manufacture fitness equipment closer to the
European marketplace, thereby reducing freight costs and offering better service to fitness customers in Europe. The post-
acquisition results of Protokon are included in the Fitness Segment.
On October 19, 2006, Brunswick acquired the outstanding stock of Blue Water Dealer Services, Inc. and its affiliates
(Blue Water) for $3.5 million. Blue Water, headquartered in Wilmington, North Carolina, is a provider of retail financial
services to marine dealers. The acquisition of Blue Water allows Brunswick to offer a more complete line of financial
services to its boat and marine engine dealers and their customers. The post-acquisition results of Blue Water are included in
the Boat Segment.
These acquisitions were not and would not have been material to Brunswick’s net sales, results of operations or total
assets in the years ended December 31, 2006 and 2005. Accordingly, Brunswick’s consolidated results from operations do
not differ materially from historical performance as a result of these acquisitions, and therefore, pro forma results are not
presented.
In 2005, consideration paid for acquisitions, net of debt and cash acquired, was as follows:
(in millions)
Date
2/07/05
2/28/05
4/21/05
5/27/05
6/20/05
6/27/05
7/07/05
9/16/05
Various
Name/Description
Net Cash
Consideration(A)
Other
Consideration
Total
Consideration
Benrock, Inc.
Albemarle Boats, Inc.
Sea Pro, Sea Boss and Palmetto boats
Triton Boat Company, L.P.
Supra-Industria Textil, Lda. (51 percent)
Marine Innovations Warranty Corporation
Kellogg Marine, Inc.
Harris Kayot Marine, LLC
Miscellaneous
$ 4.2
9.2
1.0
58.4
7.8
2.3
41.7
4.8
0.9
$ –
–
–
4.4
0.9
–
–
–
1.0
$ 4.2
9.2
1.0
62.8
8.7
2.3
41.7
4.8
1.9
$ 130.3
$ 6.3
$ 136.6
(A) Net cash consideration is subject to subsequent changes resulting from final purchase agreement adjustments.
Brunswick acquired the receivables, inventory, property and equipment of Benrock for $4.2 million. Benrock is a
distributor of marine parts and expands Brunswick’s geographic coverage of its parts and accessories businesses distribution
network serving the central and southern United States markets. The post-acquisition results of Benrock are included in the
Boat segment.
Brunswick acquired the outstanding stock of Albemarle for $9.2 million. Albemarle produces offshore sportfishing boats
ranging in length from 24 to 41 feet. The acquisition of Albemarle provides Brunswick with the opportunity to offer a more
complete range of offshore sportfishing boats and complements the sportfishing convertibles offered by Hatteras, whose
products start at 50 feet. The post-acquisition results of Albemarle are included in the Boat segment.
The Company made a final payment of $1.0 million for the December 31, 2004, acquisition of Sea Pro, Sea Boss and
Palmetto boats (Sea Pro). This payment was based on finalization of the closing balance sheet. The post-acquisition results
of Sea Pro are included in the Boat segment.
64
Brunswick Corporation
Notes to Consolidated Financial Statements
Brunswick acquired the outstanding stock of Triton Boat Company, L.P. (Triton), a manufacturer of fiberglass bass and
freshwater boats, and aluminum fishing boats ranging in length from 12 to 35 feet. The Company funded this acquisition
through cash consideration of $58.4 million and the assumption of $4.4 million of debt. The acquisition of Triton adds
freshwater bass boats to Brunswick’s product lineup, as well as a broader range of saltwater and aluminum fishing boats.
The post-acquisition results of Triton are included in the Boat segment.
The Company exercised its contractual right to acquire its joint venture partner’s 51 percent interest in Supra-Industria
Textil, Lda. (Valiant), a Portugal-based manufacturer of the Valiant brand of rigid inflatable boats, for $7.8 million and the
assumption of debt. Brunswick is now the sole owner of Valiant. The post-acquisition results of Valiant are included in the
Marine Engine segment.
The Company made an additional payment of $2.3 million for the April 1, 2004, acquisition of Marine Innovations. This
payment was required under the purchase agreement as Marine Innovations fulfilled earnings targets. The post-acquisition
results of Marine Innovations are included in the Boat segment.
Brunswick acquired the net assets of Kellogg for $41.7 million. Kellogg is a leading distributor of marine parts and
accessories headquartered in Old Lyme, Connecticut. The acquisition of Kellogg complements Brunswick’s previous
acquisitions of Benrock and Land ‘N’ Sea and provides a distribution hub in the northeastern United States. The post-
acquisition results of Kellogg are included in the Boat segment.
Brunswick acquired the outstanding stock of Harris Kayot Marine, LLC (Harris Kayot), a builder of pontoon boats,
fiberglass runabouts and deck boats ranging in length from 20 to 26 feet, for $4.8 million. This acquisition advances
Brunswick’s position in the pontoon market and complements the Company’s existing boat portfolio with premium runabout
and deck boat product lines. The post-acquisition results of Harris Kayot are included in the Boat segment.
These acquisitions were not and would not have been material to Brunswick’s net sales, results of operations or total
assets in the years ended December 31, 2005. Accordingly, Brunswick’s consolidated results from operations do not differ
materially from historical performance as a result of these acquisitions, and therefore, pro forma results are not presented.
Purchase price allocations for acquisitions are subject to adjustment, pending final third-party valuations, up to one year
from the date of acquisition. Any adjustments are not expected to be material to Brunswick’s Consolidated Balance Sheets.
See Note 1 – Significant Accounting Policies and Note 7 – Goodwill and Other Intangible Assets for further detail
regarding the Company’s accounting for goodwill and other intangible assets.
The following table shows the gross amount of goodwill and intangible assets recorded as of December 31 for the
acquisitions completed in 2007, 2006 and 2005:
Weighted Average
Useful Life
(in millions)
2007
2006
2005
2007
2006
Indefinite-lived:
Goodwill
Trademarks/trade names
Amortizable:
Customer relationships
Other
$ 8.1
$ —
$ 32.9
$ 17.8
$ 41.7
$ 26.9
$ —
$ —
$ 9.1
$ 3.2
$ 19.9
$ 5.7
N/A
N/A
10 years
8 years
65
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 7 – Goodwill and Other Intangible Assets
During 2007, 2006 and 2005, the Company tested its goodwill balances for impairment and no adjustments were recorded
as a result of those reviews.
A summary of changes in the Company’s goodwill during the period ended December 31, 2007, by segment is as follows:
(in millions)
Boat
Marine Engine
Fitness
Bowling & Billiards
Total
December 31,
2006
Acquisitions Adjustments
December 31,
2007
$ 362.0
14.7
272.3
14.6
$ —
7.8
—
0.3
$ 4.6 $ 366.6
0.9 23.4
1.7 274.0
14.9
—
$ 663.6
$ 8.1
$ 7.2 $ 678.9
A summary of changes in the Company’s goodwill during the period ended December 31, 2006, by segment is as follows:
(in millions)
Boat
Marine Engine
Fitness
Bowling & Billiards
Total
December 31,
2005
Acquisitions Adjustments
December 31,
2006
$ 317.0
19.9
265.9
14.5
$ 28.8
—
3.9
—
$ 16.2
$ 362.0
(5.2) 14.7
272.3
14.6
2.5
0.1
$ 617.3
$ 32.7
$ 13.6
$ 663.6
Adjustments in 2007 and 2006 primarily relate to the effect of foreign currency translation and changes in the fair value of
net assets subject to purchase accounting adjustments, primarily arising from the Company’s acquisitions as described in
Note 6 – Acquisitions.
During 2007 and 2006, the Company tested its indefinite-lived intangible asset balances, excluding goodwill, for
impairment and, other than the impairment charges described below, no adjustments were recorded as a result of those
reviews.
Aggregate amortization expense for intangibles was $14.8 million, $14.2 million and $10.5 million for the years ended
December 31, 2007, 2006 and 2005, respectively. Estimated amortization expense for intangible assets is $13.1 million for
the year ending December 31, 2008, and $8.9 million per year from 2009 through 2012.
Other intangibles consist of the following:
(in millions)
Amortized intangible assets:
Customer relationships
Other
Total
Indefinite-lived intangible assets:
Trademarks/trade names
December 31, 2007
Gross
Amount
Accumulated
Amortization
December 31, 2006
Gross
Amount
Accumulated
Amortization
$ 271.4
40.7
$ (211.9)
(20.0)
$ 271.6
38.7
$ (202.9)
(15.7)
$ 312.1
$ (231.9)
$ 310.3
$ (218.6)
$ 182.7
$ (17.3)
$ 248.2
$ (17.3)
Amortized intangible assets – Other includes patents, non-compete agreements and other intangible assets. Gross
amounts and related accumulated amortization amounts include adjustments related to the impact of foreign currency
translation and changes in the fair value of net assets subject to purchase accounting adjustments, primarily arising from the
Company’s acquisitions as described in Note 6 – Acquisitions.
66
Brunswick Corporation
Notes to Consolidated Financial Statements
As noted in Note 1 – Significant Accounting Policies, during the third quarter of 2007, Brunswick estimated the fair
value of certain outboard boat trade names with impairment indicators by performing a discounted cash flow analysis based
on a relief-from-royalty approach. This approach treats the trade name as if it were licensed by the Company rather than
owned, and calculates its value based on the discounted cash flow of the projected license payments. The analysis resulted in
a $41.5 million, after-tax, impairment charge, or $66.4 million, pre-tax, to the Boat segment, representing the excess of the
carrying cost of the indefinite-lived intangible assets over the calculated fair value. There were no impairment adjustments
made in 2006.
Note 8 – Investments
The Company has certain unconsolidated international and domestic affiliates that are accounted for using the equity
method. Refer to Note 9 – Financial Services for more details on the Company’s Brunswick Acceptance Company, LLC
joint venture. The Company contributed $0.2 million and $4.0 million to other existing joint ventures in 2007 and 2006,
respectively.
Brunswick received dividends from its unconsolidated affiliates of $11.6 million, $6.8 million and $12.3 million for the
years ended December 31, 2007, 2006 and 2005, respectively.
The Company’s sales to and purchases from its investments, along with the corresponding receivables and payables, were
not material to the Company’s overall results of operations for the years ended December 31, 2007, 2006 and 2005,
respectively, and its financial position as of December 31, 2007 and 2006.
On February 23, 2005, Brunswick sold its investment of 1,861,200 shares in MarineMax, its largest boat dealer, for $56.8
million, net of $4.1 million of selling costs, which included $1.1 million of accrued expenses. The sale was made pursuant to
a registered public offering by MarineMax. As a result of this sale, the Company recorded an after-tax gain of $31.5 million
after utilizing previously unrecognized capital loss carryforwards.
Note 9 – Financial Services
A Company subsidiary, Brunswick Financial Services Corporation (BFS), owns 49 percent of a joint venture, Brunswick
Acceptance Company, LLC (BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC) owns the
remaining 51 percent. Under the terms of the joint venture agreement, BAC provides secured wholesale floor-plan financing
to Brunswick’s boat and engine dealers. BAC also purchases and services a portion of Mercury Marine’s domestic accounts
receivable relating to its boat builder and dealer customers.
BFS’s contributed equity is adjusted monthly to maintain a 49 percent equity interest in accordance with the capital
provisions of the joint venture agreement. BFS’s investment in BAC is accounted for by the Company under the equity
method and is recorded as a component of Investments in its Consolidated Balance Sheets. The Company funds its
investment in BAC through cash contributions and reinvested earnings. In 2007, the Company received a net distribution of
$3.6 million compared with a net distribution of $1.6 million in 2006 and a net contribution of $16.3 million in 2005. The
Company records BFS’s share of income or loss in BAC based on its ownership percentage in the joint venture in Equity
earnings in its Consolidated Statements of Income.
BAC is funded in part through a loan from GE Commercial Distribution Finance Corporation and a securitization facility
arranged by GECC, and in part by a cash equity investment from both partners. BFS’s total investment in BAC at December
31, 2007 and 2006 was $47.0 million and $50.6 million, respectively. BFS’s exposure to losses associated with BAC
financing arrangements is limited to its funded equity in BAC.
BFS recorded income related to the operations of BAC of $12.7 million, $13.2 million and $9.7 million for the years
ended December 31, 2007, 2006 and 2005, respectively. These amounts exclude the discount expense on the sale of Mercury
Marine’s accounts receivable to the joint venture noted below.
67
Brunswick Corporation
Notes to Consolidated Financial Statements
Accounts receivable totaling $887.3 million, $832.0 million and $913.3 million were sold to BAC in 2007, 2006 and 2005
respectively. Discounts of $8.0 million, $7.6 million and $7.0 million for the years ended December 31, 2007, 2006 and
2005, respectively, have been recorded as an expense in Other expense, net, in the Consolidated Statements of Income. The
outstanding balance of receivables sold to BAC was $93.1 million as of December 31, 2007, up from $80.0 million as of
December 31, 2006. Pursuant to the joint venture agreement, BAC reimbursed Mercury Marine $2.7 million, $2.2 million
and $2.6 million in 2007, 2006 and 2005, respectively, for the related credit, collection and administrative costs incurred in
connection with the servicing of such receivables.
As of December 31, 2007 and 2006, the Company had a retained interest in $46.4 million and $31.5 million of the total
outstanding accounts receivable sold to BAC, respectively, as a result of recourse provisions. The Company’s maximum
exposure as of December 31, 2007 and 2006, related to these amounts was $28.9 million and $16.9 million, respectively. In
accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” (SFAS 140), the Company treats the sale of receivables in which the Company retains an interest as a secured
obligation. Accordingly, the amount of receivables subject to recourse was recorded in Accounts and notes receivable with
an offsetting amount recorded in Accrued expenses in the Consolidated Balance Sheets. These balances are included in the
amounts in Note 11 – Commitments and Contingencies.
Additionally, Brunswick's marine dealers can offer extended product warranties to their retail customers through
Brunswick Product Protection Corporation. In October 2006, Brunswick acquired Blue Water Dealer Services, Inc. and its
affiliates, a provider of retail financial services to the marine industry, to allow Brunswick to offer a more complete line of
financial services to its boat and marine engine dealers and their customers. See Note 6 – Acquisitions for further details.
Note 10 – Income Taxes
The sources of earnings before income taxes are as follows:
(in millions)
United States
Foreign
2007
2006
2005
$ 64.7
28.0
$ 285.6
24.1
$ 449.6
36.3
Earnings before income taxes
$ 92.7
$ 309.7
$ 485.9
The income tax provision consisted of the following:
(in millions)
2007
2006
2005
Current tax expense (benefit):
U.S. Federal
State and local
Foreign
Total current
Deferred tax expense (benefit):
U.S. Federal
State and local
Foreign
Total deferred
$ 25.7
$ 66.3
8.8
1.4
76.5
(1.8)
33.6
57.5
$ 99.9
9.0
14.3
123.2
(29.5)
(3.7)
(11.2)
(44.4)
(28.6)
(4.3)
2.9
(30.0)
(7.5)
0.1
(1.0)
(8.4)
Total provision
$ 13.1
$ 46.5
$ 114.8
68
Brunswick Corporation
Notes to Consolidated Financial Statements
Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31, 2007 and 2006,
were as follows:
(in millions)
2007
2006
Current deferred tax assets:
Product warranties
Sales incentives and discounts
Litigation and environmental reserves
Insurance reserves
Bad debt and other receivable reserves
Stock plans
Loss carryforwards
Other
Valuation allowance
$ 53.0
43.8
21.5
20.2
12.7
12.6
16.3
72.1
(2.3)
$ 65.7
44.4
22.4
19.4
11.3
10.4
1.9
76.2
(1.8)
Total current deferred tax assets
$ 249.9
$ 249.9
Non-current deferred tax liabilities (assets):
Depreciation and amortization
Pension
Other
Non-current deferred tax liabilities
Pension
Loss carryforwards
Postretirement and postemployment benefits
Deferred compensation
Other
Valuation allowance
Non-current deferred tax assets
$ 139.1
42.8
37.8
219.7
$ 160.4
46.0
96.0
302.4
(64.9)
(54.6)
(45.9)
(31.3)
(24.9)
14.2
(207.4)
(84.6)
(45.2)
(45.1)
(32.9)
(16.5)
8.2
(216.1)
Total non-current net deferred tax liabilities
$ 12.3
$ 86.3
At December 31, 2007 Loss carryforwards totaling $70.9 million were available to reduce future tax liabilities. This
deferred tax asset was comprised of $34.3 million of the tax benefit of state net operating loss (NOL) carryforwards, $19.3
million of the tax benefit of foreign NOL carryforwards and $17.3 million of the tax benefit of unused capital losses. NOL
carryforwards of $39.2 million expire at various intervals between the years 2008 and 2026, while the remainder have an
unlimited life. At December 31, 2007, the valuation allowance totaling $16.5 million was comprised of $6.1 million for state
NOL carryforwards, $7.1 million for foreign NOL carryforwards and $3.3 million for unused state capital losses.
The Company does not believe other valuation allowances are necessary, because deductible temporary differences will
be utilized primarily by carryback to prior years’ taxable income, or as charges against reversals of future taxable temporary
differences. Based upon prior earnings history, the Company expects that future taxable income will be sufficient to utilize
the remaining deductible temporary differences.
The Company has historically provided deferred taxes under APB No. 23, “Accounting for Income Taxes – Special
Areas,” (APB 23) for the presumed ultimate repatriation to the United States of earnings from all non-U.S. subsidiaries and
unconsolidated affiliates. The indefinite reversal criterion of APB 23 allows the Company to overcome that presumption to
the extent the earnings are indefinitely reinvested outside the United States.
Through July 2, 2005, Brunswick provided deferred taxes for the undistributed net earnings for all of its foreign
subsidiaries and unconsolidated affiliates, as such earnings may have been repatriated to the United States in future years. As
of July 3, 2005, the Company determined that approximately $37 million of certain foreign subsidiaries’ undistributed net
earnings from continuing operations would now be indefinitely reinvested in operations outside the United States. These
earnings will provide Brunswick with the opportunity to continue to expand its global manufacturing footprint, fund future
growth in foreign locations and shift Brunswick’s acquisition focus to Europe and Asia. The Company’s current intentions
meet the indefinite reversal criterion of APB 23. As a result of the APB 23 change in assertion and related refinements in its
tax calculations, the Company reduced its deferred tax liabilities related to undistributed foreign earnings.
69
Brunswick Corporation
Notes to Consolidated Financial Statements
As of January 1, 2007, the Company determined that $25.8 million of current undistributed net earnings, as well as the
future net earnings, of certain additional foreign subsidiaries will be permanently reinvested. As a result of the additional
APB 23 change in assertion, the Company reduced its deferred tax liabilities related to undistributed foreign earnings by $2.0
million during the first quarter of 2007.
The Company has undistributed earnings from continuing operations of foreign subsidiaries of $89.2 million at December
31, 2007, for which deferred taxes have not been provided. Such earnings are indefinitely reinvested in the foreign
subsidiaries. If such earnings were repatriated, additional tax may result. The Company continues to provide deferred taxes,
as required, on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates that are not indefinitely
reinvested in operations outside the United States.
The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,”
(FIN 48) effective on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized an $8.7 million
decrease in the net liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007,
balance of retained earnings. As of January 1, 2007, the Company had $42.4 million of gross unrecognized tax benefits,
including interest. Of this amount, $34.3 million represents the portion that, if recognized, would impact the effective tax
rate. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of
January 1, 2007, the Company had $5.4 million accrued for the payment of interest, and no amounts accrued for penalties.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties since
the inception of FIN 48:
(in millions)
Balance at January 1
Gross increases – tax positions prior periods
Gross decreases – tax positions prior periods
Gross increases – current period tax positions
Decreases – settlements with taxing authorities
Reductions – lapse of statute of limitations
Foreign exchange
Balance at December 31
2007
$ 37.0
4.5
(0.7)
2.6
(0.3)
(4.4)
0.3
$ 39.0
As of December 31, 2007, the Company had $44.4 million of gross unrecognized tax benefits, including interest. Of this
amount, $37.4 million represents the portion that, if recognized, would impact the effective tax rate. The Company
recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2007, the
Company had $5.4 million accrued for the payment of interest, and no amounts accrued for penalties.
The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits as of December 31,
2007, will decrease by approximately $1.2 million in 2008 as a result of expected settlements with taxing authorities. Due to
the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of
tax audits, it is possible that there could be other significant changes in the amount of unrecognized tax benefits in 2008, but
the amount cannot be estimated.
The Company is regularly audited by federal, state and foreign tax authorities. In the fourth quarter of 2006, the IRS
completed its audit of the Company’s taxable years 2002 and 2003. As discussed in Note 11 – Commitments and
Contingencies, the Company and the IRS reached settlements in 2005 for taxable years 1986 through 2001, and the statute of
limitations related to these taxable years expired on March 9, 2006. The Company’s taxable years 2004 through 2006 are
currently open for IRS examination and the IRS has begun its audit of 2004 and 2005. Primarily as a result of filing amended
tax returns, which were generated by the closing of federal income tax audits, the Company is still open to state and local tax
audits in major tax jurisdictions dating back to the 1999 taxable year. With the exception of Germany, where the Company is
currently undergoing a tax audit for taxable years 1998 through 2001, the Company is no longer subject to income tax
examinations by any other major foreign tax jurisdiction for years prior to 2001.
70
Brunswick Corporation
Notes to Consolidated Financial Statements
The difference between the actual income tax provision and the tax provision computed by applying the statutory Federal
income tax rate to earnings before taxes is attributable to the following:
(in millions)
2007
2006
2005
Income tax provision at 35 percent
State and local income taxes, net of Federal income tax effect
Deferred tax reassessments
Research and development credit
Change in estimates related to prior years and prior
years’ amended tax return filings
Lower taxes related to foreign income, net of credits
Tax rate changes
Domestic production activities benefit
Change in APB No. 23 assertion
Tax reserve reassessment
Extraterritorial income benefit
Investment sale capital loss utilization
Other
$ 32.4
1.3
(12.7)
(8.1)
3.8
(2.9)
2.5
(2.4)
(2.0)
0.9
—
—
0.3
$ 108.4
7.8
—
$ 170.1
9.8
—
(8.5)
(4.4)
(5.2)
(9.7)
(15.0)
(5.7)
—
—
(3.0)
—
(40.2)
(9.8)
—
1.4
(3.7)
(8.7)
(3.7)
(12.2)
(6.6)
0.2
Actual income tax provision
$ 13.1
$ 46.5
$ 114.8
Effective tax rate
14.1% 15.0%
23.6%
In 2007, the Company’s effective tax rate of 14.1 percent was lower than the statutory rate primarily due to benefits from
$12.7 million related to reassessments of the deductibility of restructuring reserves and depreciation timing differences;
foreign earnings in tax jurisdictions with lower effective tax rates; and a research and development tax credit. These benefits
were partially offset by $3.8 million of additional taxes related to changes in estimates related to prior year’s filings.
In 2006, the Company’s effective tax rate of 15.0 percent was lower than the statutory rate primarily due to benefits from
$40.2 million of tax reserve reassessments of underlying exposures. Refer to Note 11 – Commitments and Contingencies
for further detail. In addition, the extraterritorial income benefit, foreign earnings in tax jurisdictions with lower effective tax
rates and a research and development tax credit also contributed to the reduced effective tax rate.
In 2005, the Company’s effective tax rate of 23.6 percent was lower than the statutory rate primarily as a result of $15.0
million attributed primarily to refinements in the prior years’ extraterritorial income benefit included above in Change in
estimates related to the 2004 and prior years’ amended tax return filings; $12.2 million from the current year extraterritorial
income benefit; $9.7 million from a research and development credit; and $8.7 million from a change in the assertion under
APB No. 23 for certain foreign subsidiaries as discussed above. Additionally, the Company’s 2005 tax rate benefited from a
$6.6 million utilization of previously unrecognized loss carryforwards incurred in connection with the investment sale gain,
as discussed in Note 8 – Investments.
Income tax provision (benefit) allocated to continuing operations and discontinued operations for the years ended
December 31 was as follows:
(in millions)
2007
2006
2005
Continuing operations
Discontinued operations
$ 13.1
(8.1)
$ 46.5
(9.6)
$ 114.8
(4.4)
Total tax provision
$ 5.0
$ 36.9
$ 110.4
71
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 11 – Commitments and Contingencies
Financial Commitments
The Company has entered into guarantees of indebtedness of third parties, primarily in connection with customer
financing programs. Under these arrangements, the Company has guaranteed customer obligations to the financial
institutions in the event of customer default, generally subject to a maximum amount which is less than total obligations
outstanding. The Company has also guaranteed payments to third parties that have purchased customer receivables from
Brunswick and, in certain instances, has guaranteed secured term financing of its customers. In most instances, upon
repurchase of the debt obligation, the Company receives rights to the collateral securing the financing. The maximum
potential liability associated with these customer financing arrangements was $106.2 million and $99.8 million as of
December 31, 2007 and 2006, respectively. Potential payments in connection with these customer financing arrangements
would likely extend over several years.
The Company has also entered into arrangements with third-party lenders where it has agreed, in the event of a default by
the customer, to repurchase from the third-party lender Brunswick products repossessed from the customer. These
arrangements are typically subject to a maximum repurchase amount. The Company’s risk under these arrangements is
mitigated by the value of the products repurchased as part of the transaction. The maximum amount of collateral the
Company could be required to purchase was $172.8 million and $214.8 million as of December 31, 2007 and 2006,
respectively.
In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others – An Interpretation of FASB Statements No. 5, 57, and 107 and
Rescission of FASB Interpretation No. 34” (FIN 45), the Company has recorded the fair market value of these guarantee and
repurchase obligations as a liability on the consolidated balance sheets based on historical experience and current facts and
circumstances. Historical cash requirements and losses associated with these obligations have not been significant.
Financial institutions have issued standby letters of credit and surety bonds conditionally guaranteeing obligations on
behalf of the Company totaling $70.1 million and $81.5 million as of December 31, 2007 and 2006, respectively, including
$70.1 million and $64.6 million for continuing operations, respectively. These amounts are primarily comprised of standby
letters of credit and surety bonds issued in connection with the Company’s self-insured workers’ compensation program as
required by its insurance companies and various state agencies. The Company has recorded reserves to cover liabilities
associated with these programs. Under certain circumstances, such as an event of default under the Company’s revolving
credit facility, or, in the case of surety bonds, which totaled $15.8 million and $17.7 million as of December 31, 2007 and
2006, respectively, all related to continuing operations, a ratings downgrade below investment grade, the Company could be
required to post collateral to support the outstanding letters of credit and surety bonds.
Product Warranties
The Company records a liability for product warranties at the time revenue is recognized. The liability is estimated using
historical warranty experience, projected claim rates and expected costs per claim. The Company adjusts its liability for
specific warranty matters when they become known and the exposure can be estimated. The Company’s warranty reserves
are affected by product failure rates and material usage and labor costs incurred in correcting a product failure. If these
estimated costs differ from actual costs, a revision to the warranty reserve would be required.
The following activity related to product warranty liabilities from continuing operations was recorded in Accrued
expenses and Long-term liabilities — other at December 31:
(in millions)
Balance at January 1
Payments made
Provisions/additions for contracts issued/sold
Aggregate changes for preexisting warranties
Balance at December 31
2007
2006
$ 161.0
(119.5)
119.1
3.3
$ 155.3
(116.2)
121.5
0.4
$ 163.9
$ 161.0
72
Brunswick Corporation
Notes to Consolidated Financial Statements
Additionally, marine engine customers may purchase a contract from the Company that extends product protection
beyond the standard product warranty period. For certain extended warranty contracts in which the Company retains the
warranty obligation, a deferred liability is recorded based on the aggregate sales price for contracts sold. The deferred
liability is reduced and revenue is recognized over the contract period as costs are expected to be incurred. Deferred revenue
associated with contracts sold by the Company that extend product protection beyond the standard product warranty period,
not included in the table above, was $16.2 million and $21.2 million at December 31, 2007 and 2006, respectively.
Legal and Environmental
The Company accrues for litigation exposure based upon its assessment, made in consultation with counsel, of the likely
range of exposure stemming from the claim. In light of existing reserves, the Company’s litigation claims, when finally
resolved, will not, in the opinion of management, have a material adverse effect on the Company’s consolidated financial
statements. If current estimates for the cost of resolving any claims are later determined to be inadequate, results of
operations could be adversely affected in the period in which additional provisions are required.
Tax Case. In February 2003, the United States Tax Court issued a ruling upholding the disallowance by the Internal
Revenue Service (IRS) of capital losses and other expenses for 1990 and 1991 related to two partnership investments entered
into by the Company. In 2003 and 2004, the Company made payments to the IRS comprised of $33 million in taxes due and
$39 million of pre-tax interest (approximately $25 million after-tax) to avoid future interest costs. Subsequently, the
Company and the IRS settled all issues involved in and related to this case. As a result, the Company reversed $42.6 million
of tax reserves in 2006, primarily related to the reassessment of underlying exposures, received a refund of $12.9 million
from the IRS, and recorded an additional tax receivable of $4.1 million for interest related to these tax years. Additionally,
these tax years will be subject to tax audits by various state jurisdictions to determine the state tax effect of the IRS's audit
adjustments.
Environmental Matters. Brunswick is involved in certain legal and administrative proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and other federal and state legislation governing the
generation and disposal of certain hazardous wastes. These proceedings, which involve both on- and off-site waste disposal
or other contamination, in many instances seek compensation or remedial action from Brunswick as a waste generator under
Superfund legislation, which authorizes action regardless of fault, legality of original disposition or ownership of a disposal
site. Brunswick has established reserves based on a range of cost estimates for all known claims.
The environmental remediation and clean-up projects in which Brunswick is involved have an aggregate estimated range
of exposure of approximately $38.6 million to $58.7 million as of December 31, 2007. At December 31, 2007 and 2006,
Brunswick had reserves for environmental liabilities of $48.0 million and $49.4 million, respectively. There were
environmental provisions of $0.7 million, $0.0 million and $1.5 million for the years ended December 31, 2007, 2006 and
2005, respectively.
Brunswick accrues for environmental remediation related activities for which commitments or clean-up plans have been
developed and for which costs can be reasonably estimated. All accrued amounts are generally determined in coordination
with third-party experts on an undiscounted basis and do not consider recoveries from third parties until such recoveries are
realized. In light of existing reserves, the Company’s environmental claims, when finally resolved, will not, in the opinion of
management, have a material adverse effect on the Company’s consolidated financial position or results of operations.
Asbestos Claims. Brunswick’s subsidiary, Old Orchard Industrial Corp., is a defendant in more than 8,000 lawsuits
involving claims of asbestos exposure from products manufactured by Vapor Corporation (Vapor), a former subsidiary that
the Company divested in 1990. Virtually all of the asbestos suits involve numerous other defendants. The claims generally
allege that the Company sold products that contained components, such as gaskets, which included asbestos, and seek
monetary damages. Neither Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand claims have
been dismissed with no payment and no claim has gone to jury verdict. In a few cases, claims have been filed against other
Brunswick entities, with a majority of these suits being either dismissed or settled for nominal amounts. The Company does
not believe that the resolution of these lawsuits will have a material adverse effect on the Company’s consolidated financial
position or results of operations.
73
Brunswick Corporation
Notes to Consolidated Financial Statements
Australia Trade Practices Investigation. In January 2005, Brunswick received a notice to furnish information and
documents to the Australian Competition and Consumer Commission (ACCC). A subsequent notice was received in October
of 2005. Following the completion of its investigation in December 2006, the ACCC commenced proceedings against a
Brunswick subsidiary, Navman Australia Pty Limited, with respect to its compliance with the Trade Practices Act of 1974 as
it pertains to Navman Australia’s sales practices from 2001 to 2005. The ACCC had alleged that Navman Australia engaged
in resale price maintenance in breach of the Act. In December 2007, the Australian courts approved a settlement in favor of
ACCC for approximately $1.3 million.
Chinese Supplier Dispute. Brunswick was involved in an arbitration proceeding in Hong Kong arising out of a
commercial dispute with a former contract manufacturer in China, Shanghai Zhonglu Industrial Company Limited (Zhonglu).
The Company filed the arbitration seeking damages based on Zhonglu's breach of a supply and distribution agreement
pursuant to which Zhonglu agreed to manufacture bowling equipment. Zhonglu had asserted counterclaims seeking damages
for alleged breach of contract among other claims in August 2007. The arbitration tribunal issued a ruling in the Company’s
favor for a net amount of approximately $0.1 million.
Patent Infringement Dispute. In October 2006, Brunswick was sued by Electromotive, Inc. (Electromotive) in the United
States District Court for the Northern District of Virginia. Electromotive claimed that a number of engines sold by
Brunswick’s Mercury Marine business had infringed on an expired patent held by Electromotive related to a method for
ignition timing. On July 27, 2007, a jury returned a verdict in favor of Electromotive in the amount of approximately $3
million. In October 2007, the Company and Electromotive subsequently reached an agreement to settle the case in lieu of
pursuing respective appeals at a level below the verdict.
Brazilian Customs Dispute. In June 2007, the Brazilian Customs Office issued an assessment against a Company
subsidiary in the amount of approximately $14 million related to the importation of Life Fitness products into Brazil. The
assessment was based on a determination by Brazilian customs officials that the proper import value of Life Fitness
equipment imported into Brazil should be the manufacturer’s suggested retail price of those goods in the United States. The
assessment consists of duties, penalties and interest on the importation of Life Fitness products into Brazil over the past five
years. Brunswick believes that this determination by the Brazilian Customs Office is without merit and has appealed the
assessment. The Company does not believe that the resolution of this dispute will have a material adverse effect on its
consolidated financial condition or results of operations.
Note 12 – Financial Instruments
The Company operates domestically and internationally, with manufacturing and sales facilities in various locations
around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and
market risks. The Company utilizes its normal operating and financing activities, along with derivative financial instruments
to minimize these risks.
Derivative Financial Instruments. The Company uses derivative financial instruments to manage its risks associated with
movements in foreign currency exchange rates, interest rates and commodity prices. Derivative instruments are not used for
trading or speculative purposes. For certain derivative contracts, on the date a derivative contract is entered into, the
Company designates the derivative as a hedge of a forecasted transaction (cash flow hedge). The Company formally
documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk
management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are
designated as hedges to specific forecasted transactions. The Company also assesses, both at the inception and at least
quarterly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in the
anticipated cash flows of the hedged item. There were no material adjustments as a result of ineffectiveness to the results of
operations for the years ended December 31, 2007, 2006 and 2005. If the hedging relationship ceases to be highly effective,
or it becomes probable that a forecasted transaction is no longer expected to occur, gains and losses on the derivative are
recorded in Other expense, net. The fair market value of derivative financial instruments is determined through market-based
valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature
due to future fluctuations in the markets in which they are traded. The effects of derivative and financial instruments are not
expected to be material to the Company’s financial position or results of operations when considered together with the
underlying exposure being hedged.
74
Brunswick Corporation
Notes to Consolidated Financial Statements
Fair Value Derivatives. During 2007 and 2006, the Company entered into foreign currency forward contracts to manage
foreign currency exposure related to changes in the value of assets or liabilities caused by changes in the exchange rates of
foreign currencies. The change in the fair value of the foreign currency derivative contract and the corresponding change in
the fair value of the asset or liability of the Company are both recorded through earnings.
Cash Flow Derivatives. Certain derivative instruments qualify as cash flow hedges under the requirements of SFAS Nos.
133, Accounting for Derivative Instruments and Hedging Activities, and 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities an amendment of FASB Statement No. 133. The Company executes forward contracts and
options, based on forecasted transactions, to manage foreign exchange exposure mainly related to inventory purchase and
sales transactions. The Company also enters into commodity swap agreements, based on anticipated purchases of certain raw
materials, and natural gas forward contracts, based on projected purchases, to manage exposure related to risk from price
changes. The Company has also entered into forward starting interest rate swaps to hedge the interest rate risk associated with
the anticipated issuance of debt.
A cash flow hedge requires that as changes in the fair value of derivatives occur, the portion of the change deemed to be
effective is recorded temporarily in Accumulated other comprehensive income (loss), an equity account, and reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings.
The following activity related to cash flow hedges were recorded in Accumulated other comprehensive income (loss) as
of December 31:
(in millions)
Accumulated Unrealized Derivative
Gains (Losses)
2007
2006
Pre-tax
After-tax
Pre-tax
After-tax
Beginning balance
Net change associated with current period hedging activity
Net amount recognized into earnings
$ 7.6
(34.6)
22.5
$ 5.3
(24.2)
15.7
$ 11.2
(12.6)
9.0
$ 7.9
(8.8)
6.2
Ending balance
$ (4.5)
$ (3.2)
$ 7.6
$ 5.3
The Company estimates that $1.3 million of after-tax net realized losses from derivatives that have been settled and
deferred in Accumulated other comprehensive income (loss) at December 31, 2007, will be realized in earnings over the next
twelve months. At December 31, 2007, the term of derivative instruments hedging forecasted transactions ranges from one to
eighteen months.
Foreign Currency. The Company enters into forward exchange contracts and options to manage foreign exchange
exposure related to forecasted transactions, and assets and liabilities that are subject to risk from foreign currency rate
changes. These include product costs; revenues and expenses; associated receivables and payables; intercompany obligations
and receivables; and other related cash flows. Forward exchange contracts outstanding at December 31, 2007 and 2006, had
notional contract values of $284.2 million and $377.2 million, respectively. The approximate fair value of forward exchange
contracts was a net liability of $5.0 million and $5.7 million at December 31, 2007 and 2006, respectively. Option contracts
outstanding at December 31, 2007 and 2006, had notional contract values of $343.8 million and $144.7 million, respectively.
The approximate fair value of options contracts outstanding was a net liability of $1.2 million and a net asset of $0.5 million
at December 31, 2007 and 2006, respectively. The forward and options contracts outstanding at December 31, 2007, mature
during 2008 and 2009 and primarily relate to the Euro, Canadian dollar, British pound, Australian dollar, Japanese yen and
New Zealand dollar.
Interest Rate. The Company utilizes fixed-to-floating interest rate swaps to mitigate the interest rate risk associated with
its long-term debt. These swaps had a notional value of $50.0 million as of December 31, 2007 and 2006, respectively, and
an associated fair market value of $1.4 million as of December 31, 2007, and a loss of $0.2 million as of December 31, 2006.
These instruments have been treated as fair value hedges, with the offset to the aforementioned fair market value (loss)
recorded in long-term debt; see Note 14 – Debt in the Notes to Consolidated Financial Statements for further details.
75
Brunswick Corporation
Notes to Consolidated Financial Statements
The Company also utilizes forward starting floating-to-fixed interest rate swaps to hedge the interest rate risks associated
with interest payments on anticipated issuances of long-term debt. As of December 31, 2007, Company had forward starting
swaps with a notional value of $150 million and a fair market value of a loss of $3.9 million. These instruments are being
accounted for as cash flow hedges of long-term fixed rate debt expected to be issued to refinance the $250 million of floating
rate notes due July 2009. There were no forward starting swaps outstanding as of December 31, 2006.
As of December 31, 2007 and 2006, the Company had $11.9 million and $12.6 million, respectively, of deferred gains
associated with forward starting interest rate swaps included in Accumulated other comprehensive income (loss). These
amounts include gains deferred on $250 million of forward starting interest rate swaps terminated in July 2006, which had
been designated as cash flow hedges of long term fixed rate debt expected to be issued in 2006 to refinance notes maturing in
December 2006. These forward starting swaps resulted in a net realized gain of $14.2 million. In 2006, the Company
refinanced its debt due in December 2006 with $250 million of floating rate notes due in July 2009 which were callable
beginning in July 2007, and recognized $1.6 million of the gain as the ineffective portion of the hedge and deferred the
remainder in Accumulated other comprehensive income (loss) pending refinancing of the 2009 notes with long-term, fixed
rate debt. In 2007, the Company recognized an additional $0.7 million of the gain as ineffective, as the long term fixed rate
debt issuance did not occur. The Company continues to believe that the $250 million of floating rate notes due in July 2009
will ultimately be refinanced with long term fixed rate debt.
Commodity Price. The Company uses commodity swap and futures contracts to hedge anticipated purchases of certain
raw materials. Commodity swap contracts outstanding at December 31, 2007 and 2006 had notional values of $23.2 million
and $18.6 million, respectively. At December 31, 2007 and 2006, the estimated fair value of these swap contracts was a net
asset of $0.5 million and $4.0 million, respectively. The contracts outstanding at December 31, 2007, mature throughout
2008 and 2009. The Company also uses futures contracts to manage its exposure to fluctuating natural gas prices, which had
a notional contract value of $1.8 million and $1.7 million outstanding at December 31, 2007 and 2006, respectively. The
estimated fair value of the futures contracts was a net liability of $0.4 million at December 31, 2007 and 2006.
Concentration of Credit Risk. The Company enters into financial instruments with banks and investment firms with
which the Company has continuing business relationships and regularly monitors the credit ratings of its counterparties. The
Company sells a broad range of active recreation products to a worldwide customer base and extends credit to its customers
based upon an ongoing credit evaluation program. Concentrations of credit risk with respect to accounts receivable are not
material to the Company’s financial position, due to the large number of customers comprising the Company’s customer base
and their dispersion across many different geographic areas, with the exception of one boat builder customer. This customer
had trade accounts receivable and long-term notes receivable, in connection with a supply agreement, with net credit
exposure of $23.7 million and $29.4 million at December 31, 2007 and 2006, respectively.
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments,
including cash and cash equivalents, accounts and notes receivable and short-term debt, approximate their fair values because
of the short maturity of these instruments. At December 31, 2007 and 2006, the fair value of the Company’s long-term debt
was approximately $717.8 million and $729.0 million, respectively, as estimated using quoted market prices or discounted
cash flows based on market rates for similar types of debt.
76
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 13 – Accrued Expenses
Accrued Expenses at December 31 were as follows:
(in millions)
Sales incentives and discounts
Product warranties
Accrued compensation and benefit plans
SFAS 140 obligations
Deferred revenue
Insurance reserves
Other
Total accrued expenses
2007
2006
$ 172.3 $ 157.8
158.9
161.8
114.2
159.5
31.6
92.1
64.4
74.5
48.6
50.2
173.4
147.7
$ 858.1 $ 748.9
Note 14 – Debt
Long-Term Debt at December 31 consisted of the following:
(in millions)
2007
2006
Floating rate notes, due 2009
Notes, 7.125% due 2027, net of discount of $0.9 and $1.0
Notes, 5.0% due 2011, net of discount of $0.4 and $0.5
Debentures, 7.375% due 2023, net of discount of $0.5 and $0.5
Notes, 1.82% to 4.0% payable through 2015
$ 250.0
199.1
151.0
124.5
3.6
728.2
$ 250.0
199.0
149.3
124.5
3.6
726.4
(0.7)
(0.8)
$ 727.4
$ 725.7
$ 251.0
0.5
151.4
0.4
324.1
$ 727.4
Current maturities
Long-term debt
Scheduled maturities
2009
2010
2011
2012
Thereafter
Total long-term debt
77
Brunswick Corporation
Notes to Consolidated Financial Statements
In the second quarter of 2005, the Company and certain of its domestic and foreign subsidiaries entered into a new $650
million revolving credit facility (Facility) that serves as support for commercial paper borrowings. The Facility’s initial term
was five years, with provisions to extend the term for an additional one year on each anniversary of the Facility, with consent
of the lenders. In May 2007, the Company amended the Facility agreement, resulting in a one-year extension of the term
through May 5, 2012. There are $55.0 million of the $650.0 million Facility commitments expiring on May 5, 2011;
however, the Company has the right to replace these commitments at any time. Under the terms of the Facility, the Company
has multiple borrowing options, including borrowing at the greater of the prime rate as announced by JPMorgan Chase Bank,
N.A., or the Federal Funds effective rate plus 50 basis points, or a rate tied to LIBOR. The Company pays a facility fee of 8
basis points per annum, which is subject to adjustment based on credit ratings. Under the terms of the Facility, the Company
is subject to a leverage test, as well as restrictions on secured debt. The Company was in compliance with these covenants at
December 31, 2007. There were no borrowings under the Facility during 2007, and the Facility continues to serve as support
for any outstanding commercial paper borrowings. The Company has the ability to issue up to $150.0 million in letters of
credit under the Facility. The Company had borrowing capacity of $596.2 million under the terms of this agreement at
December 31, 2007, net of outstanding letters of credit.
On July 24, 2006, the Company completed the offering of a $250.0 million aggregate principal amount of senior
unsubordinated floating rate notes due in 2009 under the Company’s universal shelf registration. The proceeds from this
offering were used to repay the Company’s $250.0, 6.75% notes that were due in December 2006. The floating rate notes
mature on July 24, 2009, and interest is due quarterly and accrues at the rate of three-month LIBOR plus 65 basis points, set
at the beginning of each quarterly period. The Company has the option to redeem some or all of the floating rate notes at par,
plus accrued interest, prior to maturity. After this issuance, the Company had $200.0 million available under its universal
shelf registration statement filed in 2001 with the SEC for the issuance of equity and/or debt securities.
Included in Notes, 5.0% due 2011, is the estimated aggregate market value related to the fixed-to-floating interest rate
swaps discussed in Note 12 – Financial Instruments.
Note 15 – Postretirement Benefits
Overview. The Company has defined contribution plans, qualified and nonqualified pension plans, and other
postretirement benefit plans covering substantially all of its employees. The Company’s contributions to its defined
contribution plans are based on various percentages of compensation, and in some instances are based on the amount of the
employees’ contributions to the plans. The expense related to these plans was $42.0 million, $47.6 million and $46.5 million
in 2007, 2006 and 2005, respectively. Company contributions to multiemployer plans were $0.5 million, $0.4 million and
$0.5 million in 2007, 2006 and 2005, respectively.
The Company’s domestic pension and retiree health care and life insurance benefit plans, which are discussed below,
provide benefits based on years of service, and for some plans, the average compensation prior to retirement. The Company
uses a December 31 measurement date for these plans. The Company’s salaried pension plan was closed to new participants
effective April 1, 1999. This plan was replaced with a defined contribution plan for certain employees not meeting age and
service requirements and for new hires. The Company’s foreign benefit plans are not significant individually or in the
aggregate.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed
into law. The Act introduces a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health
care benefit plans that provides a benefit that is at least actuarially equivalent to Medicare Part D. The Company’s
postretirement benefit obligation and net periodic benefit cost do not reflect the effects of the Act, as the Company does not
anticipate qualifying for the subsidy based on its current plan designs.
FAS 158 Adoption. On December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88,
106 and 132(R),” (SFAS 158). SFAS 158 requires recognition of the overfunded or underfunded status of pension and other
postretirement plans in the statement of financial position, as well as recognition of changes in that funded status through
comprehensive income in the year in which they occur. SFAS 158 was adopted on a prospective basis as required. Prior
years’ amounts have not been restated. Effective for the year ended December 31, 2007, SFAS 158 also requires
measurement of a plan’s assets and benefit obligations as of the date of the employer’s fiscal year end. As the Company
already measures plan assets and benefit obligations as of December 31, 2006, the adoption of this element of SFAS 158 did
not have any impact on the Company in 2007.
78
Brunswick Corporation
Notes to Consolidated Financial Statements
The prior accounting for defined pension and other postretirement plans allowed for delayed recognition of changes in
plan assets and benefit obligations and recognition of a liability that may have been significantly less than the underfunded
status of the plans or an asset for plans that may have been underfunded. The following table illustrates the incremental
effect of applying SFAS 158 for pension, postretirement and postemployment benefits on individual line items in the
Company’s Consolidated Balance Sheet as of December 31, 2006:
(in millions)
Other assets
Other intangibles, net
Other long-term assets
Before
Application of
SFAS 158
SFAS 158
Adjustments
Increase
(Decrease)
After
Application of
SFAS 158
$ 353.8
$ 216.4
$ (31.2)
$ (21.3)
$ 322.6
$ 195.1
Total assets
$ 4,502.8
$ (52.5)
$ 4,450.3
Long-term liabilities
Deferred income taxes
Postretirement and postemployment benefits
Shareholders’ equity
Accumulated other comprehensive income
(loss), net of tax:
Defined benefit plans
Prior service cost
Net actuarial loss
Minimum pension liability
$ 124.9
$ 177.4
$ (38.6)
$ 46.8
$ 86.3
$ 224.2
$ —
$ —
$ (72.2)
$ (11.2)
$ (121.7)
$ 72.2
$ (11.2)
$ (121.7)
$ —
Shareholders’ equity
$ 1,932.5
$ (60.7)
$ 1,871.8
Total liabilities and shareholders’ equity
$ 4,502.8
$ (52.5)
$ 4,450.3
Costs. Pension and other postretirement benefit costs included the following components for 2007, 2006 and 2005:
(in millions)
Pension Benefits
2006
2005
2007
Other Postretirement
Benefits
2006
2005
2007
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
Amortization of net actuarial loss
Special termination benefit
Curtailment loss
$ 17.3
62.8
(81.9)
6.5
7.3
—
—
$ 18.5
58.9
(78.3)
6.8
10.4
0.1
—
$ 18.6
58.3
(72.6)
7.3
13.5
—
0.8
$ 3.0
6.6
—
(1.8)
1.0
—
—
5.7
$ 2.9 $ 2.7
6.0
—
(2.1)
1.2
—
—
—
(2.1)
0.8
—
—
Net pension and other benefit costs
$ 12.0
$ 16.4
$ 25.9
$ 8.8
$ 8.0 $ 7.1
79
Brunswick Corporation
Notes to Consolidated Financial Statements
Benefit Obligations and Funded Status. A reconciliation of the changes in the plans’ benefit obligations and fair value of
assets over the two-year period ending December 31, 2007, and a statement of the funded status at December 31 for these
years for the Company’s pension and other postretirement benefit plans follow:
(in millions)
Reconciliation of benefit obligation:
Benefit obligation at previous December 31
Service cost
Interest cost
Participant contributions
Plan amendments
Special termination benefits
Acquisition
Actuarial (gains) losses(A)
Benefit payments
Pension Benefits
2006
2007
Other
Postretirement
Benefits
2007
2006
$ 1,077.2
17.3
62.8
—
0.2
—
—
30.3)
(55.9)
$ 1,051.0
18.5
58.9
—
2.9
0.1
—
$ 113.9
3.0
6.6
1.0
—
—
—
$ 105.4
2.9
6.0
1.2
2.2
—
0.3
(2.6)
(51.6)
(9.3)
(8.2)
3.1
(7.2)
Benefit obligation at December 31
$ 1,071.3
$ 1,077.2
$ 107.0
$ 113.9
Reconciliation of fair value of plan assets:
Fair value of plan assets at previous December 31
Actual return on plan assets
Employer contributions
Participant contributions
Benefit payments
$ 991.0
79.0
2.6
—
(55.9)
$ 931.8
93.4
17.4
—
(51.6)
$ —
—
7.2
1.0
(8.2)
$ —
—
6.0
1.2
(7.2)
Fair value of plan assets at December 31
$ 1,016.7
$ 991.0
$ —
$ —
Funded status at December 31
$ (54.6)
$ (86.2)
$ (107.0) $ (113.9)
(A) The actuarial gains for pension and other postretirement benefits arising during 2007 are primarily a result of the increase in the discount rate and
demographic gains, partially offset by the impact of updating expected mortality assumptions using the RP-2000 Generational Mortality tables.
The amounts included in the Company’s balance sheets as of December 31, 2007 and 2006, were as follows:
(in millions)
Other long-term assets
Accrued expenses
Postretirement benefits
Pension Benefits
2006
2007
Other
Postretirement
Benefits
2007
2006
$ 29.3
(3.1)
(80.8)
$ 19.7
(2.6)
(103.3)
$ —
(8.8)
(98.2)
$ —
(8.0)
(105.9)
Net amount recognized
$ (54.6)
$ (86.2)
$ (107.0)
$ (113.9)
80
Brunswick Corporation
Notes to Consolidated Financial Statements
The following pre-tax activity related to pensions and other postretirement benefits was recorded in Accumulated other
comprehensive income (loss) as of December 31:
(in millions)
Pension Benefits
2006
2007
Other
Postretirement
Benefits
2007
2006
Prior service cost (credit)
Beginning balance
Prior service cost arising during the period
Amount recognized as component of net benefit costs
Effect of SFAS No. 158 adoption
$ 35.2 $ —
—
—
35.2
0.2
(6.5)
—
$ (6.1) $ —
—
—
(6.1)
—
1.8
—
Ending balance
$ 28.9 $ 35.2 $ (4.3) $ (6.1)
Net actuarial loss
Beginning balance
Actuarial gain arising during the period
Amount recognized as component of net benefit costs
Effect of SFAS No. 158 adoption
$ 172.8 $ —
—
—
172.8
(27.4)
(7.3)
—
$ 22.0 $ —
—
(9.3)
—
(1.0)
22.0
—
Ending balance
Total
$ 138.1
$ 172.8 $ 11.7 $ 22.0
$ 167.0 $ 208.0 $ 7.4 $ 15.9
The estimated pre-tax prior service cost and net actuarial loss in Accumulated other comprehensive income (loss) at
December 31, 2007, expected to be recognized as components of net periodic benefit cost in 2008 for the Company’s pension
plans are $6.5 million and $3.6 million, respectively. The estimated pre-tax prior service credit and net actuarial loss in
Accumulated other comprehensive income (loss) at December 31, 2007, expected to be recognized as components of net
periodic benefit cost in 2008 for the Company’s other postretirement benefit plans are $1.7 million and $0.1 million,
respectively.
The minimum liability concept, including recognition of an intangible asset, has been eliminated under SFAS 158
effective December 31, 2006. Prior to the adoption of SFAS 158, a minimum liability adjustment was recognized in
Accumulated other comprehensive income (loss) to the extent there was an unfunded accumulated benefit obligation that had
not been recognized in the balance sheet. Minimum pension liabilities of $71.4 million after-tax ($116.9 million pre-tax)
were recognized in Accumulated other comprehensive income (loss) as of December 31, 2006, prior to the adoption of SFAS
158, representing a $15.8 million after-tax ($25.8 million pre-tax) adjustment for the change in the additional minimum
liability for the year ended December 31, 2006. Minimum pension liabilities of $87.2 million after-tax ($142.7 million pre-
tax) are included in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets as of December 31,
2005. The adjustment for the change in the additional minimum liability decreased Accumulated other comprehensive
income (loss) by $10.0 million after-tax ($16.4 million pre-tax) for the year ended December 31, 2005.
The accumulated benefit obligation for the Company’s pension plans was $1,040.3 million and $1,037.8 million at
December 31, 2007 and 2006, respectively. The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with a projected benefit obligation in excess of plan assets, and pension plans with an
accumulated benefit obligation in excess of plan assets, at December 31 were as follows:
(in millions)
2007
2006
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$ 687.6 $ 989.6
$ 656.6 $ 950.2
$ 603.7 $ 883.7
81
Brunswick Corporation
Notes to Consolidated Financial Statements
The funded status of these pension plans as a percentage of the projected benefit obligation was 88 percent in 2007
compared to 89 percent in 2006. In the aggregate, the Company’s qualified pension plans had assets greater than their
accumulated benefit obligations at December 31, 2007 and 2006. The projected benefit obligation for the Company’s
unfunded, nonqualified pension plan was $54.5 million and $52.2 million at December 31, 2007 and 2006, respectively. The
accumulated benefit obligation for the unfunded, nonqualified plan was $52.2 million and $48.4 million at December 31,
2007 and 2006, respectively.
The Company’s nonqualified pension plan and other postretirement benefit plans are not funded.
Prior service costs are amortized on a straight-line basis over the average remaining service period of active participants.
Actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market value of assets are
amortized over the remaining service period of active plan participants.
Participants eligible for other postretirement benefits have flat dollar post-age 65 benefits. The assumed health care cost
trend rate for other postretirement benefits for pre-age 65 benefits as of December 31 was as follows:
Health care cost trend rate for next year
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year rate reaches the ultimate trend rate
Pre-age 65 Benefits
2007
2006
8.5% 9.0%
5.0% 5.0%
2015
2011
The health care cost trend rate assumption has an effect on the amounts reported. A one percent change in the assumed
health care trend rate at December 31, 2007, would have the following effects:
(in millions)
One Percent One Percent
Increase
Decrease
Effect on total service and interest cost
Effect on accumulated postretirement benefit obligation
$0.6
$5.7
$(0.5)
$(5.1)
The Company monitors the cost of health care and life insurance benefit plans and reserves the right to make additional
changes or terminate these benefits in the future.
Weighted average assumptions used to determine pension and other postretirement benefit obligations at December 31
were as follows:
Pension Benefits
2006
2007
Other
Postretirement
Benefits
2007
2006
Discount rate
Rate of compensation increase(A)
6.50 %
3.25 %
6.00 %
3.75 %
6.35 % 6.00 %
—
—
(A) Assumption used in determining pension benefit obligation only.
82
Brunswick Corporation
Notes to Consolidated Financial Statements
Weighted average assumptions used to determine net pension and other postretirement benefit costs for the years ended
December 31 were as follows:
Discount rate
Long-term rate of return on plan assets(A)
Rate of compensation increase(A)
6.00 % 5.75 %
8.50 % 8.50 %
3.75 % 3.75 %
5.90 %
8.50 %
3.75 %
2007
2006
2005
(A) Assumption used in determining pension benefit cost only.
The Company utilized a yield curve analysis to determine the discount rates for pension and other postretirement benefit
obligations in 2007. The yield curve consist of spot interest rates at half yearly increments for each of the next 30 years and
was developed based on pricing and yield information for high quality corporate bonds rated Aa by Moody’s, excluding
callable bonds, bonds of less that a minimum size and other filtering criteria. The yield curve analysis matched the cash flows
of the Company’s benefit obligations.
The Company utilized a long-term corporate bond model to determine the discount rate used to calculate plan liabilities at
December 31, 2006, 2005 and 2004. The corporate bond model calculated the yield of a portfolio of bonds whose cash flows
approximated the plans’ expected benefit payments. The yield of this portfolio was compared to the Moody’s Aa Corporate
Bond Yield Index at a comparable measurement date to determine the yield differential, which was 22 basis points, 27 basis
points and 16 basis points in 2006, 2005 and 2004, respectively. This differential was added to the year-end Moody’s index
to determine the discount rate. These rates were used to determine the benefit costs for the subsequent year.
The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical
experience and future expectations of investment returns. The Company’s long-term rate of return on assets assumption of
8.5 percent in 2007, 2006 and 2005, reflects recent market trends and is consistent with historical weighted average total
returns achieved by the plans’ assets.
Plan Assets. The Company’s asset allocation for its qualified pension plans at December 31 by asset category was as
follows:
Asset Category
Equity securities
Debt securities
Real estate
Other
Percentage of Plan
Assets
2007
2006
Target Allocation
Ranges
High
Low
66%
14
14
6
68%
15
13
4
75%
22
18
55%
12
10
Total
100%
100%
Equity securities do not include any shares of the Company’s common stock at December 31, 2007 and 2006.
Assets of the Company’s Master Pension Trust (Trust) are invested solely in the interest of the plan participants for the
purpose of providing benefits to participants and their beneficiaries. Investment decisions within the Trust are made after
giving appropriate consideration to the prevailing facts and circumstances that a prudent person acting in a like capacity
would use in a similar situation, and follow the guidelines and objectives established within the investment policy statement
for the Trust. The Trust strategically diversifies its investments among various asset classes in order to reduce risks and
enhance returns. Long-term strategic weightings for the total Trust of 66 percent for equity securities, 20 percent for interest-
sensitive investments (debt securities and other) and 14 percent for real estate are within the Company’s target allocation
ranges. All investments are continually monitored and reviewed, with evaluation considerations focusing on strategic target
allocations, investment vehicles and performance of the individual investment managers, as well as overall Trust
performance.
83
Brunswick Corporation
Notes to Consolidated Financial Statements
Expected Cash Flows. The expected cash flows for the Company’s pension and other postretirement benefit plans follow:
(in millions)
Pension
Benefits
Other Post-
retirement
Benefits
Company contributions expected to be made in 2008 (A)
Expected benefit payments (which reflect future service):
2008
2009
2010
2011
2012
2013-2017
$ 3.2
$ 8.8
$ 61.6
$ 65.6
$ 68.9
$ 72.4
$ 76.2
$ 426.0
$ 8.8
$ 8.8
$ 8.9
$ 9.2
$ 9.4
$ 52.4
(A) The Company currently anticipates funding approximately $3.2 million to cover benefit payments in the unfunded, nonqualified
pension plan in 2008. The Company is evaluating the impact of the Pension Protection Act of 2006 on 2008 contributions to the
qualified pension plans. Company contributions are subject to change based on market conditions or Company discretion.
Brunswick also provides postemployment benefits to qualified former or inactive employees. The incremental effect of
adopting SFAS 158 for these postemployment benefit plans resulted in a $6.6 million after-tax ($10.8 million pre-tax)
increase in Accumulated other comprehensive income (loss), net of tax, at December 31, 2006. The pre-tax prior service
credit in Accumulated other comprehensive income (loss) recognized in income in 2007 was $1.3 million. The estimated
pre-tax prior service credit in Accumulated other comprehensive income (loss) at December 31, 2007, expected to be
recognized in income in 2008, is $1.3 million.
Note 16 – Stock Plans and Management Compensation
On January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment,”
(SFAS 123R), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123R supersedes
Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No.
95, “Statement of Cash Flows.” SFAS 123R requires the Company to recognize all share-based payments to employees,
including grants of stock options and the compensatory elements of employee stock purchase plans, in its income statement
based upon the fair value of such share-based payments. Share-based employee compensation cost (benefit) is recognized as
a component of Selling, general and administrative expense in the Consolidated Statements of Income.
The Company previously accounted for its share-based compensation using the intrinsic value method as defined in APB
25. Prior to January 1, 2006, other than for nonvested stock, no share-based employee compensation cost was reflected in net
earnings. SFAS 123R requires that the Company report the tax benefit related to share-based compensation that is in excess
of recognized compensation costs (excess tax benefits) as a financing cash flow rather than as an operating cash flow in the
Consolidated Statements of Cash Flows. Total stock option expense from continuing operations was $5.2 million and 5.8
million for the years ended December 31, 2007 and 2006, respectively and resulted in a deferred tax asset for the tax benefit
to be realized in future periods.
The Company used the modified prospective transition method to adopt the provisions of SFAS 123R. Under this method,
employee compensation cost recognized in 2006 includes: (i) compensation cost for all share-based payments granted prior
to, but not yet vested, as of January 1, 2006, based on grant date fair value estimated in accordance with the original
provisions of SFAS 123 and (ii) compensation cost for all share-based payments granted on or subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Therefore, prior period
financial statements have not been restated. In accordance with SFAS 123R, the fair value of option grants is estimated as of
the date of grant using the Black-Scholes-Merton option pricing model.
As a result of adopting SFAS 123R on January 1, 2006, the Company's net earnings from continuing operations for the
year ended December 31, 2006, were $3.5 million lower ($0.04 per diluted share) than if it had continued to account for
share-based compensation under APB 25.
84
Brunswick Corporation
Notes to Consolidated Financial Statements
The following table illustrates the effect on net earnings and earnings per share for the year ended December 31, 2005, if
the fair value-based method provided by SFAS 123 had been applied for all outstanding and unvested awards for periods
before the Company adopted SFAS 123R:
(in millions, except per share data)
Net earnings from continuing operations, as reported
Add: Share-based employee compensation
included in reported earnings, net of tax
Less: Total share-based employee compensation
expense under fair value-based method for
all awards, net of tax
Net earnings from continuing operations, pro forma
Basic earnings from continuing operations per common share:
As reported
Pro forma
Diluted earnings from continuing operations per common share:
As reported
Pro forma
2005
$ 371.1
1.8
8.7
$ 364.2
$ 3.80
$ 3.73
$ 3.76
$ 3.69
Under the 2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock appreciation rights (SARs),
nonvested stock and other types of share-based awards to executives and other management employees. Under the Plan, the
Company may issue up to 8.1 million shares, consisting of treasury shares and authorized, but unissued shares of common
stock. As of December 31, 2007, 4.0 million shares were available for grant.
Stock Options and SARS
Prior to 2005, the Company primarily issued share-based compensation in the form of stock options, and had not issued
any SARs. Since the beginning of 2005, the Company has issued stock-settled SARs and has not issued any stock options.
Generally, stock options and SARs are exercisable over a period of 10 years, or as otherwise determined by the Human
Resources and Compensation Committee of the Board of Directors, and subject to vesting periods of four years. The exercise
price of stock options and SARs issued under the Plan cannot be less than the fair market value of the underlying shares at
the date of grant. Stock option activity for all plans for the three years ended December 31, 2007, 2006 and 2005, was as
follows:
2007
2006
2005
(Options in thousands)
Stock
Options
Outstanding
Outstanding on January 1
Granted
Exercised
Forfeited
4,001
900
(410)
(272)
Weighted
Average
Exercise
Price
$ 32.62
$ 32.89
$ 23.94
$ 37.39
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Stock
Options
Outstanding
$ 3,556
3,844
906
(548)
(201)
Weighted
Average
Exercise
Price
$ 29.91
$ 39.06
$ 21.95
$ 38.90
Stock
Options
Outstanding
3,702
934
(740)
(52)
Weighted
Average
Exercise
Price
$ 24.59
$ 45.90
$ 23.17
$ 34.04
Outstanding on December 31
4,219
$ 33.22
5.7 years
$ — 4,001
$ 32.62
3,844
$ 29.91
Exercisable on December 31
2,428
$ 30.02
4.0 years
$ — 2,338
$ 26.73
2,312
$ 23.45
85
Brunswick Corporation
Notes to Consolidated Financial Statements
The following table summarizes information about stock options outstanding as of December 31, 2007:
Range of Exercise
Price
Number
Outstanding
(in thousands)
Weighted
Average
Remaining
Years of
Contractual
Life
Weighted
Average
Exercise
Price
Number
Exercisable
(in thousands)
Weighted
Average
Remaining
Years of
Contractual
Life
Weighted
Average
Exercise
Price
$17.38 to $20.00
$20.01 to $30.00
$30.01 to $40.00
$40.01 to $49.27
479
1,003
1,928
809
2.7 years
3.5 years
7.8 years
5.0 years
$ 19.59
$ 23.49
$ 36.30
$ 46.00
479
990
509
450
2.7 years
3.4 years
5.6 years
4.8 years
$ 19.59
$ 23.48
$ 38.47
$ 45.93
The weighted average fair values of individual SARs granted were $9.85 and $12.02 during 2007 and 2006, respectively.
The fair value of each grant was estimated on the date of grant using the Black-Scholes-Merton pricing model utilizing the
following weighted average assumptions used for 2007, 2006 and 2005:
2007
2006
2005
Risk-free interest rate
Dividend yield
Volatility factor
Weighted average expected life
4.6 %
1.8 %
29.9 %
5.1 – 6.2 years
4.4 %
1.5 %
31.2 %
4.8 - 6.1 years
3.7 %
1.4 %
34.1 %
5.0 years
Nonvested stock awards
The Company issues nonvested stock awards (stock units) to key employees as determined by the Human Resources and
Compensation Committee of the Board of Directors. In addition, employees entitled to receive cash payments under the
Company’s Strategic Incentive Plan (a long-term incentive plan for senior employees) may elect to receive a vested stock
award instead, with a 20 percent nonvested stock premium. Nonvested stock awards (including the premium) have vesting
periods of three or four years and are eligible for dividends, which are reinvested and non-voting. All nonvested awards have
restrictions on the sale or transfer of such awards during the nonvested period.
Generally, grants of nonvested stock options, SARs and stock units are forfeited if employment is terminated prior to
vesting. However, with respect to stock options and SARs, all grants vest immediately: (i) in the event of a change in
control; (ii) upon death or disability of the grantee; and (iii) beginning in 2007, upon the sale or divestiture of the business
unit to which the grantee is assigned. Stock option and SAR grants made prior to 2006 also vest immediately if the sum of
(A) the age of the grantee and (B) the grantee’s total number of years of service, equals 65 or more; grants made in 2006 and
later vest immediately if (A) the grantee has attained the age of 62 and (B) the grantee’s age plus total years of service equals
70 or more. Nonvested stock awards granted prior to 2006 vest pro rata if the sum of (A) the age of the grantee and (B) the
grantee’s total number of years of service equals 65 or more; grants made in 2006 and later vest pro rata if the sum of (A) the
age of the grantee and (B) the grantee’s total number of years of service equals 70 or more.
The cost of nonvested stock awards is recognized on a straight-line basis over the requisite service period. During
December 31, 2007, 2006 and 2005, there was $4.1 million, $7.0 million and $3.4 million charged to compensation expense
under the Plan, respectively.
The weighted average price per nonvested stock award at grant date was $33.00, $39.15 and $45.90 for the nonvested
stock awards granted in 2007, 2006 and 2005, respectively. Nonvested stock award activity for all plans for the three years
ended December 31 was as follows:
(in thousands)
Outstanding at January 1
Granted
Released
Forfeited
Outstanding at December 31
2006
519
325
(227)
(67)
550
2005
824
103
(101)
(307)
519
2007
550
127
(195)
(47)
435
86
Brunswick Corporation
Notes to Consolidated Financial Statements
As of December 31, 2007, there was $6.2 million of total unrecognized compensation cost related to nonvested share-
based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average
period of 1.4 years.
Director Awards
The Company issues stock awards to directors in accordance with the terms and conditions determined by the
Nominating and Corporate Governance Committee of the Board of Directors. One-half of each director’s annual fee is paid in
Brunswick common stock, the receipt of which may be deferred until a director retires from the Board of Directors. Each
director may elect to have the remaining one-half paid either in cash, in Brunswick common stock distributed at the time of
the award, or in deferred Brunswick common stock units with a 20 percent premium. Each non-employee director is also
entitled to an annual grant of restricted stock units, which is deferred until the director retires from the Board.
Note 17 – Treasury and Preferred Stock
Treasury stock activity for the three years ended December 31, 2007, 2006 and 2005, was as follows:
(Shares in thousands)
2007
2006
2005
Balance at January 1
Common stock repurchase program
Compensation plans and other
11,671
4,100
(679)
6,881
5,638
(848)
5,709
1,943
(771)
Balance at December 31
15,092
11,671
6,881
At December 31, 2007, 2006 and 2005, the Company had no preferred stock outstanding (12.5 million shares authorized,
$0.75 par value at December 31, 2007, 2006 and 2005).
Note 18 – Leases
The Company has various lease agreements for offices, branches, factories, distribution and service facilities, certain
Company-operated bowling centers and certain personal property. The longest of these obligations extends through 2099.
Most leases contain renewal options, some contain purchase options or escalation clauses, and many provide for contingent
rentals based on percentages of gross revenue.
No leases contain restrictions on the Company’s activities concerning dividends, additional debt or further leasing. Rent
expense consisted of the following:
(in millions)
2007
2006
2005
Basic expense
Contingent expense
Sublease income
$ 51.4
2.7
(0.7)
$ 48.8
2.6
(0.9)
$ 43.1
2.3
(0.9)
Rent expense, net
$ 53.4
$ 50.5
$ 44.5
Future minimum rental payments at December 31, 2007, under agreements classified as operating leases with non-
cancelable terms in excess of one year, were as follows:
(in millions)
2008
2009
2010
2011
2012
Thereafter
$ 49.2
42.5
34.1
25.0
15.2
35.5
Total (not reduced by minimum sublease rentals of $1.6)
$ 201.5
87
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 19 – Share Repurchase Program
In the second quarter of 2005, Brunswick’s Board of Directors authorized a $200.0 million share repurchase program, to
be funded with available cash. On April 27, 2006, the Board of Directors increased the Company’s remaining share
repurchase authorization of $62.2 million to $500.0 million. As of December 31, 2007, the Company’s remaining share
repurchase authorization for the program was $240.4 million. The Company expects to repurchase shares on the open market
or in private transactions from time to time, depending on market conditions. During 2007, 2006 and 2005, the Company
repurchased approximately 4.1 million, 5.6 million and 2.0 million shares under this program for $125.8 million, $195.6
million and $76.0 million, respectively. As of December 31, 2007, the Company has repurchased approximately 11.7 million
shares since the program’s inception.
88
Brunswick Corporation
Notes to Consolidated Financial Statements
Note 20 – Quarterly Data (unaudited)
Brunswick maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters
ending on the Saturday closest to the end of the period (13-week periods). The first three quarters of fiscal year 2007 ended
on March 31, 2007, June 30, 2007, and September 29, 2007 and the first three quarters of 2006 ended on April 1, 2006, July
1, 2006, and September 30, 2006.
(in millions, except per share data)
Net sales
Gross margin (A)
Net earnings (loss) from continuing operations
Net earnings
Basic earnings per common share:
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinued operations
Net earnings
Diluted earnings per common share:
Net earnings (loss) from continued operations
Net earnings (loss) from discontinued operations
Net earnings
Dividends declared
Common stock price (NYSE symbol: BC):
High
Low
(in millions, except per share data)
Net sales
Gross margin (A)
Net earnings from continuing operations
Net earnings (loss)
Basic earnings per common share:
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings (loss)
Diluted earnings per common share:
Net earnings from continued operations
Net loss from discontinued operations
Net earnings (loss)
Dividends declared
Common stock price (NYSE symbol: BC):
High
Low
Quarter Ended
March 31,
2007
June 30,
2007
Sept. 29,
2007
Dec. 31,
2007
Year
Ended
Dec. 31,
2007
$ 1,386.1
$ 296.4
$ 34.3
$ 45.6
$ 1,522.9
$ 332.3
$ 56.9
$ 57.3
$ 1,326.2
$ 258.4
$ (23.7)
$ 1.9
$ 1,436.0 $ 5,671.2
$ 256.0 $ 1,143.1
$ 12.1 $ 79.6
$ 6.8 $ 111.6
$ 0.38
0.12
$ 0.50
$ 0.63
—
$ 0.63
$ (0.27)
0.29
$ 0.02
$ 0.14
$ 0.88
(0.06) 0.36
$ 1.24
$ 0.08
$ 0.38
0.12
$ 0.63
—
$ (0.27)
0.29
$ 0.14
(0.06)
$ 0.88
0.36
$ 0.50
$ 0.63
$ 0.02
$ 0.08
$ 1.24
$ —
$ —
$ —
$ 0.60
$
0.60
$ 34.62
$ 30.02
$ 34.80
$ 30.38
$ 33.12
$ 21.49
$ 24.21
$ 17.05
$ 34.80
$ 17.05
Quarter Ended
April 1,
2006
July 1,
2006
Sept. 30,
2006
Dec. 31,
2006
Year
Ended
Dec. 31,
2006
$ 1,413.3
$ 313.4
$ 74.2
$ 67.4
$ 1,543.1
$ 354.8
$ 94.4
$ 83.2
$ 1,337.8
$ 288.9
$ 50.4
$ 36.5
$ 1,370.8 $ 5,665.0
$ 268.6 $ 1,225.7
$ 44.2 $ 263.2
$ (53.2) $ 133.9
$ 0.78
(0.07)
$ 0.71
$ 1.00
(0.12)
$ 0.88
$ 0.54
(0.15)
$ 0.39
$ 0.48 $ 2.80
(1.05) (1.38)
$ (0.57) $ 1.42
$ 0.77
(0.07)
$ 0.99
(0.12)
$ 0.54
(0.15)
$ 0.47
$ 2.78
(1.04) (1.37)
$ 0.70
$ 0.87
$ 0.39
$ (0.57) $ 1.41
$ —
$ —
$ —
$ 0.60
$ 0.60
$ 42.30
$ 36.04
$ 40.50
$ 32.35
$ 33.31
$ 27.56
$ 33.24 $ 42.30
$ 30.71 $ 27.56
(A) Gross margin is defined as Net sales less Cost of sales as presented in the Consolidated Statements of Income.
89
BRUNSWICK CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Allowances for
Losses on Receivables
Balance at
Beginning
of Year
Charges to
Profit and Loss Write-offs
Recoveries
Other
Balance at
End of Year
2007
2006
2005
$ 29.7
$ 10.7
$ (10.4)
$ 0.3
$ 0.9 $ 31.2
$ 22.1
$ 9.2
$ (5.7)
$ (1.5)
$ 5.6 $ 29.7
$ 28.7
$ (0.7)
$ (6.0)
$ 0.1
$ 0.2 $ 22.1
Deferred Tax Asset
Valuation Allowance (A)
Balance at
Beginning
of Year
Charges to
Profit and Loss Write-offs
Recoveries
Other
Balance at
End of Year
2007
2006
2005
$ 10.0
$ —
$ —
$ —
$ 6.5
$ 16.5
$ 12.4
$ (0.1)
$ —
$ —
$ (2.3) $ 10.0
$ 20.0
$ (7.6)
$ —
$ —
$ — $ 12.4
(A) State and foreign net operating loss carryforwards, and state capital losses that are not expected to be utilized.
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 22, 2008
BRUNSWICK CORPORATION
By: /s/ ALAN L. LOWE
Alan L. Lowe
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated.
February 22, 2008
February 22, 2008
February 22, 2008
By: /s/ DUSTAN E. McCOY
Dustan E. McCoy
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ PETER G. LEEMPUTTE
Peter G. Leemputte
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ ALAN L. LOWE
Alan L. Lowe
Vice President and Controller
(Principal Accounting Officer)
This report has been signed by the following directors, constituting a majority of the Board of Directors, by Peter G.
Leemputte, Attorney-in-Fact.
Nolan D. Archibald
Jeffrey L. Bleustein
Michael J. Callahan
Cambria W. Dunaway
Manuel A. Fernandez
Graham H. Phillips
Ralph C. Stayer
J. Steven Whisler
Lawrence A. Zimmerman
February 22, 2008
By: /s/ PETER G. LEEMPUTTE
Peter G. Leemputte
Attorney-in-Fact
91
Exhibit No.
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
EXHIBIT INDEX
Description
Restated Certificate of Incorporation of the Company filed as Exhibit 19.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1987, and hereby incorporated
by reference.
Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for 1995, and hereby
incorporated by reference.
By-Laws of the Company filed as Exhibit 3.3 to the Company’s Annual Report on Form 10-K
for 2002, and hereby incorporated by reference.
Indenture dated as of March 15, 1987, between the Company and Continental Illinois National
Bank and Trust Company of Chicago filed as Exhibit 4.1 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 1987, and hereby incorporated by reference.
Officers’ Certificate setting forth terms of the Company’s $125,000,000 principal amount of
7 3/8% Debentures due September 1, 2023, filed as Exhibit 4.3 to the Company’s Annual Report
on Form 10-K for 1993, and hereby incorporated by reference.
Form of the Company’s $200,000,000 principal amount of 7 1/8% Notes due August 1, 2027, filed
as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 4, 1997, and hereby
incorporated by reference.
The Company’s agreement to furnish additional debt instruments upon request by the Securities
and Exchange Commission filed as Exhibit 4.10 to the Company’s Annual Report on Form 10-K
for 1980, and hereby incorporated by reference.
Form of the Company’s $150,000,000 principal amount of 5% Notes due 2011, filed as Exhibit 4.1
to the Company’s Current Report on Form 8-K dated May 26, 2004, and hereby incorporated by
reference.
Credit Agreement dated as of November 15, 2002, setting forth the terms of the Company’s
$350,000,000 Revolving Credit and Competitive Bid Loan Facility with JPMorgan Chase Bank,
administrative agent, and other lenders identified in the Credit Agreement, filed as Exhibit 4.8 to
the Company’s Annual Report on Form 10-K for 2002, and hereby incorporated by reference.
Credit Agreement dated as of April 29, 2005, setting forth the terms of the Company’s
$650,000,000 Revolving Credit and Competitive Bid Loan Facility with JPMorgan Chase Bank,
administrative agent, and other lenders identified in the Credit Agreement, filed as Exhibit 10.4 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and hereby
incorporated by reference.
Form of the Company’s $250,000,000 principal amount of floating rate Notes due July 24, 2009,
filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 24, 2006, and hereby
incorporated by reference.
Terms and Conditions of Employment between the Company and D. E. McCoy, filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K dated September 18, 2006, and hereby
incorporated by reference.
Form of Terms and Conditions of Employment between the Company and each of L.C. Chatfield
II, W. N. Hardie, P. G. Leemputte, B. R. Lockridge, A. L. Lowe, P. C. Mackey, G.T. Neill, K.
Roll-Wallace and J. E. Stransky, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-
K dated January 18, 2007, and hereby incorporated by reference.
1994 Stock Option Plan for Non-Employee Directors filed as Exhibit A to the Company’s
definitive Proxy Statement dated March 25, 1994, for the Annual Meeting of Stockholders on
April 27, 1994, and hereby incorporated by reference.
Supplemental Pension Plan filed as Exhibit 10.7 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, and hereby incorporated by reference.
Form of Indemnification Agreement by and between the Company and each of N. D. Archibald,
J. L. Bleustein, M. J. Callahan, C. W. Dunaway, M. A. Fernandez, G.H. Phillips, R. C. Stayer, J.S.
Whisler and L. A. Zimmerman.
1991 Stock Plan filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, and hereby incorporated by reference.
Brunswick Performance Plan for 2007 filed as Exhibit 10.8 to the Company’s Annual Report on
Form 10-K for 2006, and hereby incorporated by reference.
Brunswick Performance Plan for 2008.
Brunswick Strategic Incentive Plan for 2006 – 2007 filed as Exhibit 10.10 to the Company’s
Annual Report on Form 10-K for 2006, and hereby incorporated by reference..
Brunswick Strategic Incentive Plan for 2007 – 2008 filed as Exhibit 10.11 to the Company’s
Annual Report on Form 10-K for 2006, and hereby incorporated by reference..
92
10.11*
10.12*
10.13*
10.14*
10.15*
12.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
1997 Stock Plan for Non-Employee Directors filed as Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, and hereby incorporated by
reference.
Elective Deferred Compensation Plan filed as Exhibit 4.6 to the Company’s Registration Statement
on Form S-8 (333-112880) filed February 17, 2004, and hereby incorporated by reference.
Automatic Deferred Compensation Plan filed as Exhibit 10.24 to the Company’s Annual Report on
Form 10-K for 2003 and hereby incorporated by reference.
Brunswick 2003 Stock Incentive Plan filed as Exhibit 4.5 to the Company’s Registration Statement
on Form S-8 (333-112880) filed February 17, 2004, and hereby incorporated by reference.
S-8 (333-112880) filed February 17, 2004, and hereby incorporated by reference.
Statement regarding computation of ratios.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
_______
* Management contract or compensatory plan or arrangement.
93
Officers and Directors
B R U N S W I C K C O R P O RA T I O N
O F F I CE RS O F T H E CO MP A N Y
B O A R D O F D I R E C T O R S
C O R P O RA T E O F F I C E R S
O P E RA T I N G O F F I CE RS
D U S T A N E . M C C O Y
Chairman and
Chief Executive Officer
P E T E R G . L E E M P U T T E
Senior Vice President and
Chief Financial Officer
L L O Y D C . C H A T F I E L D I I
Vice President,
General Counsel and Secretary
K A T H R Y N J . C H I E G E R
Vice President – Corporate
and Investor Relations
P A T R I C K C . M A C K E Y†
Executive Vice President,
Chief Operating Officer –
Marine and President –
Mercury Marine Group
A N D R E W E . G R A V E S
Vice President and
President – Outboard
Boat Group
W I L L I A M J . G R E S S
Vice President and
President – Brunswick
Latin America Group
B . R U S S E L L L O C K R I D G E
Vice President and Chief
Human Resources Officer
K E V I N S . G R O D Z K I
Vice President and
President – MerCruiser
A L A N L . L O W E
Vice President and Controller
W I L L I A M L . M E T Z G E R
Vice President and Treasurer
G E O R G E T . N E I L L
Vice President and
Chief Marketing Officer
K I M B E R L Y A . R O L L - W A L L A C E
Vice President – Audit
J U D I T H P . Z E L I S K O
Vice President – Tax
W A R R E N N . H A R D I E
Vice President and
President – Brunswick
Bowling & Billiards
M A R K D . S C H W A B E R O
Vice President and
President –
Mercury Outboards
R I C H A R D C . S T O N E
Vice President and
President –
Sea Ray Division
J O H N E . S T R A N S K Y
Vice President and
President –
Life Fitness Division
S T E P H E N M . W O L P E R T
Vice President and
President –
US Marine Division
†Mr. Mackey will retire from
the Company effective
March 1, 2008
N O L A N D . A R C H I B A L D
Chairman, President and
Chief Executive Officer
The Black & Decker
Corporation
Director since 1995
J E F F R E Y L . B L E U S T E I N
Chairman of the Board and
Retired Chief Executive Officer
Harley-Davidson, Inc.
Director since 1997
M I C H A E L J . C A L L A H A N
Retired President,
Chief Executive Officer
and Director
Material Sciences Corporation
Director since 1991
C A M B R I A W . D U N A W A Y
Executive Vice President,
Sales and Marketing
Nintendo of America
Director since 2006
M A N U E L A . F E R N A N D E Z
Managing Director
SI Ventures, LLC and
Chairman Emeritus
Gartner, Inc.
Director since 1997
D U S T A N E . M C C O Y
Chairman and
Chief Executive Officer
Brunswick Corporation
Director since 2005
G R A H A M H . P H I L L I P S
Retired Chairman and
Chief Executive Officer
Young & Rubicam Advertising
Director since 2002
R A L P H C . S T A Y E R
Chairman, President
and Chief Executive Officer
Johnsonville Sausage LLC
Director since 2002
J . S T E V E N W H I S L E R
Retired Chairman and
Chief Executive Officer
Phelps Dodge Corporation
Director since 2007
L A W R E N C E A . Z I M M E R M A N
Chief Financial Officer and
Executive Vice President
Xerox Corporation
Director since 2006
B O A R D CO M M I T T E E S
A U D I T CO M M I T T E E
L A W R E N C E A . Z I M M E R M A N *
M I C H A E L J . C A L L A H A N
R A L P H C . S T A Y E R
N O MI N A T I N G A N D
CO RP O RA T E G O V E RN A N CE
C O M M I T T E E
J E F F R E Y L . B L E U S T E I N *
C A M B R I A W . D U N A W A Y
F I N A N C E CO M M I T T E E
N O L A N D . A R C H I B A L D *
M I C H A E L J . C A L L A H A N
J . S T E V E N W H I S L E R
H U MA N RE S O U RCE S
A N D CO MP E N S A T I O N
C O M M I T T E E
M A N U E L A . F E R N A N D E Z *
G R A H A M H . P H I L L I P S
* C o m m i t t e e C h a i r
Corporate Information
B R U N S W I C K C O R P O RA T I O N
C O R P O RA T E O F F I C E S
Brunswick Corporation
1 North Field Court
Lake Forest, Illinois 60045–4811
Phone: (847) 735–4700
Fax: (847) 735–4765
www.brunswick.com
S T O CK E X CH A N G E L I S T I N G S
Brunswick common stock is listed and traded on the
New York and Chicago Stock Exchanges under the
ticker symbol BC.
chief
executive officer has
CE RT I F I CA T I O N
Brunswick’s
filed a
certification with the New York Stock Exchange stating
that he is not aware of any violation by the Company of
NYSE Corporate Governance listing standards. That
document was most recently filed on May 9, 2007.
A N N U A L M E E T I N G O F S H A R E H O L D E R S
Brunswick’s annual meeting of shareholders will be held
on May 7, 2008. Details are included in the Proxy
Statement.
D I V I D E N D S
Dividends are paid on an annual basis, generally in
December. Shareholders are welcome to participate in
Brunswick’s
Investor Plan by contacting the plan
administrator, Computershare Investor Services. The plan
provides for automatic reinvestment of dividends into
shares of Brunswick common stock and allows for initial
and additional stock purchases. Shareholders can also
choose to have their dividends directly deposited into their
bank accounts. A brochure and enrollment form is available
on Computershare’s Web site at www.computershare.com/
investor or by contacting Computershare.
E L E C T R O N I C RE C E I P T O F P R O X Y M A T E R I A L S A N D
P RO X Y V O T I N G
If you are a shareholder and would like to receive this
report and Proxy Statement via the Internet, you will
form available
need to complete an online consent
through the Brunswick Web site at www.brunswick.com.
If you have any questions, please contact Shareholder
Services by mail at Brunswick’s corporate offices, by
phone (847) 735–4294, by fax (847) 735–4671, by
e-mail at
through the
Brunswick corporate Web site.
services@brunswick.com, or
requesting
institutional
I N V E S T O R A N D ME D I A I N Q U I RI E S
investors and media
Securities analysts,
the
representatives
and Investor
Company should contact Corporate
Relations by mail at the corporate offices, by phone
(847) 735–4204, by fax (847) 735–4750, or by e-mail at
services@brunswick.com.
information
about
on
requesting
information
T RA N S F E R A G E N T A N D RE G I S T RA R
electronic
Shareholders
transfers, address or ownership
dividend deposits,
changes, account consolidation or the investment plan
should contact the transfer agent and registrar at:
Computershare Investor Services
P. O. Box 43078
Providence, Rhode Island 02940-3078
(800) 546-9420 – Toll free within the United States,
Canada and Puerto Rico
+1 (781) 575-4313 – Outside the United States, Canada
and Puerto Rico
www.computershare.com/investor
financial position or cash flows
N O N-G A A P F I N A N CI A L ME A S U RE S
Certain statements in this report contain non-GAAP
financial measures, with respect
to the Company’s
operating results, excluding the effects of tax-related
benefits and impairment charges. GAAP refers
to
generally accepted accounting principles in the United
States. A “non-GAAP financial measure” is a numerical
measure of a company’s historical or future financial
performance,
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 statement of
income, balance sheet or statement of cash flows of the
to
company; or
adjustments that have the effect of including amounts,
that are excluded from the most directly comparable
measure so calculated and presented. Operating and
non-GAAP financial
statistical measures
measures.
amounts, or
includes
subject
not
are
is
Corporate Information
B R U N S W I C K C O R P O RA T I O N
they provide are useful
investors
Brunswick has used the non-GAAP financial measures
that are included in this report
for several years.
Brunswick’s management believes that these measures
to
and the information that
investors because
to view
they permit
Brunswick’s performance using the same tools that
Brunswick uses and to better evaluate its ongoing
business performance. Net earnings from continuing
operations per diluted share – as reported were $0.88.
Excluding the diluted per
share impact of $0.46
impairment charges and ($0.11) special tax items, net
earnings from continuing operations per diluted share –
as adjusted were $1.23. Brunswick’s management
believes that for the year ending December 31, 2007, the
presentation of net earnings from continuing operations
per diluted share – as adjusted provides a more
meaningful comparison to prior results.
F O R W A R D-L O O K I N G S T A T E ME N T S
Certain statements in this Annual Report are forward
looking as defined in the Private Securities Litigation
Reform Act of 1995. These statements involve certain
risks and uncertainties that may cause actual results to
differ materially from expectations as of the date of this
report. For a description of these risks, see the Risk
Factors and Forward-Looking Statements section in the
Management’s Discussion and Analysis in the Annual
Report on Form 10-K included herein.
I N D E P E N D E N T A U D I T O RS
Ernst & Young LLP
Chicago, Illinois