BRUNSWICK CORP (BC)

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations of Brunswick Corporation (the Company, we, us, our) are forward-looking statements. Forward-looking statements are based on current expectations, estimates, and projections about our business and by their nature address matters that are, to different degrees, uncertain. Actual results may differ materially from expectations and projections as of the date of this filing due to various risks and uncertainties. For additional information regarding forward-looking statements, refer to Forward-Looking Statements above.

Certain statements in Management's Discussion and Analysis are based on non-GAAP financial measures. GAAP refers to generally accepted accounting principles in the United States. 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 consolidated statements of operations, balance sheets or statements 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. For example, the discussion of our cash flows includes an analysis of free cash flows and total liquidity; the discussion of our net sales includes net sales on a constant currency basis; the discussion of our net sales includes net sales excluding acquisitions; and the discussion of our earnings includes a presentation of operating earnings and operating margin excluding restructuring, exit and impairment charges, purchase accounting amortization, acquisition, integration, and IT related costs, IT security incident costs and other applicable charges and of diluted earnings per common share, as adjusted. Non-GAAP financial measures do not include operating and statistical measures.

We include non-GAAP financial measures in Management's Discussion and Analysis as management believes these measures and the information they provide are useful to investors because they permit investors to view our performance using the same tools that management uses to evaluate our ongoing business performance. In order to better align our reported results with the internal metrics management uses to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to acquisitions, among other adjustments.

We do not provide forward-looking guidance for certain financial measures on a GAAP basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These items may include restructuring, exit and impairment costs, special tax items, acquisition-related costs, and certain other unusual adjustments.

For a discussion of Brunswick's consolidated results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 16, 2024.

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IT Security Incident

In June 2023, the Company experienced an IT security incident that impacted some of its systems and global facilities. Please refer to Note 1 – Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further details.

Change in Reportable Segments

Effective January 1, 2023, the Company changed its management reporting and updated its reportable segments to Propulsion, Engine Parts and Accessories (Engine P&A), Navico Group and Boat to align with its internal operating structure. For further information, refer to Note 5 – Segment Information in the Notes to the Consolidated Financial Statements.

Acquisitions

On September 12, 2024, we acquired additional Freedom Boat Club franchise operations and territories in Southeast Florida for net cash consideration of $31.2 million. Refer to Note 4 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

During the fourth quarter of 2023, we acquired additional Freedom Boat Club franchise operations and territory rights as well as certain marine assets in the Southeast United States for net cash consideration of $16.0 million.

On September 1, 2023, the Company acquired all of the issued and outstanding shares of Fliteboard Pty Ltd for $88.3 million net cash consideration. Refer to Note 4 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

Matters Affecting Comparability

Changes in Foreign Currency Rates. Percentage changes in net sales expressed in constant currency reflect the impact that changes in currency exchange rates had on comparisons of net sales. To determine this information, net sales transacted in currencies other than the U.S. dollar have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period. The percentage change in net sales expressed on a constant currency basis better reflects the changes in the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Approximately 25 percent of our annual net sales are transacted in a currency other than the U.S. dollar. Our most material exposures include sales in Euros, Canadian dollars, Australian dollars and Brazilian real.

The table below summarizes the impact of changes in currency exchange rates and also the impact of acquisitions on our net sales:

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Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Operations for 2024 and 2023:

NM = not meaningful

bps = basis points

(A)Gross margin is defined as Net sales less Cost of sales as presented in the Consolidated Statements of Operations.

The following is a reconciliation of our non-GAAP measures, adjusted operating earnings and adjusted diluted earnings per common share from continuing operations for 2024 and 2023:

(A) Special tax items during the year ended December 31, 2024 primarily relate to the discrete income tax expense recorded associated with an increase in the state valuation allowance.

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2024 vs. 2023

Net sales decreased 18.2 percent during 2024 when compared with 2023. The components of the consolidated net sales change were as follows:

Sales in 2024 were below the prior year as the impact of lower wholesale ordering patterns by dealers, OEMs and retailers, coupled with higher discounts in select segments, and unfavorable changes in foreign currency exchange rates, were only partially offset by annual price increases and well received new products. Refer to the Propulsion, Engine P&A, Navico Group and Boat segments for further details on the drivers of net sales changes.

Gross margin decreased 210 basis points in 2024 when compared with 2023 driven by lower absorption from decreased production levels (90 bps), material and labor inflation (60 bps), sales-related drivers (60 bps), and foreign currency exchange-rate fluctuations (20 bps), partially offset by acquisitions (20 bps).

Selling, general and administrative expenses as a percentage of net sales increased 160 basis points during 2024 when compared with the same prior year period, due to lower sales (280 bps), partially offset by cost control measures across the enterprise, including lower employee compensation costs associated with headcount reductions and lower variable compensation (120 bps). Research and development expense decreased during 2024 versus 2023.

During 2024, we recorded restructuring, exit and impairment charges of $121.7 million compared with $54.7 million in 2023. The Company estimates the restructuring actions executed in 2024 will result in approximately $24.0 million of annualized cost savings. See Note 3 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.

We recognized Equity earnings (loss) of $8.6 million and $(11.4) million in 2024 and 2023, respectively. The primary driver of the loss in 2023 is the impairment charge taken related to our investment in TN-BC Holdings LLC. Refer to Note 1 – Significant Accounting Policies in the Notes to Consolidated Financial Statements for further information.

We recognized $9.0 million and $7.6 million in 2024 and 2023, respectively, in Other income (expense), net. Other income (expense), net primarily includes remeasurement gains and losses resulting from changes in foreign currency rates and other postretirement benefit costs as well as the gain on sale of one of our businesses in 2024.

Net interest expense increased in 2024 compared with 2023 due to an increase in average daily debt outstanding, which was influenced by the timing of debt issuances. We also recognized a loss on early extinguishment of debt related to the redemption of our 2027 Notes. Refer to Note 14 – Debt in the Notes to Consolidated Financial Statements.

We recognized an income tax provision of $54.0 million and $196.3 million in 2024 and 2023, respectively. The decrease is primarily due to lower pretax income and the prior year intercompany sale of certain intellectual property rights. The effective tax rate, which is calculated as the income tax provision as a percentage of earnings before income taxes, was 26.6 percent and 31.2 percent for 2024 and 2023, respectively. We have also evaluated the effects of Pillar Two legislation and concluded that the tax effects are not material to the financial statements. See Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for a reconciliation of our effective tax rate and statutory Federal income tax rate.

Due to the factors described in the preceding paragraphs, Operating earnings, Net earnings from continuing operations, and Diluted earnings per common share from continuing operations decreased during 2024. Diluted earnings per common share from continuing operations benefited from common stock repurchases in both years.

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Segments

We have four reportable segments: Propulsion, Engine P&A, Navico Group, and Boat. Refer to Note 5 – Segment Information in the Notes to Consolidated Financial Statements for details on the segment operations.

Propulsion Segment

The following table sets forth Propulsion segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2024 and 2023:

NM = not meaningful

bps = basis points

2024 vs. 2023

Propulsion segment's net sales decreased in 2024 versus prior year due to softer market conditions resulting in lower OEM production rates and engine orders and unfavorable changes in foreign currency exchange rates, partially offset by the impact of annual pricing and market share gains in outboard engines. The components of the Propulsion segment's net sales change were as follows:

International sales were 36 percent of the Propulsion segment's net sales in 2024. International sales decreased 15 percent year-over-year on a GAAP basis and 14 percent on a constant currency basis.

Propulsion segment's operating earnings decreased versus the prior year, primarily due to the impact of lower sales and lower absorption from declines in production, partially offset by cost control measures.

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Engine P&A Segment

The following table sets forth Engine P&A segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2024 and 2023:

NM = not meaningful

bps = basis points

2024 vs. 2023

Engine P&A segment's net sales decreased in 2024 versus the prior year as a result of softer market conditions. The components of the Engine P&A segment's net sales change were as follows:

International sales were 30 percent of the Engine P&A segment's net sales in 2024. International sales increased slightly year-over-year on a GAAP basis and increased 1 percent on a constant currency basis.

Engine P&A segment's operating earnings increased versus the prior year, as the impact of the operational efficiencies resulting from the completed transition to the Brownsburg, Indiana distribution center, annual pricing, and lower operating expenses more than offset lower volumes and higher material inflation.

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Navico Group Segment

The following table sets forth Navico Group segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2024 and 2023:

NM = not meaningful

bps = basis points

2024 vs. 2023

Navico Group segment's net sales decreased in 2024 versus the prior year due to reduced sales to marine OEMs resulting from lower boat production levels to match retail ordering patterns and a weak RV manufacturing environment, partially offset by strong new product momentum. The components of the Navico Group segment's net sales change were as follows:

International sales were 41 percent of the Navico Group segment's net sales in 2024. International sales decreased 5 percent year-over-year on a GAAP and constant currency basis.

Navico Group segment's operating earnings decreased versus the prior year due to intangible asset impairment charges and the impact from lower sales, partially offset by cost control measures.

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Boat Segment

The following table sets forth Boat segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2024 and 2023:

NM = not meaningful

bps = basis points

2024 vs. 2023

Boat segment's net sales decreased in 2024 versus the prior year resulting from lower wholesale orders, as dealers continue to manage pipeline levels, along with higher levels of selective discounting, partially offset by the favorable impact of modest model-year pricing.

International sales were 20 percent of the Boat segment's net sales in 2024. International sales decreased 31 percent year-over-year on a GAAP basis and 30 percent on a constant currency basis.

Boat segment operating earnings decreased versus the prior year due the impact of the net sales declines and lower absorption from reduced production, partially offset by pricing and cost control measures.

Corporate/Other

The following table sets forth Corporate/Other results and a reconciliation to our non-GAAP measure of adjusted operating loss for the years ended December 31, 2024 and 2023:

NM = not meaningful

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Corporate operating loss decreased compared with 2023 driven by lower variable compensation costs along with the impact of both the IT security incident and restructuring charges in the prior year.

Cash Flow, Liquidity and Capital Resources

The following table sets forth an analysis of free cash flow for the years ended December 31, 2024 and 2023:

(A) We define "Free cash flow" as cash flow from operating and investing activities of continuing operations (excluding cash provided by or used for acquisitions, investments, purchases or sales/maturities of marketable securities and other investing activities, net of tax) and the effect of exchange rate changes on cash and cash equivalents. Free cash flow is not intended as an alternative measure of cash flow from operations, as determined in accordance with GAAP in the United States. We use this financial measure both in presenting results to shareholders and the investment community and in our internal evaluation and management of our businesses. We believe that this financial measure and the information it provides are useful to investors because it permits investors to view our performance using the same tool that we use to gauge progress in achieving our goals. We believe that the non-GAAP financial measure "Free cash flow" is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives.

Our major sources of funds for capital investments, acquisitions, share repurchase programs and dividend payments are cash generated from operating activities, available cash and marketable securities balances, divestitures and borrowings. We evaluate potential acquisitions, divestitures and joint ventures in the ordinary course of business.

2024 Cash Flow

Net cash provided by operating activities of continuing operations in 2024 totaled $449.5 million versus $745.2 million in 2023. The decrease is primarily due to lower net earnings.

The primary drivers of Net cash provided by operating activities of continuing operations in 2024 were net earnings, net of non-cash items, partially offset by working capital. Working capital is defined as Accounts and notes receivable, Inventories and Prepaid expenses and other, net of Accounts payable and Accrued expenses as presented in the Consolidated Balance Sheets, excluding the impact of acquisitions and non-cash adjustments. Net inventory decreased $112.8 million primarily due to lower planned production. Accounts and notes receivable decreased $45.0 million primarily due to lower sales and timing of collections. Accounts payable decreased $144.2 million, primarily due to lower purchasing resulting from reduced production. Accrued expenses decreased $104.0 million, primarily driven by a reduction in accrued variable compensation.

Net cash used for investing activities was $168.9 million, which included $167.4 million of capital expenditures, $80.9 million of purchases of marketable securities and $31.8 million of cash paid for acquisitions, net of cash acquired, partially offset by $82.1 million of sales or maturities of marketable securities and $15.0 million of proceeds from sales of property, plant and equipment. Our capital spending was focused on investments in new products and technologies.

Net cash used for financing activities was $442.7 million, which included $613.2 million of payments of long-term debt including current maturities, $200.0 million of common stock repurchases, $112.3 million of cash dividends paid to common shareholders, and $87.4 million of payments of short-term debt, partially offset by $396.9 million of proceeds from issuances of long-term debt and $201.1 million of proceeds from issuances of short-term debt. Refer to Note 14 – Debt in the Notes to Consolidated Financial Statements for further details on our debt activity during the year ended December 31, 2024.

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Liquidity and Capital Resources

We view our highly liquid assets as of December 31, 2024 and 2023 as:

The following table sets forth an analysis of Total liquidity as of December 31, 2024 and 2023:

(A) See Note 14 – Debt in the Notes to Consolidated Financial Statements for further details on our lending facilities.

(B) We define Total liquidity as Cash and cash equivalents and Short-term investments in marketable securities as presented in the Consolidated Balance Sheets, plus amounts available for borrowing under our lending facilities. Total liquidity is not intended as an alternative measure to Cash and cash equivalents and Short-term investments in marketable securities as determined in accordance with GAAP in the United States. We use this financial measure both in presenting our results to shareholders and the investment community and in our internal evaluation and management of our businesses. We believe that this financial measure and the information it provides are useful to investors because it permits investors to view our performance using the same metric that we use to gauge progress in achieving our goals. We believe that the non-GAAP financial measure "Total liquidity" is also useful to investors because it is an indication of our available highly liquid assets and immediate sources of financing.

Cash, cash equivalents and marketable securities totaled $269.8 million as of December 31, 2024, a decrease of $198.8 million from $468.6 million as of December 31, 2023. Total debt as of December 31, 2024 and December 31, 2023 was $2,340.6 million and $2,430.4 million, respectively. Our debt-to-capitalization ratio was 55 percent and 54 percent as of December 31, 2024 and December 31, 2023, respectively.

There were no borrowings under the Revolving Credit Agreement (Credit Facility) during 2024. Available borrowing capacity under the Credit Facility as of December 31, 2024 totaled $997.0 million, net of $3.0 million of letters of credit outstanding. During 2024, the maximum amount utilized under our unsecured commercial paper program (CP Program) was $280.0 million and as of December 31, 2024, the Company had $115.0 million of borrowings outstanding under the CP Program.

There were no borrowings under the Credit Facility during 2023. Available borrowing capacity under the Credit Facility as of December 31, 2023 totaled $741.9 million, net of $8.1 million of letters of credit outstanding. During 2023, the maximum amount utilized under our CP Program was $125.0 million.

The level of borrowing capacity under our Credit Facility and CP Program is limited by both a leverage and interest coverage test. These covenants also pertain to termination provisions included in our wholesale financing joint-venture arrangements with Wells Fargo Commercial Distribution Finance. Based on our anticipated earnings generation throughout the year, we expect to maintain sufficient cushion against the existing debt covenants. As of December 31, 2024, we were in compliance with the financial covenants in the Credit Facility and CP Program.

We believe that we have adequate sources of liquidity to meet our short-term and long-term needs.

2025 Capital Strategy

We anticipate executing a thoughtful capital strategy in 2025 with planned debt reductions of $125 million, capital expenditures at levels similar to 2024 of $160 million, and a minimum of $80 million of share repurchases, which could increase in the event cash generation outpaces initial expectations.

Financial Services

Refer to Note 8 – Financing Joint Venture in the Notes to Consolidated Financial Statements for more information about our financial services.

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Off-Balance Sheet Arrangements

Guarantees. We have reserves to cover potential losses associated with guarantees and repurchase obligations based on historical experience and current facts and circumstances. 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.

Contractual Obligations

The following table sets forth a summary of our contractual cash obligations as of December 31, 2024:

(A)    See Note 14 – Debt in the Notes to Consolidated Financial Statements for additional information on our debt. "Debt" refers to future cash principal payments. Debt also includes our finance leases as discussed in Note 19 – Leases in the Notes to Consolidated Financial Statements.

(B)    See Note 19 – Leases in the Notes to Consolidated Financial Statements for additional information.

(C)    Purchase obligations represent agreements with suppliers and vendors as part of the normal course of business.

(D)    Amounts primarily represent long-term deferred compensation plans.

(E)    Other long-term liabilities primarily includes long-term warranty contracts, future projected payments related to our nonqualified pension plans and deferred revenue.

Legal Proceedings

See Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements.

Critical Accounting Estimates

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. We have discussed the development and selection of the critical accounting policies with the Audit and Finance Committee of the Board of Directors and believe the following are the most critical accounting policies that could have an effect on our reported results.

Revenue Recognition and Sales Incentives. Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied; this occurs when control of promised goods (engines, parts and accessories, and boats) is transferred to the customer. We exercise judgment and consider the timing of right to payment, transfer of risk and rewards, transfer of title, transfer of physical possession, and customer acceptance when determining when control transfers to the customer. We recognize revenue related to the sale of extended warranty contracts that extend the coverage period beyond the standard warranty period over the life of the extended warranty period.

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Revenue is measured as the amount of consideration expected to be entitled to in exchange for transferring goods or providing services. We have excluded sales, value add, and other taxes collected concurrent with revenue-producing activities from the determination of the transaction price for all contracts. We exercise judgment when determining the transaction price, including the estimate of discounts, which is partly based on estimates of customer sales volumes. These estimates are subject to uncertainty as historical discount experience and sales volumes may not be consistent with future activity. We have elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity. For all contracts with customers, we have not adjusted the promised amount of consideration for the effects of a significant financing component as the period between the transfer of the promised goods and the customer's payment is expected to be one year or less.

See Note 2 – Revenue Recognition in the Notes to Consolidated Financial Statements for more information.

Warranty Reserves. We record an estimated 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. We exercise judgment when determining the appropriate historical periods to project claim rates and expected costs per claim. Further, these estimates are subject to uncertainty as historical warranty experience may not be consistent with future warranty claims. We adjust our liability for specific warranty matters when they become known and the exposure can be estimated. Our warranty liabilities are affected by product failure rates as well as material usage and labor costs incurred in correcting a product failure. If actual costs differ from estimated costs, we must make a revision to the warranty liability, which could have an adverse impact on our results of operations and cash flows.

Goodwill. Goodwill results from the excess of purchase price over the net assets of businesses acquired. We review goodwill for impairment annually and whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. As part of the annual test, we may perform a qualitative, rather than quantitative, assessment to determine whether the fair values of our reporting units are "more likely than not" to exceed their carrying values. In performing this qualitative analysis, we consider various factors, including the effect of market or industry changes and the reporting units' actual results compared with projected results. We exercise judgment when evaluating the impact of market and industry changes and when comparing actual results to projected results.

If the fair value of a reporting unit does not meet the "more likely than not" criteria discussed above, we perform a quantitative assessment which begins by measuring the fair value of the reporting unit. If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment is recorded equal to the carrying value of the reporting unit less its fair value, not to exceed the carrying value of goodwill.

We calculate the fair value of our reporting units considering both the income approach and the guideline public company method, a form of the market approach. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach utilizing a Gordon Growth model. Internally forecasted future cash flows, which we believe reasonably approximates market participant assumptions, are discounted using a weighted average cost of capital (Discount Rate) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure of risk related to the specific reporting unit’s forecasted performance. We exercise judgment when forecasting future cash flows including the performance of the underlying market in which the reporting unit operates as well as the impact of specific initiatives. We exercise judgment when determining the level of risk associated with achieving the forecasted future cash flows. These estimates are subject to uncertainty as actual results may differ from our forecast. If actual results differ from the forecast, our results of operations could be materially adversely affected. Fair value under the guideline public company method is determined for each reporting unit by applying market multiples for comparable public companies to the unit’s current and forecasted financial results. We exercise judgment when determining the comparable public companies and market multiples. The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those forecasts in determining the Discount Rate, along with selecting representative market multiples.

We recorded an $80.0 million impairment of the Navico Group reporting unit's goodwill during the year ended December 31, 2024. We did not record any goodwill impairments in 2023 or 2022.

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Other Intangible Assets. Our primary other intangible assets are customer relationships, trade names, and developed technology acquired in business combinations. Intangible assets are initially valued using a methodology commensurate with the intended use of the asset. Customer relationships, trade names, and developed technology are valued using the income approach. The fair value of customer relationships is measured using the multi-period excess earnings method (MPEEM). The fair value of trade names and developed technology are measured using a relief-from-royalty (RFR) approach, which assumes the value of the trade name or technology is the discounted amount of cash flows that would be paid to third parties had we not owned the trade name or technology and instead licensed the trade name or technology from another company. Higher royalty rates are assigned to premium brands within the marketplace based on name recognition and profitability, while other brands receive lower royalty rates. We exercise judgment when selecting the royalty rates and evaluating profitability. The basis for future sales projections for both the RFR and MPEEM are internal revenue forecasts which we believe represent reasonable market participant assumptions. We exercise judgment when forecasting revenue including the performance of the underlying market in which the intangible asset operates as well as the impact of specific initiatives. The future cash flows are discounted using an applicable Discount Rate as well as any potential risk premium to reflect the inherent risk of holding a standalone intangible asset. We exercise judgment when determining the level of risk associated with achieving the forecasted revenue. For MPEEM calculations, we exercise judgment in determining the customer attrition rate, which is generally based on historical experience. These estimates are subject to uncertainty as actual results may differ from our forecast. If actual results differ from the forecast including higher than anticipated customer attrition, our results of operations could be materially adversely affected.

The key uncertainties in the RFR and MPEEM calculations, as applicable, are: the selection of an appropriate royalty rate, assumptions used in developing internal revenue growth and expense forecasts, assumed customer attrition rates, as well as the perceived risk associated with those forecasts in determining the Discount Rate and risk premium.

The costs of amortizable intangible assets are recognized over their expected useful lives, typically between three and fifteen years, 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. Intangible assets not subject to amortization are assessed for impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset may be impaired. 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 Company recorded impairment charges of $5.0 million during the year ended December 31, 2024 related to the Navico trade name. The Company recorded impairment charges of $16.6 million during the year ended December 31, 2023 including a $13.0 million impairment of the Navico trade name. The Company recorded impairment charges of $17.4 million during the year ended December 31, 2022 related to capitalized software intangible assets that will not be placed into service.

Refer to Note 4 – Acquisitions and Note 9 – Goodwill and Other Intangibles in the Notes to Consolidated Financial Statements for more information.

Recent Accounting Pronouncements

See Note 1 – Significant Accounting Policies in the Notes to Consolidated Financial Statements for the recent accounting pronouncements that have been adopted during the year ended December 31, 2024, or will be adopted in future periods.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations of Brunswick Corporation (the Company, we, us, our) are forward-looking statements. Forward-looking statements are based on current expectations, estimates, and projections about our business and by their nature address matters that are, to different degrees, uncertain. Actual results may differ materially from expectations and projections as of the date of this filing due to various risks and uncertainties. For additional information regarding forward-looking statements, refer to Forward-Looking Statements above.

Certain statements in Management's Discussion and Analysis are based on non-GAAP financial measures. GAAP refers to generally accepted accounting principles in the United States. 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 consolidated statements of operations, balance sheets or statements 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. For example, the discussion of our cash flows includes an analysis of free cash flows and total liquidity; the discussion of our net sales includes net sales on a constant currency basis; the discussion of our net sales includes net sales excluding acquisitions; and the discussion of our earnings includes a presentation of operating earnings and operating margin excluding restructuring, exit and impairment charges, purchase accounting amortization, acquisition, integration and IT-related costs, IT security incident costs, Sport Yacht & Yachts, reclassification of held-for-sale items, gain on sale of assets, TN-BC Holdings LLC joint venture impairment, loss on early extinguishment of debt, special tax items, and other applicable charges and of diluted earnings per common share, as adjusted. Non-GAAP financial measures do not include operating and statistical measures.

We include non-GAAP financial measures in Management's Discussion and Analysis as management believes these measures and the information they provide are useful to investors because they permit investors to view our performance using the same tools that management uses to evaluate our ongoing business performance. In order to better align our reported results with the internal metrics management uses to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to acquisitions, among other adjustments.

We do not provide forward-looking guidance for certain financial measures on a GAAP basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These items may include restructuring, exit and impairment costs, special tax items, acquisition-related costs, and certain other unusual adjustments.

IT Security Incident

As previously announced on June 13, 2023, the Company experienced an IT security incident that impacted some of its systems and global facilities. Please refer to Note 1 – Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further details.

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Change in Reportable Segments

Effective January 1, 2023, the Company changed its management reporting and updated its reportable segments to Propulsion, Engine Parts and Accessories (Engine P&A), Navico Group and Boat to align with its internal operating structure. For further information, refer to Note 5 – Segment Information in the Notes to the Consolidated Financial Statements.

Acquisitions

During the fourth quarter of 2023, we acquired additional Freedom Boat Club franchise operations and territory rights as well as certain marine assets in the Southeast United States for net cash consideration of $16.0 million. On September 1, 2023, the Company acquired all of the issued and outstanding shares of Fliteboard Pty Ltd for $87.6 million net cash consideration. Refer to Note 4 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

During the second quarter of 2022, we acquired certain Freedom Boat Club franchise operations and territory rights as well as certain marine assets in the Southeast United States for net cash consideration of $93.9 million. Refer to Note 4 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

On October 4, 2021, we completed the acquisition of Navico for $1.094 billion net cash consideration. Navico was a privately held global company based in Egersund, Norway, and is a global leader in marine electronics and sensors, including multi-function displays, fish finders, autopilots, sonar, radar, and cartography. We also completed the acquisitions of substantially all the net assets of RELiON Battery, LLC, SemahTronix, LLC, Fanautic Club, and certain Freedom Boat Club franchise operations and territory rights in the United States during 2021 for net cash consideration of $66.1 million. Refer to Note 4 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

Matters Affecting Comparability

Changes in Foreign Currency Rates. Percentage changes in net sales expressed in constant currency reflect the impact that changes in currency exchange rates had on comparisons of net sales. To determine this information, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period. The percentage change in net sales expressed on a constant currency basis better reflects the changes in the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Approximately 23 percent of our annual net sales are transacted in a currency other than the U.S. dollar. Our most material exposures include sales in Euros, Canadian dollars, Australian dollars and Brazilian real.

The table below summarizes the impact of changes in currency exchange rates and also the impact of acquisitions on our net sales:

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Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Operations for 2023, 2022 and 2021:

NM = not meaningful

bps = basis points

(A)Gross margin is defined as Net sales less Cost of sales as presented in the Consolidated Statements of Operations.

The following is a reconciliation of our non-GAAP measures, adjusted operating earnings and adjusted diluted earnings per common share from continuing operations for 2023, 2022 and 2021:

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2023 vs. 2022

Net sales decreased 6.0 percent during 2023 when compared with 2022. The components of the consolidated net sales change were as follows:

Sales in 2023 were below the prior year as higher discounts in select segments coupled with the impact of cautious wholesale ordering patterns by dealers, OEMs and retailers in the second half of the year were partially offset by successful new product momentum, positive mix and pricing. Refer to the Propulsion, Engine P&A, Navico Group and Boat segments for further details on the drivers of net sales changes.

Gross margin percentage decreased 70 basis points in 2023 when compared with 2022 driven by higher manufacturing costs including material and labor inflation (260 bps), depreciation (60 bps), absorption (35 bps), the IT security incident (30 bps), and unfavorable foreign currency exchange-rate fluctuations (25 bps), offset by sales-related drivers (330 bps) and acquisitions (10 bps).

Selling, general and administrative expenses as a percentage of net sales increased 140 basis points during 2023 when compared with the same prior year period, due to lower sales (70 bps), increased relative spending on technology initiatives and the IT security incident (20 bps), sales and marketing (20 bps), operating expenses associated with current year acquisitions (20 bps) and amortization (10 bps).

During 2023, we recorded restructuring, exit and impairment charges of $54.7 million compared with $25.1 million in 2022. The Company estimates the restructuring actions executed in 2023 will result in approximately $45 million of annualized cost savings. The future cost savings related to restructuring actions executed in 2022 are not expected to be material to our Consolidated Financial Statements. See Note 3 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.

We recognized equity (loss) earnings of $(11.4) million and $4.0 million in 2023 and 2022, respectively. The primary driver of the loss in 2023 is the impairment charge taken related to our investment in TN-BC Holdings LLC. Refer to Note 1 – Significant Accounting Policies in the Notes to Consolidated Financial Statements for further information.

We recognized $7.6 million and $(6.1) million in 2023 and 2022, respectively, in Other income (expense), net. Other income (expense), net primarily includes remeasurement gains and losses resulting from changes in foreign currency rates and other postretirement benefit costs.

Net interest expense increased in 2023 compared with 2022 due to an increase in average daily debt outstanding, which was influenced by debt issuances. Refer to Note 14 – Debt in the Notes to Consolidated Financial Statements.

We recognized an income tax provision of $196.3 million and $172.3 million in 2023 and 2022, respectively. The increase is primarily due to the discrete income tax expense recorded in connection with the intercompany sales of intellectual property rights in the first and third quarters of 2023. The effective tax rate, which is calculated as the income tax provision as a percentage of earnings before income taxes, was 31.2 percent and 20.2 percent for 2023 and 2022, respectively. See Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for a reconciliation of our effective tax rate and statutory Federal income tax rate.

Due to the factors described in the preceding paragraphs, operating earnings, net earnings from continuing operations, and diluted earnings per common share from continuing operations decreased during 2023. Diluted earnings per common share from continuing operations benefited from common stock repurchases in both years.

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2022 vs. 2021

Net sales increased 16.5 percent during 2022 when compared with 2021. The components of the consolidated net sales change were as follows:

Sales in each segment benefited from steady demand, new product performance, and pricing implemented throughout the year, partially offset by unfavorable changes in foreign currency exchange rates. Refer to the Propulsion, Engine P&A, Navico Group and Boat segments for further details on the drivers of net sales changes.

Gross margin percentage increased 10 basis points in 2022 when compared with 2021 driven by increased sales (620 bps) and acquisitions (60 bps), partially offset by higher manufacturing costs including material and labor inflation and inefficiencies caused by supply chain disruptions (670 bps).

The 60 basis points decrease in selling, general and administrative expenses as a percentage of revenue in 2022 compared to 2021 reflects the impact of less variable compensation expense (130 bps) partially offset by increased spending on sales and marketing (40 bps) and increased purchase accounting intangible asset amortization (30 bps).

During 2022, we recorded restructuring, exit and impairment charges of $25.1 million compared with $0.8 million in 2021. The future cost savings related to restructuring actions executed in 2022 are not expected to be material to our Consolidated Financial Statements. See Note 3 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.

We recognized equity earnings of $4.0 million and $2.3 million in 2022 and 2021, respectively, which were mainly related to our marine and technology-related joint ventures.

We recognized $(6.1) million and $(6.8) million in 2022 and 2021, respectively, in Other income (expense), net. Other income (expense), net primarily includes remeasurement gains and losses resulting from changes in foreign currency rates and other postretirement benefit costs.

Net interest expense increased in 2022 compared with 2021 due to an increase in average daily debt outstanding, which was influenced by debt issuances. Refer to Note 14 – Debt in the Notes to Consolidated Financial Statements.

We recognized an income tax provision of $172.3 million and $141.0 million in 2022 and 2021, respectively. The increase is primarily due to increased earnings before income taxes. The effective tax rate, which is calculated as the income tax provision as a percentage of earnings before income taxes, was 20.2 percent and 19.1 percent for 2022 and 2021, respectively. See Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for a reconciliation of our effective tax rate and statutory Federal income tax rate.

Due to the factors described in the preceding paragraphs, operating earnings, net earnings from continuing operations and diluted earnings per common share from continuing operations increased during 2022. Diluted earnings per common share from continuing operations benefited from common stock repurchases in both years.

Segments

We have four reportable segments: Propulsion, Engine P&A, Navico Group, and Boat. Refer to Note 5 – Segment Information in the Notes to Consolidated Financial Statements for details on the segment operations.

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Propulsion Segment

The following table sets forth the Propulsion segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2023, 2022 and 2021:

NM = not meaningful

bps = basis points

2023 vs. 2022

Propulsion segment's net sales decreased $60.2 million or 2.1 percent in 2023 versus prior year due to cautious OEM ordering patterns in the second half of the year, partially offset by continued market share gains in outboard engines, positive mix and pricing as well as the acquisition of Fliteboard. The components of the Propulsion segment's net sales change were as follows:

International sales were 32 percent of the Propulsion segment's net sales in 2023. International sales decreased 4 percent year-over-year on a GAAP basis and 3 percent on a constant currency basis.

Propulsion segment's operating earnings for the year were $494.7 million, a decrease of 5.4 percent versus the prior year, as sales declines and higher input costs more than offset benefits from cost-control measures.

2022 vs. 2021

Propulsion segment's net sales increased $319.3 million or 12.7 percent in 2022 versus the prior year due to favorable product mix, pricing and higher sales volume. The components of the Propulsion segment's net sales change were as follows:

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International sales were 32 percent of the Propulsion segment's net sales in 2022. International sales increased 6 percent year-over-year on a GAAP basis and 13 percent on a constant currency basis.

Propulsion segment's operating earnings for the year were $522.9 million, an increase of 16.3 percent in 2022 versus the prior year, as a result of increased sales and lower operating expenses, slightly offset by higher inflationary costs and investments in new products and capacity expansion.

Engine P&A Segment

The following table sets forth the Engine P&A segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2023, 2022 and 2021:

NM = not meaningful

bps = basis points

2023 vs. 2022

Engine P&A segment's net sales decreased $110.4 million or 8.4 percent in 2023 versus the prior year due to lower sales in both of the Products and Distribution businesses. The components of the Engine P&A segment's net sales change were as follows:

International sales were 29 percent of the Engine P&A segment's net sales in 2023. International sales decreased 11 percent year-over-year on a GAAP basis and 9 percent on a constant currency basis.

Engine P&A segment's operating earnings for the year were $217.4 million, a decrease of 18.9 percent versus the prior year, due to a decline in sales and higher manufacturing costs more than offsetting the impact of pricing and lower operating expenses.

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2022 vs. 2021

Engine P&A segment's net sales decreased $61.5 million or 4.5 percent in 2022 versus the prior year due to a decline in sales volume only partially offset by the benefit of product mix and pricing implemented throughout the year. The components of the Engine P&A segment's net sales change were as follows:

International sales were 30 percent of the Engine P&A segment's net sales in 2022. International sales decreased 9 percent year-over-year on a GAAP basis and 3 percent on a constant currency basis.

Engine P&A segment's operating earnings were $268.0 million in 2022, a decrease of 5.1 percent, driven by lower sales, as well as material and labor inflation and transition costs from a new distribution center.

Navico Group Segment