BRUNSWICK CORP (BC) FY 2022 MD&A

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 (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 a discussion of net sales on a constant currency basis; 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-related 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 we believe these measures and the information they provide are useful to investors because they permit investors to view our performance using some of the same tools that we use 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.

Acquisitions

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.

32

Table of Contents

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 24 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:

Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Operations for 2022, 2021 and 2020:

NM = not meaningful

bpts = basis points

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

33

Table of Contents

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

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, P&A, 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 bpts) and acquisitions (60 bpts), partially offset by higher manufacturing costs including material and labor inflation and inefficiencies caused by supply chain disruptions (670 bpts).

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 bpts) partially offset by increased spending on sales and marketing (40 bpts) and increased purchase accounting intangible asset amortization (30 bpts).

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 expense, net. Other expense, net primarily includes remeasurement gains and losses resulting from changes in foreign currency rates and other postretirement benefit costs.

34

Table of Contents

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 15 – Debt in the Notes to Consolidated Financial Statements.

Income tax provision was $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 11 – 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.

2021 vs. 2020

Net sales increased 34.5 percent during 2021 when compared with 2020. The components of the consolidated net sales change were as follows:

Sales in each segment benefited from increased volume due to strong global demand for marine products, market share gains, and higher pricing. Refer to the Propulsion, P&A, and Boat segments discussions for further details on the drivers of net sales changes.

Gross margin percentage increased 60 basis points in 2021 when compared with 2020 driven by increased sales (340 bpts) and favorable changes in foreign exchange rates (40 bpts), partially offset by increased manufacturing costs, including material and labor inflation (380 bpts) offset by favorable absorption (60 bpts).

The 60 basis points decrease in selling, general and administrative expenses as a percentage of revenue in 2021 compared to 2020 is due to better leverage on sales and marketing expenses (40 bpts) and technology initiatives (30 bpts) partially offset by higher variable compensation expense (10 bpts).

During 2021, we recorded restructuring, exit and impairment charges of $0.8 million compared with $4.1 million in 2020. See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.

We recognized equity earnings of $2.3 million and $4.5 million in 2021 and 2020, respectively, which were mainly related to our marine and technology-related joint ventures.

We recognized $(6.8) million and $(6.1) million in 2021 and 2020, respectively, in Other expense, net. Other expense, net primarily includes other postretirement benefit costs and remeasurement gains and losses resulting from changes in foreign currency rates.

Net interest expense decreased in 2021 compared with 2020 due to a reduction in average daily debt outstanding, which was influenced by the timing of debt issuances and retirements. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements.

We recognized a $4.2 million loss on early extinguishment of debt in 2021 related to the tender of our 2023 Debentures and 2027 Notes. We also recognized $4.0 million of transaction financing charges in 2021 related to a bridge commitment that was secured in anticipation of the Navico acquisition. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements.

35

Table of Contents

We recognized an income tax provision of $141.0 million and $98.0 million in 2021 and 2020, 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 19.1 percent and 20.7 percent for 2021 and 2020, respectively. See Note 11 – 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 2021. Diluted earnings per common share from continuing operations benefited from common stock repurchases in both years.

Segments

We have three reportable segments: Propulsion, P&A, 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 the Propulsion segment results for the years ended December 31, 2022, 2021 and 2020:

bpts = basis points

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:

International sales were 32 percent of the Propulsion segment's net sales in 2022. International sales increased 6 percent on a GAAP basis and 13 percent on a constant currency basis from the prior year, primarily due to increases in all regions except Asia-Pacific.

Propulsion segment's operating earnings for the year were $522.9 million, an increase of 16.3 percent 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.

36

Table of Contents

2021 vs. 2020

Propulsion segment's net sales increased $626.3 million or 33.3 percent in 2021 versus the prior year due to the factors affecting all of our segments previously mentioned. The components of the Propulsion segment's net sales change were as follows:

International sales were 34 percent of the Propulsion segment's net sales in 2021. International sales increased 29 percent on a GAAP basis and 23 percent on a constant currency basis from the prior year, primarily due to increases in all regions except Asia-Pacific.

Propulsion segment's operating earnings for the year increased $164.2 million or 57.5 percent in 2021 versus the prior year as benefits from increased pricing, favorable absorption and favorable customer mix were more than able to offset higher manufacturing costs, primarily caused by material inflation.

Parts & Accessories Segment

The following table sets forth the Parts & Accessories (P&A) segment results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2022, 2021 and 2020:

NM = not meaningful

bpts = basis points

37

Table of Contents

2022 vs. 2021

P&A segment's net sales increased by $315.6 million or 15.7 percent in 2022 versus the prior year due to the acquisitions of Navico, RELiON, and SemahTronix and favorable pricing and product mix. The components of the P&A segment's net sales change were as follows:

International sales were 33 percent of the P&A segment's net sales in 2022. International sales increased 22 percent year-over-year on a GAAP basis and 29 percent on a constant currency basis, reflecting increases across all regions.

P&A segment's operating earnings for the year were $336.2 million, an increase of 0.1 percent versus the prior year, with sales benefits, optimized pricing and the initial benefits of the redesigned organization offsetting material and freight inflation, negative currency impacts, incremental purchase accounting amortization and restructuring, exit and impairment charges.

2021 vs. 2020

P&A segment's net sales increased $499.3 million or 33.1 percent in 2021 versus the prior year due to the factors affecting all of our segments previously mentioned. The components of the P&A segment's net sales change were as follows:

International sales were 31 percent of the P&A segment's net sales in 2021. International sales increased 49 percent year-over-year on a GAAP basis and 43 percent on a constant currency basis, reflecting increases across all regions.

P&A segment's operating earnings were $335.8 million in 2021, an increase of 21.9 percent. Operating earnings, while positively affected by the factors affecting all of our segments previously mentioned, were also negatively impacted by increased input costs.

38

Table of Contents

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, 2022, 2021 and 2020:

NM = not meaningful

bpts = basis points

2022 vs. 2021

Boat segment's net sales increased $416.3 million or 24.4 percent versus 2021 due to increased sales volumes to dealers and favorable product mix and pricing. The components of the Boat segment's net sales change were as follows:

International sales were 24 percent of the Boat segment's net sales in 2022, and increased 13 percent on a GAAP basis and 19 percent on a constant currency basis, reflecting increases across all regions.

Boat segment operating earnings for the year were $212.8 million, an increase of 49.5 percent versus the prior year, due to increased sales together with operational efficiencies and positive mix. The increase was partially offset by inefficiencies resulting from supply chain disruptions and inflation pressures.

39

Table of Contents

2021 vs. 2020

Boat segment's net sales increased $452.8 million or 36.2% versus 2020 driven by lower discount levels, as well as the factors affecting all of our segments previously mentioned. Freedom Boat Club, which contributed approximately 3 percent of the Boat segment's revenue, achieved membership growth and also completed several acquisitions during the year. The components of the Boat segment's net sales change were as follows:

International sales were 26 percent of the Boat segment's net sales in 2021, and increased 52 percent on a GAAP basis and 46 percent on a constant currency basis, reflecting increases across all regions.

Boat segment's operating earnings were $142.3 million in 2021, as benefits from increased sales for the year more than offset material inflation and higher costs due to manufacturing inefficiencies.

Corporate/Other

The following table sets forth Corporate/Other results and a reconciliation to our non-GAAP measure of adjusted operating earnings for the years ended December 31, 2022, 2021 and 2020:

NM = not meaningful

Corporate operating expenses increased by $9.2 million in 2022 compared with 2021 due to the impairment of capitalized software intangible assets as well as an increase in investments in enterprise growth initiatives. This was partially offset by a decrease in variable compensation expense and favorable mark-to-market adjustments for deferred compensation arrangements.

Corporate operating expenses increased by $23.1 million in 2021 compared with 2020 due to an increase in spending on certain enterprise initiatives including ACES as well as higher variable compensation expense.

40

Table of Contents

Cash Flow, Liquidity and Capital Resources

The following table sets forth an analysis of free cash flow for the years ended December 31, 2022, 2021 and 2020:

(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, and potential borrowings. We evaluate potential acquisitions, divestitures and joint ventures in the ordinary course of business.

2022 Cash Flow

Net cash provided by operating activities of continuing operations in 2022 totaled $580.4 million versus $586.2 million in 2021. The decrease is primarily due to increased working capital, partially offset by higher net earnings.

The primary drivers of Net cash provided by operating activities of continuing operations in 2022 were net earnings, net of non-cash items, partially offset by increases in 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. Accounts and notes receivable increased $74.6 million primarily due to increased sales across all segments. Inventory increased $292.8 million, primarily to support higher production volumes.

Net cash used for investing activities of continuing operations was $443.2 million, which included $388.3 million of capital expenditures, $93.8 million of cash paid for acquisitions, net of cash acquired, and $60.1 million of purchases of marketable securities, partially offset by $56.4 million of sales or maturities of marketable securities and $42.5 million of cross-currency swap settlements. Our capital spending was focused on investments in capacity expansion, new products and technology.

Net cash provided by financing activities was $110.8 million and primarily related to proceeds of issuances of long-term debt, partially offset by common stock repurchases, payments of long-term debt including current maturities, and cash dividends paid to common shareholders. Refer to Note 15 – Debt in the Notes to Consolidated Financial Statements for further details on our debt activity during the year ended December 31, 2022.

2021 Cash Flow

Net cash provided by operating activities of continuing operations in 2021 totaled $586.2 million versus $800.0 million in 2020. The decrease is primarily due to increased working capital, partially offset by higher net earnings during 2021.

41

Table of Contents

The primary drivers of Net cash provided by operating activities of continuing operations in 2021 were net earnings, net of non-cash items, partially offset by the impact of increasing working capital, including increasing inventory levels to help ensure manufacturing continuity and rebuilding pipeline inventories. Accounts and notes receivable increased $85.1 million primarily due to increased sales across all segments. Inventory increased $343.2 million, driven by increases to support higher production volumes. Accounts payable increased $134.2 million primarily due to timing of payments and higher inventory levels across all reportable segments. Accrued expenses increased $73.8 million, primarily driven by increased variable compensation.

Net cash used for investing activities of continuing operations was $1,353.9 million, primarily due to acquisitions of businesses of $1,138.6 million and capital expenditures of $267.1 million, offset by sales of marketable securities of $55.9 million. Our capital spending was mainly focused on investments in new products and technologies as well as increased production capacity.

Net cash provided by financing activities was $621.8 million, and primarily related to net proceeds from issuances of long-term debt in connection with the Navico acquisition, offset by payments of long-term debt including current maturities, common stock repurchases, and cash dividends paid to common shareholders. Refer to Note 15 – Debt in the Notes to Consolidated Financial Statements for further details on our debt activity during the year ended December 31, 2021.

Liquidity and Capital Resources

We view our highly liquid assets as of December 31, 2022 and 2021 as:

The following table sets forth an analysis of Total liquidity as of December 31, 2022 and 2021:

(A) See Note 15 – 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. Management believes 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 $600.1 million as of December 31, 2022, an increase of $244.8 million from $355.3 million as of December 31, 2021. Total debt as of December 31, 2022 and December 31, 2021 was $2,509.0 million and $1,816.4 million, respectively. Our debt-to-capitalization ratio increased to 55 percent as of December 31, 2022 from 49 percent as of December 31, 2021.

We borrowed $125.0 million under the Amended and Restated Credit Facility (Credit Facility) during 2022, all of which was repaid prior to year-end and thus we did not have any borrowings outstanding under the Credit Facility as of December 31, 2022. Available borrowing capacity under the Credit Facility as of December 31, 2022 totaled $747.2 million, net of $2.8 million of letters of credit outstanding. During 2022, the maximum amount utilized under our unsecured commercial paper program (CP Program) was $300.0 million.

42

Table of Contents

There was no borrowing activity under the Credit Facility during 2021, and we did not have any borrowings outstanding as of December 31, 2021. Available borrowing capacity as of December 31, 2021 totaled $497.2 million, net of $2.8 million of letters of credit outstanding under the Credit Facility. During 2021, borrowings under our CP Program, pursuant to which we may issue short-term, unsecured commercial paper notes, totaled $200.0 million, all of which were repaid during the period. During 2021, the maximum amount utilized under the CP Program was $100.0 million. Refer to Note 15 – Debt in the Notes to Consolidated Financial Statements for further details.

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, 2022, we were in compliance with the financial covenants in the Credit Facility and CP Program.

To finance the acquisition of Navico during 2021, we issued Notes for aggregate net proceeds of $992.9 million. We also tendered our 2023 Debentures and 2027 Notes in the process, resulting in the retirement of $25.0 million of debt and a loss on early extinguishment of debt of $4.2 million. Refer to Note 15 – Debt and Note 4 – Acquisitions in the Notes to Consolidated Financial Statements for further details.

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

2023 Capital Strategy

We anticipate executing a balanced capital strategy in 2023, leveraging our strong cash position and liquidity. We plan to retire approximately $80 million of our long-term debt obligations, with interest expense estimated to be approximately $100 million in 2023.

With the Mercury capacity project materially behind us, we anticipate our capital expenditure levels will decrease versus 2022, resulting in $350 million of capital expenditures to fund new product investments and cost-reduction and automation projects in all of our businesses.

We also plan to spend approximately $150 million on share repurchases in 2023, but have the ability to aggressively increase this figure should market conditions or our share price create an opportunity to be more aggressive.

Financial Services

Refer to Note 9 – Financing Joint Venture in the Notes to Consolidated Financial Statements for more information about our financial services.

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 12 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for a description of these arrangements.

43

Table of Contents

Contractual Obligations

The following table sets forth a summary of our contractual cash obligations as of December 31, 2022:

(A)    See Note 15 – 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 20 – Leases in the Notes to Consolidated Financial Statements.

(B)    See Note 20 – 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 12 – Commitments and Contingencies in the Notes to Consolidated Financial Statements.

Environmental Regulation

In the Propulsion segment, we continue to develop engine technologies to reduce engine emissions to comply with current and future requirements. In the P&A segment, we are working to develop electrification and other technologies to reduce our environmental footprint. The Boat segment continues to pursue fiberglass boat manufacturing technologies and techniques to reduce air emissions at its boat manufacturing facilities. The costs associated with these activities may have an adverse effect on segment operating margins and short-term operating results. Environmental regulatory bodies in the United States and other countries may impose more stringent emissions standards and/or other environmental regulatory requirements than are currently in effect. By following our environmental management system processes to drive sustainable, responsible practices, we comply with current regulations and expect to comply with any new regulations. Compliance will most likely increase the cost of these products for us and others in the industry, but is not expected to have a material adverse effect on our competitive position.

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.

44

Table of Contents

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.

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 projected 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 be greater than 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.

45

Table of Contents

We calculate the fair value of our reporting units considering both the income approach and the guideline public company method. 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 did not record any goodwill impairments in 2022, 2021 or 2020.

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 judgement 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 described below. 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. The Company did not record any other impairment charges during the year ended December 31, 2022 and 2021. 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.

Refer to Note 4 – Acquisitions and Note 10 – Goodwill and Other Intangibles in the Notes to Consolidated Financial Statements for more information.

46

Table of Contents

Long-Lived Assets. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful lives of our definite-lived intangible assets and other long-lived assets may warrant revision or that the remaining balance of such assets may not be recoverable. We exercise judgment when evaluating whether events or circumstances have occurred either internally or externally that would warrant revisions to useful lives or indicate the balances of the assets may not be recoverable. Once an impairment indicator is identified, we test for recoverability of the related asset group using an estimate of undiscounted cash flows over the asset group's remaining life. We exercise judgment when forecasting future cash flows including the performance of the underlying market in which the asset or asset group operates as well as the impact of specific initiatives. 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. If an asset group's carrying value is not recoverable, we record an impairment loss based on the excess of the carrying value of the asset group over the long-lived asset group's fair value. Fair value is determined using observable inputs, including the use of appraisals from independent third parties, when available, and, when observable inputs are not available, based on our assumption of the data that market participants would use in pricing the asset, based on the best information available in the circumstances. Specifically, we use discounted cash flows to determine the fair value of the asset when observable inputs are unavailable. We tested our long-lived asset balances for impairment as indicators arose during 2022, 2021 and 2020, resulting in impairment charges of $1.5 million, $0.8 million and $0.9 million, respectively, which are recognized either in Restructuring, exit and impairment charges or Selling, general and administrative expense in the Consolidated Statements of Operations.

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. We evaluate the realizability of net deferred tax assets and, as necessary, record valuation allowances against them. We exercise judgment when evaluating the realizability of deferred tax assets by evaluating the potential to recover the value of these assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences and carryforwards, certain tax planning strategies, and future taxable income exclusive of reversing temporary differences and carryforwards. 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. We estimate our 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 our application of those laws and regulations. These factors may cause our tax rate and deferred tax balances to increase or decrease. We exercise judgment when evaluating whether it is not more likely than not a tax position will be sustained upon examination by the relevant taxing authorities. This evaluation is subject to uncertainty as it involves the interpretation of tax laws and regulations and our interpretation could differ from that of the taxing authorities. If a position is not sustained upon examination, the impact could be material to our results of operations and cash flows. See Note 11 – Income Taxes in Notes to Consolidated Financial Statements for further details.

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, 2022, or will be adopted in future periods.