UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________

Form 10-K

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1043
_______________

Brunswick Logo
Brunswick Corporation
(Exact name of registrant as specified in its charter)

Delaware
36-0848180
(State or other jurisdiction of incorporation
or organization)
(I.R.S. Employer Identification No.)
   
1 N. Field Court, Lake Forest, Illinois
60045-4811
(Address of principal executive offices)
(Zip Code)
 
(847) 735-4700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
     
Title of each class   Name of each exchange on which registered 
       Common Stock ($0.75 par value)
  
New York and Chicago
   
Stock Exchanges

Securities registered pursuant to Section 12(g) of the Act:  None
______________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]     No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):   Large accelerated filer [X] Accelerated filer [   ] Non-accelerated filer [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [   ] No [X]

As of June 30, 2008, the aggregate market value of the voting stock of the registrant held by non-affiliates was $923,903,886. Such number excludes stock beneficially owned by officers and directors. This does not constitute an admission that they are affiliates.
 
The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of February 23, 2009 was 88,163,535.

DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates by reference certain information that will be set forth in the
 Company’s definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 6, 2009.
 
 
 


 
BRUNSWICK CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2008

TABLE OF CONTENTS

   
Page
PART I
    
Item 1.
Business
1
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
13
Item 2.
Properties
14
Item 3.
Legal Proceedings
14
Item 4.
Submission of Matters to a Vote of Security Holders
17
     
PART II
    
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
   Matters and Issuer Purchases of Equity Securities
19
Item 6.
Selected Financial Data
21
Item 7.
Management’s Discussion and Analysis of Financial Condition
   and Results of Operations
23
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
47
Item 8.
Financial Statements and Supplementary Data
47
Item 9.
Changes in and Disagreements with Accountants on Accounting
   and Financial Disclosure
47
Item 9A.
Controls and Procedures
48
     
PART III
    
Item 10.
Directors, Executive Officers and Corporate Governance
49
Item 11.
Executive Compensation
49
Item 12.
Security Ownership of Certain Beneficial Owners and
   Management and Related Stockholder Matters
49
Item 13.
Certain Relationships and Related Transactions, and Director Independence
49
Item 14.
Principal Accounting Fees and Services
49
     
PART IV
    
Item 15.
Exhibits and Financial Statement Schedules
49


 
 
 

PART I

Item 1. Business

Brunswick Corporation (Brunswick or the Company) is a leading global manufacturer and marketer of recreation products including boats, marine engines, fitness equipment and bowling and billiards equipment. Brunswick’s boat offerings include fiberglass pleasure boats; luxury sportfishing convertibles and motoryachts; offshore fishing boats; aluminum fishing, deck and pontoon boats; rigid inflatable boats; and marine parts and accessories. The Company’s engine products include outboard, sterndrive and inboard engines; trolling motors; propellers; and engine control systems. Brunswick’s fitness products include both cardiovascular and strength training equipment. Brunswick’s bowling offerings include products such as capital equipment, aftermarket and consumer products; and billiards offerings include billiards tables and accessories, Air Hockey tables and foosball tables. The Company also owns and operates Brunswick bowling family entertainment centers in the United States and other countries and a retail billiards store in the United States.

Brunswick’s long-term strategy is to introduce the highest quality product with the most innovative technology and styling at a rate faster than its competitors; to distribute products through a model that benefits its partners – dealers and distributors – and provide world-class service to its customers; to develop and maintain low-cost manufacturing and continually improve productivity and efficiency; to manufacture and distribute products globally with local and regional styling; and to attract and retain the best and the brightest people. In addition, the Company pursues growth from expansion of existing businesses. The Company’s objective is to enhance shareholder value by achieving returns on investments that exceed its cost of capital. Brunswick’s short-term strategy is to maintain strong liquidity, take actions necessary to maintain the health of its dealer network and continue to position itself to emerge from the global economic crisis stronger.

Refer to Note 5 – Segment Information and Note 20 – Discontinued Operations in the Notes to Consolidated Financial Statements for additional information regarding the Company’s segments and discontinued operations, including net sales, operating earnings and total assets by segment for 2008, 2007 and 2006.

Boat Segment

The Boat segment consists of the Brunswick Boat Group (Boat Group), which manufactures and markets fiberglass pleasure boats, luxury sportfishing convertibles and motoryachts, offshore fishing boats and aluminum fishing, pontoon and deck boats and manufactures and distributes marine parts and accessories. The Company believes that its Boat Group, which had net sales of $2,011.9 million during 2008, has the largest dollar sales and unit volume of pleasure boats in the world.

The Boat Group manages most of Brunswick’s boat brands; evaluates and enhances the Company’s boat portfolio; expands the Company’s involvement in recreational boating services and activities to enhance the consumer experience and dealer profitability; and speeds the introduction of new technologies into boat manufacturing processes.

The Boat Group is comprised of the following boat brands: Cabo and Hatteras luxury sportfishing convertibles and motoryachts; Sea Ray yachts, sport yachts, sport cruisers and runabouts; Bayliner and Maxum sport cruisers and runabouts; Meridian motoryachts; Sealine yachts and sport cruisers; Boston Whaler, Lund, Triton and Trophy fiberglass fishing boats; Crestliner, Harris, Lowe, Lund, Princecraft and Triton aluminum fishing, utility, pontoon and deck boats; and Kayot deck and runabout boats. The Boat Group also includes a commercial and governmental sales unit that sells products to the United States government, state, local and foreign governments, and commercial customers. The Boat Group’s parts and accessories business includes Attwood, Land ‘N’ Sea, Benrock Inc., Kellogg Marine Inc. and Diversified Marine Products L.P. The Boat Group procures most of its outboard engines, gasoline sterndrive engines and gasoline inboard engines from Brunswick’s Marine Engine segment. The Boat Group also purchases a portion of its diesel engines from Cummins MerCruiser Diesel Marine LLC (CMD), a joint venture of Brunswick’s Mercury Marine division with Cummins Marine, a division of Cummins Inc.


 
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The Boat Group has active manufacturing facilities in California, Florida, Indiana, Michigan, Minnesota, Missouri, North Carolina, Tennessee, Canada, China, Mexico and the United Kingdom, as well as additional inactive manufacturing facilities in Maryland, North Carolina, Ohio, Oregon and Washington. The Boat Group also utilizes contract manufacturing facilities in Poland. During the first quarter of 2008, Brunswick announced that it would close its boat plant in Bucyrus, Ohio, in anticipation of the proposed sale of certain assets relating to its Baja boat business, close its Swansboro, North Carolina, boat plant and cease manufacturing at one of its facilities in Merritt Island, Florida. In June 2008, Brunswick announced a plan to expand on its previous restructuring initiatives as a result of the prolonged downturn in the U.S. marine market. Specifically, Brunswick announced the closing of its production facility in Newberry, South Carolina, due to its decision to cease production of its Bluewater Marine brands, including Sea Pro, Sea Boss, Palmetto and Laguna, and its intention to close four additional boat plants. During the third quarter of 2008, Brunswick accelerated its previously announced efforts to resize the Company by the end of 2009 in light of extraordinary developments within global financial markets affecting the recreational marine industry. Specifically, Brunswick closed its production facilities in Roseburg, Oregon, and Arlington, Washington, and expects to close its production facility at Pipestone, Minnesota in the first quarter of 2009. In addition, during the third quarter of 2008, Brunswick mothballed its plant in Navassa, North Carolina. Brunswick also sold all of the capital stock of Albemarle Boats on December 31, 2008, and expects to mothball the majority of its Riverview boat manufacturing facility near Knoxville, Tennessee, during the first quarter of 2009.

The Boat Group’s products are sold to end users through a global network of approximately 2,300 dealers and distributors, each of which carries one or more of Brunswick’s boat brands. Sales to the Boat Group’s largest dealer, MarineMax Inc., which has multiple locations and carries a number of the Boat Group’s product lines, represented approximately 13 percent of Boat Group sales in 2008. Domestic retail demand for pleasure boats is seasonal, with sales generally highest in the second calendar quarter of the year.

Marine Engine Segment

The Marine Engine segment, which had net sales of $1,955.9 million in 2008, consists of the Mercury Marine Group (Mercury Marine). The Company believes its Marine Engine segment has the largest dollar sales volume of recreational marine engines in the world.

Mercury Marine manufactures and markets a full range of sterndrive propulsion systems, inboard engines, outboard engines and water jet propulsion systems under the Mercury, Mercury MerCruiser, Mariner, Mercury Racing, Mercury SportJet and Mercury Jet Drive brand names. In addition, Mercury Marine manufactures and markets engine parts and marine accessories under the Quicksilver, Mercury Precision Parts, Mercury Propellers and Motorguide brand names, including marine electronics and control integration systems, steering systems, instruments, controls, propellers, trolling motors, service aids and marine lubricants. Mercury Marine’s sterndrive and inboard engines, outboard engines and water jet propulsion systems are sold to independent boat builders; local, state and foreign governments; and to the Boat Group. In addition, Mercury Marine’s outboard engines and parts and accessories are sold to end-users through a global network of approximately 4,500 marine dealers and distributors, specialty marine retailers and marine service centers. Mercury Marine, through CMD, supplies integrated diesel propulsion systems to the worldwide recreational and commercial marine markets, including the Boat Group. In October 2008, Brunswick sold all of its capital stock in MotoTron, a designer and supplier of engine control and vehicle networking systems, while retaining the key marine related assets of this business.

Mercury Marine manufactures two-stroke OptiMax outboard engines ranging from 75 to 300 horsepower, all of which feature Mercury’s direct fuel injection (DFI) technology, and four-stroke outboard engine models ranging from 2.5 to 350 horsepower. All of these low-emission engines are in compliance with U.S. Environmental Protection Agency (EPA) requirements, which required a 75 percent reduction in outboard engine emissions over a nine-year period, ending with the 2006 model year. Mercury Marine’s four-stroke outboard engines include Verado, a collection of supercharged outboards ranging from 135 to 350 horsepower, and Mercury Marine’s naturally aspirated four-stroke outboards, which are based on Verado technology, ranging from 75 to 115 horsepower. In addition, Brunswick’s sterndrive and inboard engines are now available with catalytic converters that comply with environmental regulations that the State of California adopted effective on January 1, 2008, and the Company expects that the EPA will enforce similar environmental regulations in the remaining states by 2010.

To promote advanced propulsion systems with improved handling, performance and efficiency, Mercury Marine, both directly and through its joint venture, CMD, has introduced and is continuing to develop advanced boat and engine steering and control systems under the brand names of Zeus, Axius and MerCruiser 360.


 
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Mercury Marine’s sterndrive and outboard engines are produced primarily in Oklahoma and Wisconsin, respectively. Mercury Marine manufactures 40, 50 and 60 horsepower four-stroke outboard engines in a facility in China, and, in a joint venture with its partner, Tohatsu Corporation, produces smaller outboard engines in Japan. Some engine components are sourced from Asian suppliers. Mercury Marine also manufactures engine component parts at plants in Florida and Mexico. Diesel marine propulsion systems are manufactured in South Carolina by CMD. Further, Mercury Marine operates a remanufacturing business for engines and service parts in Wisconsin.

In addition to its marine engine operations, Mercury Marine serves markets outside the United States with a wide range of aluminum, fiberglass and inflatable boats produced either by, or for, Mercury Marine in China, New Zealand, Poland, Portugal, Russia and Sweden. These boats, which are marketed under the brand names Arvor, Bermuda, Guernsey, Legend, Lodestar, Mercury, Örnvik, Protector, Quicksilver, Uttern and Valiant, are typically equipped with engines manufactured by Mercury Marine and often include other parts and accessories supplied by Mercury Marine. Mercury Marine has an equity ownership interest in a company that manufactures boats under the brand names Aquador, Bella and Flipper in Finland. Mercury Marine also manufactures propellers and underwater sterngear for inboard-powered vessels, under the Teignbridge brand, in the United Kingdom.

Inter-company sales to the Boat Group represented approximately 17 percent of Mercury Marine sales in 2008. Domestic retail demand for the Marine Engine segment’s products is seasonal, with sales generally highest in the second calendar quarter of the year.

Fitness Segment

Brunswick’s Fitness segment is comprised of its Life Fitness division, which designs, manufactures and markets a full line of reliable, high-quality cardiovascular fitness equipment (including treadmills, total body cross-trainers, stair climbers and stationary exercise bicycles) and strength-training equipment under the Life Fitness and Hammer Strength brands.

The Company believes that its Fitness segment, which had net sales of $639.5 million during 2008, is the world’s largest manufacturer of commercial fitness equipment and a leading manufacturer of high-end consumer fitness equipment. Life Fitness’ commercial sales are primarily to private health clubs, fitness facilities operated by professional sports teams, the military, governmental agencies, corporations, hotels, schools and universities. Commercial sales are made to customers either directly, through domestic dealers or through international distributors. Consumer products are sold through specialty retailers and on Life Fitness’ Web site.

The Fitness segment’s principal manufacturing facilities are located in Illinois, Kentucky, Minnesota and Hungary. Life Fitness distributes its products worldwide from regional warehouses and production facilities. Demand for Life Fitness’ products is seasonal, with sales generally highest in the first and fourth calendar quarters of the year.

During 2008, Life Fitness completed its launch of its Elevation series, a full line of commercial cardiovascular training equipment in the United States. The Elevation series of treadmills, elliptical cross-trainers, and upright and recumbent exercise bikes deliver state-of-the-art styling and include options that feature seamless iPod integration through their consoles.
 
Bowling & Billiards Segment

The Bowling & Billiards segment is comprised of the Brunswick Bowling & Billiards division (BB&B), which had net sales of $448.3 million during 2008. BB&B believes it is the leading full-line designer, manufacturer and marketer of bowling products, including bowling balls and capital equipment, which includes automatic pinsetters. Through licensing and manufacturing arrangements, BB&B also offers bowling pins and an array of bowling consumer products, including bowling shoes, bags and accessories. BB&B also designs and markets a full line of high-quality consumer and commercial billiards tables, Air Hockey table games, foosball tables and related accessories.


 
3
 

BB&B operates 104 bowling centers in the United States, Canada and Europe. BB&B bowling centers offer bowling and, depending on size and location, the following activities and facilities: billiards, video, redemption and other games of skill, laser tag, pro shops, meeting and party rooms, restaurants and cocktail lounges. Of the 104 bowling centers, 45 have been converted into Brunswick Zones, which are modernized bowling centers that offer an array of family-oriented entertainment activities. BB&B has further enhanced the Brunswick Zone concept with expanded Brunswick Zone family entertainment centers, branded Brunswick Zone XL, which are approximately 50 percent larger than typical Brunswick Zones and feature multiple-venue entertainment offerings. BB&B operates 11 Brunswick Zone XL centers, located in the Chicago; Denver; Minneapolis; Philadelphia; Phoenix; El Centro, California; and St. Louis markets. In 2008, BB&B exited a joint venture that operated 14 additional centers in Japan and in which BB&B had been a partner since 1960.

BB&B’s billiards business was established in 1845 and is Brunswick’s oldest enterprise. BB&B designs and markets billiards tables, balls and cues, as well as game room furniture and related accessories, under the Brunswick and Contender brands. The Company believes it has the largest dollar sales volume of billiards tables in the world. These products are sold worldwide in both commercial and consumer billiards markets. BB&B also operates Valley-Dynamo, a leading manufacturer of commercial and consumer billiards tables, Air Hockey table games and foosball tables. In June 2008, Brunswick announced it was exploring strategic options including the potential sale of the Valley-Dynamo coin-operated commercial billiards business.

BB&B’s primary manufacturing and distribution facilities are located in Mexico, Michigan and Hungary. In 2006, Brunswick moved its bowling ball manufacturing operations from Muskegon, Michigan, to Reynosa, Mexico and in early 2007 Brunswick transitioned its Valley-Dynamo manufacturing operations from Richland Hills, Texas, to a facility also in Reynosa. Additionally, in January 2008, Brunswick closed its bowling pin production plant in Antigo, Wisconsin, and began sourcing bowling pins from a third party.

Brunswick’s bowling and billiards products are sold through a variety of channels, including distributors, dealers, mass merchandisers, bowling centers and retailers, and directly to consumers on the Internet and through other outlets. BB&B products are primarily distributed worldwide from regional warehouses and factory stocks of merchandise. Domestic retail demand for BB&B’s products is seasonal, with sales generally highest in the first and fourth calendar quarters of the year.

Discontinued Operations

On April 27, 2006, the Company announced its intention to sell the majority of its Brunswick New Technologies (BNT) business unit, which consisted of the Company’s marine electronics, portable navigation devices (PND) and wireless fleet tracking business. In accordance with the criteria of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” Brunswick reclassified the operations of BNT to discontinued operations and shifted reporting for the retained businesses from the Marine Engine segment to the Boat, Marine Engine and Fitness segments.

In March 2007, Brunswick completed the sales of BNT’s marine electronics and PND businesses to Navico International Ltd. and MiTAC International Corporation, respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain was recognized with the divestiture of these businesses in 2007.

In July 2007, the Company completed the sale of BNT’s wireless fleet tracking business to Navman Wireless Holdings L.P. for net proceeds of $28.8 million, resulting in an after-tax gain of $25.8 million.

The Company completed the divestiture of the BNT discontinued operations during 2007. With the net asset impairment taken prior to the disposition of the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales, the net impact to the Company of these dispositions was a net loss of $55.8 million, after-tax.

Financial Services

A Company subsidiary, Brunswick Financial Services Corporation (BFS), has a 49 percent ownership interest in a joint venture, Brunswick Acceptance Company, LLC (BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation, owns the remaining 51 percent. Under the terms of the joint venture agreement, BAC provides secured wholesale floor-plan financing to the Company’s boat and engine dealers. BAC also purchases and services a portion of Mercury Marine’s domestic accounts receivable relating to its boat builder and dealer customers.


 
4
 

Through an agreement reached in the second quarter of 2008, the term of the joint venture was extended through June 30, 2014. The joint venture agreement contains provisions allowing for the renewal, purchase or termination by either partner at the end of this term. The agreement also contained provisions allowing for CDFV to terminate the joint venture if the Company is unable to maintain compliance with certain financial covenants. During the fourth quarter of 2008, the partners reached an agreement to amend the financial covenant to conform it to the minimum fixed charges test contained in the Company’s amended and restated revolving credit facility. The Company was in compliance with this covenant at the end of the fourth quarter.

Refer to Note 9 – Financial Services in the Notes to Consolidated Financial Statements for more information about the Company’s financial services.

Distribution

Brunswick depends on distributors, dealers and retailers (Dealers) for the majority of its boat sales and significant portions of marine engine, fitness and bowling and billiards products sales. Brunswick has approximately 6,800 Dealers serving its business segments worldwide. Brunswick’s marine Dealers typically carry boats, engines and related parts and accessories.

Brunswick’s Dealers are independent companies or proprietors that range in size from small, family-owned businesses to large, publicly traded corporations with substantial revenues and multiple locations. Some Dealers sell Brunswick’s products exclusively, while others also carry competitors’ products. Brunswick works with its boat dealer network to improve quality, distribution and delivery of parts and accessories to enhance the boating customer’s experience.

Brunswick owns Land ‘N’ Sea Corporation, Benrock Inc., Kellogg Marine Inc. and Diversified Marine Products L.P., the primary parts and accessories distribution platforms for the Boat Group. These companies are the leading distributors of marine parts and accessories throughout the North American marine industry with 14 distribution warehouses throughout the United States and Canada offering same-day or next-day service to a broad array of marine service facilities.

Demand for a significant portion of Brunswick’s products is seasonal, and a number of Brunswick’s Dealers are relatively small or highly leveraged. As a result, many Dealers require financial assistance to support their businesses and provide stable channels for Brunswick’s products. In addition to the financial services offered by BAC, the Company provides its Dealers with assistance, including incentive programs, loans, loan guarantees and inventory repurchase commitments, under which the Company is obligated to repurchase inventory from a finance company in the event of a Dealer’s default. The Company believes that these arrangements are in its best interest; however, the financial support that the Company provides to its Dealers does expose the Company to credit and business risk. Brunswick’s business units, along with BAC, maintain active credit operations to manage this financial exposure, and the Company seeks opportunities to sustain and improve the financial health of its various distribution channel partners. Refer to Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for further discussion of these arrangements.

International Operations

Brunswick’s sales from continuing operations to customers in markets other than the United States were $2,058.5 million (44 percent of net sales) and $2,016.4 million (36 percent of net sales) in 2008 and 2007, respectively. The Company transacts most of its sales in non-U.S. markets in local currencies, and the cost of its products is generally denominated in U.S. dollars. Strengthening or weakening of the U.S. dollar affects the financial results of Brunswick’s non-U.S. operations.

Non-U.S. sales from continuing operations are set forth in Note 5 – Segment Information in the Notes to Consolidated Financial Statements and are also included in the table below, which details Brunswick’s non-U.S. sales by region:

(in millions)
  
2008
    
2007
    
2006
  
                   
Europe
    $ 1,024.1      $ 1,038.9      $ 925.1  
Canada
     346.7       344.6       328.6  
Pacific Rim
     318.1       338.2       303.2  
Latin America
     247.8       196.6       158.3  
Africa & Middle East
     121.8       98.1       87.2  
                         
     $ 2,058.5      $ 2,016.4      $ 1,802.4  
 

 
5
 
Marine Engine segment sales represented approximately 42 percent of Brunswick’s non-U.S. sales in 2008. The segment’s primary operations include the following:

 
•
A propeller and underwater sterngear manufacturing plant in the United Kingdom;
 
•
Sales offices and distribution centers in Belgium, Brazil, Canada, China, Japan, Malaysia, Mexico, New Zealand, Singapore and the United Arab Emirates;
 
•
Sales offices in Finland, France, Germany, Italy, the Netherlands, Norway, Sweden and Switzerland;
 
•
Boat manufacturing plants in China, New Zealand, Portugal and Sweden;
 
•
An outboard engine assembly plant in Suzhou, China; and
 
•
A marina and boat club in Suzhou, China, on Lake Taihu.

Boat segment sales comprised approximately 37 percent of Brunswick’s non-U.S. sales in 2008. The Boat Group’s products are manufactured or assembled in the United States, Canada, China, Mexico, Poland and the United Kingdom, and are sold worldwide through dealers. The Boat Group has sales offices in France and the Netherlands.

Fitness segment sales comprised approximately 15 percent of Brunswick’s non-U.S. sales in 2008. Life Fitness sells its products worldwide and has sales and distribution centers in Brazil, Germany, Hong Kong, Japan, the Netherlands, Spain and the United Kingdom, as well as sales offices in Hong Kong and Italy. The Fitness segment also manufactures strength-training equipment and select lines of cardiovascular equipment in Hungary for the international markets.

Bowling & Billiards segment sales comprised approximately 6 percent of Brunswick’s non-U.S. sales in 2008. BB&B sells its products worldwide; has sales offices in Germany, Hong Kong and Tokyo; and operates a plant that manufactures automatic pinsetters in Hungary. BB&B commenced bowling ball manufacturing in Reynosa, Mexico, in 2006 and completed the transition of manufacturing operations from Muskegon, Michigan, to Reynosa in 2007. In addition, BB&B’s Valley-Dynamo segment commenced operating at a manufacturing facility in Reynosa, Mexico, in early 2007. BB&B operates bowling centers in Austria, Canada and Germany.

Raw Materials

Brunswick purchases a wide variety of raw materials, parts, supplies, energy and other goods and services from various sources for use in the manufacture of its products. The Company is not currently experiencing any critical supply shortages and normally does not carry substantial inventories of such raw materials in excess of levels reasonably required to meet its production requirements. Due to recent uncertainty in the global economy, Brunswick has experienced fluctuations in commodity costs, most notably for raw materials such as oil, aluminum, steel and resins used in its manufacturing processes. These price fluctuations have been driven by instability in global demand, energy prices and the U.S. dollar. The Company continues to expand its global procurement operations to leverage its purchasing power across its divisions and improve supply chain and cost efficiencies. The Company attempts to manage its commodity price risk by using derivatives to economically hedge a portion of raw material purchases.

In some instances, the Company purchases components, parts and supplies from a single source and may be at an increased risk for supply disruptions. Furthermore, the inability or unwillingness of General Motors Corporation, the sole supplier of engine blocks used in the manufacture of Brunswick’s gasoline sterndrive and inboard engines, or the Company’s primary supplier of windshields used in Brunswick’s boats, to supply it with parts and supplies could adversely affect the Company’s production capacity.
 
 
 
 
6
 

Intellectual Property

Brunswick has, and continues to obtain, patent rights covering certain features of its products and processes. By law, Brunswick’s patent rights, which consist of patents and patent licenses, have limited lives and expire periodically. The Company believes that its patent rights are important to its competitive position in all of its business segments.

In the Boat segment, patent rights principally relate to processes for manufacturing fiberglass hulls, decks and components for boat products, as well as patent rights related to boat seats, interiors and other boat features and components.

In the Marine Engine segment, patent rights principally relate to features of outboard engines and inboard-outboard drives, including die-cast powerheads; cooling and exhaust systems; drivetrain, clutch and gearshift mechanisms; boat/engine mountings; shock-absorbing tilt mechanisms; ignition systems; propellers; marine vessel control systems; fuel and oil injection systems; supercharged engines; outboard mid-section structures; segmented cowls; hydraulic trim, tilt and steering; screw compressor charge air cooling systems; and airflow silencers.

In the Fitness segment, patent rights principally relate to fitness equipment designs and components, including patents covering internal processes, programming functions, displays, design features and styling.

In the Bowling & Billiards segment, patent rights principally relate to computerized bowling scorers and bowling center management systems, bowling center furniture, bowling lanes, lane conditioning machines and related equipment, bowling balls, and billiards table designs and components.

The following are Brunswick’s primary trademarks for its continuing operations:

Boat Segment:  Attwood, Bayliner, Boston Whaler, Cabo, Crestliner, Diversified Marine, Harris, Hatteras, Kayot, Kellogg Marine, Land ‘N’ Sea, Lowe, Lund, Master Dealer, Maxum, Meridian, Princecraft, Sea Ray, Seachoice, Sealine,  Swivl-Eze, Total Command, Triton and Trophy.

Marine Engine Segment:  Axius, Mariner, MercNet, MerCruiser, MerCruiser 360 Control, Mercury, MercuryCare, Mercury Marine, Mercury Parts Express, Mercury Precision Parts, Mercury Propellers, Mercury Racing, MotorGuide, OptiMax, Pinpoint, Quicksilver, Rayglass, SeaPro, SmartCraft, SportJet, Teignbridge Propellers, Valiant, Verado and Zeus.

Fitness Segment:  Elevation, Flex Deck, Hammer Strength, Lifecycle, Life Fitness and ParaBody.

Bowling & Billiards Segment:  Air Hockey, Ballworx, Brunswick, Brunswick Billiards, Brunswick Home and Billiard, Brunswick Pavilion, Brunswick Zone, Brunswick Zone XL, Centennial, Contender, Cosmic Bowling, Dynamo, Frameworx, Gold Crown, Inferno, Lane Shield, Lightworx, Pro Lane, Throbot, Tornado, U.S. Play by Brunswick, Valley, Vector, Virtual Bowling by Brunswick, Viz-A-Ball and Zone.

Brunswick’s trademark rights have indefinite lives, and many are well known to the public and considered valuable assets.

Competitive Conditions and Position

The Company believes that it has a reputation for quality in its highly competitive lines of business. Brunswick competes in its various markets by utilizing efficient production techniques; innovative technological advancements; effective marketing, advertising and sales efforts; providing high-quality products at competitive prices; and offering extensive after-market services.

Strong competition exists in each of Brunswick’s product groups, but no single manufacturer competes with Brunswick in all product groups. In each product area, competitors range in size from large, highly diversified companies to small, single-product businesses. Brunswick also competes with businesses that seek to attract customers’ leisure time but do not compete in Brunswick’s product groups.


 
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The following summarizes Brunswick’s competitive position in each segment:

Boat Segment:  The Company believes it has the largest dollar sales and unit volume of pleasure boats in the world. There are several major manufacturers of pleasure and offshore fishing boats, along with hundreds of smaller manufacturers. Consequently, this business is both highly competitive and highly fragmented. The Company believes it has the broadest range of boat product offerings in the world, with boats ranging from 10 to 100 feet, along with a leading parts and accessories business. In all of its boat operations, Brunswick competes on the basis of product features, technology, quality, dealer service, performance, value, durability and styling, along with effective promotion, distribution and pricing.

Marine Engine Segment:  The Company believes it has the largest dollar sales volume of recreational marine engines in the world. The marine engine market is highly competitive among several major international companies that comprise the majority of the market, and several smaller companies. Competitive advantage in this segment is a function of product features, technological leadership, quality, service, performance and durability, along with effective promotion, distribution and pricing.

Fitness Segment:  The Company believes it is the world’s largest manufacturer of commercial fitness equipment and a leading manufacturer of high-quality consumer fitness equipment. There are a few large manufacturers of fitness equipment and hundreds of small manufacturers, which create a highly fragmented, competitive landscape. Many of Brunswick’s fitness equipment products feature industry-leading product innovations, and the Company places significant emphasis on new product introductions. Competitive focus is also placed on product quality, state-of-the-art biomechanics, marketing activities, pricing and service.

Bowling & Billiards Segment:  The Company believes it is the world’s leading designer, manufacturer and marketer of bowling products and billiards tables. There are several large manufacturers of bowling products and competitive emphasis is placed on product innovation, quality, service, marketing activities and pricing. The billiards industry continues to experience competitive pressure from low-cost billiards manufacturers outside the United States. The bowling retail market, in which the Company’s bowling centers compete, is highly fragmented, but Brunswick is one of the two largest competitors in the North American bowling retail market, with an emphasis on larger, upscale, full service family entertainment centers. The bowling retail business emphasizes the bowling and entertainment experience, maintaining quality facilities and providing excellent customer service.

Research and Development

The Company strives to improve its competitive position in all of its segments by continuously investing in research and development to drive innovation in its products and manufacturing technologies. Brunswick’s research and development investments support the introduction of new products and enhancements to existing products. Research and Development expenses as a percentage of net sales were 2.6 percent, 2.4 percent and 2.3 percent in 2008, 2007 and 2006, respectively. In light of the prolonged downturn in global financial markets affecting the recreational marine industry, the Company has undertaken significant efforts to reduce its fixed and variable expenses to adjust its cost structure to current market conditions. In implementing these cost reductions, the Company reduced research and development expenses for 2008. The Company believes that the implementation of these actions will not undermine its ability to successfully execute its long-term strategies, particularly as market conditions improve. Research and development expenses for continuing operations are shown below:

(in millions)
  
2008
    
2007
    
2006
  
                   
Boat
    $ 40.3      $ 39.8      $ 38.0  
Marine Engine
     59.6       68.1       70.3  
Fitness
     17.4       21.6       18.4  
Bowling & Billiards
     4.9       5.0       5.5  
                         
Total
    $ 122.2      $ 134.5      $ 132.2  


 
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Number of Employees

The approximate number of employees worldwide is shown below by segment:

   
December 31, 2008
    
December 31, 2007
  
   
Total
    
Union
    
Total
    
Union
  
                         
Boat
     7,590       70       12,650       57  
Marine Engine
     4,620       1,113       6,300       2,591  
Fitness
     1.940       147       2,000       135  
Bowling & Billiards
     5,410       328       5,850       489  
Corporate
     200       —       250       —  
                                 
Total
     19,760       1,658       27,050       3,272  

The Marine Engine Segment's Fond du Lac, Wisconsin, facility has a union contract with the International Association of Machinists Winnebago Lodge 1947 that was renewed in June 2008. In January 2009, BB&B renewed union contracts with The International Association of Machinists, Local 2497, and the Federal Labor Union, Local 23409 AFL-CIO, both of which represent employees at the Muskegon, Michigan, distribution facility. The Company believes that the relationships between employees, unions and the Company are good.

Environmental Requirements

See Item 3 of this report for a description of certain environmental proceedings.

Available Information

Brunswick maintains an Internet Web site at http://www.brunswick.com that includes links to Brunswick’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports (SEC Reports). The SEC Reports are available without charge as soon as reasonably practicable following the time that they are filed with, or furnished to, the SEC. Shareholders and other interested parties may request email notification of the posting of these documents through the Investors section of Brunswick’s Web site.

Item 1A. Risk Factors

Brunswick’s operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect the Company’s business, financial condition, results of operations, cash flows, and the trading price of Brunswick’s common stock.

General economic conditions, particularly in the United States and Europe, affect the Company’s results.

Demand for Brunswick’s products is affected by economic conditions and consumer confidence worldwide, especially in the United States and Europe. In times of economic uncertainty, consumers tend to defer expenditures for discretionary items, which affects the Company’s financial performance, especially in its marine, consumer bowling, consumer fitness and billiards businesses. The Company’s businesses are cyclical in nature, and their success is dependent upon favorable economic conditions, the overall level of consumer confidence and discretionary income levels.

For example, retail unit sales of powerboats in the United States have been declining since 2005, with the rate of decline accelerating in 2008 due to a weak United States economy, soft housing markets in key United States boating states, and higher prices for everyday expenses that ultimately reduce the funds available for discretionary purchases. On an industry level, retail unit sales were down significantly during the twelve months ended December 31, 2008, compared with the already low retail unit sales during the twelve months ended December 31, 2007.


 
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Any continued deterioration in general economic conditions that further diminishes consumer confidence or discretionary income may reduce Brunswick’s sales further and adversely affect the Company’s financial results, including the potential for future impairments. The impact of weakening consumer and corporate credit markets; continued reduction in marine industry demand; corporate restructurings; declines in the value of investments and residential real estate, especially in large boating markets such as Florida and California; higher fuel prices and increases in federal and state taxation, all can negatively affect the Company’s results.
 
The Company’s financial results may be adversely affected if it is unable to maintain effective distribution.

The Company relies on third party dealers and distributors to sell the majority of its products, particularly in the marine business.  The ability to maintain a reliable network of dealers is essential to the Company’s success. Continued weakness in the marine marketplace may adversely affect the ability of the Company’s dealers to sell marine products, potentially resulting in higher than desired dealer inventory levels, or to generate sufficient cash flow to fund operations. If dealer inventory levels are higher than desired, dealers may postpone additional product purchases from Brunswick until the current inventory is sold, which may negatively affect the Company’s revenues. If dealers are unable to generate sufficient cash flow to fund operations, dealers may cease business and Brunswick may not be able to obtain alternate distribution in the relevant market.

Brunswick’s independent boat builder customers also can react negatively to competition from Brunswick’s own boat brands, which can lead them to purchase marine engines and marine engine supplies from competing marine engine manufacturers.

The Company’s financial results may be adversely affected if the financial health of the Company’s dealers and distributors is adversely affected.

The financial health of the Company’s distribution network, particularly in its marine businesses, is critical to the Company’s success.  Weak demand for marine products may adversely affect the financial performance of the Company’s dealers. In particular, reduced cash flow from decreased sales and tighter credit markets may impair a dealer’s ability to fund operations. A continued inability to fund operations may force dealers to cease business, which may unfavorably affect Brunswick’s net sales and earnings from continuing operations through lower market exposure and the associated decline in sales.

In addition, dealer inventory levels may be higher than desired and inventory may be aging beyond preferred levels.  These factors may impair a dealer’s ability to purchase Brunswick products, secure financing for purchases, or meet payment obligations to Brunswick or the dealer’s third-party financing sources. If a dealer is unable to meet its obligations to third-party financing sources, Brunswick may be required to repurchase a portion of the defaulting dealer’s inventory from these third-party financing sources or it may experience credit losses as a result of its recourse obligations on customers’ debt obligations.
 
The inability of the Company’s dealers and distributors to secure adequate access to capital could adversely affect the Company’s sales.

Brunswick’s dealers require adequate liquidity to finance continuing operations, including purchases of Brunswick products. Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to financing sources and availability of financing on a timely basis or on reasonable terms.  The majority of our domestic dealers utilize secured wholesale inventory floor-plan financing provided by Brunswick Acceptance Company (BAC), the Company’s joint venture with CDF Ventures, LLC, a subsidiary of GE Capital Corporation.  If BAC or other providers of financing to the wholesale marine industry cease to provide dealer financing, decrease the amount of financing available to dealers or increase the costs related to dealer financing, the financial health of dealers may be harmed, resulting in the modification, delay or cancellation of additional dealer purchases of Brunswick product or cessation of dealer business operations.  Such results could negatively impact Brunswick’s ability to sell boats and engines and therefore adversely affect the Company’s financial results.
 

 
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Inventory reductions by major dealers, retailers and independent boat builders can adversely affect the Company’s financial results.

If the Company’s boat and engine dealers and distributors, as well as independent boat builders who purchase Brunswick marine engine products, reduce their inventories in response to weakness in retail demand, wholesale demand for Brunswick products diminishes. In turn, Brunswick will need to reduce production, which results in lower rates of absorption of fixed costs in the Company’s manufacturing facilities and thus lower margins. Inventory reduction by dealers and customers can hurt the Company’s short-term sales and results of operations and limit the Company’s ability to meet increased demand when economic conditions improve.

Tighter credit markets can reduce demand, especially for marine products.

Customers often finance purchases of Brunswick’s marine products, particularly boats. Rising interest rates can have an adverse effect on consumers’ ability to finance boat purchases, which can adversely affect Brunswick’s ability to sell boats and engines and the profitability of Brunswick’s financing activities, including those of BAC. Further, tighter credit markets may restrict funds available for retail financing for marine products or require higher credit scores from boat buyers.

The Company’s restructuring initiatives, implemented as a result of the prolonged downturn in the U.S. marine market, could result in additional costs or be unsuccessful.

As a result of the downturn in the U.S. marine market, the Company announced various restructuring initiatives in 2006, 2007 and 2008, resulting in severance and plant closure costs, asset write-downs and impairment charges. The Company expects to incur additional restructuring, exit and other impairment charges in 2009 as a result of these restructuring initiatives. The Company cannot assure that the restructuring plan will be successful or that further restructuring efforts will not be required, resulting in additional costs, write-downs or charges. If additional actions are required, Brunswick’s earnings could be adversely affected.

Establishing a smaller manufacturing footprint is critical to the Company’s operating and financial results.

A significant component in the Company’s cost-reduction efforts is establishing a smaller manufacturing footprint by consolidating boat production into fewer plants. Moving production to a new plant involves risks, including the inability to start up production within the cost and time estimated, supply product to dealers when expected, and attract a sufficient number of skilled workers to handle the additional production. The inability to successfully implement the manufacturing footprint initiatives could adversely affect Brunswick’s operating and financial results.

A variety of trends could negatively affect the Company’s liquidity position, which in turn could have a material adverse effect on Brunswick’s business.

The ability to meet the Company’s capital requirements will depend on the continued successful execution of the restructuring initiatives and reductions to the manufacturing footprint to return Brunswick’s marine operations to profitability and positive cash flow. Brunswick is subject to numerous risks and uncertainties that could negatively affect its cash flow and liquidity position in the future. These include, among other things, continued access to short-term borrowing sources; the continued ability to comply with credit facility covenants; the continued reduction in marine industry demand as a result of a weak global economy resulting in, among other things, (i) the failure of the Company’s customers to pay amounts owed to Brunswick or to pay amounts owed to Brunswick on a timely basis, or (ii) the obligation of the Company to repurchase Brunswick products or make recourse payments on customers’ debt obligations. The continuation of, or adverse change with respect to, one or more of these trends could weaken the Company’s liquidity position and materially adversely affect net revenues available for the Company’s anticipated cash needs.


 
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Brunswick relies on third party suppliers for the supply of the raw materials, parts and components necessary to assemble Brunswick’s products. Brunswick’s financial results may be adversely affected by an increase in cost, disruption of supply or shortage of or defect in raw materials, parts or product components.

 Outside suppliers and contract manufacturers provide raw materials used in Brunswick’s manufacturing processes including oil, aluminum, steel and resins, as well as product parts and components, such as engine blocks and boat windshields. The prices for these raw materials, parts and components fluctuate depending on market conditions. Substantial increases in the prices for the Company’s raw materials, parts and components could increase the Company’s operating costs, and could reduce Brunswick’s profitability if the Company cannot recoup the increased costs through increased product prices. In addition, some components the Company uses in its manufacturing processes are available from a sole or limited number of suppliers. Financial difficulties or solvency problems at these or other suppliers could adversely affect their ability to supply Brunswick with the parts and components the Company needs, which could disrupt Brunswick’s operations. It may be difficult to find a replacement supplier for a limited or sole source raw material, part or component without significant delay or on commercially reasonable terms. In addition, an uncorrected defect or supplier’s variation in a raw material, part or component, either unknown to the Company or incompatible with Brunswick’s manufacturing process, could harm Brunswick’s ability to manufacture products. An increase in the cost, defect or a sustained interruption in the supply or shortage of some of these raw materials, parts or products that may be caused by financial pressures on suppliers due to the weakening economy, a deterioration of Brunswick’s relationships with suppliers or by events such as natural disasters, power outages or labor strikes, could disrupt Brunswick’s operations and negatively impact Brunswick’s net revenues and profits.

Brunswick’s pension funding requirements and expenses are affected by certain factors outside the Company’s control, including the performance of plan assets, the discount rate used to value liabilities, actuarial data and experience, and legal and regulatory changes.

Brunswick’s funding obligations for its four qualified pension plans are driven by the performance of assets set aside in trusts for these plans, the discount rate used to value the plans’ liabilities, actuarial data and experience and legal and regulatory funding requirements. In addition, the majority of the Company’s pension plan assets are invested in equity securities. As market values of these securities decline, Brunswick’s pension expenses could increase significantly. In addition, Brunswick could be legally required to make increased contributions to the pension plans, and these contributions could be material.

Higher energy costs can adversely affect Brunswick’s results, especially in the marine and retail bowling center businesses.

Higher energy costs result in increases in operating expenses at Brunswick’s manufacturing facilities and in the cost of shipping products to customers. In addition, increases in energy costs can adversely affect the pricing and availability of petroleum-based raw materials such as resins and foam that are used in many of Brunswick’s marine products. Also, higher fuel prices may have an adverse effect on both demand for marine retail products as they increase the cost of boat ownership and on retail bowling sales as customers may choose to reduce fuel purchases for leisure or discretionary trips. Finally, because heating and air conditioning comprise a significant part of the cost of operating a bowling center, any increase in the price of energy could adversely affect the operating margins of Brunswick’s bowling centers.

The Company’s profitability may suffer as a result of competitive pricing pressures.

The introduction of lower-priced alternative products by other companies can hurt the Company’s competitive position in all of its businesses. The Company is constantly subject to competitive pressures, particularly in the outboard engine market, in which Asian manufacturers often have pursued a strategy of aggressive pricing. Such pricing pressure can limit the Company’s ability to increase prices for Brunswick’s products in response to raw material and other cost increases.

The Company’s growth depends on the successful introduction of new product offerings.

Brunswick’s ability to grow may be adversely affected by difficulties or delays in product development, such as an inability to develop viable new products, gain market acceptance of new products, generate sufficient capital to fund new product development or obtain adequate intellectual property protection for new products. To meet ever-changing consumer demands, the timing of market entry and pricing of new products are critical.


 
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Licensing requirements and limited access to water can inhibit the Company’s ability to grow its marine businesses.

Environmental restrictions, permitting and zoning requirements and the increasing cost of, and competition for, waterfront property can limit access to water for boating, as well as marina and storage space. Brunswick’s boat and marine engine segments can be adversely affected in areas that do not have sufficient marina and storage capacity to satisfy demand. Certain jurisdictions both inside and outside the United States require a license to operate a recreational boat, which can deter potential customers.

Compliance with environmental regulations for marine engines will increase costs and may reduce demand for Brunswick products.

The State of California adopted regulations requiring catalytic converters on sterndrive and inboard engines, which the Company expects will be expanded by the U.S. Environmental Protection Agency to apply to all states by 2010. Other environmental regulatory bodies may impose higher emissions standards in the future for engines. Compliance with these standards will increase the cost of Brunswick engines, which could in turn reduce consumer demand for Brunswick’s marine products. As a result, any increase in the cost of marine engines or unforeseen delays in compliance with environmental regulations affecting these products could have an adverse effect on the Company’s results of operations.

Changes in currency exchange rates can adversely affect the Company’s growth in international sales.

Because the Company derives a portion of its revenues from outside the United States (44 percent in 2008), the Company’s ability to realize projected growth rates can be adversely affected when the U.S. dollar strengthens against other currencies. Brunswick manufactures its products primarily in the United States, and the costs of its products are generally denominated in U.S. dollars, although the manufacture and sourcing of products and materials outside the United States is increasing. A strong U.S. dollar can make Brunswick products less price-competitive relative to local products outside the United States.

The Company competes with a variety of other activities for consumers’ scarce leisure time and discretionary income.

The vast majority of Brunswick’s products are used for recreational purposes, and demand for the Company’s products can be adversely affected by competition from other activities that occupy consumers’ leisure time, including other forms of recreation as well as religious, cultural and community activities. A decrease in leisure time or discretionary income can reduce consumers’ willingness to purchase and enjoy Brunswick’s products.

Adverse weather conditions can have a negative effect on marine and retail bowling center revenues.

Weather conditions can have a significant effect on the Company’s operating and financial results, especially in the marine and bowling retail businesses. Sales of Brunswick’s marine products are generally stronger just before and during spring and summer, and favorable weather during these months generally has a positive effect on consumer demand. Conversely, unseasonably cool weather, excessive rainfall or drought conditions during these periods can reduce demand. Hurricanes and other storms can result in the disruption of Brunswick’s distribution channel, as occurred in 2004, 2005 and 2008 on the Atlantic and Gulf coasts of the United States. Since many of Brunswick’s boat products are used on lakes and reservoirs, the viability of these for boating is important to Brunswick’s boat segment. In addition, severely inclement weather on weekends and holidays, particularly during the winter months, can adversely affect patronage of Brunswick’s bowling centers and, therefore, revenues in the bowling retail business.

Item 1B. Unresolved Staff Comments

None.


 
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Item 2. Properties

Brunswick’s headquarters are located in Lake Forest, Illinois. The Company also maintains administrative offices in Chicago, Illinois. Brunswick has numerous manufacturing plants, distribution warehouses, bowling family entertainment centers, retail stores, sales offices and product test sites around the world. Research and development facilities are decentralized within Brunswick’s operating segments, and most are located at manufacturing sites.

The Company believes its facilities are suitable and adequate for its current needs and are well maintained and in good operating condition. Most plants and warehouses are of modern, single-story construction, providing efficient manufacturing and distribution operations. The Company believes its manufacturing facilities have the capacity to meet current and anticipated demand. Brunswick owns its Lake Forest, Illinois, headquarters and most of its principal plants.

The primary facilities used in Brunswick’s continuing operations are in the following locations:

Boat Segment:  Adelanto, Los Angeles and Sacramento, California; Old Lyme, Connecticut; Edgewater, Merritt Island, Palm Coast, Pompano Beach and St. Petersburg, Florida; Fort Wayne, Indiana; Lowell, Michigan; Little Falls and New York Mills, Minnesota; Lebanon, Missouri; New Bern and Raleigh, North Carolina; Ashland City, Knoxville and Vonore, Tennessee; Pickering, Ontario, Canada; Princeville, Quebec, Canada; Toronto, Ontario, Canada; Zhuhai, People’s Republic of China; Reynosa, Mexico; and Kidderminster, United Kingdom. Brunswick owns all of these facilities with the exception of the Adelanto, California; Pompano Beach, Florida; Lowell, Michigan; Raleigh, North Carolina; and Pickering, Ontario, Canada, facilities, which are leased.

Marine Engine Segment:  Miramar, Panama City and St. Cloud, Florida; Stillwater and Tulsa, Oklahoma; Brookfield, Fond du Lac and Oshkosh, Wisconsin; Petit Rechain, Belgium; Suzhou, People’s Republic of China; Juarez, Mexico; Auckland, New Zealand; Vila Nova de Cerveira, Portugal; Singapore; Skelleftea, Sweden; and Newton Abbot, United Kingdom. The Auckland, New Zealand; and Skelleftea, Sweden facilities are leased. The remaining facilities are owned by Brunswick.

Fitness Segment:  Franklin Park and Schiller Park, Illinois; Falmouth, Kentucky; Ramsey, Minnesota; and Kiskoros and Szekesfehervar, Hungary. The Schiller Park office and a portion of the Franklin Park facility are leased. The remaining facilities are owned by Brunswick or, in the case of the Kiskoros, Hungary, facility, by a company in which Brunswick is the majority owner.

Bowling & Billiards Segment:  Lake Forest, Illinois; Muskegon, Michigan; Richland Hills, Texas; Bristol, Wisconsin; Szekesfehervar, Hungary; and Reynosa, Mexico; 104 bowling recreation centers in the United States, Canada and Europe, and one retail billiards store in a Boston suburb. Approximately 40 percent of BB&B’s bowling centers, as well as the Richland Hills and Reynosa manufacturing facilities and the retail billiards store and warehouses, are leased. The remaining facilities are owned by Brunswick.

Item 3. Legal Proceedings

The Company accrues for litigation exposure based upon its assessment, made in consultation with counsel, of the likely range of exposure stemming from the claim. In light of existing reserves, the Company’s litigation claims, when finally resolved, will not, in the opinion of management, have a material adverse effect on the Company’s consolidated financial position or results of operations. If current estimates for the cost of resolving any claims are later determined to be inadequate, results of operations could be adversely affected in the period in which additional provisions are required.


 
14
 

Tax Case

In February 2003, the United States Tax Court issued a ruling upholding the disallowance by the Internal Revenue Service (IRS) of capital losses and other expenses for 1990 and 1991 related to two partnership investments entered into by the Company. In 2003 and 2004, the Company made payments to the IRS comprised of approximately $33 million in taxes due and approximately $39 million of pretax interest (approximately $25 million after-tax) to avoid future interest costs. Subsequently, the Company and the IRS settled all issues involved in and related to this case. As a result, the Company reversed $42.6 million of tax reserves in 2006, primarily related to the reassessment of underlying exposures, received a refund of $12.9 million from the IRS, and recorded an additional tax receivable of $4.1 million for interest related to these tax years. In 2008, the Company protested that the IRS’s calculation of the $4.1 million interest receivable due to the Company was understated. As a result, the IRS paid the Company approximately $10 million for interest related to these tax years in 2008. Additionally, these tax years will be subject to tax audits by various state jurisdictions to determine the state tax effect of the IRS's audit adjustments.

Environmental Matters

Brunswick is involved in certain legal and administrative proceedings under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and other federal and state legislation governing the generation and disposal of certain hazardous wastes. These proceedings, which involve both on- and off-site waste disposal or other contamination, in many instances seek compensation or remedial action from Brunswick as a waste generator under Superfund legislation, which authorizes action regardless of fault, legality of original disposition or ownership of a disposal site. Brunswick has established reserves based on a range of cost estimates for all known claims.

The environmental remediation and clean-up projects in which Brunswick is involved have an aggregate estimated range of exposure of approximately $42.5 million to $72.5 million as of December 31, 2008. At December 31, 2008 and 2007, Brunswick had reserves for environmental liabilities of $46.9 million and $48.0 million, respectively. There were   environmental provisions of $0.0, $0.7 million and $0.0 for the years ended December 31, 2008, 2007 and 2006, respectively.

Brunswick accrues for environmental remediation related activities for which commitments or clean-up plans have been developed and for which costs can be reasonably estimated. All accrued amounts are generally determined in coordination with third-party experts on an undiscounted basis and do not consider recoveries from third parties until such recoveries are realized. In light of existing reserves, the Company’s environmental claims, when finally resolved, will not, in the opinion of management, have a material adverse effect on the Company’s consolidated financial position or results of operations.

Asbestos Claims

Brunswick’s subsidiary, Old Orchard Industrial Corp., is a defendant in more than 8,000 lawsuits involving claims of asbestos exposure from products manufactured by Vapor Corporation (Vapor), a former subsidiary that the Company divested in 1990. Virtually all of the asbestos suits involve numerous other defendants. The claims generally allege that Vapor sold products that contained components, such as gaskets, which included asbestos, and seek monetary damages. Neither Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand claims have been dismissed with no payment and no claim has gone to jury verdict. In a few cases, claims have been filed against other Brunswick entities, with a majority of these suits being either dismissed or settled for nominal amounts. The Company does not believe that the resolution of these lawsuits will have a material adverse effect on the Company’s consolidated financial position or results of operations.

Australia Trade Practices Investigation

In January 2005, Brunswick received a notice to furnish information and documents to the Australian Competition and Consumer Commission (ACCC). A subsequent notice was received in October of 2005. Following the completion of its investigation in December 2006, the ACCC commenced proceedings against a former Brunswick subsidiary, Navman Australia Pty Limited (Navman Australia), with respect to its compliance with the Trade Practices Act of 1974 as it pertained to Navman Australia’s sales practices from 2001 to 2005. The ACCC had alleged that Navman Australia engaged in resale price maintenance in breach of the Act. In December 2007, the Australian courts approved a settlement in favor of ACCC for approximately $1.3 million, which the Company paid in January 2008.


 
15
 

Chinese Supplier Dispute

Brunswick was involved in an arbitration proceeding in Hong Kong arising out of a commercial dispute with a former contract manufacturer in China, Shanghai Zhonglu Industrial Company Limited (Zhonglu). The Company filed the arbitration seeking damages based on Zhonglu's breach of a supply and distribution agreement pursuant to which Zhonglu agreed to manufacture bowling equipment. Zhonglu had asserted counterclaims seeking damages for alleged breach of contract among other claims in August 2007. The arbitration tribunal issued a ruling in the Company’s favor for a net amount of approximately $0.1 million. Zhonglu subsequently sought relief from the ruling from the High Court of Hong Kong and the Company filed pleadings in opposition to this requested relief. On February 10, 2009, the High Court of Hong Kong ruled in the Company's favor and affirmed the arbitration award in all material respects.

Patent Infringement Dispute.

In October 2006, Brunswick was sued by Electromotive, Inc. (Electromotive) in the United States District Court for the Northern District of Virginia. Electromotive claimed that a number of engines sold by Brunswick’s Mercury Marine business had infringed on an expired patent held by Electromotive related to a method for ignition timing. On July 27, 2007, a jury returned a verdict in favor of Electromotive in the amount of approximately $3 million. In October 2007, the Company and Electromotive reached an agreement to settle the case at a level below the verdict in lieu of pursuing respective appeals.

Brazilian Customs Dispute.

In June 2007, the Brazilian Customs Office issued an assessment against a Company subsidiary in the amount of approximately $14 million related to the importation of Life Fitness products into Brazil. The assessment was based on a determination by Brazilian customs officials that the proper import value of Life Fitness equipment imported into Brazil should be the manufacturer’s suggested retail price of those goods in the United States. This assessment was dismissed during 2008. The Brazilian Customs Office has appealed the ruling as a matter of course.


 
16
 

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2008.

Executive Officers of the Registrant

Brunswick’s executive officers are listed in the following table:

Officer                     
  
Present Position                                                     
  
Age
         
Dustan E. McCoy
  
Chairman and Chief Executive Officer
  
59
Peter B. Hamilton
  
Senior Vice President and Chief Financial Officer
  
62
Lloyd C. Chatfield II
  
Vice President, General Counsel and Secretary
  
40
Andrew E. Graves
  
Vice President and President – US Marine and Outboard Boats
  
 49
Warren N. Hardie
  
Vice President and President – Brunswick Bowling & Billiards
  
58
B. Russell Lockridge
  
Vice President and Chief Human Resources Officer
  
59
Alan L. Lowe
  
Vice President and Controller
  
57
John C. Pfeifer
  
Vice President, President – Brunswick Marine in EMEA and
    President – Brunswick Global Structure
  
 
43
Mark D. Schwabero
  
Vice President and President – Mercury Marine
  
56
Richard C. Stone
  
Vice President and President – Sea Ray Group
  
 53
John E. Stransky
  
Vice President and President – Life Fitness Division
  
 56


There are no familial relationships among these officers. The term of office of all elected officers expires May 6, 2009. The Executive Officers are appointed from time to time at the discretion of the Chief Executive Officer.

Dustan E. McCoy was named Chairman and Chief Executive Officer of Brunswick in December 2005. He was Vice President of Brunswick and President – Brunswick Boat Group from 2000 to 2005. From 1999 to 2000, he was Vice President, General Counsel and Secretary of Brunswick.

Peter B. Hamilton was named Senior Vice President and Chief Financial Officer of Brunswick in September 2008. He served as Vice Chairman of the Board of Brunswick from 2000 until his retirement in 2007; Executive Vice President and Chief Financial Officer of Brunswick from 1998 to 2000; and Senior Vice President and Chief Financial Officer of Brunswick from 1995 to 1998.

Lloyd C. Chatfield II was named Vice President, General Counsel and Secretary of Brunswick in July 2007. He has been with Brunswick Corporation since 2000 serving in various capacities, most recently as Deputy General Counsel and Managing Director of Mergers and Acquisitions.

Andrew E. Graves was named Vice President and President – US Marine and Outboard Boats in February 2008.  Previously, he was President – Brunswick Boat Group Freshwater Group from 2005 to 2008.  From 2003 to 2005, Mr. Graves was President of Dresser Flow Solutions.

Warren N. Hardie was named President – Brunswick Bowling & Billiards in February 2006. Previously, he was President – Bowling Retail from 1998 to February 2006.

 
17
 

B. Russell Lockridge has been Vice President and Chief Human Resources Officer of Brunswick since 1999.

Alan L. Lowe has been Vice President and Controller of Brunswick since September 2003.

John C. Pfeifer was named Vice President and President – Brunswick Marine in EMEA, as well as President – Brunswick Global Structure, in February 2008.  Mr. Pfeifer joined Brunswick in 2006, serving most recently as President – Brunswick Asia/Pacific Group.  Prior to joining Brunswick, Mr. Pfeifer held executive positions with ITT Corporation from 2000 to 2006.

Mark D. Schwabero was named Vice President and President – Mercury Marine in December 2008. Previously, he was President – Mercury Outboards since 2004.

Richard C. Stone was named Vice President and President – Sea Ray Group in February 2006.  Previously he was Vice President and Chief Financial Officer of the Brunswick Boat Group from 2001 to 2006 and Senior Vice President and Chief Financial Officer of Sea Ray from 1989 to 2001.
 
John E. Stransky was named Vice President and President – Life Fitness Division in February 2006. Previously, he was President – Brunswick Bowling & Billiards from February 2005 to February 2006 and President of the Billiards division from 1998 to 2005.



 
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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Brunswick’s common stock is traded on the New York and Chicago Stock Exchanges. Quarterly information with respect to the high and low prices for the common stock and the dividends declared on the common stock is set forth in Note 21 – Quarterly Data in the Notes to Consolidated Financial Statements. As of February 23, 2009, there were 12,847 shareholders of record of the Company’s common stock.

In October 2008, Brunswick announced its annual dividend on its common stock of $0.05 per share, payable in December 2008. Brunswick intends to continue to pay annual dividends at the discretion of the Board of Directors, subject to continued capital availability and a determination that cash dividends continue to be in the best interest of the Company’s stockholders.

In the second quarter of 2005, Brunswick’s Board of Directors authorized a $200.0 million share repurchase program, to be funded with available cash. On April 27, 2006, the Board of Directors increased the Company’s remaining share repurchase authorization of $62.2 million to $500.0 million. The Company did not repurchase any shares during 2008. During 2007 and 2006, the Company repurchased approximately 4.1 million and 5.6 million shares under this program for $125.8 million and $195.6 million, respectively. As of December 31, 2008, the Company had repurchased approximately 11.7 million shares for $397.4 million since the program’s inception with a remaining authorization of $240.4 million. The plan has been suspended as the Company intends to retain cash to enhance its liquidity rather than to repurchase shares.

Brunswick’s dividend and share repurchase policies may be affected by, among other things, the Company’s views on future liquidity, potential future capital requirements and current restrictions contained in the amended and restated revolving credit facility.

 

 
19
 

Performance Graph

Comparison of Five-Year Cumulative Total Return among Brunswick, S&P 500 Index and S&P 500 Global Industry Classification Standard (GICS) Consumer Discretionary Index

Performance Graph
 

    2003     2004      2005      2006      2007     
2008 
  
Brunswick
  
100.00
    
157.81
    
131.35
    
104.76
    
57.36
    
14.23
  
S&P 500 Index
  
100.00
    
108.99
    
112.27
    
127.56
    
132.06
    
81.23
  
S&P 500 GICS Consumer Discretionary Index
  
100.00
    
112.15
    
103.90
    
121.80
    
104.36
    
68.12
  

The basis of comparison is a $100 investment at December 31, 2003, in each of (i) Brunswick, (ii) the S&P 500 Index, and (iii) the S&P 500 GICS Consumer Discretionary Index. All dividends are assumed to be reinvested. The S&P 500 GICS Consumer Discretionary Index encompasses industries including automotive, household durable goods, textiles and apparel, and leisure equipment. Brunswick is included in this index and believes the other companies included in this index provide a representative sample of enterprises that are in primary lines of business that are similar to Brunswick.

 
20
 

Item 6. Selected Financial Data

The selected historical financial data presented below as of and for the years ended December 31, 2008, 2007 and 2006 have been derived from, and should be read in conjunction with, the historical consolidated financial statements of the Company, including the notes thereto, and Item 7 of this report, including the Matters Affecting Comparability section. The selected historical financial data presented below as of and for the years ended December 31, 2005, 2004 and 2003 have been derived from the consolidated financial statements of the Company that are not included herein. The financial data presented below have been restated to present discontinued operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

(in millions, except per share data)
  
2008
    
2007
    
2006
    
2005
    
2004
    
2003
  
                                     
Results of operations data
                                    
Net sales
    $ 4,708.7      $ 5,671.2      $ 5,665.0      $ 5,606.9      $ 5,058.1      $ 4,063.6  
Operating earnings (loss) (A)
     (611.6 )     107.2       341.2       468.7       394.8       223.5  
Earnings (loss) before interest and taxes (A)
     (584.7 )     136.3       354.2       524.1       408.4       233.6  
Earnings (loss) before income taxes (A)
     (632.2 )     92.7       309.7       485.9       373.3       204.0  
Net earnings (loss) from continuing operations (A)
     (788.1 )     79.6       263.2       371.1       263.8       137.0  
                                                 
Discontinued operations:
                                                
  Earnings (loss) from discontinued operations, net of tax (B)
      —        32.0       (129.3 )      14.3        6.0       (1.8 )
                                                 
Net earnings (loss) (A)
    $ (788.1 )    $ 111.6      $ 133.9      $ 385.4      $ 269.8      $ 135.2  
                                                 
Basic earnings (loss) per common share:
                                                
Earnings (loss) from continuing operations (A)
    $ (8.93 )    $ 0.88      $ 2.80      $ 3.80      $ 2.76      $ 1.50  
Discontinued operations:
                                                
  Earnings (loss) from discontinued operations, net of tax
      —        0.36       (1.38 )      0.15        0.06       (0.02 )
                                                 
Net earnings (loss) (A)
    $ (8.93 )    $ 1.24      $ 1.42      $ 3.95      $ 2.82      $ 1.48  
                                                 
Average shares used for computation of basic earnings per share
     88.3       89.8       94.0       97.6       95.6       91.2  
                                                 
Diluted earnings (loss) per common share:
                                                
Earnings (loss) from continuing operations (A)
    $ (8.93 )    $ 0.88      $ 2.78      $ 3.76      $ 2.71      $ 1.49  
Discontinued operations:
                                                
  Earnings (loss) from discontinued operations, net of tax
      —        0.36       (1.37 )      0.14        0.06       (0.02 )
                                                 
Net earnings (loss) (A)
    $ (8.93 )    $ 1.24      $ 1.41      $ 3.90      $ 2.77      $ 1.47  
                                                 
Average shares used for computation of diluted earnings per share
     88.3       90.2       94.7       98.8       97.3       91.9  
 
(A)
2008 results include $688.4 million of pretax goodwill impairment charges, trade name impairment charges and restructuring, exit and other impairment charges. 2007 results include $88.6 million of pretax trade name impairment charges and restructuring, exit and other impairment charges. 2006 results include $17.1 million of pretax restructuring, exit and other impairment charges.
   
(B)
 Earnings (loss) from discontinued operations in 2007 include net gains of $29.8 million related to the sales of the discontinued businesses. Earnings (loss) from discontinued operations in 2006 include an $85.6 million impairment charge ($73.9 million pretax) related to the Company’s announcement in December 2006 that proceeds from the sale of BNT were expected to be less than its book value. See Note 20 – Discontinued Operations in the Notes to Consolidated Financial Statements for further details.

 
21
 


(in millions, except per share and other data)
  
2008
    
2007
    
2006
    
2005
    
2004
    
2003
  
                                     
Balance sheet data
                                    
Total assets of continuing operations
    $ 3,223.9      $ 4,365.6      $ 4,312.0      $ 4,414.8      $ 4,198.9      $ 3,523.4  
Debt
  Short-term
    $ 3.2      $ 0.8      $ 0.7      $ 1.1      $ 10.7      $ 23.8  
  Long-term
     728.5       727.4       725.7       723.7       728.4       583.8  
Total debt
     731.7       728.2       726.4       724.8       739.1       607.6  
Common shareholders’ equity (A) (B)
     729.9       1,892.9       1,871.8       1,978.8       1,712.3       1,323.0  
                                                 
Total capitalization (A) (B)
    $ 1,461.6      $ 2,621.1      $ 2,598.2      $ 2,703.6      $ 2,451.4      $ 1,930.6  
                                                 
Cash flow data
Net cash provided by (used for) operating of activities
  continuing operations
    $ (12.1 )    $ 344.1      $ 351.0      $ 421.6      $ 424.4      $ 405.7  
Depreciation and amortization
     177.2       180.1       167.3       156.3       153.6       149.4  
Capital expenditures
     102.0       207.7       205.1       223.8       163.8       157.7  
Acquisitions of businesses
     —       6.2       86.2       130.3       248.2       140.0  
Investments
     (20.0 )     (4.1 )     (6.1 )     18.1       16.2       39.3  
Stock repurchases
     —       125.8       195.6       76.0       —       —  
Cash dividends paid
     4.4       52.6       55.0       57.3       58.1       45.9  
                                                 
Other data
Dividends declared per share
    $ 0.05      $ 0.60      $ 0.60      $ 0.60      $ 0.60      $ 0.50  
Book value per share (A) (B)
     8.27       20.99       19.76       20.03       17.60       14.40  
Return on beginning shareholders’ equity
     (41.6 )%     6.0 %     6.8 %     22.5 %     20.4 %     12.3 %
Effective tax rate
     (24.7 )%     14.1 %     15.0 %     23.6 %     29.3 %     32.8 %
Debt-to-capitalization rate (A) (B)
     50.1 %     27.8 %     28.0 %     26.8 %     30.2 %     31.5 %
Number of employees
     19,760       27,050       28,000       26,500       24,745       22,525  
Number of shareholders of record
     12,842       13,052       13,695       14,143       14,952       15,373  
Common stock price (NYSE)
  High
    $ 19.28      $ 34.80      $ 42.30      $ 49.50      $ 49.85      $ 32.08  
  Low
     2.01       17.05       27.56       35.09       31.25       16.35  
  Close (last trading day)
     4.21       17.05       31.90       40.66       49.50       31.83  

 
  (A)
Effective December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R),” which resulted in a $60.7 million decrease to Common shareholders’ equity. The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN 48) effective on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized an $8.7 million decrease in the net liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007, balance of retained earnings.
 
(B)
2008 results include $688.4 million of pretax goodwill impairment charges, trade name impairment charges and restructuring, exit and other impairment charges. 2007 results include $88.6 million of pretax trade name impairment charges and restructuring, exit and other impairment charges. 2006 results include $17.1 million of pretax restructuring, exit and other impairment charges.

 
The Notes to Consolidated Financial Statements should be read in conjunction with the above summary.


 
22
 

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

Certain statements in Management’s Discussion and Analysis are based on non-GAAP financial measures. Specifically, the discussion of the Company’s cash flows includes an analysis of free cash flows. GAAP refers to generally accepted accounting principles in the United States. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the Statement of operations, balance sheet or statement of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Operating and statistical measures are not non-GAAP financial measures.

The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as Brunswick’s management believes that these measures and the information they provide are useful to investors because they permit investors to view Brunswick’s performance using the same tools that management uses and to better evaluate the Company's ongoing business performance.

Certain other statements in Management’s Discussion and Analysis are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties. Actual results may differ materially from expectations as of the date of this filing because of factors discussed in Item 1A of this Annual Report on Form 10-K.

Overview and Outlook

General

In 2008, Brunswick significantly restructured its business in order to operate effectively in light of a difficult economic climate, while maintaining its strategic objective to solidify its leadership position in the marine, fitness and bowling & billiards industries, by:

 
•
Maintaining strong liquidity during difficult economic times;

 
•
Focusing on cost reduction initiatives across the organization through the resizing and realignment of Brunswick’s manufacturing operations and organizational structure;

 
•
Shrinking and consolidating its manufacturing footprint to a level that allows each facility to produce at higher volumes and lower costs;

 
•
Lowering its marine production levels to achieve reductions in pipeline inventories held by its dealers in order to maintain the health of the Company’s many dealers in a difficult retail environment; and

 
•
Distributing products through a model that benefits the Company’s dealers and distributors by providing additional products and services that will make them more successful, improve the customer experience and, in turn, make Brunswick more successful.
 
Accomplishments in support of the Company’s strategic objectives in 2008 include:

Maintaining Liquidity:

–  
Amended its revolving credit facility, which provides the Company with an option to borrow for operating cash requirements, if necessary; and

–  
Ended the year with $317.5 million of cash, compared with $331.4 million at the end of 2007, despite a difficult economy.


 
23
 

Manufacturing Realignment:

–  
Adjustments to the manufacturing footprint to streamline operations, including permanent closure of eight facilities and the temporary closure of another three facilities;

–  
Several boat manufacturing plants are now manufacturing multiple brands, rather than dedicated facilities for single brands; and

–  
Reduced the number of models being manufactured in order to better utilize the new footprint and to reduce complexity and costs.
 
Cost Reduction Initiatives:

–  
Reduced total Company work force by 27 percent;

–  
Consolidated functions throughout the organization and removed layers of management; and

–  
Exited or sold non-strategic businesses and assets.
 
Dealer Health:

–  
Removed approximately 6,700 boats, or approximately 22 percent, from dealer pipeline inventories; and

–  
Extended its Brunswick Acceptance Company, LLC (BAC) joint venture agreement with CDF Ventures, LLC, a subsidiary of GE Capital Corporation, through 2014, providing Brunswick’s boat and engine dealers secured wholesale inventory floor-plan financing.

International Operations:

–  
Increased its focus in Latin America and the Middle East. International sales now represent approximately 44 percent of net sales from continuing operations.

Despite its success in executing these objectives, Brunswick saw a decline in its financial performance due to difficult marine market conditions and contracting global credit markets. Net sales from continuing operations in 2008 decreased to $4,708.7 million from $5,671.2 million in 2007. The overall decrease in sales was primarily due to the continued reduction in marine industry demand as a result of a weak global economy, soft housing markets and the contraction of liquidity in global credit markets. The reduction in marine industry demand is evidenced by the declining number of retail unit sales of powerboats in the United States since 2005, with the rate of decline accelerating during 2008. Industry retail unit sales were down significantly during 2008 compared with the already low retail unit sales during 2007. In 2008, the Company reported higher sales in the Bowling & Billiards segments, as well as higher sales outside the United States for the Boat, Fitness and Bowling & Billiards segments. These increases were more than offset by a reduction in the Boat, Marine Engine and Fitness segments’ sales in the United States.

Operating losses from continuing operations for 2008 were $611.6 million, with negative operating margins of 13.0 percent. Operating earnings from continuing operations for 2007 were $107.2 million, with operating margins of 1.9 percent. The 2008 results included goodwill and trade name impairment charges of $511.1 million and $177.3 million of restructuring, exit and other impairment charges, while the 2007 results included trade name impairment charges of $66.4 million and $22.2 million of restructuring, exit and other impairment charges. The operating losses during 2008 primarily resulted from higher goodwill and trade name impairment charges, lower sales from marine operations, reduced fixed-cost absorption due to reduced production rates in the Company’s marine businesses in an effort to achieve appropriate levels of dealer pipeline inventories and higher restructuring, exit and other impairment charges. These factors were partially offset by successful cost-reduction initiatives, as discussed in Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements.

In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and other costs. The sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was recorded in Investment sale gains in the Consolidated Statements of Operations.


 
24
 

Restructuring Activities

In November 2006, Brunswick announced restructuring initiatives to improve the Company’s cost structure, better utilize overall capacity and improve general operating efficiencies. These initiatives reflected the Company’s response to a difficult marine market. As the marine market has continued to decline, Brunswick expanded its restructuring activities during 2006, 2007 and 2008 in order to improve performance and better position the Company to address current market conditions and enable long-term profitable growth.

The Company has reported its restructuring initiatives into three classifications: exit activities; restructuring activities; and definite-lived asset impairments. The Company considers employee termination costs, lease exit costs, inventory write-downs and facility shutdown costs related to the sale of certain Baja boat business assets, the closure of its bowling pin manufacturing facility, the potential sale of the Valley-Dynamo coin-operated commercial billiards business and the divestiture of MotoTron to be exit activities. Other employee termination costs, costs to retain and relocate employees, consulting costs and costs to consolidate the manufacturing footprint are considered restructuring activities. Definite-lived impairments are costs related to the write-downs of fixed assets, tooling, patents and proprietary technology, and customer relationships.

Total restructuring, exit and other impairment charges in 2008 were $177.3 million, which include $19.3 million of gains recognized on the sales of non-strategic assets. The $177.3 million consists of $101.7 million in the Boat segment, $29.4 million in the Marine Engine segment, $3.3 million in the Fitness segment, $21.7 million in the Bowling & Billiards segment and $21.2 million at Corporate. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

The actions taken under these initiatives are expected to benefit future operations by removing fixed costs of approximately $60 million from Cost of sales and approximately $300 million from Selling, general and administrative in the Consolidated Statements of Operations by the end of 2009 compared with 2007 spending levels. The majority of these costs are expected to be cash savings once all restructuring initiatives are complete. The Company has begun to see savings related to these initiatives in 2008 and expects all savings to be realized by the end of 2009.

Goodwill and Trade Name Impairments

Brunswick accounts for goodwill and identifiable intangible assets in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142). Under this standard, Brunswick assesses the impairment of goodwill and indefinite-lived intangible assets at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

During the third quarter of 2008, Brunswick encountered a significant adverse change in the business climate. A weak U.S. economy, soft housing markets and the contraction of liquidity in global credit markets contributed to the continued reduction in demand for certain Brunswick products and, consequently, the reduced wholesale production rates for those affected products. As a result of this reduced demand, along with lower-than-projected profits across certain Brunswick brands and lower commitments received from its dealer network in the third quarter, management revised its future cash flow expectations in the third quarter of 2008, which lowered the fair value estimates of certain businesses.

As a result of the lower fair value estimates, Brunswick concluded that the carrying amounts of its Boat segment and bowling retail and billiards reporting units within the Bowling & Billiards segment exceeded their respective fair values. The Company compared the implied fair value of the goodwill in each reporting unit with the carrying value and concluded that a $374.0 million pretax impairment charge needed to be recognized in the third quarter of 2008. Of this amount, $361.3 million relates to the Boat segment reporting unit, $1.7 million relates to the bowling retail reporting unit within the Bowling & Billiards segment and $11.0 million relates to the billiards reporting unit within the Bowling & Billiards segment. The Company also recognized goodwill impairment charges of $1.5 million in the Boat segment reporting unit and $1.7 million related to the billiards reporting unit within the Bowling & Billiards segment earlier in 2008 as a result of deciding to exit certain businesses. As a result of the $377.2 million of impairments, all goodwill at these respective reporting units has been written down to zero.


 
25
 

In conjunction with the goodwill impairment testing, the Company analyzed the valuation of its other indefinite-lived intangibles, consisting exclusively of acquired trade names. Brunswick estimated the fair value of trade names by performing a discounted cash flow analysis based on the relief-from-royalty approach. This approach treats the trade name as if it were licensed by the Company rather than owned, and calculates its value based on the discounted cash flow of the projected license payments. The analysis resulted in a pretax trade name impairment charge of $121.1 million in the third quarter of 2008, representing the excess of the carrying cost of the trade names over the calculated fair value. Of this amount, $115.7 million relates to the Boat segment reporting unit, $4.5 million relates to the Marine Engine segment reporting unit and $0.9 million relates to the billiards reporting unit within the Bowling & Billiards segment. The Company also recognized trade name impairment charges of $5.2 million in the Boat segment reporting unit and $7.6 million related to the billiards reporting unit within the Bowling & Billiards segment earlier in 2008 as a result of deciding to exit certain businesses.

Discontinued Operations

As discussed in Note 20 – Discontinued Operations in the Notes to Consolidated Financial Statements, on April 27, 2006, the Company announced its intention to sell the majority of the Brunswick New Technologies (BNT) business unit, consisting of the Company’s marine electronics, portable navigation device (PND) and wireless fleet tracking businesses. During the second quarter of 2006, Brunswick began reporting the results of these BNT businesses, which were previously reported in the Marine Engine segment, as discontinued operations for all periods presented. The Company’s results, as discussed in Management’s Discussion and Analysis, reflect continuing operations only, unless otherwise noted. The Company completed the divestiture of the BNT discontinued operations in 2007.

Outlook for 2009

Looking ahead to 2009, the Company expects 2009 revenues to be lower when compared with 2008, with higher relative percentage declines occurring in the first half of the year. The expectation of lower revenues reflects the view that marine retail demand will continue to decline, at least through the first six months of the year, and that the Company is planning to sell product at wholesale and manufacture at levels below marine retail demand.

Operating earnings and margins for 2009 are expected to be adversely affected by the reduction in production and wholesale shipments, as discussed above. These actions are expected to have an unfavorable effect on margins due to reduced gross margins on lower sales volumes and lower fixed-cost absorption on reduced production. These reductions in sales demand and production volumes, along with incremental pension-related expenses of approximately $75 million pretax and the possible resumption of variable compensation, are expected to lead to lower earnings and margins in 2009 when compared with 2008 earnings and margins before goodwill and trade name impairments. Partially offsetting these factors are expected to be nearly $200 million of net cost reductions resulting from the full-year effect of actions taken in 2008 and further cost reduction activities implemented and planned in 2009. Also partially mitigating the impact of lower sales and production is the effect of lower restructuring charges of approximately $125 million in 2009 versus 2008. More significant reductions in demand for the Company’s products may necessitate additional restructuring or exit charges in 2009. Excluding the effect of any special tax items that may occur or any changes to tax legislation, Brunswick is expecting to record a tax provision on operating losses in 2009. This is primarily the result of the expected inability to recognize tax benefits on projected domestic net operating losses and a projected tax provision on foreign earnings.

 
26
 

Matters Affecting Comparability

The following events have occurred during 2008, 2007 and 2006, which the Company believes affect the comparability of the results of operations:

Goodwill impairment charges. As a result of the continued reduction in demand for certain Brunswick products, along with lower-than-projected profits across certain Brunswick brands, management revised its future cash flow expectations in the third quarter of 2008. The revised future cash flow expectations resulted in the Company lowering its estimate of fair value of certain businesses and required the Company to take a $374.0 million pretax goodwill impairment charge during the third quarter of 2008, as prescribed by SFAS 142.

In 2008, the Company incurred $377.2 million of goodwill impairment charges, which include the aforementioned $374.0 million, along with impairments related to the analyses of its Baja boat business and its Valley-Dynamo coin-operated commercial billiards business in the second quarter of 2008. There were no comparable charges recognized in 2007 or 2006. See Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements for further details.

Trade name impairment charges. In conjunction with the goodwill impairment testing, the Company analyzed the valuation of its trade names in accordance with SFAS 142. The analysis resulted in a pretax trade name impairment charge of $121.1 million during the third quarter of 2008, representing the excess of the carrying cost of the trade names over the calculated fair value. This compares with a $66.4 million pretax trade name impairment charge taken in the third quarter of 2007 as a result of a valuation analysis performed on certain outboard boat company trade names.

In 2008, the Company has taken $133.9 million of trade name impairment charges, which include the aforementioned $121.1 million and additional impairments related to the previous analyses of its Bluewater Marine boat business and its Valley-Dynamo coin-operated commercial billiards business in the second quarter of 2008. This charge compares with the $66.4 million trade name impairment charge taken in 2007, related to the impairment of certain outboard boat trade names. There were no comparable charges recognized in 2006. See Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements for further details.

Restructuring, exit and other impairment charges. Brunswick announced initiatives to improve the Company’s cost structure, better utilize overall capacity and improve general operating efficiencies. During 2008, the Company recorded a charge of $177.3 million related to these restructuring activities as compared with $22.2 million during 2007 and $17.1 million during 2006. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

Investment sale gains. In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and other costs. The sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was recorded in Investment sale gains in the Consolidated Statements of Operations.

In September 2008, Brunswick sold its investment in a foundry located in Mexico for $5.1 million gross cash proceeds. The sale resulted in a $2.1 million pretax gain and was recorded in Investment sale gains in the Consolidated Statements of Operations.

Tax Items. During 2008, the Company recognized a tax provision of $155.9 million on operating losses from continuing operations of $632.2 million for an effective tax rate of (24.7) percent. Typically, the Company would recognize a tax benefit on operating losses; however, due to the uncertainty of the realization of certain net deferred tax assets, a provision of $338.3 million was recognized to increase the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for further details.

During 2007, the Company recognized special tax benefits of $9.8 million, primarily as a result of favorable tax reassessments and its election to apply the indefinite reversal criterion of APB 23 to the undistributed net earnings of certain foreign subsidiaries, as discussed in Note 10 – Income Taxes in the Notes to Consolidated Financial Statements. These benefits were partially offset by expense related to changes in estimates of prior years’ tax return filings and the impact of a foreign jurisdiction tax rate reduction on the underlying net deferred tax asset.

During 2006, the Company reduced its tax provision primarily due to $47.0 million of tax benefits, consisting mostly of $40.2 million of tax reserve reassessments of underlying exposures. Refer to Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for further detail.



 
27
 

Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006:

                     
2008 vs. 2007
    
2007 vs. 2006
  
                     
Increase/(Decrease)
    
Increase/(Decrease)
  
(in millions, except per share data)
  
2008
    
2007
    
2006
    
 $
      
%
    
 $
       %  
                                               
Net sales
    $ 4,708.7      $ 5,671.2      $ 5,665.0      $ (962.5 )     (17.0 )%    $ 6.2       0.1 %
Gross margin (A)
     867.4       1,157.8       1,233.3       (290.4 )     (25.1 )%     (75.5 )     (6.1 )%
Goodwill impairment charges
     377.2       —       —       377.2    
NM
       —       —  
Trade name impairment charges
     133.9       66.4       —       67.5    
NM
       66.4    
NM
  
Restructuring, exit and other impairment charges
     177.3       22.2       17.1       155.1    
NM
       5.1       29.8 %
Operating earnings (loss)
     (611.6 )     107.2       341.2       (718.8 )  
NM
       (234.0 )     (68.6 )%
Net earnings (loss) from continuing operations
     (788.1 )     79.6       263.2       (867.7 )  
NM
       (183.6 )     (69.8 )%
                                                         
Diluted earnings per share
    $ (8.93 )    $ 0.88      $ 2.78      $ (9.81 )  
NM
      $ (1.90 )     (68.3 )%
                                                         
Expressed as a percentage of Net sales
                                                        
Gross margin
     18.4 %     20.4 %     21.7 %          
(200
)bpts          
(130
)bpts
Selling, general and administrative expense
     14.2 %     14.5 %     13.1 %          
(30
)bpts          
140
  bpts
Research & development expense
     2.6 %     2.4 %     2.3 %          
20
  bpts          
10
  bpts
Goodwill impairment charges
     8.0 %     — %     — %          
800
  bpts             —  
Trade name impairment charges
     2.8 %     1.2 %     — %          
160
  bpts          
120
  bpts
Restructuring, exit and other impairment charges
     3.8 %     0.4 %     0.3 %          
340
  bpts          
10
  bpts
Operating margin
     (13.0 )%     1.9 %     6.0 %          
NM
            
(410
)bpts
    __________

    bpts = basis points
    NM = not meaningful

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

2008 vs. 2007

The decrease in net sales was primarily due to reduced marine industry demand compared with 2007 as a result of uncertainty in the global economy and the related contraction of liquidity in global credit markets. Weakness in marine retail demand was previously isolated to the United States; however, the recent uncertainty in the global economy has had an adverse effect on worldwide retail demand. As a result of the prolonged decline in marine retail demand and tighter credit markets, a large dealer filed for bankruptcy in 2008. If additional dealers file for bankruptcy, Brunswick’s net sales and earnings from continuing operations may be unfavorably affected through lower market exposure and the associated decline in sales and the potential for the repurchase of Brunswick products or recourse payments on customers’ debt obligations.
 
Although net sales in 2008 were down 17 percent from 2007, the Company saw strong sales of commercial fitness equipment and bowling products and experienced increases in revenue from Brunswick Zone XL centers.

Sales outside the United States increased $42.1 million to $2,058.5 million in 2008, with the largest increase in contributions coming from the Latin American region, which increased $51.2 million to $247.8 million, and the Africa & Middle East region, which increased $23.7 million to $121.8 million. The total growth outside the United States was largely attributable to higher sales from the Boat, Bowling & Billiards and Fitness segments.

Brunswick’s gross margin percentage decreased 200 basis points in 2008 to 18.4 percent from 20.4 percent in 2007. The decrease was primarily due to lower fixed-cost absorption and inefficiencies due to reduced production rates, as a result of the Company’s efforts to achieve appropriate levels of marine customer pipeline inventories in light of lower retail demand, and higher raw material and component costs. This decrease was partially offset by price increases at certain businesses, successful cost-reduction efforts and lower variable compensation expense.

Operating expenses decreased by $171.4 million to $790.6 million in 2008. The decrease was primarily driven by successful cost reduction initiatives and lower variable compensation expense, but was partially offset by the effect of unfavorable foreign currency translation.

28
 
During 2008, the Company incurred $511.1 million of impairment charges related to its goodwill and trade names. These charges compare with the $66.4 million impairment charge taken on certain trade names during the comparable 2007 period. See Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements for further details.

During 2008, the Company announced additional restructuring activities including the closing of its bowling pin manufacturing facility in Antigo, Wisconsin; closing of its boat plant in Bucyrus, Ohio, in connection with the divestiture of its Baja boat business; closing of its Swansboro, North Carolina, boat plant; closing its production facility in Newberry, South Carolina; the cessation of boat manufacturing at one of its facilities in Merritt Island, Florida; the write-down of certain assets of the Valley-Dynamo coin-operated commercial billiards business; the closing of its production facilities in Pipestone, Minnesota; Roseburg, Oregon; and Arlington, Washington; mothballing its Navassa, North Carolina, boat plant; and the reduction of its employee workforce across the Company. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

The decrease in operating earnings was mainly due to reduced sales volumes, along with lower fixed-cost absorption, goodwill and trade name impairments taken during 2008 and the restructuring activities discussed above.

Equity earnings decreased $14.8 million to $6.5 million in 2008. The decrease in equity earnings was mainly the result of lower earnings from the Company’s marine joint ventures and the absence of earnings from its bowling joint venture in Japan, as the joint venture was sold in the first quarter of 2008.

During 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds and its investment in a foundry located in Mexico for $5.1 million gross cash proceeds. These sales resulted in $23.0 million of pretax gains.

The decrease in Other income (expense), net was due to the absence of a legal claim settlement against a third-party service provider in 2007. The 2007 settlement resulted in $7.1 million of income, net of legal fees, and was reflected in Other income (expense), net.

Interest expense increased $1.9 million to $54.2 million in 2008 compared with 2007, primarily as a result of higher interest rates on outstanding debt. In July 2008, the Company issued $250 million of notes due in 2013 to fund the maturity of $250 million of notes due in July 2009, as described in Note 14 – Debt in the Notes to Consolidated Financial Statements. Interest income decreased $2.0 million to $6.7 million in 2008 compared with 2007 primarily as a result of lower invested balances during 2008.

During 2008, the Company recognized a tax provision of $155.9 million on operating losses from continuing operations of $632.2 million for an effective tax rate of (24.7) percent. Typically, the Company would recognize a tax benefit on operating losses; however, due to the uncertainty of the realization of certain net deferred tax assets, a provision of $338.3 million was recognized to increase the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the Notes to Consolidated Financial Statements for further details.

In 2007, the Company’s effective tax rate of 14.1 percent was lower than the statutory rate primarily due to benefits from $12.7 million related to reassessments of the deductibility of restructuring reserves and depreciation timing differences; foreign earnings in tax jurisdictions with lower effective tax rates; and a research and development tax credit. These benefits were partially offset by $3.8 million of additional taxes related to changes in estimates related to prior year’s filings, as discussed in Note 10 – Income Taxes in the Notes to Consolidated Financial Statements.

Net earnings and diluted earnings per share decreased primarily due to the same factors discussed above in operating earnings.

Weighted average common shares outstanding used to calculate diluted earnings per share decreased to 88.3 million in 2008 from 90.2 million in 2007. Although no shares were repurchased during 2008, the average outstanding shares in 2007 did not fully reflect the effects of the 4.1 million shares repurchased in 2007, as discussed in Note 19 – Share Repurchase Program in the Notes to Consolidated Financial Statements.

There was no activity related to discontinued operations in 2008 as the disposition was completed during 2007.

 
29
 

2007 vs. 2006

The increase in net sales was primarily due to the strong performance of boat and engine sales outside the United States, higher Fitness segment sales resulting from increased sales volumes, higher sales of marine parts and accessories, and sales gains at bowling retail entertainment centers. These factors slightly outpaced the impact of continued reduction in United States marine industry demand.

Sales outside the United States increased $214.0 million to $2,016.4 million in 2007, with the largest contributions coming from the European region, which increased $113.9 million to $1,038.9 million, the Latin American region, which increased $38.3 million to $196.6 million, and the Asia Pacific region, which increased $35.0 million to $338.2 million. This growth was largely attributable to higher sales of engines, fitness equipment and boats.

Brunswick’s gross margin percentage decreased 130 basis points in 2007 to 20.4 percent from 21.7 percent in 2006. This decrease was the result of lower fixed-cost absorption and inefficiencies due to reduced production rates as a result of the Company’s effort to achieve appropriate levels of marine customer pipeline inventories in light of lower retail demand; higher raw material and component costs; increased promotional incentives, restructuring expenses and unfavorable warranty experiences in the Boat segment; and a mix shift toward lower horsepower four-stroke engines manufactured by a joint venture that carry lower margins. These unfavorable factors were partially offset by successful cost-reduction efforts, the benefit of a weaker dollar and increased worldwide sales volume in the Fitness segment.

Operating expenses increased $87.0 million to $962.0 million in 2007, due to higher variable compensation expense, inflation and the effects of a weaker dollar, the absence of the gains on sales of property sold in 2006 and the absence of a favorable settlement with an insurance carrier on environmental coverage received in 2006.

Also contributing to the decline in both operating earnings and margins was a $66.4 million pretax trade name impairment charge recorded during the third quarter of 2007, as discussed in Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements and $22.2 million of restructuring, exit and other impairment charges as discussed in Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements. There were no comparable trade name impairments in 2006, while there were $17.1 million of restructuring, exit and other impairment charges in 2006.

Operating earnings decreased to $107.2 million in 2007 from $341.2 million in 2006. The decrease in operating earnings was mainly due to the decline in Boat segment sales volumes and the unfavorable factors affecting gross margin and operating expenses discussed above.

Equity earnings increased $6.4 million to $21.3 million in 2007. The increase in equity earnings was mainly the result of additional earnings from the Company’s CMD joint venture.

In August 2007, the Company settled a legal claim against a third-party service provider. The settlement resulted in $7.1 million of income, net of legal fees, and was reflected in Other income (expense), net for the period.

Interest expense decreased $8.2 million to $52.3 million in 2007 compared with 2006, primarily as a result of lower debt levels in 2007. In July 2006, the Company issued $250 million of notes due in 2009 to fund the maturity of $250 million of notes due in December 2006, as described in Note 14 – Debt in the Notes to Consolidated Financial Statements. Interest income decreased $7.3 million to $8.7 million in 2007 compared with 2006 primarily as a result of income earned in 2006 on the proceeds from the aforementioned notes issued in July 2006.

In 2007, the Company’s effective tax rate of 14.1 percent was lower than the statutory rate primarily due to benefits from $12.7 million related to reassessments of the deductibility of restructuring reserves and depreciation timing differences; foreign earnings in tax jurisdictions with lower effective tax rates; and a research and development tax credit. These benefits were partially offset by $3.8 million of additional taxes related to changes in estimates related to prior year’s filings, as discussed in Note 10 – Income Taxes in the Notes to Consolidated Financial Statements.

During the year ended December 31, 2006, the Company recognized tax benefits of $47.0 million, consisting primarily of $40.2 million of tax reserve reassessments of underlying exposures, as discussed in Note 11 – Commitments and Contingencies in the Notes to Consolidated Financial Statements.

Net earnings and diluted earnings per share decreased primarily due to the same factors discussed above in operating earnings.

 
30
 

Weighted average common shares outstanding used to calculate diluted earnings per share decreased to 90.2 million in 2007 from 94.7 million in 2006. The decrease in average shares outstanding was primarily due to the repurchase of 4.1 million shares during 2007, as discussed in Note 19 – Share Repurchase Program in the Notes to Consolidated Financial Statements.

Sales from discontinued operations were $99.7 million during 2007, compared with $306.3 million during 2006. Sales declined significantly as a result of the sales of BNT’s marine electronics and PND businesses, which were disposed of during the first quarter of 2007 and the BNT wireless fleet tracking business, which was sold in July 2007. The July sale completed the disposal of the BNT businesses. The discontinued operations generated after-tax earnings from the BNT business operations, excluding the gains on the sales of the businesses, of $2.2 million in 2007, compared with after-tax operating losses, which include impairment charges of $85.6 million after-tax, of $43.7 million during 2006. The 2007 earnings from these operations were almost exclusively related to post-closing income tax adjustments as a result of the finalization of BNT sales agreements. The comparable 2006 loss was the result of costs associated with reducing inventories and maintaining competitive pricing in the marketplace.

In March 2007, Brunswick completed the sales of BNT’s marine electronics and PND businesses to Navico International Ltd. and MiTAC International Corporation, respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain was recognized with the divestiture of these businesses in 2007.

In July 2007, the Company completed the sale of BNT’s wireless fleet tracking business to Navman Wireless Holdings L.P. for net proceeds of $28.8 million, resulting in an after-tax gain of $25.8 million.

The Company completed the divestiture of the BNT discontinued operations during 2007. With the net asset impairment taken prior to the disposition of the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales, the net impact to the Company of these dispositions was a net loss of $55.8 million, after-tax.

 
31
 

Segments

The Company operates in four reportable segments: Boat, Marine Engine, Fitness and Bowling & Billiards.  Refer to Note 5 – Segment Information in the Notes to Consolidated Financial Statements for details on the operations of these segments.

Boat Segment

The following table sets forth Boat segment results for the years ended December 31, 2008, 2007 and 2006:

                     
2008 vs. 2007
      
2007 vs. 2006
  
                     
Increase/(Decrease)
      
Increase/(Decrease)
  
(in millions)
  
2008
    
2007
    
2006
      $       %        $      
%
  
                                                 
Net sales
    $ 2,011.9      $ 2,690.9      $ 2,864.4      $ (679.0 )     (25.2 )%      $ (173.5 )     (6.1 )%
Goodwill impairment charges
    $ 362.8      $ —      $ —      $ 362.8    
NM
        $ —       —  
Trade name impairment charges
    $ 120.9      $ 66.4      $ —      $ 54.5       82.1 %      $ 66.4    
NM 
 
Restructuring, exit and other impairment charges
    $ 101.7      $ 15.9      $ 4.2      $ 85.8    
NM
        $ 11.7    
NM 
 
Operating earnings
    $ (653.7 )    $ (81.4 )    $ 135.6      $ (572.3 )  
NM
        $ (217.0 )  
NM 
 
Operating margin
     (32.5 )%     (3.0 )%     4.7 %          
NM
              
(770
)bpts
Capital expenditures
    $ 42.6      $ 94.9      $ 75.8      $ (52.3 )     (55.1 )%      $ 19.1       25.2 %
__________

bpts = basis points
NM = not meaningful

2008 vs. 2007

The decrease in Boat segment net sales was largely attributable to the effect of reduced marine retail demand in U.S. markets and lower shipments to dealers in an effort to achieve appropriate levels of pipeline inventories. In addition to the weak retail demand, the contraction of liquidity in global credit markets has led to lower net sales in 2008, especially during the second half of the year.

The goodwill and trade name impairment charges in 2008 were primarily the result of its SFAS 142 analysis performed during the third quarter of 2008. The remaining charges were the result of deciding to exit certain businesses. See Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements for further details.

During 2008, Brunswick continued its restructuring initiatives as described in Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements. Certain significant actions taken at the Boat segment include the sale of certain assets of its Baja boat business, the cessation of production of Bluewater Marine group boats and the closure of several of its US Marine production facilities, as described below.

During the second quarter of 2008, the Company sold certain assets of its Baja boat business (Baja) to Fountain Powerboat Industries, Inc. (Fountain). The transaction was aimed at further refining the Company’s product portfolio and focusing its resources on brands and marine segments that are considered to be core to the Company’s future success. The Company ramped down production at its Bucyrus, Ohio, plant through the end of May. The total costs of the Baja transaction were approximately $15 million, all of which were incurred during 2008. The majority of the $15 million charge consisted of asset write-downs related to selected assets sold to Fountain and the residual assets sold to third parties.

During the second quarter of 2008, the Company ceased production of boats for its Bluewater Marine group (Bluewater), including the Sea Pro, Sea Boss, Palmetto and Laguna brands, which were manufactured at its Newberry, South Carolina, facility. The total costs of the Bluewater cessation were approximately $24 million, all of which were incurred during 2008. The majority of the $24 million charge consisted of asset write-downs related to the disposition of selected assets.

 
32
 

During the second half of 2008, the Company closed several of its US Marine production facilities, which produce Bayliner, Maxum and Trophy boats and Meridian yachts, in an effort to continue to consolidate its manufacturing footprint. The Company incurred approximately $26 million in costs related to these closures in 2008 and expects to incur approximately $17 million of additional costs in 2009. The majority of the approximately $43 million in costs represents asset write-downs related to the disposition of selected assets and severance charges.

Boat segment operating earnings decreased from 2007 primarily due to goodwill and trade name impairment charges, a decrease in sales volume and increased restructuring, exit and other impairment charges. Additionally, lower fixed-cost absorption and increased inventory repurchase obligation accruals contributed to the decline in operating earnings. This decrease was partially offset by savings from successful cost-reduction initiatives and lower variable compensation expense.

Capital expenditures in 2008 were largely attributable to tooling costs for the production of new models. Capital spending was lower during 2008 as a result of discretionary capital spending constraints and the acquisition of the boat manufacturing facility in Navassa, North Carolina, in 2007.

2007 vs. 2006

The decrease in Boat segment net sales was largely attributable to the impact of reduced marine retail demand in United States markets and lower shipments to dealers in an effort to achieve appropriate levels of pipeline inventories. Increased promotional incentives also contributed to lower net sales. Sales were positively affected by growth outside the United States and gains in the Boat segment’s parts and accessories business. Additionally, sales were favorably affected by acquisitions completed in 2007 and 2006.

Boat segment operating earnings decreased from 2006, primarily due to a decrease in sales volume and the $66.4 million pretax impairment charges taken on certain indefinite-lived intangible assets, as discussed in Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements. Additionally, increased promotional incentives, higher raw material costs, higher restructuring costs, increased variable compensation expense and additional warranty costs also contributed to the decline in operating earnings.

Capital expenditures increased in 2007 as a result of the acquisition of a boat manufacturing facility in Navassa, North Carolina. Other than the acquisition of the manufacturing facility in 2007 and a marina in 2006, the 2007 and 2006 capital expenditures were largely attributable to tooling costs for the production of new models across all boat brands.

 
33
 

Marine Engine Segment

The following table sets forth Marine Engine segment results for the years ended December 31, 2008, 2007 and 2006:

                     
2008 vs. 2007
    
2007 vs. 2006
  
                     
Increase/(Decrease)
    
Increase/(Decrease)
  
(in millions)
  
2008
    
2007
    
2006
    
 $
      
%
    
 $
      
%
  
                                               
Net sales
    $ 1,955.9      $ 2,357.5      $ 2,271.3      $ (401.6 )     (17.0 )%    $ 86.2       3.8 %
Trade name impairment charges
    $ 4.5      $ —      $ —      $ 4.5    
NM 
      $ —       —  
Restructuring, exit and other impairment charges
    $ 29.4      $ 3.4      $ 9.5      $ 26.0    
NM 
     $ (6.1 )     (64.2 )%
Operating earnings
    $ 68.3      $ 183.7      $ 193.8      $ (115.4 )     (62.8 )%    $ (10.1 )     (5.2 )%
Operating margin
     3.5 %     7.8 %     8.5 %          
(430
)bpts          
(70
)bpts
Capital expenditures
    $ 21.7      $ 54.8      $ 72.5      $ (33.1 )     (60.4 )%    $ (17.7 )     (24.4 )%
__________

bpts = basis points
NM = not meaningful

2008 vs. 2007

Net sales recorded by the Marine Engine segment decreased compared with 2007 primarily due to the Company’s reduction in wholesale shipments in response to reduced marine retail demand in the United States. In addition to the weak retail demand in the United States, the contraction of liquidity in global credit markets in the second half of 2008 also led to lower net sales outside the United States in 2008.

As a result of its SFAS 142 review of goodwill and trade names, Brunswick incurred trade name charges within the Marine Engine segment during 2008. See Note 3 – Goodwill and Trade Name Impairments in the Notes to Consolidated Financial Statements for further details.

The restructuring, exit and other impairment charges recognized during 2008 are primarily related to severance charges and other restructuring activities initiated in 2008 and include $19.3 million of gains recognized on the sales of non-strategic assets. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

Marine Engine segment operating earnings decreased in 2008 as a result of lower sales volumes; restructuring, exit and other impairment charges associated with the Company’s initiatives to reduce costs across all business units; and trade name impairment charges. Additionally, lower fixed-cost absorption and an increased concentration of sales in lower-margin products contributed to the decline in operating earnings. This decrease was partially offset by the savings from successful cost-reduction initiatives and lower variable compensation expense.

Capital expenditures in 2008 and 2007 were primarily related to the continued investments in new products, but were lower during 2008 as a result of discretionary capital spending constraints.

 
34
 

2007 vs. 2006

Net sales recorded by the Marine Engine segment increased compared with 2006. The increase was the result of sales growth outside the United States across all major regions, volume increases in the low horsepower four-stroke engines manufactured by a joint venture, the favorable effect of foreign currency translation and higher engine pricing. This increase was partially offset by a slight decline in sales within the United States.

Marine Engine segment operating earnings decreased in 2007 as a result of increases in raw materials costs and other inflationary effects, concentration of sales in lower margin products, higher variable compensation expense, costs related to inventory adjustments, an adverse settlement related to a patent infringement lawsuit and the absence of a favorable settlement with an insurance carrier on environmental coverage received in 2006. This decrease was partially offset by the impact of increased net sales outside the United States, the favorable effect of foreign currency translation, increased manufacturing efficiencies in outboard engine manufacturing, favorable warranty experience in 2007 and reduced promotional incentives.

The decrease in capital expenditures was primarily attributable to investments in 2006 associated with the completion of a second four-stroke outboard production line, plant expansions for die cast operations and investments in information technology.

 
35
 

Fitness Segment

The following table sets forth Fitness segment results for the years ended December 31, 2008, 2007 and 2006:

                     
2008 vs. 2007
    
2007 vs. 2006
  
                     
Increase/(Decrease)
    
Increase/(Decrease)
  
(in millions)
  
2008
    
2007
    
2006
    
  $
      
%
    
 $
       %  
                                               
Net sales
    $ 639.5      $ 653.7      $ 593.1      $ (14.2 )     (2.2 )%    $ 60.6       10.2 %
Restructuring, exit and other impairment charges
    $ 3.3      $ —      $ —      $ 3.3    
NM 
     $ —       —  
Operating earnings
    $ 52.2      $ 59.7      $ 57.8      $ (7.5 )     (12.6 )%    $ 1.9       3.3 %
Operating margin
     8.2 %     9.1 %     9.7 %          
(90
)bpts          
(60
)bpts
Capital expenditures
    $ 4.5      $ 11.8      $ 11.0      $ (7.3 )     (61.9 ) %    $ 0.8       7.3 %
__________

bpts = basis points
NM = not meaningful

2008 vs. 2007

The decrease in Fitness segment net sales was largely attributable to volume declines in consumer equipment sales in the United States, as individuals continue to defer purchasing discretionary items. Competitive pricing pressures in global markets also contributed to the sales decline in 2008. These decreases were partially offset by sales of the recently introduced Elevation line of new cardiovascular products.

The restructuring, exit and other impairment charges recognized during 2008 are related to write-downs of non-strategic assets and severance charges. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

The Fitness segment operating earnings were adversely affected by lower sales of consumer equipment in the United States, competitive pricing pressures, increases in raw material and fuel costs and the implementation of various restructuring activities. Operating earnings benefited from successful cost-reduction initiatives and lower variable compensation expense.

2008 capital expenditures were primarily related to tooling for new products, but were lower during 2008 as a result of the substantial completion of the Elevation series of cardiovascular equipment in early 2008.

2007 vs. 2006

The increase in Fitness segment net sales was largely attributable to commercial equipment sales growth in the United States and Europe, as health clubs continued to expand, as well as consumer equipment sales growth in Europe. Additionally, favorable foreign currency translation led to higher sales in 2007 as compared with 2006. The sales growth in 2007 was partially offset by competitive pricing pressures in markets outside the United States.

The Fitness segment operating earnings benefited from sales volume growth in commercial products, higher contributions from the resale of certified pre-owned fitness equipment in Europe and a decline in United States freight and installation costs. These benefits were partially offset by a mix shift in sales toward lower margin products in the United States and Europe, the unfavorable effect of inflation on wages and benefits, higher research and development and marketing costs related to the launch of new cardiovascular products and higher product warranty costs.

2007 capital expenditures were related to continued investments in a new line of cardiovascular products while capital expenditures in 2006 were primarily related to investment in an engineering research and development facility.

 
36
 

Bowling & Billiards Segment

The following table sets forth Bowling & Billiards segment results for the years ended December 31, 2008, 2007 and 2006:

                     
2008 vs. 2007
    
2007 vs. 2006
  
                     
Increase/(Decrease)
    
Increase/(Decrease)
  
(in millions)
  
2008
    
2007
    
2006
    
 $
      
%
    
 $
      
%
  
                                               
Net sales
    $ 448.3      $ 446.9      $ 458.3      $ 1.4       0.3 %    $ (11.4 )     (2.5 )%
Goodwill impairment charges
    $ 14.4      $ –      $ –      $ 14.4    
NM 
     $ –       –  
Trade name impairment charges
    $ 8.5      $ –      $ –      $ 8.5    
NM 
     $ –       –  
Restructuring, exit and other impairment charges
    $ 21.7      $ 2.8      $ 2.7      $ 18.9    
NM 
     $ 0.1       3.7 %
Operating earnings
    $ (12.7 )    $ 16.5      $ 22.1      $ (29.2 )  
NM 
     $ (5.6 )     (25.3 )%
Operating margin
     (2.8 )%     3.7 %     4.8 %          
(650)
 bpts          
(110)