Edgar Filing: BRUNSWICK CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

form_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2009



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-1043

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, including zip code)

(847) 735-4700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of August 4, 2009, was 88,262,435.

BRUNSWICK CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

July 4, 2009

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

	Consolidated Statements of Operations for the three months and six months ended July 4, 2009 (unaudited), and June 28, 2008 (unaudited)	1

	Condensed Consolidated Balance Sheets as of July 4, 2009 (unaudited), December 31, 2008, and June 28, 2008 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the six months ended July 4, 2009 (unaudited), and June 28, 2008 (unaudited)	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44


PART II – OTHER INFORMATION

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 4.	Submission of Matters to a Vote of Security Holders	53

Item 6.	Exhibits	54

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

BRUNSWICK CORPORATION

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
(in millions, except per share data)	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008

Net sales	$	718.3		$	1,485.4		$	1,453.0		$	2,832.2
Cost of sales		644.3			1,182.0			1,287.8			2,259.2
Selling, general and administrative expense		162.6			205.5			317.8			408.7
Research and development expense		21.3			32.0			45.2			65.9
Restructuring, exit and impairment charges		35.5			83.1			75.1			105.3
Operating loss		(145.4	)		(17.2	)		(272.9	)		(6.9	)
Equity earnings (loss)		(4.1	)		6.3			(7.3	)		11.1
Investment sale gain		–			1.2			–			20.9
Other income (expense), net		(0.2	)		0.8			(1.6	)		1.9
Earnings (loss) before interest and income taxes		(149.7	)		(8.9	)		(281.8	)		27.0
Interest expense		(18.3	)		(11.4	)		(36.5	)		(22.9	)
Interest income		1.0			1.5			1.5			2.9
Earnings (loss) before income taxes		(167.0	)		(18.8	)		(316.8	)		7.0
Income tax provision (benefit)		(3.3	)		(12.8	)		31.1			(0.3	)
Net earnings (loss)	$	(163.7	)	$	(6.0	)	$	(347.9	)	$	7.3

Earnings (loss) per common share:
Basic	$	(1.85	)	$	(0.07	)	$	(3.94	)	$	0.08
Diluted	$	(1.85	)	$	(0.07	)	$	(3.94	)	$	0.08

Weighted average shares used for computation of:
Basic earnings (loss) per common share		88.4			88.3			88.4			88.3
Diluted earnings (loss) per common share		88.4			88.3			88.4			88.4


The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

	July 4,			December 31,			June 28,
(in millions)	2009			2008			2008
	(unaudited)						(unaudited)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates market	$	461.2		$	317.5		$	392.8
Accounts and notes receivable, less allowances of $58.0, $41.7 and $38.1		405.5			444.8			604.8
Inventories
Finished goods		299.0			457.7			471.0
Work-in-process		201.1			248.2			311.6
Raw materials		79.9			105.8			139.7
Net inventories		580.0			811.7			922.3
Deferred income taxes		16.4			103.2			242.6
Prepaid expenses and other		33.5			59.7			44.8
Current assets		1,496.6			1,736.9			2,207.3

Property
Land		105.9			107.1			108.0
Buildings and improvements		685.1			683.8			703.1
Equipment		1,133.7			1,156.6			1,210.3
Total land, buildings and improvements and equipment		1,924.7			1,947.5			2,021.4
Accumulated depreciation		(1,196.5	)		(1,155.4	)		(1,161.9	)
Net land, buildings and improvements and equipment		728.2			792.1			859.5
Unamortized product tooling costs		108.4			125.5			142.4
Net property		836.6			917.6			1,001.9

Other assets
Goodwill		291.1			290.9			677.3
Other intangibles, net		81.5			86.6			213.1
Investments		62.2			75.4			103.1
Other long-term assets		106.4			116.5			142.4
Other assets		541.2			569.4			1,135.9

Total assets	$	2,874.4		$	3,223.9		$	4,345.1


The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

	July 4,			December 31,			June 28,
(in millions, except share data)	2009			2008			2008
	(unaudited)						(unaudited)
Liabilities and shareholders’ equity
Current liabilities
Short-term debt, including current maturities of long-term debt	$	82.4		$	3.2		$	0.8
Accounts payable		222.7			301.3			421.6
Accrued expenses		652.4			696.7			836.8
Current liabilities		957.5			1,001.2			1,259.2

Long-term liabilities
Debt		727.8			728.5			726.9
Deferred income taxes		52.5			25.0			3.2
Postretirement and postemployment benefits		516.8			528.3			194.5
Other		199.0			211.0			236.1
Long-term liabilities		1,496.1			1,492.8			1,160.7

Shareholders’ equity
Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares		76.9			76.9			76.9
Additional paid-in capital		406.7			412.3			412.1
Retained earnings		748.0			1,095.9			1,895.7
Treasury stock, at cost:
14,321,000; 14,793,000 and 14,937,000 shares		(414.1	)		(422.9	)		(425.9	)
Accumulated other comprehensive loss, net of tax		(396.7	)		(432.3	)		(33.6	)
Shareholders’ equity		420.8			729.9			1,925.2

Total liabilities and shareholders’ equity	$	2,874.4		$	3,223.9		$	4,345.1


The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
(in millions)	July 4, 2009			June 28, 2008

Cash flows from operating activities
Net earnings (loss)	$	(347.9	)	$	7.3
Depreciation and amortization		80.6			90.5
Pension		42.3			3.3
Deferred income taxes		31.4			(22.5	)
Provision for doubtful accounts		26.9			13.0
Impairment charges		14.4			52.8
Changes in certain current assets and current liabilities		214.4			(104.5	)
Repurchase of accounts receivable - Note 11		(84.2	)		–
Income taxes		78.5			23.7
Other, net		11.7			(1.0	)
Net cash provided by operating activities		68.1			62.6

Cash flows from investing activities
Capital expenditures		(13.7	)		(58.0	)
Investments		5.4			13.0
Proceeds from investment sale		–			40.4
Proceeds from the sale of property, plant and equipment		5.4			3.4
Other, net		(0.2	)		0.2
Net cash used for investing activities		(3.1	)		(1.0	)

Cash flows from financing activities
Net issuances of short-term debt		5.5			0.3
Net proceeds from asset–based lending facility - Note 14		73.9			–
Payments of long-term debt including current maturities		(0.7	)		(0.5	)
Net cash provided by (used for) financing activities		78.7			(0.2	)

Net increase in cash and cash equivalents		143.7			61.4
Cash and cash equivalents at beginning of period		317.5			331.4

Cash and cash equivalents at end of period	$	461.2		$	392.8


The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

Note 1 – Significant Accounting Policies

Interim Financial Statements. The unaudited interim consolidated financial statements of Brunswick Corporation (Brunswick or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain previously reported amounts have been reclassified to conform to the current period presentation.

These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Brunswick’s 2008 Annual Report on Form 10-K (the 2008 Form 10-K). These interim results include, in the opinion of management, all normal and recurring adjustments necessary to present fairly the financial position of Brunswick as of July 4, 2009, December 31, 2008, and June 28, 2008, the results of operations for the three months and six months ended July 4, 2009, and June 28, 2008, and the cash flows for the six months ended July 4, 2009, and June 28, 2008. Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks and ending on the Saturday closest to the end of that thirteen-week period. The first two quarters of fiscal year 2009 ended on April 4, 2009, and July 4, 2009, and the first two quarters of fiscal year 2008 ended on March 29, 2008, and June 28, 2008.

Recent Accounting Pronouncements. In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141(R), “Business Combinations” (SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the business combination. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition, but will impact future acquisitions.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The adoption of this statement resulted in the Company expanding its disclosures relative to its derivative instruments and hedging activity, as reflected in Note 3 – Financial Instruments.

In December 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact that the adoption of FSP FAS 132(R)-1 may have on the Company’s consolidated financial statements.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” (FSP EITF 03-6-1). FSP EITF 03-6-1 requires that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and requires that all prior period earnings per share data presented be adjusted retrospectively to conform to its provisions. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 change the method for determining whether an other-than-temporary impairment exists for debt securities and the amount of the impairment to be recorded in earnings. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009. The adoption of these statements did not have a material impact on the Company’s consolidated results of operations and financial condition.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 requires fair value disclosures in both interim as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009. The Company presented the required disclosures beginning with its second quarter ending on July 4, 2009.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective prospectively for interim and annual periods ending after June 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition as management followed a similar approach prior to the adoption of this standard. See Note 15 – Subsequent Events for further discussion.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets” (SFAS 166). SFAS 166 amends the derecognition guidance in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No. 140). SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact that the adoption of SFAS 166 may have on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167). SFAS 167 amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact that the adoption of SFAS 167 may have on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (SFAS 168). SFAS 168 stipulates the FASB Accounting Standards Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. The Company is currently evaluating the impact that the adoption of SFAS 168 may have on the disclosures included in the Company’s consolidated financial statements.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

Note 2 – 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 Company’s markets have continued to decline, the Company expanded its restructuring activities across all business segments during 2007, 2008 and 2009 in order to improve performance and better position the Company for current market conditions and longer-term growth. These initiatives have resulted in the recognition of restructuring, exit and other impairment charges in the Statement of Operations during 2008 and 2009.

The actions taken under these initiatives are expected to benefit future operations by removing fixed costs in excess of $100 million from Cost of sales and in excess of $300 million from Selling, general and administrative expense in the Consolidated Statements of Operations in 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 expects savings to be realized through 2009.

The costs incurred under these initiatives include:

Restructuring Activities – These amounts primarily relate to:

·	Employee termination and other benefits

·	Costs to retain and relocate employees

·	Consulting costs

·	Consolidation of manufacturing footprint

Exit Activities – These amounts primarily relate to:

·	Employee termination and other benefits

·	Lease exit costs

·	Inventory write-downs

·	Facility shutdown costs

Asset Disposition Actions – These amounts primarily relate to sales of assets and definite-lived asset impairments on:

·	Fixed assets

Tooling

·	Patents and proprietary technology

·	Dealer networks

Impairments of definite-lived assets are recognized when, as a result of the restructuring activities initiated, the carrying amount of the long-lived asset is not expected to be fully recoverable, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The impairments recognized were equal to the difference between the carrying amount of the asset and the fair value of the asset, which was determined using observable inputs when available, and when observable inputs were not available, based on the Company’s assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Specifically, the Company used discounted cash flows to determine the fair value of the asset when observable inputs were unavailable.

The Company has reported restructuring and exit activities based on the specific driver of the cost and reflected the expense in the accounting period when the cost has been committed or incurred, in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The Company considers actions related to the sale of certain Baja boat business assets, the closure of its bowling pin manufacturing facility, the sale of the Valley-Dynamo business and the divestiture of MotoTron, a designer and supplier of engine control and vehicle networking systems, to be exit activities. All other actions taken are considered to be restructuring activities.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The following table is a summary of the expense associated with the restructuring, exit and impairment activities for the three months and six months ended July 4, 2009, and June 28, 2008. The 2009 charge consists of expenses related to actions initiated in both 2009 and 2008:

	Three Months Ended				Six Months Ended
(in millions)	July 4, 2009		June 28, 2008		July 4, 2009		June 28, 2008

Restructuring activities:
Employee termination and other benefits	$	10.2	$	9.4	$	29.6	$	12.2
Current asset write-downs		0.8		2.0		3.4		2.4
Transformation and other costs:
Consolidation of manufacturing footprint		7.2		12.8		19.6		16.7
Retention and relocation costs		—		4.4		0.1		5.1
Consulting costs		—		1.6		0.3		2.0
Exit activities:
Employee termination and other benefits		0.3		1.1		0.4		2.7
Current asset write-downs		0.5		4.1		1.1		7.2
Transformation and other costs:
Consolidation of manufacturing footprint		5.9		3.3		6.6		4.2
Asset disposition actions:
Definite-lived asset impairments		10.6		44.4		14.0		52.8

Total restructuring, exit and impairment charges	$	35.5	$	83.1	$	75.1	$	105.3

The Company anticipates that it will incur approximately $20 million of additional costs, which are predominantly cash items, through the remainder of 2009 related to the 2009 and 2008 restructuring initiatives; however, more significant reductions in demand for the Company’s products may necessitate additional restructuring or exit charges in 2009. The Company expects most of the $20 million in charges will be incurred in the Boat and Marine Engine segments. Net cash payments related to 2009 and 2008 restructuring and exit activities were $60.9 million in the first six months of 2009. There are no further anticipated charges related to the restructuring activities initiated in 2007.

Actions Initiated in 2009

During 2009, the Company continued its restructuring activities by reducing the Company’s global workforce, consolidating manufacturing operations and disposing of non-strategic assets.

The restructuring, exit and impairment charges taken during 2009, related to actions initiated in 2009, for each of the Company’s reportable segments are summarized below:

	Three Months Ended		Six Months Ended
(in millions)	July 4, 2009		July 4, 2009

Marine Engine	$	9.2	$	18.9
Boat		12.2		18.6
Fitness		0.2		1.2
Bowling & Billiards		0.4		0.5
Corporate		1.7		2.4

Total	$	23.7	$	41.6

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The following is a summary of the charges by category associated with the 2009 restructuring activities:

(in millions)	Three Months Ended July 4, 2009		Six Months Ended July 4, 2009

Restructuring activities:
Employee termination and other benefits	$	8.9	$	21.8
Current asset write-downs		0.7		1.0
Transformation and other costs:
Consolidation of manufacturing footprint		2.7		5.5
Retention and relocation costs		—		0.1
Consulting costs		—		0.3
Exit activities:
Transformation and other costs:
Consolidation of manufacturing footprint		3.6		3.6
Asset disposition actions:
Definite-lived asset impairments		7.8		9.3

Total restructuring, exit and impairment charges	$	23.7	$	41.6

The restructuring, exit and impairment charges related to actions initiated in 2009 for each of the Company’s reportable segments for the six months ended July 4, 2009, are summarized below:

(in millions)	Marine Engine		Boat		Fitness		Bowling & Billiards		Corporate		Total

Employee terminations and other benefits	$	10.2	$	7.8	$	1.2	$	0.5	$	2.1	$	21.8
Current asset write-downs		0.3		0.7		—		—		—		1.0
Transformation and other costs		8.2		1.0		—		—		0.3		9.5
Asset disposition actions		0.2		9.1		—		—		—		9.3

Total restructuring, exit and impairment charges	$	18.9	$	18.6	$	1.2	$	0.5	$	2.4	$	41.6

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The following table summarizes the 2009 charges taken for restructuring, exit and other impairment charges related to actions initiated in 2009. The accrued amounts remaining as of July 4, 2009, represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2009 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets.

(in millions)	Costs Recognized in 2009		Non-cash Charges			Net Cash Payments			Accrued Costs as of July 4, 2009

Employee termination and other benefits	$	21.8	$	—		$	(11.9	)	$	9.9
Current asset write-downs		1.0		(1.0	)		—			—
Transformation and other costs:
Consolidation of manufacturing footprint		9.1		(6.8	)		(2.3	)		—
Retention and relocation costs		0.1		—			(0.1	)		—
Consulting costs		0.3		—			(0.3	)		—
Asset disposition actions:
Definite-lived asset impairments		9.3		(9.3	)		—			—

Total restructuring, exit and impairment charges	$	41.6	$	(17.1	)	$	(14.6	)	$	9.9

The Company anticipates that it will incur approximately $15 million of additional costs related to announced restructuring activities that will be initiated during 2009. The Company expects most of these charges will be incurred in the Boat and Marine Engine segments. More significant reductions in demand for the Company’s products may necessitate additional restructuring, exit or impairment charges in 2009. The Company is currently considering alternatives to consolidate its domestic engine manufacturing footprint with the objective of reducing the variable and fixed manufacturing cost structure, as well as the related selling, general and administrative expenses. The potential cash requirements and impacts associated with these actions have not been considered in the Company’s forecasted restructuring, exit and impairment charges.

Actions initiated in 2008

During the first quarter of 2008, the Company incurred charges related to its restructuring and exit activities by closing its bowling pin manufacturing facility in Antigo, Wisconsin, and announcing that it would close its boat plant in Bucyrus, Ohio, in anticipation of the sale of certain assets relating to its Baja boat business, cease boat manufacturing at one of its facilities in Merritt Island, Florida, and close its Swansboro, North Carolina boat plant.

The Company announced additional actions in June 2008 as a result of the prolonged downturn in the U.S. marine market. The plan was designed to improve performance and better position the Company for market conditions and longer-term growth. The plan was anticipated to result in significant changes in the Company’s organizational structure, most notably by reducing the complexity of its operations and further shrinking its North American manufacturing footprint. Specifically, the Company announced: the closure 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; its intention to close four additional boat plants; and the write-down of certain assets of the Valley-Dynamo business.

During the third quarter of 2008, the Company accelerated its previously announced efforts to resize the Company in light of extraordinary developments within global financial markets that are affecting the recreational marine industry. Specifically, the Company closed its production facilities in Cumberland, Maryland; Pipestone, Minnesota; Roseburg, Oregon; and Arlington, Washington. The Company also decided to mothball its plant in Navassa, North Carolina. The Company completed the Arlington, Cumberland, Roseburg and Navassa shutdowns in the fourth quarter of 2008, and the Pipestone facility shutdown in the first quarter of 2009.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The company has incurred a total of $210.8 million in restructuring, exit and impairment charges life-to-date related to the 2008 initiatives. The $210.8 million consists of $34.8 million in the Marine Engine segment, $123.0 million in the Boat segment, $25.2 million in the Bowling and Billiards Segment, $3.3 million in the Fitness segment and $24.5 million in Corporate.

The restructuring, exit and impairment charges by reportable segment related to 2008 initiatives for the three and six month periods in 2009 and 2008 are summarized below.

	Three Months Ended				Six Months Ended
(in millions)	July 4, 2009		June 28, 2008		July 4, 2009		June 28, 2008

Marine Engine	$	0.4	$	17.6	$	2.4	$	19.1
Boat		5.7		37.6		24.3		51.4
Fitness		—		1.3		—		1.3
Bowling & Billiards		2.8		19.8		3.5		25.4
Corporate		2.9		6.8		3.3		8.1

Total	$	11.8	$	83.1	$	33.5	$	105.3

The following is a summary of the total expense by category associated with the 2008 restructuring initiatives recognized during 2009:

	Three Months Ended		Six Months Ended
(in millions)	July 4, 2009		July 4, 2009

Restructuring activities:
Employee termination and other benefits	$	1.3	$	7.8
Current asset write-downs		0.1		2.4
Transformation and other costs:
Consolidation of manufacturing footprint		4.5		14.1
Exit activities:
Employee termination and other benefits		0.3		0.4
Current asset write-downs		0.5		1.1
Transformation and other costs:
Consolidation of manufacturing footprint		2.3		3.0
Asset disposition actions:
Definite-lived asset impairments		2.8		4.7

Total restructuring, exit and impairment charges	$	11.8	$	33.5

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The restructuring, exit and impairment charges for actions initiated in 2008 for each of the Company’s reportable segments for the six months ended July 4, 2009, are summarized below:

(in millions)	Marine Engine		Boat		Bowling & Billiards		Corporate		Total

Employee terminations and other benefits	$	0.9	$	6.3	$	0.6	$	0.4	$	8.2
Current asset write-downs		0.7		1.7		1.1		—		3.5
Transformation and other costs		0.8		14.4		1.8		0.1		17.1
Asset disposition actions		—		1.9		—		2.8		4.7

Total restructuring, exit and impairment charges	$	2.4	$	24.3	$	3.5	$	3.3	$	33.5

The following table summarizes the 2009 charges taken for restructuring, exit and other impairment charges related to actions initiated in 2008. The accrued amounts remaining as of July 4, 2009, represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2009 and is included in Accrued expenses in the Consolidated Balance Sheets.

(in millions)	Accrued Costs as of Jan. 1, 2009		Costs Recognized in 2009		Non-cash Charges			Net Cash Payments			Accrued Costs as of July 4, 2009

Employee termination and other benefits	$	17.0	$	8.2	$	—		$	(20.6	)	$	4.6
Current asset write-downs		—		3.5		(3.5	)		—			—
Transformation and other costs:
Consolidation of manufacturing footprint		5.7		17.1		—			(20.4	)		2.4
Retention and relocation costs		0.8		—		—			(0.8	)		—
Consulting costs		4.5		—		—			(4.5	)		—
Asset disposition actions:
Definite-lived asset impairments		—		4.7		(4.7	)		—			—

Total restructuring, exit and impairment charges	$	28.0	$	33.5	$	(8.2	)	$	(46.3	)	$	7.0

The Company anticipates that it will incur approximately $5 million of additional costs related to the 2008 initiatives through the remainder of 2009, when the 2008 initiatives are expected to be complete. The Company expects most of these charges will be incurred in the Boat segment.

Note 3 – Financial Instruments

The Company operates globally, with manufacturing and sales facilities in various locations around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and market risks. The Company utilizes normal operating and financing activities, along with derivative financial instruments to minimize these risks.

Derivative Financial Instruments. The Company uses derivative financial instruments to manage its risks associated with movements in foreign currency exchange rates, interest rates and commodity prices. Derivative instruments are not used for trading or speculative purposes. For certain derivative contracts, on the date a derivative contract is entered into, the Company designates the derivative as a hedge of a forecasted transaction (cash flow hedge). The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

This process includes linking derivatives that are designated as hedges to specific forecasted transactions. The Company also assesses, both at the inception and monthly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in the anticipated cash flows of the hedged item. There were no material adjustments to the results of operations as a result of ineffectiveness for the three and six months ended July 4, 2009, and June 28, 2008. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, gains and losses on the derivative are recorded in Cost of sales. The fair market value of derivative financial instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded. The effects of derivative and financial instruments are not expected to be material to the Company’s financial position or results of operations when considered together with the underlying exposure being hedged.

Fair Value Derivatives. During 2009 and 2008, the Company entered into foreign currency forward contracts to manage foreign currency exposure related to changes in the value of assets or liabilities caused by changes in the exchange rates of foreign currencies. The change in the fair value of the foreign currency derivative contract and the corresponding change in the fair value of the asset or liability of the Company are both recorded through earnings (loss), each month as incurred.

Cash Flow Derivatives. Certain derivative instruments qualify as cash flow hedges under the requirements of SFAS Nos. 133, “Accounting for Derivative Instruments and Hedging Activities,” and 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133.” The Company executes both forward and option contracts, based on forecasted transactions, to manage foreign exchange exposure mainly related to inventory purchase and sales transactions. The Company also enters into commodity swap agreements, based on anticipated purchases of aluminum and natural gas to manage exposure related to risk from price changes. In prior periods, the Company entered into forward starting interest rate swaps to hedge the interest rate risk associated with the anticipated issuance of debt.

A cash flow hedge requires that as changes in the fair value of derivatives occur, the portion of the change deemed to be effective is recorded temporarily in Accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of July 4, 2009, the term of derivative instruments hedging forecasted transactions ranged from one to 29 months.

Foreign Currency. The Company enters into forward and option contracts to manage foreign exchange exposure related to forecasted transactions, and assets and liabilities that are subject to risk from foreign currency rate changes. These include product costs; revenues and expenses; associated receivables and payables; intercompany obligations and receivables; and other related cash flows.

Forward exchange contracts outstanding at July 4, 2009, and December 31, 2008, had notional contract values of $89.3 million and $106.3 million, respectively. Option contracts outstanding at July 4, 2009, and December 31, 2008, had notional contract values of $36.4 million and $137.9 million, respectively. The forward and options contracts outstanding at July 4, 2009, mature during 2009 and 2010 and primarily relate to the Euro, Mexican peso, Canadian dollar, British pound, Japanese yen and Australian dollar. As of July 4, 2009, the Company estimates that during the next 12 months, it will reclassify approximately $3 million in net gains (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate. The Company has historically utilized fixed-to-floating interest rate swaps to mitigate the interest rate risk associated with its long-term debt. There were no fixed-to-floating interest rate swaps outstanding at July 4, 2009, and December 31, 2008. These instruments were treated as fair value hedges, with the offset to the fair market value recorded in long-term debt; see Note 14 to the consolidated financial statements in the 2008 Form 10-K for further details.

As of July 4, 2009, and December 31, 2008, the Company had $5.3 million and $5.7 million, respectively, of net deferred gains associated with all forward starting interest rate swaps included in Accumulated other comprehensive loss. These amounts include gains deferred on $250.0 million of forward starting interest rate swaps terminated in July 2006 and losses deferred on $150.0 million of notional value forward starting swaps, which were terminated in August 2008. There were no forward starting interest rate swaps outstanding at July 4, 2009. For the three months ended July 4, 2009, the Company recognized $0.1 million of net amortization gains related to all settled forward starting interest rate swaps.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum and natural gas. Commodity swap contracts outstanding at July 4, 2009, and December 31, 2008, had notional values of $25.5 million and $33.8 million, respectively. The contracts outstanding mature from 2009 to 2011. The amount of gain or loss is reclassified from Accumulated other comprehensive loss to Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of July 4, 2009, the Company estimates that during the next 12 months, it will reclassify approximately $7 million in net losses (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

As of July 4, 2009, the fair values of the Company’s derivative instruments were:

(in millions)
	Derivative Assets			Derivative Liabilities
Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Interest rate contracts	Prepaid Expenses and Other	$	—	Accrued Expenses	$	—
Foreign exchange contracts	Prepaid Expenses and Other		4.6	Accrued Expenses		3.3
Commodity contracts	Prepaid Expenses and Other		1.2	Accrued Expenses		4.8

Total		$	5.8		$	8.1

As of December 31, 2008, the fair values of the Company’s derivative instruments were:

(in millions)
	Derivative Assets			Derivative Liabilities
Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Interest rate contracts	Prepaid Expenses and Other	$	—	Accrued Expenses	$	—
Foreign exchange contracts	Prepaid Expenses and Other		14.3	Accrued Expenses		3.9
Commodity contracts	Prepaid Expenses and Other		—	Accrued Expenses		15.2

Total		$	14.3		$	19.1

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended July 4, 2009, was:

Cash Flow Hedge Instruments	Amount of Gain/(Loss) Recognized on Derivatives in Accumulated other comprehensive loss (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)

Interest rate contracts	$	—		Interest Income	$	0.2
Foreign exchange contracts		(4.3	)	Cost of Sales		4.7
Commodity contracts		2.3		Cost of Sales		(4.9	)

Total	$	(2.0	)		$	—

The effect of derivative instruments on the Consolidated Statement of Operations for the six months ended July 4, 2009, was:

Cash Flow Hedge Instruments	Amount of Gain/(Loss) Recognized on Derivatives in Accumulated other comprehensive loss (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)

Interest rate contracts	$	—		Interest Income	$	0.5
Foreign exchange contracts		(1.4	)	Cost of Sales		10.6
Commodity contracts		0.5		Cost of Sales		(8.7	)

Total	$	(0.9	)		$	2.4

Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents, accounts and notes receivable and short-term debt, approximate their fair values because of the short maturity of these instruments. At July 4, 2009, the fair value of the Company’s long-term debt was approximately $493 million as estimated using quoted market prices. The carrying value of long-term debt, including current maturities, was $728.8 million as of July 4, 2009.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

Note 4 – Fair Value Measurements

Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

·	Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

·	Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table summarizes Brunswick’s financial assets and liabilities measured at fair value on a recurring basis in accordance with SFAS 157 as of July 4, 2009:

(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash Equivalents	$	234.3	$	—	$	—	$	234.3
Investments		3.2		—		—		3.2
Derivatives		—		5.8		—		5.8
Total Assets	$	237.5	$	5.8	$	—	$	243.3

Liabilities:
Derivatives	$	—	$	8.1	$	—	$	8.1

Note 5 – Share-Based Compensation

Under the 2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock appreciation rights (SARs), nonvested stock and other types of share-based awards to executives and other management employees. Under the Plan, the Company may issue up to 13.1 million shares, consisting of treasury shares and authorized, but unissued shares of common stock. As of July 4, 2009, 3.7 million shares were available for grant. Prior to 2005, the Company primarily issued share-based compensation in the form of stock options and had not issued any SARs. Since the beginning of 2005, the Company has issued stock-settled SARs and has not issued any stock options.

SARs

During the three and six months ended July 4, 2009, there were 2.1 million and 2.9 million SARs granted, respectively. In the three and six months ended July 4, 2009, there was $2.3 million of total expense, after adjusting for forfeitures, due to amortization of SARs granted. During the three and six months ended June 28, 2008, there were 0.0 million and 2.6 million SARs granted, respectively. In the three and six months ended June 28, 2008, there was $2.4 million and $3.4 million of total expense, respectively, due to amortization of SARs granted.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The weighted average fair values of individual SARs granted were $2.99 and $5.71 during 2009 and 2008, respectively. The fair value of each grant was estimated on the date of grant using the Black-Scholes-Merton pricing model utilizing the following weighted average assumptions for 2009 and 2008:

	2009	2008

Risk-free interest rate	2.3%	2.9%
Dividend yield	1.9%	2.3%
Volatility factor	72.3%	40.1%
Weighted average expected life	5.7 – 6.3 years	5.4 – 6.2 years

Nonvested stock awards

No stock awards were granted during the first six months of 2009. During the three and six months ended July 4, 2009, $0.3 million and $0.1 million, respectively, were charged to compensation expense from the amortization of previous grants including the result of reversing the amortization of certain awards in the first quarter of 2009. During the three and six months ended June 28, 2008, 0.0 million and 0.9 million stock awards were granted, respectively. Compensation expense of $2.1 million and $2.8 million, respectively, was charged to compensation expense for the three and six month periods ended June 28, 2008. The amortization of nonvested stock award cost is recognized on a straight-line basis over the requisite service period.

As of July 4, 2009, there was $0.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 0.7 years.

Director Awards

The Company may issue stock awards to directors in accordance with the terms and conditions determined by the Nominating and Corporate Governance Committee of the Board of Directors. One-half of each director’s annual fee is paid in Brunswick common stock, the receipt of which may be deferred until a director retires from the Board of Directors. Each director may elect to have the remaining one-half paid either in cash, in Brunswick common stock distributed at the time of the award, or in deferred Brunswick common stock units with a 20 percent premium. Prior to May 2009, each non-employee director also received an annual grant of restricted stock units, which is deferred until the director retires from the Board.

Note 6 – Earnings (loss) per Common Share

The Company calculates earnings (loss) per common share in accordance with SFAS No. 128, "Earnings per Share." Basic earnings (loss) per common share is calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated similarly, except that the calculation includes the dilutive effect of stock options and nonvested stock awards.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

Basic and diluted earnings (loss) per share for the three and six months ended July 4, 2009, and for the comparable periods ended June 28, 2008, were calculated as follows:

	Three Months Ended						Six Months Ended
(in millions, except per share data)	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008

Net earnings (loss)	$	(163.7	)	$	(6.0	)	$	(347.9	)	$	7.3

Average outstanding shares – basic		88.4			88.3			88.4			88.3
Dilutive effect of common stock equivalents		–			–			–			0.1

Average outstanding shares – diluted		88.4			88.3			88.4			88.4

Basic earnings (loss) per share	$	(1.85	)	$	(0.07	)	$	(3.94	)	$	0.08

Diluted earnings (loss) per share	$	(1.85	)	$	(0.07	)	$	(3.94	)	$	0.08

As of July 4, 2009, there were 8.6 million options outstanding, of which 3.3 million were exercisable. This compares to 6.7 million options outstanding, of which 3.1 million were exercisable as of June 28, 2008. During the three and six months ended July 4, 2009, there were 6.6 million and 6.2 million weighted average shares of options outstanding, respectively, for which the exercise price, based on the average price, was higher than the average market price of the Company’s shares for the period then ended. These options were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. This compares to 6.7 million and 5.9 million anti-dilutive options that were excluded from the corresponding periods ended June 28, 2008. During the three and six months ended July 4, 2009, and the three months ended June 28, 2008, the Company incurred a net loss from continuing operations. As common stock equivalents have an anti-dilutive effect on the net loss, the equivalents were not included in the computation of diluted earnings per share for the three and six months ended July 4, 2009, and for the three months ended June 28, 2008.

Note 7 – Commitments and Contingencies

Financial Commitments

The Company has entered into guarantees of indebtedness of third parties, primarily in connection with customer financing programs. Under these arrangements, the Company has guaranteed customer obligations to the financial institutions in the event of customer default, generally subject to a maximum amount which is less than total obligations outstanding. The Company has also guaranteed payments to third parties that have purchased customer receivables from Brunswick and, in certain instances, has guaranteed secured term financing of its customers. Potential payments in connection with these customer financing arrangements would likely extend over several years. The potential cash payments associated with these customer financing arrangements as of July 4, 2009, and June 28, 2008, were:

	Single Year Obligation				Maximum Obligation
(in millions)	July 4, 2009		June 28, 2008		July 4, 2009		June 28, 2008

Marine Engine	$	6.5	$	31.7	$	6.5	$	31.7
Boat		3.1		2.9		3.1		2.9
Fitness		25.0		25.6		34.6		37.0
Bowling & Billiards		10.2		12.4		24.7		30.1

Total	$	44.8	$	72.6	$	68.9	$	101.7

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The reduction in potential obligations in the Marine Engine segment is a result of the Company’s discontinuance of its sale of receivable program in May of 2009. See Note 11 – Financial Services for further details.

In most instances, upon repurchase of the debt obligation, the Company receives rights to the collateral securing the financing. The Company’s risk under these arrangements is mitigated by the value of the collateral that secures the financing. The Company had $7.2 million accrued for potential losses related to recourse exposure at July 4, 2009.

The Company has also entered into arrangements with third-party lenders where it has agreed, in the event of a default by the customer, to repurchase from the third-party lender Brunswick products repossessed from the customer. These arrangements are typically subject to a maximum repurchase amount. The amount of collateral the Company could be required to purchase as of July 4, 2009, and June 28, 2008, was:

	Single Year Obligation				Maximum Obligation
(in millions)	July 4, 2009		June 28, 2008		July 4, 2009		June 28, 2008

Marine Engine	$	3.3	$	4.1	$	3.3	$	4.1
Boat		107.2		129.2		135.2		177.4
Bowling & Billiards		1.5		3.7		1.5		3.7

Total	$	112.0	$	137.0	$	140.0	$	185.2

The Company had $15.7 million accrued for potential losses related to repurchase exposure at July 4, 2009. The Company’s risk under these repurchase arrangements is mitigated by the value of the products repurchased as part of the transaction. The Company’s $15.7 million repurchase accrual represents the expected net losses on obligations to repurchase products, after giving effect to proceeds anticipated to be received from the resale of those products to alternative dealers.

Based on historical experience and current facts and circumstances, and in accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others – An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34,” the Company has recorded the fair value of its estimated net liability associated with losses from these guarantee and repurchase obligations on its Condensed Consolidated Balance Sheets. Historical cash requirements and losses associated with these obligations have not been significant, but could increase if dealer defaults increase as a result of the difficult market conditions.

Financial institutions have issued standby letters of credit and surety bonds conditionally guaranteeing obligations on behalf of the Company totaling $106.7 million as of July 4, 2009. A large portion of these standby letters of credit and surety bonds are related to the Company’s self-insured workers’ compensation program as required by its insurance companies and various state agencies. The Company has recorded reserves to cover liabilities associated with these programs. In addition, the Company has provided a letter of credit to GE Commercial Distribution Finance Corporation (GECDF) as a guarantee of the Company’s obligations to GECDF and affiliates under various agreements. Under certain circumstances, such as an event of default under the Company’s revolving credit facility, or, in the case of surety bonds, a ratings downgrade below investment grade, the Company could be required to post collateral to support the outstanding letters of credit and surety bonds. As the Company’s current long-term debt ratings are below investment grade, the Company has posted letters of credit totaling $11.5 million as collateral against $13.3 million of outstanding surety bonds.

Product Warranties

The Company records a liability for product warranties at the time revenue is recognized. The liability is estimated using historical warranty experience, projected claim rates and expected costs per claim. The Company adjusts its liability for specific warranty matters when they become known and the exposure can be estimated. The Company’s warranty reserves are affected by product failure rates as well as material usage and labor costs incurred in correcting a product failure. If these estimated costs differ from actual costs, a revision to the warranty reserve would be required.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The following activity related to product warranty liabilities was recorded in Accrued expenses and Long-term liabilities – Other during the six months ended July 4, 2009, and June 28, 2008:

	Six Months Ended
(in millions)	July 4, 2009			June 28, 2008

Balance at beginning of period	$	145.4		$	163.9
Payments		(45.9	)		(57.5	)
Provisions/additions for contracts issued/sold		37.5			56.0
Aggregate changes for preexisting warranties		0.8			–
Balance at end of period	$	137.8		$	162.4

Additionally, customers may purchase a contract from the Company that extends product protection beyond the standard product warranty period in our Marine Engine, Boat and Fitness segments. For certain extended warranty contracts in which the Company retains the warranty obligation, a deferred liability is recorded based on the aggregate sales price for contracts sold. The deferred liability is reduced and revenue is recognized over the contract period as costs are expected to be incurred. Deferred revenue associated with contracts sold by the Company that extend product protection beyond the standard product warranty period, not included in the table above, was $40.5 million as of July 4, 2009, and $40.9 million as of June 28, 2008.

Legal and Environmental

The Company accrues for litigation exposure based upon its assessment, made in consultation with counsel, of the likely range of exposure stemming from the claim. In light of existing reserves, the Company’s litigation claims, when finally resolved, will not, in the opinion of management, have a material adverse effect on the Company’s consolidated financial position. 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.

There were no significant changes to the legal and environmental commitments that were discussed in Note 11 to the consolidated financial statements in the 2008 Form 10-K.

Note 8 – Segment Data

Brunswick is a manufacturer and marketer of leading consumer brands, and operates in four reportable segments: Marine Engine, Boat, Fitness and Bowling & Billiards. The Company’s segments are defined by management reporting structure and operating activities.

During the first quarter of 2009, the Company realigned the management of its marine service, parts and accessories businesses. The Boat segment’s parts and accessories businesses of Attwood, Land ‘N’ Sea, Benrock, Kellogg Marine and Diversified Marine Products are now being managed by the Marine Engine segment’s service and parts business leaders. As a result, the marine service, parts and accessories operating results previously reported in the Boat segment are now being reported in the Marine Engine segment. Segment results have been restated for all periods presented to reflect the change in Brunswick’s reported segments.

The Company evaluates performance based on business segment operating earnings. Operating earnings of segments do not include the expenses of corporate administration, earnings from equity affiliates, other expenses and income of a non-operating nature, interest expense and income or provisions for income taxes.

Corporate/Other results include items such as corporate staff and overhead costs. Marine eliminations are eliminations between the Marine Engine and Boat segments for sales transactions consummated at established arm’s length transfer prices.

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The following table sets forth net sales and operating earnings (loss) of each of the Company’s reportable segments for the three months ended July 4, 2009, and June 28, 2008:

	Net Sales						Operating Earnings (Loss)
	Three Months Ended						Three Months Ended
(in millions)	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008

Marine Engine	$	415.2		$	723.6		$	(7.8	)	$	58.9
Boat		138.8			591.7			(107.9	)		(42.2	)
Marine eliminations		(18.1	)		(97.0	)		–			–
Total Marine		535.9			1,218.3			(115.7	)		16.7

Fitness		105.0			156.9			0.2			8.2
Bowling & Billiards		77.4			110.4			(5.9	)		(19.8	)
Corporate/Other		–			(0.2	)		(24.0	)		(22.3	)
Total	$	718.3		$	1,485.4		$	(145.4	)	$	(17.2	)

The following table sets forth net sales and operating earnings (loss) of each of the Company’s reportable segments for the six months ended July 4, 2009, and June 28, 2008:

	Net Sales						Operating Earnings (Loss)
	Six Months Ended						Six Months Ended
(in millions)	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008

Marine Engine	$	759.1		$	1,352.2		$	(58.4	)	$	92.5
Boat		344.1			1,157.3			(180.2	)		(59.6	)
Marine eliminations		(51.1	)		(207.2	)		–			–
Total Marine		1,052.1			2,302.3			(238.6	)		32.9

Fitness		223.6			306.1			0.5			16.3
Bowling & Billiards		177.3			224.0			4.7			(18.9	)
Eliminations		–			(0.2	)		–			–
Corporate/Other		–			–			(39.5	)		(37.2	)
Total	$	1,453.0		$	2,832.2		$	(272.9	)	$	(6.9	)

BRUNSWICK CORPORATION

Notes to Consolidated Financial Statements

(unaudited)

The following table sets forth total assets of each of the Company’s reportable segments:

	Total Assets
(in millions)	July 4, 2009		December 31, 2008

Marine Engine	$	781.3	$	874.0
Boat		622.2		794.0
Total Marine		1,403.5		1,668.0

Fitness		563.0		636.3
Bowling & Billiards		304.4		340.8
Corporate/Other		603.5		578.8
Total	$	2,874.4	$	3,223.9

Note 9 – Investments

The Company has certain unconsolidated international and domestic affiliates that are accounted for using the equity method. See Note 11 – Financial Services for more details on the Company’s joint venture, Brunswick Acceptance Company, LLC (BAC). Refer to Note 8 to the consolidated financial statements in the 2008 Form 10-K for further detail relating to the Company’s investments.

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. For the six months ended June 28, 2008, the sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was recorded in Investment sale gain in the Consolidated Statements of Operations. As a result of post-closing adjustments made during the second quarter of 2008, an additional $1.2 million pretax gain, $0.8 million after-tax, was recorded as an Investment sale gain in the Consolidated Statements of Operations.

Note 10 – Comprehensive Income

The Company reports certain changes in equity during a period in accordance with SFAS No. 130, “Reporting Comprehensive Income.” Accumulated other comprehensive loss includes prior service costs and net actuarial gains and losses for defined benefit plans; foreign currency cumulative translation adjustments; unrealized derivative gains and losses; and investment gains and losses, all net of tax. Components of other comprehensive income (loss) for the three months and six months ended July 4, 2009, and June 28, 2008, were as follows:

	Three Months Ended						Six Months Ended
(in millions)	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008

Net earnings (loss)	$	(163.7	)	$	(6.0	)	$	(347.9	)	$	7.3
Other comprehensive income:
Foreign currency cumulative translation adjustment		19.6			4.8			2.5			16.1
Net change in unrealized gains (losses) on investments		2.3			(1.1	)		2.5			(2.5	)
Net change in unamortized prior service cost		0.4			0.6			2.4			1.1
Net change in unamortized actuarial loss		13.0			0.4			30.0			1.1
Net change in accumulated unrealized derivative gains (losses)		(1.2	)		4.9			(1.8	)		3.3
Total other comprehensive income		34.1