BRUNSWICK CORP (BC)

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

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

Certain statements in Management's Discussion and Analysis are based on non-GAAP financial measures. GAAP refers to generally accepted accounting principles in the United States. A "non-GAAP financial measure" is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the consolidated statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. For example, the discussion of our cash flows includes an analysis of free cash flows and total liquidity; the discussion of our net sales includes net sales on a constant currency basis; and the discussion of our earnings includes a presentation of operating earnings and operating margin excluding restructuring, exit and impairment charges, purchase accounting amortization, acquisition, integration, and IT related costs, Supplier bankruptcy expenses and other applicable charges, and of diluted earnings per common share, As Adjusted. Supplier bankruptcy expenses include additional expenses incurred, in excess of normal inventory costs, to purchase inventory from a key supplier that filed for bankruptcy. Non-GAAP financial measures do not include operating and statistical measures.

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

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

Known Trends or Uncertainties

We continue to monitor macroeconomic trends and uncertainties such as recently implemented tariffs along with the potential for new or modified tariffs, and related impacts to consumers, any or all of which could have a material impact on our business, financial condition and results of operations.

On February 20, 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were not authorized by the statute. The Company was previously subject to such tariffs under IEEPA. During the three months ended July 4, 2026, the Company submitted claims within the Consolidated Administration and Processing of Entries ("CAPE") system for processing tariff refunds and were subsequently accepted during the quarter totaling $34.3 million. These accepted claims for the recovery of IEEPA tariffs were deemed probable under the loss recovery model as of July 4, 2026. The Company recognized a reduction in Cost of sales of $30.4 million within the Condensed Consolidated Statements of Comprehensive Income. Additionally, $3.9 million of that tariff receivable is a reduction to inventory for certain tariff costs that were still capitalized within inventory. As of July 4, 2026, the total $30.9 million outstanding IEEPA tariff receivables are reflected within Prepaid expenses and other on the Condensed Consolidated Balance Sheets. Although the Company has assessed the recovery of these previously paid IEEPA tariffs is probable based on currently available information, the timing of cash receipts remains dependent upon the processing of refund claims by the CBP and U.S. Department of Treasury.

During the quarter ended July 4, 2026, the Company did not recognize a tariff refund receivable for those claims that were not accepted within the CAPE system or not yet submitted. In total, the Company expects to receive $60 million - $70 million of total IEEPA tariff refunds.

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Overview

Net sales increased 7.7% during the second quarter of 2026 compared with the second quarter of 2025. Sales growth reflected steady OEM orders, continued strong P&A and aftermarket performance driven by healthy boating participation, pricing taken in previous periods, and improved mix. Adjusted operating earnings and margins increased as the benefits of the higher sales, favorable mix, and strong operating execution, in addition to IEEPA refunds, more than offset inflationary pressures, increased variable compensation, incremental tariffs, and accelerated product development investment. The Propulsion segment delivered sales growth resulting primarily from healthy OEM orders, steady market share, and pricing actions taken in recent quarters. Strong boater participation and continued distribution gains drove higher sales and margin for Engine P&A segment. Navico Group segment reported sales growth over the prior year quarter as growth across all business lines was supported by improving OEM demand, steady aftermarket performance, and improved operational efficiency. Finally, Boat segment grew both sales and margin, benefiting from increased focus on premium and core brands, pricing actions, operational efficiencies, and continued growth in Freedom Boat Club. Freedom Boat Club increased trips and improved same store sales. Our international net sales increased 11 percent on a GAAP basis and increased 7 percent on a constant currency basis in the second quarter.

Operating earnings in the second quarter of 2026 were $129.4 million and $150.1 million on a GAAP and As Adjusted basis, respectively. This compares to operating earnings during the second quarter of 2025 of $103.3 million and $126.0 million on a GAAP and As Adjusted basis, respectively. Adjusted operating earnings increased due to increased sales, favorable mix, pricing, improved absorption, disciplined cost management and IEEPA refunds more than offsetting the impact of incremental tariffs implemented after the first quarter of 2025, variable compensation, and accelerated product development investment.

Operating earnings in the first half of 2026 were $179.7 million and $232.7 million on a GAAP and As Adjusted basis, respectively. This compares to operating earnings during the first half of 2025 of $159.6 million and $198.1 million on a GAAP and As Adjusted basis, respectively. Operating earnings were up versus the first half of 2025 due to increased sales and the same factors described above.

Matters Affecting Comparability

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

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

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Results of Operations

Consolidated

The following table sets forth certain amounts, ratios, and relationships calculated from the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended:

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

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

Certain statements in Management's Discussion and Analysis are based on non-GAAP financial measures. GAAP refers to generally accepted accounting principles in the United States. A "non-GAAP financial measure" is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the consolidated statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. For example, the discussion of our cash flows includes an analysis of free cash flows and total liquidity; the discussion of our net sales includes net sales on a constant currency basis; the discussion of our net sales includes net sales excluding acquisitions; and the discussion of our earnings includes a presentation of operating earnings and operating margin excluding restructuring, exit and impairment charges, purchase accounting amortization, acquisition, integration, and IT related costs, IT security incident costs and other applicable charges and of diluted earnings per common share, as adjusted. Non-GAAP financial measures do not include operating and statistical measures.

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

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

For a discussion of Brunswick's consolidated results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, refer to Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 14, 2025.

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IT Security Incident

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

Acquisitions

On September 12, 2024, we acquired additional Freedom Boat Club franchise operations and territories in Southeast Florida for net cash consideration of $31.3 million. Refer to Note 4 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

Matters Affecting Comparability

Changes in Foreign Currency Rates. Percentage changes in net sales expressed in constant currency reflect the impact that changes in currency exchange rates had on comparisons of net sales. To determine this information, net sales transacted in currencies other than the U.S. dollar have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period. The percentage change in net sales expressed on a constant currency basis better reflects the changes in the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Approximately 26 percent of our annual net sales are transacted in a currency other than the U.S. dollar. Our most material exposures include sales in Euros, Canadian dollars, Australian dollars and Brazilian real.

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

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Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Operations for 2025 and 2024:

NM = not meaningful

bps = basis points

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

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The following is a reconciliation of our non-GAAP measures, adjusted operating earnings and adjusted diluted earnings per common share from continuing operations for 2025 and 2024:

(A) Special tax items during the year ended December 31, 2025 primarily relates to the discrete income tax benefit associated with goodwill impairment and 2024 tax return to provision adjustments. Special tax items during the year ended December 31, 2024 primarily relate to the discrete income tax expense recorded associated with an increase in the state valuation allowance and the discrete income tax benefit associated with goodwill impairment.

2025 vs. 2024

Net sales increased 2.4 percent during 2025 when compared with 2024. The components of the consolidated net sales change were as follows:

Sales in 2025 increased compared to the prior year resulting from improved second-half market conditions and resulting stronger wholesale orders together with strong P&A and after market performance that helped overcome the impacts of the challenging first-half retail environment. Refer to the Propulsion, Engine P&A, Navico Group and Boat segments for further details on the drivers of net sales changes.

Gross margin decreased 100 basis points in 2025 when compared with 2024 driven by material inflation including tariffs (250 bps), partially offset by an increase in sales (120 bps), favorable currency exchange-rate fluctuations (20 bps), and higher absorption (10 bps).

Selling, general and administrative expenses as a percentage of net sales increased 160 basis points during 2025 when compared with the same prior year period, primarily due to the reinstatement of variable compensation (194 bps), which was partially offset by higher sales (34 bps). Research and development expense remained flat during 2025 versus 2024.

During 2025, we recorded restructuring, exit and impairment charges of $353.1 million compared with $121.7 million in 2024. Restructuring, exit and impairment charges include $322.5 million and $85.0 million of Navico Group

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