BRUNSWICK CORP (BC) FY 2021 MD&A

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

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

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

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

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.

Impact of COVID-19

All of our global manufacturing and distribution facilities continue to focus on rigorously applying, evolving, and automating COVID-19 mitigation procedures, while continuing to increase global production to meet unprecedented demand as consumers continue to take advantage of flexible work schedules allowing for more leisure time. The strong demand environment for our products experienced during the second half of 2020 has continued through 2021. COVID-19 related shut-downs have affected operations during the year, such as the temporary closure of a key manufacturing and distribution facility in New Zealand. Despite elevated production levels consistent with our plan, the ongoing surge in retail demand, combined with market share gains and supply chain challenges, continues to drive historically low pipeline inventory levels, with pipeline inventory for our boat segment's dealers down to just over 15 weeks on hand as of the end of the year.

We will continue to actively monitor the impact of COVID-19 and may take further actions that alter business operations as legally required or that we determine are in the best interests of our employees, customers, dealers, suppliers, and other stakeholders. The full extent of the impact of COVID-19 on our business, operations, and financial results will depend on evolving factors that we cannot accurately predict. Refer to Part I. Item 1A. Risk Factors for further information.

Discontinued Operations

On June 27, 2019, we completed the sale of our Fitness business. This business, which was previously reported within our Fitness segment, is being reported as discontinued operations for all periods presented.

30

Table of Contents

Our results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a continuing operations basis, unless otherwise noted. Refer to Note 3 – Discontinued Operations in the Notes to Consolidated Financial Statements for further information.

Acquisitions

On October 4, 2021, we completed the acquisition of Navico for $1.094 billion net cash consideration. Navico was a privately held global company based in Egersund, Norway, and is a global leader in marine electronics and sensors, including multi-function displays, fish finders, autopilots, sonar, radar, and cartography. We also completed the acquisitions of substantially all the net assets of RELiON Battery, LLC, SemahTronix, LLC, Fanautic Club, and certain Freedom Boat Club franchise operations and territory rights in the United States during 2021 for net cash consideration of $66.2 million. Refer to Note 5 – Acquisitions in the Notes to the Consolidated Financial Statements for further information.

Matters Affecting Comparability

Changes in Foreign Currency Rates. Percentage changes in net sales expressed in constant currency reflect the impact that changes in currency exchange rates had on comparisons of net sales. To determine this information, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period. The percentage change in net sales expressed on a constant currency basis better reflects the changes in the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Approximately 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 Chinese yuan.

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

31

Table of Contents

Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Operations for 2021, 2020 and 2019:

NM = not meaningful

bpts = basis points

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

The following is a summary of Adjusted operating earnings and Adjusted diluted earnings per common share from continuing operations:

2021 vs. 2020

Net sales increased 34.5 percent during 2021 when compared with 2020. Sales in each segment benefited from increased volume due to strong global demand for marine products, market share gains, and higher pricing. Refer to the Propulsion, P&A, and Boat segments for further details on the drivers of net sales changes.

32

Table of Contents

Gross margin percentage increased 60 basis points in 2021 when compared with 2020, with all segments benefiting from increased sales, favorable factory absorption from increased production, and favorable changes in foreign currency exchange rates, partially offset by increased input costs, including material and labor inflation and increased freight costs.

Selling, general and administrative expense (SG&A) increased during 2021 when compared with the prior year. Excluding certain one-time items presented above, SG&A as a percentage of sales was lower in 2021 compared with the prior year, reflecting the strong increase in net sales, partially offset by increased spending on sales and marketing, ACES programs, and other growth initiatives. SG&A as a percentage of sales was also impacted by higher variable compensation costs during 2021 when compared with the prior year. Research and development expense increased in 2021 versus 2020, reflecting continued investment in new products in all segments.

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

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

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

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

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

Income tax provision was $141.0 million and $98.0 million in 2021 and 2020, respectively. The increase is primarily due to increased earnings before income taxes.

The effective tax rate, which is calculated as the income tax provision as a percentage of earnings before income taxes, was 19.1 percent and 20.7 percent for 2021 and 2020, respectively.

See Note 12 – Income Taxes in the Notes to Consolidated Financial Statements for further details on the effect of the Tax Cuts and Jobs Act as well as a reconciliation of our effective tax rate and statutory Federal income tax rate.

Due to the factors described in the preceding paragraphs, operating earnings, net earnings from continuing operations and diluted earnings per common share from continuing operations increased during 2021. Diluted earnings per common share from continuing operations benefited from common stock repurchases in both years.

2020 vs. 2019

Net sales increased 5.8 percent during 2020 when compared with 2019. Refer to the Propulsion, P&A, and Boat segments discussions for further details on the drivers of net sales changes.

Gross margin percentage increased 60 basis points in 2020 when compared with 2019, reflecting impacts of higher sales partially offset by the impacts of production suspensions and stay-at-home restrictions earlier in the year.

SG&A increased during 2020 and includes purchase accounting amortization and acquisition and IT transformation-related costs, as applicable. Excluding those items, SG&A as a percentage of sales was relatively

33

Table of Contents

consistent in 2020 compared with 2019. Research and development expense increased in 2020 versus 2019, but remained consistent as a percentage of Net Sales.

During 2020, we recorded restructuring, exit and impairment charges of $4.1 million compared with $18.8 million in 2019. See Note 4 – Restructuring, Exit and Impairment Activities in the Notes to Consolidated Financial Statements for further details.

We recognized equity earnings of $4.5 million and $7.3 million in 2020 and 2019, respectively, which were mainly related to our marine and technology-related joint ventures.

In 2019, we fully exited our remaining defined benefit pension plans and, as a result, recorded a $1.1 million benefit in 2020 associated with a final settlement adjustment. In 2019, we recorded $292.8 million of charges related to these pension settlement actions. Refer to Note 17 – Postretirement Benefits in the Notes to Consolidated Financial Statements for further information.

We recognized $(6.1) million and $(2.1) million in 2020 and 2019, respectively, in Other expense, net. Other expense, net primarily includes other postretirement benefit costs and remeasurement gains and losses resulting from changes in foreign currency rates.

Net interest expense decreased in 2020 compared with 2019 due to a reduction in average daily debt outstanding. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements.

We recognized an income tax provision of $98.0 million and $80.3 million in 2020 and 2019, respectively. The income tax provision in 2019 included a net charge of $17.5 million related to the settlement of our qualified defined benefit plans. The impact of this action consisted of a tax benefit of $73.9 million from the pension settlement charge, which was netted against a tax charge of $91.4 million resulting from the release of disproportionate tax effects in Accumulated other comprehensive income. Additionally, the income tax provision for 2019 included a net benefit of $17.2 million, primarily related to favorable rate change impacts on state deferred tax assets as well as a reassessment of the state valuation allowance.

The effective tax rate, which is calculated as the income tax provision as a percentage of earnings before income taxes, was 20.7 percent and 72.6 percent for 2020 and 2019, respectively.

See Note 12 – Income Taxes in the Notes to Consolidated Financial Statements for further details on the impacts of the Tax Cuts and Jobs Act as well as a reconciliation of our effective tax rate and statutory Federal income tax rate.

Due to the factors described in the preceding paragraphs, operating earnings, net earnings from continuing operations and diluted earnings per common share from continuing operations increased during 2020. Diluted earnings per common share from continuing operations benefited from common stock repurchases in both years.

34

Table of Contents

Segments

We have three reportable segments: Propulsion, P&A, and Boat. Refer to Note 6 – Segment Information in the Notes to Consolidated Financial Statements for details on the segment operations.

Propulsion Segment

The following table sets forth the Propulsion segment results for the years ended December 31, 2021, 2020 and 2019:

bpts = basis points

2021 vs. 2020

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

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

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

2020 vs. 2019

Propulsion segment's net sales increased $185.5 million or 11.0 percent in 2020 versus the prior year, as a result of strong demand, especially in the higher horsepower outboard engine categories and related controls, rigging and propeller business as original equipment manufacturer (OEM) customers continued to ramp-up production during the year, and increased capacity enabled elevated sales to dealer and international channels as well as significant U.S. and international market share gains. These sales increases were partially offset by production disruptions at Mercury and its OEM engine customers in the first half of the year due to the COVID-19 pandemic.

International sales were 36 percent of the Propulsion segment's net sales in 2020. International sales increased 24 percent on a GAAP basis and 26 percent on a constant currency basis from the prior year, primarily due to increases in Asia-Pacific, particularly in higher horsepower engines used for commercial purposes.

Propulsion segment's operating earnings for the year increased $45.2 million or 18.8 percent in 2020 versus the prior year as a result of increased sales volumes and favorable changes in sales mix, partially offset by unfavorable absorption resulting from production disruptions in the first half of the year, higher variable compensation costs, and increased investment in new product development and technology.

35

Table of Contents

Parts & Accessories Segment

The following table sets forth the Parts & Accessories (P&A) segment results for the years ended December 31, 2021, 2020 and 2019:

NM = not meaningful

bpts = basis points

2021 vs. 2020

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

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

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

2020 vs. 2019

P&A segment's net sales increased $128.7 million or 9.3 percent in 2020 versus the prior year due to strong sales growth across all product categories. 2020 results were bolstered by healthy boat usage as a consequence of the need for social distancing friendly recreation and by favorable weather conditions in the U.S. throughout the year, especially compared with 2019. These sales increases were partially offset by stay-at-home restrictions resulting from the pandemic, which disrupted dealer, retail, and OEM operations in many locations in the first half of the year.

International sales were 28 percent of the P&A segment's net sales in 2020. International sales increased 4 percent year-over-year on both a GAAP basis and constant currency basis. The increase in net sales was driven by Asia-Pacific and Europe, partially offset by Latin America.

P&A segment's operating earnings were $275.4 million in 2020, an increase of 16.0 percent, mainly due to the increase in net sales as well as favorable product mix, partially offset by cost-reduction actions.

36

Table of Contents

Boat Segment

The following table sets forth Boat segment results for the years ended December 31, 2021, 2020 and 2019:

NM = not meaningful

bpts = basis points

2021 vs. 2020

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

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

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

2020 vs. 2019

Boat segment's net sales decreased $84.0 million versus 2019, resulting from lower wholesale volume due to the temporary suspension of manufacturing in most plants and the associated ramp-up of activities earlier in the year resulting from the pandemic. This decline was partially offset by increases in the second half of the year resulting from significantly higher wholesale volume to dealers to meet increased customer demand at the retail level and to begin refilling pipeline inventories. Freedom Boat Club, which represents approximately 2.5 percent of segment sales, also achieved higher net sales due to an increase in new memberships and new franchisee locations.

International sales were 23 percent of the Boat segment's net sales in 2020, and decreased 10 percent on both a GAAP basis and constant currency basis, reflecting declines in most regions, which was partially offset by increases in Europe.

Boat segment's operating earnings were $70.2 million in 2020, a decrease of 7.9 percent compared with 2019, due to lower net sales along with unfavorable impact of absorption resulting from production disruptions, which were partially offset by benefits from cost reduction measures.

37

Table of Contents

Corporate/Other

The following table sets forth Corporate/Other results for the years ended December 31, 2021, 2020 and 2019:

NM = not meaningful

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

Corporate operating expenses increased by $8.8 million in 2020 compared with 2019 primarily due to higher variable compensation expense.

Cash Flow, Liquidity and Capital Resources

The following table sets forth an analysis of free cash flow for the years ended December 31, 2021, 2020 and 2019:

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

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

2021 Cash Flow

Net cash provided by operating activities of continuing operations in 2021 totaled $586.2 million versus $800.0 million in 2020. The decrease is primarily due to increased working capital, partially offset by higher net earnings during 2021. Working capital is defined as Accounts and notes receivable, Inventories and Prepaid expenses and other, net of Accounts payable and Accrued expenses as presented in the Consolidated Balance Sheets, excluding the impact of acquisitions and non-cash adjustments.

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

38

Table of Contents

primarily due to timing of payments and higher inventory levels across all reportable segments. Accrued expenses increased $73.8 million, primarily driven by increased variable compensation.

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

Net cash provided by financing activities was $621.8 million and primarily related to net proceeds from issuances of long-term debt in connection with the Navico acquisition, offset by payments of long-term debt including current maturities, common stock repurchases, and cash dividends paid to common shareholders. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements for further details on our debt activity during the year ended December 31, 2021.

2020 Cash Flow

Net cash provided by operating activities of continuing operations totaled $800.0 million in 2020 versus $475.3 million in 2019. The increase is primarily due to higher net earnings and favorable working capital usage, driven mainly by decreases in inventory levels and increases in accounts payable and accrued expenses.

The primary drivers of Net cash provided by operating activities of continuing operations in 2020 were net earnings, net of non-cash items, and a decrease in working capital. Inventory decreased $109.3 million primarily due to the increase in net sales during 2020 and production disruptions in the first half of the year. Accounts and notes receivable increased $19.9 million primarily due to the increase in net sales during the fourth quarter of 2020. Accrued expenses and Accounts payable increased $75.3 million and $64.5 million, respectively, primarily due to production increases, which were partially offset by timing of payments.

Net cash used for investing activities of continuing operations during 2020 totaled $239.4 million, which included capital expenditures of $182.4 million. Our capital spending focused on investments in new products. We also purchased $55.9 million of marketable securities in 2020.

Net cash used for financing activities during 2020 was $361.8 million, primarily related to payments of long-term debt including current maturities, common stock repurchases and cash dividends paid to common shareholders. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements for further details on our debt activity during the year ended December 31, 2020.

Liquidity and Capital Resources

We view our highly liquid assets as of December 31, 2021 and 2020 as:

39

Table of Contents

The following table sets forth an analysis of Total liquidity as of December 31, 2021 and 2020:

(A) See Note 16 – Debt in the Notes to Consolidated Financial Statements for further details on our lending facility.

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

Cash, cash equivalents and marketable securities totaled $355.3 million as of December 31, 2021, a decrease of $221.0 million from $576.3 million as of December 31, 2020. Total debt as of December 31, 2021 and December 31, 2020 was $1,816.4 million and $951.4 million, respectively. Our debt-to-capitalization ratio increased to 49 percent as of December 31, 2021, from 39 percent as of December 31, 2020.

There was no borrowing activity under the Amended and Restated Credit Agreement (Credit Facility) during 2021, and we did not have any borrowings outstanding as of December 31, 2021. Available borrowing capacity totaled $497.2 million, net of $2.8 million of letters of credit outstanding under the Credit Facility. During 2021, borrowings under our unsecured commercial paper program (CP Program), pursuant to which we may issue short-term, unsecured commercial paper notes, totaled $200.0 million, all of which were repaid during the period. During 2021, the maximum amount utilized under the CP Program was $100.0 million.

During 2020, gross borrowings under our Credit Facility totaled $610.0 million. As of December 31, 2020, there were no borrowings outstanding under the Credit Facility. During 2020, borrowings under the CP Program totaled $175.0 million, all of which were repaid during 2020. During 2020, the maximum amount outstanding under the CP Program was $100.0 million. Refer to Note 16 – Debt in the Notes to Consolidated Financial Statements for further details.

The level of borrowing capacity under our Credit Facility and CP Program is limited by both a leverage and interest coverage test. These covenants also pertain to termination provisions included in our wholesale financing joint venture arrangements with Wells Fargo Commercial Distribution Finance, LLC. Based on our anticipated earnings generation throughout the year, we expect to maintain sufficient cushion against the existing debt covenants. As of December 31, 2021, we were in compliance with the financial covenants in the Credit Facility and CP Program.

To finance the acquisition of Navico, we issued Notes for aggregate net proceeds of $992.9 million. We also tendered our 2023 Debentures and 2027 Notes in the process, resulting in the retirement of $25.0 million of debt and a loss on early extinguishment of debt of $4.2 million. Refer to Note 16 – Debt and Note 5 – Acquisitions in the Notes to Consolidated Financial Statements for further details.

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

2022 Capital Strategy

We anticipate executing a balanced capital strategy in 2022, leveraging our strong cash position. We plan to retire approximately $100 million of our long-term debt obligations, with interest expense estimated to be approximately $70 million in 2022.

We anticipate our capital expenditure levels in 2022 to increase to an amount ranging between $375 and $425 million to complete recently announced capacity expansion projects as well as to fund new product investments in all of our businesses and cost-reduction and automation projects.

40

Table of Contents

We also plan to spend between $100 million and $150 million on share repurchases, but have the ability to spend up to $200 million or more should market conditions or our share price create an opportunity to be more aggressive.

And, similar to 2021, we expect to continue to focus on mergers and acquisitions activity, primarily in our P&A and Business Acceleration business units, including expanding Freedom Boat Club.

Financial Services

Refer to Note 10 – Financing Joint Venture in the Notes to Consolidated Financial Statements for more information about our financial services.

Off-Balance Sheet Arrangements

Guarantees. We have reserves to cover potential losses associated with guarantees and repurchase obligations based on historical experience and current facts and circumstances. Historical cash requirements and losses associated with these obligations have not been significant. See Note 13 – Commitments and Contingencies in the Notes to Consolidated Financial Statements for a description of these arrangements.

Contractual Obligations

The following table sets forth a summary of our contractual cash obligations as of December 31, 2021:

(A)    See Note 16 – Debt in the Notes to Consolidated Financial Statements for additional information on our debt. "Debt" refers to future cash principal payments. Debt also includes our capital leases as discussed in Note 21 – Leases in the Notes to Consolidated Financial Statements.

(B)    See Note 21 – Leases in the Notes to Consolidated Financial Statements for additional information.

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

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

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

Legal Proceedings

See Note 13 – Commitments and Contingencies in the Notes to Consolidated Financial Statements.

41

Table of Contents

Environmental Regulation

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

Critical Accounting Estimates

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. If current estimates for the cost of resolving any specific matters are later determined to be inadequate, results of operations could be adversely affected in the period in which additional provisions are required. We have discussed the development and selection of the critical accounting policies with the Audit and Finance Committee of the Board of Directors and believe the following are the most critical accounting policies that could have an effect on our reported results.

Revenue Recognition and Sales Incentives. Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied; this occurs when control of promised goods (engines, parts and accessories, and boats) is transferred to the customer. We recognize revenue related to the sale of extended warranty contracts that extend the coverage period beyond the standard warranty period over the life of the extended warranty period.

Revenue is measured as the amount of consideration expected to be entitled to in exchange for transferring goods or providing services. We have excluded sales, value add, and other taxes collected concurrent with revenue-producing activities from the determination of the transaction price for all contracts. We have elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity. For all contracts with customers, we have not adjusted the promised amount of consideration for the effects of a significant financing component as the period between the transfer of the promised goods and the customer's payment is expected to be one year or less.

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

Warranty Reserves. We record an estimated liability for product warranties at the time revenue is recognized. The liability is estimated using historical warranty experience, projected claim rates and expected costs per claim. We adjust our liability for specific warranty matters when they become known and the exposure can be estimated. Our warranty liabilities are affected by product failure rates as well as material usage and labor costs incurred in correcting a product failure. If actual costs differ from estimated costs, we must make a revision to the warranty liability.

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

If the fair value of a reporting unit does not meet the "more likely than not" criteria discussed above, we perform a quantitative assessment which begins by measuring the fair value of the reporting unit. If the carrying value of the

42

Table of Contents

reporting unit exceeds its fair value, a goodwill impairment is recorded equal to the carrying value of the reporting unit less its fair value, not to exceed the carrying value of goodwill.

We calculate the fair value of our reporting units considering both the income approach and the guideline public company method. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach utilizing a Gordon Growth model. Internally forecasted future cash flows, which we believe reasonably approximates market participant assumptions, are discounted using a weighted average cost of capital (Discount Rate) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure of risk related to the specific reporting unit’s forecasted performance. Fair value under the guideline public company method is determined for each unit by applying market multiples for comparable public companies to the unit’s current and forecasted financial results. The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those forecasts in determining the Discount Rate, along with selecting representative market multiples.

We did not record any goodwill impairments in 2021, 2020 or 2019 in continuing operations. Refer to Note 3 – Discontinued Operations for further information on the Fitness goodwill impairment recorded during 2019.

Other Intangible Assets. Our primary other intangible assets are customer relationships, trade names, and developed technology acquired in business combinations. Intangible assets are initially valued using a methodology commensurate with the intended use of the asset. Customer relationships, trade names, and developed technology are valued using the income approach. The fair value of customer relationships is measured using the multi-period excess earnings method (MPEEM). The fair value of trade names and developed technology are measured using a relief-from-royalty (RFR) approach, which assumes the value of the trade name or technology is the discounted amount of cash flows that would be paid to third parties had we not owned the trade name or technology and instead licensed the trade name or technology from another company. Higher royalty rates are assigned to premium brands within the marketplace based on name recognition and profitability, while other brands receive lower royalty rates. The basis for future sales projections for both the RFR and MPEEM are based on internal revenue forecasts which we believe represent reasonable market participant assumptions. The future cash flows are discounted using an applicable Discount Rate as well as any potential risk premium to reflect the inherent risk of holding a standalone intangible asset.

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

The costs of amortizable intangible assets are recognized over their expected useful lives, typically between three and fifteen years, using the straight-line method. Intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets described below. Intangible assets not subject to amortization are assessed for impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset may be impaired. The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset.

Refer to Note 5 – Acquisitions and Note 11 – Goodwill and Other Intangibles in the Notes to Consolidated Financial Statements for more information.

Long-Lived Assets. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful lives of our definite-lived intangible assets and other long-lived assets may warrant revision or that the remaining balance of such assets may not be recoverable. Once an impairment indicator is identified, we test for recoverability of the related asset group using an estimate of undiscounted cash flows over the asset group's remaining life. If an asset group's carrying value is not recoverable, we record an impairment loss based on the excess of the carrying value of the asset group over the long-lived asset group's fair value. Fair value is determined using observable inputs, including the use of appraisals from independent third parties, when available, and, when observable inputs are not available, based on our assumption of the data that market participants would use in pricing the asset, based on the best information available in the circumstances. Specifically, we use discounted cash flows to determine the fair value of the asset when observable inputs are

43

Table of Contents

unavailable. We tested our long-lived asset balances for impairment as indicators arose during 2021, 2020 and 2019, resulting in impairment charges of $0.8 million, $0.9 million and $3.0 million, respectively, which are recognized either in Restructuring, exit and impairment charges or Selling, general and administrative expense in the Consolidated Statements of Operations.

Income Taxes. Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We evaluate the realizability of net deferred tax assets and, as necessary, record valuation allowances against them. We estimate our tax obligations based on historical experience and current tax laws and litigation. The judgments made at any point in time may change based on the outcome of tax audits and settlements of tax litigation, as well as changes due to new tax laws and regulations and our application of those laws and regulations. These factors may cause our tax rate and deferred tax balances to increase or decrease. See Note 12 – Income Taxes in Notes to Consolidated Financial Statements for further details.

Recent Accounting Pronouncements

See Note 1 – Significant Accounting Policies in the Notes to Consolidated Financial Statements for the recent accounting pronouncements that have been adopted during the year ended December 31, 2021, or will be adopted in future periods.