BRUNSWICK CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002, OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-1043

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BRUNSWICK CORPORATION
(Exact name of registrant in its charter)

DELAWARE 36-0848180
(State of incorporation) (I.R.S. Employer Identification No.)

1 N. FIELD CT., LAKE FOREST, ILLINOIS 60045-4811
(Address of principal executive offices) (zip code)

(847) 735-4700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

As of JUNE 28, 2002, the aggregate market value of the voting stock of the
registrant held by non-affiliates was $2,506,325,164. Such number excludes stock
beneficially owned by officers and directors. This does not constitute an
admission that they are affiliates.

The number of shares of Common Stock ($0.75 par value) of the registrant
outstanding as of MARCH 6, 2003, was 90,247,722.

DOCUMENTS INCORPORATED BY REFERENCE

PART III OF THIS REPORT ON FORM 10-K INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT WILL BE SET FORTH IN THE COMPANY'S DEFINITIVE PROXY STATEMENT
FOR THE ANNUAL MEETING SCHEDULED TO BE HELD ON APRIL 30, 2003.
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ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

Brunswick Corporation (the Company) is a manufacturer and marketer of
leading consumer brands, including Mercury and Mariner outboard engines; Mercury
MerCruiser sterndrive and inboard engines; Sea Ray, Bayliner, Maxum, Meridian,
and Sealine pleasure boats; Hatteras luxury sportfishing convertibles and
motoryachts; Baja high-performance boats; Boston Whaler and Trophy offshore
fishing boats; Princecraft fishing, deck and pontoon boats; MotorGuide trolling
motors; Mercury Precision Parts; Quicksilver and Swivl-Eze marine-related
components and accessories; Integrated Dealer Systems dealer management systems;
MotoTron engine control systems; Northstar marine navigation systems; Life
Fitness, Hammer Strength and ParaBody fitness equipment; Brunswick bowling
products, including capital equipment, parts, supplies and consumer products;
and Brunswick billiards tables and accessories. The Company also owns and
operates Brunswick bowling centers across the United States and internationally,
and Omni Fitness, a chain of specialty fitness retail stores.

The Company's strategy is to achieve growth by developing innovative
products, identifying and deploying leading-edge technologies, pursuing
aggressive marketing and brand-building activities, enhancing its distribution
channels, seizing international opportunities and leveraging core competencies.
Further, the Company focuses on enhancing its operating margins through
effective cost management and investments in technology. The Company's objective
is to enhance shareholder value by achieving returns on investments that exceed
its cost of capital.

CHANGE IN SEGMENT REPORTING

The Company previously reported its Life Fitness and Brunswick Bowling &
Billiards divisions as a single segment, the Recreation segment. During the
fourth quarter of 2002, the Company re-evaluated the composition of its
reportable segments to account for the anticipated divergence in the future
growth trends and economic characteristics of these operating units. The Company
determined that its reportable segments are Marine Engine, Boat, Fitness and
Bowling & Billiards. The financial information for these segments has been
reclassified for all periods presented under the new basis of segmentation. See
NOTE 3, SEGMENT INFORMATION, in the Notes to Consolidated Financial Statements
for financial information about these segments.

MARINE ENGINE SEGMENT

The Marine Engine segment, which had net sales of $1,705.2 million in 2002,
consists of the Mercury Marine Group and Brunswick New Technologies. The Company
believes its Marine Engine segment has the largest dollar sales volume of
recreational marine engines in the world.

Mercury Marine manufactures and markets a full range of outboard engines,
sterndrive engines, inboard engines and water-jet propulsion systems under the
Mercury, Mariner, Mercury MerCruiser, Mercury Racing, Mercury SportJet and
Mercury Jet Drive brand names. A portion of Mercury Marine's outboard engines
and parts and accessories, including marine electronics and control integration
systems, steering systems, instruments, controls, propellers, service aids and
marine lubricants, are sold to end-users through a global network of
approximately 12,000 marine dealers and distributors, specialty marine
retailers, and marine service centers. The remaining outboard engines and a
substantial number of the sterndrives, inboard engines and water-jet propulsion
systems are sold either to independent boatbuilders or to the Company's
operations that comprise the Brunswick Boat Group.

Mercury Marine has six two-stroke OptiMax outboard engines ranging from 135
to 250 horsepower, all of which feature Mercury's direct fuel injection (DFI)
technology. DFI is part of Mercury's plan to reduce outboard engine emissions 75
percent over a nine-year period beginning with the 1998 model year and ending in
2006. These emissions reductions were implemented to comply with U.S.
Environmental Protection Agency (EPA) requirements. Mercury's product line of
low-emission engines includes 13 four-stroke

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outboard engine models ranging from 4 to 115 horsepower and one 225-horsepower
model. These OptiMax and four-stroke outboards already achieve the EPA's
mandated 2006 emission levels. The California Air Resources Board (CARB)
mandated that EPA's 2006 emission levels be met by 2001 with further emission
reductions scheduled for 2004 and 2008. CARB has instituted a rating system for
emissions reduction that establishes ratings of either one star (75 percent
reduction), two stars (82 percent reduction) or three stars (91 percent
reduction). Mercury believes that its 135-horsepower OptiMax is the only
two-stroke engine in the world with a three-star rating from CARB. All Mercury
four-stroke outboards from 50 to 225 horsepower are also three-star rated.

Mercury Marine's outboard engines and sterndrive engines are produced
primarily in Fond du Lac, Wisconsin, and Stillwater, Oklahoma, respectively.
Certain small outboard engines are manufactured in Asia by a Mercury Marine
joint venture. Mercury Marine also manufactures engine component parts at plants
in St. Cloud, Florida, and Juarez, Mexico, and has a facility in Petit Rechain,
Belgium, which customizes engines for sales into Europe.

In addition to its marine engine operations, Mercury's product offerings in
international markets include a wide range of aluminum, fiberglass and
inflatable boats produced either by, or for, Mercury in Australia, Finland,
France, Norway, Poland, Portugal and Sweden. These boats, which are marketed
under the brand names Armor, Arvor, Askaladden, Bermuda, Mercury, Ornvik,
Quicksilver, Savage, Uttern and Valiant, are typically equipped with engines
manufactured by Mercury Marine and often include other parts and accessories
supplied by Mercury Marine.

During 2002, Mercury Marine continued to leverage its core competency in
aluminum metal castings by expanding the markets served by this business. The
effort to expand Mercury's castings business began in 1999, and by 2002 Mercury
had secured business in a variety of industries and applications, including
motorcycles, agricultural implements and off-road recreational vehicles. The
Company anticipates that Mercury's castings business will continue to grow, and
intends to identify other areas of expertise across its businesses that can be
similarly leveraged in industries beyond the Company's core businesses.

On February 14, 2002, Mercury Marine established a joint venture with
Cummins Marine, a division of Cummins Inc., to supply integrated diesel
propulsion systems to the worldwide recreational and commercial marine markets.
The Company and Cummins each own 50 percent of the joint venture, Cummins
MerCruiser Diesel Marine LLC, which is headquartered in Charleston, South
Carolina. Through the joint venture, Mercury is able to offer a full range of
diesel marine propulsion systems.

In February 2002, Mercury Marine acquired Teignbridge Propellers, Ltd.
(Teignbridge), a manufacturer of custom and standard propellers and underwater
stern gear for inboard-powered vessels. Located in Newton Abbot, United Kingdom,
Teignbridge has allowed Mercury to extend its product offerings to include a
full line of propellers and related accessories.

Mercury's SmartCraft system, a total marine electronics and controls
integration system, was introduced in 2000. SmartCraft leverages Mercury's
advanced engine technology by linking all essential boat functions, including
power, controls, and internal and external sensors, to provide synchronized data
and control over all essential boat functions. SmartCraft systems also allow
Mercury and its customers to take advantage of advancements in communications,
entertainment and navigation electronics by providing a platform to integrate
these technologies to enhance the boating experience. SmartCraft was introduced
on a number of Mercury engine offerings beginning in 2000 and 2001, and is now
offered on a wide range of Mercury, Mercury MerCruiser and Cummins MerCruiser
Diesel engines.

The Company established Brunswick New Technologies (BNT) during 2002 to
expand the Company's product offerings in marine electronics, engine controls,
navigation systems, dealer management systems and related equipment for use in
both marine and non-marine applications. The genesis for BNT was Mercury
Marine's MotoTron operation, which leverages the Company's expertise in engine
controls. BNT represents the Company's commitment to expand its business and
expertise in electronics, controls and systems. As part of BNT's expansion in
these areas, during the fourth quarter of 2002 the Company acquired Northstar
Technologies, Inc., a world leader in premium marine navigation electronics, and
Monolith Corporation/

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Integrated Dealer Systems (IDS), a leading developer of dealer management
systems for dealers of marine products and recreational vehicles. Earlier in
2002, the Company established a joint venture between BNT's MotoTron business
and Woodward Governor Company to develop and produce engine and vehicle control
systems, and opened a research and testing facility in Singapore to support
BNT's various development activities.

Domestic retail demand for the Marine Engine segment's products is
seasonal, with sales generally highest in the second quarter. A number of
factors can influence demand for the Marine Engine segment's products,
including, but not limited to:

- Economic conditions and consumer confidence in the United States and
certain international regions;
- Competition from other manufacturers of marine engines;
- Adverse weather in key geographic areas, including excessive rain,
prolonged below-average temperatures and severe heat or drought,
particularly during the key selling season;
- The level of inventories maintained by Mercury Marine's independent
boatbuilders, dealers and the Company's own boat operations;
- The segment's ability to make technological and quality advancements to
meet customer demands;
- The segment's ability to develop and market competitive products;
- Consumer demand for the Company's boat offerings and those of other major
boatbuilders;
- Fuel costs;
- Prevailing interest rates; and
- Consumer interest in recreational boating.

BOAT SEGMENT

The Boat segment consists of the Brunswick Boat Group (Boat Group), which
markets and manufactures fiberglass pleasure boats, high-performance boats,
offshore fishing boats, and aluminum fishing, deck and pontoon boats. The
Company believes its Boat Group, which had net sales of $1,405.3 million during
2002, has the largest dollar sales volume of pleasure boats in the world.

The Boat Group was formed in 2000 to manage the Company's boat brands;
increase the Company's boat portfolio by identifying recreational boat product
segments in which the Company was not participating; expand the Company's
involvement in recreational boating services and activities to enhance the
consumer experience and dealer profitability; speed the introduction of new
technologies into boat manufacturing processes and the Company's boat products;
and leverage the Company's extensive knowledge and involvement in boat design,
manufacturing and distribution.

During 2002, the Boat Group established offices in Knoxville, Tennessee, to
provide shared services to the Company's boat brands, which include Hatteras
luxury sportfishing convertibles and motoryachts; Sea Ray, Maxum and Sealine
yachts, sport yachts, cruisers and runabouts; Bayliner cruisers and runabouts;
Meridian motoryachts; Boston Whaler and Trophy offshore fishing boats; Baja
high-performance boats; and Princecraft aluminum fishing, deck and pontoon
boats. The Boat Group also operates a commercial and governmental sales unit
that sells products to the United States Government and state, local and foreign
governments for military, law enforcement and other governmental uses, and to
commercial customers for use in a variety of applications. Sales of Boston
Whaler, Baja and various inflatable boats represent the majority of the Boat
Group's governmental and commercial sales. The Boat Group procures most of its
outboard motors, gasoline sterndrives and gasoline inboard engines from the
Mercury Marine Group, and diesel engines from Cummins MerCruiser Diesel Marine
LLC, the Company's joint venture with Cummins Inc.

During 2002, the Company began manufacturing entry-level runabouts at a new
facility opened in Reynosa, Mexico. The Company believes the initial model
manufactured at this facility, a 17.5-foot Bayliner, is the lowest-cost new boat
in its class, due in large part to the Company's procurement and operational
efficiencies.

During the fourth quarter of 2002, the Company launched an initiative to
develop its marine parts and accessories business to better serve dealers and
consumers of the Company's boat products. Working with its
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existing boat dealer network, the Company will strive to improve quality,
distribution and delivery of parts and accessories to enhance the boating
experience.

The Boat Group's products are sold to end users through a global network of
approximately 950 dealers and distributors, each of which carries one or more of
the Company's boat brands. Sales to the Boat Group's largest dealer, which has
multiple locations and carries a number of the Boat Group's product lines,
comprised approximately 21 percent of Boat Group sales in 2002. Domestic retail
demand for pleasure boats is seasonal, with sales generally highest in the
second quarter. A number of factors can influence demand for the Boat Group's
products, including, but not limited to:

- Economic conditions, consumer confidence and the strength of equity
markets;
- Adverse weather in key geographic areas, including excessive rain,
prolonged below-average temperatures and severe heat or drought,
particularly during the key selling season;
- The Boat Group's ability to develop and market competitive products;
- Competition from other boatbuilders;
- Fuel costs;
- Effectiveness of distribution;
- Prevailing interest rates and availability of financing for consumers and
boat dealers;
- Consumer interest in recreational boating; and
- Access to water and marina facilities in urban areas.

FITNESS SEGMENT

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

The Company believes that the Fitness segment, which had net sales of
$456.7 million during 2002, has the largest dollar sales volume of commercial
fitness equipment in the world. Life Fitness' commercial sales are primarily to
private health clubs and fitness facilities operated by professional sports
teams, the military, governmental agencies, corporations, hotels, schools and
universities. Commercial sales are made directly to certain commercial customers
as well as through dealers and distributors.

Life Fitness also sells its products into the high-end consumer markets.
Approximately 15 percent of the Fitness segment's 2002 sales were made through
Omni Fitness, a chain of specialty fitness retail stores owned and operated by
the Company since 2001. Omni Fitness sells Life Fitness products as well as
complementary products manufactured by other companies. Most of Life Fitness'
remaining consumer sales are sold to other specialty retailers, including other
chains in which the Company has ownership interests.

The Fitness segment's principal manufacturing facilities are located in
California, Illinois, Kentucky and Minnesota. The Fitness segment also operates
63 Omni Fitness specialty fitness retail stores located primarily in the
Northeast and Pacific Northwest regions of the United States.

During 2002, Life Fitness introduced more than 40 new fitness products,
including new elliptical cross trainers, treadmills, stationary bikes,
stairclimbers, home gym products, commercial selectorized strength training
equipment and a series of cable motion machines.

Fitness products are distributed worldwide from regional warehouses, sales
offices and factory stocks of merchandise. Demand for fitness products is
seasonal, with sales generally highest in the first and fourth quarters, and is
influenced by a number of factors, including, but not limited to:

- Economic conditions and consumer confidence in the United States and
certain international regions;
- Product innovation;
- Consumer demand for health clubs and other exercise facilities;
- Availability of effective product distribution;
- Consumer participation in fitness activities;
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- Demand from owners and operators of fitness centers for new equipment;
- Competition from other manufacturers and alternative forms of recreation;
and
- Product quality, pricing, and customer service.

BOWLING & BILLIARDS SEGMENT

The Bowling & Billiards segment is comprised of the Brunswick Bowling &
Billiards division (BB&B), which had net sales of $377.7 million during 2002.
BB&B is the leading full-line designer and producer of bowling products,
including bowling balls, after-market products and parts, and capital equipment,
which includes bowling lanes, automatic pinsetters, ball returns, furniture
units, and scoring and center-management systems. BB&B also designs and markets
a full line of high-quality billiards tables and accessories.

BB&B operates 118 bowling centers in the United States, Canada and Europe,
and its joint ventures operate 18 additional centers in Asia. Bowling centers
offer bowling and, depending on size and location, the following activities and
services: billiards, video games, pro shops, children's playrooms, restaurants
and cocktail lounges. All of the North American centers offer Cosmic Bowling, an
enhanced form of bowling with integrated sound systems and glow-in-the-dark
effects. A number of BB&B's centers have been converted into Brunswick Zones,
modernized bowling centers that offer a full array of family-oriented
entertainment activities. The entertainment offerings available at Brunswick
Zones are designed to appeal to a broader audience, including both recreational
bowlers and non-traditional league bowlers. BB&B intends to convert additional
centers into Brunswick Zones, supporting the Company's strategy to increase
market share. Approximately 50 percent of BB&B's bowling center facilities are
owned by the Company and the other half are leased.

BB&B has a 50 percent ownership interest in Nippon Brunswick K. K., which
sells bowling equipment and operates bowling centers in Japan. In addition, BB&B
has a 50 percent ownership interest in Vulcan-Brunswick Bowling Pin Company,
which manufactures bowling pins in Antigo, Wisconsin.

BB&B's billiards business was established in 1845, and is the oldest
business operated by the Company. BB&B designs and markets billiards tables,
billiards balls, cues and related accessories under the Brunswick brand, and
serves the domestic and international commercial and consumer billiards markets.
The Company believes it has the largest dollar sales volume of billiards tables
in the world.

The Company's bowling and billiards products are sold through a variety of
channels, including distributors, dealers, mass merchandisers, bowling centers
and retailers, and directly to consumers. BB&B products are distributed
worldwide from regional warehouses, sales offices and factory stocks of
merchandise. Demand for the Bowling & Billiards segment's products is influenced
by a number of factors, including, but not limited to:

- Economic conditions in the United States and key international regions,
particularly Asia, Canada and Europe;
- The segment's ability to develop and market competitive products;
- Prevailing interest rates and availability of financing for purchasers of
bowling capital equipment;
- Product innovation;
- Availability of effective product distribution;
- Consumer participation in bowling and billiards;
- Demand from owners and operators of recreation centers for new equipment
from the segment;
- Competition from other manufacturers as well as alternative forms of
recreation;
- Product and facility quality, pricing, and customer service; and
- Adverse weather in key geographical areas, including excessive snow and
summers with prolonged periods of below-average rain.

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FINANCIAL SERVICES

The Company established a joint venture in 2002 with Transamerica
Distribution Finance to provide financial products and services to customers of
the Company's domestic marine businesses. The venture, Brunswick Acceptance
Company, LLC (BAC), will provide secured wholesale floor-plan financing to the
Company's boat dealers and may provide other financial services in support of
the Company's marine businesses. In addition, the parties contemplate that BAC
will purchase and service a portion of Mercury Marine's domestic accounts
receivable for its boatbuilder customers. The Company owns a 15 percent interest
in the joint venture initially, but will increase its ownership to 49 percent by
July 15, 2003. BAC became operational in January 2003.

DISTRIBUTION

The Company depends on distributors, dealers and retailers (Dealers) for
the majority of its recreational boat sales, and significant portions of its
marine engine, fitness and bowling and billiards products. The Company has
approximately 14,000 Dealers serving its business segments worldwide. The
Company's marine Dealers typically carry boats, engines and related parts and
accessories from the Company's Marine Engine and Boat segments.

Most of the Company's Dealers consist of independent companies and
proprietors that range in size from small, family-owned dealerships to large,
publicly traded organizations with substantial revenues and multiple locations.
Some of the Company's Dealers sell the Company's products exclusively, while
others also carry competing products. In some cases, the Company owns equity in
select Dealers, including minority interests in certain marine Dealers and 100
percent ownership of Omni Fitness, an exercise equipment retailer that is
operated by the Company's Life Fitness division.

A significant portion of the Company's products are seasonal, and a number
of the Company's Dealers are relatively small and often highly leveraged. As a
result, many of the Company's Dealers require financial support to remain in
business and provide a stable outlet for the Company's products. To ensure the
stability of its distribution channels, the Company provides various financial
incentives and support to its Dealers from time to time. This support includes
loans, loan guarantees and inventory repurchase commitments, under which the
Company is obligated to repurchase inventory in the event of a Dealer's default.
The Company believes that these investments and obligations are in the Company's
best interest, but its financial support of its Dealers does expose the Company
to credit risks and business risks. The Company's business units maintain active
credit operations to manage this financial exposure on an ongoing basis, and the
Company continues to seek opportunities to improve and sustain its various
distribution channels. See NOTE 7, COMMITMENTS AND CONTINGENCIES, in the Notes
to Consolidated Financial Statements.

DISCONTINUED OPERATIONS

During 2001, the Company substantially completed the divestiture of its
outdoor recreation segment, originally announced in June of 2000, with the sale
of its North American fishing, hunting sports accessories and cooler businesses.
See NOTE 11, DISCONTINUED OPERATIONS, in the Notes to Consolidated Financial
Statements, for a description of the Company's discontinued operations.

INTERNATIONAL OPERATIONS

The Company's sales to customers in international markets were $1,004.7
million (27.1 percent of net sales) and $859.2 million (25.5 percent of net
sales) in 2002 and 2001, respectively. The Company generally transacts its sales
in international markets in local currencies, and denominates its costs of
products manufactured or sourced in U.S. dollars. The Company's international
sales are set forth in NOTE 3, SEGMENT

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INFORMATION, in the Notes to Consolidated Financial Statements, and are also
included in the table below, which details the Company's international sales by
region for 2002, 2001 and 2000:

Mercury Marine sales comprised approximately 50 percent of the Company's
total international sales in 2002. Mercury Marine's primary international
operations include the following:

- A product customization plant and distribution center in Belgium;
- A propeller and underwater stern-gear manufacturing plant in Newton
Abbot, United Kingdom;
- Sales offices and distribution centers in Australia, Brazil, Canada,
China, Japan, Malaysia, Mexico, New Zealand and Singapore;
- Sales offices in Belgium, Denmark, France, Germany, Indonesia, Italy, the
Netherlands, Norway, Russia, Sweden and Switzerland;
- Boat assembly plants in Australia, Mexico and Sweden; and
- A marina and club in China.

The Brunswick Boat Group's sales comprised approximately 24 percent of the
Company's total international sales in 2002. The Boat Group's products are
manufactured or assembled in the United States, Bulgaria, Canada, Mexico, Poland
and the United Kingdom, and are sold worldwide through dealers. The Boat Group
also sells kits for certain runabout boat models to approved manufacturers
outside the United States who then manufacture boats to specification and sell
the boats under certain Boat Group brand names. The Boat Group has sales offices
in Brazil, England, France, the Netherlands and Spain, and product display
locations in Australia and the Netherlands.

Fitness segment sales comprised approximately 18 percent of the Company's
total international sales in 2002. Life Fitness sells its products worldwide and
has sales and distribution centers in Brazil, Germany, Hong Kong, Japan, the
Netherlands, Spain and the United Kingdom, as well as sales offices in Austria
and Italy.

Bowling & Billiards segment sales comprised approximately 8 percent of the
Company's total international sales in 2002. BB&B sells its products worldwide,
has sales offices in Germany, Hong Kong and the United Kingdom, and has a plant
that assembles pinsetters in Hungary. BB&B operates bowling centers in Austria,
Canada and Germany, and holds a 50 percent interest in an entity that sells
bowling equipment and operates bowling centers in Japan.

RAW MATERIALS

Raw materials are purchased from various sources. At present, the Company
is not experiencing any critical raw material shortages, nor are any currently
anticipated. General Motors Corporation is the sole supplier of engine blocks
used to manufacture the Company's gasoline sterndrive engines.

During 2002, the Company expanded its global procurement operations to
leverage the Company's purchasing power across its divisions and improve supply
chain efficiencies. In conjunction with the Brunswick Boat Group, in 2002 the
Company's global procurement team helped establish a boat manufacturing facility
in Reynosa, Mexico, using the Company's proprietary PRO(TM) (Process Resource
Optimization) System. The PRO System consists of three key elements: global
manufacturing, global sourcing of high-quality parts and components, and
institutionalizing a world-class quality assurance system. The PRO System allows
the Company to take advantage of local sourcing, labor and logistical
efficiencies to manufacture quality products

7

at lower costs, and the Company intends to deploy the system in additional
locations to continue to improve its cost advantages.

PATENTS, TRADEMARKS AND LICENSES

The Company has, and continues to obtain, patent rights covering certain
features of the Company's products and processes. By law, the Company's patent
rights, which consist of patents and patent licenses, have limited lives and
expire periodically.

In the Marine Engine segment, patent rights principally relate to features
of outboard engines and inboard-outboard drives, including die-cast powerheads;
cooling and exhaust systems; drive train, clutch and gearshift mechanisms;
boat/engine mountings; shock absorbing tilt mechanisms; ignition systems;
propellers; marine vessel control systems; and fuel and oil injection systems.

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

In the Fitness segment, patent rights principally relate to fitness
equipment designs and components, including patents covering internal processes,
programming functions, displays, design features and styling. See ITEM 3, LEGAL
PROCEEDINGS, for a description of certain litigation involving fitness equipment
patents.

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

While the Company believes that its patent rights are important to its
competitive position, the Company also believes that future success in all of
its businesses is mainly dependent upon its engineering, manufacturing and
marketing capabilities, its cost advantages, its ability to continue to develop
and manufacture high-quality, innovative, and competitive products, and the
effectiveness of its distribution channels.

The following are among the Company's primary trademarks or registered
trademarks:

Marine Engine Segment: Arvor, Astra, Bermuda, Chartus, IDS, Mariner,
MercNet, MerCruiser, Mercury, MercuryCare, Mercury Marine, Mercury Parts
Express, Mercury Precision Parts, Mercury Propellers, Mercury Racing,
MotorGuide, MotoTron, OptiMax, Northstar, Ornvik, Pinpoint, ProMax, QuickFit,
Quicksilver, Savage, SeaPro, SmartCraft, SportJet, Teignbridge Propellers,
Typhoon, Uttern and WaterMouse.

Boat Segment: Baja, Bayliner, Boston Whaler, Capri, Ciera, Hatteras,
Master Dealer, Maxum, Meridian, Precision Piloting, Princecraft, Sea Ray,
Sealine, Swivl-Eze and Trophy.

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

Bowling & Billiards Segment: Air-Hockey, Anvilane Pro Lane, Ball Wall,
Brunswick, Brunswick Billiards, Brunswick Pavilion, Brunswick Zone, Centennial,
CenterMaster, Cosmic Bowling, DBA Products, Dominion, Frameworx, Fuze, Gold
Crown, Inferno, IQ, Lane Shield, Lightworx, Monster, Throbot, U.S. Play by
Brunswick, Viz-A-Ball and Zone.

The Company's trademarks have indefinite lives, and many of these
trademarks are well known to the public and are considered valuable assets of
the Company.

COMPETITIVE CONDITIONS AND POSITION

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

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Strong competition exists with respect to each of the Company's product
groups, but no single manufacturer competes with the Company in all product
groups. In each product area, competitors range in size from large, highly
diversified companies to small, single-product businesses.

The following summarizes the Company's competitive position in each
segment.

Marine Engine Segment: The Company believes it has the largest dollar
sales volume of recreational marine engines in the world. The marine engine
market is highly competitive among several major international companies that
comprise the majority of the market, and several smaller companies. There are
also many competitors in the marine accessories, electronics, engine controls
and navigation systems businesses. Competitive advantage in the marine engine
and accessories markets is a function of product features, technological
leadership, quality, service, performance and durability, along with effective
promotion, distribution and pricing.

Boat Segment: The Company believes it has the largest dollar sales volume
of pleasure boats in the world. There are several major manufacturers of
pleasure and offshore fishing boats, along with hundreds of smaller
manufacturers. Consequently, this business is both highly competitive and highly
fragmented. The Company believes it has the broadest range of boat product
offerings in the world, with boats ranging from 12 to 100 feet. In all of its
boat operations, the Company competes on the basis of product features,
technology, quality, dealer service, performance, value, durability and styling,
along with effective promotion, distribution and pricing.

Fitness Segment: The Company believes it is the world's largest
manufacturer of commercial fitness equipment and a leading manufacturer of
high-quality consumer fitness equipment. Many of the Company's fitness equipment
products feature industry-leading product innovations, and the Company places
significant emphasis on new product introductions. Competitive emphasis is also
placed on product quality, marketing activities, pricing and service. The
Company also operates Omni Fitness, a chain of 63 specialty retail stores, where
emphasis is placed on providing excellent customer service and offering
competitive products.

Bowling & Billiards Segment: The Company believes it is the world's
leading full-line designer and producer of bowling products and billiards
tables. Competitive emphasis is placed on product innovation, quality, marketing
activities, pricing and service. The Company also operates 136 retail bowling
centers worldwide, including those operated by the Company's joint ventures,
where emphasis is placed on enhancing the bowling and entertainment experience,
maintaining quality facilities and providing excellent customer service.

RESEARCH AND DEVELOPMENT

The Company strives to bolster its competitive position in all of its
segments by continuously investing in research and development. The Company's
research and development investments support the introduction of new products
and enhancements to existing products. The Company's research and development
investments are shown below:

9

NUMBER OF EMPLOYEES

The approximate number of employees as of March 1, 2003, is shown below by
segment:

Marine Engine............................................... 6,400
Boat........................................................ 7,400
Fitness..................................................... 1,780
Bowling & Billiards......................................... 5,250
Corporate................................................... 185
------
Total....................................................... 21,015
======

As of March 1, 2003, there were approximately 2,200 employees in the Marine
Engine segment, 400 employees in the Boat segment, 140 employees in the Fitness
segment, and 200 employees in the Bowling & Billiards segment represented by
labor unions. The Company believes that it has good relations with these labor
unions.

ENVIRONMENTAL REQUIREMENTS

See ITEM 3, LEGAL PROCEEDINGS, for a description of certain environmental
proceedings in which the Company is involved.

AVAILABLE INFORMATION

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

ITEM 2. PROPERTIES

The Company's headquarters are located in Lake Forest, Illinois. The
Company also maintains administrative offices in Chicago, Illinois. The Company
has numerous manufacturing plants, distribution warehouses, retail stores, sales
offices and test sites located throughout the world. Research and development
facilities are decentralized within the Company's operating segments, and most
are located at individual manufacturing sites.

The Company believes its facilities are suitable and adequate for its
current needs. The Company believes that all of its properties are well
maintained and in good operating condition. Most plants and warehouses are of
modern, single-story construction, providing efficient manufacturing and
distribution operations. The Company's manufacturing facilities are operating at
approximately 75 percent of current capacity. The Company's headquarters and
most of its principal plants are owned by the Company.

The Company's primary facilities are in the following locations:

Marine Engine Segment: St. Cloud, Florida; Chicago, Illinois; Acton,
Massachusetts; Raleigh, North Carolina; Stillwater and Tulsa, Oklahoma; Fond du
Lac, Milwaukee and Oshkosh, Wisconsin; Melbourne, Australia; Petit Rechain,
Belgium; Mississauga and Pickering, Ontario, Canada; Saint Cast, France; Juarez,
Mexico; Singapore; Skellefthamn, Sweden; and Newton Abbot, United Kingdom. The
Chicago, Illinois; Acton, Massachusetts; Raleigh, North Carolina; Pickering,
Ontario, Canada; Saint Cast, France; and Skellefthamn, Sweden, facilities are
leased. The remaining facilities are owned by the Company.

Boat Segment: Edgewater, Merritt Island and Palm Coast, Florida;
Cumberland and Salisbury, Maryland; Pipestone, Minnesota; New Bern, North
Carolina; Bucyrus, Ohio; Roseburg, Oregon; Knoxville and Vonore, Tennessee;
Lancaster, Texas; Arlington, Washington; Princeville, Quebec, Canada; Reynosa,

10

Mexico; and Kidderminster, United Kingdom. All of these facilities are owned by
the Company with the exception of the Lancaster, Texas, facility, which is
leased.

Fitness Segment: Paso Robles, California; Franklin Park, Illinois;
Falmouth, Kentucky; Ramsey, Minnesota; and 63 Omni Fitness retail stores in the
United States. All of the Omni Fitness stores, the Paso Robles, California,
facility and a portion of the Franklin Park, Illinois, facility are leased. The
remaining facilities are owned by the Company.

Bowling & Billiards Segment: Lake Forest, Illinois; Muskegon, Michigan;
Bristol, Wisconsin; Szekesfehervar, Hungary; and 118 Company-operated bowling
recreation centers in the United States, Canada and Europe. Approximately 50
percent of BB&B's bowling centers are leased. The remaining facilities are owned
by the Company.

ITEM 3. LEGAL PROCEEDINGS

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

On April 18, 2002, the Company, in cooperation with the United States
Consumer Products Safety Commission (CPSC), announced a recall of approximately
103,000 bicycles that were sold by the Company's former bicycle division. The
bicycles had been equipped with suspension forks that were purchased from a
third party supplier. Some of the forks were found to have been defectively
manufactured and were involved in approximately 55 reported incidents. The 2002
recall was an expansion of a prior recall involving the suspension forks, and
allows consumers who purchased bicycles with an affected fork to return the fork
in exchange for $65 or a replacement bicycle. In addition to the costs of
administering the recall, the Company anticipates that it will incur additional
costs to resolve litigation stemming from the sale of the bike forks, and faces
a potential fine from the CPSC based on inadvertent delays in reporting several
of the incidents involving the forks. The Company does not believe that the
resolution of this matter will have a material adverse effect on the Company's
consolidated financial position or results of operations.

On April 22, 2002, a federal court in Seattle lifted a stay in a lawsuit
filed against Life Fitness by Precor Incorporated (Precor). The suit, which
alleges that certain of Life Fitness' cross trainer exercise machines infringe
Precor's Miller '829 patent, was stayed by the court pending re-examination of
the patent by the U.S. Patent and Trademark Office (PTO). The PTO issued a
modified Miller '829 patent to Precor on March 5, 2002, which led to the lifting
of the stay. Trial is scheduled for July 14, 2003. This matter was initiated in
January 2000 and seeks monetary damages and injunctive relief. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of this matter.

In a separate lawsuit between the Company and Precor, a federal court in
Seattle awarded Precor approximately $230,000 in attorneys' fees on June 14,
2002. The award was reduced from $5.3 million in light of an appellate court
ruling in the case. This matter was originally filed in 1994 and sought monetary
damages and injunctive relief. The Company believes that this matter has been
finally concluded.

During the fourth quarter of 2002, the Company settled a patent
infringement lawsuit filed against it by CCS Fitness, Inc. (CCS). CCS had
alleged that a front-drive cross trainer manufactured by Life Fitness infringed
a patent held by CCS. This matter was initiated in 1998 and sought monetary
damages and injunctive relief. In light of the settlement, the matter was
dismissed with prejudice.

On May 30, 2002, Leiserv, Inc. (Leiserv), a Company subsidiary operated by
the Bowling & Billiards segment, was sued in the Circuit Court of St. Louis
County, Missouri, for alleged violations of the federal Telephone Consumer
Protection Act. The lawsuit was brought as a putative class action seeking
monetary damages on behalf of all people and entities within two area codes in
the St. Louis area who allegedly received unsolicited faxes from a service
provider retained by Leiserv. Because this case remains in the early stages of
11

litigation and raises legal issues that have not yet been fully resolved by the
courts, the Company is unable to predict the outcome of this matter.

On December 3, 2002, the United States Supreme Court reversed an Illinois
Supreme Court decision that had been entered in the Company's favor in Sprietsma
vs. Mercury Marine, a "propeller guard" case. In its decision, the U.S. Supreme
Court rejected one of the defenses the Company had successfully asserted in
Sprietsma and other cases based on federal preemption of state law. The case,
which was initiated in July 1996 and sought monetary damages, was remanded to
the Illinois court for further consideration. The Company believes that it has a
number of other valid defenses to the claims asserted in Sprietsma, and does not
believe that the resolution of this matter will have a material adverse effect
on the Company's consolidated financial position or results of operations.

The Company has been named in a number of asbestos-related lawsuits, the
majority of which involve Vapor Corporation, a former subsidiary which the
Company divested in 1990. Virtually all of the asbestos suits against the
Company involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, that included
asbestos, and seek monetary damages from the Company. Neither the Company nor
Vapor is alleged to have manufactured asbestos. The Company's insurers have
settled a number of asbestos claims for nominal amounts, while a number of other
claims have been dismissed. No suit has yet gone to trial. The Company does not
believe that the resolution of these lawsuits will have a material adverse
effect on the Company's consolidated financial position or results of
operations.

In 1999, the United States Tax Court upheld an Internal Revenue Service
(IRS) determination that resulted in the disallowance of capital losses and
other expenses from two partnership investments for 1990 and 1991. In 2000, the
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. In late
2001, the Court of Appeals rendered a decision vacating the Tax Court's opinion
and remanded the case to the Tax Court for reconsideration. In February 2003,
the Tax Court on remand ruled that the Company did not have a non-tax business
purpose for forming the two partnerships and that they were therefore not valid
for tax purposes. The Company will appeal this decision to the United States
Court of Appeals for the District of Columbia. If, on appeal, the Company does
not prevail, the Company will owe approximately $135 million, consisting of $60
million in taxes due plus $75 million of interest, net of tax. The Company has
previously settled a number of other issues with the IRS on open tax years 1989
through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
does not anticipate any material adverse effects on its consolidated financial
position or results of operations in the event of an unfavorable resolution of
this matter. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.

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

In its Marine Engine segment, the Company will continue to develop engine
technologies to reduce engine emissions to comply with present and future
emissions requirements. The costs associated with these activities and the
introduction of low-emission engines will have an adverse effect on Marine
Engine segment operating margins and may affect short-term operating results.
The Boat segment continues to pursue fiberglass boat manufacturing technologies
and techniques to reduce air emissions at its boat manufacturing facilities.

12

The Company does not believe that compliance with federal, state and local
environmental laws will have a material adverse effect on the Company's
competitive position. See NOTE 7, COMMITMENTS AND CONTINGENCIES, in the Notes to
Consolidated Financial Statements, for disclosure of the potential cash
requirements of environmental proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE COMPANY

The Company's executive officers are listed in the following table:

*Members of the Operating Committee

There are no familial relationships among these officers. The term of
office of all elected officers expires April 30, 2003. The Group and Division
Presidents are appointed from time to time at the discretion of the Chief
Executive Officer.

George W. Buckley has been Chairman and Chief Executive Officer of the
Company since 2000. From May to June 2000 he was President and Chief Operating
Officer of the Company. He was President of the Mercury Marine Group from 1997
to 2000, and during that period was also an officer of the Company, holding the
following positions: Executive Vice President, February to May 2000; Senior Vice
President, 1998 to 2000; and Vice President, 1997 to 1998.

Peter B. Hamilton has been Vice Chairman of the Company and President of
Brunswick Bowling & Billiards since 2000. He was Executive Vice President and
Chief Financial Officer of the Company from 1998 to 2000. He was Senior Vice
President and Chief Financial Officer of the Company from 1995 to 1998.

Victoria J. Reich has been Senior Vice President and Chief Financial
Officer of the Company since 2000. She was Vice President and Controller of the
Company from 1996 to 2000.

Kathryn J. Chieger has been Vice President--Corporate and Investor
Relations of the Company since 1996.

13

Tzau J. Chung has been a Vice President of the Company since 2000 and was
named President--Brunswick New Technologies, in February 2002. Prior to that he
was Vice President--Strategic Planning of the Company from 2000 to 2002, and was
Senior Vice President--Strategy and IT, for the Company's Mercury Marine Group
from 1997 to 2000.

William J. Gress has been Vice President--Supply Chain Management of the
Company since 2001. From February 2000 to January 2001, he was Executive Vice
President of the Company's Igloo business. Prior to that he was employed by
Mercury Marine, where he was Vice President of its MerCruiser Diesel business
from 1999 to 2000, Vice President of Business Development from 1998 to 1999,
Senior Director of Strategic Sourcing during 1997, and Director of Materials
Management from 1993 to 1997. From November 1997 to August 1998, he was Vice
President of Supplier Relations for Goss Graphics, Inc., a printing equipment
manufacturer.

Kevin S. Grodzki has been Vice President of the Company and President of
its Life Fitness Division since 2000. Prior to that, he was Vice President of
Witco Corporation, a specialty chemical company, from 1997 to 2000.

Peter G. Leemputte has been Vice President and Controller of the Company
since 2001. From 1998 to 2000, he was Executive Vice President, Chief Financial
and Administrative Officer for Chicago Title Corporation, a national title
insurance and real estate related products company. He was Vice President and a
partner of Mercer Management Consulting, an international management consulting
firm, from 1996 to 1998.

B. Russell Lockridge has been Vice President and Chief Human Resources
Officer of the Company since 1999. From 1996 to 1999, he was Senior Vice
President--Human Resources of IMC Global, Inc., a company that produces crop
nutrients, animal feed ingredients and salt.

Patrick C. Mackey has been Vice President of the Company and President of
its Mercury Marine Group since 2000. Prior to that, he was Executive Vice
President of Witco Corporation, a specialty chemical company, from 1998 to 1999.

Dustan E. McCoy has been Vice President of the Company and
President--Brunswick Boat Group since 2000. From 1999 to 2000, he was Vice
President, General Counsel and Secretary of the Company. He was previously an
officer of Witco Corporation, a specialty chemical company, where he was
Executive Vice President in 1999; Senior Vice President from 1998 to 1999; and
Senior Vice President, General Counsel and Corporate Secretary from 1996 to
1998.

William L. Metzger has been Vice President and Treasurer of the Company
since 2001. From 2000 to 2001, he was Assistant Vice President--Corporate
Finance. From 1996 to 2000, he was Director--Corporate Accounting.

Clifford M. Sladnick has been Vice President--Acquisitions of the Company
since 2001. He joined the Company in 2000 as Assistant General Counsel. From
1990 to 1999, he was Senior Vice President, General Counsel and Corporate
Secretary of St. Paul Bancorp, Inc.

Marschall I. Smith has been Vice President, General Counsel and Secretary
of the Company since 2001. He joined Brunswick from Digitas Inc., a leading
e-commerce integrator. Prior to that assignment, he spent five years as Senior
Vice President and General Counsel of IMC Global Inc.

Dale B. Tompkins was named Vice President--Strategy and Corporate
Development in January 2003. He joined the Company in 2000 as Vice
President--Strategy and Business Development for the Mercury Marine Group.
Previously, he was employed by Giddings & Lewis LLC, where he was Vice
President--Planning and Development from 1999 to 2000, and Director--Strategic
Planning from 1997 to 1999.

Cynthia Trudell has been Vice President and President--Sea Ray Division
since 2001. Prior to joining Brunswick, she held a number of positions with
various divisions of General Motors, including Chairman and President--Saturn
Corporation from 1999 to 2001, and President--IBC Vehicles, from 1996 to 1999.

Judith P. Zelisko has been Vice President--Tax of the Company since 1998.
She was Staff Vice President--Tax from 1996 to 1998.
14

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is traded on the New York, Chicago, Pacific and
London Stock Exchanges. Quarterly information with respect to the high and low
prices for the common stock and the dividends declared on the common stock is
set forth in NOTE 21, QUARTERLY DATA, in the Notes to Consolidated Financial
Statements. As of March 3, 2003, there were approximately 16,580 shareholders of
record of the Company's common stock.

The Company announced in 2001 that, beginning in 2002, it would convert to
an annual dividend rather than pay dividends quarterly to reduce administrative
costs. Future dividends, declared at the discretion of the Board of Directors,
will be paid in December.

ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial data presented below as of and for the
years ended December 31, 2002, 2001 and 2000, have been derived from, and should
be read in conjunction with, the historical consolidated financial statements of
the Company, including the notes thereto, and ITEM 7, MANAGEMENT'S DISCUSSION
AND ANALYSIS, including the MATTERS AFFECTING COMPARABILITY section, contained
elsewhere within this Annual Report on Form 10-K. The selected historical
financial data presented below as of and for the years ended December 31, 1999,
1998 and 1997, have been derived from the consolidated financial statements of
the Company that are not included herein. The financial data presented below
have been restated to present the discontinued operations in accordance with
Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results of
Operations -- Reporting the Effects of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."

- ---------------

(1) Refer to NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to
Consolidated Financial Statements for a discussion on Goodwill and Other
Intangibles.

(2) Refer to NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to
Consolidated Financial Statements for a discussion on Derivatives.

(3) In 1997, the Company adopted the provisions of Emerging Issues Task Force
No. 97-13, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project that Combines Business Process
Re-engineering and Information Technology Transformation." This resulted in
a one-time charge for the cumulative effect of a change in accounting
principle totaling $0.7 million after-tax, ($1.1 million pre-tax).

The Notes to Consolidated Financial Statements should be read in conjunction
with the above summary.
16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Certain statements in Management's Discussion and Analysis are
forward-looking as defined in the Private Securities Litigation Reform Act of
1995. These statements are based on current expectations that are subject to
risks and uncertainties. Actual results may differ materially from expectations
as of the date of this filing because of factors discussed below under the
FORWARD-LOOKING STATEMENTS section.

OVERVIEW

GENERAL

Brunswick Corporation (the Company) is a manufacturer and marketer of
leading consumer brands including Mercury and Mariner outboard engines; Mercury
MerCruiser sterndrive and inboard engines; Sea Ray, Bayliner, Maxum, Meridian,
and Sealine pleasure boats; Hatteras luxury sportfishing convertibles and
motoryachts; Baja high-performance boats; Boston Whaler and Trophy offshore
fishing boats; Princecraft fishing, deck and pontoon boats; MotorGuide trolling
motors; Mercury Precision Parts; Quicksilver and Swivl-Eze marine-related
components and accessories; Integrated Dealer Systems, dealer management
systems; MotoTron engine control systems; Northstar marine navigation systems;
Life Fitness, Hammer Strength and ParaBody fitness equipment; Brunswick bowling
products, including capital equipment, parts and supplies; and Brunswick
billiards tables and accessories. The Company also owns and operates Brunswick
bowling centers across the United States and internationally, and Omni Fitness,
a chain of specialty fitness retail stores.

The Company's strategy is to achieve growth by developing innovative
products, identifying and deploying leading-edge technologies, pursuing
aggressive marketing and brand-building activities, enhancing its distribution
channels, seizing international opportunities and leveraging core competencies.
Further, the Company focuses on enhancing its operating margins through
effective cost management and investments in technology. The Company's objective
is to enhance shareholder value by achieving returns on investments that exceed
its cost of capital.

During the fourth quarter of 2002, the Company re-evaluated the composition
of its reportable segments to account for the anticipated divergence in the
future growth trends and economic characteristics of the operating units within
what was formerly known as the Recreation segment. The Company determined that
its reportable segments are Marine Engine, Boat, Fitness and Bowling &
Billiards. The segment information for all periods presented has been
reclassified for consistent presentation.

Sales in 2002 increased 10.1 percent to $3,711.9 million primarily due to
additional growth in the marine engine and exercise equipment businesses and the
incremental sales associated with the acquisitions of boat companies completed
in 2001. Operating earnings increased 2.9 percent to $196.6 million, primarily
attributable to the increase in product sales, the incremental sales associated
with the acquisitions completed in 2001 and cost reduction improvements
partially offset by higher variable compensation and pension costs. See the
MATTERS AFFECTING COMPARABILITY section below.

MATTERS AFFECTING COMPARABILITY

The Company's operating results for 2002 include the operating results of
Teignbridge Propellers, Ltd. (Teignbridge), a manufacturer of custom and
standard propellers and underwater stern gear for inboard-powered vessels;
Monolith Corporation/Integrated Dealer Systems (IDS), a developer of dealer
management systems for dealers of marine products and recreational vehicles; and
Northstar Technologies, Inc. (Northstar), a supplier of premium marine
navigation electronics, from the acquisition dates of February 10, 2002, October
1, 2002, and December 16, 2002, respectively.

The Company's operating results for 2001 include the operating results of
Omni Fitness Equipment Inc. (Omni Fitness), a domestic retailer of fitness
equipment; Princecraft Boats Inc. (Princecraft), a manufacturer of deck and
pontoon boats; Sealine International (Sealine), a leading manufacturer of luxury
sport cruisers and motoryachts; and Hatteras Yachts, Inc. (Hatteras), a leading
manufacturer of luxury sportfishing

17

convertibles and motoryachts, from the acquisition dates of February 28, 2001,
March 7, 2001, July 3, 2001, and November 30, 2001, respectively.

Net earnings per diluted share totaled $0.86 in 2002 compared with net
earnings per diluted share of $0.93 in 2001 and a net loss per diluted share of
$1.08 in 2000. Comparisons of net earnings per diluted share are affected by
changes in accounting principles, unusual charges and discontinued operations,
which are listed below. The effect of these items on diluted earnings per share
is as follows:

There are a number of matters that affect the comparability of results
between 2002, 2001 and 2000. These matters include:

- Change in Accounting Principle: Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 requires that
goodwill and certain other intangible assets deemed to have indefinite
useful lives are no longer amortized but are reviewed annually for
impairment. SFAS No. 142 does not require retroactive restatement for all
periods presented; however, it does require the disclosure of prior year
effects adjusted for the elimination of amortization of goodwill and
indefinite-lived intangible assets. The effect on diluted earnings per
share for the elimination of amortization of goodwill and indefinite-
live intangible assets would have been $0.12 and $0.11 per diluted share
for 2001 and 2000, respectively. In connection with the adoptions of SFAS
No. 142, the Company completed its impairment testing and recorded the
cumulative effect of the change in accounting principle as a one-time,
non-cash charge of $29.8 million pre-tax ($25.1 million after-tax or
$0.28 per diluted share) to reduce its carrying amount of goodwill. Refer
to NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to Consolidated
Financial Statements.

Effective January 1, 2001, the Company adopted SFAS Nos. 133/138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." Under SFAS Nos. 133/138, all derivative instruments are
recognized on the balance sheet at their fair values. As a result of the
adoption of this standard in 2001, the Company recorded a $4.7 million
loss ($2.9 million after-tax or $0.03 per diluted share) as a cumulative
effect of a change in accounting principle, primarily resulting from
interest rate swaps. Refer to NOTE 8, FINANCIAL INSTRUMENTS, in the Notes
to Consolidated Financial Statements.

- Unusual Charges: In 2000, the Company recorded a $55.1 million charge to
operating earnings ($40.0 million after-tax or $0.45 per diluted share)
to increase environmental reserves related to the cleanup of
contamination from a former manufacturing facility and to account for the
write-down of investments in certain Internet-related businesses. Refer
to NOTE 4, UNUSUAL CHARGES, in the Notes to Consolidated Financial
Statements.

- Discontinued Operations: During 2000, the Company announced its
intention to divest the businesses that comprised the former outdoor
recreation segment. In 2000, losses from the disposition of the
businesses, which were based on estimates, totaled $229.6 million
after-tax, or $2.59 per diluted share. The discontinued operations
generated after-tax losses of $68.4 million in 2000, or $0.77 per diluted
share. See the DISCONTINUED OPERATIONS section for a more detailed
discussion of the operations that were discontinued in 2000.

18

RESULTS OF OPERATIONS

CONSOLIDATED

The following table sets forth certain ratios and relationships calculated
from the consolidated statements of income:

Results for 2000 include a $55.1 million pre-tax unusual charge to
operating earnings ($40.0 million after-tax or $0.45 per diluted share) to
increase environmental reserves related to the cleanup of contamination from a
former manufacturing facility and to account for the write-down of investments
in certain Internet-related businesses. Excluding these items, the amounts are
as follows:

In 2002, net sales increased $341.1 million to $3,711.9 million when
compared with 2001. Excluding acquisitions completed in 2002 and 2001, sales
increased 4.4 percent in 2002. The sales increase, excluding acquisitions, was
mainly attributable to an increase in sales in the Marine Engine, Fitness and
Bowling & Billiards segments partially offset by a decline in sales in the Boat
segment. Marine Engine segment sales increased due to higher domestic outboard
and sterndrive engine sales, improved pricing, and higher revenues from
international markets due in part to favorable currency trends. Fitness segment
sales increased primarily due to higher sales of consumer and commercial fitness
equipment in domestic and international markets. Bowling & Billiards segment
sales increased due to higher volumes of consumer products and after-market
parts and supplies. Boat segment sales, excluding acquisitions, decreased due to
lower sales of larger cruisers and yachts.

International sales increased $145.5 million to $1,004.7 million in 2002
compared with $859.2 million in 2001. The increase in sales was experienced
across all reportable segments. Sales in Europe increased

19

$104.1 million, or 23.2 percent, to $552.1 million, primarily due to the
incremental sales associated with the Sealine acquisition, the benefit of a
weakening dollar that resulted in favorable currency trends in the Marine Engine
and Fitness segments and increased sales of commercial fitness equipment. Marine
engine product sales comprised the largest share of international sales in 2002
and 2001.

In 2001, net sales of $3,370.8 million declined $441.1 million, or 11.6
percent, from 2000. Excluding the boat acquisitions completed in 2001, sales
decreased 14.1 percent for the year-over-year comparison. The reduction in
sales, excluding acquisitions, was experienced across all reportable segments
but was mainly attributed to lower sales in the Boat and Marine Engine segments.
Throughout 2001, weakened market conditions adversely affected domestic marine
sales, particularly small boats and engines. Fitness segment sales benefited
from growth in the fitness equipment business internationally, but was partially
offset by lower sales of consumer and commercial fitness equipment in the United
States. The Bowling & Billiards segment sales were affected by the decrease in
the sales of bowling capital equipment due to the economic recession.

International sales increased $20.8 million to $859.2 million in 2001
compared with $838.4 million in 2000. Sales in Europe increased $15.9 million,
or 3.7 percent, to $448.0 million in 2001, reflecting stronger sales of marine
engine products and fitness equipment, which were partially offset by reduced
sales of boats and bowling capital equipment. Unfavorable currency trends also
adversely affected international revenue comparisons. Marine engine product
sales comprised the largest share of international sales in 2001 and 2000.

Gross margin percentage of 23.2 percent in 2002 was unchanged from 2001. In
2002, gross margin percentages were affected by favorable pricing, cost
reductions and favorable currency trends, offset by a shift to lower-margin
products in the Marine Engine and Boat segments and an increase in variable
compensation and pension costs.

The Company's gross margin percentage decreased 540 basis points to 23.2
percent in 2001 from 28.6 percent in 2000, principally due to the impact of
lower production rates, plant closures and extended shutdowns. Production rates
were cut to bring production in line with demand and reduce the Company's
inventory levels. Gross margins also declined as a result of a shift in sales
mix in the marine businesses toward international markets and lower-margin
products, as well as unfavorable currency trends.

Selling, general and administrative (SG&A) expenses, as a percentage of net
sales, increased 40 basis points to 15.1 percent in 2002 compared with 14.7
percent in 2001. Excluding acquisitions completed in 2002 and 2001, SG&A
expenses as a percentage of net sales were 15.2 percent and 14.7 percent in 2002
and 2001, respectively. The 50 basis point increase in SG&A expenses compared
with 2001 is a result of higher variable compensation, pension and insurance
costs.

SG&A expenses, as a percentage of net sales, increased 70 basis points to
14.7 percent in 2001 compared with 14.0 percent in 2000. SG&A expenses increased
due to the Company's overall reduction in sales, offset by cost-containment
efforts, including workforce reductions, hiring and wage freezes, and reductions
in performance-based compensation, as well as a $10.6 million gain on the sale
of a testing facility.

Operating earnings in 2002 totaled $196.6 million versus $191.1 million in
2001 and $397.1 million in 2000. Operating earnings in 2000 included the
previously mentioned $55.1 million pre-tax unusual charge. Excluding this
charge, operating earnings were $452.2 million in 2000. Operating margins,
excluding unusual charges, were 5.3 percent in 2002, 5.7 percent in 2001 and
11.9 percent in 2000. The decline in operating margins between 2002 and 2001 was
mainly due to higher SG&A expenses, as a percentage of net sales, partially
offset by increased leverage from higher product sales and the elimination of
amortization of goodwill and indefinite-lived intangible assets as a result of
the adoption of SFAS No. 142.

Interest expense was $43.3 million in 2002, $52.9 million in 2001 and $67.6
million in 2000. The decrease in 2002 and 2001 was primarily attributable to a
decline in the average outstanding debt levels and a lower interest rate
environment. The weighted-average interest rate on short-term borrowings was
2.45 percent in 2002, 4.76 percent in 2001 and 6.58 percent in 2000.

Other income totaled $8.3 million in 2002 compared with other expense of
$6.0 million and $6.2 million in 2001 and 2000, respectively. The increase in
other income in 2002 compared with other expense in 2001 is

20

due to improved results from joint venture investments and favorable currency
adjustments from a weakening U.S. dollar. Contributing to the other expenses in
2001 and 2000 were joint venture losses, the write-down of certain investments,
unfavorable currency adjustments and start-up costs incurred in 2000 in
connection with an equity investment.

The Company's effective tax rate was 36.0 percent in 2002, 36.0 percent in
2001 and 37.5 percent in 2000. Excluding the 2000 unusual charge, the effective
tax rate was 36.0 percent in all three years.

Average common shares outstanding used to calculate diluted earnings per
share were 90.7 million, 88.1 million and 88.7 million in 2002, 2001 and 2000,
respectively. The increase in average shares outstanding in 2002 was due
primarily to the effects of stock options exercised, as well as an increase in
common stock equivalents related to unexercised employee stock options driven by
an increase in the Company's average stock price. The decrease in average shares
outstanding in 2001 compared to 2000 was primarily due to the share repurchase
program that was principally completed in the first half of 2000. See the CASH
FLOW, LIQUIDITY AND CAPITAL RESOURCES section below for additional discussion of
share repurchase program activity.

MARINE ENGINE SEGMENT

The following table sets forth Marine Engine segment results:

Marine Engine segment sales increased $143.6 million, or 9.2 percent, to
$1,705.2 million in 2002, compared with 2001. The increase in sales was
primarily due to an increase in unit shipments of sterndrive and outboard
engines in the domestic market. These higher shipments in 2002 were largely due
to a change in the rate at which dealers and boatbuilders adjusted their engine
inventories, rather than higher retail sales. In 2001, dealers and boatbuilders
significantly reduced their wholesale purchases to lower their inventory levels.
Reductions in dealer and boatbuilder inventories during 2002 occurred at a much
lower rate. Improved pricing in the domestic market, increased parts and
accessories sales, and an increase in international sales, due in part to
favorable currency trends from a weakening U.S. dollar, also helped drive sales
growth in the Marine Engine segment in 2002.

Operating earnings for the segment decreased $2.1 million, or 1.2 percent,
to $170.9 million in 2002, compared with 2001. Operating margins as a percentage
of sales fell 110 basis points to 10.0 percent when compared with 2001. The
decline in operating earnings and margins in 2002 was primarily due to higher
variable compensation, pension and insurance costs, and a change in the mix of
product sold toward low-emission two-stroke and four-stroke outboard engines,
which carry lower profit margins. Increased SG&A expenses associated with the
formation and operation of Brunswick New Technologies, which is included in the
Marine Engine segment, also reduced operating earnings. Items partially
offsetting these unfavorable trends include the increase in sales in 2002,
improved pricing and favorable currency trends from a weakening U.S. dollar.

Marine Engine segment sales declined 11.3 percent to $1,561.6 million in
2001 compared with 2000, primarily due to weak U.S. market conditions,
especially for small boats. Domestic retail sales of sterndrive and outboard
engines declined compared with the prior year due to a weakening economy. As
discussed above, efforts by dealers and boatbuilders to reduce their inventory
levels in 2001 also contributed to the decline in wholesale shipments.
International sales were up 13.3 percent for the year, despite adverse currency

21

fluctuations, reflecting more favorable economic conditions than in the domestic
market and increased market share, due in part to the bankruptcy of a
competitor.

In 2001, operating earnings for the segment decreased to $173.0 million
from $276.0 million, and operating margins fell 460 basis points to 11.1
percent, compared with 2000. Lower shipments combined with the lower absorption
of fixed costs from reduced production rates and extended plant shutdowns were
the primary driver for this decline in operating earnings. An unfavorable shift
in sales mix from higher-margin sterndrive engines to lower-margin outboard
engines, along with an increase in lower margin international sales, also
accounted for some of the margin pressure. Benefits from cost-containment
efforts, including reductions in performance based incentives and a reduction in
salaried headcount, partially mitigated these factors.

BOAT SEGMENT

The following table sets forth Boat segment results:

Sales in the Boat segment increased $154.0 million, or 12.3 percent, to
$1,405.3 million in 2002 compared with 2001. The increase in sales was primarily
due to a full year of sales from the acquisitions of Princecraft, Sealine and
Hatteras, which were completed in 2001. Excluding these acquisitions, sales
declined 2.0 percent. This sales decline was driven by weak retail demand, most
notably for larger cruisers and yachts. In addition, boat dealers continued to
lower their inventories, further reducing wholesale demand for the Boat
segment's products.

Boat segment operating earnings increased $0.9 million to $19.0 million
compared with 2001. Earnings contributions from acquisitions completed in 2001
and a reduction in operating losses from the Boat segment's US Marine division,
discussed below, were largely offset by the reduction in sales of larger
cruisers and yachts in 2002. Operating margins in 2002 were adversely affected
by the mix shift toward smaller boats, which carry lower margins.

In 2001, Boat segment sales totaled $1,251.3 million, a decrease of 20.5
percent from 2000. Excluding the acquisition of Princecraft, Sealine and
Hatteras, sales declined 24.3 percent. Significantly reduced retail demand for
smaller boats was a leading cause of the decline, although demand for larger
cruisers and yachts also weakened in the second half of the year. As retail
sales of boats weakened, dealers started to lower their own inventories, further
reducing wholesale demand.

Boat segment operating earnings totaled $18.1 million in 2001, declining
$130.1 million from the prior year. Operating margins also declined, falling 800
basis points to 1.4 percent in 2001. The decline in operating earnings was
primarily attributable to reduced sales and the operating losses experienced at
the Company's US Marine division. Reduced absorption of fixed costs due to lower
production and temporary shutdowns at the boat plants also impacted operating
earnings. A portion of the operating earnings decline was offset by efforts to
enhance operating effectiveness, as well as reduced costs and decreased
headcount.

The overall performance of the Boat Segment was adversely affected in both
2002 and 2001 by operations at the Company's US Marine division, which
manufactures Bayliner, Maxum and Meridian pleasure boats and Trophy offshore
fishing boats. Operating losses for the division were $29.0 million and $37.3
million for the years ended 2002 and 2001, respectively, compared with operating
earnings of $38.0 million in 2000. In 2002 and 2001, losses at US Marine were
primarily due to sales reductions, operating inefficiencies associated

22

with shifting boat production from five facilities closed throughout 2001 to
remaining manufacturing plants, the launch of the Meridian yacht brand, and the
start up of a new plant in Mexico to manufacture small boats. The decrease in
the operating loss for 2002 is due to reduced discounting and higher sales.

FITNESS SEGMENT

The following table sets forth Fitness segment results:

In 2002, Fitness segment sales increased 14.8 percent to $456.7 million
compared with 2001. Domestic sales increased 18.3 percent in 2002 compared with
2001. This increase was primarily due to increased commercial sales to health
club chains, governmental agencies and the military, as well as increased sales
of consumer products. International sales increased 9.8 percent in 2002 compared
with 2001, driven by higher commercial fitness equipment sales into Europe and
the benefit of favorable currency trends from a weakening U.S. dollar. Both
domestic and international business benefited from share gains attributable in
part to the success of new product launches in treadmills, cross trainers, and
stationary bikes.

Fitness segment operating earnings increased 58.1 percent to $44.9 million
in 2002 relative to 2001, and operating margins increased 270 basis points to
9.8 percent. Operating earnings increased primarily due to the impact of higher
sales and the elimination of amortization of goodwill and indefinite-lived
intangible assets as a result of the adoption of SFAS No. 142, partially offset
by higher variable compensation expenses.

In 2001, Fitness segment sales increased 14.2 percent to $397.7 million
compared with 2000. Domestic sales increased 8.8 percent in 2001 compared with
2000, primarily due to the acquisition of Omni Fitness, a specialty fitness
equipment retailer. Excluding the acquisition of Omni Fitness, domestic sales
decreased 7.6 percent. This decrease was a result of reduced sales of consumer
and commercial products as health club chains delayed expansion and upgrade
projects due to the weakening economy. International sales increased 23.2
percent in 2001 compared with 2000. This increase related primarily to improved
sales of commercial and consumer products despite adverse currency fluctuations.

The Fitness segment reported operating earnings of $28.4 million in 2001
compared with $31.2 million in 2000. Operating margins declined 190 basis points
to 7.1 percent in 2001. The reduction in operating earnings reflected the lower
absorption of fixed costs that resulted from temporary plant shutdowns necessary
to adjust production rates. Increased distribution expenses, higher warranty
costs and adverse foreign currency trends also contributed to lower operating
earnings, but these factors were partially mitigated by other cost-containment
efforts. In addition, Omni Fitness, whose results are included after the
acquisition on February 28, 2001, reported a slight operating loss for the year.

23

BOWLING & BILLIARDS SEGMENT

The following table sets forth Bowling & Billiards segment results:

In 2002, Bowling & Billiards segment sales increased 2.6 percent to $377.7
million compared with 2001. Sales of bowling products increased 3.5 percent in
2002 due to improved volumes in consumer products and after-market parts and
supplies, and favorable pricing associated with capital equipment. Sales of
billiards tables and accessories increased 8.9 percent in 2002 largely due to
market share gains. Sales at bowling retail centers were essentially flat
between 2002 and 2001.

Operating earnings for the Bowling & Billiards segment increased $14.1
million in 2002 to $21.4 million, and operating margins increased 370 basis
points to 5.7 percent. The increase in operating earnings primarily related to
the segment's bowling products business. Key drivers included significant
efforts to reduce costs through global sourcing initiatives, and headcount and
other expense reductions, as well as reduced bad debt expense from the level
seen in 2001.

In 2001, Bowling & Billiards segment sales decreased 12.9 percent to $368.1
million compared with 2000. Retail bowling center results were flat between 2001
and 2000. Billiards sales were modestly higher comparing 2001 with 2000. Bowling
product sales, including capital equipment, balls, supplies and other
accessories, declined due to a reduction in demand as bowling center proprietors
deferred investments in new lane packages and upgrades of existing facilities as
a result of the recession in both domestic and international markets. Sales of
bowling equipment were also down as a result of supply chain efforts to reduce
wholesale inventories.

The Bowling & Billiards segment reported operating earnings of $7.3 million
in 2001 compared with $41.9 million in 2000. Operating margins declined 790
basis points to 2.0 percent for 2001. Operating earnings declined in 2001
compared with 2000 due to the decline in sales volume, lower absorption of fixed
costs due to lower production, increased bad debt expenses associated with the
weakened international economy, and severance expenses from a workforce
reduction, as well as reduced gains related to the divestiture of certain retail
bowling centers.

DISCONTINUED OPERATIONS

During 2000, the Company announced its intention to divest the following
businesses that comprised its former outdoor recreation segment: fishing,
camping, bicycle, cooler, hunting sports accessories and marine accessories.
These businesses have been accounted for as discontinued operations and the
consolidated financial statements for all periods have been restated to present
these businesses as discontinued operations in accordance with APB Opinion No.
30.

The Company substantially completed the disposal of its discontinued
operations as of December 31, 2001. The sale of the hunting sports accessories,
cooler and North American fishing businesses was completed in 2001, and the sale
of the bicycle and camping businesses was completed in 2000. Cash generated from
these dispositions, including cash proceeds, net of costs to sell, cash required
to fund operations through disposition and related tax benefits realized in
connection with the divestitures, was approximately $275 million after-tax
through December 31, 2001. On December 31, 2002, the Company decided to retain
its marine accessories businesses after efforts to sell these operations proved
unsuccessful. The financial results of these businesses,

24

operating under the brand names MotorGuide, Pinpoint and Swivl-Eze, were not
material to the Company's consolidated financial statements.

Discontinued operations experienced losses of $68.4 million in 2000. Losses
from discontinued operations included the results of operations from the cooler,
hunting sports accessories and marine accessories businesses through September
30, 2000, and from the fishing, camping and bicycle businesses through June 30,
2000. Losses relating to these businesses subsequent to these dates were
estimated and provided for in the loss on the disposition of these businesses.

The 2000 loss from discontinued operations of $68.4 million included the
write-off of goodwill and other long-term assets related to the camping business
($76.0 million pre-tax, $50.0 million after-tax) that was recorded in the second
quarter of 2000. The write-off was necessary as the Company determined that
additional actions would not improve operating performance to levels sufficient
to recover its investment in these assets. Also included were asset write-downs
and restructuring costs, consisting primarily of severance in the fishing and
camping businesses, necessitated by a change in business conditions and the
decision to outsource the manufacture of fishing reels that were previously
produced in-house.

The loss from disposal recorded in 2000 totaled $305.3 million pre-tax and
$229.6 million after-tax. The losses associated with the disposition of these
businesses were based on an estimate of cash proceeds, net of costs to sell,
along with an estimate of results of operations for these businesses from the
date the decision was made to dispose of the businesses through the actual
disposition date. The tax benefits associated with the disposal reflect the
non-deductibility of losses on the sale of the cooler business.

CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth an analysis of cash flow for the years ended
December 31, 2002, 2001 and 2000 (in millions):

* EBITDA is defined as net earnings, adjusted for the effect of changes in
accounting principles, unusual charges and discontinued operations (as
previously described), and before interest, taxes, depreciation and
amortization. EBITDA is presented to assist in the analysis of cash from
operations. However, it is not intended as an alternative measure of
operating results or cash flow from operations, as determined in accordance
with generally accepted accounting principles.

** Comprised principally of capital expenditures and excludes acquisition and
disposition activities.

*** Free cash flow is defined as cash flow from operating and investing
activities of continuing operations, excluding acquisition, disposition and
financing activities.

The Company's major sources of funds for investments and dividend payments
are cash generated from operating activities, available cash balances and
selected borrowings.

Net cash provided by operating activities of continuing operations totaled
$413.0 million in 2002 compared with $299.3 million in 2001 and $251.0 million
in 2000. The $113.7 million increase in net cash provided by operating
activities of continuing operations in 2002 versus the prior year was generated

25

principally from a decrease in working capital. Cash provided from operating
activities included changes in working capital that generated cash of $90.8
million in 2002 compared with a use of cash of $10.9 million and $163.2 million
in 2001 and 2000, respectively.

The change in working capital was the result of an increase in accounts
payable and accrued expenses, as well as a reduction in inventories. Accounts
payable increased to $291.2 million at December 31, 2002, from $214.5 million at
December 31, 2001, which can be attributed to the increased production levels in
the fourth quarter of 2002 compared with 2001, as well as efforts to improve
cash management. Accrued expenses increased to $685.5 million in 2002 from
$648.2 million in 2001, as a result of recording accruals for variable
compensation plans in 2002, whereas the Company did not accrue any significant
bonuses based on 2001 performance. Inventories, excluding acquisitions,
decreased $35.1 million in 2002 compared with 2001. The decrease in inventories
was driven primarily by the Boat segment's inventory reduction program. Accounts
and notes receivable of $401.4 million at December 31, 2002, increased from
$361.9 million at December 31, 2001. The increase in accounts and notes
receivable is primarily due to an increase in sales in the fourth quarter of
2002 versus the fourth quarter of 2001.

Net tax receipts in 2002 reflect the realization of tax benefits associated
with the divestiture of the cooler business in late 2001 partially offset by tax
payments associated with net earnings. Net tax receipts in 2001 reflect benefits
realized from the Company's divestiture of the other outdoor recreation
businesses in late 2000 partially offset by tax payments associated with net
earnings. Other operating cash flow activities included payments made by the
Company for litigation settlements totaling $0.2 million in 2002, $6.6 million
in 2001, and $49.4 million in 2000.

The Company invested $112.6 million, $111.4 million and $156.0 million in
capital expenditures in 2002, 2001 and 2000, respectively. The largest portion
of these expenditures was made for on-going investments to introduce new
products, expand product lines and achieve improved production efficiencies and
product quality.

Cash paid for acquisitions, net of cash acquired, totaled $21.2 million for
2002, comprised primarily of consideration paid for Teignbridge, a manufacturer
of custom and standard propellers and underwater stern gear for inboard-powered
vessels; IDS, a developer of management systems for marine and recreational
vehicle dealers; Northstar, a supplier of premium marine navigation electronics;
and additional consideration relating to the November 30, 2001, acquisition of
Hatteras. Teignbridge, IDS and Northstar were acquired on February 10, 2002,
October 1, 2002, and December 16, 2002, respectively, and their results of
operations are included in the Marine Engine segment post-acquisition. In 2001,
the company invested $134.4 million in Boat segment acquisitions, to acquire
Hatteras Yachts, a leading manufacturer of sportfishing convertibles and
motoryachts; Sealine, a leading manufacturer of luxury sports cruisers and
motoryachts; and Princecraft, a manufacturer of aluminum fishing, deck and
pontoon boats. Investments totaling $8.9 million for 2002 were primarily related
to the Cummins MerCruiser Diesel Marine LLC joint venture. Investments totaling
$38.1 million for 2000 were primarily comprised of amounts invested in
Internet-related businesses and fitness equipment distribution alliances.

The Company anticipates spending approximately $150.0 million for capital
expenditures in 2003. About one-half of the capital spending covers investments
in new and upgraded products, about one-third for necessary enhancements and the
balance targeted toward cost reductions and investments in information
technology. The Company will continue to evaluate acquisitions and other
investment opportunities as they arise.

Cash and cash equivalents totaled $351.4 million at the end of 2002
compared with $108.5 million in 2001. Total debt at year-end 2002 was $618.4
million versus $640.2 million at the end of 2001. The decrease in total debt
outstanding is principally due to decreases in short-term borrowings and
payments related to the Company's ESOP debt. Debt-to-capitalization ratios were
35.9 percent at December 31, 2002, and 36.6 percent at December 31, 2001. The
Company has a $350.0 million long-term credit agreement with a group of banks as
described in NOTE 10, DEBT, in the Notes to Consolidated Financial Statements,
that serves as support for commercial paper borrowings. There were no borrowings
under the revolving credit agreement during 2002. The Company has the ability to
issue up to $100.0 million in letters of credit within the revolving

26

credit facility, with $66.1 million in outstanding letters of credit at December
31, 2002. The Company had borrowing capacity of $283.9 million under the terms
of this agreement and if utilized, the Company has multiple borrowing options.
The borrowing rate, as calculated in accordance with those terms, would have
been 2.02 percent at December 31, 2002. The Company also has $600.0 million
available under a universal shelf registration statement filed in 2001 with the
Securities and Exchange Commission for the issuance of equity and/or debt
securities.

The Company announced in 2001 that, beginning in 2002, it would convert to
an annual dividend rather than pay dividends quarterly to reduce administrative
costs. Future dividends, declared at the discretion of the Board of Directors,
will be paid in December. A dividend of $0.50 per share was declared in October
and paid in December of 2002.

During 2002, the Company received $40.3 million from stock options
exercised compared with $9.8 million and $3.2 million in 2001 and 2000,
respectively. No stock repurchases occurred during 2002 and 2001. For the year
ended December 31, 2000, the Company spent $87.1 million, to repurchase 4.7
million shares of stock under two repurchase programs. On February 8, 2000, the
Company announced a program to repurchase $100 million of its common stock from
time to time in the open market or through privately negotiated transactions.
During the first half of 2000, the Company repurchased 4.6 million shares of its
common stock for $84.7 million in open market transactions under this program.
The Company also has a program, which was initiated in 1997, to systematically
repurchase up to five million shares of its common stock to offset shares the
Company expects to issue under its stock option and other compensation plans.
Under this program, the Company repurchased 0.1 million shares for $2.4 million
in 2000. A total of 2.7 million additional shares may be repurchased under this
program.

The adverse conditions in the equity markets, along with the low interest
rate environment, have had an unfavorable impact on the funded status of the
Company's domestic qualified defined benefit pension plans. While there was no
legal requirement under the Employee Retirement Income Security Act (ERISA) to
contribute to these plans in 2002, the Company contributed $45.0 million in cash
to the qualified pension plans and funded $8.3 million to cover benefit payments
in the unfunded nonqualified pension plan. Additional contributions may be made
to pension plans in 2003 to achieve the Company's funding objectives.

The Company established a joint venture in 2002 with Transamerica
Distribution Finance to provide financial products and services to customers of
the Company's domestic marine businesses. The venture, Brunswick Acceptance
Company, LLC (BAC), will provide secured wholesale floor-plan financing to the
Company's boat dealers and may provide other financial services in support of
the Company's marine businesses. In addition, the parties contemplate that BAC
will purchase and service a portion of Mercury Marine's domestic accounts
receivable for its boatbuilder customers. The Company owns a 15 percent interest
in the joint venture initially, but will increase its ownership to 49 percent by
July 15, 2003. BAC became operational in January 2003. The Company expects to
receive approximately $60 to $85 million resulting from the initial sale of
select Mercury Marine domestic receivables in mid-2003 and intends to contribute
approximately $30 million to fund its share of BAC's equity requirements in
2003. See NOTE 19, FINANCIAL SERVICES, in the Notes to Consolidated Financial
Statements.

The Company's financial flexibility and access to capital markets is
supported by its balance sheet position, investment-grade credit ratings and
ability to generate significant cash from operating activities. Management
believes that there are adequate sources of liquidity to meet the Company's
short-term and long-term needs.

LEGAL PROCEEDINGS

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

27

On April 18, 2002, the Company, in cooperation with the United States
Consumer Products Safety Commission (CPSC), announced a recall of approximately
103,000 bicycles that were sold by the Company's former bicycle division. The
bicycles had been equipped with suspension forks that were purchased from a
third party supplier. Some of the forks were found to have been defectively
manufactured and were involved in approximately 55 reported incidents. The 2002
recall was an expansion of a prior recall involving the suspension forks, and
allows consumers who purchased bicycles with an affected fork to return the fork
in exchange for $65 or a replacement bicycle. In addition to the costs of
administering the recall, the Company anticipates that it will incur additional
costs to resolve litigation stemming from the sale of the bike forks, and faces
a potential fine from the CPSC based on inadvertent delays in reporting several
of the incidents involving the forks. The Company does not believe that the
resolution of this matter will have a material adverse effect on the Company's
consolidated financial position or results of operations.

On April 22, 2002, a federal court in Seattle lifted a stay in a lawsuit
filed against Life Fitness by Precor Incorporated (Precor). The suit, which
alleges that certain of Life Fitness' cross trainer exercise machines infringe
Precor's Miller '829 patent, was stayed by the court pending reexamination of
the patent by the U.S. Patent and Trademark Office (PTO). The PTO issued a
modified Miller '829 patent to Precor on March 5, 2002, which led to the lifting
of the stay. Trial is scheduled for July 14, 2003. This matter was initiated in
January 2000 and seeks monetary damages and injunctive relief. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of this matter.

In a separate lawsuit between the Company and Precor, a federal court in
Seattle awarded Precor approximately $230,000 in attorneys' fees on June 14,
2002. The award was reduced from $5.3 million in light of an appellate court
ruling in the case. This matter was originally filed in 1994 and sought monetary
damages and injunctive relief. The Company believes that this matter has been
finally concluded.

During the fourth quarter of 2002, the Company settled a patent
infringement lawsuit filed against it by CCS Fitness, Inc. (CCS). CCS had
alleged that a front-drive cross trainer manufactured by Life Fitness infringed
a patent held by CCS. This matter was initiated in 1998 and sought monetary
damages and injunctive relief. In light of the settlement, the matter was
dismissed with prejudice.

On May 30, 2002, Leiserv, Inc. (Leiserv), a Company subsidiary operated by
the Bowling & Billiards segment, was sued in the Circuit Court of St. Louis
County, Missouri, for alleged violations of the federal Telephone Consumer
Protection Act. The lawsuit was brought as a putative class action seeking
monetary damages on behalf of all people and entities within two area codes in
the St. Louis area who allegedly received unsolicited faxes from a service
provider retained by Leiserv. Because this case remains in the early stages of
litigation and raises legal issues that have not yet been fully resolved by the
courts, the Company is unable to predict the outcome of this matter.

On December 3, 2002, the United States Supreme Court reversed an Illinois
Supreme Court decision that had been entered in the Company's favor in Sprietsma
vs. Mercury Marine, a "propeller guard" case. In its decision, the U.S. Supreme
Court rejected one of the defenses the Company had successfully asserted in
Sprietsma and other cases based on federal preemption of state law. The case,
which was initiated in July 1996 and sought monetary damages, was remanded to
the Illinois court for further consideration. The Company believes that it has a
number of other valid defenses to the claims asserted in Sprietsma, and does not
believe that the resolution of this matter will have a material adverse effect
on the Company's consolidated financial position or results of operations.

The Company has been named in a number of asbestos-related lawsuits, the
majority of which involve Vapor Corporation, a former subsidiary which the
Company divested in 1990. Virtually all of the asbestos suits against the
Company involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, that included
asbestos, and seek monetary damages from the Company. Neither the Company nor
Vapor is alleged to have manufactured asbestos. The Company's insurers have
settled a number of asbestos claims for nominal amounts, while a number of other
claims have been dismissed. No suit has yet gone to trial. The Company does not
believe that the resolution of these lawsuits will have a material adverse
effect on the Company's consolidated financial position or results of
operations.

28

In 1999, the United States Tax Court upheld an Internal Revenue Service
(IRS) determination that resulted in the disallowance of capital losses and
other expenses from two partnership investments for 1990 and 1991. In 2000, the
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. In late
2001, the Court of Appeals rendered a decision vacating the Tax Court's opinion
and remanded the case to the Tax Court for reconsideration. In February 2003,
the Tax Court on remand ruled that the Company did not have a non-tax business
purpose for forming the two partnerships and that they were therefore not valid
for tax purposes. The Company will appeal this decision to the United States
Court of Appeals for the District of Columbia. If, on appeal, the Company does
not prevail, the Company will owe approximately $135 million, consisting of $60
million in taxes due plus $75 million of interest, net of tax. The Company has
previously settled a number of other issues with the IRS on open tax years 1989
through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
does not anticipate any material adverse effects on its consolidated financial
position or results of operations in the event of an unfavorable resolution of
this matter. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.

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

In its Marine Engine segment, the Company will continue to develop engine
technologies to reduce engine emissions to comply with present and future
emissions requirements. The costs associated with these activities and the
introduction of low-emission engines will have an adverse effect on Marine
Engine segment operating margins and may affect short-term operating results.
The Boat segment continues to pursue fiberglass boat manufacturing technologies
and techniques to reduce air emissions at its boat manufacturing facilities.

The Company does not believe that compliance with federal, state and local
environmental laws will have a material adverse effect on the Company's
competitive position. See NOTE 7, COMMITMENTS AND CONTINGENCIES, in the Notes to
Consolidated Financial Statements, for disclosure of the potential cash
requirements of environmental proceedings.

ENGINE EMISSION REGULATIONS

U.S. Environmental Protection Agency (EPA) regulations finalized in 1996
require that certain exhaust emissions from gasoline marine outboard engines be
reduced by 8.3 percent per year for nine years beginning with the 1998 model
year. The Company has implemented a plan that meets the EPA compliance schedule.
It includes modifying automotive two-stroke direct fuel injection technology for
marine use and substituting certain two-stroke engines with four-stroke engines.
Both of these technologies yield emission reductions of 80 percent or better.
The California Air Resources Board (CARB) voted to adopt regulations more
stringent than the EPA regulations. These regulations accelerated the
applicability of the EPA targeted emissions reductions from 2006 to 2001. This
affected new engines sold in California beginning with the model year 2001, with
further emission reductions scheduled in 2004 and 2008. The Company met the 2001
requirements and believes that its current implementation plan designed to meet
the EPA exhaust emissions regulations will allow the Company to comply with the
more stringent regulations as currently proposed by CARB. The Company expects
the amount of low-emission engine sales as a percentage of total Marine Engine
segment sales to continue to increase and anticipates that it will continue to
invest in development of low-emission engine technologies.

29

EFFECTS OF THREATENED EUROPEAN COMMUNITIES TARIFF INCREASES

On April 19, 2002, the Commission of the European Communities announced its
intention to increase tariffs on certain U.S. exports to the countries
comprising the European Communities (EC), including many categories of
recreational boats. The proposed EC tariff increase was announced in response to
increases by the United States on certain steel tariffs. If the EC tariffs
become effective, a substantial portion of the Company's boats imported into the
EC could be subject to an additional duty of up to 30 percent. The proposed
tariffs are scheduled to become effective on March 20, 2005, or five days
following a ruling from the World Trade Organization (WTO) that the U.S. steel
tariffs are incompatible with WTO standards, whichever is sooner. A ruling from
the WTO is expected during 2003, but the Company is unable to predict what that
ruling will be. Although it is not possible to determine the likely effects of
the EC proposal, the Company is carefully monitoring developments concerning
this matter and will continue to evaluate potential strategies for mitigating
any adverse effects of the proposed tariffs. The Company's sales of U.S.
produced boats into the EC during 2002 totaled approximately $50 million.

EURO CONVERSION

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies (legacy
currencies) and one new common currency - the Euro. Beginning in January 2002,
new Euro-denominated bills and coins were issued. The costs to prepare for this
conversion, including the costs to adapt information systems, were not material
to the Company's results of operations, financial position or cash flows.

CRITICAL ACCOUNTING POLICIES

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. The Company discussed the development and selection of the critical
accounting policies with the audit committee of the board of directors and
believes the following are the most critical accounting policies that could have
an effect on the Company's reported results.

Revenue Recognition and Sales Incentives. The Company's revenue is derived
primarily from product sales. Revenue is recognized in accordance with the terms
of the sale, primarily upon shipment to customers, once the sales price is fixed
or determinable, and collectibility is reasonably assured. The Company offers
discounts and sales incentives that include retail promotional activities,
rebates and manufacturer coupons. The estimated liability for sales incentives
is recorded at the later of when the program has been communicated to the
customer or at the time of sale in accordance with Emerging Issues Task Force
(EITF) No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of a Vendor's Products)." The liability is estimated based
on the costs for the incentive program, the planned duration of the program and
historical experience. If actual costs are different from estimated costs, the
liability could be affected.

Allowances for Doubtful Accounts. The Company records an allowance for
uncollectible receivables based upon past transaction history with customers,
customer payment practices and economic conditions. Actual collection experience
may differ from the current estimate of net receivables. A change to the
allowance for uncollectible amounts may be required if a future event or other
change in circumstances results in a change in the estimate of the ultimate
collectibility of a specific account.

Reserve for Excess and Obsolete Inventories. The Company records a reserve
for excess and obsolete inventories in order to ensure inventories are carried
at the lower of cost or fair market value. Fair market value can be affected by
assumptions about market demand, market conditions, historical usage rates,
model changes and new product introductions. If model changes or new product
introductions create less than favorable market conditions, the reserve for
excess and obsolete inventories may need to increase. Refer to

30

NOTE 1, SIGNIFICANT ACCOUNTING POLICIES, in the Notes to Consolidated Financial
Statements for further discussion on the basis of accounting for inventories.

Litigation. 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. The Company estimates a range of
losses when the amount and range of loss can be estimated. In the event that no
amount within the range is a better estimate, the Company records at least the
minimum amount in the range. The Company records a loss when it is probable that
a loss has been incurred and the loss can be reasonably estimated.

Warranty Reserves. The Company records a liability for standard product
warranties at the time revenue is recognized. The liability is estimated using
historical warranty experience, projected claim rates and expected costs per
claim. If necessary, the Company adjusts its liability for specific warranty
matters when they become known and are reasonably estimable. The Company's
warranty reserves are affected by product failure rates and material usage and
labor costs incurred in correcting a product failure. If these estimated costs
differ from actual product failure rates, and actual material usage and labor
costs, a revision to the warranty reserve would be required. Refer to NOTE 7,
COMMITMENTS AND CONTINGENCIES, in the Notes to Consolidated Financial Statements
for additional information.

Self-Insurance Reserves. The Company records a liability for
self-insurance obligations, which include employee-related health care benefits
and claims for workers' compensation, product liability, general liability and
auto liability. The liability is estimated based on claims incurred as of the
date of the financial statements. In estimating the obligations associated with
self-insurance reserves, the Company primarily uses loss development factors
based on historical claim experience. These loss development factors are used to
estimate ultimate losses on incurred claims. Actual costs associated with a
specific claim can vary from an earlier estimate. If the facts were to change,
the liability recorded for expected costs associated with a specific claim may
need to be revised.

Pension and Postretirement Benefit Reserves. Pension, postretirement and
postemployment costs and obligations are actuarially determined and are affected
by assumptions including the discount rate, the estimated future return on plan
assets, the annual rate of increase in compensation for plan employees, the
increase in costs of health care benefits and other factors. The Company
evaluates assumptions used on a periodic basis and makes adjustments to these
liabilities as necessary.

The Company utilizes the Moody's Aa long-term corporate bond yield as a
basis for determining the discount rate with a yield adjustment made for the
longer duration of the Company's obligations. As a result of the decline in
Moody's Aa long-term corporate bond yield and the overall declining interest
rate environment, the Company lowered its discount rate assumption used to
determine pension obligations from 7.25 percent to 6.75 percent at December 31,
2001 and 2002, respectively. The Company evaluates its assumption regarding the
estimated long-term rate of return on plan assets based on the historical
experience and future expectations on investment returns. The Company chooses a
rate of return on plan assets that it believes is an appropriate long-term
average return. The expected return on plan assets takes into account estimated
future investment returns for various asset classes held in the plans'
portfolio. The Company lowered its investment return assumptions in determining
pension cost to 9.0 percent in 2002 compared with 9.5 percent in 2001 and 2000.
As a result of the lower discount rate, the reduced return on plan assets and
the increased unrecognized actuarial losses in 2002, pension expense is expected
to increase to approximately $44 million in 2003, from $22.0 million in 2002 and
$9.7 million in 2001.

Under current accounting guidelines, if individual pension plans are underfunded
on an accumulated benefit obligation basis, the shortfall in assets is required
to be recorded as an additional minimum liability. In recognizing an additional
minimum liability, an intangible asset equal to the unrecognized prior service
cost is recorded with the excess reported in common shareholders' equity, net of
tax. In 2002, the Company recorded a non-cash reduction in equity of $115.7
million, net of tax. If equity market returns do not improve in 2003

31

and if interest rates remain at current levels, the Company could be required to
record an additional non-cash reduction in equity.

Pension, postretirement and postemployment benefit reserves are determined
in accordance with SFAS No. 87, "Employers' Accounting for Pensions," SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
respectively. Refer to NOTE 13, PENSION AND OTHER POSTRETIREMENT BENEFITS, in
the Notes to Consolidated Financial Statements for additional information
regarding the assumptions used and for changes in the accrued benefit.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes
both SFAS No. 121 and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business (as
previously defined in that Opinion). The adoption of SFAS No. 144 did not have a
material impact on the financial statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company
believes the adoption of SFAS No. 146 will not have a material impact on the
financial statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 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."
This interpretation clarifies the requirements for a guarantor's accounting for
and disclosures of certain guarantees issued and outstanding. FIN 45 also
clarifies the requirements related to the recognition of a liability by a
guarantor at the inception of a guarantee. FIN 45 is effective for guarantees
entered into or modified after December 31, 2002. The Company has not determined
the impact FIN 45 will have on the financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities - An Interpretation of Accounting
Research Bulletin (ARB) No. 51." This interpretation clarifies how to identify
variable interest entities and how the Company should assess its interests in a
variable interest entity to decide whether to consolidate the entity. FIN 46
applies to variable interest entities created after January 31, 2003, in which
the Company obtains an interest after that date. Also, FIN 46 applies in the
first fiscal quarter or interim period beginning after June 15, 2003, to
variable interest entities in which the Company holds a variable interest that
it acquired before February 1, 2003. The Company has not determined the impact
FIN 46 will have on the financial statements.

SUBSEQUENT EVENTS

In January 2003, the Company purchased a 36 percent equity interest in
Bella-Veneet OY (Bella), a boat manufacturer located in Finland. The Company
will account for this investment using the equity method and will have the
option to acquire the remaining equity interest of Bella in 2007.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report are forward-looking as defined in
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
in this Annual Report may include words such as "expect," "anticipate,"
"believe," "may," "should," "could," or "estimate." These statements involve
certain

32

risks and uncertainties that may cause actual results to differ materially from
expectations as of the date of this filing. These risks include, but are not
limited to:

- - General economic conditions, a weakened stock market and consumer confidence,
and resultant demand for the Company's products, particularly in the United
States and Europe:
Like many companies, the Company's revenues have been, and continue to
be, affected by weak domestic and international market conditions and
the fluctuating stock market. The threat of war in the Middle East and
other global political events may adversely affect consumer confidence
during 2003 and beyond. The Company's future results may continue to
suffer if general economic conditions do not improve.

- - The effect of interest rates and fuel prices on demand for marine products:
The Company's marine products, particularly boats, are often financed,
and higher interest rates can retard demand for these products. The
Company's marine businesses are somewhat fuel-cost-sensitive, and higher
fuel costs can also hurt demand.

- - Adverse weather conditions retarding sales of marine products:
Sales of the Company's marine products are generally more robust just
before and during spring and summer, and favorable weather during these
months tends to have a positive effect on consumer demand. Conversely,
poor weather conditions during these periods can retard demand.

- - Shifts in currency exchange rates:
The Company manufactures its products predominately in the United
States, though international manufacturing and sourcing are increasing.
A strong U.S. dollar can make the Company's products less
price-competitive relative to locally produced products in international
markets. The Company is focusing on international manufacturing and
global sourcing in part to offset this risk.

- - Competitive pricing pressures:
Across all of the Company's product lines, introduction of lower-cost
alternatives by other companies can hurt the Company's competitive
position. The Company's efforts toward cost-containment, commitment to
quality products, and excellence in operational effectiveness and
customer service are designed in part to offset this risk.

- - Inventory adjustments by the Company, its major dealers, retailers and
independent boatbuilders:
The Company's inventory reduction efforts have focused on reducing
production, which results in lower rates of absorption of fixed costs
and thus lower margins. In addition, as the Company's dealers and
retailers, as well as independent boatbuilders who purchase the
Company's marine engine products, adjust their inventories downward,
wholesale demand for the Company's products diminishes. Inventory
reduction can hurt the Company's short-term results of operations and
limit the Company's ability to meet increased demand when the U.S.
economy recovers.

- - Financial difficulties experienced by dealers and independent boatbuilders:
The U.S. economic downturn has adversely affected some of the Company's
dealers. As the main distribution channel for the Company's products,
dealer health is critical to the Company's continued success. In
addition, a substantial portion of the Company's engine sales are made
to independent boatbuilders. As a result, the Company's financial
results can be influenced by the availability of capital and the
financial health of these independent boatbuilders.

- - The ability to maintain effective distribution:
The Company sells the majority of its products through third parties
such as dealers, retailers and distributors. Maintaining good
relationships with superior distribution partners, and establishing new
distribution channels where appropriate, is critical to the Company's
continued success.

- - The Company's ability to complete environmental remediation efforts and
resolve claims and litigation at the cost estimated:
As discussed in PART I, ITEM 3 above, the Company is subject to claims
and litigation in the ordinary course of operations. These claims
include several environmental proceedings, some of which involve

33

costly remediation efforts over extended periods of time, as well as
certain litigation matters which if not resolved in the Company's favor,
could require significant expenditures by the Company. The Company
believes that it is adequately reserved for these obligations, but
significant increases in the anticipated costs associated with these
matters could hurt the Company's results of operations in the period or
periods in which additional reserves or outlays are deemed necessary.

- - The Company's ability to develop product technologies which comply with
regulatory requirements:
As discussed in PART I, ITEM 3 above, the Company's Marine Engine
segment is subject to emissions standards that require ongoing efforts
to bring the Company's engine products in line with regulatory
requirements. The Company believes that these efforts are on track and
will be successful, but unforeseen delays in these efforts could have an
adverse effect on the Company's results of operations.

- - The success of marketing and cost-management programs and the Company's
ability to develop and produce competitive new products and technologies:
The Company is constantly subject to competitive pressures. The
Company's continuing ability to respond to these pressures, particularly
through cost-containment initiatives, marketing strategies, and the
introduction of new products and technologies, is critical to the
Company's continued success.

- - The ability to maintain product quality and service standards expected by the
Company's customers:
The Company's consumers demand high quality products and excellent
customer service. The Company's ability to meet these demands through
continuous quality improvement across all of its businesses will
significantly impact the Company's future results.

- - The Company's ability to maintain market share and volume in key high-margin
product lines, particularly in its marine engine segment:
The Company derives a significant portion of its earnings from sales of
higher-margin products, especially in its marine engine business.
Changes in sales mix to lower-margin products, including low-emission
engines, as well as increased competition in these product lines, could
adversely impact the Company's future operating results. The Company is
focusing on cost-containment efforts, new product development and global
sourcing initiatives, as well as operational improvements, to offset
this risk.

- - The ability to successfully integrate acquisitions:
The Company has acquired several new businesses since 2000 and intends
to continue to acquire additional businesses to complement its existing
portfolio. The Company's success in effectively integrating these
operations, including their financial, operational and distribution
practices and systems, will affect the contribution of these businesses
to the Company's consolidated results.

- - Adverse foreign economic conditions:
As the Company continues to focus on international growth, it will
become increasingly vulnerable to the effects of political instability,
economic conditions and war in key world regions.

- - The effect of weak financial markets on pension expense and funding levels:
The Company has made, and will continue to make as necessary,
contributions to meet its pension funding obligations. The Company's
pension expense is affected by the performance of financial markets
where pension assets are invested. These costs will continue to increase
if the performance of financial markets weaken further.

- - The success of global sourcing and supply chain management initiatives:
The Company has launched a number of initiatives to strengthen its
sourcing and supply chain management activities. The success of these
initiatives will play a critical role in the Company's continuing
ability to reduce costs.

34

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign currency
exchange rates, interest rates and commodity prices. The Company enters into
various hedging transactions to mitigate these risks in accordance with
guidelines established by the Company's management. The Company does not use
financial instruments for trading or speculative purposes.

The Company uses foreign currency forward and option contracts to manage
foreign exchange exposure related to transactions, assets and liabilities that
are subject to risk from foreign currency rate changes. The Company's principal
currency exposures relate to the Euro, Canadian dollar, Japanese yen, British
pound and Australian dollar. Hedging of anticipated transactions is accomplished
with financial instruments as the maturity date of the instrument, along with
the realized gain or loss, occurs on or near the execution of the anticipated
transaction. Hedging of an asset or liability is accomplished through the use of
financial instruments as the gain or loss on the hedging instrument offsets the
gain or loss on the asset or liability.

The Company uses interest rate swap agreements to mitigate the effect that
changes in interest rates have on the fair market value of the Company's debt
and to lower the Company's borrowing costs. The Company's net exposure to
interest rate risk is primarily attributable to fixed-rate debt instruments.
Interest rate risk management is accomplished through the use of interest rate
swaps and floating-rate instruments that are benchmarked to U.S. and European
short-term money market interest rates. In the fourth quarter of 2002, the
Company deferred a realized gain of $12.2 million on the termination of interest
rate swaps in advance of their scheduled termination date. The deferred gain
will be amortized through 2006 based upon the underlying debt, in effect
decreasing interest expense associated with the Company's borrowings.

Raw materials used by the Company are exposed to the effect of changing
commodity prices. Accordingly, the Company uses commodity swap agreements to
manage fluctuations in prices of anticipated purchases of certain raw materials.

The Company uses a value-at-risk (VAR) computation to estimate the maximum
one-day reduction in pre-tax earnings related to its foreign currency, interest
rate and commodity price-sensitive derivative financial instruments. The VAR
computation includes the Company's debt, foreign currency forwards, interest
rate swap agreements and commodity swap agreements.

The amounts shown below represent the estimated reduction in fair market
value that the Company could incur on its derivative financial instruments from
adverse changes in foreign exchange rates, interest rates or commodity prices
using the VAR estimation model. The VAR model uses the Monte Carlo simulation
statistical modeling technique and uses historical foreign exchange rates,
interest rates and commodity prices to estimate the volatility and correlation
of these rates and prices in future periods. It estimates a loss in fair market
value using statistical modeling techniques and includes substantially all
market risk exposures. The estimated potential losses shown in the table below
have no effect on the Company's results of operations or financial condition.

The 95 percent confidence level signifies the Company's degree of
confidence that actual losses would not exceed the estimated losses shown above.
The amounts shown disregard the possibility that foreign currency exchange
rates, interest rates and commodity prices could move in the Company's favor.
The VAR model assumes that all movements in rates and commodity prices will be
adverse. Actual experience has shown that gains and losses tend to offset each
other over time, and it is highly unlikely that the Company could experience
losses such as these over an extended period of time. These amounts should not
be considered projections of future losses, as actual results may differ
significantly depending upon activity in global financial markets.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to the Index to Financial Statements and Financial Statement Schedule
for the required information.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On March 13, 2002, the Company terminated the engagement of Arthur Andersen
LLP (Arthur Andersen) as its independent auditor. The decision to terminate the
engagement of Arthur Andersen was recommended by the Company's Audit and Finance
Committee (now Audit Committee) and approved by its Board of Directors. Arthur
Andersen's report on the financial statements of the Company for each of the
years ended December 31, 2000, and December 31, 2001, did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 31, 2000, and December 31, 2001, and the interim period between
December 31, 2001, and March 13, 2002, there were no disagreements between the
Company and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report. During the years ended December 31, 2000, and
December 31, 2001, and the interim period between December 31, 2001, and March
13, 2002, there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K promulgated by the Securities and Exchange Commission). A letter
from Arthur Andersen was attached as Exhibit 16.1 to a Report on Form 8-K filed
by the Company on March 15, 2002.

The Company engaged Ernst & Young LLP (Ernst & Young) as its new
independent auditor effective March 14, 2002. The engagement of Ernst & Young
was recommended by the Company's Audit and Finance Committee (now Audit
Committee) and approved by its Board of Directors. During the years ended
December 31, 2000, and December 31, 2001, and the interim period between
December 31, 2001, and March 13, 2002, the Company did not consult with Ernst &
Young regarding (i) the application of accounting principles to a specified
transaction, either completed or proposed, (ii) the type of audit opinion that
might be rendered on the Company's financial statements or (iii) any matter that
was either the subject of a disagreement (as described above) or a reportable
event.

36

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to the directors of the Company and Section 16(a)
Beneficial Ownership Reporting Compliance will be set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
April 30, 2003 (the Proxy Statement). All of the foregoing information is hereby
incorporated by reference. The Company's executive officers are listed herein on
pages 13 to 14.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation will be set forth in the
Proxy Statement and is hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information with respect to the securities of the Company owned by the
directors and certain officers of the Company, by the directors and officers of
the Company as a group and by the only persons known to the Company to own
beneficially more than 5 percent of the outstanding voting securities of the
Company will be set forth in the Proxy Statement, and such information is hereby
incorporated by reference.

Information required with respect to the securities authorized for issuance
under the Company's equity compensation plans, including plans that have
previously been approved by the Company's stockholders and plans that have not
previously been approved by the Company's stockholders, will be set forth in the
Proxy Statement, and such information is hereby incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions
will be set forth in the Proxy Statement and is hereby incorporated by
reference.

ITEM 14. CONTROLS AND PROCEDURES

The Chairman and Chief Executive Officer and the Chief Financial Officer of
the Company (its principal executive officer and principal financial officer,
respectively) have evaluated the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within
90 days of the date of the filing of this Report on Form 10-K. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information required to be included in the
Company's periodic SEC filings relating to the Company (including its
consolidated subsidiaries). There were no significant changes in the Company's
internal controls, or in other factors that could significantly affect these
controls, subsequent to the date of such evaluation.

37

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedule are filed as
part of this report on pages 43 to 81.

2. The financial statement schedule listed in the accompanying Index to
Financial Statements and Financial Statement Schedule is filed as
part of this report on page 81.

3. The exhibits listed in the accompanying Index to Exhibits are filed
as part of the 10-K unless noted otherwise.

4. All other schedules are omitted because they are not required or are
not applicable, or the required information is shown in the
Consolidated Financial Statements or notes thereto.

(b) Reports on Form 8-K

None.

(c) Exhibits

See Exhibit Index on pages 82 to 84.

(d) Financial Statement Schedule

See Index to Financial Statements and Financial Statement Schedule on page
42.

38

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

BRUNSWICK CORPORATION

By: /s/ VICTORIA J. REICH By: /s/ PETER G. LEEMPUTTE
----------------------------------------- -----------------------------------------
Victoria J. Reich Peter G. Leemputte
Senior Vice President and Chief Financial Vice President and Controller
Officer

March 11, 2003

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

Peter G. Leemputte, as Principal Accounting Officer and pursuant to a Power
of Attorney (executed by each of the other officers and directors listed above
and filed with the Securities and Exchange Commission, Washington, D.C.), by
signing his name hereto does hereby sign and execute this report of Brunswick
Corporation on behalf of each of the officers and directors named above in the
capacities in which the names of each appear above.

By: /s/ PETER G. LEEMPUTTE
----------------------------------
Peter G. Leemputte
Vice President and Controller

March 11, 2003

39

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, George W. Buckley, certify that:

1. I have reviewed this annual report on Form 10-K of Brunswick
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 11, 2003

/s/ GEORGE W. BUCKLEY
--------------------------------------
George W. Buckley
Chief Executive Officer

40

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Victoria J. Reich, certify that:

1. I have reviewed this annual report on Form 10-K of Brunswick
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 11, 2003

/s/ VICTORIA J. REICH
--------------------------------------
Victoria J. Reich
Chief Financial Officer

41

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

BRUNSWICK CORPORATION

42

BRUNSWICK CORPORATION
REPORT OF MANAGEMENT

The Company's management is responsible for the preparation, integrity and
objectivity of the financial statements and other financial information
presented in this report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and reflect the effects of certain estimates and judgments made by management.

The Company's management maintains a system of internal controls that is
designed to provide reasonable assurance, at reasonable cost, that assets are
safeguarded and that transactions and events are recorded properly. The
Company's internal audit program includes periodic reviews of these systems and
controls and compliance therewith.

The Audit Committee of the Board of Directors, comprised entirely of
independent directors, meets regularly with the independent public accountants,
management and internal auditors to review accounting, reporting, internal
control and other financial matters. The Committee regularly meets with both the
internal and external auditors without members of management present.

/s/ GEORGE W. BUCKLEY /s/ VICTORIA J. REICH
- ------------------------------------------ -------------------------------------------------
George W. Buckley Victoria J. Reich
Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer

January 28, 2003

43

BRUNSWICK CORPORATION
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Brunswick Corporation

We have audited the accompanying consolidated balance sheet of Brunswick
Corporation as of December 31, 2002, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended. Our audit
also included the financial statement schedule for the year ended December 31,
2002, listed in the Index at Item 15(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit. The financial statements and schedule of Brunswick Corporation as of
December 31, 2001 and for each of the two years in the period ended December 31,
2001 were audited by other auditors who have ceased operations and whose report
dated January 28, 2002 expressed an unqualified opinion on those statements
before the disclosure and restatement adjustments described in Notes 1 and 3,
respectively.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brunswick Corporation at December 31, 2002, and the consolidated results of its
operations and its cash flows for the year then ended in accordance with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As described in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill and
other intangible assets to conform with FASB Statement No. 142, Goodwill and
Other Intangible Assets.

As discussed above, the financial statements of Brunswick Corporation as of
December 31, 2001, and for each of the two years in the period ended December
31, 2001, were audited by other auditors who have ceased operations. As
described in Note 1, these financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting Standards
(Statement) No. 142, which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 3 with respect to 2001
and 2000 included (a) agreeing the previously reported net income to the
previously issued financial statements and the adjustments to reported net
income representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill to the Company's underlying
records obtained from management, and (b) testing the mathematical accuracy of
the reconciliation of adjusted net income to reported net income, and the
related earnings-per-share amounts. Also, as described in Note 3, the Company
changed the composition of its reportable segments in 2002, and the amounts in
the 2001 and 2000 financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable segments. We audited
the adjustments that were applied to restate the disclosures for reportable
segments reflected in the 2001 and 2000 financial statements. Our procedures
included (a) agreeing the adjusted amounts of segment revenues, operating income
and assets to the Company's underlying records obtained from management, and (b)
testing the mathematical accuracy of the reconciliations of segment amounts to
the consolidated financial statements. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 and 2000 financial statements
of the Company other than with respect to such disclosures and adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 and 2000 financial statements taken as a whole.

/s/ ERNST & YOUNG LLP
CHICAGO, ILLINOIS
January 28, 2003

44

NOTE: THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP ("ARTHUR ANDERSEN") IN CONNECTION WITH BRUNSWICK CORPORATION'S FORM 10-K
FILING FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001. THE INCLUSION OF THIS
PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT IS PURSUANT TO THE "TEMPORARY FINAL
RULE AND FINAL RULE REQUIREMENTS FOR ARTHUR ANDERSEN LLP AUDITING CLIENTS,"
ISSUED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION IN MARCH 2002. NOTE THAT
THIS PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT INCLUDES REFERENCES TO CERTAIN
FISCAL YEARS THAT ARE NOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31,
2001 AND 2000. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN IN
CONNECTION WITH THIS FILING ON FORM 10-K.

BRUNSWICK CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Brunswick Corporation:

We have audited the accompanying consolidated balance sheets of Brunswick
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brunswick Corporation and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

As explained in Note 1 to the financial statements, effective January 1,
2001, the Company changed its method of accounting for certain derivatives
instruments and certain hedging activities to conform with Statement of
Financial Accounting Standards Nos. 133/138. As a result of the adoption, the
Company recorded a $2.9 million (after tax) loss as a cumulative effect of a
change in accounting principle.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

CHICAGO, ILLINOIS
JANUARY 28, 2002

45

BRUNSWICK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
46

BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS

The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
47

BRUNSWICK CORPORATION

CONSOLIDATED BALANCE SHEETS

The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
48

BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
49

BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
50

BRUNSWICK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation. The consolidated financial statements of
Brunswick Corporation (the Company) include the accounts of all consolidated
domestic and foreign subsidiaries, after eliminating transactions between the
Company and such subsidiaries.

Reclassifications. Certain previously reported amounts have been
reclassified to conform with current-year reporting.

Use of 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. Actual results could differ
materially from those estimates. These estimates affect:

- The reported amounts of assets and liabilities,
- The disclosure of contingent assets and liabilities at the date of the
financial statements, and
- The reported amounts of revenues and expenses during the reporting
periods.

Estimates in these consolidated financial statements include, but are not
limited to:

- Losses on litigation and other contingencies;
- Warranty, extended warranties, income tax, insurance, inventory valuation
and environmental reserves;
- Allowances for doubtful accounts;
- Reserves for dealer allowances;
- Reserves related to restructuring activities;
- Determination of the discount rate and other actuarial assumptions for
pension, postretirement and postemployment liabilities;
- The valuation of investments, and;
- The loss on the disposal of the discontinued operations.

Cash and cash equivalents. The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.

Accounts Receivable and Allowance for Doubtful Accounts. The Company
carries its accounts receivable at their face amounts less an allowance for
doubtful accounts. On a regular basis, the Company records an allowance for
uncollectible receivables based upon past transaction history with customers,
customer payment practices and economic conditions. Actual collection experience
may differ from the current estimate of net receivables. A change to the
allowance for uncollectible amounts may be required if a future event or other
change in circumstances results in a change in the estimate of the ultimate
collectibility of a specific account.

Inventories. Inventories are valued at the lower of cost or market, with
market based on replacement cost or net realizable value. Approximately 63
percent of the Company's inventories were determined by the first-in, first-out
method (FIFO). Inventories valued at the last-in, first-out method (LIFO) were
$85.7 million and $83.6 million lower than the FIFO cost of inventories at
December 31, 2002 and 2001, respectively. Inventory cost includes material,
labor and manufacturing overhead.

Property. Property, including major improvements and product tooling
costs, is recorded at cost. Product tooling costs principally comprise the cost
to acquire and construct various long-lived molds, dies and other tooling owned
by the Company and used in its manufacturing processes. Design and prototype
development costs associated with product tooling are expensed as incurred.
Maintenance and repair costs are also expensed as incurred. Depreciation is
recorded over the estimated service lives of the related assets, principally
using the straight-line method. Buildings and improvements are depreciated over
a useful life of five to forty years. Equipment is depreciated over a useful
life of two to twenty years. Product tooling costs are amortized over the
shorter of the useful life of the tooling or the useful life of the applicable
product, for a period not to exceed eight years. Gains and losses recognized on
the sale of property are included in selling,

51

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

general and administrative (SG&A) expenses. The amount of gains and losses
included in SG&A as of December 31 were as follows (in millions):

The gains on the sale of property in 2001 included gains recognized on the
sale of a marine engine testing facility for $10.6 million. Gains on the
divestiture of certain bowling centers were $2.7 million and $6.0 million in
2001 and 2000, respectively.

Software development costs. The Company expenses all software development
and implementation costs incurred until the Company has determined that the
software will result in probable future economic benefit and management has
committed to funding the project. Once this is determined, external direct costs
of material and services, payroll-related costs of employees working on the
project and related interest costs incurred during the application development
stage are capitalized. These capitalized costs are amortized over three to seven
years, beginning when the system is placed in service. Training costs and costs
to re-engineer business processes are expensed as incurred.

Goodwill and Other Intangibles. Goodwill and other intangible assets
generally result from business acquisitions. The excess of cost over net assets
of businesses acquired is recorded as goodwill.

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," which requires that, effective
January 1, 2002, goodwill and certain other intangible assets deemed to have an
indefinite useful life are no longer amortized. SFAS No. 142 does not require
retroactive restatement for all periods presented; however, the comparative pro
forma information below for 2001 and 2000 assumes that SFAS No. 142 was in
effect beginning January 1, 2000.

PRO FORMA INFORMATION

52

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under SFAS No. 142, while amortization of goodwill and certain other
intangible assets is no longer permitted, these accounts must be reviewed
annually for impairment. The impairment test for goodwill is a two-step process.
The first step is to identify when goodwill impairment has occurred by comparing
the fair value of a reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying amount, goodwill of
the reporting unit is not considered impaired. If the carrying amount of the
reporting unit exceeds its fair value, the second step of the goodwill test
should be performed to measure the amount of the impairment loss, if any. In
this second step, the implied fair value of the reporting unit's goodwill is
compared with the carrying amount of the goodwill. If the carrying amount of the
reporting unit's goodwill exceeds the implied fair value of that goodwill, an
impairment loss should be recognized in an amount equal to that excess, not to
exceed the carrying amount of the goodwill.

The Company completed both steps of the process described above in the
second quarter of 2002 and recorded a one-time, non-cash charge of $25.1 million
after-tax ($29.8 million pre-tax) to reduce the carrying amount of its goodwill
effective January 1, 2002. Such charge is reflected as a cumulative effect of
change in accounting principle in the accompanying Consolidated Statements of
Income. In calculating the impairment charge, the fair value of the impaired
reporting units underlying the segments was estimated using a discounted cash
flow methodology.

All of the $25.1 million after-tax goodwill impairment charge is associated
with the Fitness and Bowling & Billiards segments. Various bowling products
businesses acquired in 1996 account for $11.7 million of the after-tax goodwill
impairment ($13.3 million pre-tax). The remaining $13.4 million after-tax charge
($16.5 million pre-tax) is associated with a fitness equipment retailer acquired
beginning in 1999.

Other intangibles consist of the following (in millions):

* Gross amounts and related accumulated amortization amounts include adjustments
related to the impact of foreign currency translation and changes in the fair
value of net assets subject to purchase accounting adjustments, primarily
arising from the Teignbridge Propellers, Ltd. (Teignbridge), Integrated Dealer
Systems, Inc. (IDS) and Northstar Technologies, Inc., (Northstar) acquisitions
completed in 2002 and the Sealine International (Sealine) and Hatteras Yachts,
Inc. (Hatteras) acquisitions completed in the third and fourth quarters of
2001, respectively.

The costs of definite-lived intangible assets are amortized over their
expected useful lives using the straight-line method. Aggregate amortization
expense for other intangibles was $12.0 million, $13.5 million and $12.4 million
for the years ended December 31, 2002, 2001 and 2000, respectively.

53

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Estimated amortization expense for definite-lived intangibles for each of
the next five years is as follows (in millions):

For year ended December 31, 2003............................ $12.3
For year ended December 31, 2004............................ $12.2
For year ended December 31, 2005............................ $ 1.4
For year ended December 31, 2006............................ $ 1.3
For year ended December 31, 2007............................ $ 1.3

The reduction in estimated amortization expense in 2005 relates to the
completion of intangible amortization assigned to dealer network costs from the
1986 acquisition of the Boat segment's Sea Ray operations.

A summary of changes in the Company's goodwill during the period ended
December 31, 2002, by segment is as follows (in millions):

* Adjustments primarily relate to the impact of foreign currency translation and
changes in the fair value of net assets subject to purchase accounting
adjustments, primarily arising from the Teignbridge, IDS and Northstar
acquisitions completed in 2002 and the Sealine and Hatteras acquisitions
completed in the third and fourth quarters of 2001, respectively.

Investments. The Company accounts for its long-term investments that
represent less than 20 percent ownership using SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has investments
in certain equity securities that have readily determinable market values and
are being accounted for as Available-for-Sale equity investments in accordance
with SFAS No. 115. Therefore, these investments are recorded at market value
with changes reflected in other comprehensive income, a component of
shareholders' equity, on an after-tax basis.

Other investments for which the Company does not have the ability to
exercise significant influence and for which there is not a readily determinable
market value are accounted for under the cost method of accounting. The Company
periodically evaluates the carrying value of its investments and, at December
31, 2002 and 2001, such investments were recorded at the lower of cost or fair
value.

For investments in which the Company owns or controls from 20 percent to 50
percent of the voting shares, the equity method of accounting is used. The
Company's share of net earnings or losses from equity method investments is
outlined in NOTE 17, INVESTMENTS, and is included in the Consolidated Statements
of Income.

Long-lived assets. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the Company continually evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful lives of its intangible assets, excluding goodwill, and other
long-lived assets, may warrant revision or that the remaining balance of such
assets may not be recoverable. The

54

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company uses an estimate of the related undiscounted cash flows over the
remaining life of the asset in measuring whether the asset is recoverable.

Other long-term assets. Other long-term assets include pension assets,
which are discussed in NOTE 13, PENSION AND OTHER POSTRETIREMENT BENEFITS, and
long-term notes receivable. Long-term notes receivable include cash advances
made to customers, principally boatbuilders and fitness equipment retailers, or
their owners, in connection with long-term supply arrangements. These
transactions have occurred in the normal course of business and are backed by
secured or unsecured notes receivable that are reduced as purchases of
qualifying products are made. Credits earned by these customers through
qualifying purchases are applied to the outstanding note balance in lieu of
payment. The reduction in the note receivable balance is recorded as a reduction
in the Company's sales revenue as a sales discount. In the event sufficient
orders are not received, the outstanding balance remaining under the notes is
subject to full collection. Amounts outstanding related to these arrangements as
of December 31, 2002 and 2001, totaled $46.0 million and $53.9 million,
respectively. One boatbuilder customer and its owner comprised 69 percent of
these amounts as of both December 31, 2002 and 2001.

Other long-term notes receivable also include certain agreements that
provide for the assignment of lease and other long-term receivables originated
by the Company to third parties. Refer to NOTE 7, FINANCIAL COMMITMENTS, for
further discussion. The assignment is not treated as a sale of the associated
receivables, but as a secured obligation under SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The associated receivables and related obligations are included in Consolidated
Balance Sheets under Other Long-Term Assets and Deferred Items - Other,
respectively.

Advertising costs. Advertising and promotion costs, included in selling,
general and administrative expenses, are expensed in the year in which the
advertising first takes place. Advertising and promotion costs were $55.3
million, $67.7 million and $86.0 million for the years ended December 31, 2002,
2001 and 2000, respectively.

Revenue recognition. The Company's revenue is derived primarily from
product sales. Revenue is recognized in accordance with the terms of the sale,
primarily upon shipment to customers, once the sales price is fixed or
determinable, and collectibility is reasonably assured. The Company offers
discounts and sales incentives that include retail promotional activities,
rebates and manufacturer coupons. The estimated liability for sales incentives
is recorded at the later of when the program has been communicated to the
customer or at the time of sale in accordance with Emerging Issues Task Force
(EITF) No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of a Vendor's Products)." Shipping and handling costs are
included as a part of Cost of Sales in the Consolidated Statements of Income.

Comprehensive income. Accumulated other comprehensive income includes
minimum pension liability adjustments, currency translation adjustments, and
unrealized derivative and investment gains and losses. The net effect of these
items reduced Shareholders' equity on a cumulative basis by $145.8 million in
2002 and $44.7 million in 2001. The $101.1 million change from 2001 to 2002 is
primarily due to the Company recording a minimum pension liability adjustment of
$115.7 million in 2002. The tax effect included in accumulated other
comprehensive income was $93.0 million, $28.6 million, and $14.3 million for the
years ended December 31, 2002, 2001 and 2000, respectively. Refer to NOTE 13,
PENSION AND OTHER POSTRETIREMENT BENEFITS, for further discussion on the
recognition of the additional minimum pension liability adjustment.

Stock-based Compensation. See NOTE 12, STOCK PLANS AND MANAGEMENT
COMPENSATION, for a description of the Company's stock-based compensation plans.
Effective December 31, 2002, the Company adopted the disclosure provisions of
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." As it relates to stock options, the Company continues to apply the
provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees." Under APB No. 25, no compensation cost related to
stock options granted has been recognized in the Company's Consolidated

55

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statements of Income because the option terms are fixed and the exercise price
equals the market price of the underlying stock on the grant date. In accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," the fair value of
option grants is estimated on the date of grant using the Black-Scholes option
pricing model for pro forma footnote purposes.

The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to all its outstanding stock option plans as of December 31:

Derivatives. The Company uses derivative financial instruments to manage
its risk associated with movements in foreign currency exchange rates, interest
rates and commodity prices. These instruments are used in accordance with
guidelines established by the Company's management and are not used for trading
or speculative purposes. See NOTE 8, FINANCIAL INSTRUMENTS, for further
discussion.

Effective January 1, 2001, the Company adopted SFAS Nos. 133/138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
Under SFAS Nos. 133/138, all derivative instruments are recognized on the
balance sheet at fair values. As a result of the adoption of this standard, on
January 1, 2001, the Company recorded a $2.9 million after-tax loss ($4.7
million pre-tax) as a cumulative effect of a change in accounting principle,
primarily resulting from interest rate swaps.

Recent Accounting Pronouncements. Effective January 1, 2002, the Company
adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 supersedes both SFAS No. 121 and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business (as previously defined in that Opinion).
The adoption of SFAS No. 144 did not have a material impact on the financial
statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company
believes the adoption of, FAS No. 146 will not have a material impact on the
financial statements.

56

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In November 2002, the FASB issued Interpretation No. 45 (FIN 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."
This interpretation clarifies the requirements for a guarantor's accounting for
and disclosures of certain guarantees issued and outstanding. FIN 45 also
clarifies the requirements related to the recognition of a liability by a
guarantor at the inception of a guarantee. FIN 45 is effective for guarantees
entered into or modified after December 31, 2002. The Company has not determined
the impact FIN 45 will have on the financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities - An Interpretation of Accounting
Research Bulletin (ARB) No. 51." This interpretation clarifies how to identify
variable interest entities and how the Company should assess its interests in a
variable interest entity to decide whether to consolidate the entity. FIN 46
applies to variable interest entities created after January 31, 2003, in which
the Company obtains an interest after that date. Also, FIN 46 applies in the
first fiscal quarter or interim period beginning after June 15, 2003, to
variable interest entities in which the Company holds a variable interest that
it acquired before February 1, 2003. The Company has not determined the impact
FIN 46 will have on the financial statements.

2. EARNINGS PER COMMON SHARE

There is no difference in the net earnings used to compute basic and
diluted earnings per share. The difference in the average number of shares of
common stock outstanding used to compute basic and diluted earnings per share is
primarily the amount of common stock equivalents relating to unexercised
outstanding employee stock options. The average number of shares of common stock
equivalents was 0.7 million in 2002, 0.3 million in 2001 and less than 0.1
million in 2000.

3. SEGMENT INFORMATION

The Company is a manufacturer and marketer of leading consumer brands. In
the fourth quarter of 2002, the Company re-evaluated the composition of its
reportable segments and determined that its four reportable segments are Marine
Engine, Boat, Fitness and Bowling & Billiards. The segment information for all
periods presented has been reclassified for consistent presentation.

The Marine Engine segment manufactures and markets a full range of outboard
engines, sterndrive engines, inboard engines, water-jet propulsion systems and
parts and accessories, which are principally sold directly to boatbuilders,
including the Company's Boat segment, or through marine retail dealers
worldwide. The segment also manufactures and distributes boats in certain
international markets. The Company's engine manufacturing plants are located
primarily in the United States, and sales are primarily in the United States,
Europe and Asia.

The Boat segment designs, manufactures and markets fiberglass pleasure
boats, high-performance boats, offshore fishing boats and aluminum fishing, deck
and pontoon boats, which are marketed primarily through dealers. The segment's
boat plants are located in the United States, Canada, Mexico and the United
Kingdom and sales are primarily in the United States. Sales to one dealer, with
multiple locations, comprised approximately 21 percent of Boat segment sales in
2002.

The Fitness segment designs, manufactures, and markets fitness equipment,
including treadmills, total-body cross-trainers, stationary bikes and
strength-training equipment. These products are manufactured or sourced from
domestic or foreign locations. Fitness equipment is sold primarily in the United
States, Europe and Asia to health clubs, military, government, corporate and
university facilities, and to consumers through specialty retail shops.

57

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Bowling & Billiards segment manufactures, designs and markets bowling
capital equipment and associated parts and supplies, including lanes,
pinsetters, automatic scorers; bowling balls and other accessories; billiards
tables and accessories; and operates bowling centers. Products are manufactured
or sourced from domestic and foreign locations. Bowling products are sold
through a direct sales force in the United States and through distributors in
foreign markets, primarily Europe and Asia. Billiards equipment is predominantly
sold in the United States and is distributed primarily through dealers.

Information as to the operations of the Company's operating segments is set
forth below:

OPERATING SEGMENTS

* For a description of the unusual charges in 2000, refer to NOTE 4, UNUSUAL
CHARGES.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GEOGRAPHIC SEGMENTS

The Company evaluates performance based on business segment operating
earnings. Operating earnings of segments do not include the expenses of
corporate administration, other expenses and income of a non-operating or
strategic nature, or provisions for income taxes. Corporate assets consist
primarily of prepaid income taxes, cash and marketable securities, pension
assets and investments in unconsolidated affiliates.

4. UNUSUAL CHARGES

Unusual charges included a $55.1 million pre-tax unusual charge recorded in
the third quarter of 2000 to increase environmental reserves ($41.0 million)
related to the cleanup of contamination from a former manufacturing facility and
to account for the write-down of investments in certain Internet-related
businesses ($14.1 million).

5. ASSET WRITE-DOWNS AND STRATEGIC CHARGES

In the third quarter of 1998, the Company recorded a pre-tax charge of
$50.8 million ($35.1 million after-tax) to operating earnings. The charge
covered exit and asset disposition costs related to strategic initiatives taken
in the bowling business largely in response to the effect of the Asian economic
situation. The 1998 strategic charge includes lease termination costs, severance
costs, other incremental costs and asset disposition costs. These actions were
substantially completed during 1999.

The Company's activity relating to strategic charges, included as part of
accrued expenses, at December 31, 2002, 2001 and 2000, were as follows (in
millions):

The remaining reserves relate principally to the strategic actions taken in
1998. Lease termination costs are expected to be paid out over the contractual
terms of the leases.

6. ACQUISITIONS

The Company adopted SFAS No. 141, "Business Combinations," which requires
that all business combinations initiated after June 30, 2001, be accounted for
under the purchase method.

59

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash paid for acquisitions, net of cash acquired, totaled $21.2 million for
2002, comprised primarily of consideration paid for Teignbridge, a manufacturer
of custom and standard propellers and underwater stern gear for inboard-powered
vessels; IDS, a developer of management systems for marine and recreational
vehicle dealers; Northstar, a supplier of premium marine navigation electronics;
and additional consideration relating to the November 30, 2001, acquisition of
Hatteras. Teignbridge, IDS and Northstar were acquired on February 10, 2002,
October 1, 2002, and December 16, 2002, respectively, and their results of
operations are included in the Marine Engine segment post-acquisition.

Cash paid for acquisitions, net of debt and cash acquired, totaled $134.4
million for 2001, comprised primarily of consideration paid for Princecraft
Boats Inc. (Princecraft), a manufacturer of aluminum fishing, deck and pontoon
boats; Sealine, a leading manufacturer of luxury sports cruisers; and Hatteras,
a leading manufacturer of luxury sportfishing convertibles and motoryachts. The
Company acquired Princecraft on March 7, 2001. The Company acquired assets
including inventory, net property, plant and equipment and a trademark. The
Company acquired the stock of Sealine on July 3, 2001, for total consideration
of approximately $68 million. The acquisition was funded through approximately
$38 million in cash, the assumption of debt and the issuance of notes to certain
sellers. The Company acquired the stock of Hatteras on November 30, 2001, for
approximately $86 million in cash, of which $81 million was paid in 2001. The
transaction provides for an additional payment of up to $20 million based on the
financial performance of Hatteras during the period ending June 30, 2003.
Princecraft, Sealine and Hatteras' results are included in the Boat segment
since the date of their acquisition. All three acquisitions have been accounted
for as a purchase.

In addition, the Company also acquired the remaining interest in Omni
Fitness Equipment, Inc. (Omni Fitness), a domestic retailer of fitness
equipment, effective February 28, 2001. Omni Fitness' results are included in
the Fitness segment, and the acquisition has been accounted for as a purchase.
The Company acquired the remaining interest in satisfaction of a note with the
previous owner. The Company had previously accounted for its interest in Omni
Fitness under the equity method of accounting. The Company also acquired some
bowling centers included in the Bowling & Billiards segment, which were not
material to the Company.

The purpose of the acquisitions was to achieve growth by pursuing
aggressive marketing and brand-building activities, pursuing international
opportunities and leveraging core competencies. The acquisitions of Northstar
and IDS were to build Brunswick New Technologies (BNT), which was established in
2002 and are included in the Marine Engine segment. BNT will expand the
Company's product offerings in marine electronics, engine controls, navigation
systems, management systems and related equipment for use in the marine industry
and in non-marine applications. Acquisitions in 2002 were not material to the
Company's results of operations and total assets. The 2001 acquisitions resulted
in goodwill of $96.3 million. Acquisitions in 2001 were not material to the
Company's results of operations and total assets. No acquisitions occurred in
2000.

7. COMMITMENTS AND CONTINGENCIES

Financial Commitments. The Company has entered into agreements, which are
customary in the marine industry, that provide for the repurchase of its
products from a financial institution in the event of repossession upon a
dealer's default. Repurchases and losses incurred under these agreements have
not had a significant effect on the Company's results of operations. The maximum
potential repurchase commitments were approximately $189 million at December 31,
2002, and approximately $205 million at December 31, 2001.

The Company also has various agreements with financial institutions that
provide limited recourse on customer obligations relating to bowling capital
equipment, fitness equipment and marine equipment sales. Recourse losses have
not had a significant effect on the Company's results of operations. The maximum
potential recourse liabilities outstanding under these programs at December 31,
2002 and 2001, were approximately $41 million and $47 million, respectively.
60

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other long-term notes include certain agreements that provide for the
assignment of lease and other long-term receivables originated by the Company to
third parties. The assignment is not treated as a sale of the associated
receivables, but as a secured obligation under SFAS No. 140. The associated
receivables and related obligations are included in Other Long-Term Assets and
Deferred Items - Other, respectively, and totaled $91.7 million and $88.5
million at December 31, 2002 and 2001, respectively.

The Company had outstanding standby letters of credit, surety bonds and
other financial guarantees of $167.0 million and $182.6 million at December 31,
2002 and 2001, respectively, representing conditional commitments whereby a
third party has guaranteed the Company's ability to satisfy certain liabilities
or obligations. Included in the amounts for 2002 and 2001 is a $79.8 million
surety bond to secure payment of tax deficiencies plus accrued interest related
to the Company's appeal of a United States Tax Court determination. Refer to
NOTE 14, INCOME TAXES, for a description of the Company's reserve established in
connection with the Tax Court matter. The Company also has $60.4 million and
$50.2 million of standby letters of credit and surety bonds outstanding at
December 31, 2002 and 2001, respectively, primarily in connection with its
self-insurance workers' compensation program as required by its insurance
companies and various state agencies. Under certain circumstances, such as an
event of default under the Company's revolving credit facility, described
further in NOTE 10, DEBT, 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. Included in the
amount for 2001 was a $13.0 million surety bond to secure damages awarded in
October 1999 in a suit against the Company, pertaining to the Fitness segment,
while the Company pursued an appeal. In 2002, the lawsuit was settled and the
surety bond relinquished. The remaining letters of credit, surety bonds and
other financial guarantees are comprised of guarantees of payment for subsidiary
debt, certain performance obligations and other guarantees issued in the
ordinary course of business.

Product Warranties. The Company records a liability for standard 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 are reasonably estimable. The Company's warranty reserves are
affected by product failure rates and material usage and labor costs incurred in
correcting a product failure. If these estimated costs differ from actual
product failure rates, and actual material usage and labor costs, a revision to
the warranty reserve would be required.

Additionally, the Company's customers may purchase a warranty contract that
extends product protection beyond the standard product warranty period. A
deferred liability is recorded based on the amount of contracts sold, and
recognized into income over the contract period in proportion to the costs
expected to be incurred.

The following activity related to product warranty liabilities at December
31, 2002, was recorded in Accrued Expenses and Deferred Items-Other (in
millions):

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

61

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

On April 18, 2002, the Company, in cooperation with the United States
Consumer Products Safety Commission, announced a recall of approximately 103,000
bicycles that were sold by the Company's former bicycle division. The bicycles
had been equipped with suspension forks that were purchased from a third party
supplier. Some of the forks were found to have been defectively manufactured and
were involved in approximately 55 reported incidents. The 2002 recall was an
expansion of a prior recall involving the suspension forks, and allows consumers
who purchased bicycles with an affected fork to return the fork in exchange for
$65 or a replacement bicycle. In addition to the costs of administering the
recall, the Company anticipates that it will incur additional costs to resolve
litigation stemming from the sale of the bike forks, and faces a potential fine
from the CPSC based on inadvertent delays in reporting several of the incidents
involving the forks. The Company does not believe that the resolution of this
matter will have a material adverse effect on the Company's consolidated
financial position or results of operations.

On April 22, 2002, a federal court in Seattle lifted a stay in a lawsuit
filed against Life Fitness by Precor Incorporated (Precor). The suit, which
alleges that certain of Life Fitness' cross trainer exercise machines infringe
Precor's Miller '829 patent, was stayed by the court pending reexamination of
the patent by the U.S. Patent and Trademark Office (PTO). The PTO issued a
modified Miller '829 patent to Precor on March 5, 2002, which led to the lifting
of the stay. Trial is scheduled for July 14, 2003. This matter was initiated in
January 2000 and seeks monetary damages and injunctive relief. The Company does
not believe that its machines infringe the patent, as modified, but is unable to
predict the outcome of this matter.

In a separate lawsuit between the Company and Precor, a federal court in
Seattle awarded Precor approximately $230,000 in attorneys' fees on June 14,
2002. The award was reduced from $5.3 million in light of an appellate court
ruling in the case. This matter was originally filed in 1994 and sought monetary
damages and injunctive relief. The Company believes that this matter, which was
originally filed in 1994, has been finally concluded.

During the fourth quarter of 2002, the Company settled a patent
infringement lawsuit filed against it by CCS Fitness, Inc. (CCS). CCS had
alleged that a front-drive cross trainer manufactured by Life Fitness infringed
a patent held by CCS. This matter was initiated in 1998 and sought monetary
damages and injunctive relief. In light of the settlement, the matter was
dismissed with prejudice.

On May 30, 2002, Leiserv, Inc. (Leiserv), a Company subsidiary operated by
the Bowling & Billiards segment, was sued in the Circuit Court of St. Louis
County, Missouri, for alleged violations of the federal Telephone Consumer
Protection Act. The lawsuit was brought as a putative class action seeking
monetary damages on behalf of all people and entities within two area codes in
the St. Louis area who allegedly received unsolicited faxes from a service
provider retained by Leiserv. Because this case remains in the early stages of
litigation and raises legal issues that have not yet been fully resolved by the
courts, the Company is unable to predict the outcome of this matter.

On December 3, 2002, the United States Supreme Court reversed an Illinois
Supreme Court decision that had been entered in the Company's favor in Sprietsma
vs. Mercury Marine, a "propeller guard" case. In its decision, the U.S. Supreme
Court rejected one of the defenses the Company had successfully asserted in
Sprietsma and other cases based on federal preemption of state law. The case,
which was initiated in July 1996 and sought monetary damages, was remanded to
the Illinois court for further consideration. The Company believes that it has a
number of other valid defenses to the claims asserted in Sprietsma, and does not
believe that the resolution of this matter will have a material adverse effect
on the Company's consolidated financial position or results of operations.

62

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has been named in a number of asbestos-related lawsuits, the
majority of which involve Vapor Corporation, a former subsidiary which the
Company divested in 1990. Virtually all of the asbestos suits against the
Company involve numerous other defendants. The claims generally allege that the
Company sold products that contained components, such as gaskets, that included
asbestos, and seek monetary damages from the Company Neither the Company nor
Vapor is alleged to have manufactured asbestos. The Company's insurers have
settled a number of asbestos claims for nominal amounts, while a number of other
claims have been dismissed. No suit has yet gone to trial. The Company does not
believe that the resolution of these lawsuits will have a material adverse
effect on the Company's consolidated financial position or results of
operations.

In 1999, the United States Tax Court upheld an Internal Revenue Service
(IRS) determination that resulted in the disallowance of capital losses and
other expenses from two partnership investments for 1990 and 1991. In 2000, the
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. In late
2001, the Court of Appeals rendered a decision vacating the Tax Court's opinion
and remanded the case to the Tax Court for reconsideration. If the Company does
not ultimately prevail, it will owe approximately $135 million, consisting of
$60 million in taxes due plus $75 million of interest, net of tax. The Company
has previously settled a number of other issues with the IRS on open tax years
1989 through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments, to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
does not anticipate any material adverse effects on its consolidated financial
position or results of operations in the event of an unfavorable resolution of
this matter. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.

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

The environmental remediation and clean-up projects in which the Company is
involved have an aggregate estimated range of exposure of approximately $36.3
million to $68.5 million as of December 31, 2002. At December 31, 2002 and 2001,
the Company had reserves for environmental liabilities of $61.7 million and
$62.6 million, respectively. Environmental provisions were $0.5 million, $1.7
million and $43.1 million for the years ended December 31, 2002, 2001 and 2000,
respectively. The provision for the year ended December 31, 2000, includes a
$41.0 million charge resulting from an increase in the estimated cost of
remediation of contamination alleged to have come from a former manufacturing
facility of the Company.

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

8. FINANCIAL INSTRUMENTS

The Company engages in business activities involving both financial and
market risks. The Company uses derivative financial instruments to manage its
risks associated with movements in foreign currency exchange
63

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rates, interest rates and commodity prices. Derivative instruments are not used
for trading or speculative purposes. The effects of derivative and financial
instruments are not expected to be material to the Company's financial position
or results of operations.

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 December 31, 2002 and 2001, the fair value of the
Company's long-term debt was $602.1 million and $569.6 million, respectively, as
estimated using quoted market prices or discounted cash flows based on market
rates for similar types of debt. 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.

Forward Exchange Contracts. The Company enters into forward exchange
contracts and options to manage foreign exchange exposure related to
transactions, 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 December
31, 2002 and 2001, had contract values of $54.3 million and $18.4 million,
respectively. The approximate fair value of forward exchange contracts was a
$1.7 million and $0.1 million liability at December 31, 2002 and 2001,
respectively. Option contracts outstanding at December 31, 2002 and 2001, had
contract values of $96.4 million and $49.4 million, respectively. The
approximate fair value of options contracts outstanding was a $1.7 million and
$0.7 million liability at December 31, 2002 and 2001, respectively. The forward
and options contracts outstanding at December 31, 2002, mature during 2003 and
relate primarily to the Japanese yen, Euro and British pound.

Interest Rate Swaps. The Company enters into interest rate swap agreements
to reduce the impact of changes in interest rates on the Company's borrowings.
The Company did not enter into any interest rate swap agreements in 2002. In
2001, the Company entered into four fixed-to-floating interest rate swaps with a
notional amount of $150.0 million, which were terminated during 2002 in advance
of their scheduled termination date in 2006. The Company recognized a deferred
gain of $12.2 million, which is included in long-term debt, and will be
amortized through 2006 based upon the underlying debt obligation. The estimated
aggregate market value of these four agreements was a gain of less than $0.1
million at December 31, 2001.

Commodity Swaps. The Company uses commodity swap agreements to hedge
anticipated purchases of certain raw materials. Commodity swap contracts
outstanding at December 31, 2002 and 2001, had notional values of $31.2 million
and $34.5 million, respectively. At December 31, 2002 and 2001, the estimated
fair value of these swap contracts was a net liability of $1.2 million and $2.7
million, respectively. The contracts outstanding at December 31, 2002, mature
throughout 2003 and 2004.

Credit Risk. The Company enters into financial instruments with banks and
investment firms with which the Company has continuing business relationships
and regularly monitors the credit ratings of its counterparties. The Company
sells a broad range of active recreation products to a worldwide customer base
and extends credit to its customers based upon an on-going credit evaluation
program and security is obtained if required. Concentrations of credit risk with
respect to accounts receivable are not material to the Company's financial
position, due to the large number of customers comprising the Company's customer
base and their dispersion across many different geographic areas, with the
exception of one boatbuilder customer who had long-term notes and accounts
receivable outstanding of $47.7 million and $50.1 million at December 31, 2002
and 2001, respectively.

Accounting for Derivatives. Effective January 1, 2001, the Company adopted
SFAS Nos. 133/138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." Under SFAS Nos. 133/138, all derivative instruments are
recognized on the balance sheet at their fair values. As a result of

64

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the adoption of this standard, in the first quarter of 2001, the Company
recorded a $2.9 million after-tax loss ($4.7 million pre-tax) as a cumulative
effect of a change in accounting principle, primarily resulting from interest
rate swaps.

Cash Flow Hedges -- Certain derivative instruments qualify as cash flow
hedges under the requirements of SFAS Nos. 133/138. The Company executes forward
contracts and options, based on forecasted transactions, to manage foreign
exchange exposure mainly related to inventory purchase transactions. The Company
also enters into commodity swap agreements, based on anticipated purchases of
certain raw materials, to manage exposure related to risk from price changes.

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 income, an equity account, and reclassified
into earnings in the same period or periods during which the hedged transaction
affects earnings. Any ineffective portion of a derivative instrument's change in
fair value is recorded directly in other income (expense). The ineffective
portion of derivative transactions, including the premium or discount on option
contracts, was not material to the results of operations for the year ended
December 31, 2002.

The following activity related to cash flow hedges for the year ended
December 31, 2002, was recorded in accumulated other comprehensive loss (in
millions):

The Company estimates that $0.2 million of after-tax net derivative losses
deferred in accumulated other comprehensive loss will be realized in earnings
over the next 12 months. At December 31, 2002, the term of derivative
instruments hedging forecasted transactions ranges from one to twenty-four
months.

Fair Value Hedges -- During 2002, the Company entered into foreign currency
forward contracts, which qualify as fair value hedges under the requirements of
SFAS Nos. 133/138. The Company enters into foreign currency forward contracts to
hedge the changes in the fair value of receivables or payables associated with
changes in the exchange rates of foreign currencies. A fair value hedge requires
that the change in the fair value of the forward contract and the corresponding
change in the fair value of the receivable or payable of the Company's be
recorded through earnings, with any difference reflecting the ineffectiveness of
the hedge. Any ineffective portion of a derivative instrument's change in fair
value is recorded directly in other income (expense) and was not material to the
results of operations for the year ended December 31, 2002.

65

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. ACCRUED EXPENSES

Accrued expenses at December 31 were as follows (in millions):

10. DEBT

Short-term debt at December 31 consisted of the following (in millions):

Long-term debt at December 31 consisted of the following (in millions):

In the fourth quarter of 2002, the Company deferred a realized gain of
$12.2 million on the termination of interest rate swaps in advance of their
scheduled termination date. This amount was reported in long-term debt and is
included in Fair value adjustments and other. The deferred gain will be
amortized through 2006

66

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based upon the underlying debt, reducing interest expense. The amount of
deferred gain included in Fair value adjustments and other was $11.5 million at
December 31, 2002.

The Company has a $350.0 million long-term revolving credit agreement with
a group of banks, which terminates on November 15, 2005. Under the terms of the
agreement, the Company has multiple borrowing options, including borrowing at
the greater of the prime rate as announced by JPMorgan Chase Bank or the Federal
Funds effective rate plus 0.5 percent, or a rate tied to the LIBOR rate. The
Company pays a facility fee of 15 basis points per annum. Under the terms of the
agreement, the Company is subject to a leverage test, as well as a restriction
on secured debt. The Company was in compliance with these covenants at December
31, 2002. There were no borrowings under the revolving credit agreement during
2002, and the agreement continues to serve as support for commercial paper
borrowings when commercial paper is outstanding. The Company has the ability to
issue up to $100.0 million in letters of credit within the revolving credit
facility, with $66.1 million in letters of credit outstanding at December 31,
2002. The Company had borrowing capacity of $283.9 million under the terms of
this agreement at December 31, 2002, net of outstanding letters of credit.

11. DISCONTINUED OPERATIONS

During 2000, the Company announced its intention to divest the following
businesses that comprised its former outdoor recreation segment: fishing,
camping, bicycle, cooler, marine accessories and hunting sports accessories. The
consolidated financial statements for all periods have been restated to present
these businesses as discontinued operations in accordance with APB Opinion No.
30.

The Company substantially completed the disposal of its outdoor recreation
segment in 2001. The net assets of discontinued operations offered for sale were
zero at December 31, 2001, and $107.4 at December 31, 2000. Net assets of
discontinued operations offered for sale consisted of current assets and
liabilities and net property, plant and equipment for these operations, net of a
reserve for disposal. On December 31, 2002, the Company decided to retain its
marine accessories businesses after efforts to sell were unsuccessful. The
financial results of these businesses operating under the brand names
MotorGuide, Pinpoint and Swivl-Eze, were not material to the Company's
consolidated financial statements.

The Company completed the sale of its hunting sports accessories, North
American fishing and cooler business in 2001 and received cash proceeds of
approximately $74 million and notes which were valued at their estimated market
value of approximately $10 million. The Company completed the sale of its
bicycle and camping businesses in 2000 and received cash proceeds of
approximately $59 million and notes, which were valued at their estimated market
value of approximately $3 million.

Results from discontinued operations for the years ended December 31, 2002,
2001 and 2000 were as follows (in millions):

Losses from discontinued operations included the results of operations from
the businesses to be disposed as follows: hunting sports accessories, marine
accessories and cooler businesses through September 30, 2000, and fishing,
camping and bicycle businesses through June 30, 2000. Losses relating to these
businesses subsequent to these dates were estimated and provided for in the loss
on the disposition of these businesses.

67

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The 2000 loss from discontinued operations, $104.6 million pre-tax,
included the write-off of goodwill and other long-term assets related to the
camping business ($76.0 million pre-tax, $50.0 million after-tax) that was
recorded in the second quarter of 2000. The write-off was necessary as the
Company determined that additional actions would not improve operating
performance to levels sufficient to recover its investment in these assets. Also
included were asset write-downs and restructuring costs, primarily severance in
the fishing and camping businesses, necessitated by a change in business
conditions and the decision to outsource the manufacture of fishing reels that
were previously manufactured in-house.

The loss from disposal recorded in 2000 totaled $305.3 million pre-tax and
$229.6 million after-tax. The losses associated with the disposition of these
businesses were based on an estimate of cash proceeds, net of costs to sell,
along with an estimate of results of operations for these businesses from the
date the decision was made to dispose of the businesses through the actual
disposition date. The tax benefits associated with the disposal reflect the
non-deductibility of losses on the sale of the cooler business. Cash generated
from these dispositions, including cash proceeds, net of costs to sell, cash
required to fund operations through disposition and related tax benefits
realized in connection with the divestitures, was approximately $275 million
after-tax through December 31, 2001.

12. STOCK PLANS AND MANAGEMENT COMPENSATION

Under the 1991 Stock Plan, the Company may grant stock options, stock
appreciation rights, restricted stock and other types of awards to executives
and other management employees. Issuances under the plan may be from either
authorized but unissued shares or treasury shares. As of December 31, 2002, the
plan allows for the issuance of a maximum of 16.2 million shares. Shares
available for grant totaled 0.6 million at December 31, 2002.

Stock options issued are generally exercisable over a period of 10 years,
or as determined by the Human Resource and Compensation Committee of the Board
of Directors. Options generally vest over three to five years, or immediately in
the event of a change in control. The option price per share cannot be less than
the fair market value at the date of grant. The Company has additional stock and
stock option plans to provide for compensation of nonemployee directors. Stock
option activity for all plans for the three years ended December 31, was as
follows:

68

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 2002:

The weighted-average fair value of individual options granted during 2002,
2001 and 2000 is $8.33, $5.46 and $5.85, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for 2002,
2001 and 2000, respectively:

The Company maintains a leveraged employee stock ownership plan (ESOP) that
covers all domestic employees of the Company who have been employed by the
Company on or before the first day of the ESOP's year and on December 1 of the
ESOP's year and have completed at least 1,000 hours of service during the year.
In April 1989, the ESOP borrowed $100 million to purchase 5,095,542 shares of
the Company's common stock at $19.625 per share. The debt of the ESOP is
guaranteed by the Company and is recorded in the Company's financial statements.
All ESOP shares are considered outstanding for earnings per share purposes. The
ESOP shares are maintained in a suspense account until released and allocated to
participants' accounts. Shares committed-to-be-released, allocated and remaining
in suspense at December 31 were as follows:

Under the grandfather provisions of Statement of Position (SOP) 93-6, the
expense recorded by the Company is based on cash contributed or committed to be
contributed by the Company to the ESOP during the year, net of dividends
received. Dividends are primarily used by the ESOP to pay down debt. The
Company's contributions to the ESOP, along with related expense amounts, were as
follows (in millions):

69

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of the unearned ESOP shares was approximately $9.8 million
and $17.9 million at December 31, 2002 and 2001, respectively. The ESOP
agreement terminates in 2004.

The Company has certain employment agreements and a severance plan that
become effective upon a change in control of the Company, which will result in
compensation expense in the period in which a change in control occurs.

13. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company has qualified and nonqualified pension plans, defined
contribution plans and other postretirement benefit plans covering substantially
all of its employees. The Company's domestic pension and retiree health care and
life insurance benefit plans are discussed below. The Company's salaried pension
plan was closed to new participants effective April 1, 1999. This plan was
replaced with a defined contribution plan for certain employees not meeting age
and service requirements and for new hires. The Company's foreign benefit plans
are not significant individually or in the aggregate.

Pension and other postretirement benefit (income) costs included the
following components for 2002, 2001 and 2000 (in millions):

A reconciliation of the changes in the plans' benefit obligations and fair
value of assets over the two-year period ending December 31, 2002, and a
statement of the funded status at December 31 for these years for the Company's
domestic pension plans follow (in millions):

70

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pension plan assets include 1.8 million shares of the Company's common
stock with a market value of $36.7 million at December 31, 2002. Dividends
received on the Company's common stock totaled $0.9 million in 2002. The $5.9
million settlement payment in 2002 represents a lump sum distribution to a
former executive for benefits earned in the Company's unfunded, nonqualified
pension plan. Plan amendments totaling $12.9 million included in Other
Postretirement Benefits in 2002 principally relate to plan design changes
including the reduction of medical and life insurance benefits for certain
employees.

The amounts included in the Company's balance sheets as of December 31 were
as follows (in millions):

Three of the Company's five qualified pension plans had accumulated benefit
obligations in excess of plan assets at December 31, 2002. The projected and
accumulated benefit obligations for these plans were $781.9 million and $749.1
million, respectively, and the fair value of assets for these plans was $589.5
million at December 31, 2002. The Company's unfunded, nonqualified pension plan
had projected and accumulated benefit obligations of $38.5 million and $30.3
million, respectively, at December 31, 2002, and $44.1 million and $34.4
million, respectively, at December 31, 2001. One of the Company's qualified
pension plans had an accumulated benefit obligation in excess of plan assets at
December 31, 2001. The projected and accumulated benefit obligations for this
plan were $183.1 million and the fair value of assets was $150.7 million at
December 31, 2001. The Company's other postretirement benefit plans are not
funded.

Adverse conditions in the equity markets, along with the low interest rate
environment, have had an unfavorable impact on the funded status of the
Company's qualified pension plans. As a result, the Company was required to
record a minimum pension liability adjustment in accordance with SFAS No. 87,
"Employers'

71

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounting for Pensions," in Total Accumulated Other Comprehensive Income of
$189.4 million pre tax ($115.7 million after-tax), $24.4 million pre-tax ($14.6
million after-tax) and $9.4 million pre-tax ($6.0 million after-tax) at December
31, 2002, 2001 and 2000, respectively.

Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Accumulated gains and losses in
excess of 10 percent of the greater of the benefit obligation or the
market-related value of assets are amortized over the remaining service period
of active plan participants. Benefit obligations were determined using the
following assumptions:

The Company utilizes the Moody's Aa long-term corporate bond yield as a
basis for determining the discount rate with a yield adjustment made for the
longer duration of the Company's obligations. As a result of the decline in
Moody's Aa long-term corporate bond yield and the overall declining interest
rate environment, the Company lowered its discount rate assumption used to
determine pension obligations from 7.25 percent to 6.75 percent at December 31,
2001 and 2002, respectively. The Company evaluates its assumption regarding the
estimated long-term rate of return on plan assets based on the historical
experience and future expectations on investment returns. The Company chooses a
rate of return on plan assets that it believes is an appropriate long-term
average return. The expected return on plan assets takes into account estimated
future investment returns for various asset classes held in the plan's
portfolio. The Company lowered its investment return assumptions in determining
pension cost to 9.0 percent in 2002 compared with 9.5 percent in 2001 and 2000.

The health care cost trend rate for 2003 for pre-65 benefits was assumed to
be 9.0 percent, gradually declining to 5.0 percent in 2006 and remaining at that
level thereafter. The trend rate for post-65 benefits was assumed to be 11.0
percent, gradually declining to 5.0 percent in 2008 and remaining at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. A one percent increase in the assumed health care trend
rate would increase the combined service and interest cost components of net
postretirement health care benefit cost by $0.6 million in 2002 and increase the
health care component of the accumulated postretirement benefit obligation by
$6.2 million at December 31, 2002. A one percent decrease in the assumed health
care trend rate would decrease the service and interest cost components of net
postretirement health care benefit cost by $0.5 million in 2002 and decrease the
health care component of the accumulated postretirement benefit obligation by
$5.5 million at December 31, 2002. The Company monitors the cost of health care
and life insurance benefit plans and reserves the right to make additional
changes or terminate these benefits in the future.

The Company also has defined contribution retirement plans covering most of
its employees. The Company's contributions to these plans are based on various
percentages of compensation, and in some instances are based on the amount of
the employees' contributions to the plans. The expense related to these plans
was $26.2 million, $21.3 million and $22.6 million in 2002, 2001 and 2000,
respectively. Company contributions to multiemployer plans were $1.4 million,
$1.9 million and $1.7 million in 2002, 2001 and 2000, respectively.

72

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. INCOME TAXES

The sources of earnings before income taxes are as follows (in millions):

The income tax provision for continuing operations consisted of the
following (in millions):

73

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities at December 31 were as follows (in millions):

At December 31, 2002, the Company has state tax net operating loss (NOL)
carryforwards totaling $28.9 million available to reduce future taxable income.
The NOL carryforward expires at various intervals between the years 2003 and
2021.

No other valuation allowances were deemed necessary, as all deductible
temporary differences will be utilized primarily by carry back to prior years'
taxable income or as charges against reversals of future taxable temporary
differences. Based upon prior earnings history, it is expected that future
taxable income will be more than sufficient to utilize the remaining deductible
temporary differences. Deferred taxes have been provided, as required, on the
undistributed earnings of foreign subsidiaries and unconsolidated affiliates.

74

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the actual income tax provision and the tax
provision computed by applying the statutory Federal income tax rate to earnings
before taxes is attributable to the following:

In 1999, the United States Tax Court upheld an Internal Revenue Service
(IRS) determination that resulted in the disallowance of capital losses and
other expenses from two partnership investments for 1990 and 1991. In 2000, the
Company appealed the Tax Court ruling to the United States Court of Appeals for
the District of Columbia and posted a $79.8 million surety bond to secure
payment of tax deficiencies plus accrued interest related to the appeal. In late
2001, the Court of Appeals rendered a decision vacating the Tax Court's opinion
and remanded the case to the Tax Court for reconsideration. If the Company does
not ultimately prevail, it will owe approximately $135 million, consisting of
$60 million in taxes due plus $75 million of interest, net of tax. The Company
has previously settled a number of other issues with the IRS on open tax years
1989 through 1994 and anticipates favorable adjustments that would reduce the
liability associated with the two partnership investments to approximately $53
million, consisting of $27 million in taxes due and $26 million in interest, net
of tax. The Company has established an adequate reserve for this contingency and
does not anticipate any material adverse effects on its consolidated financial
position or results of operations in the event of an unfavorable resolution of
this matter. No penalties have been asserted by the IRS to date, and the Company
has not provided for any penalties or interest on such penalties.

15. LEASES

The Company has various lease agreements for offices, branches, factories,
distribution and service facilities, certain Company-operated bowling centers,
fitness retail locations, and certain personal property. The longest of these
obligations extends through 2025. Most leases contain renewal options and some
contain purchase options. Many leases for Company-operated bowling centers
contain escalation clauses, and many provide for contingent rentals based on
percentages of gross revenue. No leases contain restrictions on the Company's
activities concerning dividends, additional debt or further leasing. Rent
expense consisted of the following (in millions):

75

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum rental payments at December 31, 2002, under agreements
classified as operating leases with non-cancelable terms in excess of one year,
were as follows (in millions):

2003........................................................ $ 28.7
2004........................................................ 23.4
2005........................................................ 19.8
2006........................................................ 15.8
2007........................................................ 11.8
Thereafter.................................................. 35.4
------
Total (not reduced by minimum sublease rentals of $1.7
million).............................................. $134.9
======

16. PREFERRED SHARE PURCHASE RIGHTS

In February 1996, the Board of Directors declared a dividend of one
Preferred Share Purchase Right (Right) on each outstanding share of the
Company's common stock. Under certain conditions, each holder of Rights may
purchase one one-thousandth of a share of a new series of junior participating
preferred stock at an exercise price of $85 for each Right held. The Rights
expire on April 1, 2006.

The Rights become exercisable at the earlier of (1) a public announcement
that a person or group acquired or obtained the right to acquire 15 percent or
more of the Company's common stock or (2) 15 days (or such later time as
determined by the Board of Directors) after commencement or public announcement
of an offer for more than 15 percent of the Company's common stock. After a
person or group acquires 15 percent or more of the common stock of the Company,
other shareholders may purchase additional shares of the Company at 50 percent
of the current market price. These Rights may cause substantial ownership
dilution to a person or group who attempts to acquire the Company without
approval of the Company's Board of Directors.

The Rights, which do not have any voting rights, may be redeemed by the
Company at a price of $.01 per Right at any time prior to a person's or group's
acquisition of 15 percent or more of the Company's common stock. A Right also
will be issued with each share of the Company's common stock that becomes
outstanding prior to the time the Rights become exercisable or expire.

In the event that the Company is acquired in a merger or other business
combination transaction, provision will be made so that each holder of Rights
will be entitled to buy the number of shares of common stock of the surviving
Company that at the time of such transaction would have a market value of two
times the exercise price of the Rights.

76

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. INVESTMENTS

The Company has certain unconsolidated foreign and domestic affiliates that
are accounted for using the equity method. Summary financial information of the
unconsolidated equity method affiliates for the year ended December 31 is
presented below (in millions):

The Company's sales to and purchases from the above investments, along with
the corresponding receivables and payables, were not material to the Company's
overall results of operations for the years ended December 31, 2002, 2001 and
2000, respectively, and its financial position as of December 31, 2002 and 2001.
In 2001, the Company recorded impairment charges and purchase accounting
adjustments of $4.2 million on certain investments, which were not recorded in
the affiliates' net earnings.

The Company had Available-for-Sale equity investments with a fair market
value of $38.4 million and $38.5 million at December 31, 2002 and 2001,
respectively. The unrealized gain, recorded net of deferred taxes, has been
included as a separate component of shareholders' equity and was $2.7 million at
December 31, 2002, compared to an unrealized loss, net of deferred taxes, of
$1.7 million at December 31, 2001.

In 2000, the Company made $38.1 million of investments in Internet-related
businesses and fitness equipment distribution alliances. Also in 2000, the
Company recorded a charge of $14.1 million to write-down investments in certain
Internet-related businesses.

18. TREASURY AND PREFERRED STOCK

Treasury stock activity for the past three years was as follows:

At December 31, 2002, 2001 and 2000, the Company had no preferred stock
outstanding (12.5 million shares authorized, $0.75 par value at December 31,
2002, 2001 and 2000).

77

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. FINANCIAL SERVICES

The Company established a joint venture in 2002 with Transamerica
Distribution Finance to provide financial products and services to customers of
the Company's domestic marine businesses. The venture, Brunswick Acceptance
Company, LLC (BAC), will provide secured wholesale floor-plan financing to the
Company's boat dealers and may provide other financial services in support of
the Company's marine businesses. In addition, the parties contemplate that BAC
will purchase and service a portion of Mercury Marine's accounts receivable for
its boatbuilder customers. The Company owns a 15 percent interest in the joint
venture initially, but will increase its ownership to 49 percent by July 15,
2003. BAC became operational in January 2003.

20. SUBSEQUENT EVENTS

In January 2003, the Company purchased a 36 percent equity interest in
Bella-Veneet OY (Bella), a boat manufacturer located in Finland. The Company
will account for this investment using the equity method and will have the
option to acquire the remaining equity interest of Bella in 2007.

21. QUARTERLY DATA (UNAUDITED)

78

BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

* Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," and accordingly no longer amortizes goodwill and
other certain intangible assets, but tests these assets annually for
impairment. In the second quarter of 2002, the Company completed its
impairment testing and recorded as a cumulative effect of a change in
accounting principle a one-time non-cash charge of $29.8 million pre-tax
($25.1 million after-tax, or $0.28 per diluted share) to reduce the carrying
amount of goodwill. The Company has restated the first quarter of 2002 to
reflect the impairment charge effective January 1, 2002, as required under
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements."

79

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 333-71344, No. 33-61512, and No. 333-9997 and Forms S-8 No.
33-55022, No. 33-56193, No. 33-61835, No. 33-65217, No. 333-04289, No.
333-27157, No. 333-77431, and No. 333-77457), as amended, and in the related
Prospectus of Brunswick Corporation of our report dated January 28, 2003, with
respect to the 2002 consolidated financial statements and schedule of Brunswick
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 2002.

/s/ Ernst & Young LLP

Chicago, Illinois
March 11, 2003

80

BRUNSWICK CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)

This schedule reflects only the financial information of continuing
operations.

This schedule reflects only the financial information of continuing
operations.

81

EXHIBIT INDEX

* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of
this Report.

84