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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 o

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. x

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

As of June 28, 2003, the aggregate market value of the voting stock of the registrant held by non-affiliates was $2,256,834,986. Such number excludes stock beneficially owned by officers and directors. This does not constitute an admission that they are affiliates.

The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of February 27, 2004, was 93,644,941.

Part III of this Report on Form 10-K incorporates by reference certain information that will be set forth in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on April 28, 2004.

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; Teignbridge propellers; 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; Attwood marine parts and accessories; Seachoice marine parts and accessories; 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; Navman global positioning systems-based products and marine electronics; Northstar marine navigation systems; Life Fitness, Hammer Strength and ParaBody fitness equipment; Brunswick bowling products, including capital equipment, parts, supplies and consumer products; Brunswick billiards tables and accessories; and Valley-Dynamo billiards, Air Hockey and foosball tables. The Company also owns and operates: Brunswick bowling centers across the United States and internationally; Land ‘N’ Sea, a distributor of marine parts and accessories; and Omni Fitness, a chain of specialty fitness equipment 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.

The Marine Engine segment, which had net sales of $1,908.9 million in 2003, 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 sterndrive engines, inboard engines, outboard engines and water-jet propulsion systems under the Mercury, Mercury MerCruiser, Mariner, Mercury Racing, Mercury SportJet and Mercury Jet Drive brand names. Mercury Marine’s sterndrives, inboard engines, water-jet propulsion systems and a substantial number of its outboard engines are sold either to independent boatbuilders or to the Company’s operations that comprise the Brunswick Boat Group. In addition, Mercury Marine’s outboard engines and parts and accessories, including marine electronics and control integration systems, steering systems, instruments, controls, propellers, trolling motors, 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. Mercury Marine, through Cummins MerCruiser Diesel Marine LLC (CMD), its joint venture with Cummins Marine, a division of Cummins Inc., supplies integrated diesel propulsion systems to the worldwide recreational and commercial marine markets, including the Company’s Brunswick Boat Group.

Mercury Marine manufactures nine two-stroke OptiMax outboard engines, ranging from 75 to 250 horsepower, all of which feature Mercury’s direct fuel injection (DFI) technology. DFI is part of Mercury’s plan to comply with U.S. Environmental Protection Agency (EPA) requirements and reduce outboard engine emissions 75 percent over a nine-year period beginning with the 1998 model year and ending in 2006. Mercury’s product line of low-emission engines includes 13 four-stroke outboard engine models ranging from 4 to 115 horsepower and one 225-horsepower model. In 2004, Mercury Marine introduced Verado, a new series of high-horsepower outboard engines to complement its existing four-stroke product line. Mercury’s OptiMax and four-stroke outboards already achieve the EPA’s mandated 2006 emission levels.

Mercury Marine’s sterndrive engines and outboard engines are produced primarily in Oklahoma and Wisconsin, respectively. Certain small outboard engines are manufactured in Japan by a Mercury Marine joint venture. In addition, Mercury Marine sources some outboard engines and some key components from Asian suppliers. Mercury Marine also manufactures engine component parts at plants in Florida and Mexico, and has a facility in Belgium that customizes engines for sale into Europe. Diesel marine propulsion systems are manufactured in South Carolina by CMD.

In addition to its marine engine operations, Mercury Marine’s product offerings in international markets include a wide range of aluminum, fiberglass and inflatable boats produced either by, or for, Mercury in Australia, Poland and Sweden. These boats are marketed under the brand names Armor, Arvor, Bermuda, Legend, Mercury, Örnvik, Protector, Quicksilver, Savage and Uttern and are typically equipped with engines manufactured by Mercury Marine and often include other parts and accessories supplied by Mercury Marine. Mercury Marine has an equity ownership interest in companies that manufacture boats under the brand names Askeladden, Bella, Rayglass and Valiant, which are produced in Norway, Finland, New Zealand and Portugal, respectively. Mercury Marine also manufactures custom and standard propellers and underwater stern gear for inboard-powered vessels, under the name Teignbridge, in the United Kingdom.

During 2003, Mercury Marine continued to grow its aluminum metal castings business, which sells custom products to a variety of industries, including the motorcycle, agricultural implement and off-road recreational vehicle businesses. 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.

Mercury Marine’s SmartCraft system, a total marine electronics and controls integration system, 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 advances in communications, entertainment and navigation electronics by providing a platform to integrate these technologies to enhance the boating experience.

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. BNT is comprised of: MotoTron, which leverages the Company’s expertise in engine controls to non-marine markets; Northstar Technologies, a world leader in premium marine navigation electronics; and Monolith Corporation/Integrated Dealer Systems, a leading developer of dealer management systems for dealers of marine products and recreational vehicles. To complement BNT’s expertise, the Company acquired 70 percent of the stock of Navman NZ Limited, a New Zealand-based leader in global positioning systems-based products and marine electronics, in the second quarter of 2003. BNT also acquired New Eagle Software and Accelerate Performance Products, both software development companies for marine and non-marine markets, in 2003 to further enhance BNT’s product and service offerings in engine controls.

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 and global positioning systems-based products and marine electronics;
	•	Competitive pricing pressures;
	•	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 boat operations;
	•	The ability to offer products of sufficient technological and quality level to meet customer needs and demands;


	•	The ability to develop product technologies that comply with regulatory requirements, including emissions reductions;
	•	The ability to develop and market competitive products;
	•	Consumer demand for the Company’s boat offerings and those of other major boatbuilders and dealers;
	•	Changes in currency exchange rates;
	•	Fuel costs and fuel availability;
	•	Access to water and marina facilities;
	•	Prevailing interest rates and availability of financing for boatbuilders and dealers; and
	•	Level of consumer participation in recreational boating.

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, pontoon and deck boats, and manufactures and distributes marine parts and accessories. The Company believes its Boat Group, which had net sales of $1,616.9 million during 2003, has the largest dollar sales volume of pleasure boats in the world.

The Boat Group manages many of the Company’s boat brands, evaluates and increases the Company’s boat portfolio by acquiring recreational boat product segments in which the Company is not participating, expands the Company’s involvement in recreational boating services and activities to enhance the consumer experience and dealer profitability, speeds the introduction of new technologies into boat manufacturing processes and the Company’s boat products, and leverages the Company’s extensive knowledge and involvement in boat design, manufacturing and distribution.

The Boat Group is headquartered in Knoxville, Tennessee, and provides shared services to the following Company boat brands: Hatteras luxury sportfishing convertibles and motoryachts; Sea Ray and Sealine yachts, sport yachts, cruisers and runabouts; Bayliner and Maxum cruisers and runabouts; Meridian motoryachts; Boston Whaler and Trophy offshore fishing boats; Baja high-performance boats; and Princecraft aluminum fishing, pontoon and deck 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 activities, 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 Mercury Marine, and diesel engines from CMD.

The Boat Group has manufacturing facilities in Florida, Maryland, Michigan, Minnesota, North Carolina, Ohio, Oregon and Tennessee, as well as international manufacturing facilities in Canada, Mexico and the United Kingdom. The Boat Group also utilizes contract manufacturing facilities in Bulgaria and Poland. Since 2002, the Company has been manufacturing entry-level runabouts at a new facility in Reynosa, Mexico, where it intends to expand operations in 2004.

In late 2002, the Company launched an initiative to develop its boat parts and accessories business to better serve dealers and consumers of the Company’s boat products. The Company furthered this initiative by acquiring, in June 2003, Land ‘N’ Sea Corporation, a marine parts and accessories distributor, and, in September 2003, Attwood Corporation, a manufacturer of marine hardware and accessories. The acquisitions of Land ‘N’ Sea and Attwood enhance and strengthen the Company’s manufacturing and distribution capabilities and infrastructure to develop and expand its marine parts and accessories business. Working with its boat dealer network, the Company will continue to strive to improve quality, distribution and delivery of parts and accessories to enhance the boating customers’ experience.

The Boat Group’s products are sold to end users through a global network of approximately 750 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 2003. 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;
	•	Product quality and pricing;
	•	Competition from other boatbuilders and other marine parts and accessories manufacturers and distributors;
	•	Fuel costs and fuel availability;
	•	Effectiveness of distribution;
	•	Changes in currency exchange rates;
	•	Prevailing interest rates and availability of financing for consumers and boat dealers;
	•	Level of consumer participation in recreational boating; and
	•	Access to water and marina facilities.

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 its Fitness segment, which had net sales of $486.6 million during 2003, 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 to customers either directly, through dealers or through distributors.

Life Fitness also sells its products into the high-end consumer markets. Approximately 10 percent of the Fitness segment’s 2003 sales were made through Omni Fitness, a chain of specialty fitness equipment retail stores owned and operated by the Company since 2001. Omni Fitness sells consumer products for Life Fitness, as well as fitness products manufactured by other companies. Most of Life Fitness’ remaining consumer sales are to other specialty fitness retailers, including chains in which the Company has minority ownership interests.

The Fitness segment’s principal manufacturing facilities are located in Illinois, Kentucky, Minnesota and Hungary. The Fitness segment also operates 45 Omni Fitness specialty fitness retail stores located primarily in the Northeast region of the United States.

During 2002 and 2003, Life Fitness introduced more than 90 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 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;
	•	Changes in consumer demand for health clubs and other exercise facilities;


	•	Availability of effective product distribution;
	•	Consumer participation in fitness activities;
	•	Demand from owners and operators of fitness centers for new equipment;
	•	Competition from other manufacturers and alternative forms of recreation;
	•	Product quality, pricing, and customer service; and
	•	Changes in currency exchange rates.

The Bowling & Billiards segment is comprised of the Brunswick Bowling & Billiards division (BB&B), which had net sales of $392.4 million during 2003. 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, manufactures and markets a full line of high-quality consumer and commercial billiards tables, Air Hockey tables, foosball tables and related accessories.

BB&B operates approximately 116 bowling centers in the United States, Canada and Europe, and with its joint venture partner operates 14 additional centers in Japan. 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. To date, 39 of BB&B’s centers have been converted into Brunswick Zones, which are 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 broad audience, including families and other recreational bowlers, as well as traditional league bowlers. BB&B intends to convert eight additional centers in 2004 into Brunswick Zones and open two new centers, supporting the Company’s strategy to increase market share. Approximately half 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 14 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. In June 2003, the Company acquired Valley-Dynamo, LP, a leading manufacturer of commercial and consumer billiards, Air Hockey and foosball tables. In 2003, BB&B opened a retail billiards store in a northern suburb of Chicago as a means of expanding distribution and testing retail concepts.

BB&B’s primary manufacturing and distribution locations are in Michigan, Texas, Wisconsin and Hungary.

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;
	•	The ability to develop and market competitive products;
	•	Prevailing interest rates and availability of financing for purchasers of bowling capital equipment;
	•	Changes in currency exchange rates;
	•	Duties, tariffs and import restrictions relating to sales and shipments overseas;
	•	Product innovation;
	•	Availability of effective product distribution;


	•	Consumer participation in bowling and billiards;
	•	Demand from owners and operators of recreation centers for new equipment;
	•	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.

In 2002, the Company established a joint venture, Brunswick Acceptance Company, LLC (BAC), with Transamerica Commercial Finance Corporation (TCFC). In January of 2004, GE Commercial Finance, the business-to-business financial service unit of General Electric Company, acquired the commercial finance business of Transamerica, including TCFC. Under the terms of the joint venture agreement, BAC provides secured wholesale floor-plan financing to the Company’s boat and engine dealers. BAC also purchases and services a portion of Mercury Marine’s domestic accounts receivable relating to its boatbuilder and dealer customers. The Company increased its 15 percent ownership in BAC to 49 percent in July 2003. See Note 7, Financial Services, in the Notes to Consolidated Financial Statements for more information about BAC.

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 or related parts and accessories.

Most of the Company’s Dealers are independent companies or 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 competitors’ products. The Company owns a minority interest in certain marine Dealers and a 100 percent ownership interest in Omni Fitness, an exercise equipment retailer operated by the Company’s Life Fitness division.

In 2003, the Company acquired Land ‘N’ Sea, establishing a parts and accessories distribution platform for the Brunswick Boat Group. Land ‘N’ Sea, with its 11 distribution centers throughout North America, is the largest wholesale distributor of marine parts and accessories in the world and provides the ability to move parts quickly and accurately to dealers, repair shops and the do-it-yourself consumer.

Demand for a significant portion of the Company’s products is 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 assistance to support their business and provide a stable outlet for the Company’s products. In addition to the Company’s interest in BAC, the Company provides its Dealers with assistance, including incentive programs, loans, loan guarantees and inventory repurchase commitments, under which the Company is obligated to repurchase inventory from a finance company in the event of a Dealer’s default. The Company believes that these arrangements are in the Company’s best interest, but its financial support of its Dealers does expose the Company to credit 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 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements.

The Company’s sales to customers in international markets were $1,242.2 million (30.1 percent of net sales) and $1,004.7 million (27.1 percent of net sales) in 2003 and 2002, respectively. The Company generally transacts its sales in international markets in local currencies, and its costs of products manufactured or

sourced are generally denominated in U.S. dollars. In 2003, the U.S. dollar weakened approximately 20 percent against the Euro, which is the Company’s largest foreign exchange exposure. The weakening of the U.S. dollar helped increase the Company’s international sales. Future strengthening or weakening of the U.S. dollar can affect the amount of sales recorded from the Company’s international operations. The Company’s international sales are set forth in Note 4, Segment 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 2003, 2002 and 2001:

Marine Engine segment sales comprised approximately 53 percent of the Company’s total international sales in 2003. The segment’s primary international operations include the following:


	•	A marine engine product customization plant and distribution center in Belgium serving Europe, Africa and the Middle East;
	•	A propeller and underwater stern-gear manufacturing plant in the 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, Italy, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom;
	•	Boat manufacturing plants in Australia and Sweden; and
	•	A research and development office in Singapore and New Zealand and a manufacturing plant in New Zealand.

Boat segment sales comprised approximately 24 percent of the Company’s total international sales in 2003. 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 England, France, the Netherlands and Spain, and a product display location in the Netherlands.

Fitness segment sales comprised approximately 16 percent of the Company’s total international sales in 2003. 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. The Fitness segment also manufactures strength training equipment in Hungary.

Bowling & Billiards segment sales comprised approximately 7 percent of the Company’s total international sales in 2003. BB&B sells its products worldwide, has sales offices in Germany, Hong Kong and the United Kingdom, and has a plant that manufactures 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.

The Company purchases raw materials from various sources. The Company is not currently experiencing any critical raw material shortages, nor does the Company anticipate any. General Motors Corporation is the

sole supplier of engine blocks used in the manufacture of the Company’s gasoline sterndrive engines. The Company continues to expand its global procurement operations to leverage the Company’s purchasing power across its divisions and improve supply chain efficiencies.

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. The Company believes that its patent rights are important to its competitive position.

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; fuel and oil injection systems; supercharged engines; outboard mid-section structures; segmented cowls; hydraulic trim, tilt, and steering; screw compressor charge air cooling systems; and airflow silencers.

In the 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.

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.

Marine Engine Segment: IDS, Mariner, MercNet, MerCruiser, Mercury, MercuryCare, Mercury Marine, Mercury Parts Express, Mercury Precision Parts, Mercury Propellers, Mercury Racing, MotorGuide, MotoTron, Northstar, OptiMax, Pinpoint, Quicksilver, SeaPro, SmartCraft, SportJet, Teignbridge Propellers and Verado.

Boat Segment: Attwood, Baja, Bayliner, Boston Whaler, Hatteras, Land ‘N’ Sea, Master Dealer, Maxum, Meridian, Princecraft, Sea Ray, Seachoice, 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, Dynamo, Frameworx, Fuze, Gold Crown, Inferno, IQ, Lane Shield, Lightworx, Monster, Throbot, Tornado, U.S. Play by Brunswick, Valley, Valley-Dynamo, Vector, 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.

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; effective marketing, advertising and sales efforts; providing high-quality products at competitive prices; and good after-market services.

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.

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, navigation systems and global positioning system-based businesses. Competitive advantage in these 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. There are a few large manufacturers of fitness equipment and hundreds of small manufacturers, which creates a highly fragmented competitive landscape. 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 45 specialty fitness equipment 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. There are several large manufacturers of bowling products whereas the bowling retail market is highly fragmented. Competitive emphasis is placed on product innovation, quality, marketing activities, pricing and service. The Company also operates 130 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.

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:

The approximate number of employees as of December 31, 2003, is shown below by segment:

As of December 31, 2003, there were approximately 1,900 employees in the Marine Engine segment, 260 employees in the Boat segment, 140 employees in the Fitness segment, and 160 employees in the Bowling & Billiards segment represented by labor unions. The Company believes that it has good relations with these labor unions. Certain U.S. labor union contracts for the Fitness and Marine Engine segments expire in March and June of 2004, respectively. Certain international labor union contracts for the Boat segment expire in March and October 2004.

See Item 3, Legal Proceedings, for a description of certain environmental proceedings in which the Company is involved.

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 (SEC Reports). The SEC Reports are available without charge as soon as reasonably practicable following the time that they are filed with or furnished to the SEC. Shareholders and other interested parties may request email notification of the posting of these documents through the Investor Information section of the Company’s web site.

Also available at http://www.brunswick.com is information relating to the Company’s ethics program and corporate governance. This includes (i) the Company’s Code of Ethics for Senior Financial Officers, which applies to the Company’s Chief Executive Officer, Chief Financial Officer, principal accounting officer or controller and other Company employees designated by the Board, (ii) Making the Right Choice, the Brunswick Guide to Conduct in the Workplace, which applies to all employees, (iii) Principles and Practices, the corporate governance principles that have been adopted by the Company’s Board and (iv) charters for each of the Board’s committees. This information is also available in print to any shareholder who requests it by writing to Shareholder Services, Brunswick Corporation, 1 N. Field Ct., Lake Forest, IL 60045.

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 also believes 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.

Marine Engine Segment: Miramar, Florida; Acton, Massachusetts; Stillwater and Tulsa, Oklahoma; Fond du Lac, Milwaukee and Oshkosh, Wisconsin; Melbourne, Australia; Petit Rechain, Belgium; Pickering, Ontario, Canada; Juarez, Mexico; Auckland, New Zealand; and Newton Abbot, United Kingdom. The Acton, Massachusetts; Auckland, New Zealand; and Pickering, Ontario, Canada facilities are leased. The remaining facilities are owned by the Company.

Boat Segment: Edgewater, Merritt Island, Palm Coast, and Pompano Beach, Florida; Cumberland and Salisbury, Maryland; Lowell, Michigan; Pipestone, Minnesota; New Bern, North Carolina; Bucyrus, Ohio; Roseburg, Oregon; Knoxville and Vonore, Tennessee; Lancaster, Texas; Arlington, Washington; Princeville, Quebec, Canada; Reynosa, Mexico; and Kidderminster, United Kingdom. All of these facilities are owned by the Company with the exception of the Pompano Beach, Florida; Lowell, Michigan; and Lancaster, Texas facilities, which are leased.

Fitness Segment: Franklin Park, Illinois; Falmouth, Kentucky; Ramsey, Minnesota; Kiskoros, Hungary; and 45 Omni Fitness retail stores in the United States. All of the Omni Fitness stores 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; Richland Hills, Texas; Bristol, Wisconsin; Szekesfehervar, Hungary; and 116 Company-operated bowling recreation centers in the United States, Canada and Europe. Approximately 50 percent of BB&B’s bowling centers and the Richland Hills, Texas facility are leased. The remaining facilities are owned by the Company.

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.

In January 2004, the Company filed a petition with the U.S. Department of Commerce and the U.S. International Trade Commission asserting that Japanese manufacturers of outboard engines have violated U.S. anti-dumping laws by selling outboard engines in the United States at prices well below their sale price in Japan. If Japanese manufacturers are determined to be in violation of U.S. law, the U.S. government could impose duties on Japanese-manufactured outboards sold in the United States.

Since 2002, the Company has been defending itself against a lawsuit brought against Leiserv, Inc. (Leiserv), a Company subsidiary operated by the Bowling & Billiards segment, for alleged violations of the Federal Telephone Consumer Protection Act. The lawsuit was brought by plaintiffs seeking class action status and monetary damages on behalf of all plaintiffs who allegedly received unsolicited faxes from a service provider retained by Leiserv. The Company does not believe the resolution of this lawsuit 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 that 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 February 2003, the United States Tax Court issued a ruling upholding the disallowance by the Internal Revenue Service (IRS) of capital losses and other expenses for 1990 and 1991 related to two partnership investments entered into by the Company. Although the Company has filed a notice of appeal of the Tax Court decision to the United States Court of Appeals for the District of Columbia, the Company is in settlement negotiations with the IRS to resolve this matter. The amount of tax and interest associated with the two partnership investments is approximately $135 million, consisting of $60 million in taxes due plus $75 million of interest, net of tax. The Company expects the $135 million to be reduced to approximately $50 million, consisting of $28 million in taxes due and $22 million in interest, net of tax, as a result of the settlement of a number of issues and favorable adjustments with the IRS on open tax years 1989 through 1994. In April 2003, the Company elected to pay the IRS $62 million (approximately $50 million after-tax) in connection with this matter while the appeal is pending and settlement negotiations are continuing. The payment was comprised of $28 million in taxes due and $34 million of pre-tax interest ($22 million after-tax). The Company elected to make this payment to avoid future interest costs. No penalties have been formally asserted by the IRS to date. The Company believes, based on currently available information, that any penalties and accrued interest would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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 its best estimate within a range of losses for all known claims.

See Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, for disclosure of the potential cash requirements of environmental proceedings and other legal proceedings.

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

There are no familial relationships among these officers. The term of office of all elected officers expires April 30, 2004. 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.

Peter G. Leemputte was named Senior Vice President and Chief Financial Officer of the Company in August 2003. He was Vice President and Controller of the Company from 2001 to 2003. 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.

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

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.

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.

Alan L. Lowe was named Vice President and Controller of the Company in September 2003. Prior to joining Brunswick, he held a number of senior financial positions with FMC Technologies, Inc., including, most recently, Director — Financial Control.

Patrick C. Mackey has been Vice President of the Company and President of its Mercury Marine Group since 2000. 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.

Victoria J. Reich was named Vice President and President — Brunswick European Group in August 2003. She was Senior Vice President and Chief Financial Officer of the Company from 2000 to 2003, and Vice President and Controller of the Company from 1996 to 2000.

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.

Stephen M. Wolpert was named Vice President and President — US Marine Division in October 2003. From 2001 to 2003, he held a number of positions with US Marine, including, most recently Chief Operating Officer. Prior to joining Brunswick, he was Vice President — Manufacturing Strategies and Industrial Automation for Emerson Electric Company.

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

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 19, Quarterly Data, in the Notes to Consolidated Financial Statements. As of February 27, 2004, there were approximately 15,174 shareholders of record of the Company’s common stock.

Future dividends, which are declared at the discretion of the Board of Directors, will be paid annually in December.

The selected historical financial data presented below as of and for the years ended December 31, 2003, 2002 and 2001, 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. The selected historical financial data presented below as of and for the years ended December 31, 2000, 1999 and 1998, 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 (APB) Opinion 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.”


(A)	Operating earnings include a $25.0 million litigation charge recorded in 2003 in connection with a patent infringement lawsuit relating to the design of a cross trainer. Refer to Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements.


(B)	Refer to Note 1, Significant Accounting Policies, in the Notes to Consolidated Financial Statements for a discussion on Goodwill and Other Intangibles.


(C)	Refer to Note 1, Significant Accounting Policies, in the Notes to Consolidated Financial Statements for a discussion on Derivatives.

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

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 and elsewhere in this Annual Report.

In 2003, we made significant progress towards achieving our strategic objective to solidify our leadership position in the marine, fitness, bowling and billiards industries by:


	•	Introducing innovative products in all our market segments;
	•	Focusing on cost reduction initiatives through global sourcing and realignment of our manufacturing footprint;
	•	Acquiring and investing in businesses that will expand and enhance our product offerings particularly in the areas of boat parts and accessories, marine electronics and billiards;
	•	Strengthening our relationships with our dealers by providing additional products and services that will make them more successful, improve the customer experience and, in turn, make Brunswick more successful; and
	•	Attracting and retaining talented individuals who are responsible for executing and delivering on our commitment to enhance value for our shareholders.

While these activities are ongoing, we have begun to see results from our efforts reflected in our financial performance. Sales in 2003 increased 11.2 percent to $4,128.7 million, primarily due to growth in boat, marine engine and fitness equipment businesses, additional sales associated with acquisitions and the impact of a weaker U.S. dollar. In addition, we benefited from improved demand for marine products in the second half of the year. Operating earnings for 2003 increased 12.6 percent to $221.4 million, primarily due to the same factors that drove the sales gain, as well as effective cost management efforts. These factors helped offset higher pension, health care and insurance costs; a litigation charge recorded in connection with a cross trainer patent infringement lawsuit; and increased research and development expenses. Non-operating income increased to $20.7 million, up from $8.3 million in 2002, largely as a result of higher earnings from joint ventures and equity investments and interest income. In 2003, the Company reduced its effective tax rate to 32.75 percent, down from 36.0 percent in 2002, as a result of a prepayment of $50 million after-tax with respect to an outstanding tax case and higher foreign and state earnings generated in lower effective-tax-rate jurisdictions. See the Results of Operations section below for further discussion.


	—	Completion of the development of Verado, a family of supercharged four-stroke outboard engines;

	—	Continued roll-out of the Bayliner 175, a boat, motor, and trailer package with a manufacturers suggested retail price of $9,995, and the launch of the Bayliner 185 at a suggested retail price of $11,995;

	—	Introduction of 50 new fitness products, including the Signature line of fitness equipment; and

	—	Introduction of Vector, a bowling center management system.


	—	Start of the phased shut down of our Paso Robles, California, fitness equipment manufacturing plant (scheduled for completion in Spring 2004) and the consolidation of the production from this facility into our Ramsey, Minnesota, plant; and


	–	Acquired a majority equity interest in a manufacturing operation in Kiskoros, Hungary, which allows us to manufacture strength training equipment closer to our European customers.


	–	Purchase of Attwood Corporation and Land ‘N’ Sea Corporation as the platform for establishing a boat parts and accessories business;

	–	Acquisition of 70 percent of the stock of Navman NZ Limited, a leader in global positioning systems-based products, to further our offerings of marine electronics; and

	–	Acquisition of Valley-Dynamo, LP, a leading manufacturer of commercial and consumer billiards, Air Hockey and foosball tables, which moves us into the coin-operated market segment.


	–	Introduced Brunswick Acceptance Company, a joint venture that provides wholesale financing to our marine dealers.

Looking ahead to 2004, we expect retail demand for marine products to increase in the range of 5 to 7 percent, which would be the first annual improvement in retail demand since 2000. We estimate that industry growth, coupled with market share gains, success of new products, improved pricing and the full-year impact of acquisitions completed in 2003, would result in an 11 to 13 percent increase in our marine sales in 2004. Fitness and Bowling & Billiards segment sales are expected to increase in the high single digits, again due to new product introductions and the incremental sales from acquisitions. Overall, sales are expected to increase 11 to 13 percent. Operating earnings are expected to improve in 2004, benefiting from higher volumes as well as our ongoing focus on effective cost management. While we expect pension expense to be down compared with 2003, higher health care and insurance spending will substantially offset this benefit. We will also incur costs relating to the opening of a second boat manufacturing plant in Mexico and an outboard engine plant in China as part of our manufacturing footprint realignment efforts. The Company expects 2004 non-operating income to decrease as a result of a reduction in interest income. Our effective tax rate in 2004 is expected to remain at approximately the same level as 2003.

Acquisitions. The Company’s operating results for 2003 include the operating results for its acquisitions completed in 2003. Approximately one-third of the increase in 2003 sales, when compared with 2002, can be attributed to the following acquisitions: Valley-Dynamo, LP (Valley-Dynamo), a manufacturer of commercial and consumer billiards, Air Hockey and foosball tables; Land ‘N’ Sea Corporation (Land ‘N’ Sea), a distributor of marine parts and accessories; Navman NZ Limited (Navman), a manufacturer of marine electronics and global positioning systems-based products; Attwood Corporation (Attwood), a manufacturer of marine hardware and accessories; and Protokon LLC (Protokon), a Hungarian steel fabricator and electronic equipment manufacturer. These transactions were completed as of June 10, 2003, June 23, 2003, June 23, 2003, September 2, 2003, and September 15, 2003, respectively. The acquisition of Valley-Dynamo adds new products and distribution channels to the Company’s billiards operations, while the acquisitions of Land ‘N’ Sea and Attwood provide the Company with the distribution network, manufacturing capabilities and infrastructure to develop and expand a boat parts and accessories business. The acquisition of Navman complements the Company’s expansion into marine-based electronics and integration. The acquisition of Protokon will allow the Company to reduce costs and increase manufacturing capacity of fitness equipment, while better serving its fitness customers in Europe.

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, Inc. (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 acquisition of IDS and Northstar complemented the Company’s expansion into systems integration and marine-based electronics.

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 aluminum fishing, pontoon and deck boats; Sealine International (Sealine), a leading manufacturer of luxury sport cruisers and motoryachts; and Hatteras Yachts, Inc. (Hatteras), a leading manufacturer of luxury sportfishing convertibles and motoryachts, from the acquisition dates of February 28, 2001, March 7, 2001, July 3, 2001, and November 30, 2001, respectively. The acquisitions of Princecraft, Sealine and Hatteras presented new international opportunities, and the ability to leverage core competencies and achieve growth by pursuing aggressive marketing and brand-building activities.

Litigation charge and changes in accounting principle. Comparisons of net earnings per diluted share between 2003, 2002 and 2001, are affected by a litigation charge and changes in accounting principle, which are listed and described below. The effect of these items on diluted earnings per share is as follows:


	•	Litigation Charge: In September of 2003, the Company’s Life Fitness division settled a cross trainer patent infringement lawsuit with Precor Incorporated for $25.0 million and future royalty payments. The Company recorded a $25.0 million pre-tax litigation charge ($0.18 per diluted share) to operating earnings in the first quarter of 2003. In September of 2003, the Company paid $12.5 million related to the settlement and the Company expects to pay an additional $12.5 million in June 2004. Management believes that presentation of operating earnings excluding this charge provides a more meaningful comparison to 2002 because there was no comparable litigation charge that impacted 2002 operating earnings.

	•	Changes 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-lived intangible assets would have been $0.12 per diluted share for 2001. In connection with the adoption 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, 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 their fair values. As a result of the adoption of this standard in 2001, the Company recorded a $4.7 million pre-tax 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 10, Financial Instruments, in the Notes to Consolidated Financial Statements, for further discussion.

The following table sets forth certain ratios and relationships calculated from the Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001:


(A)	Gross Margin is defined as Net Sales less Cost of Sales as presented in the Consolidated Statements of Income.


(B)	Operating Earnings and Operating Margins in 2003 include a $25.0 million pre-tax litigation charge discussed in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements and in Matters Affecting Comparability above.

(C)

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-lived intangible assets would have been $0.12 per diluted share for 2001. In connection with the adoption 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, 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 their fair values. As a result of the adoption of this standard in 2001, the Company recorded a $4.7 million pre-tax 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 10, Financial Instruments, in the Notes to Consolidated Financial Statements, for further discussion.

The sales increase in 2003 was attributable to an increase in sales in all of the Company’s reportable segments. Approximately two-thirds of the increase in sales was from organic growth, defined as sales from the Company’s businesses that have 12 months of reported operating results in both periods presented. Organic

sales growth in the Marine Engine segment was due to higher revenues from international markets due in part to the weaker U.S. dollar and higher sterndrive engine sales in the domestic and international markets. Organic Boat segment sales increased due to higher wholesale shipments of smaller boats to dealers. Fitness segment sales increased primarily due to higher sales of domestic commercial fitness equipment and higher revenues from international markets due primarily to the weaker U.S. dollar. Organic sales in the Bowling & Billiards segment increased due to higher bowling center revenues. Sales from acquired businesses accounted for approximately one-third of the increase in total sales. Acquisitions were made in all of the Company’s reportable segments during 2003, the most significant of which were Navman in the Marine Engine segment, Land ‘N’ Sea and Attwood in the Boat segment, Protokon in the Fitness segment and Valley-Dynamo in the Bowling & Billiards segment.

International sales increased $237.5 million to $1,242.2 million in 2003 compared with $1,004.7 million in 2002. Sales increased across all reportable segments. Sales increased for 2003 in Europe, the Pacific Rim and Canada by 26.9 percent, 26.3 percent and 20.1 percent, respectively. This increase is due to the benefit of a weaker U.S. dollar, an increase in boat sales and additional revenues associated with acquisitions.

In 2003, gross margin percentages were affected by the favorable impact of a weaker U.S. dollar, the higher gross margins associated with newly acquired businesses, the Company’s overall cost reduction efforts and improved operating and production efficiencies at the Boat segment’s US Marine and Sea Ray divisions. Also, gross margins in 2003 benefited from the Company standardizing its vacation policy across its divisions. Refer to Note 2, Standardization of Vacation Policy, in the Notes to Consolidated Financial Statements, for further discussion. These factors were partially offset by an increase in pension, health care and insurance costs; higher sales of low-horsepower and low-emission outboard engines, which carry lower margins; severance and outplacement costs recorded in the Marine Engine segment; and unfavorable manufacturing variances in the Fitness segment associated with the closing of the Paso Robles, California, facility and inefficiencies related to the transfer of production to and new product introductions at Ramsey, Minnesota.

Selling, general and administrative (SG&A) expenses, as a percentage of net sales, increased by 20 basis points in 2003 compared with 2002. This increase is almost entirely attributable to the acquisitions completed in 2003 and 2002, which accounted for approximately one-half of the increase in SG&A, and higher pension, health care and insurance costs. These factors were offset by cost reduction activities across all reportable segments, and the standardization of the Company’s vacation policy mentioned above.

Operating earnings and operating margins were negatively affected by the previously mentioned litigation charge in 2003. Management believes that presentation of operating earnings excluding this charge provides a more meaningful comparison to 2002 because there was no comparable litigation charge that impacted 2002 operating earnings. Excluding this charge, operating earnings totaled $246.4 million compared with $196.6 million in 2002 and operating margins were 6.0 percent in 2003 compared with 5.3 percent in 2002. The increase in 2003 operating earnings was primarily due to the factors increasing sales described above, partially offset by higher SG&A expenses and an increase in research and development spending, which was largely attributable to acquisitions for Brunswick New Technologies.

Interest expense was $41.0 million in 2003 and $43.3 million in 2002. The decrease in 2003 was primarily attributable to a decline in the average outstanding debt level, and benefits from fixed-to-floating interest rate swaps. See Note 12, Debt, in the Notes to Consolidated Financial Statements, for details on interest rate swaps.

Other income totaled $20.7 million in 2003 compared with $8.3 million in 2002. The increase in other income in 2003 was due to improved results from joint venture investments, most notably the Cummins MerCruiser Diesel Marine LLC joint venture, and higher interest income from notes receivable, including notes related to the divestiture of the Company’s former outdoor recreation businesses. See Note 6, Investments, in the Notes to Consolidated Financial Statements, for details on the Company’s joint ventures.

The Company’s effective tax rate was reduced to 32.75 percent in 2003 from 36.0 percent in 2002 due in part to the prepayment related to the United States Tax Court matter discussed in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements. As a result of the prepayment, the

Company was no longer required to accrue interest costs associated with the United States Tax Court matter. These net after-tax interest costs were previously included in the income tax provision. Additionally, the Company generated higher foreign and state earnings in lower effective-tax-rate jurisdictions.

Average common shares outstanding used to calculate diluted earnings per share were 91.9 million and 90.7 million, in 2003 and 2002, respectively. The increase in average shares outstanding in 2003 was primarily due to the effect of stock options exercised.

The sales increase was attributable to an increase in all reportable segments. 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. Boat segment sales increased almost entirely due to the acquisitions completed in 2001. This increase was partially offset by lower sales of larger cruisers and yachts. 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.

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 $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 weaker U.S. dollar that resulted in higher international sales 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.

Gross margin percentage 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.

SG&A expenses, as a percentage of net sales, increased in 2002 compared with 2001. This increase was a result of higher variable compensation, pension and insurance costs.

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 and $52.9 million in 2001. The decrease in 2002 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 and 4.76 percent in 2001.

Other income totaled $8.3 million in 2002 compared with other expense of $6.0 million in 2001. The increase in other income in 2002 compared with other expense in 2001 was due to improved results from joint venture investments and favorable currency adjustments. Contributing to the other expenses in 2001 were joint venture losses and unfavorable currency adjustments.

Average common shares outstanding used to calculate diluted earnings per share were 90.7 million and 88.1 million in 2002 and 2001, respectively. The increase in average shares outstanding in 2002 was due primarily to the effect of stock options exercised, as well as an increase in common stock equivalents related to unexercised employee stock options as a result of an increase in the Company’s average stock price.

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 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 following table sets forth Marine Engine segment results for the years ended December 31, 2003, 2002 and 2001:

Marine Engine segment sales, which include the Company’s Mercury Marine division and Brunswick New Technologies (BNT) operations, increased primarily due to sales growth resulting from favorable currency trends related to a weaker U.S. dollar, an increase in shipments of sterndrive engines in the domestic and international markets and higher parts and accessories sales. These factors were partially offset by a decrease in wholesale shipments of outboard engines in the domestic market due to increased foreign competition. Additionally, sales from acquisitions completed for BNT in 2003 and 2002 accounted for approximately one-third of the increase in sales.

Operating earnings for the segment in 2003 were comparable with 2002. In 2003, operating earnings and margins were unfavorably impacted by higher pension, health care and insurance costs; lower production of outboard engines, which resulted in lower absorption of fixed costs; higher sales of low-emission and low-horsepower four-stroke outboard engines, which carry lower profit margins; and severance related costs associated with salaried workforce reductions. Also contributing to the decline in 2003 operating margins were higher SG&A and research and development expenses associated with BNT. Operating earnings benefited from cost reduction activities, a weaker U.S. dollar, lower variable compensation costs and a change in vacation policy discussed in Note 2, Standardization of Vacation Policy, in the Notes to Consolidated Financial Statements.

The increase in capital expenditures in 2003 compared with 2002 was primarily due to expenditures associated with equipment for production of Verado, a new series of high-horsepower outboard engines introduced in 2004.

The increase in Marine Engine segment 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 weaker U.S. dollar, also helped drive sales growth in the Marine Engine segment in 2002.

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 BNT also reduced operating earnings. Items partially offsetting these unfavorable

The following table sets forth Boat segment results for the years ended December 31, 2003, 2002 and 2001:

The increase in sales was primarily due to higher wholesale shipments of smaller boats to dealers, most notably for Bayliner runabouts and Sea Ray boats, as well as favorable pricing. The higher wholesale shipments reflect a more normal purchasing pattern by dealers, whereas in 2002, dealers curtailed purchases in an effort to reduce field inventories. Additionally, revenues from the Land ‘N’ Sea and Attwood acquisitions accounted for approximately one-third of the increase in sales.

The increase in operating earnings in 2003 was due to higher sales volumes, cost reduction efforts and improved pricing partially offset by a sales mix shift toward smaller boats, which carry lower margins. Also benefiting the operating earnings comparison was reduced losses at the segment’s US Marine division, discussed below.

The overall performance of the Boat segment was adversely affected in 2003, 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 $14.0 million, $29.0 million and $37.3 million for the years ended 2003, 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 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 from 2001 to 2002 was partially due to reduced discounting and higher sales. The improvement from 2002 to 2003 is attributable to increased sales volumes, cost reduction efforts and reduced discounting, partially offset by the reinstatement of variable compensation.

Capital expenditures in 2003 and 2002 were primarily related to investments in new and existing boat models, as well as projects to improve production efficiencies and product quality.

The increase in Boat segment sales in 2002 was primarily due to a full year of sales from the acquisitions of Princecraft, Sealine and Hatteras, which were completed in 2001. This sales increase was partially offset by a decline in sales from other boat companies. The 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 in 2002 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 above, 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.

The following table sets forth Fitness segment results for the years ended December 31, 2003, 2002 and 2001:


(A)	Operating Earnings for the year ended 2003 included a $25.0 million pre-tax litigation charge discussed in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements and Matters Affecting Comparability above. Operating margin excluding the $25.0 million pre-tax litigation charge was 11.3 percent.

The increase in Fitness segment sales was primarily due to increased domestic commercial sales to health club chains and the military, and higher international sales as a result of the weaker U.S. dollar. Domestic commercial product sales benefited from share gains attributable in part to the success of new product and new model introductions, such as cardiovascular equipment and strength training systems. The increase in sales was partially offset by decreased retail sales at the Company’s Omni Fitness stores as a result of various store divestitures, primarily on the West coast and in Ohio.

The decline in operating earnings and operating margins was primarily attributed to the previously mentioned litigation charge. Management believes that presentation of operating earnings excluding this litigation charge provides a more meaningful comparison to prior period results because there was no comparable litigation charge that impacted 2002 operating earnings. Excluding this charge from the year-to-date comparison, operating earnings for the segment increased $9.9 million, or 22.0 percent, to $54.8 million, and operating margins increased 150 basis points to 11.3 percent when compared with 2002. Excluding the litigation charge, operating earnings increased primarily due to higher sales, lower warranty costs, lower variable compensation costs and cost reduction initiatives, partially offset by expenses and unfavorable manufacturing variances associated with the closing of the segment’s Paso Robles, California, facility and inefficiencies related to the transfer of production to and new product introductions at an existing facility in Ramsey, Minnesota. Also offsetting the increase in operating earnings were royalty payments associated with the litigation settlement discussed in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, and increased distribution and logistics costs related to domestic sales.

The increase in capital expenditures in 2003 compared with 2002 was primarily due to expenditures for the introduction and production of new products, including cardiovascular equipment and strength training systems.

The increase in Fitness segment sales in 2002 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 weaker U.S. dollar. Domestic

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 expense.

The following table sets forth Bowling & Billiards segment results for the years ended December 31, 2003, 2002 and 2001:

The increase in Bowling & Billiards segment sales was primarily driven by additional revenues associated with the Valley-Dynamo acquisition and increased bowling center revenues, partially offset by lower sales volumes of bowling capital equipment in domestic markets and lower sales of billiards products due to weaker consumer demand.

The increase in Bowling & Billiards segment operating earnings was due to cost reduction activities, the benefit from the Valley-Dynamo acquisition and the absence of impairment charges recorded in 2002 for European retail bowling centers. These factors were partially offset by lower sales of bowling capital equipment and billiards products, increased research and development expenses, increased costs associated with upgrading retail bowling centers’ time and labor management systems, and higher pension expense.

The increase in capital expenditures in 2003 compared with 2002 was primarily due to the conversion of 13 bowling centers to Brunswick Zones, which are modernized bowling centers that offer a full array of family-oriented entertainment activities, and construction activities associated with two new bowling centers scheduled to open in 2004.

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

The increase in operating earnings was 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 in 2002.

The following table sets forth an analysis of cash flow for the years ended December 31, 2003, 2002 and 2001:

The Company defines Free Cash Flow as cash flow from operating and investing activities (excluding acquisitions and investments), and excluding financing activities. In 2003, in order to indicate more precisely the cash flow available to fund investments in future growth initiatives, the Company changed its definition of Free Cash Flow to exclude the impact of investments. Free Cash Flow is not intended as an alternative measure of cash flow from operations, as determined in accordance with generally accepted accounting principles (GAAP) in the United States. The Company uses this financial measure, both in presenting its results to stockholders and the investment community, and in its internal evaluation and management of its businesses. Management believes that this financial measure, and the information it provides, is useful to investors because it permits investors to view the Company’s performance using the same tool that management uses to gauge progress in achieving its goals. Management believes that the non-GAAP financial measure “Free Cash Flow” is also useful to investors because it is an indication of cash flow that may be available to fund further investment in future growth initiatives.

The Company’s major sources of funds for investments, acquisitions and dividend payments are cash generated from operating activities, available cash balances and selected borrowings. The Company evaluates potential acquisitions, divestitures and joint ventures in the ordinary course of business.

Net cash provided by operating activities totaled $395.1 million in 2003, $285.8 million of which consisted of net earnings before the non-cash impact of depreciation and amortization. Additionally, reductions in working capital, defined as non-cash current assets less current liabilities, provided cash of $100.8 million. The decrease in working capital was primarily due to the sale of accounts receivable (detailed in Financial Services below) to Brunswick Acceptance Company, LLC (BAC). The outstanding balance for receivables sold to BAC by the Company was $74.7 million at December 31, 2003. The remaining $12.5 million reserve for the previously discussed Fitness segment litigation charge also decreased 2003 working capital. In September of 2003, the Company paid $12.5 million related to the settlement of this litigation and expects to pay the remaining $12.5 million in June 2004. Cash flow was also adversely impacted by the tax payment of $62.0 million ($50.0 million after-tax) in 2003 related to the Tax Court matter (discussed in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements).

The Company invested $159.8 million in capital expenditures in 2003. The largest portion of these expenditures was made for investments to introduce new products and expand product lines in the Marine Engine, Fitness and Bowling & Billiards segments, and achieve improved production efficiencies and product quality. The most significant expenditures in 2003 relate to the equipment needed for production of Verado, the Marine Engine segment’s new series of high-horsepower outboard engines introduced in 2004, and the conversion of 13 bowling centers to Brunswick Zones.

The Company anticipates spending approximately $180.0 million for capital expenditures in 2004. About one-half of the capital spending covers investments in new and upgraded products, and plant capacity expansion in the Marine Engine and Boat segments, about one-third for profit maintaining capital and the balance targeted toward cost reductions and investments in information technology.

Cash paid for acquisitions, net of cash acquired, totaled $177.3 million in 2003. See Note 5, Acquisitions, in the Notes to Consolidated Financial Statements, for further details on these acquisitions. Additionally, the Company invested $39.3 million in 2003 in various business ventures, which are discussed further in Note 6, Investments, in the Notes to Consolidated Financial Statements. The Company will continue to evaluate acquisitions and other investment opportunities as they arise.

Cash and cash equivalents totaled $345.9 million at the end of 2003 and total debt at year-end 2003 was $607.6 million. The Company decreased its total debt outstanding in 2003 by paying off its notes from the Sealine acquisition and making continued payments related to the Company’s ESOP debt. The Company’s debt-to-capitalization ratio was 31.5 percent at December 31, 2003, compared with 35.9 percent at December 31, 2002. The Company has a $350.0 million long-term revolving credit agreement (Credit Agreement) with a group of banks as described in Note 12, Debt, in the Notes to Consolidated Financial Statements, that serves as support for commercial paper borrowings. There were no borrowings under the Credit Agreement during 2003. The Company has the ability to issue up to $100.0 million in letters of credit within the Credit Agreement, with $64.6 million in letters of credit outstanding at December 31, 2003. The Company had borrowing capacity of $285.4 million under the terms of the Credit Agreement and, if utilized, the Company has multiple borrowing options. The borrowing rate, as calculated in accordance with the Credit Agreement, would have been 1.73 percent at December 31, 2003. 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.

Dividends are paid annually at the discretion of the Board of Directors. A dividend of $0.50 per share was declared in October and paid in December of 2003. During 2003, the Company received $39.9 million from stock options exercised. The Company did not repurchase stock during 2003, 2002 or 2001.

Improved equity market trends in 2003 had a favorable impact on the funded status of the Company’s qualified pension plans. Funding for the Company’s qualified pension plans improved to 87.5 percent in 2003 from 76.9 percent in 2002. Underfunding for these plans at December 31, 2003, is $112.5 million on a projected benefit obligation basis. While there was no legal requirement under the Employee Retirement Income Security Act (ERISA), the Company made a discretionary contribution of $52.0 million in cash to the qualified pension plans and funded $2.4 million to cover benefit payments in the unfunded nonqualified pension plan in 2003. In addition to contributions required to fund nonqualified benefit payments, discretionary contributions of up to $30.0 million may be made to pension plans in 2004 to achieve the Company’s funding objectives.

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.

Net cash provided by operating activities totaled $413.0 million in 2002, $251.9 million of which consisted of net earnings before the non-cash impact of depreciation and amortization and the cumulative effect of change in accounting principle. Additionally, reductions in working capital provided cash of $90.8 million. The primary drivers behind working capital improvements were an increase in accounts payable attributed to the increased production levels in the fourth quarter of 2002 compared with 2001, as well as efforts to improve cash flow management. Tax refunds related to the divestiture of the beverage cooler business completed in late 2001 were also a significant contributor to the increase in cash provided by operating activities in 2002.

The Company invested $112.6 million in capital expenditures in 2002. The largest portion of these expenditures was made for investments to introduce new products, expand product lines and achieve improved production efficiencies and product quality across all reportable segments.

In 2002, cash paid for acquisitions, net of cash acquired, totaled $21.2 million. See Note 5, Acquisitions, in the Notes to Consolidated Financial Statements, for further details on these acquisitions. Investments totaling $8.9 million for 2002 related to the Cummins MerCruiser Diesel Marine LLC joint venture.

At December 31, 2002, cash and cash equivalents totaled $351.4 million and total debt was $618.4 million. During 2002, the Company made payments of $26.2 million on its long-term debt obligations and $9.4 million on its short-term borrowings. The Company also received $40.3 million from stock options exercised in 2002.

The Company made discretionary contributions in 2002 of $45.0 million to the qualified pension plans and funded $8.3 million to cover benefit payments in the unfunded nonqualified pension plan.

Net cash provided by operating activities totaled $299.3 million in 2001, $245.1 million of which consisted of net earnings before the non-cash impact of depreciation and amortization and the cumulative effect of change in accounting principle, and tax refunds related to the divestiture of the Company’s outdoor recreation businesses in late 2000.

The Company invested $111.4 million in capital expenditures in 2001. The largest portion of these expenditures was made for investments to introduce new products, expand product lines and achieve improved production efficiencies and product quality across all reportable segments.

In 2001, cash paid for acquisitions, net of cash and debt acquired, totaled $134.4 million. See Note 5, Acquisitions, in the Notes to Consolidated Financial Statements, for further details on these acquisitions. The Company did not invest in any business ventures in 2001. The Company significantly reduced its debt in 2001 by repaying its short-term commercial paper borrowings.

In 2002, the Company established a joint venture, BAC, with Transamerica Commercial Finance Corporation (TCFC). In January of 2004, GE Commercial Finance, the business-to-business financial services unit of General Electric Company, acquired the commercial finance business of Transamerica, including TCFC.

Under the terms of the joint venture agreement, BAC provides secured wholesale floor-plan financing to the Company’s boat and engine dealers. BAC also purchases and services a portion of Mercury Marine’s domestic accounts receivable relating to its boatbuilder and dealer customers. Pursuant to the joint venture agreement, BAC reimbursed Mercury Marine $0.9 million in 2003 for the related credit, collection, and administrative costs incurred in connection with the servicing of such receivables.

In January of 2003, the Company invested $3.3 million as BAC began its operations, which represented a 15 percent ownership interest. On July 2, 2003, the Company contributed an additional $19.5 million to increase its equity interest in BAC to 49 percent as permitted by the terms of the joint venture agreement. BAC is not consolidated in the accompanying financial statements. The Company’s investment in BAC is accounted for under the equity method and is recorded as a component of Investments in the Consolidated Balance Sheets. The Company records its share of income or loss based on its ownership percentage and is included in Other Income (Expense) in the Consolidated Statements of Income.

During the third quarter of 2003, the Company began to sell a significant portion of Mercury Marine’s domestic accounts receivable to BAC. On July 2, 2003, the Company made its initial sale of receivables of $124.9 million to BAC for $124.1 million in cash, net of discount. The remaining receivables sold during 2003 were $376.3 million, for which the Company received $373.4 million in cash, net of discount. Total discounts of $3.7 million on the sale of such receivables were recorded as an expense in Other Income (Expense) in the

Consolidated Statements of Income. The outstanding balance for receivables sold to BAC was $74.7 million at December 31, 2003. BAC will continue to purchase and service a significant portion of Mercury Marine’s domestic accounts receivable on an ongoing basis.

The Company has a retained interest in $28.4 million of total accounts receivable sold at December 31, 2003, as a result of recourse provisions reported in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, in which the Company’s maximum exposure is $14.9 million. In accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” the Company treats the sale of receivables in which the Company retains an interest as a secured obligation.

Under the terms of the joint venture agreement, the receivable portfolio is consolidated on TCFC’s financial statements and is funded 85 percent through a loan from TCFC and 15 percent by a cash investment from both TCFC (51 percent) and the Company (49 percent). As a result of the monthly changes in BAC’s receivable portfolio, the Company’s contributed equity is adjusted monthly to maintain a 49 percent equity interest. The Company’s investment in BAC at December 31, 2003, was $22.0 million.

Summarized financial data for BAC is presented as of December 31, 2003 as follows:

Guarantees. Based on historical experience and current facts and circumstances, and in accordance with Financial Accounting Standards Board (FASB) 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,” the Company has reserves to cover potential losses associated with guarantees and repurchase obligations. Historical cash requirements and losses associated with these obligations have not been significant. See Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, for a description of these arrangements.

The following table sets forth a summary of the Company’s commitments as of December 31, 2003:


(1)	Includes principal and interest. See Note 12, Debt, in the Notes to Consolidated Financial Statements, for additional information on the Company’s long-term debt and capital lease obligations.

(2)	See Note 17, Leases, in the Notes to Consolidated Financial Statements, for additional information on the Company’s operating leases.

(3)	The Company has outstanding purchase obligations with suppliers and vendors at the end of 2003 for raw materials and other supplies as part of the normal course of business.

(4)	Amounts represent benefit payments expected to be made for the Company’s non-qualified pension plan. Although the Company anticipates making discretionary contributions of approximately $30.0 million, there are no contractually required contributions in 2004 for the domestic qualified pension plans.

(5)	Amounts primarily represent long-term deferred compensation plans for Company management. Payments were assumed to be equal to the remaining liability and to be primarily paid out more than 5 years from December 31, 2003.

(6)	Other long-term liabilities include amounts reflected on the balance sheet, which primarily includes certain agreements that provide for the assignment of lease and other long-term receivables originated by the Company to third parties and are treated as a secured obligation under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” deferred revenue on service and extended warranty contracts, postretirement medical/life insurance benefits and other retirement obligations.

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.

The European Community (EC) has announced its intention to increase tariffs on certain U.S. exports to EC member countries in an ongoing trade dispute between the EC and the United States. The dispute concerns tax benefits for U.S. exporters under the U.S. Foreign Sales Corporation/ Extraterritorial Income Exclusion (FSC/ ETI) tax regime, which has been declared in violation of U.S. obligations by the World Trade Organization (WTO). If the EC’s FSC/ ETI sanctions become effective, a substantial portion of the Company’s bowling products imported into the EC may be subject to an additional duty of up to 100 percent ad valorem. The U.S. Congress is considering changes to U.S. tax laws to address the adverse WTO ruling. The EC has declared that, in the absence of appropriate Congressional action, it will impose FSC/ ETI sanctions beginning at 5 percent ad valorem as of March 1, 2004. The Company’s sales of U.S. produced bowling products into the EC during 2003 totaled approximately $18 million.

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 were 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 with the sale of its hunting sports accessories, North American fishing and cooler businesses and received cash proceeds of approximately $74 million and notes which were valued at their estimated fair market value of approximately $10 million. 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 them were unsuccessful, thus concluding the outdoor recreation’s divestiture program. The financial results of these retained businesses, which operate under the brand names MotorGuide, Pinpoint and Swivl-Eze, were not material to the Company’s consolidated financial statements.

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 the time of program communication 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 recorded value of the liability would be adjusted.

Allowances for Doubtful Accounts. The Company records an allowance for uncollectible receivables based upon currently known bad debt risks and records general reserves based on past transaction history with customers, customer payment practices and economic conditions. Actual collection experience may differ from the current estimate of net receivables. Changes to the allowance for uncollectible amounts may be required if a future event or other circumstance results in a change in the estimate of the ultimate collectibility

of a specific account. The Company also records a reserve based on historical, current and estimated future purchasing levels in connection with its long-term notes receivables for the Company’s supply agreements. These assumptions are re-evaluated if sufficient product purchases are not made. A change in this reserve may be required if the estimate of future purchasing levels will not be realized.

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 and 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 Note 1, Significant Accounting Policies, in the Notes to Consolidated Financial Statements for further discussion on the basis of accounting for inventories.

Warranty Reserves. The Company records a liability for standard product warranties at the time revenue is recognized. The liability is recorded using historical warranty experience to estimate 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 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements for additional information.

Litigation. In the normal course of business, the Company is subject to claims and litigation, including obligations assumed or retained as part of acquisitions and divestitures. 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 specific 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 records a reserve when it is probable that a loss has been incurred and the loss can be reasonably estimated. The Company establishes its reserve based on its best estimate within a range of losses. If the Company is unable to identify the best estimate, the Company records the minimum amount in the range.

Environmental. 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. The ultimate exposure for these claims has remained consistent with the prior year. 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. Refer to Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, for details of existing reserves.

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, which incorporate anticipated exposure for losses incurred, but not yet reported. 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. 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.

Income Taxes. Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. Deferred taxes are provided on the undistributed earnings of foreign subsidiaries and unconsolidated affiliates. The Company estimates its probable tax obligations based on historical experience and current developments in tax laws and litigation. The judgments made at any point in time may change based on the outcome of tax audits and settlements of tax litigation, as well as changes due to new tax regulations and the Company’s interpretations of those regulations. These factors may cause the tax rate for the Company to increase or decrease. See Note 8, Income Taxes, in the Notes to Consolidated Financial Statements, for further discussion.

In November 2002, the FASB issued FIN 45. 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 adoption of FIN 45 did not have a material impact on the financial statements. See Note 5, Commitments and Contingencies, in the Notes to Consolidated Financial Statements for further discussion.

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 provides guidance on how to identify variable interest entities and how to determine whether or not those entities should be consolidated. The Company is required to apply FIN 46 by the end of the first reporting period after March 15, 2004, for entities which were created before February 1, 2003. The adoption of FIN 46 was immediate for variable interest entities created after January 31, 2003. The Company has not created any significant variable interest entities since January 31, 2003. The Company is evaluating its interests in entities created before February 1, 2003, but does not expect the adoption of FIN 46 to have a material effect on the financial 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 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, stock market performance and consumer confidence levels, and the impact on demand for the Company’s products, particularly in the United States and Europe:


	The Company’s revenues may be affected by weak domestic and international market conditions and the fluctuating stock market. Global political uncertainty may adversely affect consumer confidence during 2004 and beyond.


•	Competitive pricing pressures:


	Across all of the Company’s product lines, introduction of lower-priced 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.


•	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 key to the Company’s continued success.


•	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 key role in the Company’s continuing ability to reduce costs.


•	The ability to successfully integrate acquisitions:


	The Company has acquired a number of new businesses since 2001 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.


•	The impact of weather conditions on sales of marine products and retail bowling center revenues:

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. In addition, severely inclement weather on weekends and holidays, particularly during the winter months, can adversely affect bowling retail revenues.


•	Financial difficulties experienced by dealers and independent boatbuilders:


	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.


•	Changes 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. The recent trend of a weak U.S. dollar has had a positive impact on international sales of the Company’s products.


•	The effect of interest rates and fuel prices on demand for marine products:


	The Company’s marine products, particularly boats, are often financed, and increases in interest rates can retard demand for these products and affect dealers’ cost of carrying inventory. Higher fuel costs can also hurt demand for the Company’s marine products.


•	The impact of 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 is weak.


•	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 mitigate this risk.


•	The ability to maintain product quality and service standards expected by the Company’s customers:


	The Company’s customers 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 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, particularly from Asian competitors in the outboard engine market. 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 that succeed in the marketplace, is key to the Company’s continued success.


•	The Company’s ability to develop product technologies that comply with regulatory requirements:


	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.


•	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 the possibility of military conflict in key world regions.


•	The ability to maintain good relationships with its labor unions:


	The Company employs union members in a number of its divisions. Good relationships with labor unions contribute to the Company’s ability to maintain an experienced and stable workforce.


•	Inventory adjustments by the Company, its major dealers, retailers and independent boatbuilders:

If the Company’s dealers and retailers, as well as independent boatbuilders who purchase the Company’s marine engine products, adjust their inventories downward, in response to weakness in retail demand, wholesale demand for the Company’s products diminishes. In turn, 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. Inventory reduction by dealers and customers 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.


•	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 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 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, Japanese yen, British pound, Canadian dollar,

Australian dollar and New Zealand dollar. Hedging of anticipated transactions is accomplished with financial instruments whose maturity date, 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 fixed-to-floating interest rate swaps and floating-rate instruments that are benchmarked to U.S. and European short-term money market interest rates.

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, including aluminum and natural gas.

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 hedge contracts, interest rate swap agreements, commodity swap agreements and futures contracts.

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, for a time period of one day and confidence level of 95 percent, 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.

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

Other than as previously reported with respect to Arthur Andersen LLP, there were no changes in or disagreements with accountants on accounting and financial disclosure.

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual 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. There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2003 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Information pursuant to this Item with respect to the Directors of the Company, Section 16(a) Beneficial Ownership Reporting Compliance and the Company’s codes of ethics will be set forth in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 2004 (Proxy Statement) and is hereby incorporated by reference. The Company’s executive officers are listed herein on pages 13 to 14.

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

Information pursuant to this Item 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 pursuant to this Item required with respect to the securities authorized for issuance under the Company’s equity compensation plans will be set forth in the Proxy Statement, and such information is hereby incorporated by reference.

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

Information pursuant to this Item with respect to principal accounting fees and services will be set forth in the Proxy Statement and is hereby incorporated by reference.


	On October 24, 2003, the Company furnished to the SEC a Current Report on Form 8-K to furnish, pursuant to Item 12 on Form 8-K, a press release announcing the Company’s financial results for the third quarter of 2003.

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.

We have audited the accompanying consolidated balance sheets of Brunswick Corporation as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended. Our audit also included the financial statement schedule for the years ended December 31, 2003 and 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 audits. The financial statements and schedule of Brunswick Corporation for the year 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 4, respectively and included an explanatory paragraph that discussed the change in the Company’s method of accounting for certain derivative instruments and certain hedging activities to conform with Statement of Financial Accounting Standards Nos. 133/138 discussed in Note 10 to these financial statements.

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 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Brunswick Corporation at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the years 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 for the year 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 1 with respect to 2001 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 4, the Company changed the composition of its reportable segments in 2002, and the amounts in the 2001 financial statements relating to reportable segments have been restated to conform to the current composition of reportable segments. We audited the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2001 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 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 financial statements taken as a whole.

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.

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.


þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the fiscal year ended December 31, 2003, or

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		Commission file number 1-1043


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

1 N. Field Ct., Lake Forest, Illinois (Address of principal executive offices)		60045-4811 (zip code)


		Name of each exchange
Title of each class		on which registered

Common Stock ($0.75 par value) Preferred Stock Purchase Rights		New York, Chicago, Pacific and London Stock Exchanges


		Page

Part I
Item 1.	Business		1
Item 2.	Properties		10
Item 3.	Legal Proceedings		11
Item 4.	Submission of Matters to a Vote of Security Holders		12
Part II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters		15
Item 6.	Selected Financial Data		15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		36
Item 8.	Financial Statements and Supplementary Data		37
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		37
Item 9A.	Controls and Procedures		38
Part III
Item 10.	Directors and Executive Officers of the Registrant		39
Item 11.	Executive Compensation		39
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		39
Item 13.	Certain Relationships and Related Transactions		39
Item 14.	Principal Accounting Fees and Services		39
Part IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		40
Brunswick Performance Plan for 2004
Brunswick Strategic Incentive Plan for 2003-2004
Brunswick Strategic Incentive Plan for 2004-2005
Automatic Deferred Compensation Plan
Statement Regarding Computation of Ratios
Subsidiaries
Consent of Independent Auditors
Information Regarding Consent of Arthur Andersen
Power of Attorney
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer


	2003		2002		2001
(In millions)
Europe	$	700.4	$	552.1	$	448.0
Pacific Rim		220.7		174.7		171.4
Canada		200.5		166.9		146.0
Latin America		79.2		74.0		64.1
Other		41.4		37.0		29.7

	$	1,242.2	$	1,004.7	$	859.2


Marine Engine			6,800
Boat			9,000
Fitness			1,770
Bowling & Billiards			5,475
Corporate			180

Total			23,225


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


Officer	Present Position	Age

George W. Buckley	Chairman and Chief Executive Officer		57
Peter B. Hamilton	Vice Chairman and President — Brunswick Bowling & Billiards		57
Peter G. Leemputte	Senior Vice President and Chief Financial Officer		46
Kathryn J. Chieger	Vice President — Corporate and Investor Relations		55
Tzau J. Chung	Vice President and President — Brunswick New Technologies		40
William J. Gress	Vice President — Supply Chain Management		49
Kevin S. Grodzki	Vice President and President — Life Fitness Division		48
B. Russell Lockridge	Vice President and Chief Human Resources Officer		54
Alan L. Lowe	Vice President and Controller		52
Patrick C. Mackey	Vice President and President — Mercury Marine Group		57
Dustan E. McCoy	Vice President and President — Brunswick Boat Group		54
William L. Metzger	Vice President and Treasurer		43
Victoria J. Reich	Vice President and President — Brunswick European Group		46
Marschall I. Smith	Vice President, General Counsel and Secretary		59
Dale B. Tompkins	Vice President — Strategy and Corporate Development		42
Cynthia Trudell	Vice President and President — Sea Ray Division		50
Stephen M. Wolpert	Vice President and President — US Marine Division		49
Judith P. Zelisko	Vice President — Tax		53


Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters


		2003(A)		2002(B)			2001(C)			2000			1999			1998
(In millions, except per share data)
Results of operations data
Net sales		$	4,128.7	$	3,711.9		$	3,370.8		$	3,811.9		$	3,541.3		$	3,234.9

Unusual charges		$	—	$	—		$	—		$	55.1		$	116.0		$	50.8

Operating earnings		$	221.4	$	196.6		$	191.1		$	397.1		$	274.6		$	301.8

Earnings before income taxes		$	201.1	$	161.6		$	132.2		$	323.3		$	219.3		$	245.3

Earnings from continuing operations before accounting change		$	135.2	$	103.5		$	84.7		$	202.2		$	143.1		$	154.4
Discontinued operations:
	Earnings (loss) from discontinued operations, net of tax		—		—			—			(68.4	)		(105.2	)		31.9
	Loss from disposal of discontinued operations, net of tax		—		—			—			(229.6	)		—			—
Cumulative effect of changes in accounting principle, net of tax			—		(25.1	)		(2.9	)		—			—			—

Net earnings (loss)		$	135.2	$	78.4		$	81.8		$	(95.8	)	$	37.9		$	186.3

Basic earnings (loss) per common share:
Earnings from continuing operations before accounting change		$	1.48	$	1.15		$	0.96		$	2.28		$	1.56		$	1.57
Discontinued operations:
	Earnings (loss) from discontinued operations, net of tax		—		—			—			(0.77	)		(1.14	)		0.32
	Loss from disposal of discontinued operations, net of tax		—		—			—			(2.59	)		—			—
Cumulative effect of changes in accounting principle, net of tax			—		(0.28	)		(0.03	)		—			—			—

Net earnings (loss)		$	1.48	$	0.87		$	0.93		$	(1.08	)	$	0.41		$	1.90

Average shares used for computation of basic earnings per share			91.2		90.0			87.8			88.7			92.0			98.3


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



										2003 vs. 2002					2002 vs. 2001
										Increase/(Decrease)					Increase/(Decrease)

	2003			2002			2001			$		%			$			%
(In millions, except per share data)
Net sales	$	4,128.7		$	3,711.9		$	3,370.8		$	416.8		11.2	%	$	341.1			10.1	%
Gross margin(A)	$	997.1		$	859.9		$	783.4		$	137.2		16.0	%	$	76.5			9.8	%
Operating earnings(B)	$	221.4		$	196.6		$	191.1		$	24.8		12.6	%	$	5.5			2.9	%
Earnings before cumulative effect of change in accounting principle	$	135.2		$	103.5		$	84.7		$	31.7		30.6	%	$	18.8			22.2	%
Cumulative effect of change in accounting principle, net of tax(C)		—			(25.1	)		(2.9	)		25.1		NM			(22.2	)		NM

Net earnings	$	135.2		$	78.4		$	81.8		$	56.8		72.4	%	$	(3.4	)		(4.2	)%

Diluted earnings per share before cumulative effect of change in accounting principle	$	1.47		$	1.14		$	0.96		$	0.33		28.9	%	$	0.18			18.8	%
Cumulative effect of change in accounting principle(C)		—			(0.28	)		(0.03	)		0.28		NM			(0.25	)		NM

Diluted earnings per share	$	1.47		$	0.86		$	0.93		$	0.61		70.9	%	$	(0.07	)		(7.5	)%

Expressed as a percentage of net sales:
Gross margin		24.2	%		23.2	%		23.2	%				100 bpts						—
Selling, general and administrative expense		15.3	%		15.1	%		14.7	%				20 bpts						40 bpts
Operating margin(B)		5.4	%		5.3	%		5.7	%				10 bpts						(40) bpts


		2003
(In millions)
Statement of Income
Revenues		$	13.9
Interest and other expenses			9.0

	Net income before income taxes	$	4.9


		2003
(In millions)
Balance Sheet
Net finance receivables		$	319.6
Other assets			0.4

	Total assets	$	320.0

Notes payable and other liabilities		$	276.0
Equity			44.0

	Total liabilities and equity	$	320.0



		Payment Due by Period

				Less than						More than
		Total		1 year		1-3 years		3-5 years		5 years
(In millions)
Contractual Obligations
Long-term debt(1)		$	1,144.9	$	38.1	$	325.8	$	47.0	$	734.0
Capital leases(1)			0.5		0.3		0.2		—		—
Operating leases(2)			175.8		36.3		59.3		36.9		43.3
Purchase obligations(3)			257.5		247.7		4.4		2.1		3.3
Deferred pension liability(4)			26.5		2.4		4.8		4.8		14.5
Deferred management compensation(5)			32.2		0.1		—		—		32.1
Other long-term liabilities(6)			169.7		21.0		120.4		21.8		6.5

	Total contractual obligations	$	1,807.1	$	345.9	$	514.9	$	112.6	$	833.7


Item 1.	Business


	2003		2002		2001
(In millions)
Marine Engine	$	70.0	$	61.7	$	58.2
Boat		25.6		22.1		19.7
Fitness		16.9		14.4		12.9
Bowling & Billiards		5.7		4.6		5.1

Total	$	118.2	$	102.8	$	95.9


Item 2.	Properties


Item 3.	Legal Proceedings


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


Item 10.	Directors and Executive Officers of the Registrant


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


Item 13.	Certain Relationships and Related Transactions


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 set forth under Item 8 of this Annual Report on Form 10-K.

		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 85.

		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.


	Page

Financial Statements:
Report of Management		42
Report of Independent Auditors		43
Report of Independent Public Accountants		44
Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001		45
Consolidated Balance Sheets as of December 31, 2003 and 2002		46
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001		48
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001		49
Notes to Consolidated Financial Statements		50
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts		85



/s/ GEORGE W. BUCKLEY George W. Buckley Chairman and Chief Executive Officer		/s/ PETER G. LEEMPUTTE Peter G. Leemputte Senior Vice President and Chief Financial Officer



		For the Years Ended December 31

		2003			2002			2001
(In millions, except per share data)
Net sales		$	4,128.7		$	3,711.9		$	3,370.8
Cost of sales			3,131.6			2,852.0			2,587.4
Selling, general and administrative expense			632.5			560.5			496.4
Research and development expense			118.2			102.8			95.9
Litigation charge			25.0			—			—

	Operating earnings		221.4			196.6			191.1
Interest expense			(41.0	)		(43.3	)		(52.9	)
Other income (expense)			20.7			8.3			(6.0	)

	Earnings before income taxes		201.1			161.6			132.2
Income tax provision			65.9			58.1			47.5

	Earnings before cumulative effect of change in accounting principle		135.2			103.5			84.7
Cumulative effect of change in accounting principle, net of tax			—			(25.1	)		(2.9	)

	Net earnings	$	135.2		$	78.4		$	81.8

Basic earnings per common share:
Earnings before cumulative effect of change in accounting principle		$	1.48		$	1.15		$	0.96
Cumulative effect of change in accounting principle			—			(0.28	)		(0.03	)

	Net earnings	$	1.48		$	0.87		$	0.93

Diluted earnings per common share:
Earnings before cumulative effect of change in accounting principle