Item 1. Business
Brunswick Corporation (Brunswick or the Company) is a Delaware corporation, incorporated on December 31, 1907. Brunswick is a leading global designer, manufacturer and marketer of recreation products including marine engines, boats, fitness equipment and bowling and billiards equipment. Brunswick’s engine products include: outboard, sterndrive and inboard engines; trolling motors; propellers; engine control systems; and marine parts and accessories. The Company’s boat offerings include: fiberglass pleasure boats; luxury sportfishing convertibles and motoryachts; offshore fishing boats; aluminum fishing boats; and pontoon and deck boats. Brunswick’s fitness products include both cardiovascular and strength training equipment for the commercial and consumer markets. Brunswick’s bowling products include capital equipment, aftermarket and consumer goods. The Company also sells a complete line of billiards tables and other gaming tables and accessories. In addition, the Company owns and operates Brunswick bowling family entertainment centers in the United States and other countries.
In 2011, Brunswick’s primary focus was growing revenue, improving earnings, generating positive free cash flow and gaining market share throughout each of its business segments. In 2012, Brunswick will remain disciplined and focused on maintaining its favorable cost position and generating growth through the continuation of market share gains and the execution of organic growth initiatives. In the longer term, Brunswick’s strategy remains consistent: to design, develop and introduce high quality products featuring innovative technology and styling; to distribute products through a model that benefits its partners – dealers and distributors – and provide world-class service to its customers; to develop and maintain low-cost manufacturing processes and to continually improve productivity and efficiency; to manufacture and distribute products globally with local and regional styling; and to attract and retain skilled and knowledgeable people. These strategic objectives support the Company’s plans to grow by expanding its existing core businesses. The Company’s primary objective is to enhance shareholder value by achieving returns on investments that exceed its cost of capital.
Refer to Note 4 - Segment Information in the Notes to Consolidated Financial Statements for additional information regarding the Company’s segments, including net sales, operating earnings and total assets by segment for 2011, 2010 and 2009.
Marine Engine Segment
The Marine Engine segment, which had net sales of $1,979.5 million in 2011, consists of the Mercury Marine Group (Mercury Marine). The Company believes its Marine Engine segment has the largest dollar sales volume of recreational marine engines in the world, along with a leading marine parts and accessories business.
Mercury Marine manufactures and markets a full range of sterndrive propulsion systems, inboard engines and outboard engines under the Mercury, Mercury MerCruiser, Mariner, Mercury Racing, Mercury SportJet and Mercury Jet Drive, MotorGuide, Axius and Zeus brand names. In addition, Mercury Marine manufactures and markets marine parts and accessories under the Quicksilver, Mercury Precision Parts, Mercury Propellers, Attwood, Land ‘N’ Sea, Kellogg Marine Supply, Diversified Marine Products, Sea Choice and MotorGuide brand names, including marine electronics and control integration systems, steering systems, instruments, controls, propellers, trolling motors, service parts and marine lubricants. Mercury Marine’s sterndrive engines, inboard engines and outboard engines are sold to independent boat builders, local, state and foreign governments, and to the Company’s Boat segment. In addition, Mercury Marine’s outboard engines are sold to end-users through a global network of more than 4,000 marine dealers and distributors, specialty marine retailers and marine service centers.
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Mercury Marine, through Cummins MerCruiser Diesel Marine LLC (CMD), a joint venture between Brunswick’s Mercury Marine division and Cummins Marine, a division of Cummins Inc., supplies integrated diesel propulsion systems to the worldwide recreational and commercial marine markets, including the Company’s Boat segment. During the fourth quarter of 2011, the Company announced that Mercury Marine and Cummins would be dissolving the CMD joint venture and transitioning to a strategic supply agreement between the two companies. It is anticipated that this transition will be completed during the second quarter of 2012. As part of the transition, CMD’s high speed diesel line will shift to Mercury Marine, which will integrate the high speed diesel range into its product portfolio and will sell, service and support these products through its global sales and distribution network.
Mercury Marine manufactures two-stroke OptiMax outboard engines ranging from 75 to 300 horsepower, all of which feature Mercury’s direct fuel injection (DFI) technology, and four-stroke outboard engine models ranging from 2.5 to 350 horsepower. All of these low-emission engines are in compliance with U.S. Environmental Protection Agency (EPA) requirements for 2010, 2011 and 2012. Mercury Marine’s four-stroke outboard engines include Verado, a collection of supercharged outboards ranging from 150 to 350 horsepower, and Mercury Marine’s naturally aspirated four-stroke outboards, ranging from 2.5 to 150 horsepower including the 2011 introduction of the 150 FourStroke, which is quickly becoming known for its light weight, fuel efficiency and performance. In addition, most of Mercury’s sterndrive and inboard engines are now available with catalyst exhaust monitoring and treatment systems, and all are compliant with environmental regulations adopted by the State of California, effective January 1, 2008, and by the EPA, effective January 1, 2010.
To promote advanced propulsion systems with improved handling, performance and efficiency, Mercury Marine manufactures and markets advanced boat steering and engine control systems under the brand names of Zeus and Axius.
Mercury Marine’s sterndrive and outboard engines are produced domestically in Fond du Lac, Wisconsin, with outboard engines also produced internationally in China and Japan. During the third quarter of 2009, the Company announced plans to consolidate engine production by transferring sterndrive engine manufacturing operations from its Stillwater, Oklahoma plant to its Fond du Lac, Wisconsin plant. This plant transfer was completed in the fourth quarter of 2011 and production commenced in late fourth quarter of 2011. Mercury Marine manufactures 40, 50 and 60 horsepower four-stroke outboard engines in a facility in China, and produces smaller outboard engines in Japan pursuant to a joint venture with its partner, Tohatsu Corporation. Mercury Marine sources certain engine components from a global supply base of Asian, European and Latin American suppliers and manufactures additional engine component parts at plants in Florida and Mexico. CMD manufactures diesel marine propulsion systems in South Carolina. Mercury Marine also operates a remanufacturing business for engines and service parts in Wisconsin.
In addition to its marine engine operations, Mercury Marine serves markets outside the United States with a wide range of aluminum, fiberglass and inflatable boats produced either by, or for, Mercury Marine in Ohio, China, New Zealand, Poland, Portugal and Vietnam. These boats, which are marketed under the brand names Quicksilver, Arvor, Uttern, Legend, Mercury Inflatables, Valiant RIB, Rayglass (Protector and Legend), Barracuda, Blue Fin, Beluga, Victory, Hurricane and Tornado, are typically equipped with engines manufactured by Mercury Marine and often include other parts and accessories supplied by Mercury Marine. Mercury Marine also has an equity ownership interest in a company that manufactures boats under the brand names Bella, Flipper and Aquador in Finland. In the first quarter of 2011, Mercury Marine relocated its distribution facility in Australia and sold the real estate related to the former facility, and in the second quarter of 2011, Mercury Marine completed the sales of its former remanufactured engine facility in Oshkosh, Wisconsin and a parcel of vacant land in Fond du Lac, Wisconsin.
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Mercury Marine’s parts and accessories distribution businesses include: Land ‘N’ Sea, Kellogg Marine Supply and Diversified Marine Products. These businesses are the leading distributors of marine parts and accessories throughout North America, offering same-day or next-day delivery service to a broad array of marine service facilities.
Inter-company sales to the Company’s Boat segment represented approximately 10 percent of Mercury Marine’s sales in 2011. Domestic demand for the Marine Engine segment’s products is seasonal, with sales generally highest in the second calendar quarter of the year.