Brunswick Corporation said it is taking steps to cut $300 million in fixed costs in an effort to resize the company in the face of a prolonged and worsening downturn in the U.S. marine market.


“Retail unit sales of power boats in the United States have been in decline since late 2005; however, the rate of decline has been accelerating,” said Dustan E. McCoy, Brunswick's chairman and chief executive officered. “Industry retail unit sales were down 13 percent in the fourth quarter of 2007 and down 21 percent in the first quarter of 2008 compared with the respective year-ago quarters. Further, these reductions were recorded off of an already low base. Total unit sales of power boats in the United States in 2007 were at their lowest in more than 40 years.”

“An uncertain economy, high fuel and food prices, slumping home sales and values, rising unemployment and other factors continue to erode U.S. consumers' confidence and are reducing their ability and desire to purchase discretionary items such as boats, and billiards tables and fitness equipment for their homes,” McCoy explained. “For our planning purposes, we are not assuming that these pressures will abate any time soon. As a result, we are planning for an environment in which the U.S. marine market will be smaller in the near term, and we will resize our company accordingly. Our objective is to thrive and prosper while the U.S. marine market remains under pressure and to outperform when we see a rebound in demand.”


Cost Savings Efforts


Brunswick said it will achieve its $300 million cost savings target in part by shrinking its North American manufacturing footprint. The company plans to have 17 or fewer boat plants by the end of 2009, compared with the 29 it had in 2007. This will require the closure of four plants in addition to eight plant closures already completed or announced.


Brunswick will also continue its efforts to reduce the complexity of its operations, including reducing the number of models and option packages, focusing on those that are popular and clearly resonate with consumers. The company's efforts also entail assessing the outlook for continued participation in certain market segments across its operations that may not offer opportunities to generate acceptable levels of profitability.

Going Forward


“We have chosen to act now to recast and resize our operations with the objective of being profitable within a smaller marine market,” said McCoy. “We will continue to produce at rates below retail demand to lower pipeline inventories.”


The company said that it had notified employees today that it would be reducing its hourly and salaried work force at certain of its marine plants by 1,000. Further work force reductions of approximately 1,000 hourly and 700 salaried employees across the company's marine business units and staff functions are contemplated as additional plant closures and consolidations and other cost-cutting measures are completed.

“Maintaining liquidity will continue to be a key priority in these uncertain times,” McCoy added. “We are focusing on generating cash through good working capital management, paring inventories and discretionary spending. Our balance sheet is solid, and we expect to generate positive cash flow benefits in 2008 by further reducing capital spending and from positive contributions from changes in working capital.”


Financial Effect


The company said that these actions are estimated to result in restructuring charges in the range of $200 million to $220 million pretax, which includes approximately $75 million of previously announced restructuring charges related to actions taken earlier this year. The charges primarily consist of asset write-downs and asset impairments, including approximately $18 million relating to the Valley-Dynamo commercial pool table business; severance; and costs associated with manufacturing footprint changes. The company estimates that 85 percent of these charges will be recorded in 2008, of which about 50 percent will be non-cash. The company noted that $22 million of the restructuring charges had been recorded in the first quarter of 2008.