Brunswick Corp. plans to accelerate its previously announced efforts to resize the company and to remove $300 million in fixed costs by the end of 2009. The company is taking the action in light of “extraordinary developments within the global financial markets” that are affecting the recreational marine industry.
“We are living and working in the most turbulent economic times in recent history,” commented Brunswick chairman and CEO Dustan E. McCoy. “From the start of the year, weve experienced a 3,500-point drop in the Dow, mortgage and housing crises, record prices for oil, and, now, shrinking credit availability for companies and individuals. The poor economy and the accompanying weak consumer sentiment have pressured marine markets, eroding the demand for boats and engines these past few months at a swifter pace than originally anticipated.
“For the past few years, Brunswick has been implementing a strategy to fundamentally transform the way we design, engineer and manufacture our products; shrink our manufacturing footprint so that each facility produces at higher volumes and lower costs; and reduce our level of fixed costs in our manufacturing operations and within operating expenses. While these times are unprecedented, they provide an opportunity and mandate, consistent with the pursuit of our strategy, that we step up our efforts to accomplish our restructuring goals,” McCoy stated.
As previously announced, Brunswick had planned to close four boat manufacturing facilities in early 2009, but will now accelerate that process. Three manufacturing facilities to be permanently closed are located in Pipestone, MN, Roseburg, OR, and Arlington, WA. A fourth plant, in Navassa, NC, will be mothballed.
Brunswick said the production of the fiberglass boats manufactured in these plants will be transitioned to other Brunswick facilities. The company said that these actions will result in the eventual elimination of approximately 1,450 hourly and salaried positions at these facilities, while increasing the efficiency and utilization at the receiving plants. The Arlington, Navassa and Roseburg shutdowns are expected to be completed by the end of 2008, with the Pipestone shutdown expected to be completed during the first quarter of 2009.
“In these difficult times as we move into the slowest selling season in the marine industry, it is clear that we must aggressively support our dealer network as they cope with the effects of the economic turbulence. Among the significant actions we can take is to meter the production of boats consistent with demand, which is in a pronounced downturn across all consumer durable industries, including the recreational marine industry,” McCoy said.
Brunswick will temporarily suspend production at three of its boat manufacturing facilities near Knoxville, TN, beginning the week of October 27 and continuing through the remainder of 2008. During this period, the transition of boat models from the plants that are closing into these facilities will begin.
Regarding financial implications of the accelerated resizing, Brunswick estimate of restructuring charges to achieve its cost reduction targets remains in the range of $200 million to $220 million pretax, of which approximately $180 million will be recorded in 2008. These charges include asset write-downs, severance and facility closing and other costs. Of the total restructuring costs, approximately half will be cash.
Further, as prescribed by SFAS No. 142, Goodwill and other intangible assets, the company concluded that a significant portion of its goodwill and indefinite-lived intangibles was impaired. Accordingly, the company said it will record non-cash goodwill and trade name impairment charges, associated primarily with certain boat brands, totaling approximately $496 million pretax in the third quarter.
“Our efforts to reduce production and cut costs have helped to mitigate some of the challenges we have faced in 2008, as well as prepare and position Brunswick to prosper in an improved economic environment,” McCoy said. “We remain on target to reduce fixed costs by $300 million by the end of 2009 compared with 2007 spending levels, and expect to exit 2008 with more than $125 million of fixed-cost reductions implemented. In fact, actions completed or currently under way will deliver about $75 million of cost savings this year. We also continue our intense focus on liquidity and expect to report cash at the end of the third quarter of approximately $340 million.
“As noted above, however, we will be closing plants and temporarily suspending production at others, which will result in significantly lower sales in the fourth quarter. Given the effect of lower fixed-cost absorption on these reduced sales in the remainder of 2008, we are no longer confident of achieving our goal of posting positive earnings for the full year, excluding restructuring and impairment charges.”
