Thursday, Brunswick Corp. (BC), a provider of fitness and billiards equipment, said it has decided to accelerate its efforts to restructure the company which involves slashing approximately 1,450 job thereby saving $300 million in fixed costs by the end of 2009. The news arrives barely four months after Brunswick's earlier announcement to cut 1,000 jobs, with a warning of an additional cut of 1,700 jobs. The company said that due to the anticipated drop in sales, following the proposed closure of plants, it does not expect to achieve its goal of posting positive earnings in fiscal 2008. On the news, the stock dropped by 20.8% and hit a 52-week low of $7.92.
The Lake Forest, Illinois-based company said it would accelerate the process of shutting down four of its boat manufacturing facilities, previously planned for early 2009. Three manufacturing facilities to be permanently closed are located in Pipestone-Minnesota, Roseburg-Oregon, and Arlington-Washington. A fourth plant, in Navassa-North Carolina, will be mothballed.
The Arlington, Navassa and Roseburg plant shutdowns are expected to be completed by the end of 2008 while the Pipestone shutdown is expected to be completed during the first quarter of 2009.
The production of the fiberglass boats manufactured in the plants proposed to be shut down will be transitioned to other Brunswick facilities. Additionally, Brunswick will temporarily suspend production at three of its boat manufacturing facilities near Knoxville, Tennessee 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.
These closures 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.
Commenting on the financial implications of the restructuring, Brunswick Chairman and CEO Dustan McCoy said that the company remains on target to reduce fixed costs by $300 million by the end of 2009 compared with 2007 spending levels, and expects to exit 2008 with more than $125 million of fixed-cost reductions implemented. McCoy added that actions completed or currently under way would deliver about $75 million of cost savings in the current year. With focus on liquidity, the company expects to report cash at the end of the third quarter of approximately $340 million.
To achieve cost reduction targets, the company estimates to record restructuring charges, half of which will be in cash, in the range of $200 million to $220 million pretax, of which approximately $180 million will be recorded in 2008. The charges include asset write-downs, severance and facility closing and other costs.
Further, the company noted that a significant portion of its goodwill and indefinite-lived intangibles was impaired. Accordingly, the company said it would record non-cash goodwill and trade name impairment charges, associated primarily with certain boat brands, totaling approximately $496 million pretax in the third quarter.
In lieu of the closure of plants and temporary suspension of production at others, sales will drop significantly in the fourth quarter. Based on the effect of lower fixed-cost absorption on these reduced sales in the remainder of 2008, the company is no longer confident of achieving its goal of posting positive earnings for the full year, excluding restructuring and impairment charges.
Looking ahead, the company said it could meter the production of boats consistent with demand, which is in a pronounced downturn across all consumer durable industries, including the recreational marine industry.
Brunswick closed Thursday's regular trading at $8.12, down $1.88 or 18.80%, on a volume of 6.14 million shares on the NYSE. In after-hours trade, the stock is currently trading at $7.75, down $0.37 or 4.56%.
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