Brunswick Cuts 750 Jobs

Brunswick Cuts 750 Jobs
and Announces Stock Buyback
1 Oct 1998

Thursday October 1, 1998 Brunswick Corporation announced it is consolidating some operations and eliminating 750 jobs to cut costs as a result of the economic conditions in Asia and other emerging markets.

This announcement comes one week after OMC said it plans to close two plants and eliminate 900 jobs in a cost cutting move.

Of the job cuts, about 90 percent will be in Asia. Brunswick also will sell a plant that make pinsetters in China, as well as 15 bowling centers in Asia, Brazil and Europe.

Previously announced plans to consolidate distribution warehouses in the U.S. included closing a facility in Effingham, Ill., and shifting that work to Olney.

Some bicycle assembly operations will be shifted from Brunswick's facility in Olney IL to a new plant opening in Mexico.

BC will take a pretax charge of about $60 million in the third quarter ended September 30, 1998. On an after-tax basis, the charge is about $40 million or 40 cents per share.

Changes in Brunswick's bowling division account for about 80 percent of the charge, while outdoor recreation group projects account for the balance, the company said. About 55 percent of the charge covers severance costs, lease terminations and other items, while 45 percent relates to asset write-downs and dispositions, the company said.

``We continued to see solid double-digit sales growth from the vast majority of our businesses in the third quarter. This has enabled us to offset the decline in business units affected by Asia,'' said Chief Executive Peter Larson in a statement.

In an interview, Larson said, ``This really is an Asian impact charge. Whether it is in bowling or in the outdoor group, that is the focus of this.''

By the end of the year, Brunswick said it will take the following steps:

-- Sell, close or otherwise dispose of a bowling pin-setter factory in China;

-- Close or sell 15 retail bowling centers in Asia, Brazil and Europe;

-- Speed up closure of a pin-setter plant in Germany, with its operations moving to a new plant in Hungary;

-- Close seven warehouses scattered across the United States, reducing the total of those facilities to 15;

-- Transfer some bicycle assembly work from a plant in Olney, Ill., to a new plant in Mexico.

Cost-cutting steps are expected to save about $18 million in 1999. ``Approximately 750 positions in the company's capital equipment and products divisions and international retail centers are being eliminated,'' Brunswick said.

On a segment basis, recreation generated 35 percent of second-quarter sales of $1.1 billion, but just 20 percent of operating earnings of $143.9 million on the quarter. The bulk of sales and operating profits recently has come from its marine business.

On the boat business, Larson said, "The picture is positive ... and not only from our perspective, but more importantly from the view of retailers. The business is very good. The undelivered orders that they have are very strong. There are no indications that we can see that the business is softening."

He said declines in the sales by other builders of small fishing boats -- a business that Brunswick largely exited three years ago -- have not hurt the company's outboard motor sales.

"The areas where we are most focused -- cruisers and yachts and salt-water fishing -- are growing at double-digit rates ... So we have positioned ourselves where the consumers are. The engines to a great degree follow that," Larson said.

Larson said, "More than 80% of the business at Brunswick is in terrific shape, and recording double-digit growth. The company's difficulties are centered on its bowling and camping equipment segments." He reported the new initiatives are designed to "change the way the cost profile of these businesses in a way that- even at current volume - they're going to be profitable." Brunswick said the moves will save $18 million next year.

Asian Bowling

In Asia, Larson said expansion of the bowling business is meeting with consumer support, but also facing tight credit market obstacles.

"We are not able to finance installation of lanes in Asia. So it's a capital equipment issue, rather than a consumer issue," Larson said. "We're having difficulty getting letters of credit out of Asia, in general, and China in particular."

"We had had a very U.S.-based manufacturing capability that was not cost-competitive," Larson said. "As a result of these actions, we will ... have shifted more of the manufacturing offshore and will be very cost competitive."

Stock Buyback and Stock Price

In addition to cutting operations, Brunswick said it will buy back as many as 7 million shares, or about 7 percent of its stock outstanding. That is on top of a 5 million-share repurchase program announced last October. Brunswick said that, so far, it has spent $41 million to buy back 1.5 million shares under the 1997 program.

Analysts said waning U.S. consumer confidence, which is highly correlated to boat sales, has contributed to a recent decline in Brunswick's stock price. The shares were up 11/16 at 13-5/8 on the New York Stock Exchange on Thursday, but they were down from a 52-week high of 36-1/2 set on Oct. 2, 1997.

In fact, Thursday may be the first time in months that Brunswick and Wall Street have seen eye to eye. Brunswick's stock is down more than 60 percent for the year. Peter N. Larson, chairman and chief executive, said investors have "overpenalized" the company, but expressed optimism that the restructuring would bring the price back up.

Larson said the moves should put Brunswick in a strong position in the near term even the world economic picture doesn't improve soon. The company's biggest weaknesses were in the camping and bowling operations, and "we took care of them in this charge," he said.

"We are blessed with having a set of fundamentals that are very positive," he added. In particular, he said, Brunswick is in a good position to address a growing consumer issue -- stress on the job. He said Brunswick offers physical outlets for stress, whether it be bowling or camping or boating, and most have the bonus of working for families as well as individuals. Exercise equipment has been particularly strong, Larson said.

``Boat sales are highly correlated to consumer confidence. We've seen three straight months of declining consumer confidence,'' said Timothy Conder, recreation industry analyst at St. Louis-based investment bank and brokerage A.G. Edwards.

Conder said that may help explain the 45 percent decline in Brunswick's stock price since July 1. Over the same period, the S&P 500 declined about 34 percent.

Sources

Brunswick Corp. consolidation to cut 750 jobs. 
Reuters. 09:21 a.m. Oct 01, 1998 Eastern

Brunswick cites Asia for cutbacks. 
Reuters. Thursday, October 01, 1998 6:52PM

Brunswick Rolls Gutter Ball In Asia. 
Reuters. Friday, October 02, 1998 6:44AM

Sports Gear Maker Brunswick Cuts Back Asian Operations. 
Knight-Ridder/Tribune Business News. 
Friday, October 02, 1998 3:12AM

Brunswick Corp to Reduce Staff By About 3%
Wall Street Journal. Friday, October 2, 1998. Page B4.

Moody's revises Brunswick Corp Rating Outlook

Reuters North American Securities
Friday, October 02, 1998 12:42PM

NEW YORK, Oct 2 via NewsEdge Corporation - Moody's Investors Service confirmed Brunswick Corporation's ratings following the company's announcement that it plans a major share repurchase and has initiated a restructuring of its global manufacturing operations.

Brunswick's ratings continue to reflect the company's strong market positions in several segments of the recreation market and the increased diversification of its cash flow stream through a broader product portfolio.

However, the rating also reflects the rising leverage of the company due to acceleration of its share repurchase program and recent debt-financed acquisitions.

Brunswick's rating outlook is revised to negative from stable.

The cyclicality of Brunswick's recreation-related businesses requires a greater degree of flexibility relative to some other consumer product businesses.

The company's flexibility is limited at its current rating level due to sizable share repurchases and debt-financed acquisitions.

Ratings confirmed are:

Brunswick Corporation Senior unsecured debt at Baa1. Revolving credit facility at Baa1. Guaranteed ESOP notes at Baa1. Commercial paper rating at Prime-2. Senior unsecured shelf at (P)Baa1.

On October 1, 1998, Brunswick announced that its Board of Directors authorized the repurchase of up to seven million shares.

This authorization supplements the company's five million share repurchase program to reduce dilution from shares issued under compensation plans.

The company also announced initiatives to streamline operations and reduce costs in response to weak economic conditions in Asia and other emerging markets.

In connection with these initiatives, the company will be recording a pre-tax charge of $60 million.

Approximately 80% of the charge relates to bowling division projects and the remainder to projects of the outdoor recreation group.

Brunswick is the world's largest manufacturer of outboard engines, stern drives, and pleasure boats. The marine division represents approximately 65% of the company's sales and earnings.

To reduce its dependence on the cyclical marine industry, the company has been expanding its portfolio of active recreation products targeting several segments, including bowling, camping, biking, fishing, and exercise equipment.

As a result of acquisitions and internal growth earnings from the recreation group have increased to $116.8 million in 1997 from $50.6 million in 1995.

Although the broader product portfolio reduces the overall volatility of the company's cash flow and earnings, active recreation products, such as Brunswick's, are more cyclical than consumer non-durables.

Moody's noted that a higher cyclicality risk warrants overall stronger debt protection for any given rating category. Due to debt-financed acquisitions, Brunswick's debt/capitalization rose to 36% at December 31, 1997, from 23% at December 31, 1997.

The rise in leverage that Moody's anticipates as a result of the share repurchase program and the restructuring charge will weaken the company's position within the Baa1 rating category.

Brunswick Corporation, headquartered in Lake Forest, Illinois, manufactures and markets outdoor and indoor active recreation consumer products. During 1997, its revenues were $3.7 billion.

Copyright 1998 Reuters Limited.