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| BGG > SEC Filings for BGG > Form 10-Q on 4-Feb-2009 | All Recent SEC Filings |
4-Feb-2009
Quarterly Report
The following is management's discussion and analysis of the Company's financial condition and results of operations for the periods included in the accompanying consolidated condensed financial statements:
SALES
Consolidated net sales for the second quarter of fiscal 2009 were consistent with the second quarter of fiscal 2008 at $477 million.
Second quarter net sales for the Engines Segment were $339 million versus $316 million in fiscal 2008, an increase of $23 million or 7%. This increase reflects 11% greater engine unit shipments compared to the same period a year ago driven by increased engine requirements for portable generators and snow removal equipment.
Second quarter fiscal 2009 Power Products Segment net sales were $192 million, down $4 million or 2% from the second quarter of fiscal 2008. This is primarily the result of decreased shipments of pressure washer product since demand for this product has softened between years as consumer sentiment weakened. Offsetting this decrease was $12 million of sales related to our June 30, 2008 acquisition of Victa.
Consolidated net sales for the first six months of fiscal 2009 totaled $936 million, an increase of $91 million or 11% over the first six months of fiscal 2008.
Engines Segment net sales for the first six months of fiscal 2009 were $598 million, up $74 million or 14% from the prior year. This increase reflects a 16% increase in engine unit shipments between years resulting from strong demand for engines for portable generators caused by weather events and snow removal equipment for the current snow season. Additionally, engine demand resulted from low channel inventories of lawn and garden equipment that needed to be replenished for retail demand during the first quarter.
Power Products Segment net sales for the first six months of fiscal 2009 were $448 million, up $65 million or 17% from the prior year. This improvement was the result of $25.2 million of net sales from the Victa acquisition and increased sales of portable generators caused by a number of hurricanes making landfall in the United States in the first quarter of fiscal 2009. This was partially offset by weaker pressure washer product demand in the second quarter.
GROSS PROFIT MARGIN
The consolidated gross profit margin in the second quarter of fiscal 2009 improved to 15.9% from 9.3% in the same period last year.
The Engines Segment gross profit margin increased to 19.4% in the second quarter of fiscal 2009 from 13.4% in the second quarter of fiscal 2008. The margin improvement was favorably impacted by the absence of the prior year $17.7 million warranty expense associated with the snow engine recall and $2.4 million of costs incurred to close the Rolla facility. The remainder of the improvement was the result of a 2.9% production volume increase year over year and planned reductions of selected operating expenses, offset by commodity costs that continue to be higher than the prior year.
The Power Products Segment gross profit margin improved to 5.7% for the second quarter of fiscal 2009 from 0.6 % in the second quarter of fiscal 2008. This improvement resulted from a favorable mix of portable generator unit shipments and better plant utilization from ongoing portable generator demand. Pricing improvements experienced in the quarter were offset by increased costs for commodities and components.
The consolidated gross profit margin for the first six months of fiscal 2009 improved to 15.0% from 10.3% in the same period a year ago.
The Engines Segment gross profit margin for the first six months of fiscal 2009 increased to 17.7% from 14.6% in the prior year. The margin improvement was favorably impacted by the absence of the prior year $19.8 million warranty expense associated with the snow engine recall and $6.4 million of costs incurred to close the Rolla facility. The remainder of the improvement was the result of a 3.1% production volume increase year over year and planned reductions of selected operating expenses, offset by commodity costs that continue to be higher than the prior year. Additionally, pricing on engines sold to Europe was less favorable than the prior year due to currency fluctuations.
The Power Products gross profit margin for the first six months of fiscal 2009 increased to 7.3% from 2.5% in fiscal 2008. This improvement was partially attributable to higher production volumes combined with an improvement year over year in margins resulting from a favorable product mix.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expenses were $63 million in the second quarter of fiscal 2009, a decrease of $3 million or 5% from the second quarter of fiscal 2008. This decrease is primarily attributable to planned reductions of salaries, marketing and professional service expenses. Engineering, selling, general and administrative expenses were $128 million for the first six months of fiscal 2009, a decrease of $2 million or 2% from fiscal 2008, attributable to the same reasons mentioned for the second quarter.
INTEREST EXPENSE
Interest expense for the second quarter of fiscal 2009 was $8.7 million, down $1.9 million or 18% from fiscal 2008. Interest expense for the first six months of fiscal 2009 was $16.6 million, down $3.0 million or 15% from fiscal 2008. The decreased interest expense is attributable to lower interest rates and lower average outstanding borrowings.
PROVISION FOR INCOME TAXES
The second quarter and year to date fiscal 2009 effective tax rates were 30% and 155%, respectively, versus the 23% and 33% in the same respective periods of fiscal 2008. The effective tax rate fluctuation between the second quarters was due to the difference in dividends. The difference in the year to date rates was due to the resolution of federal tax matters.
Cash used in operating activities for the first six months of fiscal 2009 was $39 million as compared to $163 million for fiscal 2008, a $124 million improvement. This improvement was due to improved operating results and an improvement in working capital accounts, primarily resulting from the timing of payments of accounts payable.
In the first six months of fiscal 2009, $44 million was used for investing activities as compared to $32 million provided by investing activities in fiscal 2008. This $76 million change was primarily the result of $66 million in proceeds received on the sale of an investment in preferred stock including the final dividends paid on the preferred stock in the prior year and $25 million net cash used for the acquisition of Victa in fiscal 2009, offset by $13 million less of additions to plant and equipment between years. The reduction of plant and equipment additions primarily relates to absence of capital expenditures incurred in the prior year related to the new lawn equipment plant located in Newbern, Tennessee and projects in McDonough, Georgia, both of which have taken on additional capacity due to the closure of our Port Washington, Wisconsin facility. Additionally, capital projects occurred in our Poplar Bluff, Missouri facility in the prior year as it prepared for additional capacity from the closure of our Rolla, Missouri facility.
Net cash provided by financing activities was $71 million in the first six months of fiscal 2009, a $78 million decrease from the $149 million provided in fiscal 2008, primarily attributable to decreased net borrowings between years.
On July 12, 2007, the Company entered into a $500 million amended and restated multicurrency credit agreement. The Amended Credit Agreement ("Revolver") provides a revolving credit facility for up to $500 million in revolving loans, including up to $25 million in swing-line loans. The Revolver has a term of five years and all outstanding borrowings on the Revolver are due and payable on July 12, 2012. As of the end of the second quarter of fiscal 2009, the unused availability of the revolving credit facility was approximately $298 million. This credit facility and the Company's other indebtedness contain restrictive covenants as described in Note 8 of the Notes to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K. As of the end of the second quarter of fiscal 2009, the Company was in compliance with these covenants.
Management expects cash outflows for capital expenditures to be approximately $50 million in fiscal 2009. These anticipated expenditures provide for continued investment in equipment, new products and capacity enhancements. These expenditures will be funded using available cash.
The Company is not required to, nor intends to, make any contributions to the pension plans in fiscal 2009. Assuming plan assets decrease in a range of 10% to 20% during fiscal 2009 and the discount rate is in a range of 5.5% to 7.5% for fiscal 2009, the Company may be required to make contributions to the pension plans in a range of $5 million to $40 million for the fiscal 2010 plan year.
Management believes that available cash, the credit facility, cash generated from operations and existing lines of credit will be adequate to fund capital requirements for the foreseeable future.
A discussion of an acquisition and casualty event are included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q under the headings Acquisitions and Casualty Event, respectively, and incorporated herein by reference.
There have been no material changes since the August 28, 2008, filing of the Company's Annual Report on Form 10-K.
There have been no material changes since the August 28, 2008, filing of the Company's Annual Report on Form 10-K.
There have been no material changes in the Company's critical accounting policies since the August 28, 2008 filing of its Annual Report on Form 10-K. As discussed in our annual report, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include a goodwill assessment, estimates as to the realizability of accounts receivable and inventory assets, as well as estimates used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, group health insurance, litigation and taxation. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and, in some instances, actuarial techniques. The Company re-evaluates these significant factors as facts and circumstances change.
The pension benefit obligation and related pension expense or income is impacted by certain actuarial assumptions, including the discount rate and expected rate of return on plan assets. These rates are evaluated considering such factors as market interest rates and historical assets performance, which is essential in the current volatile market.
A discussion of new accounting pronouncements is included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q under the heading New Accounting Pronouncements and incorporated herein by reference.
This release contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words "anticipate", "believe", "could", "estimate", "expect", "forecast", "intend", "may", "objective", "plan", "project", "seek", "think", "will", and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things, the ability to successfully forecast demand for our products and appropriately adjust our manufacturing and inventory levels; changes in our operating expenses; changes in interest rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; the seasonal nature of our business; changes in laws and regulations, including environmental, tax, pension funding and accounting standards; work stoppages or other consequences of any deterioration in our employee relations; work stoppages by other unions that affect the ability of suppliers or customers to manufacture; acts of war or terrorism that may disrupt our business operations or those of our customers and suppliers; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic economic conditions, including housing starts and changes in consumer confidence; changes in the market value of the assets in our defined benefit pension plan and any related funding requirements; changes in foreign economic conditions, including currency rate fluctuations; the actions of customers of our OEM customers; the ability to bring new productive capacity on line efficiently and with good quality; the ability to successfully realize the maximum market value of assets that may require disposal if products or production methods change; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; and other factors that may be disclosed from time to time in our SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of the Company's Annual Report on Form 10-K and in its periodic reports on Form 10-Q. Some or all of the factors may be beyond our control. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made.
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