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BGG > SEC Filings for BGG > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for BRIGGS & STRATTON CORP

Form 10-Q for BRIGGS & STRATTON CORP


7-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             RESULTS OF OPERATIONS

The following table provides a summary of financial results, including
information presented as a percentage of net sales (in thousands):
                                                   For the Three Months Ended
                                      September 29, 2013                 September 30, 2012
                                   Dollars          Percent           Dollars          Percent
Net Sales                      $     317,304           100.0  %   $     309,020           100.0  %
Cost of Goods Sold                   269,888            85.1  %         260,024            84.1  %
Restructuring Charges                  3,585             1.1  %           5,126             1.7  %
Gross Profit                          43,831            13.8  %          43,870            14.2  %
Engineering, Selling,
General and Administrative
Expenses                              68,762            21.7  %          65,688            21.3  %
Income (Loss) from
Operations                           (24,931 )          (7.9 )%         (21,818 )          (7.1 )%
Interest Expense                      (4,510 )          (1.4 )%          (4,486 )          (1.5 )%
Other Income, Net                      2,093             0.7  %           1,405             0.5  %
Income (Loss) Before Income
Taxes                                (27,348 )          (8.6 )%         (24,899 )          (8.1 )%
Provision (Credit) for
Income Taxes                          (7,999 )          (2.5 )%          (8,372 )          (2.7 )%
Net Income (Loss)              $     (19,349 )          (6.1 )%   $     (16,527 )          (5.3 )%

NET SALES

Consolidated net sales for the first quarter of fiscal 2014 were $317.3 million, an increase of $8.3 million or 3% from the first quarter of fiscal 2013.

Engines Segment fiscal 2014 first quarter net sales were $183.8 million, which was $19.3 million or 11.7% higher than the first quarter of fiscal 2013. This increase in net sales was driven by higher sales of engines used on lawn and garden equipment and related service parts to customers in the North American and European markets due to more favorable late season growing conditions this fiscal year. The increase was partially offset by unfavorable sales mix due to fewer sales of larger engines used in snow throwers and in portable generators resulting from a lack of storm activity in the first quarter of fiscal 2014 and unfavorable foreign exchange predominantly related to the Australian dollar.

Products Segment fiscal 2014 first quarter net sales were $153.0 million, a decrease of $20.3 million or 11.7% from the first quarter of fiscal 2013. The decrease in net sales was primarily related to lower sales of portable generators due to no landed hurricanes in the first quarter of fiscal 2014. Hurricane Isaac occurred in the first quarter of fiscal 2013. In addition, international net sales were lower in the first quarter of fiscal 2014 due to reduced shipments of snow throwers to customers in Europe and unfavorable foreign exchange primarily related to the Australian dollar. This decrease was partially offset by favorable late season growing conditions during the first quarter of fiscal 2014 that led to higher sales of lawn and garden equipment through our North American dealer channel, pressure washers and service parts as well as net sales from the Branco acquisition.

GROSS PROFIT PERCENTAGE

Included in consolidated gross profit were pre-tax charges of $3.6 million during the first quarter of fiscal 2014 related to restructuring actions. The Engines Segment and Products Segment each recorded $1.8 million of pre-tax restructuring charges within gross profit during the first quarter of fiscal 2014. Included in consolidated gross profit for the first quarter of fiscal 2013 were pre-tax charges of $5.1 million also related to restructuring actions. The Engines Segment recorded pre-tax restructuring charges of $1.1 million and the Products Segment recorded restructuring charges of $4.0 million in the first quarter of fiscal 2013.


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                 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES




The following table is a reconciliation of gross profit by segment, as reported,
to adjusted gross profit by segment, excluding restructuring charges.
                                               Three Months Ended
                                        September 29,      September 30,
                                             2013               2012
Engines
Engines Net Sales                      $      183,787     $      164,515

Engines Gross Profit as Reported       $       25,236     $       24,712
Restructuring Charges                           1,765              1,091
Adjusted Engines Gross Profit (1)      $       27,001     $       25,803

Engines Gross Profit % as Reported               13.7 %             15.0 %
Adjusted Engines Gross Profit % (1)              14.7 %             15.7 %

Products
Products Net Sales                     $      153,037     $      173,297

Products Gross Profit as Reported      $       17,825     $       18,716
Restructuring Charges                           1,820              4,035
Adjusted Products Gross Profit (1)     $       19,645     $       22,751

Products Gross Profit % as Reported              11.6 %             10.8 %
Adjusted Products Gross Profit % (1)             12.8 %             13.1 %

Inter-Segment Eliminations                        770                442
Adjusted Gross Profit (1)              $       47,416     $       48,996

(1) Adjusted gross profit is a non-GAAP financial measure. The Company believes this information is meaningful to investors as it isolates the impact that restructuring charges have on gross profit and facilitates comparisons between peer companies. While the Company believes that adjusted gross profit is useful supplemental information, such adjusted results are not intended to replace our Generally Accepted Accounting Principles' ("GAAP") financial results and should be read in conjunction with those GAAP results.

The consolidated gross profit percentage was 13.8% in the first quarter of fiscal 2014, down from 14.2% in the same period last year.

The Engines Segment gross profit percentage was 13.7% in the first quarter of fiscal 2014, lower than the 15.0% in the first quarter of fiscal 2013. The Engines Segment adjusted gross profit percentage for the first quarter of 2014 was 14.7%, which was 1.0% lower compared to the first quarter of fiscal 2013. The adjusted gross profit percentage was unfavorably impacted by 2.4% from a 15% reduction in manufacturing volume to reduce inventory. Unfavorable foreign exchange related to the Australian dollar and Japanese yen also impacted the adjusted gross profit percentage by 0.5%. The decrease was partially offset by an increase to adjusted gross profit of 1.3% related to favorable sales mix of higher margin service parts as well as the contribution of margin generated by the Branco acquisition which closed in the second quarter of fiscal 2013. Margins also benefited slightly from reduced manufacturing and materials costs.


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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

The Products Segment gross profit percentage was 11.6% for the first quarter of fiscal 2014, up from 10.8% in the first quarter of fiscal 2013. The Products Segment adjusted gross profit percentage for the first quarter of 2014 was 12.8%, which was 0.3% lower than the adjusted gross profit percentage for the first quarter of fiscal 2013. The adjusted gross profit percentage decreased by 0.8% due to a 21% reduction of manufacturing throughput that was planned in order to control inventory in response to lower sales at the outset of the 2013 lawn and garden season. This decrease was partially offset by the margin contributed by the Branco acquisition.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses were $68.8 million in the first quarter of fiscal 2014, an increase of $3.1 million or 4.7% from the first quarter of fiscal 2013.

The Engines Segment engineering, selling, general and administrative expenses were $43.3 million in the first quarter of fiscal 2014, an increase of $1.1 million from the first quarter of fiscal 2013 primarily due to higher compensation expense and the addition of expenses from Branco. The increase was partially offset by $1.5 million of lower pension expense in fiscal 2014.

The Products Segment fiscal 2014 first quarter engineering, selling, general and administrative expenses were $25.4 million, an increase of $2.0 million from the first quarter of fiscal 2013. The increase was mainly attributable to the additional expenses from Branco.

INTEREST EXPENSE

Interest expense for the first quarter of fiscal 2014 was comparable to the same period a year ago.

PROVISION FOR INCOME TAXES

The effective tax rate for the first quarter of fiscal 2014 was 29.3% compared to 33.6% for the same period in the prior year. The decrease in the effective tax rate for the first quarter of fiscal 2014 as compared to the first quarter of fiscal 2013 was primarily due to non-deductible losses of certain foreign subsidiaries and foreign tax rates that vary from the U.S. statutory rate.

RESTRUCTURING ACTIONS

The previously announced restructuring actions remain on schedule. The Company achieved incremental pre-tax savings for the first quarter of $0.7 million. The Company continues to make progress towards moving horizontal engine manufacturing from its Auburn, Alabama plant to China. As noted previously, pre-tax restructuring costs for the first quarter of fiscal 2014 were $3.6 million. Pre-tax restructuring cost estimates for fiscal 2014 remain unchanged at $6 million to $8 million. Incremental restructuring savings for fiscal 2014 are expected to be $3 million to $5 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows used in operating activities for the first three months of fiscal 2014 were $52.9 million compared to $41.4 million in the first three months of fiscal 2013. The change in operating cash flows was primarily related to changes in working capital needs in fiscal 2014 associated with a lower reduction in accounts receivable partially offset by the benefit of reduced inventory production levels.

Cash flows used in investing activities were $11.6 million and $2.3 million during the first three months of fiscal 2014 and fiscal 2013, respectively. The $9.3 million increase in cash used in investing activities was primarily related to $5.6 million of proceeds received on disposition of plant and equipment during the first quarter of fiscal 2013, primarily associated with the sale of the dormant manufacturing facility in Jefferson, Wisconsin and a land parcel adjacent to the Ostrava, Czech Republic plant. The remaining $3.7 million increase was attributable to higher capital expenditures in the first quarter of fiscal 2014 compared to the same period a year ago.


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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

Cash flows used in financing activities were $9.0 million and $11.4 million during the first three months of fiscal 2014 and fiscal 2013, respectively. The $2.4 million decrease in cash used in financing activities was primarily attributable to $3.2 million of lower treasury share repurchases during the first quarter of fiscal 2014 compared to the same period a year ago.

FUTURE LIQUIDITY AND CAPITAL RESOURCES

On December 15, 2010, the Company issued $225 million of 6.875% Senior Notes ("Senior Notes") due December 15, 2020.

On October 13, 2011, the Company entered into a $500 million multicurrency credit agreement (the "Revolver"), which replaced the Company's prior amended and restated multicurrency credit agreement. On October 21, 2013, the Company entered into an amendment to the Revolver, which, among other things, extended the maturity of the Revolver from October 13, 2016 to October 21, 2018. The initial maximum availability under the revolving credit facility is $500 million. Availability under the revolving credit facility is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability under the revolving credit facility by up to $250 million if certain conditions are satisfied. As of September 29, 2013, there were no borrowings under the Revolver.

On August 8, 2012 the Board of Directors of the Company authorized up to $50 million in funds associated with the common share repurchase program with an expiration date of June 30, 2014. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants. During the three months ended September 29, 2013, the Company repurchased 482,926 shares on the open market at an average price of $20.08 per share.

The Company expects capital expenditures to be approximately $50 million to $55 million in fiscal 2014. These anticipated expenditures reflect our plans to continue to reinvest in efficient equipment and innovative new products.

During the first three months of fiscal 2014, the Company made no cash contributions to the qualified pension plan. Based upon current regulations and actuarial studies, the Company estimates that it will make no required minimum contributions to the qualified pension plan during the remainder of fiscal 2014 or fiscal 2015. The Company may be required to make further contributions in future years depending upon the actual return on plan assets and the funded status of the plan in future periods.

Management believes that available cash, cash generated from operations, existing lines of credit and access to debt markets will be adequate to fund the Company's capital requirements and operational needs for the foreseeable future.

The Revolver and the 6.875% Senior Notes contain restrictive covenants. These covenants include restrictions on the Company's ability to: pay dividends; repurchase shares; incur indebtedness; create liens; enter into sale and leaseback transactions; consolidate or merge with other entities; sell or lease all or substantially all of its assets; and dispose of assets or use proceeds from sales of its assets. The Revolver contains financial covenants that require the Company to maintain a minimum interest coverage ratio and impose a maximum leverage ratio. As of September 29, 2013, the Company was in compliance with these covenants, and expects to be in compliance with all covenants during the remainder of fiscal 2014.


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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes since the August 27, 2013 filing of the Company's Annual Report on Form 10-K.

CONTRACTUAL OBLIGATIONS

There have been no material changes since the August 27, 2013 filing of the Company's Annual Report on Form 10-K except that subsequent to the filing of the Company's Annual Report on Form 10-K, on October 21, 2013, the Company entered into an amendment to the Revolver, which, among other things, extended the maturity of the Revolver from October 13, 2016 to October 21, 2018.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company's critical accounting policies since the August 27, 2013 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.

NEW ACCOUNTING PRONOUNCEMENTS

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.

OTHER MATTERS

The Labor Agreement with United Steelworkers Local 2-232 expired on July 31, 2013. The agreement covered 395 hourly employees in our Wauwatosa and Menomonee Falls, Wisconsin facilities. Membership of the union ratified a new Labor Agreement on October 30, 2013. The new Agreement took effect on October 30, 2013 and expires on July 31, 2017.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This report 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 "believe", "estimate", "expect", "forecast", "intend", "plan", "project", 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; changes in interest rates and foreign exchange 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; changes in laws and regulations; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic and foreign economic conditions; the ability to bring new productive capacity on line efficiently and with good quality; outcomes of legal proceedings and claims; and other factors 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.


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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

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