Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BGG > SEC Filings for BGG > Form 10-Q on 31-Jan-2014All Recent SEC Filings

Show all filings for BRIGGS & STRATTON CORP

Form 10-Q for BRIGGS & STRATTON CORP


31-Jan-2014

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
                                      December 29, 2013                 December 30, 2012
                                  Dollars          Percent          Dollars          Percent
Net Sales                      $    416,592           100.0  %   $    439,066           100.0  %
Cost of Goods Sold                  337,333            81.0  %        358,953            81.8  %
Restructuring Charges                 1,893             0.5  %          3,200             0.7  %
Gross Profit                         77,366            18.6  %         76,913            17.5  %
Engineering, Selling,
General and Administrative
Expenses                             71,777            17.2  %         69,200            15.8  %
Restructuring Charges                   425             0.1  %          3,435             0.8  %
Income from Operations                5,164             1.2  %          4,278             1.0  %
Interest Expense                     (4,594 )          (1.1 )%         (4,599 )          (1.0 )%
Other Income, Net                     1,751             0.4  %          1,450             0.3  %
Income Before Income Taxes            2,321             0.6  %          1,129             0.3  %
Provision for Income Taxes            1,619             0.4  %          1,764             0.4  %
Net Income (Loss)              $        702             0.2  %   $       (635 )          (0.1 )%



                                                   For the Six Months Ended
                                      December 29, 2013                 December 30, 2012
                                  Dollars          Percent          Dollars          Percent
Net Sales                      $    733,896           100.0  %   $    748,086           100.0  %
Cost of Goods Sold                  607,221            82.7  %        618,978            82.7  %
Restructuring Charges                 5,478             0.7  %          8,325             1.1  %
Gross Profit                        121,197            16.5  %        120,783            16.1  %
Engineering, Selling,
General and Administrative
Expenses                            140,539            19.1  %        134,888            18.0  %
Restructuring Charges                   425             0.1  %          3,435             0.5  %
Loss from Operations                (19,767 )          (2.7 )%        (17,540 )          (2.3 )%
Interest Expense                     (9,103 )          (1.2 )%         (9,085 )          (1.2 )%
Other Income, Net                     3,843             0.5  %          2,854             0.4  %
Loss Before Income Taxes            (25,027 )          (3.4 )%        (23,771 )          (3.2 )%
Credit for Income Taxes              (6,380 )          (0.9 )%         (6,609 )          (0.9 )%
Net Loss                       $    (18,647 )          (2.5 )%   $    (17,162 )          (2.3 )%

NET SALES

Consolidated net sales for the second quarter of fiscal 2014 were $416.6 million, a decrease of $22.5 million or 5.1% from the second quarter of fiscal 2013. The quarterly impact of fewer weather related events creating demand for generators and the related engines was an estimated sales decrease of $55 million. This decrease was partially offset by favorable late season growing conditions in the North American market during the second quarter of fiscal 2014 that led to higher sales of engines, lawn and garden equipment, pressure washers and related service parts.


Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

Engines Segment fiscal 2014 second quarter net sales were $265.7 million, which was $8.5 million or 3.1% lower than the second quarter of fiscal 2013. This decrease in net sales was due to lower sales of engines used in generators due to the lack of storm activity during the quarter. Fiscal 2013 second quarter net sales benefited from the impact of Hurricane Sandy. The decrease in fiscal 2014 was partially offset by higher North American sales of engines used on lawn and garden equipment and related service parts due to OEM's building lawn and garden inventory for the upcoming lawn and garden season.

Products Segment fiscal 2014 second quarter net sales were $171.5 million, a decrease of $26.0 million or 13.2% from the second quarter of fiscal 2013. The decrease in net sales was driven by lower net sales of standby and portable generators due to no landed hurricanes in the second quarter of fiscal 2014 and unfavorable foreign exchange predominantly related to the Australian Dollar and the Brazilian Real. Hurricane Sandy occurred in the second quarter of fiscal 2013 and no significant storms occurred in fiscal 2014. This decrease was partially offset by favorable late season growing conditions during the second quarter of fiscal 2014 that led to higher net sales of lawn and garden equipment through our North American dealer channel as well as higher sales of pressure washers and service parts. Net sales also benefited from the Branco acquisition, which closed on December 7, 2012.

For the first six months of fiscal 2014, consolidated net sales were $733.9 million, a decrease of $14.2 million or 1.9% when compared to the same period a year ago.

Engines Segment net sales for the first six months of fiscal 2014 were $449.5 million, which was $10.8 million or 2.5% higher than the same period a year ago. The increase was primarily due to higher North American sales of engines used on lawn and garden equipment and related service parts due to strong demand stemming from late season growing conditions as well as the anticipated increased retail demand for the upcoming lawn and garden season. The increase was partially offset by lower sales of engines used in generators due to the lack of storm activity during the first six months of fiscal 2014. Hurricanes Isaac and Sandy occurred during the first six months of fiscal 2013.

Products Segment net sales for the first six months of fiscal 2014 were $324.6 million, a decrease of $46.2 million or 12.5% from the same period a year ago. The decrease in net sales was due to lower sales of standby and portable generators due to no landed hurricanes during the first six months of fiscal 2014 and unfavorable foreign exchange predominantly due to the Australian Dollar and the Brazilian Real. Hurricanes Isaac and Sandy occurred during the first six months of fiscal 2013. This decrease was partially offset by favorable late season growing conditions during the first six months of fiscal 2014 that led to higher sales of lawn and garden equipment through our North American dealer channel as well as higher sales of pressure washers and service parts. Net sales also benefited from the Branco acquisition.

GROSS PROFIT PERCENTAGE

Included in consolidated gross profit were pre-tax charges of $1.9 million and $5.5 million during the second quarter and first six months of fiscal 2014, respectively, and of $3.2 million and $8.3 million during the second quarter and first six months of fiscal 2013, respectively, related to restructuring actions. The Engines Segment and Products Segment recorded $1.6 million and $0.3 million, respectively, of pre-tax restructuring charges within gross profit during the second quarter of fiscal 2014, and $3.4 million and $2.1 million, respectively, for the first six months of fiscal 2014. During the second quarter and first six months of fiscal 2013, the Engines Segment recorded pre-tax charges within gross profit of $0.8 million and $1.9 million, respectively, and the Products Segment recorded pre-tax charges within gross profit of $2.4 million and $6.4 million, respectively.


Table of Contents

                 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                     Six Months Ended
                              December 29,       December 30,       December 29,       December 30,
                                  2013               2012               2013               2012
Engines
Engines Net Sales           $      265,712     $      274,195     $      449,499     $      438,710

Engines Gross Profit as
Reported                    $       54,257     $       56,287     $       79,493     $       80,999
Restructuring Charges                1,631                847              3,396              1,938
Adjusted Engines Gross
Profit (1)                  $       55,888     $       57,134     $       82,889     $       82,937

Engines Gross Profit % as
Reported                              20.4 %             20.5 %             17.7 %             18.5 %
Adjusted Engines Gross
Profit % (1)                          21.0 %             20.8 %             18.4 %             18.9 %

Products
Products Net Sales          $      171,528     $      197,494     $      324,564     $      370,791

Products Gross Profit as
Reported                    $       21,959     $       18,536     $       39,784     $       37,252
Restructuring Charges                  262              2,353              2,082              6,388
Adjusted Products Gross
Profit (1)                  $       22,221     $       20,889     $       41,866     $       43,640

Products Gross Profit %
as Reported                           12.8 %              9.4 %             12.3 %             10.0 %
Adjusted Products Gross
Profit % (1)                          13.0 %             10.6 %             12.9 %             11.8 %

Inter-Segment
Eliminations                         1,150              2,090              1,920              2,532
Adjusted Gross Profit (1)   $       79,259     $       80,113     $      126,675     $      129,109

(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 18.6% in the second quarter of fiscal 2014, an increase from 17.5% in the same period last year.

The Engines Segment gross profit percentage was 20.4% in the second quarter of fiscal 2014, slightly lower than the 20.5% in the second quarter of fiscal 2013. The Engines Segment adjusted gross profit percentage for the second quarter of 2014 was 21.0%, which was slightly higher compared to the second quarter of fiscal 2013. The increase was related to a favorable impact of 0.6% from sales mix of higher margin service parts and margin contributed from the Branco acquisition which closed late in the second quarter of fiscal 2013. Partially offsetting the increase was a 0.5% unfavorable impact from foreign exchange primarily related to the Australian Dollar. Manufacturing throughput decreased in the second quarter of 2014 by 9%; however, production mix was favorable as proportionately more large engines were built.

The Products Segment gross profit percentage was 12.8% for the second quarter of fiscal 2014, up from 9.4% in the second quarter of fiscal 2013. The Products Segment adjusted gross profit percentage for the second quarter of 2014 was 13.0%, which was 2.4% higher than the adjusted gross profit percentage for the second quarter of fiscal 2013. The increase was primarily related to a favorable mix of products sold in the second quarter of fiscal 2014 with the additional margin from Branco and an increase in net sales of lawn and garden equipment through the


Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

North American dealer channel. The adjusted gross profit percentage also benefited by 0.7% due to improved manufacturing efficiencies and incremental footprint restructuring savings of $0.3 million. Partially offsetting the increase was a 1.0% unfavorable impact from foreign exchange.

The consolidated gross profit percentage was 16.5% for the first six months of fiscal 2014, an increase from 16.2% in the same period last year.

The Engines Segment gross profit percentage was 17.7% for the first six months of fiscal 2014, down from 18.5% for the first six months of fiscal 2013. The Engines Segment adjusted gross profit percentage for the first six months of 2014 was 18.4%, which was 0.5% lower compared to the first six months of fiscal 2013. The decrease was due to the unfavorable impact of 1.1% due to a 12% reduction in manufacturing throughput and 0.4% attributable to unfavorable foreign exchange. The decrease was partially offset by 1.0% from favorable sales mix of higher margin service parts and the margin contributed by Branco.

The Products Segment gross profit percentage was 12.3% for the first six months of fiscal 2014, up from 10.0% for the first six months of fiscal 2013. The Products Segment adjusted gross profit percentage for the first six months of 2014 was 12.9%, which was 1.1% higher compared to the first six months of fiscal 2013. The increase was primarily related to a 0.8% benefit from improved manufacturing efficiencies and incremental footprint restructuring savings of $0.8 million. The adjusted gross profit percentage also benefited from a favorable mix of products sold in the first six months of fiscal 2014 with the additional margin from Branco and an increase in net sales through the North American dealer channel. Partially offsetting the increase was a 0.4% unfavorable impact from foreign exchange.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses were $71.8 million in the second quarter of fiscal 2014, an increase of $2.6 million or 3.7% from the second quarter of fiscal 2013.

The Engines Segment engineering, selling, general and administrative expenses were $45.6 million in the second quarter of fiscal 2014, an increase of $1.7 million from the second quarter of fiscal 2013. The increase was primarily due to increased compensation costs and the added expenses related to Branco, partially offset by lower retirement plan expenses of $0.8 million.

The Products Segment fiscal 2014 second quarter engineering, selling, general and administrative expenses were $26.2 million, an increase of $0.8 million from the second quarter of fiscal 2013. The increase was mainly attributable to the additional expenses from Branco and higher compensation costs, partially offset by lower marketing expenses and favorable foreign exchange.

Engineering, selling, general and administrative expenses were $140.5 million for the first six months of fiscal 2014, an increase of $5.7 million or 4.2% from the first six months of fiscal 2013.

The Engines Segment engineering, selling, general and administrative expenses were $88.9 million in the first six months of fiscal 2014, an increase of $2.8 million. The increase is primarily due to increased compensation costs and the added expenses related to Branco, partially offset by lower retirement plan expenses of $2.4 million.

The Products Segment engineering, selling, general and administrative expenses were $51.7 million in the first six months of fiscal 2014, an increase of $2.9 million from the first six months of fiscal 2013. The increase was mainly attributable to the additional expenses from Branco and higher compensation costs, partially offset by lower marketing expenses and favorable foreign exchange.

INTEREST EXPENSE

Interest expense for the second quarter and first six months of fiscal 2014 was comparable to the same periods a year ago.

PROVISION FOR INCOME TAXES

The effective tax rate for the second quarter of fiscal 2014 was 69.8%, compared to 156.5% for the same respective


Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

period of fiscal 2013. The tax rates for the second quarter of fiscal 2013 and fiscal 2014 were primarily due to net operating losses of certain foreign subsidiaries without a realizable tax benefit. The second quarter of fiscal 2013 also included a tax expense of $1.0 million primarily due to nondeductible acquisition costs. The effective tax rate for the first six months of fiscal 2014 was 25.5%, compared to 27.8% for the same respective period of fiscal 2013.

RESTRUCTURING ACTIONS

In fiscal 2012, the Company announced plans to reduce manufacturing capacity through closure of its Newbern, Tennessee and Ostrava, Czech Republic plants, as well as the consolidation of its plants in Poplar Bluff, Missouri and Auburn, Alabama. During fiscal 2012, the Company ceased manufacturing operations at its Newbern, Tennessee and Ostrava, Czech Republic plants, and carried out the consolidation of the Poplar Bluff, Missouri plant. Production of horizontal shaft engines was concluded at the Auburn, Alabama plant during the second quarter of fiscal 2014. The Company also announced in fiscal 2012 the reduction of approximately 10% of the Company's salaried headcount. In fiscal 2012 and fiscal 2013, the Company implemented the salaried headcount reductions. Additionally, beginning in fiscal 2013, the Company exited the placement of lawn and garden products at national mass retailers. The Engines Segment continues to support lawn and garden equipment OEMs who provide lawn and garden equipment to these retailers.

In October 2012, the Board of Directors of the Company authorized an amendment to the Company's defined benefit retirement plans for U.S., non-bargaining employees. The amendment freezes accruals for all non-bargaining employees effective January 1, 2014. The Company recorded a pre-tax curtailment charge of $1.9 million in the second quarter of fiscal 2013 related to the defined benefit plan change.

The previously announced restructuring actions remain on schedule. Pre-tax restructuring costs for the second quarter and first six months of fiscal 2014 were $2.3 million and $5.9 million, respectively. 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 $2 million to $4 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows used in operating activities for the first six months of fiscal 2014 were $45.2 million compared to $75.4 million in the first six months of fiscal 2013. The change in operating cash flows was primarily related to reduced working capital requirements in fiscal 2014 associated with lower seasonal growth in accounts receivable and inventory due to lower production levels and planned inventory reductions. In addition, no contributions to the qualified pension plan were made in fiscal 2014 compared to $16.2 million in the first half of fiscal 2013.

Cash flows used in investing activities were $18.0 million and $68.3 million during the first six months of fiscal 2014 and fiscal 2013, respectively. The $50.3 million decrease in cash used in investing activities was primarily related to $57.8 million of cash paid for the Branco acquisition during the second quarter of fiscal 2013. The decrease was partially offset by $6.2 million of lower proceeds received on disposition of plant and equipment during fiscal 2014 compared to fiscal 2013 when the Company sold the dormant manufacturing facility in Jefferson, Wisconsin and a land parcel adjacent to the Ostrava, Czech Republic plant.

Cash flows used in financing activities were $27.1 million during the first six months of fiscal 2014 as compared to $5.2 million of cash flows provided by financing activities during the first six months of fiscal 2013. The $32.3 million increase in cash used in financing activities was primarily attributable to $10.3 million of lower stock option exercise proceeds in fiscal 2014 compared to fiscal 2013 as well as $18.9 million of lower net borrowings on the revolver in 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"). 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


Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

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 December 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. On January 22, 2014, the Board of Directors of the Company authorized up to an additional $50 million in funds for use in the Company's common share repurchase program with an extension of the expiration date to June 30, 2016. 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 six months ended December 29, 2013, the Company repurchased 1,066,447 shares on the open market at an average price of $19.77 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 six 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 December 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.

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.


Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

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 Condensed Consolidated 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 . . .

  Add BGG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BGG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.