UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 26, 2010March 27, 2011
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin | 39-0182330 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
(Address of Principal Executive Offices) (Zip Code)
414/259-5333
(Registrant’s telephone number, including area code)
Yes x No ¨ | Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Yes ¨ No x | Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Indicate the number of shares outstanding of each of the issuer’sissuer's classes of common stock, as of the latest practicable date.
Class | Outstanding at
| |
COMMON STOCK, par value $0.01 per share |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No. | ||||||||
PART I – FINANCIAL INFORMATION | ||||||||
Item 1. | Financial Statements | |||||||
Consolidated Condensed Balance Sheets – | 3 | |||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
Item 2. | Management’s Discussion and Analysis of Financial | |||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II – OTHER INFORMATION | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 6. | ||||||||
27 | ||||||||
28 | ||||||||
Exhibit Index | 29 |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
(Unaudited) December 26, 2010 | June 27, 2010 | |||||||
CURRENT ASSETS: | ||||||||
Cash and Cash Equivalents | $ | 31,481 | $ | 116,554 | ||||
Accounts Receivable, Net | 246,051 | 286,426 | ||||||
Inventories - | ||||||||
Finished Products and Parts | 416,652 | 278,922 | ||||||
Work in Process | 130,641 | 114,483 | ||||||
Raw Materials | 9,180 | 6,941 | ||||||
Total Inventories | 556,473 | 400,346 | ||||||
Deferred Income Tax Asset | 52,299 | 41,138 | ||||||
Assets Held for Sale | 4,000 | 4,000 | ||||||
Prepaid Expenses and Other Current Assets | 33,383 | 57,179 | ||||||
Total Current Assets | 923,687 | 905,643 | ||||||
OTHER ASSETS: | ||||||||
Goodwill | 254,186 | 252,975 | ||||||
Investments | 16,724 | 19,706 | ||||||
Deferred Loan Costs, Net | 5,386 | 525 | ||||||
Other Intangible Assets, Net | 89,964 | 90,345 | ||||||
Long-Term Deferred Income Tax Asset | 64,819 | 72,492 | ||||||
Other Long-Term Assets, Net | 9,385 | 10,608 | ||||||
Total Other Assets | 440,464 | 446,651 | ||||||
PLANT AND EQUIPMENT: | ||||||||
Cost | 995,949 | 979,898 | ||||||
Less - Accumulated Depreciation | 665,705 | 642,135 | ||||||
Total Plant and Equipment, Net | 330,244 | 337,763 | ||||||
TOTAL ASSETS | $ | 1,694,395 | $ | 1,690,057 | ||||
(Unaudited) March 27, 2011 | June 27, 2010 | |||||||
CURRENT ASSETS: | ||||||||
Cash and Cash Equivalents | $ | 42,816 | $ | 116,554 | ||||
Accounts Receivable, Net | 478,004 | 286,426 | ||||||
Inventories - | ||||||||
Finished Products and Parts | 334,178 | 278,922 | ||||||
Work in Process | 123,996 | 114,483 | ||||||
Raw Materials | 7,388 | 6,941 | ||||||
Total Inventories | 465,562 | 400,346 | ||||||
Deferred Income Tax Asset | 48,485 | 41,138 | ||||||
Assets Held for Sale | 4,000 | 4,000 | ||||||
Prepaid Expenses and Other Current Assets | 15,382 | 57,179 | ||||||
Total Current Assets | 1,054,249 | 905,643 | ||||||
OTHER ASSETS: | ||||||||
Goodwill | 253,681 | 252,975 | ||||||
Investments | 18,368 | 19,706 | ||||||
Deferred Loan Costs, Net | 5,156 | 525 | ||||||
Other Intangible Assets, Net | 89,561 | 90,345 | ||||||
Long-Term Deferred Income Tax Asset | 63,969 | 72,492 | ||||||
Other Long-Term Assets, Net | 9,293 | 10,608 | ||||||
Total Other Assets | 440,028 | 446,651 | ||||||
PLANT AND EQUIPMENT: | ||||||||
Cost | 1,005,088 | 979,898 | ||||||
Less - Accumulated Depreciation | 677,676 | 642,135 | ||||||
Total Plant and Equipment, Net | 327,412 | 337,763 | ||||||
TOTAL ASSETS | $ | 1,821,689 | $ | 1,690,057 | ||||
The accompanying notes are an integral part of these statements.
3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands, except per share data)
LIABILITIES & SHAREHOLDERS’ INVESTMENT
(Unaudited) December 26, 2010 | June 27, 2010 | (Unaudited) March 27, 2011 | June 27, 2010 | |||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts Payable | $ | 157,408 | $ | 171,495 | $ | 223,912 | $ | 171,495 | ||||||||
Short-Term Debt | 3,000 | 3,000 | 3,000 | 3,000 | ||||||||||||
Current Maturity on Long-Term Debt | — | 203,460 | — | 203,460 | ||||||||||||
Accrued Liabilities | 161,745 | 185,556 | 171,683 | 185,556 | ||||||||||||
Total Current Liabilities | 322,153 | 563,511 | 398,595 | 563,511 | ||||||||||||
OTHER LIABILITIES: | ||||||||||||||||
Accrued Pension Cost | 270,092 | 274,737 | 267,761 | 274,737 | ||||||||||||
Accrued Employee Benefits | 23,117 | 23,006 | 23,178 | 23,006 | ||||||||||||
Accrued Postretirement Health Care Obligation | 126,586 | 135,978 | 122,481 | 135,978 | ||||||||||||
Other Long-Term Liabilities | 25,250 | 42,248 | 26,855 | 42,248 | ||||||||||||
Long-Term Debt | 280,000 | — | 280,000 | — | ||||||||||||
Total Other Liabilities | 725,045 | 475,969 | 720,275 | 475,969 | ||||||||||||
SHAREHOLDERS’ INVESTMENT: | ||||||||||||||||
Common Stock - | ||||||||||||||||
Authorized 120,000 shares, $.01 par value, issued 57,854 shares | 579 | 579 | ||||||||||||||
Common Stock - Authorized 120,000 shares, $.01 par value, issued 57,854 shares | 579 | 579 | ||||||||||||||
Additional Paid-In Capital | 79,590 | 80,353 | 79,039 | 80,353 | ||||||||||||
Retained Earnings | 1,070,360 | 1,090,843 | 1,116,303 | 1,090,843 | ||||||||||||
Accumulated Other Comprehensive Loss | (308,097 | ) | (318,709 | ) | (299,302 | ) | (318,709 | ) | ||||||||
Treasury Stock at cost, 7,522 and 7,793 shares, respectively | (195,235 | ) | (202,489 | ) | ||||||||||||
Treasury Stock at cost, 7,467 and 7,793 shares, respectively | (193,800 | ) | (202,489 | ) | ||||||||||||
Total Shareholders’ Investment | 647,197 | 650,577 | 702,819 | 650,577 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT | $ | 1,694,395 | $ | 1,690,057 | $ | 1,821,689 | $ | 1,690,057 | ||||||||
The accompanying notes are an integral part of these statements.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | March 27, 2011 | March 28, 2010 | March 27, 2011 | March 28, 2010 | |||||||||||||||||||||||||
NET SALES | $ | 450,324 | $ | 393,049 | $ | 784,440 | $ | 717,656 | $ | 720,333 | $ | 694,575 | $ | 1,504,773 | $ | 1,412,231 | ||||||||||||||||
COST OF GOODS SOLD | 372,003 | 322,399 | 644,125 | 594,616 | 570,784 | 554,093 | 1,214,910 | 1,148,709 | ||||||||||||||||||||||||
Gross Profit | 78,321 | 70,650 | 140,315 | 123,040 | 149,549 | 140,482 | 289,863 | 263,522 | ||||||||||||||||||||||||
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 74,559 | 60,339 | 145,015 | 121,132 | 70,997 | 71,394 | 216,012 | 192,526 | ||||||||||||||||||||||||
LITIGATION SETTLEMENT | — | 30,600 | — | 30,600 | ||||||||||||||||||||||||||||
Income (Loss) from Operations | 3,762 | 10,311 | (4,700 | ) | 1,908 | |||||||||||||||||||||||||||
Income from Operations | 78,552 | 38,488 | 73,851 | 40,396 | ||||||||||||||||||||||||||||
INTEREST EXPENSE | (9,008 | ) | (7,179 | ) | (14,165 | ) | (13,655 | ) | (4,513 | ) | (7,323 | ) | (18,679 | ) | (20,979 | ) | ||||||||||||||||
OTHER INCOME, Net | 1,637 | 1,137 | 3,073 | 2,427 | 2,207 | 1,860 | 5,280 | 4,287 | ||||||||||||||||||||||||
Income (Loss) Before Income Taxes | (3,609 | ) | 4,269 | (15,792 | ) | (9,320 | ) | |||||||||||||||||||||||||
PROVISION (CREDIT) FOR INCOME TAXES | (2,357 | ) | 1,244 | (6,427 | ) | (3,658 | ) | |||||||||||||||||||||||||
Income Before Income Taxes | 76,246 | 33,025 | 60,452 | 23,704 | ||||||||||||||||||||||||||||
PROVISION FOR INCOME TAXES | 24,725 | 8,952 | 18,298 | 5,293 | ||||||||||||||||||||||||||||
NET INCOME (LOSS) | $ | (1,252 | ) | $ | 3,025 | $ | (9,365 | ) | $ | (5,662 | ) | |||||||||||||||||||||
NET INCOME | $ | 51,521 | $ | 24,073 | $ | 42,154 | $ | 18,411 | ||||||||||||||||||||||||
EARNINGS (LOSS) PER SHARE DATA | ||||||||||||||||||||||||||||||||
EARNINGS PER SHARE DATA | ||||||||||||||||||||||||||||||||
Average Shares Outstanding | 49,702 | 49,595 | 49,666 | 49,594 | 49,726 | 49,597 | 49,672 | 49,595 | ||||||||||||||||||||||||
Basic Earnings (Loss) Per Share | $ | (0.03 | ) | $ | 0.06 | $ | (0.19 | ) | $ | (0.12 | ) | |||||||||||||||||||||
Basic Earnings Per Share | $ | 1.03 | $ | 0.48 | $ | 0.85 | $ | 0.37 | ||||||||||||||||||||||||
Diluted Average Shares Outstanding | 49,702 | 50,040 | 49,666 | 49,594 | 50,465 | 50,060 | 50,243 | 49,987 | ||||||||||||||||||||||||
Diluted Earnings (Loss) Per Share | $ | (0.03 | ) | $ | 0.06 | $ | (0.19 | ) | $ | (0.12 | ) | |||||||||||||||||||||
Diluted Earnings Per Share | $ | 1.02 | $ | 0.48 | $ | 0.84 | $ | 0.36 | ||||||||||||||||||||||||
CASH DIVIDENDS PER SHARE | $ | 0.11 | $ | 0.11 | $ | 0.22 | $ | 0.22 | $ | 0.11 | $ | 0.11 | $ | 0.33 | $ | 0.33 | ||||||||||||||||
The accompanying notes are an integral part of these statements.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | ||||||||||||||||
Six Months Ended | March 27, | March 28, | ||||||||||||||
December 26, 2010 | December 27, 2009 | 2011 | 2010 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net Loss | $ | (9,365 | ) | $ | (5,662 | ) | ||||||||||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||||||||||
Net Income | $ | 42,154 | $ | 18,411 | ||||||||||||
Adjustments to reconcile net income to net cash used by operating activities: | ||||||||||||||||
Depreciation and Amortization | 31,080 | 32,265 | 46,550 | 48,629 | ||||||||||||
Stock Compensation Expense | 8,003 | 5,359 | 8,773 | 6,155 | ||||||||||||
Loss on Disposition of Plant and Equipment | 690 | 1,013 | 1,353 | 1,656 | ||||||||||||
Benefit for Deferred Income Taxes | (3,909 | ) | (6,216 | ) | (690 | ) | (4,195 | ) | ||||||||
Earnings of Unconsolidated Affiliates | (2,331 | ) | (1,460 | ) | (3,879 | ) | (2,466 | ) | ||||||||
Dividends Received from Unconsolidated Affiliates | 6,880 | 4,005 | 6,980 | 4,005 | ||||||||||||
Change in Operating Assets and Liabilities: | ||||||||||||||||
Decrease in Accounts Receivable | 42,214 | 44,779 | ||||||||||||||
Increase in Inventories | (154,005 | ) | (118,127 | ) | ||||||||||||
Increase in Accounts Receivable | (187,030 | ) | (175,159 | ) | ||||||||||||
(Increase) Decrease in Inventories | (63,030 | ) | 20,474 | |||||||||||||
Decrease in Other Current Assets | 11,897 | 10,271 | 12,970 | 12,363 | ||||||||||||
(Decrease) Increase in Accounts Payable and Accrued Liabilities | (54,860 | ) | 10,296 | |||||||||||||
Increase in Accounts Payable and Accrued Liabilities | 43,165 | 56,631 | ||||||||||||||
Other, Net | (4,944 | ) | (1,802 | ) | (7,659 | ) | (3,014 | ) | ||||||||
Net Cash Used by Operating Activities | (128,650 | ) | (25,279 | ) | (100,343 | ) | (16,510 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Additions to Plant and Equipment | (21,341 | ) | (15,592 | ) | (32,507 | ) | (24,816 | ) | ||||||||
Proceeds Received on Sale of Plant and Equipment | 52 | 172 | 82 | 209 | ||||||||||||
Other, Net | — | (144 | ) | — | (144 | ) | ||||||||||
Net Cash Used by Investing Activities | (21,289 | ) | (15,564 | ) | (32,425 | ) | (24,751 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Net Borrowings on Revolver | 55,000 | 69,415 | 55,000 | 105,355 | ||||||||||||
Proceeds from Long-Term Debt Financing | 225,000 | — | 225,000 | — | ||||||||||||
Deferred Loan Costs | (4,994 | ) | — | (4,994 | ) | — | ||||||||||
Repayments on Long-Term Debt | (203,698 | ) | (16,483 | ) | (203,698 | ) | (41,483 | ) | ||||||||
Dividends Paid | (5,537 | ) | (5,500 | ) | (11,074 | ) | (11,001 | ) | ||||||||
Stock Option Exercise Proceeds and Tax Benefits | 790 | — | ||||||||||||||
Net Cash Provided by Financing Activities | 65,771 | 47,432 | 61,024 | 52,871 | ||||||||||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (905 | ) | 328 |
| (1,994 | ) |
| 265 |
| |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (85,073 | ) | 6,917 | (73,738 | ) | 11,875 | ||||||||||
CASH AND CASH EQUIVALENTS, Beginning | 116,554 | 15,992 | 116,554 | 15,992 | ||||||||||||
CASH AND CASH EQUIVALENTS, Ending | $ | 31,481 | $ | 22,909 | $ | 42,816 | $ | 27,867 | ||||||||
The accompanying notes are an integral part of these statements.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General Information
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes necessary for a fair presentationstatement of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. The year-end condensed balance sheet data was derived from audited financial statements, but also does not include all disclosures required by accounting principles generally accepted in the United States. However, in the opinion of Briggs & Stratton Corporation (the Company), adequate disclosures have been presented to prevent the information from being misleading, and all adjustments necessary to present fair statements of the results of operations and financial position have been included. All of these adjustments are of a normal recurring nature. These
Interim results are not necessarily indicative of results for a full year. The information included in these consolidated condensed financial statements should be read in conjunction with the financial statements and the notes thereto which were included in our latest Annual Report on Form 10-K.
2. New Accounting Pronouncements
In June 2009, the FASB issued new guidance that changes the approach to determining the primary beneficiary of a variable interest entity (VIE) and requires companies to more frequently assess whether they must consolidate VIEs. This standard was effective for the Company’s first quarter of fiscal 2011. As of June 28, 2010 and subsequently, the Company evaluated all entities that fall within the scope of this new guidance, including the Company’s investments in joint ventures, to determine whether consolidation of these entities was required. As a resultThe adoption of this evaluation,guidance did not have a material impact on the Company has determined that it is not required to consolidate any of its joint ventures.Company’s consolidated financial statements.
3. Assets Held for Sale
On July 1, 2009 the Company announced a plan to close its Jefferson and Watertown, WI manufacturing facilities in fiscal 2010. At December 26, 2010March 27, 2011 and at June 27, 2010, the Company had $4.0 million included in Assets Held for Sale in its Consolidated Balance Sheets consisting of certain assets related to the Jefferson, WI production facility. Prior to the closure, the facility manufactured all portable generator and pressure washer products marketed and sold by the Company within its Power Products Segment.
4. Earnings (Loss) Per Share
The calculation ofCompany computes earnings per share using the two-class method, an earnings allocation formula that determines earnings per share for each class of common stock below excludes the income attributableand participating security according to thedividends declared and participation rights in undistributed earnings. The Company’s unvested share units from the numerator and excludes the dilutive impactgrants of those units from the denominator.
Shares outstanding used to compute diluted earnings per share for the three months ended December 26, 2010 excluded approximately 385,000 shares of restricted stock and deferred stock awards contain non-forfeitable rights to dividends (whether paid or unpaid), which are required to be treated as participating securities and outstanding options to purchase approximately 4,900,000 sharesincluded in the computation of common stock, as their inclusion would have been anti-dilutive. Shares outstanding used to compute dilutedbasic earnings per share for the six months ended December 26, 2010 excluded approximately 362,000 shares of restricted and deferred stock and outstanding options to purchase approximately 4,700,000 shares of common stock, as their inclusion would have been anti-dilutive. Shares outstanding used to compute diluted earnings per share for the three months ended December 27, 2009 excluded outstanding options to purchase approximately 4,600,000 shares of common stock because the options’ exercise price was greater than the average market price of the common shares. Shares outstanding used to compute diluted earnings per share for the six months ended December 27, 2009 excluded approximately 346,000 shares for restricted and deferred stock and outstanding options to purchase approximately 4,400,000 shares of common stock as their inclusion would have been anti-dilutive.share.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Information on earnings (loss) per share is as follows (in thousands)thousands except per share data):
Three Months Ended | Six Months Ended | |||||||||||||||
December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
Net Income (Loss) | $ | (1,252 | ) | $ | 3,025 | $ | (9,365 | ) | $ | (5,662 | ) | |||||
Less: Dividends Attributable to Unvested Shares | (112 | ) | (74 | ) | (182 | ) | (149 | ) | ||||||||
Net Income (Loss) available to Common Shareholders | $ | (1,364 | ) | $ | 2,951 | $ | (9,547 | ) | $ | (5,811 | ) | |||||
Average Shares of Common Stock Outstanding | 49,702 | 49,595 | 49,666 | 49,594 | ||||||||||||
Diluted Average Shares of Common Stock Outstanding | 49,702 | 50,040 | 49,666 | 49,594 | ||||||||||||
Basic Earnings (Loss) Per Share | $ | (0.03 | ) | $ | 0.06 | $ | (0.19 | ) | $ | (0.12 | ) | |||||
Diluted Earnings (Loss) Per Share | $ | (0.03 | ) | $ | 0.06 | $ | (0.19 | ) | $ | (0.12 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net Income | $ | 51,521 | $ | 24,073 | $ | 42,154 | $ | 18,411 | ||||||||
Less: Dividends Attributable to Unvested Shares | (69 | ) | (74 | ) | (181 | ) | (222 | ) | ||||||||
Net Income available to Common Shareholders | $ | 51,452 | $ | 23,999 | $ | 41,973 | $ | 18,189 | ||||||||
Average Shares of Common Stock Outstanding | 49,726 | 49,597 | 49,672 | 49,595 | ||||||||||||
Diluted Average Shares of Common Stock Outstanding | 50,465 | 50,060 | 50,243 | 49,987 | ||||||||||||
Basic Earnings Per Share | $ | 1.03 | $ | 0.48 | $ | 0.85 | $ | 0.37 | ||||||||
Diluted Earnings Per Share | $ | 1.02 | $ | 0.48 | $ | 0.84 | $ | 0.36 |
The dilutive effect of the potential exercise of outstanding stock-based awards to acquire common shares is calculated using the treasury stock method. The following options to purchase shares of common stock were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price of the common shares:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Options to Purchase Shares of Common Stock (in thousands) | 2,637 | 3,796 | 3,960 | 3,666 | ||||||||||||
Weighted Average Exercise Price of Options Excluded | $ | 32.64 | $ | 30.68 | $ | 28.35 | $ | 31.06 |
5. Comprehensive Income
Comprehensive income is a more inclusive financial reporting method that includes certain financial information that has not been recognized in the calculation of net income. Comprehensive income is defined as net income and other changes in shareholders’ investment from transactions and events other than with shareholders. Total comprehensive income is as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
Net Income (Loss) | $ | (1,252 | ) | $ | 3,025 | $ | (9,365 | ) | $ | (5,662 | ) | |||||
Cumulative Translation Adjustments | 1,283 | (1,184 | ) | 10,508 | 4,975 | |||||||||||
Unrealized Gain (Loss) on Derivative Instruments, net of tax | (1,474 | ) | 3,430 | (8,312 | ) | 3,015 | ||||||||||
Unrecognized Pension & Postretirement Obligation, net of tax | 3,944 | 2,464 | 8,416 | 4,928 | ||||||||||||
Total Comprehensive Income | $ | 2,501 | $ | 7,735 | $ | 1,247 | $ | 7,256 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net Income | $ | 51,521 | $ | 24,073 | $ | 42,154 | $ | 18,411 | ||||||||
Cumulative Translation Adjustments | 6,331 | (3,735 | ) | 16,839 | 1,241 | |||||||||||
Unrealized Gain (Loss) on Derivative Instruments, Net of tax | (1,757 | ) | 3,801 | (10,069 | ) | 6,817 | ||||||||||
Unrecognized Pension & Postretirement Obligation, Net of tax | 4,221 | 2,463 | 12,637 | 7,389 | ||||||||||||
Total Comprehensive Income | $ | 60,316 | $ | 26,602 | $ | 61,561 | $ | 33,858 | ||||||||
The components of Accumulated Other Comprehensive Loss, net of tax, are as follows (in thousands):
March 27, | June 27, | |||||||||||||||
December 26, 2010 | June 27, 2010 | 2011 | 2010 | |||||||||||||
Cumulative Translation Adjustments | $ | 14,480 | $ | 3,972 | $ | 20,811 | $ | 3,972 | ||||||||
Unrealized Loss on Derivative Instruments | 187 | 8,499 | ||||||||||||||
Unrealized Gain (Loss) on Derivative Instruments | (1,570 | ) | 8,499 | |||||||||||||
Unrecognized Pension & Postretirement Obligation | (322,764 | ) | (331,180 | ) | (318,543 | ) | (331,180 | ) | ||||||||
Accumulated Other Comprehensive Loss | $ | (308,097 | ) | $ | (318,709 | ) | $ | (299,302 | ) | $ | (318,709 | ) | ||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
6. Investments
Investments represent the Company’s investmentunconsolidated investments in its 30% and 50% owned joint ventures. Such investments are accounted for under the equity method of accounting. As of December 26, 2010March 27, 2011 and June 27, 2010, the Company’s investment in these joint ventures totaled $16.7$18.4 million and $19.7 million, respectively.
On June 28, 2010, the Company adopted new amendments included within Accounting Standards Codification Topic 810 (ASC 810) that, among other changes, revised the approach to determine the primary beneficiary of a variable interest entity (VIE) and requires companies to more frequently assess whether they must consolidate VIEs. The amendments replaced the existing quantitative approach for identifying the primary beneficiary with a qualitative approach. The determination of the primary beneficiary, the party that must consolidate the VIE, was amended to reflect the party that has the power to direct the activities that most economically affect the entity.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
As of June 28, 2010 and subsequently, the Company evaluated all entities that fall within the scope of the amended ASC 810, including the Company’s investments in joint ventures, to determine whether consolidation of these entities was required. As a result of this evaluation, the Company has determined that it is not required to consolidate any of its joint ventures.
7. Pension and Postretirement Benefits
The Company has noncontributory defined benefit retirement plans and postretirement plans covering certain employees. The following tables summarize the plans’ income and expense for the periods indicated (in thousands):
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
Components of Net Periodic (Income) Expense: | ||||||||||||||||
Service Cost | $ | 3,121 | $ | 2,914 | $ | 117 | $ | 120 | ||||||||
Interest Cost on Projected Benefit Obligation | 14,143 | 15,149 | 1,707 | 2,840 | ||||||||||||
Expected Return on Plan Assets | (19,202 | ) | (20,264 | ) | — | — | ||||||||||
Amortization of: | ||||||||||||||||
Transition Obligation | 2 | 2 | — | — | ||||||||||||
Prior Service Cost (Credit) | 765 | 756 | (757 | ) | (230 | ) | ||||||||||
Actuarial Loss | 4,408 | 693 | 2,359 | 2,534 | ||||||||||||
Net Periodic (Income) Expense | $ | 3,237 | $ | (750 | ) | $ | 3,426 | $ | 5,264 | |||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Pension Benefits | Other Postretirement Benefits | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended | March 27, | March 28, | March 27, | March 28, | |||||||||||||||||||||||||||
December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
Components of Net Periodic (Income) Expense: | ||||||||||||||||||||||||||||||||
Service Cost | $ | 6,787 | $ | 5,636 | $ | 243 | $ | 314 | $ | 3,367 | $ | 2,815 | $ | 121 | $ | 157 | ||||||||||||||||
Interest Cost on Projected Benefit Obligation | 28,344 | 30,372 | 3,546 | 5,632 | 14,172 | 15,186 | 1,787 | 2,816 | ||||||||||||||||||||||||
Expected Return on Plan Assets | (38,487 | ) | (40,510 | ) | — | — | (19,244 | ) | (20,255 | ) | — | — | ||||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Transition Obligation | 4 | 4 | — | — | 2 | 2 | — | — | ||||||||||||||||||||||||
Prior Service Cost (Credit) | 1,530 | 1,534 | (1,739 | ) | (460 | ) | 765 | 767 | (872 | ) | (230 | ) | ||||||||||||||||||||
Actuarial Loss | 8,885 | 1,586 | 5,141 | 5,103 | 4,443 | 793 | 2,566 | 2,551 | ||||||||||||||||||||||||
Net Periodic (Income) Expense | $ | 7,063 | $ | (1,378 | ) | $ | 7,191 | $ | 10,589 | $ | 3,505 | $ | (692 | ) | $ | 3,602 | $ | 5,294 | ||||||||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
Components of Net Periodic (Income) Expense: | ||||||||||||||||||||||||||||||||
Service Cost | $ | 10,143 | $ | 8,452 | $ | 364 | $ | 471 | ||||||||||||||||||||||||
Interest Cost on Projected Benefit Obligation | 42,517 | 45,558 | 5,333 | 8,448 | ||||||||||||||||||||||||||||
Expected Return on Plan Assets | (57,731 | ) | (60,766 | ) | — | — | ||||||||||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Transition Obligation | 6 | 6 | — | — | ||||||||||||||||||||||||||||
Prior Service Cost (Credit) | 2,294 | 2,301 | (2,611 | ) | (690 | ) | ||||||||||||||||||||||||||
Actuarial Loss | 13,328 | 2,378 | 7,707 | 7,654 | ||||||||||||||||||||||||||||
Net Periodic (Income) Expense | $ | 10,557 | $ | (2,071 | ) | $ | 10,793 | $ | 15,883 | |||||||||||||||||||||||
The Company expects to make benefit payments of approximately $2.8 million attributable to its non-qualified pension plans during fiscal 2011. During the first sixnine months of fiscal 2011, the Company made payments of approximately $1.4$2.0 million for its non-qualified pension plans. The Company anticipates making benefit payments of approximately $25.9 million for its other postretirement benefit plans during fiscal 2011. During the first sixnine months of fiscal 2011, the Company made payments of $14.2$20.3 million for its other postretirement benefit plans.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The Company is not required to make any contributions to the qualified pension plan during fiscal 2011, but may be required to make contributions in future years depending upon the actual return on plan assets and the funded status of the plan in future periods.
8. Stock Incentives
Stock based compensation is calculated by estimating the fair value of incentive stock awards granted and amortizing the estimated value over the awards’ vesting period.periods. Stock based compensation expense was $2.6$0.8 million and $8.0$8.8 million for the quarter and sixnine months ended December 26, 2010,March 27, 2011, respectively. For the quarter and six months ended December 27, 2009, stockStock based compensation expense was $1.2$0.8 million and $5.4$6.2 million for the three and nine months ended March 28, 2010, respectively. Included in stock based compensation expense for the quarternine months ended December 26, 2010March 27, 2011 was an expense of $1.3 million due to the modification of certain vesting conditions for the Company’s stock incentive awards. The modification of the awards was made in connection with the Company’s previously announced organization changes that involved a planned reduction of salaried employees during the second quarter ended December 26, 2010.of fiscal 2011. The Company also recorded expenses of approximately $2.2 million for severance and other related employee separation costs associated with the reduction.
9. Derivative Instruments & Hedging Activity
Derivatives are recorded on the Condensed Consolidated Balance Sheets as assets or liabilities, measured at fair value. The Company enters into derivative contracts designated as cash flow hedges to manage certain foreign currency and commodity exposures.
Changes in the fair value of cash flow hedges to manage the Company’s foreign currency exposure are recorded on the Consolidated Condensed Statements of Operations or as a component of Accumulated Other Comprehensive Loss.Loss (AOCI). The amounts included in Accumulated Other Comprehensive Loss are reclassified into income when the forecasted transactions occur. These forecasted transactions represent the exporting of products for which the Company will receive foreign currency and the importing of products for which it will be required to pay in a foreign currency. Changes in the fair value of all derivatives deemed to be ineffective are recorded as either income or expense in the accompanying Consolidated Condensed Statements of Operations. These instruments generally do not have a maturity of more than twenty-four months.
The Company manages its exposure to fluctuation in the cost of natural gas used by its operating facilities through participation in a third party managed dollar cost averaging program linked to NYMEX futures. As a participant in the program, the Company hedges up to 100% of its anticipated monthly natural gas usage along with a pool of other companies. The Company does not hold any actual futures contracts, and actual delivery of natural gas is not required of the participants in the program. Cash settlements occur on a monthly basis based on the difference between the average dollar price of the underlying NYMEX futures held by the third party and the actual price of natural gas paid by the Company in the period. The fair value of the underlying NYMEX futures is reflected as an asset or liability on the accompanying Consolidated Condensed Balance Sheets. Changes in fair value are reflected as a Component of Accumulated Other Comprehensive Loss, which are reclassified into the income statementConsolidated Condensed Statements of Operations as the monthly cash settlements occur and actual natural gas is consumed. These contracts generally do not have a maturity of more than twenty-four months.
The Company manages its exposure to fluctuations in the cost of copper to be used in manufacturing by entering into forward purchase contracts designated as cash flow hedges. The Company hedges up to 100% of its anticipated copper usage, and the fair value of outstanding future contracts is reflected as an asset or liability on the accompanying Consolidated Condensed Balance Sheet based on NYMEX prices. Changes in fair value are reflected as a Component of Accumulated Other Comprehensive Loss if the forward purchase contracts are deemed to be effective.effective and are reclassified into the Consolidated Condensed Statements of Operations as the sales of the underlying inventory are made. Changes in the fair value of all derivatives deemed to be ineffective are recorded as either income or expense in the accompanying Consolidated Condensed Statements of Operations. Unrealized gains or losses associated with the forward purchase contracts are captured in inventory costs and are realized in the income statement when sales of inventory are made. These instruments generally do not have a maturity of more than twenty-four months.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The Company has considered the counterparty credit risk related to all its foreign currency and commodity derivative contracts and does not deem any counterparty credit risk material at this time.
The notional amount of derivative contracts outstanding at the end of the period is indicative of the level of the Company’s derivative activity during the period. As of December 26,March 27, 2011 and June 27, 2010, the Company had the following outstanding derivative contracts (in thousands):
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Contract | Notional Amount | |||||||||
March 27, | June 27, | |||||||||
2011 | 2010 | |||||||||
Foreign Currency: | ||||||||||
Australian Dollar | Sell | 6,266 | 4,500 | |||||||
Australian Dollar | Buy | 18,892 | 19,636 | |||||||
Canadian Dollar | Sell | 8,300 | 12,100 | |||||||
Euro | Sell | 56,500 | 91,609 | |||||||
Japanese Yen | Buy | 750,000 | 650,000 | |||||||
Commodity: | ||||||||||
Copper (Pounds) | Buy | 50 | 350 | |||||||
Natural Gas (Therms) | Buy | 12,604 | 16,547 |
AsThe location and fair value of December 26, 2010 and for the six months then ended, the Company’s derivative contracts had the following impact oninstruments reported in the Consolidated Condensed Balance Sheet andSheets are as follows (in thousands):
Balance Sheet Location | Asset (Liability) Fair Value | |||||||
March 27, | June 27, | |||||||
2011 | 2010 | |||||||
Foreign currency contracts | ||||||||
Other Current Assets | $ | 1,520 | $ | 16,440 | ||||
Other Long-Term Assets, Net | 18 | 1,478 | ||||||
Accrued Liabilities | (2,922 | ) | (296 | ) | ||||
Other Long-Term Liabilities | (212 | ) | — | |||||
Commodity contracts | ||||||||
Other Current Assets | 71 | 34 | ||||||
Other Long-Term Assets, Net | — | — | ||||||
Accrued Liabilities | (1,576 | ) | (1,377 | ) | ||||
Other Long-Term Liabilities | (168 | ) | (728 | ) | ||||
$ | (3,269 | ) | $ | 15,551 | ||||
The effect of derivatives designated as hedging instruments on the Consolidated Condensed Statements of Operations (in thousands):is as follows:
Asset Derivatives | ||||||||||
Balance Sheet Location | Fair Value | |||||||||
December 26, 2010 | June 27, 2010 | |||||||||
Foreign currency contracts | Other Current Assets | $ | 9,129 | $ | 16,440 | |||||
Commodity contracts | Other Current Assets | 94 | 34 | |||||||
Foreign currency contracts | Other Long-Term Assets, Net | — | 1,478 | |||||||
Commodity contracts | Other Long-Term Assets, Net | — | — | |||||||
$ | 9,223 | $ | 17,952 | |||||||
Liability Derivatives | ||||||||||
Balance Sheet Location | Fair Value | |||||||||
December 26, 2010 | June 27, 2010 | |||||||||
Foreign currency contracts | Accrued Liabilities | $ | 3,163 | $ | 296 | |||||
Commodity contracts | Accrued Liabilities | 2,210 | 1,377 | |||||||
Foreign currency contracts | Other Long-Term Liabilities | 135 | — | |||||||
Commodity contracts | Other Long-Term Liabilities | 848 | 728 | |||||||
$ | 6,356 | $ | 2,401 | |||||||
Three months ended March 27, 2011 | ||||||||||||||||||||||||||||||||||
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss on Derivatives (Effective Portion) | (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) | Recognized in Earnings | |||||||||||||||||||||||||||||||
December 26, 2010 | June 27, 2010 | December 26, 2010 | December 27, 2009 | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives, Net of Taxes (Effective Portion) | Classification of Gain (Loss) | Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Recognized in Earnings (Ineffective Portion) | |||||||||||||||||||||||||||
Foreign currency contracts - sell | $ | 2,036 | $ | (7 | ) | Net Sales | $ | 1,761 | $ | (3,674 | ) | $ | (2,726 | ) | Net Sales | $ | 2,863 | $ | — | |||||||||||||||
Foreign currency contracts - buy | 31 | 9,771 | Cost of Goods Sold | (452 | ) | 363 | 147 | Cost of Goods Sold | (1,653 | ) | — | |||||||||||||||||||||||
Commodity contracts | (1,880 | ) | (1,265 | ) | Cost of Goods Sold | (1,136 | ) | (1,777 | ) | 830 | Cost of Goods Sold | (1,088 | ) | 18 | ||||||||||||||||||||
$ | 187 | $ | 8,499 | $ | 173 | $ | (5,088 | ) | $ | (1,749 | ) | $ | 122 | $ | 18 | |||||||||||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Three months ended March 28, 2010 | ||||||||||||||
Recognized in Earnings | ||||||||||||||
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives, Net of Taxes (Effective Portion) | Classification of Gain (Loss) | Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Recognized in Earnings (Ineffective Portion) | |||||||||||
Foreign currency contracts - sell | $ | 4,754 | Net Sales | $ | 48 | $ | — | |||||||
Foreign currency contracts - buy | 44 | Cost of Goods Sold | (59 | ) | — | |||||||||
Commodity contracts | (993 | ) | Cost of Goods Sold | (653 | ) | (33 | ) | |||||||
$ | 3,805 | $ | (664 | ) | $ | (33 | ) | |||||||
Nine months ended March 27, 2011 | ||||||||||||||
Recognized in Earnings | ||||||||||||||
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives, Net of Taxes (Effective Portion) | Classification of Gain (Loss) | Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Recognized in Earnings (Ineffective Portion) | |||||||||||
Foreign currency contracts - sell | $ | (9,923 | ) | Net Sales | $ | 4,360 | $ | — | ||||||
Foreign currency contracts - buy | (340 | ) | Cost of Goods Sold | (1,841 | ) | — | ||||||||
Commodity contracts | 215 | Cost of Goods Sold | (2,217 | ) | 50 | |||||||||
$ | (10,048 | ) | $ | 302 | $ | 50 | ||||||||
Nine months ended March 28, 2010 | ||||||||||||||
Recognized in Earnings | ||||||||||||||
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives, Net of Taxes (Effective Portion) | Classification of Gain (Loss) | Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Recognized in Earnings (Ineffective Portion) | |||||||||||
Foreign currency contracts - sell | $ | 6,838 | Net Sales | $ | (3,626 | ) | $ | — | ||||||
Foreign currency contracts - buy | (185 | ) | Cost of Goods Sold | 304 | — | |||||||||
Commodity contracts | 164 | Cost of Goods Sold | (2,430 | ) | 144 | |||||||||
$ | 6,817 | $ | (5,752 | ) | $ | 144 | ||||||||
The entire $0.2 million gain detailed above that is currently recognized inDuring the next twelve months, the amount of the March 27, 2011 Accumulated Other Comprehensive Loss balance that is expected to be reclassified into the earnings within the next twelve months.is expected to be $1.3 million.
10. Fair Value Measurements
The following guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Level 3: Significant inputs to the valuation model are unobservable.
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 26, 2010March 27, 2011 and June 27, 2010 (in thousands):
Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
December 26, 2010 | Level 1 | Level 2 | Level 3 | March 27, 2011 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Derivatives | $ | 9,223 | $ | 9,129 | $ | 94 | $ | — | $ | 1,609 | $ | 1,538 | $ | 71 | $ | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivatives | $ | 6,356 | $ | 3,298 | $ | 3,058 | $ | — | $ | 4,878 | $ | 3,134 | $ | 1,744 | $ | — | ||||||||||||||||
Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
June 27, 2010 | Level 1 | Level 2 | Level 3 | June 27, 2010 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Derivatives | $ | 17,952 | $ | 17,918 | $ | 34 | $ | — | $ | 17,952 | $ | 17,918 | $ | 34 | $ | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivatives | $ | 2,401 | $ | 296 | $ | 2,105 | $ | — | $ | 2,401 | $ | 296 | $ | 2,105 | $ | — |
11. Warranty
The Company recognizes the cost associated with its standard warranty on Engines and Power Products at the time of sale. The amount recognized is based on historical failure rates and current claim cost experience. The following is a reconciliation of the changes in accrued warranty costs for the reporting period (in thousands):
Six Months Ended | ||||||||
December 26, 2010 | December 27, 2009 | |||||||
Beginning Balance | $ | 41,945 | $ | 42,044 | ||||
Payments | (13,275 | ) | (16,724 | ) | ||||
Provision for Current Year Warranties | 13,631 | 14,513 | ||||||
Other Adjustments | 130 | (1,523 | ) | |||||
Ending Balance | $ | 42,431 | $ | 38,310 | ||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Nine Months Ended | ||||||||
March 27, | March 28, | |||||||
2011 | 2010 | |||||||
Beginning Balance | $ | 41,945 | $ | 42,044 | ||||
Payments | (21,860 | ) | (24,702 | ) | ||||
Provision for Current Year Warranties | 25,977 | 22,963 | ||||||
Changes in Estimates | 724 | (2,715 | ) | |||||
Ending Balance | $ | 46,786 | $ | 37,590 | ||||
12. Income Taxes
As of June 27, 2010, the Company had $19.1 million of gross unrecognized tax benefits. Of this amount, $11.1 million represents the portion that, if recognized, would impact the effective tax rate. As of June 27, 2010, the Company had $5.9 million accrued for the payment of interest and penalties. For the first sixnine months ended December 26, 2010,March 27, 2011, the Company recorded an increase in the tax reserve of $0.1$0.7 million. The increase relates to legislative law changes, the lapse of applicable statute of limitations, and interest rate adjustments year to date. Over the next twelve months it is possible that the Companywe will settle global tax examinations, which could decrease the amount of unrecognized tax benefits. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlements, the amount of the unrecognized tax benefits that are expected to decrease over the next twelve months cannot be reasonably estimated at this time.
The Company’s annual effective tax rate reflects its best estimate of financial operating results and the estimated impact of foreign currency exchange rates. Changes in the mix of pretax income from all tax jurisdictions in which the Company files incomeoperates will have an impact on the Company’s effective tax rate. The fiscal 2011 estimated annual tax rate is based on the latest tax law changes and includes the US R&D Tax Credit that has been extended.
For the third quarter and first nine months of fiscal 2011 there are discrete items impacting the effective tax rate that include state tax law changes, the resolution of prior period tax matters and the expiration of the statute of limitations for prior tax years. Income tax returns are filed in the U.S. and various, state, and
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
foreign jurisdictions and is regularly audited by federal, state and foreign tax authorities.related audits occur on a regular basis. In the U.S., the Company is no longer subject to U.S. federal income tax examinations before 2009. The Companyfiscal 2009 and is currently under audit by various state and foreign jurisdictions. With respect to the Company’s major foreign jurisdictions, it is no longer subject to tax examinations before fiscal 2000.
13. Commitments and Contingencies
Briggs & StrattonThe Company is subject to various unresolved legal actions that arise in the normal course of its business. These actions typically relate to product liability (including asbestos-related liability), patent and trademark matters, and disputes with customers, suppliers, distributors and dealers, competitors and employees.
Starting with the first complaint in June 2004, various plaintiff groups filed complaints in state and federal courts across the country against the Company and other engine and lawnmower manufacturers alleging that the horsepower labels on the products they purchased were inaccurate and that the Company conspired with other engine and lawnmower manufacturers to conceal the true horsepower of these engines (“Horsepower Class Actions”). The Horsepower Class Actions sought to certify unfair trade practice and common law claims for separate classes of all persons in each of the 50 states, Puerto Rico and the District of Columbia who purchased a lawnmower containing a gasoline combustion engine up to 30 horsepower from 1994 to the present. In addition, the complaints sought injunctive relief, compensatory and punitive damages, attorneys’ fees and included nationwide federal antitrust and RICO claims. On December 5, 2008, the Multidistrict Litigation Panel coordinated and transferred the cases to Judge Adelman of the United States District Court for the Eastern District of Wisconsin (In Re: Lawnmower Engine Horsepower Marketing and Sales Practices Litigation, Case No. 2:08-md-01999).
On January 27, 2009, Judge Adelman entered a stay of all litigation so that the parties could conduct mediation in an effort to resolve all outstanding litigation. On February 24, 2010, the Company entered into a Stipulation of Settlement (“Settlement”) that resolves all of the Horsepower Class Actions. Other parties to the Settlement are Sears, Roebuck and Co., Sears Holdings Corporation, Kmart Holdings Corporation, Deere & Company, Tecumseh Products Company, The Toro Company, Electrolux Home Products, Inc. and Husqvarna Outdoor Products, Inc. (now known as Husqvarna Consumer Outdoor Products, N.A., Inc.) (collectively with the Company referred to below as the “Settling Defendants”). All other defendants settled all claims separately. The Settlement resolves all horsepower-labeling claims brought by all persons or entities in the United States who, beginning January 1, 1994 through the date notice of the Settlement is first given, purchased, for use and not for resale, a lawn mower containing a gas combustible engine up to 30 horsepower provided that either the lawn mower or the engine of the lawn mower was manufactured or sold by a Defendant.
As part of the Settlement, the Company denies any and all liability and seeks resolution to avoid further protracted and expensive litigation. The Settling Defendants as a group agreed to pay an aggregate amount of $51 million. However, the monetary contribution of the amount of each of the Settling Defendants is confidential. In addition, the Company, along with the other Settling Defendants, agreed to injunctive relief regarding their future horsepower labeling, as well as procedures that will allow purchasers of lawnmower engines to seek a one-year extended warranty free of charge.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
On August 16, 2010, Judge Adelman issued a final order approving the Settlement as well as the settlements of all other defendants. Judge Adelman’s opinion found all settlements to be in good faith and dismissed the claims of all class members with prejudice. Prior to the time for filing appeals expired, one class member filed a motion to modify or amend Judge Adelman’s final approval order. This motion was denied on October 28, 2010. In August and September 2010, several class members filed a Notice of Appeal of Judge Adelman’s final approval order to the United States Court of Appeals for the Seventh Circuit. ThoseAll of those appeals are still currently pending.were settled as of February 16, 2011 with no additional contribution from the Company.
As part of the Settlement, the Company denies any and all liability and seeks resolution to avoid further protracted and expensive litigation. The settling defendants as a group agreed to pay an aggregate amount of $51 million. However, the monetary contribution of the amount of each of the settling defendants is confidential. In addition, the Company, along with the other settling defendants, agreed to injunctive relief regarding their future horsepower labeling, as well as procedures that will allow purchasers of lawnmower engines to seek a one-year extended warranty free of charge. Under the terms of the Settlement, the balance of settlement funds will not be due,were paid, and the one-year warranty extension program will not begin, until all appeals from Judge Adelman’s final approval order are exhausted or otherwise resolved.
began to run, on March 1, 2011. As a result of the pending Settlement, the Company recorded a total charge of $30.6 million in the third quarter of fiscal year 2010 representing the total of the Company’s monetary portion of the Settlement and the estimated costs of extending the warranty period for one year. The timing of payments required as a result of the Settlement is expected to be within the next twelve months.
On March 19, 2010, new plaintiffs filed a complaint in the Ontario Superior Court of Justice in Canada (Robert Foster et al. v. Sears Canada, Inc. et al., Docket No. 766-2010). On May 3, 2010, other plaintiffs filed a complaint in the Montreal Superior Court in Canada (Eric Liverman, et al. v. Deere & Company, et al., Docket No. 500-06-000507-109). Both Canadian complaints contain allegations and seek relief under Canadian law that are similar to the Horsepower Class Actions. The Company is evaluating the complaints and has not yet filed an answer or other responsive pleading to either one.
On May 14, 2010, the Company notified retirees and certain retirement eligible employees of various changes to the Company-sponsored retiree medical plans. The purpose of the amendments was to better align
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
the plans offered to both hourly and salaried retirees. On August 16, 2010, a putative class of retirees who retired prior to August 1, 2006 and the United Steel Workers filed a complaint in the U.S. District Court for the Eastern District of Wisconsin (Merrill, Weber, Carpenter, et al; United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO/CLC v. Briggs & Stratton Corporation; Group Insurance Plan of Briggs & Stratton Corporation; and Does 1 through 20, Docket No. 10-C-0700), contesting the Company’s right to make these changes. In addition to a request for class certification, the complaint seeks an injunction preventing the alleged unilateral termination or reduction in insurance coverage to the class of retirees, a permanent injunction preventing defendants from ever making changes to the retirees’ insurance coverage, restitution with interest (if applicable) and attorneys’ fees and costs. The Company has movedOn April 21, 2011, the district court issued an order granting the Company’s motion to dismiss the complaint and believescomplaint. The plaintiffs have until May 19, 2011 to file a motion with the changes are within its rights.district court to reconsider the dismissal order or until May 23, 2011 to appeal the order to the U.S. Court of Appeals for the Seventh Circuit.
Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes the unresolved legal actions will not have a material adverse effect on its results of operations, financial position or cash flows.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
14. Segment Information
The Company operates two reportable business segments that are managed separately based on fundamental differences in their operations. Summarized segment data is as follows (in thousands):
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
December 26, 2010 | December 27, 20091 | December 26, 2010 | December 27, 20091 | March 27, | March 28, | March 27, | March 28, | |||||||||||||||||||||||||
2011 | 20101 | 2011 | 20101 | |||||||||||||||||||||||||||||
NET SALES: | ||||||||||||||||||||||||||||||||
Engines | $ | 297,827 | $ | 260,053 | $ | 503,441 | $ | 465,995 | $ | 503,809 | $ | 483,006 | $ | 1,007,250 | $ | 949,001 | ||||||||||||||||
Power Products | 186,361 | 164,885 | 353,949 | 330,733 | 267,535 | 255,393 | 621,484 | 586,126 | ||||||||||||||||||||||||
Inter-Segment Eliminations | (33,864 | ) | (31,889 | ) | (72,950 | ) | (79,072 | ) | (51,011 | ) | (43,824 | ) | (123,961 | ) | (122,896 | ) | ||||||||||||||||
Total * | $ | 450,324 | $ | 393,049 | $ | 784,440 | $ | 717,656 | $ | 720,333 | $ | 694,575 | $ | 1,504,773 | $ | 1,412,231 | ||||||||||||||||
* International sales included in net sales based on | $ | 208,610 | $ | 163,507 | $ | 326,459 | $ | 260,293 | $ | 217,228 | $ | 184,498 | $ | 543,687 | $ | 444,791 | ||||||||||||||||
GROSS PROFIT ON SALES: | ||||||||||||||||||||||||||||||||
GROSS PROFIT: | ||||||||||||||||||||||||||||||||
Engines | $ | 68,546 | $ | 57,078 | $ | 111,205 | $ | 92,525 | $ | 124,362 | $ | 119,836 | $ | 235,567 | $ | 212,361 | ||||||||||||||||
Power Products | 12,084 | 16,318 | 29,391 | 39,288 | 25,828 | 18,337 | 55,219 | 57,625 | ||||||||||||||||||||||||
Inter-Segment Eliminations | (2,309 | ) | (2,746 | ) | (281 | ) | (8,773 | ) | (641 | ) | 2,309 | (923 | ) | (6,464 | ) | |||||||||||||||||
Total | $ | 78,321 | $ | 70,650 | $ | 140,315 | $ | 123,040 | $ | 149,549 | $ | 140,482 | $ | 289,863 | $ | 263,522 | ||||||||||||||||
INCOME (LOSS) FROM OPERATIONS: | ||||||||||||||||||||||||||||||||
INCOME FROM OPERATIONS: | ||||||||||||||||||||||||||||||||
Engines | $ | 20,186 | $ | 16,944 | $ | 14,849 | $ | 12,079 | $ | 77,463 | $ | 43,396 | $ | 92,312 | $ | 55,475 | ||||||||||||||||
Power Products | (14,115 | ) | (3,887 | ) | (19,268 | ) | (1,398 | ) | 1,730 | (7,217 | ) | (17,538 | ) | (8,615 | ) | |||||||||||||||||
Inter-Segment Eliminations | (2,309 | ) | (2,746 | ) | (281 | ) | (8,773 | ) | (641 | ) | 2,309 | (923 | ) | (6,464 | ) | |||||||||||||||||
Total | $ | 3,762 | $ | 10,311 | $ | (4,700 | ) | $ | 1,908 | $ | 78,552 | $ | 38,488 | $ | 73,851 | $ | 40,396 | |||||||||||||||
1 | Prior year amounts have been reclassified to conform to current year presentation. These adjustments relate to the sale of certain products through our foreign subsidiaries that had been reported within the Engines Segment, but are now reported in the Power Products Segment. These adjustments align our segment reporting with current management responsibilities. |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
15. Debt and Separate Financial Information
The following is a summary of Subsidiary Guarantor of Indebtednessthe Company’s long-term indebtedness (in thousands):
March 27, 2011 | June 27, 2010 | |||||||
Revolving Credit Facility | $ | 55,000 | $ | — | ||||
6.875% Senior Notes | 225,000 | — | ||||||
8.875% Senior Notes | — | 203,460 | ||||||
$ | 280,000 | $ | 203,460 | |||||
In December 2010, the Company issued $225 million of 6.875% Senior Notes due December 15, 2020. The net proceeds of the offering were primarily used to redeem the outstanding principal of the 8.875% Senior Notes due March 15, 2011. In connection with the refinancing and the issuance of the new Senior Notes, the Company incurred approximately $5.0 million in new deferred financing costs, which are being amortized over the life of the new Senior Notes using the effective interest method. In addition, at the time of the refinancing the Company expensed approximately $3.7 million associated with the make-whole terms of the 8.875% Senior Notes, $0.1 million in remaining deferred financing costs and $0.1 million of original issue discount. These amounts are included in interest expense in the Consolidated Statements of Operations.
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. The Revolver contains covenants that the Company considers usual and customary for an agreement of this type, including a Maximum Total Leverage Ratiomaximum total leverage ratio and Minimum Interest Coverage Ratio.minimum interest coverage ratio. Certain of the Company’s subsidiaries are required to be guarantors of the Company’s obligations under the Revolver.
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,entities; sell or lease all or substantially all of its assets; and dispose of assets or the proceeds of 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 26, 2010,March 27, 2011, the Company was in compliance with these covenants.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
16. Separate Financial Information of Subsidiary Guarantor of Indebtedness
Under the terms of the Company’s 6.875% Senior Notes and the Revolver (collectively, the “Domestic Indebtedness”), Briggs & Stratton Power Products Group, LLC, a 100% owned subsidiary of the Company, is the joint and several guarantor of the Domestic Indebtedness (the “Guarantor”). The guarantees are full and unconditional guarantees. Additionally, if at any time a domestic subsidiary of the Company constitutes a significant domestic subsidiary, then such domestic subsidiary will also become a guarantor of the Domestic Indebtedness. Currently, all of the Domestic Indebtedness is unsecured. If the Company were to fail to make a payment of interest or principal on its due date, the Guarantor is obligated to pay the outstanding Domestic Indebtedness. The Company had the following outstanding amounts related to the guaranteed debt (in thousands):
March 27, 2011 Carrying Amount | Maximum Guarantee | |||||||||||||||
December 26, 2010 Carrying Amount | Maximum Guarantee | |||||||||||||||
6.875% Senior Notes, due December 15, 2020 | $ | 225,000 | $ | 225,000 | $ | 225,000 | $ | 225,000 | ||||||||
Revolving Credit Facility, expiring July 12, 2012 | $ | 55,000 | $ | 500,000 | $ | 55,000 | $ | 500,000 |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The following condensed supplemental consolidating financial information reflects the summarized financial information of the Company, its Guarantor and Non-Guarantor Subsidiaries (in thousands):
BALANCE SHEET
As of December 26, 2010March 27, 2011
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Current Assets | $ | 479,056 | $ | 367,041 | $ | 254,801 | $ | (177,211 | ) | $ | 923,687 | $ | 554,598 | $ | 416,804 | $ | 265,749 | $ | (182,902 | ) | $ | 1,054,249 | ||||||||||||||||||
Investment in Subsidiaries | 669,415 | — | — | (669,415 | ) | — | 676,164 | — | — | (676,164 | ) | — | ||||||||||||||||||||||||||||
Non-Current Assets | 470,499 | 285,671 | 49,247 | (34,709 | ) | 770,708 | 472,059 | 282,286 | 50,012 | (36,917 | ) | 767,440 | ||||||||||||||||||||||||||||
$ | 1,618,970 | $ | 652,712 | $ | 304,048 | $ | (881,335 | ) | $ | 1,694,395 | $ | 1,702,821 | $ | 699,090 | $ | 315,761 | $ | (895,983 | ) | $ | 1,821,689 | |||||||||||||||||||
Current Liabilities | $ | 298,887 | $ | 74,176 | $ | 99,400 | $ | (150,310 | ) | $ | 322,153 | $ | 356,236 | $ | 104,731 | $ | 101,506 | $ | (163,878 | ) | $ | 398,595 | ||||||||||||||||||
Long-Term Debt | 305,574 | (18,822 | ) | 20,149 | (26,901 | ) | 280,000 | 283,186 | (440 | ) | 16,278 | (19,024 | ) | 280,000 | ||||||||||||||||||||||||||
Other Long-Term Obligations | 367,312 | 77,035 | 35,407 | (34,709 | ) | 445,045 | 360,580 | 78,793 | 37,819 | (36,917 | ) | 440,275 | ||||||||||||||||||||||||||||
Shareholders’ Investment | 647,197 | 520,323 | 149,092 | (669,415 | ) | 647,197 | 702,819 | 516,006 | 160,158 | (676,164 | ) | 702,819 | ||||||||||||||||||||||||||||
$ | 1,618,970 | $ | 652,712 | $ | 304,048 | $ | (881,335 | ) | $ | 1,694,395 | $ | 1,702,821 | $ | 699,090 | $ | 315,761 | $ | (895,983 | ) | $ | 1,821,689 | |||||||||||||||||||
BALANCE SHEET
As of June 27, 2010
Briggs & Stratton Corp oration | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Current Assets | $ | 495,891 | $ | 369,714 | $ | 210,764 | $ | (170,726 | ) | $ | 905,643 | $ | 495,891 | $ | 369,714 | $ | 210,764 | $ | (170,726 | ) | $ | 905,643 | ||||||||||||||||||
Investment in Subsidiaries | 677,242 | — | — | (677,242 | ) | — | 677,242 | — | — | (677,242 | ) | — | ||||||||||||||||||||||||||||
Noncurrent Assets | 484,868 | 284,749 | 47,399 | (32,602 | ) | 784,414 | 484,868 | 284,749 | 47,399 | (32,602 | ) | 784,414 | ||||||||||||||||||||||||||||
$ | 1,658,001 | $ | 654,463 | $ | 258,163 | $ | (880,570 | ) | $ | 1,690,057 | $ | 1,658,001 | $ | 654,463 | $ | 258,163 | $ | (880,570 | ) | $ | 1,690,057 | |||||||||||||||||||
Current Liabilities | $ | 607,295 | $ | 37,530 | $ | 89,412 | $ | (170,726 | ) | $ | 563,511 | $ | 607,295 | $ | 37,530 | $ | 89,412 | $ | (170,726 | ) | $ | 563,511 | ||||||||||||||||||
Other Long-Term Obligations | 400,129 | 74,868 | 33,573 | (32,602 | ) | 475,969 | 400,129 | 74,868 | 33,573 | (32,602 | ) | 475,969 | ||||||||||||||||||||||||||||
Shareholders’ Investment | 650,577 | 542,065 | 135,177 | (677,242 | ) | 650,577 | 650,577 | 542,065 | 135,177 | (677,242 | ) | 650,577 | ||||||||||||||||||||||||||||
$ | 1,658,001 | $ | 654,463 | $ | 258,163 | $ | (880,570 | ) | $ | 1,690,057 | $ | 1,658,001 | $ | 654,463 | $ | 258,163 | $ | (880,570 | ) | $ | 1,690,057 | |||||||||||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS
For the Three Months Ended December 26, 2010As of March 27, 2011
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Net Sales | $ | 285,078 | $ | 144,890 | $ | 90,036 | $ | (69,680 | ) | $ | 450,324 | $ | 475,609 | $ | 230,744 | $ | 96,985 | $ | (83,005 | ) | $ | 720,333 | ||||||||||||||||||
Cost of Goods Sold | 228,169 | 142,724 | 70,790 | (69,680 | ) | 372,003 | 364,609 | 216,465 | 72,715 | (83,005 | ) | 570,784 | ||||||||||||||||||||||||||||
Gross Profit | 56,909 | 2,166 | 19,246 | — | 78,321 | 111,000 | 14,279 | 24,270 | — | 149,549 | ||||||||||||||||||||||||||||||
Engineering, Selling, General and Administrative Expenses | 42,500 | 19,231 | 12,828 | — | 74,559 | 39,225 | 18,466 | 13,306 | — | 70,997 | ||||||||||||||||||||||||||||||
Equity in Loss from Subsidiaries | 5,687 | — | — | (5,687 | ) | — | ||||||||||||||||||||||||||||||||||
Equity in Earnings from Subsidiaries | (7,840 | ) | — | — | 7,840 | — | ||||||||||||||||||||||||||||||||||
Income (Loss) from Operations | 8,722 | (17,065 | ) | 6,418 | 5,687 | 3,762 | 79,615 | (4,187 | ) | 10,964 | (7,840 | ) | 78,552 | |||||||||||||||||||||||||||
Interest Expense | (8,953 | ) | (17 | ) | (38 | ) | — | (9,008 | ) | (4,452 | ) | (16 | ) | (45 | ) | — | (4,513 | ) | ||||||||||||||||||||||
Other Income, Net | 773 | 175 | 689 | — | 1,637 | 1,294 | (15 | ) | 928 | — | 2,207 | |||||||||||||||||||||||||||||
Income (Loss) before Income Taxes | 542 | (16,907 | ) | 7,069 | 5,687 | (3,609 | ) | 76,457 | (4,218 | ) | 11,847 | (7,840 | ) | 76,246 | ||||||||||||||||||||||||||
Provision (Credit) for Income Taxes | 1,794 | (5,999 | ) | 1,848 | — | (2,357 | ) | 24,936 | (2,273 | ) | 2,062 | — | 24,725 | |||||||||||||||||||||||||||
Net Income (Loss) | $ | (1,252 | ) | $ | (10,908 | ) | $ | 5,221 | $ | 5,687 | $ | (1,252 | ) | $ | 51,521 | $ | (1,945 | ) | $ | 9,785 | $ | (7,840 | ) | $ | 51,521 | |||||||||||||||
STATEMENT OF OPERATIONS
For the Three Months Ended December 27, 2009March 28, 2010
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Net Sales | $ | 254,624 | $ | 133,612 | $ | 69,297 | $ | (64,484 | ) | $ | 393,049 | $ | 457,641 | $ | 225,366 | $ | 82,092 | $ | (70,524 | ) | $ | 694,575 | ||||||||||||||||||
Cost of Goods Sold | 205,612 | 127,832 | 53,439 | (64,484 | ) | 322,399 | 347,015 | 212,773 | 64,829 | (70,524 | ) | 554,093 | ||||||||||||||||||||||||||||
Gross Profit | 49,012 | 5,780 | 15,858 | — | 70,650 | 110,626 | 12,593 | 17,263 | — | 140,482 | ||||||||||||||||||||||||||||||
Engineering, Selling, General and Administrative Expenses | 34,458 | 16,264 | 9,617 | — | 60,339 | 42,877 | 21,460 | 7,057 | — | 71,394 | ||||||||||||||||||||||||||||||
Equity in Loss from Subsidiaries | 1,760 | — | — | (1,760 | ) | — | ||||||||||||||||||||||||||||||||||
Litigation Settlement | 30,600 | — | — | — | 30,600 | |||||||||||||||||||||||||||||||||||
Equity in Earnings from Subsidiaries | (3,715 | ) | — | — | 3,715 | — | ||||||||||||||||||||||||||||||||||
Income (Loss) from Operations | 12,794 | (10,484 | ) | 6,241 | 1,760 | 10,311 | 40,864 | (8,867 | ) | 10,206 | (3,715 | ) | 38,488 | |||||||||||||||||||||||||||
Interest Expense | (7,115 | ) | (24 | ) | (40 | ) | — | (7,179 | ) | (7,279 | ) | (23 | ) | (21 | ) | — | (7,323 | ) | ||||||||||||||||||||||
Other Income, Net | 1,003 | 29 | 105 | — | 1,137 | |||||||||||||||||||||||||||||||||||
Other Income (Expense), Net | 1,193 | (5 | ) | 672 | — | 1,860 | ||||||||||||||||||||||||||||||||||
Income (Loss) before Income Taxes | 6,682 | (10,479 | ) | 6,306 | 1,760 | 4,269 | 34,778 | (8,895 | ) | 10,857 | (3,715 | ) | 33,025 | |||||||||||||||||||||||||||
Provision (Credit) for Income Taxes | 3,657 | (3,781 | ) | 1,368 | — | 1,244 | 10,705 | (3,525 | ) | 1,772 | — | 8,952 | ||||||||||||||||||||||||||||
Net Income (Loss) | $ | 3,025 | $ | (6,698 | ) | $ | 4,938 | $ | 1,760 | $ | 3,025 | $ | 24,073 | $ | (5,370 | ) | $ | 9,085 | $ | (3,715 | ) | $ | 24,073 | |||||||||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS
For the SixNine Months Ended December 26, 2010March 27, 2011
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Net Sales | $ | 477,770 | $ | 295,362 | $ | 160,145 | $ | (148,837 | ) | $ | 784,440 | $ | 953,379 | $ | 526,106 | $ | 257,130 | $ | (231,842 | ) | $ | 1,504,773 | ||||||||||||||||||
Cost of Goods Sold | 384,741 | 280,682 | 127,539 | (148,837 | ) | 644,125 | 749,351 | 497,147 | 200,254 | (231,842 | ) | 1,214,910 | ||||||||||||||||||||||||||||
Gross Profit | 93,029 | 14,680 | 32,606 | — | 140,315 | 204,028 | 28,959 | 56,876 | — | 289,863 | ||||||||||||||||||||||||||||||
Engineering, Selling, General and Administrative Expenses | 84,956 | 36,576 | 23,483 | — | 145,015 | 124,181 | 55,042 | 36,789 | — | 216,012 | ||||||||||||||||||||||||||||||
Equity in Loss from Subsidiaries | 6,489 | — | — | (6,489 | ) | — | ||||||||||||||||||||||||||||||||||
Equity in Earnings from Subsidiaries | (1,351 | ) | — | — | 1,351 | — | ||||||||||||||||||||||||||||||||||
Income (Loss) from Operations | 1,584 | (21,896 | ) | 9,123 | 6,489 | (4,700 | ) | 81,198 | (26,083 | ) | 20,087 | (1,351 | ) | 73,851 | ||||||||||||||||||||||||||
Interest Expense | (14,057 | ) | (37 | ) | (71 | ) | — | (14,165 | ) | (18,510 | ) | (53 | ) | (116 | ) | — | (18,679 | ) | ||||||||||||||||||||||
Other Income, Net | 1,818 | 313 | 942 | — | 3,073 | 3,112 | 298 | 1,870 | — | 5,280 | ||||||||||||||||||||||||||||||
Income (Loss) before Income Taxes | (10,655 | ) | (21,620 | ) | 9,994 | 6,489 | (15,792 | ) | 65,800 | (25,838 | ) | 21,841 | (1,351 | ) | 60,452 | |||||||||||||||||||||||||
Provision (Credit) for Income Taxes | (1,290 | ) | (7,644 | ) | 2,507 | — | (6,427 | ) | 23,646 | (9,917 | ) | 4,569 | — | 18,298 | ||||||||||||||||||||||||||
Net Income (Loss) | $ | (9,365 | ) | $ | (13,976 | ) | $ | 7,487 | $ | 6,489 | $ | (9,365 | ) | $ | 42,154 | $ | (15,921 | ) | $ | 17,272 | $ | (1,351 | ) | $ | 42,154 | |||||||||||||||
STATEMENT OF OPERATIONS
For the SixNine Months Ended December 27, 2009March 28, 2010
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Net Sales | $ | 445,856 | $ | 278,831 | $ | 129,294 | $ | (136,325 | ) | $ | 717,656 | $ | 903,497 | $ | 504,197 | $ | 211,386 | $ | (206,849 | ) | $ | 1,412,231 | ||||||||||||||||||
Cost of Goods Sold | 374,975 | 258,229 | 97,737 | (136,325 | ) | 594,616 | 721,990 | 471,002 | 162,566 | (206,849 | ) | 1,148,709 | ||||||||||||||||||||||||||||
Gross Profit | 70,881 | 20,602 | 31,557 | — | 123,040 | 181,507 | 33,195 | 48,820 | — | 263,522 | ||||||||||||||||||||||||||||||
Engineering, Selling, General and Administrative Expenses | 69,214 | 32,294 | 19,624 | — | 121,132 | 112,091 | 53,754 | 26,681 | — | 192,526 | ||||||||||||||||||||||||||||||
Litigation Settlement | 30,600 | — | — | — | 30,600 | |||||||||||||||||||||||||||||||||||
Equity in Earnings from Subsidiaries | (2,345 | ) | — | — | 2,345 | — | (6,059 | ) | — | — | 6,059 | — | ||||||||||||||||||||||||||||
Income (Loss) from Operations | 4,012 | (11,692 | ) | 11,933 | (2,345 | ) | 1,908 | 44,875 | (20,559 | ) | 22,139 | (6,059 | ) | 40,396 | ||||||||||||||||||||||||||
Interest Expense | (13,505 | ) | (51 | ) | (99 | ) | — | (13,655 | ) | (20,783 | ) | (75 | ) | (121 | ) | — | (20,979 | ) | ||||||||||||||||||||||
Other Income, Net | 2,303 | 117 | 7 | — | 2,427 | 3,496 | 112 | 679 | — | 4,287 | ||||||||||||||||||||||||||||||
Income (Loss) before Income Taxes | (7,190 | ) | (11,626 | ) | 11,841 | (2,345 | ) | (9,320 | ) | 27,588 | (20,522 | ) | 22,697 | (6,059 | ) | 23,704 | ||||||||||||||||||||||||
Provision (Credit) for Income Taxes | (1,528 | ) | (4,176 | ) | 2,046 | — | (3,658 | ) | 9,177 | (7,702 | ) | 3,818 | — | 5,293 | ||||||||||||||||||||||||||
Net Income (Loss) | $ | (5,662 | ) | $ | (7,450 | ) | $ | 9,795 | $ | (2,345 | ) | $ | (5,662 | ) | $ | 18,411 | $ | (12,820 | ) | $ | 18,879 | $ | (6,059 | ) | $ | 18,411 | ||||||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the SixNine Months Ended December 26, 2010March 27, 2011
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | (87,292 | ) | $ | (42,444 | ) | $ | 6,752 | $ | (5,666 | ) | $ | (128,650 | ) | $ | (44,952 | ) | $ | (57,984 | ) | $ | 16,138 | $ | (13,545 | ) | $ | (100,343 | ) | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||||||||||||||||||||||
Additions to Plant and Equipment | (15,933 | ) | (4,141 | ) | (1,267 | ) | — | (21,341 | ) | (24,479 | ) | (6,293 | ) | (1,735 | ) | — | (32,507 | ) | ||||||||||||||||||||||
Cash Paid for Acquisition, Net of Cash Received | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Proceeds Received on Sale of Plant and Equipment | 14 | 27 | 11 | — | 52 | 17 | 39 | 26 | — | 82 | ||||||||||||||||||||||||||||||
Cash Investment in Subsidiary | (92 | ) | — | — | 92 | — | 2,708 | — | (2,800 | ) | 92 | — | ||||||||||||||||||||||||||||
Net Cash Used by Investing Activities | (16,011 | ) | (4,114 | ) | (1,256 | ) | 92 | (21,289 | ) | (21,754 | ) | (6,254 | ) | (4,509 | ) | 92 | (32,425 | ) | ||||||||||||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||||||||||||||||||||||
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt | 15,944 | 44,875 | 9,817 | 5,666 | 76,302 | (6,445 | ) | 63,256 | 5,946 | 13,545 | 76,302 | |||||||||||||||||||||||||||||
Deferred Loan Costs | (4,994 | ) | (4,994 | ) | (4,994 | ) | — | — | — | (4,994 | ) | |||||||||||||||||||||||||||||
Dividends Paid | (5,537 | ) | — | — | — | (5,537 | ) | (11,074 | ) | — | — | — | (11,074 | ) | ||||||||||||||||||||||||||
Stock Option Exercise Proceeds and Tax Benefits | 790 | — | — | — | 790 | |||||||||||||||||||||||||||||||||||
Capital Contributions Received | — | — | 92 | (92 | ) | — | — | — | 92 | (92 | ) | — | ||||||||||||||||||||||||||||
Net Cash Provided by Financing Activities | 5,413 | 44,875 | 9,909 | 5,574 | 65,771 | |||||||||||||||||||||||||||||||||||
Net Cash Provided (Used) by Financing Activities | (21,723 | ) | 63,256 | 6,038 | 13,453 | 61,024 | ||||||||||||||||||||||||||||||||||
Effect of Foreign Currency Exchange Rate | ||||||||||||||||||||||||||||||||||||||||
Changes on Cash and Cash Equivalents | — | — | (905 | ) | — | (905 | ) | — | — | (1,994 | ) | — | (1,994 | ) | ||||||||||||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (97,890 | ) | (1,683 | ) | 14,500 | — | (85,073 | ) | (88,429 | ) | (982 | ) | 15,673 | — | (73,738 | ) | ||||||||||||||||||||||||
Cash and Cash Equivalents, Beginning | 100,880 | 3,675 | 11,999 | — | 116,554 | 100,880 | 3,675 | 11,999 | — | 116,554 | ||||||||||||||||||||||||||||||
Cash and Cash Equivalents, Ending | $ | 2,990 | $ | 1,992 | $ | 26,499 | $ | — | $ | 31,481 | $ | 12,451 | $ | 2,693 | $ | 27,672 | $ | — | $ | 42,816 | ||||||||||||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Nine Months Ended March 28, 2010
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | (1,455 | ) | $ | (20,587 | ) | $ | 8,086 | $ | (2,554 | ) | $ | (16,510 | ) | ||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Additions to Plant and Equipment | (14,663 | ) | (7,602 | ) | (2,551 | ) | — | (24,816 | ) | |||||||||||
Proceeds Received on Sale of Plant and Equipment | 180 | 13 | 16 | — | 209 | |||||||||||||||
Cash Investment in Subsidiary | (1,920 | ) | — | 613 | 1,307 | — | ||||||||||||||
Other, Net | (144 | ) | — | — | — | (144 | ) | |||||||||||||
Net Cash Used by Investing Activities | (16,547 | ) | (7,589 | ) | (1,922 | ) | 1,307 | (24,751 | ) | |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Net Borrowings on Loans, Notes Payable and Long-Term Debt | 31,072 | 28,036 | 2,210 | 2,554 | 63,872 | |||||||||||||||
Dividends Paid | (11,001 | ) | — | — | — | (11,001 | ) | |||||||||||||
Capital Contributions Received | — | — | 1,307 | (1,307 | ) | — | ||||||||||||||
Net Cash Provided by Financing Activities | 20,071 | 28,036 | 3,517 | 1,247 | 52,871 | |||||||||||||||
Effect of Foreign Currency Exchange Rate | ||||||||||||||||||||
Changes on Cash and Cash Equivalents | — | — | 265 | — | 265 | |||||||||||||||
Net Increase in Cash and Cash Equivalents | 2,069 | (140 | ) | 9,946 | — | 11,875 | ||||||||||||||
Cash and Cash Equivalents, Beginning | 1,541 | 1,301 | 13,150 | — | 15,992 | |||||||||||||||
Cash and Cash Equivalents, Ending | $ | 3,610 | $ | 1,161 | $ | 23,096 | $ | — | $ | 27,867 | ||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Six Months Ended December 27, 2009
(Unaudited)
Briggs & Stratton Corporation | Guarantor Subsidiary | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | 5,457 | $ | (18,979 | ) | $ | (8,661 | ) | $ | (3,096 | ) | $ | (25,279 | ) | ||||||
Cash Flows from Investing Activities: | �� | |||||||||||||||||||
Additions to Plant and Equipment | (8,296 | ) | (5,500 | ) | (1,796 | ) | — | (15,592 | ) | |||||||||||
Proceeds Received on Sale of Plant and Equipment | 158 | 2 | 12 | — | 172 | |||||||||||||||
Cash Investment in Subsidiary | (9,519 | ) | — | 613 | 8,906 | — | ||||||||||||||
Other, net | (144 | ) | — | — | — | (144 | ) | |||||||||||||
Net Cash Used by Investing Activities | (17,801 | ) | (5,498 | ) | (1,171 | ) | 8,906 | (15,564 | ) | |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt | 21,467 | 26,248 | 2,121 | 3,096 | 52,932 | |||||||||||||||
Dividends Paid | (5,500 | ) | — | — | — | (5,500 | ) | |||||||||||||
Capital Contributions Received | — | — | 8,906 | (8,906 | ) | — | ||||||||||||||
Net Cash Provided by Financing Activities | 15,967 | 26,248 | 11,027 | (5,810 | ) | 47,432 | ||||||||||||||
Effect of Foreign Currency Exchange Rate | ||||||||||||||||||||
Changes on Cash and Cash Equivalents | — | — | 328 | — | 328 | |||||||||||||||
Net Increase in Cash and Cash Equivalents | 3,623 | 1,771 | 1,523 | — | 6,917 | |||||||||||||||
Cash and Cash Equivalents, Beginning | 1,541 | 1,301 | 13,150 | — | 15,992 | |||||||||||||||
Cash and Cash Equivalents, Ending | $ | 5,164 | $ | 3,072 | $ | 14,673 | $ | — | $ | 22,909 | ||||||||||
In prior periods the Company reported eliminations of intercompany gross profit and other income (expense) in the Eliminations column within the “Separate Financial Information of Subsidiary Guarantor of Indebtedness” footnote. Under accounting principles generally accepted in the United States applicable to equity method accounting, these amounts should be reflected in the Briggs & Stratton Corporation (the “Parent”) column. In the current period the Company has revised these disclosures to reflect the elimination of intercompany gross profit and other income (expense) within the Parent column. The impact of the revision for the three and six months ended December 27, 2009 was a decrease of $4.7 million and $9.1 million to net income (loss) of the Parent column, respectively. The offsetting impact was to the Eliminations column. The Company considers these revisions to be immaterial to the Separate Financial Information of Subsidiary Guarantor of Indebtedness as a whole.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management'smanagement’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:
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales for the secondthird quarter of fiscal 2011 were $450.3$720.3 million, an increase of $57.3$25.8 million or 14.6%3.7% when compared to the same period a year ago.
Second quarterEngines Segment fiscal 2011 third quarter net sales for the Engines Segment were $297.8$503.8 million, a $37.8which was $20.8 million or 14.5% increase from4.3% higher than the second quarter of fiscal 2010.prior year period. This increase from the same quarter last year is primarily due to higher internationalshipment volumes and slightly increased engine shipments to European and Asian OEMs,pricing, partially offset by slightlyan unfavorable mix of product shipped that reflected lower sales domestically as U.S. OEMsvolumes of units used on riding lawn and retailers continue to focus on lean inventory levels prior to the spring selling season.garden equipment.
Second quarter fiscal 2011 Power Products Segment fiscal 2011 third quarter net sales were $186.4$267.5 million, a $21.5which was $12.1 million or 13.0% increase from4.8% greater than the second quarter of fiscal 2010.prior year period. This improvement was due primarily to increased unit shipment volumes of snow throwers and ZTRs, and pressure washers,partially offset by reduced shipment volumes of portable generators as a result of lower consumer demand.fewer wide spread power outages caused by ice storms.
Consolidated net sales for the first sixnine months of fiscal 2011 were $784.4 million,approximately $1.5 billion, an increase of $66.8$92.5 million or 9.3%6.6% when compared to the same period a year ago.
Engines Segment net sales for the first sixnine months of fiscal 2011 were $503.4 million, a $37.5approximately $1.0 billion, which was $58.2 million or 8.0% increase compared to6.1% higher than the first six months of fiscal 2010.prior year period. This increase from the same period last year is primarily due to higher international engine unit shipments to European and Asian OEMs partially offset by loweras well as slightly increased engine sales domestically and a reduction of intercompany sales of engines to our Power Products segment due to lower sales and production of pressure washers and portable generators.pricing.
Power Products Segment net sales for the first sixnine months of fiscal 2011 were $353.9$621.5 million, a $23.2which was $35.4 million or 7.0% increase compared to6.0% greater than the first six months of fiscal 2010.prior year period. This improvement was due primarily to increased unit shipment volumes of snow throwers and ZTRs, partially offset by reduced shipment volumes of pressure washers and portable generators as a result of lower consumer demand and retailers and dealers closely managing inventories in these categories.
GROSS PROFIT MARGINPERCENTAGE
The consolidated gross profit marginpercentage was 17.4%20.8% in the secondthird quarter of fiscal 2011, downup from 18.0%20.2% in the same period last year.
The Engines Segment gross profit margin increased to 23.0%percentage was 24.7% in the secondthird quarter of fiscal 2011, or slightly lower from 21.9%24.8% in the secondthird quarter of fiscal 2010. This improvementThe change was primarily dueattributable to favorable product mix and slightly increased engine pricing, partially offset by higher materialcommodity costs and increased salaries and benefits, including a $2.2$2.3 million increase in pension benefits expense.expense, offset by slightly increased engine pricing.
The Power Products Segment gross profit margin decreasedpercentage increased to 6.5%9.7% for the secondthird quarter of fiscal 2011 from 9.9%7.2% in the secondthird quarter of fiscal 2010. The decline between years is dueimprovement over the prior year period was attributable to increased sales of higher margin products to dealers, decreased manufacturing spending and lowerincreased absorption primarily related to a 59%on higher production volumes, partially offset by higher commodity costs and warranty expense. The decrease in production of portable generators. The higher manufacturing spending is attributed to higher materialincludes the absence of $3.0 million of transition costs from the closure of our Jefferson manufacturing inefficienciesfacility which were incurred in launching new products, increased warranty expense, and increased freight expense.the third quarter of fiscal 2010.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The consolidated gross profit marginpercentage for the first sixnine months of fiscal 2011 improved to 17.9%19.3% from 17.1%18.7% in the first sixnine months of fiscal 2010.
The Engines Segment gross profit marginpercentage increased to 22.1%23.4% for the first sixnine months of fiscal 2011 from 19.9%22.4% in the first sixnine months of fiscal 2010. This improvement was primarily due to increased production volumes and slightly increased engine pricing, and improved production, partially offset by higher freight expensecommodity costs and increased salaries and benefits. The increase in salaries and benefits includes a $4.9$7.2 million increase in pension benefits expense and $2.2 million higher expenses attributed to temporary reductions in salaries and 401(k) match implemented in the first half of fiscal 2010.
The Power Products Segment gross profit marginpercentage decreased to 8.3%8.9% for the first sixnine months of fiscal 2011 from 11.9%9.8% in the first sixnine months of fiscal 2010. This decline between years resulted from higher manufacturing spending, lower absorption primarily related to the decreased production of portable generators, and pressure washers, as well as increased expenses related to salaries and benefits. The increase in manufacturing spending relates to transition costs from the closure of our Jefferson manufacturing facility, higher materialcommodity costs, manufacturing inefficiencies in launching new products, increased warranty expense, and increased freight expense. The increase in salaries and benefits includes $0.8 million higher expenses attributable to temporary reductions in salaries and 401(k) match implemented in the first half of fiscal 2010.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expenses were $74.6$71.0 million in the secondthird quarter of fiscal 2011, an increasea decrease of $14.2$0.4 million or 23.6%0.6% from the secondthird quarter of fiscal 2010. The increase is due to higher salaries and benefits expenses that include a $1.8 million increase in pension benefits expense as well as $3.3 million of severance and other related employee separation costs associated with a planned reduction of salaried employees during the second quarter ended December 26, 2010.
Engineering, selling, general and administrative expenses were $145.0$216.0 million for the first sixnine months of fiscal 2011, an increase of $23.9$23.5 million or 19.7%12.2% from the first sixnine months of fiscal 2010. The increase is due to higher salaries and benefits expenses that include a $3.5$5.4 million increase in pension benefits expense, increased salaries and 401(k) company match benefits of $2.2$2.1 million, which have been fully restored since being temporarily reduced early in the second quarterfirst half of fiscal 2010, as well as $3.3 million of severance and other related employee separation costs associated with a planned reduction of salaried employees during the second quarter ended December 26, 2010.of fiscal 2011.
LITIGATION SETTLEMENT
On February 24, 2010, the Company entered into a Stipulation of Settlement (“Settlement”) that resolves over 65 class-action lawsuits that have been filed against Briggs & Stratton and other engine and lawnmower manufacturers alleging, among other things, misleading power labeling on its lawnmower engines. Other parties to the Settlement are Sears, Roebuck and Co., Sears Holdings Corporation, Kmart Holdings Corporation, Deere & Company, Tecumseh Products Company, The Toro Company, Electrolux Home Products, Inc. and Husqvarna Outdoor Products, Inc. (now known as Husqvarna Consumer Outdoor Products, N.A., Inc.) (Collectively with the Company referred to below as the “Settling Defendants”). All other defendants settled all claims separately. The Settlement resolves all horsepower-labeling claims brought by all persons or entities in the United States who, beginning January 1, 1994 through the date notice of the Settlement is first given, purchased, for use and not for resale, a lawn mower containing a gas combustible engine up to 30 horsepower provided that either the lawn mower or the engine of the lawn mower was manufactured or sold by a Defendant. On August 16, 2010, Judge Adelman issued a final order approving the Settlement as well as the settlements of all other defendants. In August and September 2010, several class members filed a Notice of Appeal of Judge Adelman’s final approval order to the United States Court of Appeals for the Seventh Circuit. All of those appeals were settled as of February 16, 2011 with no additional contribution from Briggs & Stratton.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
As part of the Settlement, the Company denies any and all liability and seeks resolution to avoid further protracted and expensive litigation. The Settling Defendants as a group agreed to pay an aggregate amount of $51 million. However, the monetary contribution of the amount of each of the Settling Defendants is confidential. In addition, the Company, along with the other Settling Defendants, agreed to injunctive relief regarding their future horsepower labeling, as well as procedures that will allow purchasers of lawnmower engines to seek a one-year extended warranty free of charge. Under the terms of the Settlement, the balance of settlement funds were paid, and the one-year warranty extension program began to run, on March 1, 2011. As a result of the Settlement, the Company recorded a total charge of $30.6 million in the third quarter of fiscal year 2010 representing the total of the Company’s monetary portion of the Settlement and the estimated costs of extending the warranty period for one year.
INTEREST EXPENSE
Interest expense was higherlower for the secondthird quarter andof fiscal 2011 compared to the prior year period due to lower average outstanding borrowings as well as the reduced interest rate associated with the refinanced Senior Notes. Interest expense was lower for the first sixnine months of fiscal 2011 compared to the prior year period due to alower average outstanding borrowings, partially offset by $3.9 million of charges related to the redemption premium on the 8.875% Senior Notes and the write offwrite-off of related deferred financing costs, partially offset by lower average outstanding borrowings.costs.
PROVISION FOR INCOME TAXES
The secondthird quarter and first sixnine months effective tax rate benefit for fiscal 2011 was 65.3%32.4% and 40.7%30.3%, respectively, versus the 29.1%a 27.1% and 22.3% effective tax rate and 39.2% effective tax rate benefit in the same respective periods last year. The increasevariation between years was due to the required recognition of the tax effect on certain events as discrete items that reduced our effective tax rate in fiscal 2010. These discrete items included the tax effect of the horsepower litigation settlement expense recognized in the third quarter of fiscal 2010 as well as the settlement of a federal audit in the second quarter of fiscal 2011 effective tax rate benefit over the prior year was the result of recognizing the benefit of the research & development credit, which was extended by federal tax legislature enacted on December 17, 2010.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities for the first nine months of fiscal 2011 was $128.7$100.3 million, and $25.3or $83.8 million higher compared to $16.5 million in the first sixnine months of fiscal 2011 and fiscal 2010, respectively. This change was2010. The increase in cash used for operating activities is primarily attributabledue to approximately $102.0 million greater working capital requirements compared to replenish inventory from lower levels at the first six monthsend of fiscal 2010 which was primarilyand due to a $65.2 million decrease intiming of payments associated with accounts receivable, accounts payable and accrued liabilities, and a $35.9 million increase in inventory.offset by higher net income.
Cash used by investing activities was $21.3$32.4 million and $15.6$24.8 million in the first sixnine months of fiscal 2011 and fiscal 2010, respectively. The $5.7$7.7 million increase was primarily the result of higher purchases of plant and equipment compared to the first sixnine months of last year.
Cash provided by financing activities was $65.8$61.0 million and $47.4$52.9 million in the first sixnine months of fiscal 2011 and fiscal 2010, respectively. The increase is primarily due to the issuance of $225 million aggregate principal amount of 6.875% Senior Notes due December 15, 2020 during the second quarter of fiscal 2011, the net proceeds of which were primarily used to redeem the $203.7 million outstanding principal amount of the 8.875% Senior Notes due March 15, 2011. The Company incurred $5.0 million of deferred financing costs in connection with the issuance of the 6.875% Senior Notes.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
FUTURE LIQUIDITY AND CAPITAL RESOURCES
In December 2010, the Company issued $225 million aggregate principal amount of 6.875% Senior Notes due December 15, 2020. Net proceeds were primarily used to redeem the remaining outstanding principal of the 8.875% Senior Notes due March 15, 2011.
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 Company used proceeds from the Revolver to pay off the remaining amounts outstanding under the Company’s variable rate term notes issued in February 2005 with various financial institutions, retire the 7.25% senior notes that were due in September 2007 and fund seasonal working capital requirements and other financing needs. 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 December 26, 2010,March 27, 2011, there were borrowings of $55.0 million on the Revolver.
Briggs & Stratton expects capital expenditures to be approximately $60$50 million in fiscal 2011. These anticipated expenditures reflect our plans to continue to reinvest in efficient equipment and innovative new products.
The Company is not required to make any contributions to the qualified pension plan during fiscal 2011, but may be required to make 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 Briggs & Stratton’s operating and capital requirements 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,entities; sell or lease all or substantially all of its assets; and dispose of assets or the proceeds of 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 26, 2010,March 27, 2011, the Company was in compliance with these covenants, and expects to be in compliance with all covenants during the remainder of fiscal 2011.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes since the August 26, 2010 filing of the Company’s Annual Report on Form 10-K.
CONTRACTUAL OBLIGATIONS
There have been no material changes since the August 26, 2010 filing of the Company’s Annual Report on Form 10-K, other than the issuance of $225 million aggregate principal amount of 6.875% Senior Notes due December 15, 2020 during the second quarter of fiscal 2011, the net proceeds of which were primarily used to redeem the $203.7 million outstanding principal amount of the 8.875% Senior Notes due March 15, 2011.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies since the August 26, 2010 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.
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’sCompany’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
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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’sCompany’s Annual Report on Form 10-K and in its periodic reports on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the August 26, 2010, filing of the Company’s Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There has not been any change in the Company’s internal control over financial reporting during the secondthird fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal ProceedingsLEGAL PROCEEDINGS
A discussion of legal proceedings is included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q under the heading Commitments and Contingencies and incorporated herein by reference.
There have been no material changes since the August 26, 2010, filing of the Company’s Annual Report on Form 10-K.
Exhibit | Description | |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
10.5 | ||
10.15 | Amended & Restated Key Employee Savings and Investment Plan (Filed herewith) | |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the | |
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the | |
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the | |
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BRIGGS & STRATTON CORPORATION | ||
(Registrant) | ||
Date: | /s/ David J. Rodgers | |
David J. Rodgers | ||
Senior Vice President and Chief Financial Officer and Duly Authorized Officer |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Exhibit | Description | |
10.5 | ||
10.15 | Amended & Restated Key Employee Savings and Investment Plan (Filed herewith) | |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the | |
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the | |
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the | |
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
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