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Notes to Consolidated Financial Statements
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|
FOR THE FISCAL YEARS ENDED
JULY 3, 2016
,
JUNE 28, 2015
AND
JUNE 29, 2014
(1) Nature of Operations:
Briggs & Stratton (the “Company”) is a U.S. based producer of gasoline engines and outdoor power equipment. The Company’s Engines segment sells engines worldwide, primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment. The Company’s Products segment designs, manufacturers and markets a wide range of outdoor power equipment, job site products, and related accessories.
(2) Summary of Significant Accounting Policies:
Fiscal Year:
The Company’s fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day of June in each year. The 2016 fiscal year was 53 weeks long, and the 2015 and 2014 fiscal years were each 52 weeks long. All references to years relate to fiscal years rather than calendar years.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and its majority owned domestic and foreign subsidiaries after elimination of intercompany accounts and transactions. Investments in companies for which we have significant influence are accounted for by the equity method.
Accounting Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents:
This caption includes cash, commercial paper and certificates of deposit. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Receivables:
Receivables are recorded at their original carrying value less reserves for estimated uncollectible accounts. The Company estimates and records an allowance for doubtful accounts based on specific identification and historical experience. The Company writes off uncollectible accounts against the allowance for doubtful accounts after all collection efforts have been exhausted.
Inventories:
Inventories are stated at cost, which does not exceed market. The last-in, first-out (LIFO) method was used for determining the cost of approximately
49%
of total inventories at
July 3, 2016
and
49%
at
June 28, 2015
. The cost for the remaining inventories was determined using the first-in, first-out (FIFO) method. If the FIFO inventory valuation method had been used exclusively, inventories would have been
$61.5 million
and
$62.6 million
higher at the end of fiscal
2016
and
2015
, respectively. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts. During fiscal
2015
, liquidation of LIFO layers generated income of
$1.8 million
.
Goodwill and Other Intangible Assets:
Goodwill reflects the cost of acquisitions in excess of the fair values assigned to identifiable net assets acquired. Goodwill is assigned to reporting units based upon the expected benefit of the synergies of the acquisition.
Other Intangible Assets reflect identifiable intangible assets that arose from purchase acquisitions. Other Intangible Assets are primarily comprised of tradenames, patents and customer relationships. Goodwill and tradenames, which are considered to have indefinite lives, are not amortized; however, both must be tested for impairment at least annually. Amortization is recorded on a straight-line basis for other intangible assets with finite lives. Patents have been assigned an estimated useful life of
15
years. The customer relationships have been assigned an estimated useful life of
14
to
25
years.
The Company performed the required impairment tests in fiscal
2016
,
2015
and
2014
. The Company recorded non-cash goodwill impairment charges and non-cash intangible asset impairment charges in fiscal 2016 and 2014. There were no goodwill impairment charges or other intangible asset impairment charges
recorded in fiscal 2015. Refer to Note 7 for a discussion of the non-cash goodwill impairment charges and the non-cash intangible asset impairment charges recorded in fiscal 2016 and 2014.
Investments:
Investments represent the Company’s investments in unconsolidated affiliated companies and marketable securities.
Financial information of the unconsolidated affiliated companies are accounted for by the equity method, generally on a lag of one month or less. Combined results of operations of unconsolidated affiliated companies for the fiscal year (in thousands):
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|
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|
|
|
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|
|
2016
|
|
2015
|
|
2014
|
|
Results of Operations:
|
|
|
|
|
|
|
|
Sales
|
|
$
|
287,728
|
|
|
$
|
219,904
|
|
|
$
|
143,007
|
|
|
Cost of Goods Sold
|
|
222,426
|
|
|
173,603
|
|
|
116,158
|
|
|
Gross Profit
|
|
$
|
65,302
|
|
|
$
|
46,301
|
|
|
$
|
26,849
|
|
|
Net Income
|
|
$
|
20,258
|
|
|
$
|
14,957
|
|
|
$
|
13,653
|
|
Combined balance sheets of unconsolidated affiliated companies as of fiscal year-end (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Financial Position:
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Current Assets
|
|
$
|
139,673
|
|
|
$
|
99,596
|
|
|
Noncurrent Assets
|
|
59,837
|
|
|
43,555
|
|
|
|
|
199,510
|
|
|
143,151
|
|
|
Liabilities:
|
|
|
|
|
|
Current Liabilities
|
|
$
|
43,442
|
|
|
$
|
36,630
|
|
|
Noncurrent Liabilities
|
|
29,178
|
|
|
9,859
|
|
|
|
|
72,620
|
|
|
46,489
|
|
|
Equity
|
|
$
|
126,890
|
|
|
$
|
96,662
|
|
Net sales to equity method investees were approximately
$98.9 million
,
$60.1 million
and
$18.7 million
in
2016
,
2015
and
2014
, respectively. Purchases of finished products from equity method investees were approximately
$112.2 million
,
$104.7 million
and
$102.4 million
in
2016
,
2015
and
2014
, respectively.
During the third quarter of fiscal 2014, the Company joined with one of its independent distributors to form Power Distributors, LLC (the venture) to distribute service parts. The Company contributed non-cash assets in exchange for receiving an ownership interest in the venture. As a result of the transaction, the Company recorded an investment of
$6.5 million
. In the first quarter of fiscal 2015, a second independent distributor joined the venture and, as a result, the Company recorded an additional investment of
$2.8 million
. During the second quarter of fiscal 2015 and the first quarter of fiscal 2016, the venture acquired the assets of a third and fourth independent distributor, respectively. During the third quarter of fiscal 2016, the Company contributed
$19.1 million
in cash as well as non-cash assets in exchange for receiving an additional ownership interest in the venture. Also during the third quarter of fiscal 2016, the venture acquired the assets of the final independent distributor needed to achieve a national distribution network. The Company uses the equity method to account for this investment, and the earnings of the unconsolidated affiliate are allocated between the Engines and Products segments. As of July 3, 2016 and June 28, 2015, the Company's total investment in the venture was
$29.5 million
and
$10.0 million
, respectively, and its ownership percentage was
38.0%
and
11.9%
, respectively. The Company's equity method investments also include entities that are suppliers for the Engines segment.
The Company concluded that its equity method investments are integral to its business. The equity method investments provide manufacturing and distribution functions, which are important parts of its operations. Beginning with the third quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings
of unconsolidated affiliates as a separate line item within Income from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated affiliates is classified in Other Income, Net in the Consolidated Statements of Operations.
The Company's investment in marketable securities related to its ownership of common stock of a publicly-traded company. The Company classified its investment as available-for-sale securities, and it was reported at fair value. Unrealized gains and losses, net of the related tax effects, were reported as a separate component of Accumulated Other Comprehensive Income (Loss). At June 28, 2015, the investment was not recorded. During the second quarter of fiscal 2016, the Company corrected its investment balance to report it at fair value. The correction, which primarily related to prior periods, was not material. During the fourth quarter of fiscal 2016, the Company sold its investment in marketable securities and recognized a gain of
$3.3 million
, which is recorded in Other Income, Net in the Consolidated Statements of Operations.
Debt Issuance Costs:
Direct and incremental costs incurred in obtaining loans or in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the terms of the related credit agreements. The debt issuance costs are recorded as a direct deduction from the carrying value of the debt liability; however, the Company classifies debt issuance costs related to the revolving credit facility as an asset, regardless of whether it has any outstanding borrowings on the line of credit arrangements. Approximately
$0.9 million
,
$1.0 million
and
$1.0 million
of debt issuance costs and original issue discounts were amortized to interest expense during fiscal years
2016
,
2015
and
2014
, respectively.
Plant and Equipment and Depreciation:
Plant and equipment are stated at historical cost. For financial reporting purposes, plant and equipment are depreciated primarily by the straight line method over the estimated useful lives of the assets which generally range from
3
to
10
years for software, from
20
to
40
years for land improvements, from
20
to
50
years for buildings, and
3
to
20
years for machinery and equipment. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in cost of goods sold or engineering, selling, general and administrative expenses.
Depreciation expense was approximately
$50.0 million
,
$48.5 million
and
$47.2 million
during fiscal years
2016
,
2015
and
2014
, respectively.
Impairment of Property, Plant and Equipment:
Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Refer to Note 17 for impairments associated with restructuring actions.
Warranty:
The Company recognizes the cost associated with its standard warranty on engines and products at the time of sale. The general warranty period begins at the time of sale and typically covers
two
years, but may vary due to product type and geographic location. 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):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Balance, Beginning of Period
|
|
$
|
48,007
|
|
|
$
|
44,744
|
|
|
Payments
|
|
(27,874
|
)
|
|
(27,366
|
)
|
|
Provision for Current Year Warranties
|
|
24,262
|
|
|
30,673
|
|
|
Changes in Estimates
|
|
(28
|
)
|
|
(44
|
)
|
|
Balance, End of Period
|
|
$
|
44,367
|
|
|
$
|
48,007
|
|
Revenue Recognition:
Net sales include sales of engines, products, and related service parts and accessories, net of allowances for cash discounts, customer volume rebates and discounts, floor plan interest and advertising allowances. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and
collectibility is reasonably assured. This is generally upon shipment, except for certain international shipments, where revenue is recognized when the customer receives the product.
Included in net sales are costs associated with programs under which the Company shares the expense of financing certain dealer and distributor inventories, referred to as floor plan expense. This represents interest for a pre-established length of time based on a variable rate (LIBOR) plus a fixed percentage from a contract with a third party financing source for dealer and distributor inventory purchases. Sharing the cost of these financing arrangements is used by the Company as a marketing incentive for customers to purchase the Company's products to have floor stock for retail customers to purchase. The Company enters into interest rate swaps to hedge cash flows for a portion of its interest rate risk. The financing costs, net of the related gain or loss on interest rate swaps, are recorded at the time of sale as a reduction of net sales. Included in net sales in fiscal
2016
,
2015
and
2014
were financing costs, net of the related gain or loss on interest rate swaps, of
$6.6 million
,
$6.0 million
and
$5.5 million
, respectively.
The Company also offers a variety of customer rebates and sales incentives. The Company records estimates for rebates and incentives at the time of sale, as a reduction in net sales.
Income Taxes:
The provision for income taxes includes federal, state and foreign income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The deferred income tax asset represents temporary differences relating to current assets and current liabilities, and the long-term deferred income tax asset represents temporary differences related to noncurrent assets and liabilities. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Retirement Plans:
The Company has noncontributory, defined benefit retirement plans and postretirement benefit plans covering certain employees. Retirement benefits represent a form of deferred compensation, which are subject to change due to changes in assumptions. Management reviews underlying assumptions on an annual basis. Refer to Note 16.
Research and Development Costs:
Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred and recorded in engineering, selling, general and administrative expenses within the Consolidated Statements of Operations. The amounts charged against income were
$20.0 million
,
$19.9 million
and
$19.7 million
in fiscal
2016
,
2015
and
2014
, respectively.
Advertising Costs:
Advertising costs, included in engineering, selling, general and administrative expenses within the Consolidated Statements of Operations, are expensed as incurred. These expenses totaled
$18.0 million
in fiscal
2016
,
$17.5 million
in fiscal
2015
and
$18.5 million
in fiscal
2014
.
Shipping and Handling Fees:
Revenue received from shipping and handling fees is reflected in net sales and related shipping costs are recorded in cost of goods sold. Shipping fee revenue for fiscal
2016
,
2015
and
2014
was
$5.2 million
,
$6.6 million
and
$4.4 million
, respectively.
Foreign Currency Translation:
Foreign currency balance sheet accounts are translated into dollars at the rates of exchange in effect at fiscal year-end. Income and expenses incurred in a foreign currency are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component of Shareholders’ Investment. Foreign currency transaction gains and losses are included in the results of operations in the period incurred. The Company recorded pre-tax foreign currency transaction gains of
$2.6 million
and
$3.7 million
in fiscal 2016 and 2015, respectively, and losses of
$3.9 million
during fiscal 2014.
Earnings Per Share:
The Company computes earnings per share using the two-class method, an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The Company’s unvested grants 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 included in the computation of basic earnings per share.
Information on earnings per share is as follows (in thousands except per share data):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
July 3, 2016
|
|
June 28, 2015
|
|
June 29, 2014
|
|
Net Income
|
|
$
|
26,561
|
|
|
$
|
45,687
|
|
|
$
|
28,347
|
|
|
Less: Earnings Allocated to Participating Securities
|
|
(497
|
)
|
|
(1,154
|
)
|
|
(768
|
)
|
|
Net Income available to Common Shareholders
|
|
$
|
26,064
|
|
|
$
|
44,533
|
|
|
$
|
27,579
|
|
|
Average Shares of Common Stock Outstanding
|
|
43,019
|
|
|
44,392
|
|
|
46,366
|
|
|
Incremental Common Shares Applicable to Common Stock Options and Performance Shares Based on the Common Stock Average Market Price During the Period
|
|
181
|
|
|
50
|
|
|
70
|
|
|
Diluted Average Shares of Common Stock Outstanding
|
|
43,200
|
|
|
44,442
|
|
|
46,436
|
|
|
Basic Earnings Per Share
|
|
$
|
0.61
|
|
|
$
|
1.00
|
|
|
$
|
0.59
|
|
|
Diluted Earnings Per Share
|
|
$
|
0.60
|
|
|
$
|
1.00
|
|
|
$
|
0.59
|
|
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, and their inclusion in the computation would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
July 3, 2016
|
|
June 28, 2015
|
|
June 29, 2014
|
|
Options to Purchase Shares of Common Stock (in thousands)
|
|
408
|
|
|
784
|
|
|
916
|
|
|
Weighted Average Exercise Price of Options Excluded
|
|
$
|
20.82
|
|
|
$
|
20.37
|
|
|
$
|
29.62
|
|
Derivative Instruments & Hedging Activity:
The Company enters into derivative contracts designated as cash flow hedges to manage certain interest rate, foreign currency and commodity exposures. Company policy allows derivatives to be used only for identifiable exposures and, therefore, the Company does not enter into derivative instruments for trading purposes where the sole objective is to generate profits.
The Company formally designates the financial instrument as a hedge of a specific underlying exposure and documents both the risk management objectives and strategies for undertaking the hedge. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the forecasted cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the forecasted cash flows of the underlying exposures being hedged. Derivative financial instruments are recorded on the Consolidated Balance Sheets as assets or liabilities, measured at fair value. The effective portion of gains or losses on derivatives designated as cash flow hedges are reported as a component of Accumulated Other Comprehensive Income (Loss) (AOCI) and reclassified into earnings in the same periods during which the hedged transaction affects earnings. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.
The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge.
In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedging relationship.
(3) New Accounting Pronouncements:
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU was issued as part of the FASB Simplification Initiative and involves several aspects of accounting for share-based payment transactions, including the income tax consequences and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently assessing the impact of this new accounting pronouncement on its results of operations, financial position, and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and quantitative disclosures are required, as well as a modified retrospective recognition and measurement of impacted leases. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of this new accounting pronouncement on its results of operations, financial position, and cash flows.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU No. 2016-01). ASU No. 2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement tools, simplifying impairment assessments for certain equity instruments, and modifying overall presentation and disclosure requirements. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the impact of this new accounting pronouncement on its results of operations, financial position, and cash flows.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). Current guidance requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position; however, the new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect the impact of adoption to have a significant impact on the Company’s financial position and will have no impact on the results of operations and cash flows.
In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement (Topic 820)." The core principle of the guidance is to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. A reporting entity should apply the guidance retrospectively to all periods presented. Earlier application is permitted. The Company adopted ASU No. 2015-07 beginning with the fiscal year ended June 28, 2015. In Note 16, certain investments within the Company's pension plan assets that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The adoption of this ASU did not have any impact on the Company's results of operations, financial position, and cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU No. 2015-03 amends the guidance within ASC Topic 835, Interest, to require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt premiums and discounts. In August 2015, the FASB further clarified their views on debt costs incurred in connection with a line of credit arrangement by issuing ASU No. 2015-15 Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15). ASU No. 2015-15 amends the guidance within ASC Topic 835 to allow an entity to defer and present debt issuance costs associated with a line of credit arrangement as
an asset, regardless of whether there are any outstanding borrowings on the line of credit arrangement. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted. The Company early adopted ASU No. 2015-03 beginning with the fiscal year ended July 3, 2016 and retrospectively as of the fiscal year ended June 28, 2015. As discussed in Note 11, the Company reclassified debt issuance costs, other than debt issuance costs related to the revolving credit facility, from other assets to debt on the Consolidated Balance Sheet. The Company continues to classify debt issuance costs related to the revolving credit facility as an asset, regardless of whether it has any outstanding borrowings on the line of credit arrangements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, under either full or modified retrospective adoption. Early application is only permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently assessing the impact of this new accounting pronouncement on its results of operations, financial position, and cash flows.
(4) Accumulated Other Comprehensive Income (Loss):
The following tables set forth the changes in accumulated other comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 3, 2016
|
|
|
|
Cumulative Translation Adjustments
|
|
Derivative Financial Instruments
|
|
Pension and Postretirement Benefit Plans
|
|
Total
|
|
Beginning Balance
|
|
$
|
(19,117
|
)
|
|
$
|
1,212
|
|
|
$
|
(261,205
|
)
|
|
$
|
(279,110
|
)
|
|
Other Comprehensive Income (Loss) Before Reclassification
|
|
(4,746
|
)
|
|
1,147
|
|
|
(117,745
|
)
|
|
(121,344
|
)
|
|
Income Tax Benefit (Expense)
|
|
—
|
|
|
(430
|
)
|
|
44,154
|
|
|
43,724
|
|
|
Net Other Comprehensive Income (Loss) Before Reclassifications
|
|
(4,746
|
)
|
|
717
|
|
|
(73,591
|
)
|
|
(77,620
|
)
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
Realized (Gains) Losses - Foreign Currency Contracts (1)
|
|
—
|
|
|
(7,584
|
)
|
|
—
|
|
|
(7,584
|
)
|
|
Realized (Gains) Losses - Commodity Contracts (1)
|
|
—
|
|
|
901
|
|
|
—
|
|
|
901
|
|
|
Realized (Gains) Losses - Interest Rate Swaps (1)
|
|
—
|
|
|
1,113
|
|
|
—
|
|
|
1,113
|
|
|
Amortization of Prior Service Costs (Credits) (2)
|
|
—
|
|
|
—
|
|
|
(2,479
|
)
|
|
(2,479
|
)
|
|
Amortization of Actuarial Losses (2)
|
|
—
|
|
|
—
|
|
|
17,051
|
|
|
17,051
|
|
|
Plan Settlement (2)
|
|
—
|
|
|
—
|
|
|
20,245
|
|
|
20,245
|
|
|
Total Reclassifications Before Tax
|
|
—
|
|
|
(5,570
|
)
|
|
34,817
|
|
|
29,247
|
|
|
Income Tax Expense (Benefit)
|
|
—
|
|
|
2,089
|
|
|
(13,056
|
)
|
|
(10,967
|
)
|
|
Net Reclassifications
|
|
—
|
|
|
(3,481
|
)
|
|
21,761
|
|
|
18,280
|
|
|
Other Comprehensive Income (Loss)
|
|
(4,746
|
)
|
|
(2,764
|
)
|
|
(51,830
|
)
|
|
(59,340
|
)
|
|
Ending Balance
|
|
$
|
(23,863
|
)
|
|
$
|
(1,552
|
)
|
|
$
|
(313,035
|
)
|
|
$
|
(338,450
|
)
|
(1) Amounts reclassified to net income are included in net sales or cost of goods sold. See Note 15 for information related to derivative financial instruments.
(2) Amounts reclassified to net income are included in the computation of net periodic expense, which is presented in cost of goods sold or engineering, selling, general and administrative expenses. See Note 16 for information related to pension and postretirement benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 28, 2015
|
|
|
|
Cumulative Translation Adjustments
|
|
Derivative Financial Instruments
|
|
Pension and Postretirement Benefit Plans
|
|
Total
|
|
Beginning Balance
|
|
$
|
13,053
|
|
|
$
|
(1,084
|
)
|
|
$
|
(207,226
|
)
|
|
$
|
(195,257
|
)
|
|
Other Comprehensive Income (Loss) Before Reclassification
|
|
(32,170
|
)
|
|
13,280
|
|
|
(101,366
|
)
|
|
(120,256
|
)
|
|
Income Tax Benefit (Expense)
|
|
—
|
|
|
(4,980
|
)
|
|
38,012
|
|
|
33,032
|
|
|
Net Other Comprehensive Income (Loss) Before Reclassifications
|
|
(32,170
|
)
|
|
8,300
|
|
|
(63,354
|
)
|
|
(87,224
|
)
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
Realized (Gains) Losses - Foreign Currency Contracts (1)
|
|
—
|
|
|
(11,350
|
)
|
|
—
|
|
|
(11,350
|
)
|
|
Realized (Gains) Losses - Commodity Contracts (1)
|
|
—
|
|
|
521
|
|
|
—
|
|
|
521
|
|
|
Realized (Gains) Losses - Interest Rate Swaps (1)
|
|
—
|
|
|
1,222
|
|
|
—
|
|
|
1,222
|
|
|
Amortization of Prior Service Costs (Credits) (2)
|
|
—
|
|
|
—
|
|
|
(2,578
|
)
|
|
(2,578
|
)
|
|
Amortization of Actuarial Losses (2)
|
|
—
|
|
|
—
|
|
|
17,578
|
|
|
17,578
|
|
|
Total Reclassifications Before Tax
|
|
—
|
|
|
(9,607
|
)
|
|
15,000
|
|
|
5,393
|
|
|
Income Tax Expense (Benefit)
|
|
—
|
|
|
3,603
|
|
|
(5,625
|
)
|
|
(2,022
|
)
|
|
Net Reclassifications
|
|
—
|
|
|
(6,004
|
)
|
|
9,375
|
|
|
3,371
|
|
|
Other Comprehensive Income (Loss)
|
|
(32,170
|
)
|
|
2,296
|
|
|
(53,979
|
)
|
|
(83,853
|
)
|
|
Ending Balance
|
|
$
|
(19,117
|
)
|
|
$
|
1,212
|
|
|
$
|
(261,205
|
)
|
|
$
|
(279,110
|
)
|
(1) Amounts reclassified to net income are included in net sales or cost of goods sold. See Note 15 for information related to derivative financial instruments.
(2) Amounts reclassified to net income are included in the computation of net periodic expense, which is presented in cost of goods sold or engineering, selling, general and administrative expenses. See Note 16 for information related to pension and postretirement benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 29, 2014
|
|
|
|
Cumulative Translation Adjustments
|
|
Derivative Financial Instruments
|
|
Pension and Postretirement Benefit Plans
|
|
Total
|
|
Beginning Balance
|
|
$
|
11,885
|
|
|
$
|
(3,673
|
)
|
|
$
|
(233,140
|
)
|
|
$
|
(224,928
|
)
|
|
Other Comprehensive Income (Loss) Before Reclassification
|
|
1,168
|
|
|
(4,797
|
)
|
|
13,951
|
|
|
10,322
|
|
|
Income Tax Benefit (Expense)
|
|
—
|
|
|
1,823
|
|
|
(5,316
|
)
|
|
(3,493
|
)
|
|
Net Other Comprehensive Income (Loss) Before Reclassifications
|
|
1,168
|
|
|
(2,974
|
)
|
|
8,635
|
|
|
6,829
|
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
Realized (Gains) Losses - Foreign Currency Contracts (1)
|
|
—
|
|
|
2,133
|
|
|
—
|
|
|
2,133
|
|
|
Realized (Gains) Losses - Commodity Contracts (1)
|
|
—
|
|
|
5,630
|
|
|
—
|
|
|
5,630
|
|
|
Realized (Gains) Losses - Interest Rate Swaps (1)
|
|
—
|
|
|
1,209
|
|
|
—
|
|
|
1,209
|
|
|
Amortization of Prior Service Costs (Credits) (2)
|
|
—
|
|
|
—
|
|
|
(2,715
|
)
|
|
(2,715
|
)
|
|
Amortization of Actuarial Losses (2)
|
|
—
|
|
|
—
|
|
|
30,632
|
|
|
30,632
|
|
|
Total Reclassifications Before Tax
|
|
—
|
|
|
8,972
|
|
|
27,917
|
|
|
36,889
|
|
|
Income Tax Expense (Benefit)
|
|
—
|
|
|
(3,409
|
)
|
|
(10,638
|
)
|
|
(14,047
|
)
|
|
Net Reclassifications
|
|
—
|
|
|
5,563
|
|
|
17,279
|
|
|
22,842
|
|
|
Other Comprehensive Income (Loss)
|
|
1,168
|
|
|
2,589
|
|
|
25,914
|
|
|
29,671
|
|
|
Ending Balance
|
|
$
|
13,053
|
|
|
$
|
(1,084
|
)
|
|
$
|
(207,226
|
)
|
|
$
|
(195,257
|
)
|
(1) Amounts reclassified to net income are included in net sales or cost of goods sold. See Note 15 for information related to derivative financial instruments.
(2) Amounts reclassified to net income are included in the computation of net periodic expense, which is presented in cost of goods sold or engineering, selling, general and administrative expenses. See Note 16 for information related to pension and postretirement benefit plans.
(5) Acquisitions:
On August 29, 2014, the Company acquired all of the outstanding shares of Allmand Bros., Inc. ("Allmand") of Holdrege, Nebraska for total cash consideration of
$59.9 million
, net of cash acquired. Allmand is a leading designer and manufacturer of high quality towable light towers, industrial heaters, and solar LED arrow boards. Its products are used in a variety of industries, including construction, roadway, oil and gas, mining, and sporting and special events. Allmand's products are generally powered by diesel engines, and distributed through equipment rental companies, equipment dealers and distributors. Allmand sells its products and service parts in approximately 40 countries. During fiscal 2015, the Company recorded a purchase price allocation based on its estimates of fair value. The purchase price allocation resulted in the recognition of
$15.6 million
of goodwill, which was allocated to the Products segment, and
$24.1 million
of intangible assets, including
$15.7 million
of customer relationships,
$8.1 million
of tradenames, and
$0.3 million
of other intangible assets.
On May 20, 2015, the Company acquired all of the outstanding shares of Billy Goat Industries, Inc. ("Billy Goat") of Lee's Summit, Missouri for total cash consideration of
$28.3 million
, net of cash acquired. Billy Goat is a leading manufacturer of specialty turf equipment, which includes aerators, sod cutters, overseeders, power rakes, brush cutters, walk behind blowers, lawn vacuums, and debris loaders. During fiscal 2015, the Company recorded a purchase price allocation based on its estimates of fair value.The purchase price allocation resulted in the recognition of
$9.2 million
of goodwill, which was allocated to the Products segment, and
$16.4 million
of intangible assets, including
$12.0 million
of customer relationships,
$4.0 million
of tradenames, and
$0.4 million
of other intangible assets.
The results of operations of the acquisitions have been included in the Consolidated Condensed Statements of Operations since the date of acquisition. Pro forma financial information and allocation of the purchase
price are not presented as the effects of the acquisitions are not material to the Company's consolidated results of operations or financial position.
(6) Fair Value:
Assets and Liabilities Measured at Fair Value:
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.
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
July 3, 2016
and
June 28, 2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
July 3, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1,422
|
|
|
$
|
—
|
|
|
$
|
1,422
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4,359
|
|
|
$
|
—
|
|
|
$
|
4,359
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
June 28, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4,693
|
|
|
$
|
—
|
|
|
$
|
4,693
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
2,745
|
|
|
$
|
—
|
|
|
$
|
2,745
|
|
|
$
|
—
|
|
The fair value for Level 2 measurements are based upon the respective quoted market prices for comparable instruments in active markets, which include current market pricing for forward purchases of commodities, foreign currency forwards, and current interest rates.
The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States.
Fair Value of Financial Instruments:
The Company believes that the carrying values of cash and cash equivalents, trade receivables and accounts payable are reasonable estimates of their fair values at July 3, 2016 and June 28, 2015 due to the short-term nature of these instruments. The estimated fair value of the 6.875% Senior Notes due December 2020 is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the valuation hierarchy.
The estimated fair market values of the Company’s indebtedness is (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
6.875% Senior Notes
|
|
$
|
223,149
|
|
|
$
|
240,164
|
|
|
$
|
225,000
|
|
|
$
|
248,292
|
|
|
Borrowings on Revolver
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(7) Goodwill and Other Intangible Assets:
The changes in the carrying amount of goodwill by reportable segment for the fiscal years ended
July 3, 2016
and
June 28, 2015
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engines
|
|
Products
|
|
Total
|
|
Goodwill Balance at June 29, 2014
|
|
$
|
141,062
|
|
|
$
|
3,460
|
|
|
$
|
144,522
|
|
|
Acquisition
|
|
—
|
|
|
24,770
|
|
|
24,770
|
|
|
Effect of Translation
|
|
(2,781
|
)
|
|
(989
|
)
|
|
(3,770
|
)
|
|
Goodwill Balance at June 28, 2015
|
|
$
|
138,281
|
|
|
$
|
27,241
|
|
|
$
|
165,522
|
|
|
Impairment Loss
|
|
—
|
|
|
(7,651
|
)
|
|
(7,651
|
)
|
|
Acquisitions
|
|
—
|
|
|
4,104
|
|
|
4,104
|
|
|
Effect of Translation
|
|
(338
|
)
|
|
(69
|
)
|
|
(407
|
)
|
|
Goodwill Balance at July 3, 2016
|
|
$
|
137,943
|
|
|
$
|
23,625
|
|
|
$
|
161,568
|
|
At
July 3, 2016
,
June 28, 2015
and
June 29, 2014
, accumulated goodwill impairment losses, as recorded in the Products segment, were
$131.4 million
,
$123.7 million
and
$123.7 million
respectively.
The Company evaluates goodwill for impairment at least annually as of the fiscal year-end and more frequently if events or circumstances indicate that the assets may be impaired. For the goodwill evaluation for one reporting unit, the Company generally first determines based on a qualitative assessment whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For other reporting units or if the Company's qualitative assessment conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will test goodwill using a two-step process. The first step of the goodwill impairment test is to identify a potential impairment by comparing the carrying values of each of the Company's reporting units to their estimated fair values as of the test dates. The estimates of fair value of the reporting units are computed using an income approach. The income approach utilizes a multi-year forecast of estimated cash flows and a terminal value at the end of the cash flow period. The forecast period assumptions consist of internal projections that are based on the Company's budget and long-range strategic plan. The discount rate used at the test date is the weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn.
If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not deemed impaired and the second step of the impairment test is not performed. If the book value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of the reporting unit to the estimated fair value of its existing tangible assets and liabilities as well as existing identified intangible assets and previously unrecognized intangible assets in a manner similar to a purchase price allocation. The unallocated portion of the estimated fair value of the reporting unit is the implied fair value of goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company determined that its forecasted cash flow estimates used in the goodwill assessment and other intangibles assessment for its Job Site reporting unit as of March 27, 2016 were adversely impacted by elevated channel inventories. The inventory channel for job site products, particularly portable light towers and portable heaters, was elevated due to the rapid and significant change in market demand following the reduction in North American oil production and was compounded by the recent mild winter.
The Company performed an interim and annual goodwill impairment test on its Job Site reporting unit as of March 27, 2016 and July 3, 2016, respectively. The Company concluded that the carrying value of the Job Site reporting unit exceeded its fair value. The Company recorded a non-cash goodwill impairment charge in the third quarter of fiscal 2016 of $
7.7 million
, which was determined by comparing the carrying value of the reporting unit’s goodwill with the implied fair value of goodwill for the reporting unit. The impairment charge is a non-cash expense that was recorded as a separate component of operating expenses. The goodwill impairment was not deductible for income tax purposes. The impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants under its revolving credit facility.
The Company’s other intangible assets as of
July 3, 2016
and
June 28, 2015
are as follows (in thousands) in the table below. After an intangible asset has been fully amortized, it is removed from the table in the subsequent year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
7,300
|
|
|
$
|
(5,840
|
)
|
|
$
|
1,460
|
|
|
$
|
7,300
|
|
|
$
|
(5,353
|
)
|
|
$
|
1,947
|
|
|
Customer Relationships
|
|
60,182
|
|
|
(13,507
|
)
|
|
46,675
|
|
|
60,182
|
|
|
(10,840
|
)
|
|
49,342
|
|
|
Other Intangible Assets
|
|
739
|
|
|
(337
|
)
|
|
402
|
|
|
739
|
|
|
(98
|
)
|
|
641
|
|
|
Effect of Translation
|
|
(5,325
|
)
|
|
489
|
|
|
(4,836
|
)
|
|
(5,071
|
)
|
|
547
|
|
|
(4,524
|
)
|
|
Total Amortized Intangible Assets
|
|
62,896
|
|
|
(19,195
|
)
|
|
43,701
|
|
|
63,150
|
|
|
(15,744
|
)
|
|
47,406
|
|
|
Unamortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
63,967
|
|
|
—
|
|
|
63,967
|
|
|
67,111
|
|
|
—
|
|
|
67,111
|
|
|
Effect of Translation
|
|
(3,504
|
)
|
|
—
|
|
|
(3,504
|
)
|
|
(3,237
|
)
|
|
—
|
|
|
(3,237
|
)
|
|
Total Unamortized Intangible Assets
|
|
60,463
|
|
|
—
|
|
|
60,463
|
|
|
63,874
|
|
|
—
|
|
|
63,874
|
|
|
Total Intangible Assets
|
|
$
|
123,359
|
|
|
$
|
(19,195
|
)
|
|
$
|
104,164
|
|
|
$
|
127,024
|
|
|
$
|
(15,744
|
)
|
|
$
|
111,280
|
|
The Company also performs an impairment test of its indefinite-lived intangible assets as of the fiscal year-end and more frequently if events or circumstances indicate that the assets may be impaired. For purposes of the indefinite-lived intangible asset impairment analysis, the Company performs its assessment of fair value based on an income approach using the relief-from-royalty method. The Company determines the fair value of each tradename by applying a royalty rate to a projection of net sales discounted using a risk adjusted cost of capital. Sales growth rates are determined after considering current and future economic conditions, recent sales trends, discussions with customers, planned timing of new product launches and many other variables. Each royalty rate is based on profitability of the business to which it relates and observed market royalty rates.
In fiscal 2016, the Company recorded a non-cash intangible asset impairment charge of
$2.7 million
. In fiscal 2015, the Company determined that
no
impairment existed for indefinite-lived intangible assets.
In fiscal 2014, the Company recorded non-cash intangible asset impairment charges of
$5.5 million
. Based on a combination of factors, predominantly driven by a slower than anticipated recovery of the North American lawn and garden market at that time, the Company’s forecasted cash flow estimates used in the other intangible assets assessment as of June 29, 2014 were adversely impacted. As a result, the Company concluded that the carrying value of a tradename within the Products reporting unit exceeded its fair value as
of June 29, 2014. The fiscal 2016 and fiscal 2014 impairment charges did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants under its revolving credit facility.
Amortization expense of other intangible assets amounted to approximately
$3.4 million
in
2016
,
$2.8 million
in
2015
, and
$2.2 million
in
2014
.
The estimated amortization expense of other intangible assets for the next five years is (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2017
|
$
|
3,496
|
|
|
2018
|
3,406
|
|
|
2019
|
3,250
|
|
|
2020
|
2,763
|
|
|
2021
|
2,763
|
|
|
|
|
|
|
$
|
15,678
|
|
|
|
|
(8) Income Taxes:
Components of income before income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
U.S.
|
|
$
|
22,203
|
|
|
$
|
38,615
|
|
|
$
|
30,291
|
|
|
Foreign
|
|
13,153
|
|
|
18,343
|
|
|
6,843
|
|
|
Total
|
|
$
|
35,356
|
|
|
$
|
56,958
|
|
|
$
|
37,134
|
|
The provision for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,649
|
|
|
$
|
(659
|
)
|
|
$
|
9,725
|
|
|
State
|
|
670
|
|
|
859
|
|
|
733
|
|
|
Foreign
|
|
3,282
|
|
|
3,423
|
|
|
3,725
|
|
|
|
|
6,601
|
|
|
3,623
|
|
|
14,183
|
|
|
Deferred
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,702
|
|
|
$
|
6,928
|
|
|
$
|
(3,831
|
)
|
|
State
|
|
193
|
|
|
495
|
|
|
(328
|
)
|
|
Foreign
|
|
(701
|
)
|
|
225
|
|
|
(1,237
|
)
|
|
|
|
2,194
|
|
|
7,648
|
|
|
(5,396
|
)
|
|
Total
|
|
$
|
8,795
|
|
|
$
|
11,271
|
|
|
$
|
8,787
|
|
A reconciliation of the U.S. statutory tax rates to the effective tax rates on income follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
U.S. Statutory Rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
State Taxes, Net of Federal Tax Benefit
|
|
3.4
|
%
|
|
2.4
|
%
|
|
1.6
|
%
|
|
Impact of Foreign Operations and Tax Rates
|
|
(7.8
|
)%
|
|
(1.2
|
)%
|
|
0.7
|
%
|
|
Changes to Unrecognized Tax Benefits
|
|
2.8
|
%
|
|
4.3
|
%
|
|
1.2
|
%
|
|
U.S. Manufacturers Deduction
|
|
(3.7
|
)%
|
|
(2.5
|
)%
|
|
(4.8
|
)%
|
|
Change in Accounting Method (1)
|
|
—
|
%
|
|
—
|
%
|
|
(7.8
|
)%
|
|
Research & Development Credit (2)
|
|
(10.6
|
)%
|
|
(18.1
|
)%
|
|
(1.0
|
)%
|
|
Goodwill Impairment
|
|
7.6
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Other, Net
|
|
(1.8
|
)%
|
|
(0.1
|
)%
|
|
(1.2
|
)%
|
|
Effective Tax Rate
|
|
24.9
|
%
|
|
19.8
|
%
|
|
23.7
|
%
|
(1) "Change in Accounting Method" in fiscal 2014 relates to a taxpayer election filed pursuant to the outcome of a U.S. court case that provided the Company authority to record a tax benefit of
$2.9 million
for the permanent exclusion of qualified export activity from prior years’ taxable income.
(2) "Research & Development Credit” in fiscal 2016 includes current year and prior year federal research & development credit due to the reenactment of the credit during fiscal 2016. In fiscal 2015, this item primarily relates to federal research & development tax credits associated with the completion of a research & development tax credit analysis of prior fiscal years.
The components of deferred income taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Asset (Liability):
|
|
2016
|
|
2015
|
|
Difference Between Book and Tax Related to:
|
|
|
|
|
|
Inventory
|
|
$
|
13,360
|
|
|
$
|
12,159
|
|
|
Payroll Related Accruals
|
|
4,808
|
|
|
4,980
|
|
|
Warranty Reserves
|
|
9,747
|
|
|
11,065
|
|
|
Workers Compensation Accruals
|
|
2,812
|
|
|
2,421
|
|
|
Other Accrued Liabilities
|
|
10,117
|
|
|
11,432
|
|
|
Miscellaneous
|
|
3,892
|
|
|
3,814
|
|
|
Deferred Income Tax Asset (Liability)
|
|
$
|
44,736
|
|
|
$
|
45,871
|
|
|
Long-Term Asset (Liability):
|
|
|
|
|
|
Difference Between Book and Tax Related to:
|
|
|
|
|
|
Pension Cost
|
|
$
|
90,016
|
|
|
$
|
53,237
|
|
|
Accumulated Depreciation
|
|
(41,319
|
)
|
|
(43,484
|
)
|
|
Intangibles
|
|
(56,755
|
)
|
|
(58,180
|
)
|
|
Accrued Employee Benefits
|
|
39,083
|
|
|
43,428
|
|
|
Postretirement Health Care Obligation
|
|
14,107
|
|
|
15,838
|
|
|
Warranty
|
|
6,770
|
|
|
6,910
|
|
|
Valuation Allowance
|
|
(19,371
|
)
|
|
(17,198
|
)
|
|
Net Operating Loss/State Credit Carryforwards
|
|
24,942
|
|
|
22,694
|
|
|
Miscellaneous
|
|
(4,011
|
)
|
|
(1,016
|
)
|
|
Deferred Income Tax Asset (Liability)
|
|
$
|
53,462
|
|
|
$
|
22,229
|
|
Total deferred tax assets were
$200.3 million
and
$170.8 million
as of July 3, 2016 and June 28, 2015, respectively. Total deferred tax liabilities were
$102.1 million
and
$102.7 million
as of July 3, 2016 and June 28, 2015, respectively. During fiscal
2016
, the total valuation allowance increased by
$2.2 million
.
Deferred tax assets were generated during the current year as a result of foreign income tax loss carryforwards in the amount of
$0.9 million
. At July 3, 2016, there are
$5.6 million
of foreign income tax loss carryforwards, consisting of
$3.6 million
that have no expiration date, and
$2.0 million
that will expire within the next
5
to
10
years. A deferred tax asset of
$19.3 million
exists at July 3, 2016 related to state income tax losses and state tax credit carryforwards. If not utilized against future taxable income, this amount will expire from
2017 through 2027
. Realization of the deferred tax assets are contingent upon generating sufficient taxable income prior to expiration of these carryforwards. At July 3, 2016, a valuation allowance of
$3.5 million
is recorded for the foreign losses which the Company believes are unlikely to be realized in the future. In addition, a valuation allowance of
$15.9 million
is recorded related to state tax credits that are unlikely to be realized.
The Company does not record deferred income taxes applicable to undistributed earnings of foreign subsidiaries for which the Company intends to reinvest such earnings indefinitely outside of the U.S. The undistributed earnings amounted to approximately
$77.4 million
at
July 3, 2016
. If the Company were to distribute these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
The change to the gross unrecognized tax benefits of the Company during the fiscal year ended
July 3, 2016
and
June 28, 2015
is reconciled as follows:
Unrecognized Tax Benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Beginning Balance
|
$
|
10,551
|
|
|
$
|
7,657
|
|
|
6,949
|
|
|
Changes based on tax positions related to prior year
|
(208
|
)
|
|
4,573
|
|
|
380
|
|
|
Additions based on tax positions related to current year
|
579
|
|
|
691
|
|
|
378
|
|
|
Settlements with taxing authorities
|
—
|
|
|
(2,120
|
)
|
|
—
|
|
|
Lapse of statute of limitations
|
—
|
|
|
(250
|
)
|
|
(50
|
)
|
|
Ending Balance
|
$
|
10,922
|
|
|
$
|
10,551
|
|
|
$
|
7,657
|
|
As of
July 3, 2016
, gross unrecognized tax benefits that, if recognized, would impact the effective tax rate were
$9.3 million
. There is a reasonable possibility that approximately
$4.1 million
of the liability for uncertain tax positions may be settled within the next twelve months due to the resolution of audits or expiration of statutes of limitations.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total expense recognized for fiscal years
2016
,
2015
and
2014
was
$0.2 million
,
$0.1 million
, and
$0.1 million
, respectively.
As of
July 3, 2016
and
June 28, 2015
, the Company had
$1.4 million
and
$1.2 million
, respectively, accrued for the payment of interest and penalties.
At
July 3, 2016
and
June 28, 2015
, the liability for uncertain tax positions, inclusive of interest and penalties, was
$12.3 million
and
$11.8 million
, respectively, which is recorded as an other long-term liability within the Consolidated Balance Sheets.
Income tax returns are filed in the U.S., state, and foreign jurisdictions and related audits occur on a regular basis. In the U.S., the Company is currently under audit for the fiscal years 2010 through 2013, and is no longer subject to U.S. federal income tax examinations before fiscal 2010. The Company is also currently under audit by various state and foreign jurisdictions. The Company is no longer subject to tax examinations before fiscal 2006 in its major foreign jurisdictions.
(9) Segment and Geographic Information and Significant Customers:
The Company aggregates operating segments that have similar economic characteristics, products, production processes, types or classes of customers and distribution methods into reportable segments. The Company concluded that it operates two reportable segments: Engines and Products. The Company uses “segment income (loss)” as the primary measure to evaluate operating performance and allocate capital resources for the Engines and Products segments. The Company defines segment income (loss) as income from operations plus equity in earnings of unconsolidated affiliates. Summarized segment data is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
NET SALES:
|
|
|
|
|
|
|
|
Engines
|
|
$
|
1,142,815
|
|
|
$
|
1,208,914
|
|
|
$
|
1,219,627
|
|
|
Products
|
|
772,154
|
|
|
788,564
|
|
|
736,312
|
|
|
Eliminations
|
|
(106,191
|
)
|
|
(102,728
|
)
|
|
(96,879
|
)
|
|
|
|
$
|
1,808,778
|
|
|
$
|
1,894,750
|
|
|
$
|
1,859,060
|
|
|
GROSS PROFIT:
|
|
|
|
|
|
|
|
Engines
|
|
$
|
252,833
|
|
|
$
|
267,778
|
|
|
$
|
257,441
|
|
|
Products
|
|
110,944
|
|
|
89,268
|
|
|
87,682
|
|
|
Eliminations
|
|
(1,322
|
)
|
|
2,053
|
|
|
1,660
|
|
|
|
|
$
|
362,455
|
|
|
$
|
359,099
|
|
|
$
|
346,783
|
|
|
SEGMENT INCOME (LOSS) (1)
|
|
|
|
|
|
|
|
Engines
|
|
$
|
60,645
|
|
|
$
|
93,880
|
|
|
$
|
78,300
|
|
|
Products
|
|
(9,775
|
)
|
|
(22,447
|
)
|
|
(27,438
|
)
|
|
Eliminations
|
|
(1,322
|
)
|
|
2,053
|
|
|
1,660
|
|
|
|
|
$
|
49,548
|
|
|
$
|
73,486
|
|
|
$
|
52,522
|
|
|
Reconciliation from Segment Income (Loss) to Income Before Income Taxes:
|
|
|
|
|
|
|
|
Equity in Earnings of Unconsolidated Affiliates(1)
|
|
3,187
|
|
|
7,303
|
|
|
6,264
|
|
|
Income from Operations
|
|
$
|
46,361
|
|
|
$
|
66,183
|
|
|
$
|
46,258
|
|
|
INTEREST EXPENSE
|
|
(20,033
|
)
|
|
(19,532
|
)
|
|
(18,466
|
)
|
|
OTHER INCOME, Net
|
|
9,028
|
|
|
10,307
|
|
|
9,342
|
|
|
Income Before Income Taxes
|
|
35,356
|
|
|
56,958
|
|
|
37,134
|
|
|
PROVISION FOR INCOME TAXES
|
|
8,795
|
|
|
11,271
|
|
|
8,787
|
|
|
Net Income
|
|
$
|
26,561
|
|
|
$
|
45,687
|
|
|
$
|
28,347
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
Engines
|
|
$
|
984,119
|
|
|
$
|
978,983
|
|
|
$
|
1,045,575
|
|
|
Products
|
|
546,104
|
|
|
565,048
|
|
|
503,609
|
|
|
Eliminations
|
|
(73,556
|
)
|
|
(87,384
|
)
|
|
(102,319
|
)
|
|
|
|
$
|
1,456,667
|
|
|
$
|
1,456,647
|
|
|
$
|
1,446,865
|
|
|
CAPITAL EXPENDITURES:
|
|
|
|
|
|
|
|
Engines
|
|
$
|
58,186
|
|
|
$
|
59,997
|
|
|
$
|
56,230
|
|
|
Products
|
|
5,975
|
|
|
11,713
|
|
|
4,141
|
|
|
|
|
$
|
64,161
|
|
|
$
|
71,710
|
|
|
$
|
60,371
|
|
|
DEPRECIATION & AMORTIZATION:
|
|
|
|
|
|
|
|
Engines
|
|
$
|
44,480
|
|
|
$
|
42,240
|
|
|
$
|
39,456
|
|
|
Products
|
|
9,920
|
|
|
10,020
|
|
|
10,887
|
|
|
|
|
$
|
54,400
|
|
|
$
|
52,260
|
|
|
$
|
50,343
|
|
(1) The Company concluded that its equity method investments are integral to its business. Beginning with the third quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings of unconsolidated affiliates as a separate line item within Income
from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated affiliates is classified in Other Income, Net. For all periods presented, equity in earnings from unconsolidated affiliates is included in segment income (loss).
Pre-tax restructuring charges, acquisition-related charges, and pension settlement charges impact on gross profit is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Engines
|
|
$
|
11,599
|
|
|
$
|
—
|
|
|
$
|
3,099
|
|
|
Products
|
|
7,943
|
|
|
25,710
|
|
|
2,742
|
|
|
Total
|
|
$
|
19,542
|
|
|
$
|
25,710
|
|
|
$
|
5,841
|
|
Pre-tax restructuring charges, acquisition-related charges, goodwill and tradename impairment, pension settlement charges, and litigation charges impact on segment income (loss) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Engines
|
|
$
|
24,424
|
|
|
$
|
—
|
|
|
$
|
3,524
|
|
|
Products
|
|
19,451
|
|
|
29,403
|
|
|
11,475
|
|
|
Total
|
|
$
|
43,875
|
|
|
$
|
29,403
|
|
|
$
|
14,999
|
|
Information regarding the Company’s geographic sales based on product shipment destination (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
1,299,003
|
|
|
$
|
1,312,485
|
|
|
$
|
1,293,558
|
|
|
All Other Countries
|
|
509,775
|
|
|
582,265
|
|
|
565,502
|
|
|
Total
|
|
$
|
1,808,778
|
|
|
$
|
1,894,750
|
|
|
$
|
1,859,060
|
|
Information regarding the Company’s net plant and equipment based on geographic location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
309,089
|
|
|
$
|
296,124
|
|
|
$
|
281,029
|
|
|
All Other Countries
|
|
17,184
|
|
|
18,714
|
|
|
15,978
|
|
|
Total
|
|
$
|
326,273
|
|
|
$
|
314,838
|
|
|
$
|
297,007
|
|
Sales to the following customers in the Company’s Engines segment amount to greater than or equal to
10%
of consolidated net sales (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Customer:
|
|
Net Sales
|
|
%
|
|
Net Sales
|
|
%
|
|
Net Sales
|
|
%
|
|
HOP
|
|
$
|
229,899
|
|
|
13
|
%
|
|
$
|
266,038
|
|
|
14
|
%
|
|
$
|
293,225
|
|
|
16
|
%
|
|
MTD
|
|
235,220
|
|
|
13
|
%
|
|
228,430
|
|
|
12
|
%
|
|
235,141
|
|
|
13
|
%
|
|
|
|
$
|
465,119
|
|
|
26
|
%
|
|
$
|
494,468
|
|
|
26
|
%
|
|
$
|
528,366
|
|
|
29
|
%
|
(10) Leases:
The Company leases certain facilities, vehicles, and equipment under operating leases. Operating leases are not capitalized and lease payments are expensed over the life of the lease. Terms of the leases, including purchase options, renewals, and maintenance costs, vary by lease. Rental expense for fiscal
2016
,
2015
and
2014
was
$19.3 million
,
$19.5 million
and
$20.1 million
, respectively.
Future minimum lease commitments for all non-cancelable operating leases as of
July 3, 2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Commitments
|
|
2017
|
|
$
|
13,849
|
|
|
2018
|
|
10,397
|
|
|
2019
|
|
7,187
|
|
|
2020
|
|
4,234
|
|
|
2021
|
|
2,507
|
|
|
Thereafter
|
|
25,226
|
|
|
Total future minimum lease commitments
|
|
$
|
63,400
|
|
(11) Indebtedness:
The following is a summary of the Company’s indebtedness (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Multicurrency Credit Agreement
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total Short-Term Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
6.875% Senior Notes
|
|
$
|
223,149
|
|
|
$
|
225,000
|
|
|
Unamortized Debt Issuance Costs associated with 6.875% Senior Notes
|
|
1,810
|
|
|
2,315
|
|
|
Total Long-Term Debt
|
|
$
|
221,339
|
|
|
$
|
222,685
|
|
6.875% Senior Notes
On
December 20, 2010
, the Company issued
$225 million
of
6.875%
Senior Notes ("Senior Notes") due
December 15, 2020
. During fiscal 2016, the Company repurchased
$1.9 million
of the Senior Notes after receiving unsolicited offers from bondholders.
Additionally, under the terms of the indentures and credit agreements governing the Senior Notes, Briggs & Stratton Power Products Group, LLC became a joint and several guarantor of amounts outstanding under the Senior Notes. Refer to Note 19 for subsidiary guarantor financial information.
Multicurrency Credit Agreement
On
March 25, 2016
, the Company entered into a
$500 million
amended and restated multicurrency credit agreement (the “Revolver”) that matures on
March 25, 2021
. The Revolver amended and restated the Company's
$500 million
multicurrency credit agreement dated as of
October 13, 2011
(as previously amended), which would have matured on
October 21, 2018
. The initial maximum availability under the Revolver is
$500 million
. Availability under the Revolver is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability under the revolving credit facility by up to
$250 million
if certain conditions are satisfied. In connection with the amendment to the Revolver, the Company incurred approximately
$0.9 million
in new debt issuance costs, which are being amortized over the life of the Revolver using the straight-line method. The Company classifies debt issuance costs related to the Revolver as an asset, regardless of whether it has any outstanding borrowings on the line of credit arrangements. There were no borrowings under the revolving credit facility as of July 3, 2016 and June 28, 2015.
Borrowings under the Revolver by the Company bear interest at a rate per annum equal to, at its option, either:
(1) a 1, 2, 3 or 6 month LIBOR rate plus a margin varying from
1.25%
to
2.25%
, depending on the Company’s average net leverage ratio; or
(2) the higher of (a) the federal funds rate plus
0.50%
; (b) the bank's prime rate; or (c) the adjusted LIBO rate for a one-month interest period plus
1.00%
plus a margin varying from
0.25%
to
1.25%
. In addition, the Company is subject to a
0.18%
to
0.35%
commitment fee and a
1.25%
to
2.25%
letter of credit fee, depending on the Company’s average net leverage ratio.
The Revolver contains covenants that the Company considers usual and customary for an agreement of this type, including a maximum average leverage ratio and minimum interest coverage ratio. Under the terms of the Revolver, Briggs & Stratton Power Products Group, LLC is a joint and several guarantor of amounts outstanding under the Revolver. Refer to Note 19 for subsidiary guarantor financial information.
The Senior Notes and the Revolver contain restrictive covenants. These covenants include restrictions on the ability of the Company and/or certain subsidiaries to pay dividends, repurchase equity interests of the Company and certain subsidiaries, incur indebtedness, create liens, consolidate and merge and dispose of assets, and enter into transactions with our affiliates. The Revolver contains financial covenants that require the Company to maintain a minimum interest coverage ratio and impose on the Company a maximum average leverage ratio.
(12) Other Income, Net:
The components of Other Income, Net are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Interest Income
|
|
$
|
695
|
|
|
$
|
1,317
|
|
|
$
|
1,540
|
|
|
Equity in Earnings of Unconsolidated Affiliates
|
|
3,187
|
|
|
7,303
|
|
|
6,264
|
|
|
Gain on sale of investment in marketable securities
|
|
3,343
|
|
|
—
|
|
|
—
|
|
|
Other Items
|
|
1,803
|
|
|
1,687
|
|
|
1,538
|
|
|
Total
|
|
$
|
9,028
|
|
|
$
|
10,307
|
|
|
$
|
9,342
|
|
The Company concluded that its equity method investments are integral to its business. Beginning with the third quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings of unconsolidated affiliates as a separate line item within Income from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated affiliates is classified in Other Income, Net.
(13) Commitments and Contingencies:
The 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.
On May 14, 2010, the Company notified retirees and certain retirement eligible employees of various amendments to the Company-sponsored retiree medical plans intended to better align 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. The complaint sought 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. A class was certified and discovery was concluded. Both parties moved for summary judgment, which was fully briefed on December 23, 2014. The court denied both sides’ motions on September 3, 2015, concluding that factual issues were present which
precluded summary judgment and should be determined by the jury at trial. The Company filed a motion requesting permission to appeal the court’s decision on an interlocutory basis. The plaintiffs also moved the court to clarify its decision. Upon the request of all parties, the court stayed any further decisions in the matter pending mediation in mid-December 2015. The mediation led to an agreement in principle to settle this case for an aggregate payment of
$3.95 million
covering both claimed benefits and plaintiffs’ attorneys fees, which resulted in a contribution of
$1.975 million
from the Company and
$1.975 million
from a third party insurance provider. The Company recorded a total charge of
$1.975 million
as Engineering, Selling, General and Administrative Expense on the Condensed Consolidated Statements of Operations in the second quarter of fiscal 2016 related to this matter. The parties filed a signed Stipulation of Settlement with the court on April 12, 2016 and the court held a hearing on the fairness, reasonableness and adequacy of the terms and conditions of the settlement and on the fee petition of the plaintiffs' counsel on August 11, 2016. The court approved the settlement following that hearing.
On May 12, 2010, Exmark Manufacturing Company, Inc. filed suit against Briggs & Stratton Power Products Group, LLC (“BSPPG”), a wholly owned subsidiary of the Company (Case No. 8:10CV187, U.S. District Court for the District of Nebraska), alleging that certain Ferris® and Snapper Pro® mower decks infringed an Exmark mower deck patent. Exmark sought damages relating to sales since May 2004, attorneys’ fees, and enhanced damages. As a result of a reexamination proceeding in 2012, the United States Patent and Trademark Office (“USPTO”) initially rejected the asserted Exmark claims as invalid. However, in 2014, that decision was reversed by the USPTO on appeal by Exmark. Following discovery, each of BSPPG and Exmark filed several motions for summary judgment in the Nebraska district court, which were decided on July 28, 2015. The court concluded that older mower deck designs infringed Exmark’s patent, leaving for trial the issues of whether current designs infringed, the amount of damages, and whether any infringement was willful.
The trial began on September 8, 2015, and on September 18, 2015, the jury returned its verdict, finding that BSPPG’s current mower deck designs do not infringe the Exmark patent. As to the older designs, the jury awarded Exmark
$24.3 million
in damages and found that the infringement was willful, allowing the judge to enhance the jury’s damages award post-trial by up to three times. Also on September 18, 2015, the U.S. Court of Appeals for the Federal Circuit issued its decision in an unrelated case, SCA Hygiene Products Aktiebolag SCA Personal Care, Inc. v. First Quality Baby Products, LLC, et al. (Case No. 2013-1564) (“SCA”), confirming the availability of laches as a defense to patent infringement claims. Laches is an equitable doctrine that may bar a patent owner from obtaining damages prior to commencing suit, in circumstances in which the owner knows or should have known its patent was being infringed for more than six years. Although the court in the Exmark case ruled before trial that BSPPG could not rely on the defense of laches, as a result of the subsequent SCA decision, the court held a bench trial on that defense on October 21 and 22, 2015. On May 2, 2016, the United States Supreme Court agreed to review the SCA decision.
The parties submitted post-trial motions and briefing related to: damages; willfulness; laches; attorney fees; enhanced damages; and prejudgment/post-judgment interest and costs. All post-trial motions and briefing were completed on December 18, 2015. On May 11, 2016, the court ruled on those post-trial motions and entered judgment against BSPPG and in favor of Exmark in the amount of
$24.3 million
in compensatory damages, an additional
$24.3 million
in enhanced damages, and
$1.5 million
in pre-judgment interest along with post-judgment interest and costs to be determined. BSPPG and the Company strongly disagree with the jury verdict, certain rulings made before and during trial, and the May 11, 2016 post-trial rulings. BSPPG has appealed to the U.S. Court of Appeals for the Federal Circuit on several bases, including the issues of obviousness and invalidity of Exmark’s patent, the damages calculation, willfulness and laches.
In assessing whether the Company should accrue a liability in its financial statements as a result of the May 11, 2016 post-trial rulings, the Company considered various factors, including the legal and factual circumstances of the case, the trial record, the post-trial orders, the current status of the proceedings, applicable law, the views of legal counsel, and the likelihood of successful appeals. As a result of this review, the Company has concluded that a loss from this case is not probable and reasonably estimable at this time and, therefore, a liability has not been recorded with respect to this case as of July 3, 2016.
Although it is not possible to predict with certainty the outcome of these and other 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.
(14) Stock Incentives:
Effective October 20, 2004, a total of
8,000,000
shares of common stock (as adjusted for the fiscal 2005
2
-for-1 stock split) were originally reserved for future issuance pursuant to the Company's Incentive Compensation Plan, and as a result of an amendment approved by shareholders on October 21, 2009 an additional
2,481,494
shares were reserved. On October 15, 2014, the Company's shareholders approved the 2014 Omnibus Incentive Plan, which constituted a complete amendment and restatement of the Company's Incentive Compensation Plan and under which
3,760,000
shares of common stock were reserved for future issuance (plus any shares remaining available for issuance under the Incentive Compensation Plan as of that date). Similar to the Incentive Compensation Plan, in accordance with the 2014 Omnibus Incentive Plan, the Company can issue to eligible participants stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based and cash bonus awards subject to certain annual limitations. The plans also allow participants to defer the payment of awards and the Company to issue directors’ fees in stock. Stock-based compensation vests in accordance with the applicable plan but can become immediately exercisable upon eligible recipients' departure from the Company or upon reaching retirement age, subject to approval of the Compensation Committee.
Stock-based compensation expense is calculated by estimating the fair value of incentive stock awards granted and amortizing the estimated value over the awards’ vesting periods. During fiscal
2016
,
2015
and
2014
, the Company recognized stock-based compensation expense of approximately
$5.1 million
,
$6.2 million
and
$7.2 million
, respectively.
Beginning for fiscal 2015 grants, the exercise price of each stock option is equal to the market value of the stock on the grant date. The exercise price of each stock option issued prior to fiscal 2015 exceeded the market value of the stock on the date of grant by
10%
. The fair value of each option is estimated using the Black-Scholes option pricing model, and the assumptions are based on historical data and industry valuation practices and methodology. The assumptions used to determine fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted During
|
|
2016
|
|
2015
|
|
2014
|
|
Grant Date Fair Value
|
|
$
|
3.72
|
|
|
$
|
3.81
|
|
|
$
|
5.19
|
|
|
(Since options are only granted once per year, the grant date fair value equals the weighted average grant date fair value.)
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
Risk-free Interest Rate
|
|
1.7
|
%
|
|
1.6
|
%
|
|
1.6
|
%
|
|
Expected Volatility
|
|
25.1
|
%
|
|
27.9
|
%
|
|
41.3
|
%
|
|
Expected Dividend Yield
|
|
2.5
|
%
|
|
2.7
|
%
|
|
2.5
|
%
|
|
Expected Term (in Years)
|
|
5.5
|
|
|
5.5
|
|
|
5.0
|
|
Information on the options outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Wtd. Avg. Exercise Price
|
|
Wtd. Avg. Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Balance, June 30, 2013
|
|
3,371,268
|
|
|
$
|
25.97
|
|
|
|
|
|
|
Granted During the Year
|
|
407,860
|
|
|
20.82
|
|
|
|
|
|
|
Exercised During the Year
|
|
(273,394
|
)
|
|
19.76
|
|
|
|
|
|
|
Expired During the Year
|
|
(1,088,368
|
)
|
|
32.82
|
|
|
|
|
|
|
Balance, June 29, 2014
|
|
2,417,366
|
|
|
$
|
22.71
|
|
|
|
|
|
|
Granted During the Year
|
|
557,170
|
|
|
18.83
|
|
|
|
|
|
|
Exercised During the Year
|
|
(260,726
|
)
|
|
19.66
|
|
|
|
|
|
|
Expired During the Year
|
|
(536,960
|
)
|
|
35.78
|
|
|
|
|
|
|
Balance, June 28, 2015
|
|
2,176,850
|
|
|
$
|
18.86
|
|
|
|
|
|
|
Granted During the Year
|
|
501,990
|
|
|
19.90
|
|
|
|
|
|
|
Exercised During the Year
|
|
(697,309
|
)
|
|
17.77
|
|
|
|
|
|
|
Expired During the Year
|
|
(136,988
|
)
|
|
19.88
|
|
|
|
|
|
|
Balance, July 3, 2016
|
|
1,844,543
|
|
|
$
|
19.48
|
|
|
5.68
|
|
$
|
2,945
|
|
|
Exercisable, July 3, 2016
|
|
377,523
|
|
|
$
|
18.45
|
|
|
1.01
|
|
$
|
994
|
|
The total intrinsic value of options exercised during fiscal year
2016
was
$2.0 million
. The exercise of options resulted in cash receipts of
$12.4 million
in fiscal
2016
. The total intrinsic value of options exercised during fiscal
2015
was
$0.2 million
. The exercise of options resulted in cash receipts of
$5.1 million
in fiscal
2015
. The total intrinsic value of options exercised during fiscal
2014
was
$0.6 million
. The exercise of options resulted in cash receipts of
$5.4 million
in fiscal
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding (as of July 3, 2016)
|
|
Fiscal
Year
|
|
Grant
Date
|
|
Date
Exercisable
|
|
Expiration
Date
|
|
Exercise
Price
|
|
Options
Outstanding
|
|
2012
|
|
8/16/2011
|
|
8/16/2014
|
|
8/31/2016
|
|
$
|
16.20
|
|
|
57,498
|
|
|
2013
|
|
8/14/2012
|
|
8/14/2015
|
|
8/31/2017
|
|
$
|
18.85
|
|
|
320,025
|
|
|
2014
|
|
8/20/2013
|
|
8/20/2016
|
|
8/31/2018
|
|
$
|
20.82
|
|
|
407,860
|
|
|
2015
|
|
10/21/2014
|
|
10/21/2017
|
|
10/21/2024
|
|
$
|
18.83
|
|
|
557,170
|
|
|
2016
|
|
8/18/2015
|
|
8/18/2018
|
|
8/18/2025
|
|
$
|
19.90
|
|
|
501,990
|
|
Below is a summary of the status of the Company’s nonvested shares as of
July 3, 2016
, and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Stock / RSU
|
|
Restricted Stock
|
|
Stock Options
|
|
Performance Shares
|
|
|
|
Shares
|
|
Wtd. Avg.
Grant Date
Fair Value
|
|
Shares
|
|
Wtd. Avg.
Grant Date
Fair Value
|
|
Shares
|
|
Wtd. Avg.
Grant Date
Fair Value
|
|
Shares
|
|
Wtd. Avg.
Grant Date
Fair Value
|
|
Nonvested shares/units,
June 28, 2015
|
|
282,317
|
|
|
$
|
18.90
|
|
|
802,110
|
|
|
$
|
18.40
|
|
|
1,364,880
|
|
|
$
|
4.52
|
|
|
358,726
|
|
|
$
|
19.38
|
|
|
Granted
|
|
59,226
|
|
|
19.80
|
|
|
143,760
|
|
|
19.90
|
|
|
501,990
|
|
|
3.72
|
|
|
120,451
|
|
|
19.91
|
|
|
Cancelled
|
|
(2,150
|
)
|
|
20.21
|
|
|
(25,810
|
)
|
|
19.56
|
|
|
—
|
|
|
—
|
|
|
(12,040
|
)
|
|
19.35
|
|
|
Vested
|
|
(205,178
|
)
|
|
18.71
|
|
|
(269,615
|
)
|
|
18.23
|
|
|
(399,850
|
)
|
|
4.83
|
|
|
(124,424
|
)
|
|
20.15
|
|
|
Nonvested shares/units,
July 3, 2016
|
|
134,215
|
|
|
$
|
19.56
|
|
|
650,445
|
|
|
$
|
18.76
|
|
|
1,467,020
|
|
|
$
|
4.16
|
|
|
342,713
|
|
|
$
|
19.29
|
|
As of
July 3, 2016
, there was
$7.9 million
of total unrecognized compensation cost related to nonvested stock-based compensation. That cost is expected to be recognized over a weighted average period of
1.5
years. The total fair value of shares vested during fiscal
2016
and
2015
was
$13.2 million
and
$11.4 million
, respectively.
During fiscal years
2016
,
2015
and
2014
, the Company issued
143,760
,
158,280
and
146,320
shares of restricted stock, respectively. For restricted stock issued prior to October 15, 2014, the restricted stock vests on the fifth anniversary date of the grant provided the recipient is still employed by the Company. For restricted stock issued after October 15, 2014, the restricted stock vests on the third anniversary date of the grant provided the recipient is still employed by the Company. The aggregate market value on the date of issue was approximately
$2.9 million
,
$3.3 million
and
$2.8 million
in fiscal
2016
,
2015
and
2014
, respectively, and has been recorded within the Shareholders’ Investment section of the Consolidated Balance Sheets, and is being amortized over the five-year vesting period (issuances prior to October 15, 2014) or the three-year vesting period (issuances after October 15, 2014).
The Company issued
39,049
,
36,975
and
35,433
deferred shares to its directors in lieu of directors' fees in fiscal
2016
,
2015
and
2014
, respectively, under this provision of the plans.
The Company issued
20,177
,
25,181
and
29,120
shares of deferred shares / RSU to its officers and key employees in fiscal
2016
,
2015
and
2014
, respectively. The aggregate market value on the date of grant was approximately
$0.4 million
,
$0.5 million
and
$0.6 million
, respectively. For deferred stock issued prior to October 15, 2014, the deferred stock vests on the fifth anniversary date of the grant provided the recipient is still employed by the Company. For restricted stock units (RSU) issued after October 15, 2014, the restricted stock vests on the third anniversary date of the grant provided the recipient is still employed by the Company.
The Company granted
120,451
,
125,853
, and
128,371
performance shares or performance share units in fiscal
2016
,
2015
, and
2014
, respectively. A maximum of two shares of Briggs & Stratton common stock per performance share or performance share unit may be awarded to recipients if certain performance targets are met at the end of the vesting period. The aggregate market value on the date of grant was approximately
$2.4 million
,
$2.4 million
, and
$2.5 million
in fiscal
2016
,
2015
, and
2014
, respectively. Beginning in fiscal 2015, the Company transitioned from granting performance shares that vest based on the performance of the Company's share price as compared to a comparator group of companies to performance share units that vest based on Company-specific performance goals. The performance share units are valued at the Company's share price on the date of grant multiplied by the probability of achieving payout. The Monte Carlo valuation methodology was used to value performance shares granted in fiscal 2014. Expense for each of the awards granted in fiscal 2016, fiscal 2015, and fiscal 2014 is recognized ratably over the three-year vesting period. The Monte-Carlo valuation model simulates a range of possible future stock prices for the Company and the components of a peer group to estimate the probability that a vesting condition will be achieved. In determining valuation assumptions for the Monte Carlo model, the Company considers historic and observable market data. Assumptions used in the Monte Carlo valuation model for performance shares granted during fiscal 2014 include the following:
|
|
|
|
|
|
|
Performance Shares Granted During
|
2014
|
|
Assumptions:
|
|
|
Risk-free Interest Rate
|
0.7
|
%
|
|
Expected Volatility
|
32.1
|
%
|
|
Expected Dividend Yield (Dividends are Assumed Reinvested)
|
—
|
%
|
|
Expected Term (in Years)
|
2.86
|
|
The following table summarizes the components of the Company’s stock-based compensation programs recorded as expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Stock Options:
|
|
|
|
|
|
|
|
Pretax compensation expense
|
|
$
|
1,763
|
|
|
$
|
1,680
|
|
|
$
|
2,065
|
|
|
Tax benefit
|
|
(661
|
)
|
|
(638
|
)
|
|
(791
|
)
|
|
Stock option expense, net of tax
|
|
$
|
1,102
|
|
|
$
|
1,042
|
|
|
$
|
1,274
|
|
|
Restricted Stock:
|
|
|
|
|
|
|
|
Pretax compensation expense
|
|
$
|
2,750
|
|
|
$
|
2,416
|
|
|
$
|
2,563
|
|
|
Tax benefit
|
|
(1,031
|
)
|
|
(918
|
)
|
|
(982
|
)
|
|
Restricted stock expense, net of tax
|
|
$
|
1,719
|
|
|
$
|
1,498
|
|
|
$
|
1,581
|
|
|
Deferred Stock:
|
|
|
|
|
|
|
|
Pretax compensation expense
|
|
$
|
102
|
|
|
$
|
339
|
|
|
$
|
685
|
|
|
Tax benefit
|
|
(38
|
)
|
|
(129
|
)
|
|
(252
|
)
|
|
Deferred stock expense, net of tax
|
|
$
|
64
|
|
|
$
|
210
|
|
|
$
|
433
|
|
|
Performance Shares:
|
|
|
|
|
|
|
|
Pretax compensation expense
|
|
$
|
494
|
|
|
$
|
1,792
|
|
|
$
|
1,861
|
|
|
Tax benefit
|
|
(185
|
)
|
|
(681
|
)
|
|
(713
|
)
|
|
Performance Share expense, net of tax
|
|
$
|
309
|
|
|
$
|
1,111
|
|
|
$
|
1,148
|
|
|
Total Stock-Based Compensation:
|
|
|
|
|
|
|
|
Pretax compensation expense
|
|
$
|
5,109
|
|
|
$
|
6,227
|
|
|
$
|
7,174
|
|
|
Tax benefit
|
|
(1,915
|
)
|
|
(2,366
|
)
|
|
(2,738
|
)
|
|
Total stock-based compensation, net of tax
|
|
$
|
3,194
|
|
|
$
|
3,861
|
|
|
$
|
4,436
|
|
(15) Derivative Instruments & Hedging Activities:
The Company enters into interest rate swaps to manage a portion of its interest rate risk from financing certain dealer and distributor inventories through a third party financing source. The swaps are designated as cash flow hedges and are used to effectively fix the interest payments to a third party financing source, exclusive of lender spreads, ranging from
0.98%
to
1.60%
for a notional principal amount of
$145 million
with expiration dates ranging from
July 2017
to
July 2021
.
The Company periodically enters into forward foreign currency contracts to hedge the risk from forecasted third party and intercompany sales or payments denominated in foreign currencies. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Australian Dollars, Brazilian Real, Canadian Dollars. Chinese Renminbi, Euros, Japanese Yen, or Mexican Pesos. These contracts generally do not have a maturity of more than twenty-four months.
The Company uses raw materials that are subject to price volatility. The Company hedges a portion of its exposure to the variability of cash flows associated with commodities used in the manufacturing process by entering into forward purchase contracts or commodity swaps. Derivative contracts designated as cash flow hedges are used by the Company to reduce exposure to variability in cash flows associated with future purchases of natural gas. These contracts generally do not have a maturity of more than thirty six months.
The Company has considered the counterparty credit risk related to all its interest rate, 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
July 3, 2016
and
June 28, 2015
, the Company had the following outstanding derivative contracts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
Notional Amount
|
|
|
|
|
|
July 3, 2016
|
|
June 28, 2015
|
|
Interest Rate:
|
|
|
|
|
|
|
|
LIBOR Interest Rate (U.S. Dollars)
|
|
Fixed
|
|
145,000
|
|
|
95,000
|
|
Foreign Currency:
|
|
|
|
|
|
|
|
Australian Dollar
|
|
Sell
|
|
39,935
|
|
|
29,473
|
|
|
Brazilian Real
|
|
Buy
|
|
16,436
|
|
|
22,443
|
|
|
Canadian Dollar
|
|
Sell
|
8,675
|
|
|
9,326
|
|
|
Chinese Renminbi
|
|
Buy
|
|
171,475
|
|
|
259,350
|
|
|
Euro
|
|
Sell
|
|
41,730
|
|
|
62,740
|
|
|
Japanese Yen
|
|
Buy
|
|
587,000
|
|
|
711,000
|
|
|
Mexican Peso
|
|
Sell
|
|
3,500
|
|
|
—
|
|
|
Commodity:
|
|
|
|
|
|
|
|
Natural Gas (Therms)
|
|
Buy
|
|
11,771
|
|
|
11,324
|
|
The location and fair value of derivative instruments reported in the Consolidated Balance Sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Asset (Liability) Fair Value
|
|
|
|
July 3, 2016
|
|
June 28, 2015
|
|
Interest rate contracts:
|
|
|
|
|
|
Other Long-Term Liabilities
|
|
$
|
(1,367
|
)
|
|
$
|
(1,034
|
)
|
|
Foreign currency contracts:
|
|
|
|
|
|
Other Current Assets
|
|
1,356
|
|
|
4,417
|
|
|
Other Long-Term Assets, Net
|
|
2
|
|
|
276
|
|
|
Accrued Liabilities
|
|
(2,601
|
)
|
|
(1,041
|
)
|
|
Other Long-Term Liabilities
|
|
(185
|
)
|
|
(43
|
)
|
|
Commodity contracts:
|
|
|
|
|
|
Other Long-Term Assets, Net
|
|
64
|
|
|
—
|
|
|
Accrued Liabilities
|
|
(190
|
)
|
|
(493
|
)
|
|
Other Long-Term Liabilities
|
|
(16
|
)
|
|
(134
|
)
|
|
|
|
$
|
(2,937
|
)
|
|
$
|
1,948
|
|
The effect of derivatives designated as hedging instruments on the Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended July 3, 2016
|
|
|
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) 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)
|
|
Interest rate contracts
|
|
$
|
(213
|
)
|
|
Net Sales
|
|
$
|
(1,113
|
)
|
|
$
|
—
|
|
|
Foreign currency contracts – sell
|
|
(2,187
|
)
|
|
Net Sales
|
|
5,554
|
|
|
—
|
|
|
Foreign currency contracts – buy
|
|
(664
|
)
|
|
Cost of Goods Sold
|
|
2,030
|
|
|
—
|
|
|
Commodity contracts
|
|
300
|
|
|
Cost of Goods Sold
|
|
(901
|
)
|
|
—
|
|
|
|
|
$
|
(2,764
|
)
|
|
|
|
$
|
5,570
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 28, 2015
|
|
|
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) 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)
|
|
Interest rate contracts
|
|
$
|
79
|
|
|
Net Sales
|
|
$
|
(1,222
|
)
|
|
$
|
—
|
|
|
Foreign currency contracts – sell
|
|
2,086
|
|
|
Net Sales
|
|
12,353
|
|
|
—
|
|
|
Foreign currency contracts – buy
|
|
228
|
|
|
Cost of Goods Sold
|
|
(1,003
|
)
|
|
—
|
|
|
Commodity contracts
|
|
(97
|
)
|
|
Cost of Goods Sold
|
|
(521
|
)
|
|
—
|
|
|
|
|
$
|
2,296
|
|
|
|
|
$
|
9,607
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 29, 2014
|
|
|
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) 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)
|
|
Interest rate contracts
|
|
$
|
(254
|
)
|
|
Net Sales
|
|
$
|
(1,209
|
)
|
|
$
|
—
|
|
|
Foreign currency contracts – sell
|
|
(717
|
)
|
|
Net Sales
|
|
(1,024
|
)
|
|
—
|
|
|
Foreign currency contracts – buy
|
|
182
|
|
|
Cost of Goods Sold
|
|
(1,109
|
)
|
|
—
|
|
|
Commodity contracts
|
|
3,378
|
|
|
Cost of Goods Sold
|
|
(5,630
|
)
|
|
—
|
|
|
|
|
$
|
2,589
|
|
|
|
|
$
|
(8,972
|
)
|
|
$
|
—
|
|
During the next twelve months, the amount of the
July 3, 2016
Accumulated Other Comprehensive Income (Loss) balance that is expected to be reclassified into losses is
$1.0 million
.
The Company enters into forward exchange contracts to hedge purchases and sales that are denominated in foreign currencies. The terms of these currency derivatives do not exceed twenty-four months, and the purpose is to protect the Company from the risk that the eventual dollars being transferred will be adversely affected by changes in exchange rates.
The Company has forward foreign exchange contracts to sell foreign currency, with the Euro as the most significant. These contracts are used to hedge foreign currency collections on sales of inventory. The Company also has forward contracts to purchase foreign currencies. The Company’s foreign currency forward contracts are carried at fair value based on current exchange rates.
The Company had the following forward currency contracts outstanding at the end of fiscal
2016
with the notional value shown in local currency and the contract value, fair value, and (gain) loss at fair value shown in U.S. dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge
|
|
In Thousands
|
|
|
|
|
|
|
|
Notional
Value
|
|
Contract
Value
|
|
Fair Value
|
|
(Gain) Loss
at Fair Value
|
|
Conversion
Currency
|
|
Latest
Expiration Date
|
|
Currency
|
|
Contract
|
|
|
Australian Dollar
|
|
Sell
|
|
39,935
|
|
|
28,937
|
|
|
29,772
|
|
|
835
|
|
|
U.S.
|
|
August 2017
|
|
Brazilian Real
|
|
Buy
|
|
16,436
|
|
|
6,391
|
|
|
5,335
|
|
|
1,056
|
|
|
U.S.
|
|
March 2017
|
|
Canadian Dollar
|
|
Sell
|
|
8,675
|
|
|
6,660
|
|
|
6,720
|
|
|
60
|
|
|
U.S.
|
|
August 2017
|
|
Chinese Renminbi
|
|
Buy
|
|
171,475
|
|
|
25,874
|
|
|
25,402
|
|
|
472
|
|
|
U.S.
|
|
September 2017
|
|
Euro
|
|
Sell
|
|
41,730
|
|
|
47,145
|
|
|
46,906
|
|
|
(239
|
)
|
|
U.S.
|
|
November 2017
|
|
Japanese Yen
|
|
Buy
|
|
587,000
|
|
|
4,998
|
|
|
5,749
|
|
|
(751
|
)
|
|
U.S.
|
|
January 2017
|
|
Mexican Peso
|
|
Sell
|
|
3,500
|
|
|
195
|
|
|
190
|
|
|
(5
|
)
|
|
U.S.
|
|
August 2016
|
The Company had the following forward currency contracts outstanding at the end of fiscal
2015
with the notional value shown in local currency and the contract value, fair value, and (gain) loss at fair value shown in U.S. dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge
|
|
In Thousands
|
|
|
|
|
|
|
|
Notional
Value
|
|
Contract
Value
|
|
Fair Value
|
|
(Gain) Loss
at Fair Value
|
|
Conversion
Currency
|
|
Latest
Expiration Date
|
|
Currency
|
|
Contract
|
|
|
Australian Dollar
|
|
Sell
|
|
29,473
|
|
|
22,966
|
|
|
22,329
|
|
|
(637
|
)
|
|
U.S.
|
|
August 2016
|
|
Brazilian Real
|
|
Buy
|
|
22,443
|
|
|
7,280
|
|
|
7,470
|
|
|
(190
|
)
|
|
U.S.
|
|
February 2016
|
|
Canadian Dollar
|
|
Sell
|
|
9,326
|
|
|
7,599
|
|
|
7,558
|
|
|
(41
|
)
|
|
U.S.
|
|
February 2016
|
|
Chinese Renminbi
|
|
Buy
|
|
259,350
|
|
|
40,523
|
|
|
41,127
|
|
|
(604
|
)
|
|
U.S.
|
|
November 2016
|
|
Euro
|
|
Sell
|
|
62,740
|
|
|
72,697
|
|
|
70,338
|
|
|
(2,359
|
)
|
|
U.S.
|
|
September 2016
|
|
Japanese Yen
|
|
Buy
|
|
711,000
|
|
|
5,984
|
|
|
5,762
|
|
|
222
|
|
|
U.S.
|
|
August 2016
|
The Company continuously evaluates the effectiveness of its hedging program by evaluating its foreign exchange contracts compared to the anticipated underlying transactions. The Company did not have any ineffective currency hedges in fiscal
2016
,
2015
, or
2014
.
(16) Employee Benefit Costs:
Retirement Plan and Other Postretirement Benefits
The Company has noncontributory, defined benefit retirement plans and other postretirement benefit plans covering certain employees. In October 2012, the Board of Directors of the Company authorized an amendment to the Company's defined benefit retirement plans for U.S., non-bargaining employees. The amendment freezes accruals for all non-bargaining employees within the pension plan effective January 1, 2014. The Company uses a June 30 measurement date for all of its plans. The following provides a reconciliation of obligations, plan assets and funded status of the plans for the two years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement
Benefits
|
|
Actuarial Assumptions:
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Discounted Rate Used to Determine Present Value of Projected Benefit Obligation
|
|
3.75
|
%
|
|
4.55
|
%
|
|
3.60
|
%
|
|
4.20
|
%
|
|
Expected Long-Term Rate of Return on Plan Assets
|
|
7.25
|
%
|
|
7.50
|
%
|
|
n/a
|
|
|
n/a
|
|
|
Change in Benefit Obligations:
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at Beginning of Year
|
|
$
|
1,186,777
|
|
|
$
|
1,173,147
|
|
|
$
|
81,290
|
|
|
$
|
96,457
|
|
|
Service Cost
|
|
3,532
|
|
|
3,432
|
|
|
262
|
|
|
295
|
|
|
Interest Cost
|
|
52,110
|
|
|
49,782
|
|
|
3,170
|
|
|
3,568
|
|
|
Plan Settlements
|
|
(47,102
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Plan Participant Contributions
|
|
—
|
|
|
—
|
|
|
1,572
|
|
|
1,510
|
|
|
Actuarial (Gain) Loss
|
|
75,135
|
|
|
35,287
|
|
|
(1,909
|
)
|
|
(5,961
|
)
|
|
Benefits Paid
|
|
(73,527
|
)
|
|
(74,871
|
)
|
|
(13,891
|
)
|
|
(14,579
|
)
|
|
Projected Benefit Obligation at End of Year
|
|
$
|
1,196,925
|
|
|
$
|
1,186,777
|
|
|
$
|
70,494
|
|
|
$
|
81,290
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Year
|
|
$
|
974,926
|
|
|
$
|
1,043,466
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Actual Return on Plan Assets
|
|
26,059
|
|
|
3,317
|
|
|
—
|
|
|
—
|
|
|
Plan Participant Contributions
|
|
—
|
|
|
—
|
|
|
1,572
|
|
|
1,510
|
|
|
Employer Contributions
|
|
3,229
|
|
|
3,014
|
|
|
12,319
|
|
|
13,069
|
|
|
Benefits Paid
|
|
(73,527
|
)
|
|
(74,871
|
)
|
|
(13,891
|
)
|
|
(14,579
|
)
|
|
Plan Settlements
|
|
(47,102
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Fair Value of Plan Assets at End of Year
|
|
$
|
883,585
|
|
|
$
|
974,926
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Funded Status:
|
|
|
|
|
|
|
|
|
|
Plan Assets (Less Than) in Excess of Projected Benefit Obligation
|
|
$
|
(313,340
|
)
|
|
$
|
(211,851
|
)
|
|
$
|
(70,494
|
)
|
|
$
|
(81,290
|
)
|
|
Amounts Recognized on the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
Accrued Pension Cost
|
|
$
|
(310,378
|
)
|
|
$
|
(208,623
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Accrued Wages and Salaries
|
|
(2,962
|
)
|
|
(3,228
|
)
|
|
—
|
|
|
—
|
|
|
Accrued Postretirement Health Care Obligation
|
|
—
|
|
|
—
|
|
|
(38,441
|
)
|
|
(47,545
|
)
|
|
Accrued Liabilities
|
|
—
|
|
|
—
|
|
|
(9,125
|
)
|
|
(12,025
|
)
|
|
Accrued Employee Benefits
|
|
—
|
|
|
—
|
|
|
(22,928
|
)
|
|
(21,720
|
)
|
|
Net Amount Recognized at End of Year
|
|
$
|
(313,340
|
)
|
|
$
|
(211,851
|
)
|
|
$
|
(70,494
|
)
|
|
$
|
(81,290
|
)
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss), Net of Tax:
|
|
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
|
$
|
(303,714
|
)
|
|
$
|
(249,279
|
)
|
|
$
|
(12,301
|
)
|
|
$
|
(15,468
|
)
|
|
Prior Service Credit (Cost)
|
|
(334
|
)
|
|
(443
|
)
|
|
2,873
|
|
|
4,487
|
|
|
Net Amount Recognized at End of Year
|
|
$
|
(304,048
|
)
|
|
$
|
(249,722
|
)
|
|
$
|
(9,428
|
)
|
|
$
|
(10,981
|
)
|
The accumulated benefit obligation for all defined benefit pension plans was
$1,196 million
and
$1,186 million
at
July 3, 2016
and
June 28, 2015
, respectively.
The Company recognizes the funded status of its pension plan in the Consolidated Balance Sheets. The funded status is the difference between the projected benefit obligation and the fair value of its plan assets. The projected benefit obligation is the actuarial present value of all benefits expected to be earned by the employees’ service adjusted for future potential wage increases. Pension plan liabilities are revalued annually, or when an event occurs that requires remeasurement, based on updated assumptions and information about the individuals covered by the plan.
The pension benefit obligation and related pension expense or income are impacted by certain actuarial assumptions, including the discount rate, mortality tables, and the expected rate of return on plan assets. The discount rate is selected using a methodology that matches plan cash flows with a selection of Standard and Poor’s AA or higher rated bonds, resulting in a discount rate that is consistent with a bond yield curve with comparable cash flows. In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted for forward looking considerations, including inflation assumptions and active management of the plan’s invested assets. These rates are evaluated on an annual basis considering such factors as market interest rates and historical asset performance.
For pension and other postretirement plans, accumulated actuarial gains and losses in excess of a 10 percent corridor are amortized on a straight-line basis from the date recognized over the average remaining life expectancy of all participants. Any prior service costs are amortized on a straight-line basis over the average remaining service of impacted employees at the time the unrecognized prior service cost was established. Approximately half of the costs related to defined pension benefit and other postretirement plans are included in cost of sales; the remainder is included in selling, general and administrative expenses.
The following table summarizes the plans’ income and expense for the three years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Components of Net Periodic (Income) Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Cost-Benefits Earned During the Year
|
|
$
|
3,532
|
|
|
$
|
3,432
|
|
|
$
|
7,645
|
|
|
$
|
262
|
|
|
$
|
295
|
|
|
$
|
333
|
|
|
Interest Cost on Projected Benefit Obligation
|
|
52,110
|
|
|
49,782
|
|
|
53,743
|
|
|
3,170
|
|
|
3,568
|
|
|
4,565
|
|
|
Expected Return on Plan Assets
|
|
(71,202
|
)
|
|
(74,638
|
)
|
|
(74,152
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Service Cost (Credit)
|
|
180
|
|
|
180
|
|
|
180
|
|
|
(2,659
|
)
|
|
(2,758
|
)
|
|
(2,895
|
)
|
|
Actuarial Loss
|
|
13,007
|
|
|
13,262
|
|
|
25,105
|
|
|
3,234
|
|
|
4,316
|
|
|
5,527
|
|
|
Plan Settlements
|
|
20,245
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net Periodic Expense (Income)
|
|
$
|
17,872
|
|
|
$
|
(7,982
|
)
|
|
$
|
12,521
|
|
|
$
|
4,007
|
|
|
$
|
5,421
|
|
|
$
|
7,530
|
|
Significant assumptions used in determining net periodic expense for the fiscal years indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Discount Rate
|
|
4.55%
|
|
4.40%
|
|
5.00%
|
|
4.20%
|
|
3.95%
|
|
4.40%
|
|
Expected Return on Plan Assets
|
|
7.50%
|
|
8.00%
|
|
8.25%
|
|
n/a
|
|
n/a
|
|
n/a
|
|
Compensation Increase Rate
|
|
n/a
|
|
n/a
|
|
3.0-4.0%
|
|
n/a
|
|
n/a
|
|
n/a
|
The amounts in Accumulated Other Comprehensive Income (Loss) that are expected to be recognized as components of net periodic (income) expense during the next fiscal year are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Plans
|
|
Other
Postretirement
Plans
|
|
Prior Service Cost (Credit)
|
|
$
|
180
|
|
|
$
|
(2,654
|
)
|
|
Net Actuarial Loss
|
|
16,809
|
|
|
2,746
|
|
The “Other Postretirement Benefit” plans are unfunded.
On May 14, 2010, the Company notified retirees and certain retirement eligible employees of various amendments to the Company-sponsored retiree medical plans intended to better align 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. The complaint sought 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. A class was certified and discovery was concluded. Both parties moved for summary judgment, which was fully briefed on December 23, 2014. The court denied both sides’ motions on September 3, 2015, concluding that factual issues were present which precluded summary judgment and should be determined by the jury at trial. The Company filed a motion requesting permission to appeal the court’s decision on an interlocutory basis. The plaintiffs also moved the court to clarify its decision. Upon the request of all parties, the court stayed any further decisions in the matter pending mediation in mid-December 2015. The mediation led to an agreement in principle to settle this case for an aggregate payment of
$3.95 million
covering both claimed benefits and plaintiffs’ attorneys fees, which resulted in a contribution of
$1.975 million
from the Company and
$1.975 million
from a third party insurance provider. The Company recorded a total charge of
$1.975 million
as Engineering, Selling, General and Administrative Expense on the Condensed Consolidated Statements of Operations in the second quarter of fiscal 2016 related to this matter. The parties filed a signed Stipulation of Settlement with the court on April 12, 2016 and the court held a hearing on the fairness, reasonableness and adequacy of the terms and conditions of the settlement and on the fee petition of the plaintiffs' counsel on August 11, 2016. The court approved the settlement following that hearing.
For measurement purposes a
6.3%
annual rate of increase in the per capita cost of covered health care claims was assumed for the Company for the fiscal year
2016
decreasing gradually to
4.5%
for the fiscal year
2038
. The health care cost trend rate assumptions have a significant effect on the amounts reported. An increase of one percentage point, would increase the accumulated postretirement benefit by
$1.1 million
and would increase the service and interest cost by
$0.1 million
for fiscal
2016
. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by
$1.2 million
and decrease the service and interest cost by
$0.1 million
for the fiscal year
2016
.
In the third quarter of fiscal 2016, the Company initiated a limited offer for former employees with vested benefits to elect to receive a lump sum payout of their benefits. This program reduced the size of the pension plan while allowing former employees who accepted the offer to control the investment of their retirement funds. The Company completed this program during the fourth quarter of fiscal 2016. As a result of this program, the Company recognized pension settlement expense of
$20.2 million
(
$13.2 million
after tax) during fiscal 2016.
Plan Assets
A Board of Directors appointed Investment Committee (“Committee”) manages the investment of the pension plan assets. The Committee has established and operates under an Investment Policy. It determines the asset allocation and target ranges based upon periodic asset/liability studies and capital market projections. The Committee retains external investment managers to invest the assets. The Investment Policy prohibits certain investment transactions, such as lettered stock, commodity contracts, margin transactions and short selling, unless the Committee gives prior approval.
The Company’s pension plan’s current target and asset allocations at
July 3, 2016
and
June 28, 2015
, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at Year-end
|
|
Asset Category
|
|
Target %
|
|
2016
|
|
2015
|
|
Domestic Equities
|
|
20%-28%
|
|
23%
|
|
22%
|
|
International Equities
|
|
7%-17%
|
|
14%
|
|
13%
|
|
Alternatives
|
|
0%-15%
|
|
10%
|
|
12%
|
|
Fixed Income
|
|
48%-52%
|
|
50%
|
|
50%
|
|
Cash Equivalents
|
|
0%-2%
|
|
3%
|
|
3%
|
|
|
|
|
|
100%
|
|
100%
|
The plan’s investment strategy is based on an expectation that, over time, equity securities will provide higher total returns than debt securities, but with greater risk. The plan primarily minimizes the risk of large losses through diversification of investments by asset class, by investing in different types of styles within the classes and by using a number of different managers. The Committee monitors the asset allocation and investment performance monthly, with a more comprehensive quarterly review with its consultant. Beginning in fiscal 2014, the Committee revised the target asset allocation to shift to more fixed income and less alternative investments as a percentage of total plan assets. This revision to the target asset allocation was made to better match future cash flows from plan assets with the future cash flows of the projected benefit obligation.
The plan’s expected return on assets is based on management’s and the Committee’s expectations of long-term average rates of return to be achieved by the plan’s investments. These expectations are based on the plan’s historical returns and expected returns for the asset classes in which the plan is invested.
The Company has adopted the fair value provisions for the plan assets of its pension plans. The Company categorizes plan assets within a three level fair value hierarchy, as described in Note 6.
Investments stated at fair value as determined by quoted market prices (Level 1) include:
Short-Term Investments:
Short-Term Investments include cash and money market mutual funds that invest in short-term securities and are valued based on cost, which approximates fair value;
Equity Securities:
U.S. Common Stocks and International Mutual Funds are valued at the last reported sales price on the last business day of the fiscal year.
Investments stated at estimated fair value using significant observable inputs (Level 2) include:
Fixed Income Securities:
Fixed Income Securities include investments in domestic bond collective trusts that are not traded publicly, but the underlying assets held in these funds are traded on active markets and the prices are readily observable. The investment in the trusts is valued at the last quoted price on the last business day of the fiscal year. Fixed Income Securities also include corporate and government bonds that are valued using a bid evaluation process with data provided by independent pricing sources.
Investments stated at estimated fair value using net asset value per share as the practical expedient include:
Other Investments:
Other Investments include investments in limited partnerships and are valued at estimated fair value, as determined with the assistance of each respective limited partnership, based on the net asset value of the investment as of the balance sheet date, which is subject to judgment.
The fair value of the major categories of the pension plans’ investments are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
Category
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Short-Term Investments:
|
|
|
|
$
|
26,558
|
|
|
$
|
26,558
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fixed Income Securities:
|
|
|
|
441,869
|
|
|
—
|
|
|
441,869
|
|
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. common stocks
|
|
|
|
205,343
|
|
|
205,343
|
|
|
—
|
|
|
—
|
|
|
International mutual funds
|
|
|
|
126,589
|
|
|
126,589
|
|
|
—
|
|
|
—
|
|
|
Other Investments:
|
|
|
|
|
|
|
|
|
|
|
|
Venture capital funds
|
|
(A) (E)
|
|
40,470
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Debt funds
|
|
(B) (E)
|
|
7,227
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Real estate funds
|
|
(C) (E)
|
|
2,608
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Private equity funds
|
|
(D) (E)
|
|
32,921
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Fair Value of Plan Assets at End of Year
|
|
|
|
$
|
883,585
|
|
|
$
|
358,490
|
|
|
$
|
441,869
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2015
|
|
Category
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Short-Term Investments:
|
|
|
|
$
|
28,378
|
|
|
$
|
28,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fixed Income Securities:
|
|
|
|
481,576
|
|
|
—
|
|
|
481,576
|
|
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. common stocks
|
|
|
|
216,131
|
|
|
216,131
|
|
|
—
|
|
|
—
|
|
|
International mutual funds
|
|
|
|
127,423
|
|
|
127,423
|
|
|
—
|
|
|
—
|
|
|
Other Investments:
|
|
|
|
|
|
|
|
|
|
|
|
Venture capital funds
|
|
(A) (E)
|
|
47,289
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Debt funds
|
|
(B) (E)
|
|
14,042
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Real estate funds
|
|
(C) (E)
|
|
6,104
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Private equity funds
|
|
(D) (E)
|
|
53,983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Fair Value of Plan Assets at End of Year
|
|
|
|
$
|
974,926
|
|
|
$
|
371,932
|
|
|
$
|
481,576
|
|
|
$
|
—
|
|
|
|
|
|
(A)
|
This category invests in a combination of public and private securities of companies in financial distress, spin-offs, or new projects focused on technology and manufacturing.
|
|
|
|
|
(B)
|
This fund primarily invests in the debt of various entities including corporations and governments in emerging markets, mezzanine financing, or entities that are undergoing, are considered likely to undergo or have undergone a reorganization.
|
|
|
|
|
(C)
|
This category invests primarily in real estate related investments, including real estate properties, securities of real estate companies and other companies with significant real estate assets as well as real estate related debt and equity securities.
|
|
|
|
|
(D)
|
Primarily represents investments in all sizes of mostly privately held operating companies in the following core industry sectors: healthcare, energy, financial services, technology-media-telecommunications and industrial and consumer.
|
|
|
|
|
(E)
|
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
|
Contributions
On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21 Act) was signed into law. The MAP-21 Act included certain pension-related provisions which included changes to the methodology used to determine discount rates for ERISA funding purposes for qualified defined benefit pension plans. Based on historical interest rates, the MAP-21 Act allows plan sponsors to utilize a higher discount rate to value pension liabilities, which results in lower required pension plan contributions under ERISA. On August 8, 2014, the Highway and Transportation Funding Act of 2014 (HATFA Act) was enacted. The HATFA Act extends the pension provisions included in the MAP-21 Act. During fiscal 2016, the Company made no cash contributions to the qualified pension plan. Based upon current regulations and actuarial studies the Company is required to make
no
minimum contributions to the qualified pension plan in fiscal 2017 and fiscal 2018. The Company may be required to make further contributions in future years depending on the actual return on plan assets and the funded status of the plan in future periods.
Estimated Future Benefit Payments
Projected benefit payments from the plans as of
July 3, 2016
are estimated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Year Ending
|
|
Qualified
|
|
Non-Qualified
|
|
Retiree
Medical
|
|
Retiree Life
|
|
2017
|
|
$
|
74,476
|
|
|
$
|
2,964
|
|
|
$
|
7,778
|
|
|
$
|
1,345
|
|
|
2018
|
|
74,240
|
|
|
2,983
|
|
|
7,094
|
|
|
1,365
|
|
|
2019
|
|
74,093
|
|
|
3,136
|
|
|
5,924
|
|
|
1,383
|
|
|
2020
|
|
73,811
|
|
|
3,159
|
|
|
5,104
|
|
|
1,398
|
|
|
2021
|
|
73,367
|
|
|
3,200
|
|
|
4,250
|
|
|
1,409
|
|
|
2022-2026
|
|
352,067
|
|
|
16,887
|
|
|
12,984
|
|
|
7,082
|
|
Defined Contribution Plans
Employees of the Company may participate in a defined contribution savings plan that allows participants to contribute a portion of their earnings in accordance with plan specifications. Prior to January 1, 2014, a maximum of
1.5%
to
3.5%
of each participant’s salary, depending upon the participant’s group, was matched by the Company. Additionally, certain employees may have received Company nonelective contributions equal to
2.0%
of the employee’s salary.
Simultaneously with the aforementioned amendments to freeze the Company's defined benefit retirement plans for U.S., non-bargaining employees, effective January 1, 2014, amendments were also made to increase benefits under the defined contribution plans effective January 1, 2014. These amendments increased the Company's maximum matching contribution from
3.5%
to
4.0%
of pay and offer all domestic non-bargaining employees a Company non-elective contribution of
3.0%
of the employee's pay.
The Company contributions totaled
$14.5 million
in
2016
,
$14.2 million
in
2015
and
$10.8 million
in
2014
.
Postemployment Benefits
The Company accrues the expected cost of postemployment benefits over the years that the employees render service. These benefits apply only to employees who become disabled while actively employed, or who terminate with at least thirty years of service and retire prior to age sixty-five. The items include disability payments, life insurance and medical benefits. These amounts were discounted using a
3.60%
interest rate for fiscal
2016
and
4.20%
interest rate for fiscal
2015
. Amounts are included in Accrued Employee Benefits in the Consolidated Balance Sheets.
(17) Restructuring Actions:
In fiscal 2012, the Company announced plans to reduce manufacturing capacity. During fiscal 2012, the Company ceased manufacturing operations at its Newbern, Tennessee and Ostrava, Czech Republic plants, and carried out the consolidation of the Poplar Bluff, Missouri plant. Production of horizontal shaft engines was concluded at the Auburn, Alabama plant during fiscal 2014. The Company also announced in fiscal 2012 the reduction of approximately
10%
of the Company's salaried headcount, which was implemented in fiscal 2012 and fiscal 2013. Workforce reductions associated with the Company's restructuring initiatives impacted approximately
1,250
regular and temporary employees globally. Additionally, beginning in fiscal 2013, the Company exited the placement of lawn and garden products at national mass retailers. The Engines segment continues to support lawn and garden equipment OEMs who provide lawn and garden equipment to these retailers.
As of June 29, 2014, the restructuring actions announced in 2012 were completed as planned. As of June 29, 2014, the cumulative pre-tax restructuring costs incurred associated with the 2012 restructuring actions were
$78.6 million
, which represents the total cost expected to be incurred under these restructuring actions.
In fiscal 2015, the Company announced and began implementing restructuring actions to narrow its assortment of lower-priced Snapper consumer lawn and garden equipment and consolidate its Products segment manufacturing facilities in order to further reduce costs. The Company continues to focus on premium residential products through its Snapper and Simplicity brands and commercial products through its Snapper Pro and Ferris brands. The Company closed its McDonough, Georgia location in the fourth quarter of fiscal 2015 and consolidated production into existing facilities. Production of pressure washers, riding mowers, and snow throwers was moved to the Company's Wauwatosa, Wisconsin facility. At July 3, 2016, the Company had
$2.5 million
classified as assets held for sale, which is included in Prepaid Expenses and Other Current Assets within the Consolidated Balance Sheets, related to the McDonough location. These changes affected approximately
475
employees during fiscal 2015. The Company's dealer product offerings under the Snapper Pro, Simplicity and Ferris brands as well as sales of Snapper and Murray branded lawn and garden products at Walmart were unaffected by these actions.
As of July 3, 2016, the restructuring actions announced in fiscal 2015 were completed as planned. As of July 3, 2016, the cumulative pre-tax restructuring costs associated with the 2015 restructuring actions were
$36.1 million
, which represents the total cost expected to be incurred under these restructuring actions.
During the first quarter of fiscal 2016, the Company implemented restructuring actions within the Engines segment. These actions, which were completed in the first quarter of fiscal 2016, included a headcount reduction at its plant in Chongqing, China to offset lower production of engines used on snow throwers as well as changes in salaried personnel in the United States. The Engines segment recorded pre-tax charges of
$1.4 million
during the first quarter of fiscal 2016, which represented the cumulative pre-tax restructuring costs and the total costs expected to be incurred under these restructuring actions.
The Company reports restructuring charges associated with manufacturing and related initiatives as costs of goods sold within the Condensed Consolidated Statements of Operations. Restructuring charges reflected as costs of goods sold include, but are not limited to, termination and related costs associated with manufacturing employees, asset impairments and accelerated depreciation relating to manufacturing initiatives, and other costs directly related to the restructuring initiatives implemented. The Company reports all other non-manufacturing related restructuring charges as engineering, selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
The Company recorded pre-tax charges of
$10.2 million
(
$6.7 million
after tax or
$0.15
per diluted share) and
$27.3 million
(
$17.7 million
after tax or
$0.40
per diluted share) during fiscal
2016
and
2015
, respectively, related to restructuring actions. The Engines segment recorded
$1.4 million
of pre-tax restructuring charges during fiscal 2016. The Products segment recorded
$8.8 million
and
$27.3 million
of pre-tax restructuring charges during fiscal
2016
and
2015
, respectively.
The following is a rollforward of the restructuring reserve (included in Accrued Liabilities within the Consolidated Condensed Balance Sheets) attributable to all Engines segment restructuring activities for fiscal
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engines segment
|
|
Termination Benefits
|
|
Other Costs
|
|
Total
|
|
Reserve Balance at June 28, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Provisions
|
|
1,354
|
|
|
—
|
|
|
1,354
|
|
|
Cash Expenditures
|
|
(877
|
)
|
|
—
|
|
|
(877
|
)
|
|
Other Adjustments
|
|
(182
|
)
|
|
—
|
|
|
(182
|
)
|
|
Reserve Balance at July 3, 2016
|
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
295
|
|
The following is a rollforward of the restructuring reserve (included in Accrued Liabilities within the Consolidated Condensed Balance Sheets) attributable to all Products segment restructuring activities for fiscal
2015
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products segment
|
|
Termination Benefits
|
|
Other Costs
|
|
Total
|
|
Reserve Balance at June 29, 2014
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Provisions
|
|
5,215
|
|
|
22,073
|
|
|
27,288
|
|
|
Cash Expenditures
|
|
(3,108
|
)
|
|
(10,816
|
)
|
|
(13,924
|
)
|
|
Other Adjustments (1)
|
|
—
|
|
|
(11,257
|
)
|
|
(11,257
|
)
|
|
Reserve Balance at June 28, 2015
|
|
$
|
2,107
|
|
|
$
|
—
|
|
|
$
|
2,107
|
|
|
Provisions
|
|
300
|
|
|
8,541
|
|
|
8,841
|
|
|
Cash Expenditures
|
|
(2,101
|
)
|
|
(4,820
|
)
|
|
(6,921
|
)
|
|
Other Adjustments (1)
|
|
—
|
|
|
(3,721
|
)
|
|
(3,721
|
)
|
|
Reserve Balance at July 3, 2016
|
|
$
|
306
|
|
|
$
|
—
|
|
|
$
|
306
|
|
(1) Other adjustments in fiscal 2015 includes
$1.9 million
of asset impairments and
$9.4 million
of accelerated depreciation. Other adjustments in fiscal 2016 includes
$3.7 million
of asset impairments.
(18) Equity:
Share Repurchases
On August 13, 2014, the Board of Directors of the Company authorized up to
$50 million
in funds associated with the common share repurchase program with an expiration date of
June 30, 2016
. On April 21, 2016, the Board of Directors authorized up to an additional
$50 million
in funds for use in the common share repurchase program with an expiration date of
June 29, 2018
. As of July 3, 2016, the total remaining authorization was approximately
$50.0 million
. Share repurchases, among other things, allow the Company to offset any potentially dilutive impacts of share-based compensation. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing debt covenants. In fiscal 2016, the Company repurchased
2,034,146
shares on the open market at a total cost of
$37.4 million
, or
$18.41
per share. There were
2,423,044
shares repurchased in fiscal 2015 at a total cost of
$47.0 million
, or
$19.42
per share.
(19) Separate Financial Information of Subsidiary Guarantor of Indebtedness:
Under the terms of the Company’s Senior Notes and the Revolver (collectively, the “Domestic Indebtedness”), Briggs & Stratton Power Products Group, LLC, a
100%
owned subsidiary of the Company, was the sole joint and several guarantor of the Domestic Indebtedness (the “Guarantor”) as of July 3, 2016 and June 28, 2015. The Guarantor provides a full and unconditional guarantee of the Domestic Indebtedness, except for certain customary limitations. These customary limitations, which are described in detail in the First Supplemental Indenture (Indenture) dated December 20, 2010, include (i)
the sale of the guarantor or substantially all of the
guarantor’s assets, (ii) the designation of the guarantor as an unrestricted subsidiary for covenant purposes, (iii) the guarantor ceasing to guarantee certain other indebtedness, if the guarantor is also not a significant subsidiary within the meaning of Article 1, Rule 1-02 of Regulation S-X, and (iv) achieving the Indenture’s requirements for legal defeasance, covenant defeasance or discharge.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
Carrying
Amount
|
|
Maximum
Guarantee
|
|
6.875% Senior Notes
|
|
$
|
223,149
|
|
|
$
|
223,149
|
|
|
Multicurrency Credit Agreement
|
|
$
|
—
|
|
|
$
|
500,000
|
|
The following condensed supplemental consolidating financial information reflects the summarized financial information of Briggs & Stratton, its Guarantor Subsidiary and Non-Guarantor Subsidiaries (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING BALANCE SHEET:
As of July 3, 2016
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
40,966
|
|
|
$
|
741
|
|
|
$
|
48,132
|
|
|
$
|
—
|
|
|
$
|
89,839
|
|
|
Accounts Receivable, Net
|
|
96,366
|
|
|
61,467
|
|
|
33,845
|
|
|
—
|
|
|
191,678
|
|
|
Intercompany Accounts Receivable
|
|
26,340
|
|
|
5,528
|
|
|
41,530
|
|
|
(73,398
|
)
|
|
—
|
|
|
Inventories, Net
|
|
160,596
|
|
|
138,175
|
|
|
87,294
|
|
|
—
|
|
|
386,065
|
|
|
Deferred Tax Asset
|
|
30,260
|
|
|
12,470
|
|
|
2,006
|
|
|
—
|
|
|
44,736
|
|
|
Prepaid Expenses and Other
|
|
18,105
|
|
|
7,767
|
|
|
4,801
|
|
|
(2,254
|
)
|
|
28,419
|
|
|
Total Current Assets
|
|
$
|
372,633
|
|
|
$
|
226,148
|
|
|
$
|
217,608
|
|
|
$
|
(75,652
|
)
|
|
$
|
740,737
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
128,300
|
|
|
$
|
—
|
|
|
$
|
33,268
|
|
|
$
|
—
|
|
|
$
|
161,568
|
|
|
Investments
|
|
52,757
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,757
|
|
|
Investments in Subsidiaries
|
|
516,796
|
|
|
—
|
|
|
—
|
|
|
(516,796
|
)
|
|
—
|
|
|
Intercompany Note Receivable
|
|
5,976
|
|
|
111,290
|
|
|
47,157
|
|
|
(164,423
|
)
|
|
—
|
|
|
Other Intangible Assets, Net
|
|
—
|
|
|
53,503
|
|
|
50,661
|
|
|
—
|
|
|
104,164
|
|
|
Long-Term Deferred Tax Asset
|
|
80,409
|
|
|
—
|
|
|
2,230
|
|
|
(29,172
|
)
|
|
53,467
|
|
|
Other Long-Term Assets, Net
|
|
11,992
|
|
|
4,639
|
|
|
1,070
|
|
|
—
|
|
|
17,701
|
|
|
Total Other Assets
|
|
$
|
796,230
|
|
|
$
|
169,432
|
|
|
$
|
134,386
|
|
|
$
|
(710,391
|
)
|
|
$
|
389,657
|
|
|
PLANT AND EQUIPMENT, NET
|
|
274,741
|
|
|
24,702
|
|
|
26,830
|
|
|
—
|
|
|
326,273
|
|
|
TOTAL ASSETS
|
|
$
|
1,443,604
|
|
|
$
|
420,282
|
|
|
$
|
378,824
|
|
|
$
|
(786,043
|
)
|
|
$
|
1,456,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
112,178
|
|
|
$
|
50,529
|
|
|
$
|
18,445
|
|
|
$
|
—
|
|
|
$
|
181,152
|
|
|
Intercompany Accounts Payable
|
|
33,079
|
|
|
6,347
|
|
|
33,972
|
|
|
(73,398
|
)
|
|
—
|
|
|
Accrued Liabilities
|
|
65,884
|
|
|
48,997
|
|
|
24,522
|
|
|
(2,254
|
)
|
|
137,149
|
|
|
Total Current Liabilities
|
|
$
|
211,141
|
|
|
$
|
105,873
|
|
|
$
|
76,939
|
|
|
$
|
(75,652
|
)
|
|
$
|
318,301
|
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Pension Cost
|
|
309,191
|
|
|
343
|
|
|
844
|
|
|
—
|
|
|
310,378
|
|
|
Accrued Employee Benefits
|
|
23,483
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,483
|
|
|
Accrued Postretirement Health Care Obligation
|
|
24,587
|
|
|
13,854
|
|
|
—
|
|
|
—
|
|
|
38,441
|
|
|
Accrued Warranty
|
|
10,500
|
|
|
7,554
|
|
|
—
|
|
|
—
|
|
|
18,054
|
|
|
Intercompany Note Payable
|
|
123,232
|
|
|
—
|
|
|
41,191
|
|
|
(164,423
|
)
|
|
—
|
|
|
Other Long-Term Liabilities
|
|
26,505
|
|
|
19,125
|
|
|
16,587
|
|
|
(29,172
|
)
|
|
33,045
|
|
|
Long-Term Debt
|
|
221,339
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221,339
|
|
|
Total Other Liabilities
|
|
$
|
738,837
|
|
|
$
|
40,876
|
|
|
$
|
58,622
|
|
|
$
|
(193,595
|
)
|
|
$
|
644,740
|
|
|
TOTAL SHAREHOLDERS’ INVESTMENT:
|
|
493,626
|
|
|
273,533
|
|
|
243,263
|
|
|
(516,796
|
)
|
|
493,626
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
|
|
$
|
1,443,604
|
|
|
$
|
420,282
|
|
|
$
|
378,824
|
|
|
$
|
(786,043
|
)
|
|
$
|
1,456,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING BALANCE SHEET:
As of June 28, 2015
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
45,395
|
|
|
$
|
17,237
|
|
|
$
|
55,758
|
|
|
$
|
—
|
|
|
$
|
118,390
|
|
|
Accounts Receivable, Net
|
|
99,852
|
|
|
72,859
|
|
|
43,130
|
|
|
—
|
|
|
215,841
|
|
|
Intercompany Accounts Receivable
|
|
21,697
|
|
|
8,060
|
|
|
40,772
|
|
|
(70,529
|
)
|
|
—
|
|
|
Inventories, Net
|
|
161,343
|
|
|
125,698
|
|
|
91,647
|
|
|
—
|
|
|
378,688
|
|
|
Deferred Tax Asset
|
|
30,692
|
|
|
13,187
|
|
|
1,992
|
|
|
—
|
|
|
45,871
|
|
|
Prepaid Expenses and Other
|
|
23,580
|
|
|
19,916
|
|
|
7,031
|
|
|
(14,074
|
)
|
|
36,453
|
|
|
Total Current Assets
|
|
$
|
382,559
|
|
|
$
|
256,957
|
|
|
$
|
240,330
|
|
|
$
|
(84,603
|
)
|
|
$
|
795,243
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
128,300
|
|
|
$
|
—
|
|
|
$
|
37,222
|
|
|
$
|
—
|
|
|
$
|
165,522
|
|
|
Investments
|
|
30,779
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,779
|
|
|
Investments in Subsidiaries
|
|
537,799
|
|
|
—
|
|
|
—
|
|
|
(537,799
|
)
|
|
—
|
|
|
Intercompany Note Receivable
|
|
36,448
|
|
|
89,186
|
|
|
26,722
|
|
|
(152,356
|
)
|
|
—
|
|
|
Other Intangible Assets, Net
|
|
—
|
|
|
54,706
|
|
|
56,574
|
|
|
—
|
|
|
111,280
|
|
|
Long-Term Deferred Tax Asset
|
|
54,622
|
|
|
—
|
|
|
133
|
|
|
(32,303
|
)
|
|
22,452
|
|
|
Other Long-Term Assets, Net
|
|
10,199
|
|
|
4,999
|
|
|
1,335
|
|
|
—
|
|
|
16,533
|
|
|
Total Other Assets
|
|
$
|
798,147
|
|
|
$
|
148,891
|
|
|
$
|
121,986
|
|
|
$
|
(722,458
|
)
|
|
$
|
346,566
|
|
|
PLANT AND EQUIPMENT, NET
|
|
260,843
|
|
|
24,314
|
|
|
29,681
|
|
|
—
|
|
|
314,838
|
|
|
TOTAL ASSETS
|
|
$
|
1,441,549
|
|
|
$
|
430,162
|
|
|
$
|
391,997
|
|
|
$
|
(807,061
|
)
|
|
$
|
1,456,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
116,972
|
|
|
$
|
38,672
|
|
|
$
|
27,032
|
|
|
$
|
—
|
|
|
$
|
182,676
|
|
|
Intercompany Accounts Payable
|
|
33,898
|
|
|
6,945
|
|
|
29,686
|
|
|
(70,529
|
)
|
|
—
|
|
|
Accrued Liabilities
|
|
90,168
|
|
|
51,851
|
|
|
24,495
|
|
|
(14,074
|
)
|
|
152,440
|
|
|
Total Current Liabilities
|
|
$
|
241,038
|
|
|
$
|
97,468
|
|
|
$
|
81,213
|
|
|
$
|
(84,603
|
)
|
|
$
|
335,116
|
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Pension Cost
|
|
207,745
|
|
|
367
|
|
|
511
|
|
|
—
|
|
|
208,623
|
|
|
Accrued Employee Benefits
|
|
23,298
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,298
|
|
|
Accrued Postretirement Health Care Obligation
|
|
32,405
|
|
|
15,140
|
|
|
—
|
|
|
—
|
|
|
47,545
|
|
|
Accrued Warranty
|
|
12,300
|
|
|
6,127
|
|
|
—
|
|
|
—
|
|
|
18,427
|
|
|
Intercompany Note Payable
|
|
104,676
|
|
|
—
|
|
|
47,680
|
|
|
(152,356
|
)
|
|
—
|
|
|
Other Long-Term Liabilities
|
|
23,152
|
|
|
17,867
|
|
|
17,987
|
|
|
(32,303
|
)
|
|
26,703
|
|
|
Long-Term Debt
|
|
222,685
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
222,685
|
|
|
Total Other Liabilities
|
|
$
|
626,261
|
|
|
$
|
39,501
|
|
|
$
|
66,178
|
|
|
$
|
(184,659
|
)
|
|
$
|
547,281
|
|
|
TOTAL SHAREHOLDERS’ INVESTMENT:
|
|
574,250
|
|
|
293,193
|
|
|
244,606
|
|
|
(537,799
|
)
|
|
574,250
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
|
|
$
|
1,441,549
|
|
|
$
|
430,162
|
|
|
$
|
391,997
|
|
|
$
|
(807,061
|
)
|
|
$
|
1,456,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Fiscal Year Ended July 3, 2016
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net Sales
|
|
$
|
1,098,592
|
|
|
$
|
584,996
|
|
|
$
|
319,408
|
|
|
$
|
(194,218
|
)
|
|
$
|
1,808,778
|
|
|
Cost of Goods Sold
|
|
874,044
|
|
|
513,914
|
|
|
244,426
|
|
|
(194,218
|
)
|
|
1,438,166
|
|
|
Restructuring Charges
|
|
—
|
|
|
6,593
|
|
|
1,564
|
|
|
—
|
|
|
8,157
|
|
|
Gross Profit
|
|
224,548
|
|
|
64,489
|
|
|
73,418
|
|
|
—
|
|
|
362,455
|
|
|
Engineering, Selling, General and Administrative Expenses
|
|
175,530
|
|
|
72,455
|
|
|
57,497
|
|
|
—
|
|
|
305,482
|
|
|
Restructuring Charges
|
|
890
|
|
|
847
|
|
|
301
|
|
|
—
|
|
|
2,038
|
|
|
Goodwill Impairment
|
|
—
|
|
|
—
|
|
|
7,651
|
|
|
—
|
|
|
7,651
|
|
|
Tradename Impairment
|
|
—
|
|
|
—
|
|
|
2,683
|
|
|
—
|
|
|
2,683
|
|
|
Equity in Earnings of Unconsolidated Affiliates
|
|
397
|
|
|
1,363
|
|
|
—
|
|
|
—
|
|
|
1,760
|
|
|
Equity in Income from Subsidiaries
|
|
(2,433
|
)
|
|
—
|
|
|
—
|
|
|
2,433
|
|
|
—
|
|
|
Income (Loss) from Operations
|
|
50,958
|
|
|
(7,450
|
)
|
|
5,286
|
|
|
(2,433
|
)
|
|
46,361
|
|
|
Interest Expense
|
|
(19,656
|
)
|
|
(368
|
)
|
|
(9
|
)
|
|
—
|
|
|
(20,033
|
)
|
|
Other Income, Net
|
|
4,478
|
|
|
1,387
|
|
|
3,163
|
|
|
—
|
|
|
9,028
|
|
|
Income (Loss) Before Provision for Income Taxes
|
|
35,780
|
|
|
(6,431
|
)
|
|
8,440
|
|
|
(2,433
|
)
|
|
35,356
|
|
|
Provision (Credit) for Income Taxes
|
|
9,219
|
|
|
(2,254
|
)
|
|
1,830
|
|
|
—
|
|
|
8,795
|
|
|
Net Income (Loss)
|
|
$
|
26,561
|
|
|
$
|
(4,177
|
)
|
|
$
|
6,610
|
|
|
$
|
(2,433
|
)
|
|
$
|
26,561
|
|
|
Comprehensive Income (Loss)
|
|
$
|
(32,779
|
)
|
|
$
|
(8,631
|
)
|
|
$
|
(1,244
|
)
|
|
$
|
9,875
|
|
|
$
|
(32,779
|
)
|
|
For the Fiscal Year Ended June 28, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
1,160,651
|
|
|
$
|
581,919
|
|
|
$
|
372,231
|
|
|
$
|
(220,051
|
)
|
|
$
|
1,894,750
|
|
|
Cost of Goods Sold
|
|
919,128
|
|
|
521,925
|
|
|
290,361
|
|
|
(220,051
|
)
|
|
1,511,363
|
|
|
Restructuring Charges
|
|
—
|
|
|
24,288
|
|
|
—
|
|
|
—
|
|
|
24,288
|
|
|
Gross Profit
|
|
241,523
|
|
|
35,706
|
|
|
81,870
|
|
|
—
|
|
|
359,099
|
|
|
Engineering, Selling, General and Administrative Expenses
|
|
161,160
|
|
|
72,723
|
|
|
56,033
|
|
|
—
|
|
|
289,916
|
|
|
Restructuring Charges
|
|
—
|
|
|
3,000
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
|
Equity in Loss from Subsidiaries
|
|
2,267
|
|
|
—
|
|
|
—
|
|
|
(2,267
|
)
|
|
—
|
|
|
Income (Loss) from Operations
|
|
78,096
|
|
|
(40,017
|
)
|
|
25,837
|
|
|
2,267
|
|
|
66,183
|
|
|
Interest Expense
|
|
(19,218
|
)
|
|
(310
|
)
|
|
(4
|
)
|
|
—
|
|
|
(19,532
|
)
|
|
Other Income, Net
|
|
6,760
|
|
|
1,711
|
|
|
1,836
|
|
|
—
|
|
|
10,307
|
|
|
Income (Loss) Before Provision for Income Taxes
|
|
65,638
|
|
|
(38,616
|
)
|
|
27,669
|
|
|
2,267
|
|
|
56,958
|
|
|
Provision (Credit) for Income Taxes
|
|
19,951
|
|
|
(14,074
|
)
|
|
5,394
|
|
|
—
|
|
|
11,271
|
|
|
Net Income (Loss)
|
|
$
|
45,687
|
|
|
$
|
(24,542
|
)
|
|
$
|
22,275
|
|
|
$
|
2,267
|
|
|
$
|
45,687
|
|
|
Comprehensive Income (Loss)
|
|
$
|
(38,166
|
)
|
|
$
|
(25,647
|
)
|
|
$
|
4,500
|
|
|
$
|
21,147
|
|
|
$
|
(38,166
|
)
|
|
For the Fiscal Year Ended June 29, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
1,156,394
|
|
|
$
|
599,013
|
|
|
$
|
304,160
|
|
|
$
|
(200,507
|
)
|
|
$
|
1,859,060
|
|
|
Cost of Goods Sold
|
|
928,557
|
|
|
544,313
|
|
|
234,073
|
|
|
(200,507
|
)
|
|
1,506,436
|
|
|
Restructuring Charges
|
|
3,830
|
|
|
228
|
|
|
1,783
|
|
|
—
|
|
|
5,841
|
|
|
Gross Profit
|
|
224,007
|
|
|
54,472
|
|
|
68,304
|
|
|
—
|
|
|
346,783
|
|
|
Engineering, Selling, General and Administrative Expenses
|
|
163,594
|
|
|
76,021
|
|
|
51,752
|
|
|
—
|
|
|
291,367
|
|
|
Restructuring Charges
|
|
77
|
|
|
67
|
|
|
554
|
|
|
—
|
|
|
698
|
|
|
Goodwill Impairment
|
|
—
|
|
|
—
|
|
|
2,960
|
|
|
—
|
|
|
2,960
|
|
|
Tradename Impairment
|
|
—
|
|
|
5,500
|
|
|
—
|
|
|
—
|
|
|
5,500
|
|
|
Equity in Loss from Subsidiaries
|
|
5,622
|
|
|
—
|
|
|
—
|
|
|
(5,622
|
)
|
|
—
|
|
|
Income (Loss) from Operations
|
|
54,714
|
|
|
(27,116
|
)
|
|
13,038
|
|
|
5,622
|
|
|
46,258
|
|
|
Interest Expense
|
|
(18,431
|
)
|
|
(6
|
)
|
|
(29
|
)
|
|
—
|
|
|
(18,466
|
)
|
|
Other Income, Net
|
|
8,251
|
|
|
152
|
|
|
939
|
|
|
—
|
|
|
9,342
|
|
|
Income (Loss) Before Provision for Income Taxes
|
|
44,534
|
|
|
(26,970
|
)
|
|
13,948
|
|
|
5,622
|
|
|
37,134
|
|
|
Provision (Credit) for Income Taxes
|
|
16,187
|
|
|
(9,889
|
)
|
|
2,489
|
|
|
—
|
|
|
8,787
|
|
|
Net Income (Loss)
|
|
$
|
28,347
|
|
|
$
|
(17,081
|
)
|
|
$
|
11,459
|
|
|
$
|
5,622
|
|
|
$
|
28,347
|
|
|
Comprehensive Income (Loss)
|
|
$
|
58,018
|
|
|
$
|
(16,836
|
)
|
|
$
|
12,832
|
|
|
$
|
4,004
|
|
|
$
|
58,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING STATEMENT
OF CASH FLOWS:
For the Fiscal Year Ended July 3, 2016
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in)Operating Activities
|
|
$
|
100,946
|
|
|
$
|
9,764
|
|
|
$
|
22,646
|
|
|
$
|
(21,533
|
)
|
|
$
|
111,823
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Plant and Equipment
|
|
(56,445
|
)
|
|
(5,108
|
)
|
|
(2,608
|
)
|
|
—
|
|
|
(64,161
|
)
|
|
Cash Paid for Acquisitions, Net of Cash Acquired
|
|
—
|
|
|
—
|
|
|
(3,074
|
)
|
|
—
|
|
|
(3,074
|
)
|
|
Cash Paid for Investment in Unconsolidated Affiliates
|
|
(19,100
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,100
|
)
|
|
Proceeds Received on Disposition of Plant and Equipment
|
|
26
|
|
|
960
|
|
|
373
|
|
|
—
|
|
|
1,359
|
|
|
Cash Investment in Subsidiary
|
|
(24,844
|
)
|
|
—
|
|
|
—
|
|
|
24,844
|
|
|
—
|
|
|
Net Borrowings (Repayments) on Loans, Revolver, Notes Payable and Long-Term Debt
|
|
47,300
|
|
|
—
|
|
|
—
|
|
|
(47,300
|
)
|
|
—
|
|
|
Other, Net
|
|
(860
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(860
|
)
|
|
Net Cash Used in Investing Activities
|
|
(53,923
|
)
|
|
(4,148
|
)
|
|
(5,309
|
)
|
|
(22,456
|
)
|
|
(85,836
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net Borrowings (Repayments) on Loans, Revolver, Notes Payable and Long-Term Debt
|
|
—
|
|
|
(22,112
|
)
|
|
(25,188
|
)
|
|
47,300
|
|
|
—
|
|
|
Repayments of Long-Term Debt
|
|
(1,851
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,851
|
)
|
|
Debt Issuance Costs
|
|
(932
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(932
|
)
|
|
Cash Dividends Paid
|
|
(23,617
|
)
|
|
—
|
|
|
(21,533
|
)
|
|
21,533
|
|
|
(23,617
|
)
|
|
Stock Option Exercise Proceeds and Tax Benefits
|
|
12,389
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,389
|
|
|
Cash Investment from Parent
|
|
—
|
|
|
—
|
|
|
24,844
|
|
|
(24,844
|
)
|
|
—
|
|
|
Treasury Stock Repurchases
|
|
(37,441
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37,441
|
)
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
(51,452
|
)
|
|
(22,112
|
)
|
|
(21,877
|
)
|
|
43,989
|
|
|
(51,452
|
)
|
|
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
—
|
|
|
—
|
|
|
(3,086
|
)
|
|
—
|
|
|
(3,086
|
)
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(4,429
|
)
|
|
(16,496
|
)
|
|
(7,626
|
)
|
|
—
|
|
|
(28,551
|
)
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
45,395
|
|
|
17,237
|
|
|
55,758
|
|
|
—
|
|
|
118,390
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
40,966
|
|
|
$
|
741
|
|
|
$
|
48,132
|
|
|
$
|
—
|
|
|
$
|
89,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING STATEMENT
OF CASH FLOWS:
For the Fiscal Year Ended June 28, 2015
|
|
Briggs & Stratton Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
$
|
97,780
|
|
|
$
|
24,453
|
|
|
$
|
27,343
|
|
|
$
|
(1,480
|
)
|
|
$
|
148,096
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Plant and Equipment
|
|
(56,067
|
)
|
|
(7,183
|
)
|
|
(8,460
|
)
|
|
—
|
|
|
(71,710
|
)
|
|
Cash Paid for Acquisition, Net of Cash Acquired
|
|
(88,144
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(88,144
|
)
|
|
Proceeds Received on Disposition of Plant and Equipment
|
|
90
|
|
|
1,930
|
|
|
97
|
|
|
—
|
|
|
2,117
|
|
|
Cash Investment in Subsidiary
|
|
(11,077
|
)
|
|
—
|
|
|
—
|
|
|
11,077
|
|
|
—
|
|
|
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt
|
|
28,615
|
|
|
—
|
|
|
—
|
|
|
(28,615
|
)
|
|
—
|
|
|
Other, Net
|
|
(250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(250
|
)
|
|
Net Cash Used in Investing Activities
|
|
(126,833
|
)
|
|
(5,253
|
)
|
|
(8,363
|
)
|
|
(17,538
|
)
|
|
(157,987
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net Borrowings (Repayments) on Loans, Revolver, Notes Payable and Long-Term Debt
|
|
—
|
|
|
(4,643
|
)
|
|
(23,972
|
)
|
|
28,615
|
|
|
—
|
|
|
Cash Dividends Paid
|
|
(22,559
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,559
|
)
|
|
Stock Option Exercise Proceeds and Tax Benefits
|
|
5,126
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,126
|
|
|
Treasury Stock Repurchases
|
|
(47,045
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47,045
|
)
|
|
Cash Investment from Parent
|
|
—
|
|
|
—
|
|
|
9,597
|
|
|
(9,597
|
)
|
|
—
|
|
|
Net Cash Used in Financing Activities
|
|
(64,478
|
)
|
|
(4,643
|
)
|
|
(14,375
|
)
|
|
19,018
|
|
|
(64,478
|
)
|
|
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
—
|
|
|
—
|
|
|
(1,909
|
)
|
|
—
|
|
|
(1,909
|
)
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(93,531
|
)
|
|
14,557
|
|
|
2,696
|
|
|
—
|
|
|
(76,278
|
)
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
138,926
|
|
|
2,680
|
|
|
53,062
|
|
|
—
|
|
|
194,668
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
45,395
|
|
|
$
|
17,237
|
|
|
$
|
55,758
|
|
|
$
|
—
|
|
|
$
|
118,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING STATEMENT
OF CASH FLOWS:
For the Fiscal Year Ended June 29, 2014
|
|
Briggs & Stratton Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$
|
77,161
|
|
|
$
|
6,816
|
|
|
$
|
43,102
|
|
|
$
|
—
|
|
|
$
|
127,079
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Plant and Equipment
|
|
(55,775
|
)
|
|
(2,718
|
)
|
|
(1,878
|
)
|
|
—
|
|
|
(60,371
|
)
|
|
Proceeds Received on Disposition of Plant and Equipment
|
|
170
|
|
|
33
|
|
|
425
|
|
|
—
|
|
|
628
|
|
|
Cash Investment in Subsidiary
|
|
13,307
|
|
|
—
|
|
|
(13,307
|
)
|
|
—
|
|
|
—
|
|
|
Net Cash Used in Investing Activities
|
|
(42,298
|
)
|
|
(2,685
|
)
|
|
(14,760
|
)
|
|
—
|
|
|
(59,743
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net Borrowings (Repayments) on Loans, Revolver, Notes Payable and Long-Term Debt
|
|
2,726
|
|
|
(2,726
|
)
|
|
(300
|
)
|
|
—
|
|
|
(300
|
)
|
|
Debt Issuance Costs
|
|
(949
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(949
|
)
|
|
Cash Dividends Paid
|
|
(22,697
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,697
|
)
|
|
Stock Option Exercise Proceeds and Tax Benefits
|
|
5,402
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,402
|
|
|
Treasury Stock Repurchases
|
|
(43,047
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43,047
|
)
|
|
Net Cash Used in Financing Activities
|
|
(58,565
|
)
|
|
(2,726
|
)
|
|
(300
|
)
|
|
—
|
|
|
(61,591
|
)
|
|
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
—
|
|
|
—
|
|
|
478
|
|
|
—
|
|
|
478
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(23,702
|
)
|
|
1,405
|
|
|
28,520
|
|
|
—
|
|
|
6,223
|
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
162,628
|
|
|
1,275
|
|
|
24,542
|
|
|
—
|
|
|
188,445
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
138,926
|
|
|
$
|
2,680
|
|
|
$
|
53,062
|
|
|
$
|
—
|
|
|
$
|
194,668
|
|