NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and General Information
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 ("OEMs") of lawn and garden equipment and other gasoline engine powered equipment. The Company also sells related service parts and accessories for its engines. The Company’s Products segment designs, manufacturers and markets a wide range of outdoor power equipment, job site products, and related accessories.
The majority of lawn and garden equipment is sold during the spring and summer months when most lawn care and gardening activities are performed. Engine sales in the Company’s third fiscal quarter have historically been the highest, while sales in the first fiscal quarter have historically been the lowest. Sales of pressure washers and lawn and garden powered equipment are typically higher during the third and fourth fiscal quarters than at other times of the year. Sales of portable generators and snowthrowers are typically higher during the first and second fiscal quarters.
Inventory levels generally increase during the first and second fiscal quarters in anticipation of customer demand. Inventory levels begin to decrease as sales increase in the third fiscal quarter. This seasonal pattern results in high inventories and low cash flow for the Company in the first, second and the beginning of the third fiscal quarters. The pattern generally results in higher cash flow in the latter portion of the third fiscal quarter and in the fourth fiscal quarter as inventories are liquidated and receivables are collected.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes necessary for a fair statement of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but also does not include all disclosures required by accounting principles generally accepted in the United States. However, in the opinion of the Company, adequate disclosures have been presented to prevent the information from being misleading, and all adjustments necessary to fairly present the results of operations and financial position have been included. All of these adjustments are of a normal recurring nature, except as otherwise noted.
Interim results are not necessarily indicative of results for a full year. The information included in these condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto that were included in the Company's latest Annual Report on Form 10-K.
2. 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 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 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.
3. Accumulated Other Comprehensive Income (Loss)
The following tables set forth the changes in accumulated other comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 2, 2016
|
|
|
Cumulative Translation Adjustments
|
|
Derivative Financial Instruments
|
|
Pension and Postretirement Benefit Plans
|
|
Total
|
Beginning Balance
|
|
$
|
(23,863
|
)
|
|
$
|
(1,552
|
)
|
|
$
|
(313,035
|
)
|
|
$
|
(338,450
|
)
|
Other Comprehensive Income (Loss) Before Reclassification
|
|
1,601
|
|
|
(710
|
)
|
|
—
|
|
|
891
|
|
Income Tax Benefit (Expense)
|
|
—
|
|
|
266
|
|
|
—
|
|
|
266
|
|
Net Other Comprehensive Income (Loss) Before Reclassifications
|
|
1,601
|
|
|
(444
|
)
|
|
—
|
|
|
1,157
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
Realized (Gains) Losses - Foreign Currency Contracts (1)
|
|
—
|
|
|
324
|
|
|
—
|
|
|
324
|
|
Realized (Gains) Losses - Commodity Contracts (1)
|
|
—
|
|
|
80
|
|
|
—
|
|
|
80
|
|
Realized (Gains) Losses - Interest Rate Swaps (1)
|
|
—
|
|
|
232
|
|
|
—
|
|
|
232
|
|
Amortization of Prior Service Costs (Credits) (2)
|
|
—
|
|
|
—
|
|
|
(618
|
)
|
|
(618
|
)
|
Amortization of Actuarial Losses (2)
|
|
—
|
|
|
—
|
|
|
4,714
|
|
|
4,714
|
|
Total Reclassifications Before Tax
|
|
—
|
|
|
636
|
|
|
4,096
|
|
|
4,732
|
|
Income Tax Expense (Benefit)
|
|
—
|
|
|
(239
|
)
|
|
(1,536
|
)
|
|
(1,775
|
)
|
Net Reclassifications
|
|
—
|
|
|
397
|
|
|
2,560
|
|
|
2,957
|
|
Other Comprehensive Income (Loss)
|
|
1,601
|
|
|
(47
|
)
|
|
2,560
|
|
|
4,114
|
|
Ending Balance
|
|
$
|
(22,262
|
)
|
|
$
|
(1,599
|
)
|
|
$
|
(310,475
|
)
|
|
$
|
(334,336
|
)
|
(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 8 for information related to derivative financial instruments.
(2) Amounts reclassified to net income (loss) 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 6 for information related to pension and postretirement benefit plans.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 27, 2015
|
|
|
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
|
|
(12,473
|
)
|
|
2,176
|
|
|
—
|
|
|
(10,297
|
)
|
Income Tax Benefit (Expense)
|
|
—
|
|
|
(816
|
)
|
|
—
|
|
|
(816
|
)
|
Net Other Comprehensive Income (Loss) Before Reclassifications
|
|
(12,473
|
)
|
|
1,360
|
|
|
—
|
|
|
(11,113
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
|
Realized (Gains) Losses - Foreign Currency Contracts (1)
|
|
—
|
|
|
(3,171
|
)
|
|
—
|
|
|
(3,171
|
)
|
Realized (Gains) Losses - Commodity Contracts (1)
|
|
—
|
|
|
132
|
|
|
—
|
|
|
132
|
|
Realized (Gains) Losses - Interest Rate Swaps (1)
|
|
—
|
|
|
302
|
|
|
—
|
|
|
302
|
|
Amortization of Prior Service Costs (Credits) (2)
|
|
—
|
|
|
—
|
|
|
(620
|
)
|
|
(620
|
)
|
Amortization of Actuarial Losses (2)
|
|
—
|
|
|
—
|
|
|
4,129
|
|
|
4,129
|
|
Total Reclassifications Before Tax
|
|
—
|
|
|
(2,737
|
)
|
|
3,509
|
|
|
772
|
|
Income Tax Expense (Benefit)
|
|
—
|
|
|
1,026
|
|
|
(1,316
|
)
|
|
(290
|
)
|
Net Reclassifications
|
|
—
|
|
|
(1,711
|
)
|
|
2,193
|
|
|
482
|
|
Other Comprehensive Income (Loss)
|
|
(12,473
|
)
|
|
(351
|
)
|
|
2,193
|
|
|
(10,631
|
)
|
Ending Balance
|
|
$
|
(31,590
|
)
|
|
$
|
861
|
|
|
$
|
(259,012
|
)
|
|
$
|
(289,741
|
)
|
(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 8 for information related to derivative financial instruments.
(2) Amounts reclassified to net income (loss) 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 6 for information related to pension and postretirement benefit plans.
4. Earnings (Loss) Per Share
The Company computes earnings (loss) per share using the two-class method, an earnings allocation formula that determines earnings (loss) 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, restricted stock units, 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 (loss) per share.
Information on earnings (loss) per share is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
Net Loss
|
|
$
|
(14,148
|
)
|
|
$
|
(18,171
|
)
|
Less: Allocation to Participating Securities
|
|
(112
|
)
|
|
(109
|
)
|
Net Loss Available to Common Shareholders
|
|
$
|
(14,260
|
)
|
|
$
|
(18,280
|
)
|
Average Shares of Common Stock Outstanding
|
|
42,494
|
|
|
43,478
|
|
Diluted Average Shares Outstanding
|
|
42,494
|
|
|
43,478
|
|
Basic Earnings (Loss) Per Share
|
|
$
|
(0.34
|
)
|
|
$
|
(0.42
|
)
|
Diluted Earnings (Loss) Per Share
|
|
$
|
(0.34
|
)
|
|
$
|
(0.42
|
)
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 (loss) per share as the exercise prices were greater than the average market price of the common shares:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
Options to Purchase Shares of Common Stock (in thousands)
|
|
408
|
|
|
910
|
|
Weighted Average Exercise Price of Options Excluded
|
|
$
|
20.82
|
|
|
$
|
20.31
|
|
As a result of the Company incurring a net loss for the three months ended October 2, 2016 and September 27, 2015, potential incremental common shares of
695,455
and
882,464
respectively, were excluded from the calculation of diluted earnings (loss) per share because the effect would have been anti-dilutive.
On April 21, 2016, the Board of Directors authorized up to
$50 million
in funds for use in the common share repurchase program with an expiration date of June 29, 2018. As of October 2, 2016, the total remaining authorization was approximately
$41.5 million
. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants. During the
three
months ended
October 2, 2016
, the Company repurchased
443,384
shares on the open market at an average price of
$19.52
per share, as compared to
589,882
shares purchased on the open market at an average price of
$18.95
per share during the
three
months ended
September 27, 2015
.
5. Investments
Investments represent the Company’s investments in unconsolidated affiliated companies.
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. Since the third quarter of fiscal 2016, the Company has prospectively classified its equity in earnings of unconsolidated affiliates as a separate line item within Income (Loss) from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated affiliates is classified in Other Income, Net.
During the fourth quarter of fiscal 2016, the Company sold its investment in marketable securities related to its ownership of common stock of a publicly-traded company and recognized a gain in the Consolidated Statements of Operations. The Company received proceeds of
$3.3 million
related to the sale in the first quarter of fiscal 2017.
6. Pension and Postretirement Benefits
The Company has noncontributory defined benefit retirement plans and postretirement plans covering certain employees. The following tables summarize the plans’ income and expense for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
|
October 2,
2016
|
|
September 27,
2015
|
Components of Net Periodic Expense (Income):
|
|
|
|
|
|
|
|
|
Service Cost
|
|
$
|
1,727
|
|
|
$
|
857
|
|
|
$
|
63
|
|
|
$
|
76
|
|
Interest Cost on Projected Benefit Obligation
|
|
10,846
|
|
|
13,042
|
|
|
594
|
|
|
809
|
|
Expected Return on Plan Assets
|
|
(16,118
|
)
|
|
(17,827
|
)
|
|
—
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Prior Service Cost (Credit)
|
|
45
|
|
|
45
|
|
|
(663
|
)
|
|
(665
|
)
|
Actuarial Loss
|
|
4,202
|
|
|
3,172
|
|
|
737
|
|
|
957
|
|
Net Periodic Expense (Income)
|
|
$
|
702
|
|
|
$
|
(711
|
)
|
|
$
|
731
|
|
|
$
|
1,177
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The Company expects to make benefit payments of
$3.0 million
attributable to its non-qualified pension plans during fiscal 2017. During the first
three
months of fiscal 2017, the Company made payments of approximately
$0.6 million
for its non-qualified pension plans. The Company anticipates making benefit payments of approximately
$9.0 million
for its other postretirement benefit plans during fiscal 2017. During the first
three
months of fiscal 2017, the Company made payments of
$3.4 million
for its other postretirement benefit plans.
During the first
three
months of fiscal 2017, the Company made
no
cash contributions to the qualified pension plan. Based upon current regulations and actuarial studies, the Company is not required to make contributions to the qualified pension plan in fiscal 2017 through fiscal 2018. The Company may be required to make further contributions in future years or the future expected funding requirements may change depending on a variety of factors including the actual return on plan assets, the funded status of the plan in future periods, and changes in actuarial assumptions or regulations.
7. Stock Incentives
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 period. Stock based compensation expense was
$1.2 million
for the
three
months ended
October 2, 2016
. For the
three
months ended
September 27, 2015
, stock based compensation expense was
$1.6 million
.
8. Derivative Instruments & Hedging Activities
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 hedges 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 within the Condensed 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 period or 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.
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
$157.5 million
with expiration dates ranging from
July 2017
through
July 2021
.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The Company 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 of its interest rate, foreign currency and commodity derivative contracts and deems any risk of counterparty default to be minimal.
As of
October 2, 2016
and
July 3, 2016
, the Company had the following outstanding derivative contracts (in thousands):
|
|
|
|
|
|
|
|
|
|
Contract
|
|
Notional Amount
|
|
|
|
|
October 2,
2016
|
|
July 3,
2016
|
Interest Rate:
|
|
|
|
|
|
|
LIBOR Interest Rate (U.S. Dollars)
|
|
Fixed
|
|
157,500
|
|
|
145,000
|
|
Foreign Currency:
|
|
|
|
|
|
|
Australian Dollar
|
|
Sell
|
|
41,121
|
|
|
39,935
|
|
Brazilian Real
|
|
Buy
|
|
17,014
|
|
|
16,436
|
|
Canadian Dollar
|
|
Sell
|
|
17,785
|
|
|
8,675
|
|
Chinese Renminbi
|
|
Buy
|
|
133,450
|
|
|
171,475
|
|
Euro
|
|
Sell
|
|
40,030
|
|
|
41,730
|
|
Japanese Yen
|
|
Buy
|
|
805,000
|
|
|
587,000
|
|
Mexican Peso
|
|
Sell
|
|
—
|
|
|
3,500
|
|
Commodity:
|
|
|
|
|
|
|
Natural Gas (Therms)
|
|
Buy
|
|
11,764
|
|
|
11,771
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The location and fair value of derivative instruments reported in the Condensed Consolidated Balance Sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Asset (Liability) Fair Value
|
|
|
October 2,
2016
|
|
July 3,
2016
|
Interest rate contracts
|
|
|
|
|
Other Long-Term Assets
|
|
$
|
88
|
|
|
$
|
—
|
|
Accrued Liabilities
|
|
(498
|
)
|
|
—
|
|
Other Long-Term Liabilities
|
|
(374
|
)
|
|
(1,367
|
)
|
Foreign currency contracts
|
|
|
|
|
Other Current Assets
|
|
940
|
|
|
1,356
|
|
Other Long-Term Assets
|
|
12
|
|
|
2
|
|
Accrued Liabilities
|
|
(2,708
|
)
|
|
(2,601
|
)
|
Other Long-Term Liabilities
|
|
(86
|
)
|
|
(185
|
)
|
Commodity contracts
|
|
|
|
|
Other Long-Term Assets
|
|
19
|
|
|
64
|
|
Accrued Liabilities
|
|
(211
|
)
|
|
(190
|
)
|
Other Long-Term Liabilities
|
|
(36
|
)
|
|
(16
|
)
|
|
|
$
|
(2,854
|
)
|
|
$
|
(2,937
|
)
|
The effect of derivative instruments on the Condensed Consolidated Statements of Operations and Comprehensive Loss is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 2, 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
|
|
$
|
364
|
|
|
Net Sales
|
|
$
|
(232
|
)
|
|
$
|
—
|
|
Foreign currency contracts - sell
|
|
(126
|
)
|
|
Net Sales
|
|
(306
|
)
|
|
—
|
|
Foreign currency contracts - buy
|
|
(232
|
)
|
|
Cost of Goods Sold
|
|
(18
|
)
|
|
—
|
|
Commodity contracts
|
|
(53
|
)
|
|
Cost of Goods Sold
|
|
(80
|
)
|
|
—
|
|
|
|
$
|
(47
|
)
|
|
|
|
$
|
(636
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 27, 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
|
|
$
|
(269
|
)
|
|
Net Sales
|
|
$
|
(302
|
)
|
|
$
|
—
|
|
Foreign currency contracts - sell
|
|
390
|
|
|
Net Sales
|
|
3,307
|
|
|
—
|
|
Foreign currency contracts - buy
|
|
(366
|
)
|
|
Cost of Goods Sold
|
|
(136
|
)
|
|
—
|
|
Commodity contracts
|
|
(106
|
)
|
|
Cost of Goods Sold
|
|
(132
|
)
|
|
—
|
|
|
|
$
|
(351
|
)
|
|
|
|
$
|
2,737
|
|
|
$
|
—
|
|
During the next twelve months, the estimated net amount of losses on cash flow hedges as of
October 2, 2016
expected to be reclassified out of AOCI into earnings is
$1.8 million
.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
9. Fair Value Measurements
The following guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.
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
October 2, 2016
and
July 3, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
October 2,
2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1,059
|
|
|
$
|
—
|
|
|
$
|
1,059
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
3,913
|
|
|
$
|
—
|
|
|
$
|
3,913
|
|
|
$
|
—
|
|
|
|
July 3,
2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1,422
|
|
|
$
|
—
|
|
|
$
|
1,422
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4,359
|
|
|
$
|
—
|
|
|
$
|
4,359
|
|
|
$
|
—
|
|
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.
The estimated fair value of the Company's Senior Notes (as defined in Note 14) at
October 2, 2016
and
July 3, 2016
was
$245.7 million
and
$240.2 million
, respectively, compared to the carrying value of
$223.1 million
. The estimated fair value of the Senior Notes is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the valuation hierarchy. The carrying value of the Revolver (as defined in Note 14) approximates fair value since the underlying rate of interest is variable based upon LIBOR rates.
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
October 2, 2016
and
July 3, 2016
due to the short-term nature of these instruments.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
10. 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):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
Beginning Balance
|
|
$
|
44,367
|
|
|
$
|
48,006
|
|
Payments
|
|
(8,196
|
)
|
|
(8,635
|
)
|
Provision for Current Year Warranties
|
|
4,600
|
|
|
5,834
|
|
Changes in Estimates
|
|
(415
|
)
|
|
(38
|
)
|
Ending Balance
|
|
$
|
40,356
|
|
|
$
|
45,167
|
|
11. Income Taxes
The effective tax rate for the
first
quarter of fiscal 2017 was
30.5%
, compared to
31.2%
for the same respective period last year. The effective tax rates for the first quarters of fiscal 2017 and 2016 were primarily impacted by losses incurred at certain foreign subsidiaries for which the Company does not receive tax benefits and foreign earnings in jurisdictions with tax rates that vary from the U.S. statutory rate.
For the
three
months ended
October 2, 2016
, the Company's unrecognized tax benefits increased by
$0.2 million
, all of which impacted the current effective tax rate.
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 and 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.
12. 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
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 October 2, 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.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
13. Segment Information
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. Prior to the third quarter of fiscal 2016, segment income (loss) is defined as income (loss) from operations plus equity in earnings of unconsolidated affiliates. Beginning with the third quarter of fiscal 2016, segment income (loss) is equal to operating income (loss).
Summarized segment data is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
NET SALES:
|
|
|
|
|
Engines
|
|
$
|
154,498
|
|
|
$
|
150,083
|
|
Products
|
|
150,795
|
|
|
162,541
|
|
Inter-Segment Eliminations
|
|
(18,496
|
)
|
|
(23,166
|
)
|
Total*
|
|
$
|
286,797
|
|
|
$
|
289,458
|
|
* International sales included in net sales based on product shipment destination
|
|
$
|
109,887
|
|
|
$
|
91,541
|
|
GROSS PROFIT:
|
|
|
|
|
Engines
|
|
$
|
30,985
|
|
|
$
|
23,777
|
|
Products
|
|
22,951
|
|
|
27,143
|
|
Inter-Segment Eliminations
|
|
(1,415
|
)
|
|
(1,208
|
)
|
Total
|
|
$
|
52,521
|
|
|
$
|
49,712
|
|
SEGMENT INCOME (LOSS):
|
|
|
|
|
Engines
|
|
$
|
(11,654
|
)
|
|
$
|
(20,754
|
)
|
Products
|
|
(3,245
|
)
|
|
62
|
|
Inter-Segment Eliminations
|
|
(1,415
|
)
|
|
(1,208
|
)
|
Total
|
|
$
|
(16,314
|
)
|
|
$
|
(21,900
|
)
|
|
|
|
|
|
Reconciliation from Segment Income (Loss) to Loss Before Income Taxes:
|
|
|
|
|
Equity in Earnings of Unconsolidated Affiliates
|
|
—
|
|
|
1,436
|
|
Loss from Operations
|
|
$
|
(16,314
|
)
|
|
$
|
(23,336
|
)
|
INTEREST EXPENSE
|
|
(4,505
|
)
|
|
(4,536
|
)
|
OTHER INCOME, Net
|
|
457
|
|
|
1,455
|
|
Loss Before Income Taxes
|
|
(20,362
|
)
|
|
(26,417
|
)
|
CREDIT FOR INCOME TAXES
|
|
(6,214
|
)
|
|
(8,246
|
)
|
Net Loss
|
|
$
|
(14,148
|
)
|
|
$
|
(18,171
|
)
|
Pre-tax restructuring charges and acquisition-related charges included in gross profit were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
Engines
|
|
$
|
—
|
|
|
$
|
464
|
|
Products
|
|
—
|
|
|
2,245
|
|
Total
|
|
$
|
—
|
|
|
$
|
2,709
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Pre-tax restructuring charges, acquisition-related charges, and litigation charges included in segment income (loss) were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
October 2,
2016
|
|
September 27,
2015
|
Engines
|
|
$
|
—
|
|
|
$
|
2,204
|
|
Products
|
|
—
|
|
|
2,295
|
|
Total
|
|
$
|
—
|
|
|
$
|
4,499
|
|
14. Debt
The following is a summary of the Company’s indebtedness (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2016
|
|
July 3,
2016
|
Multicurrency Credit Agreement
|
|
$
|
50,175
|
|
|
$
|
—
|
|
Total Short-Term Debt
|
|
$
|
50,175
|
|
|
$
|
—
|
|
|
|
|
|
|
6.875% Senior Notes
|
|
$
|
223,149
|
|
|
$
|
223,149
|
|
Unamortized Debt Issuance Costs associated with 6.875% Senior Notes
|
|
1,693
|
|
|
1,810
|
|
Total Long-Term Debt
|
|
$
|
221,456
|
|
|
$
|
221,339
|
|
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.
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 revolving credit facility is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability under the revolving credit facility by up to
$250 million
if certain conditions are satisfied. As of
October 2, 2016
,
$50.2 million
was outstanding under the Revolver. There were no borrowings under the Revolver as of July 3, 2016. 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.
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 transaction with the Company's 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.
15. 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 October 2, 2016 and July 3, 2016. 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
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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):
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2016 Carrying Amount
|
|
Maximum
Guarantee
|
6.875% Senior Notes
|
|
$
|
223,149
|
|
|
$
|
223,149
|
|
Multicurrency Credit Agreement
|
|
$
|
50,175
|
|
|
$
|
500,000
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The following condensed supplemental consolidating financial information reflects the summarized financial information of Briggs & Stratton, its Guarantor Subsidiary and its Non-Guarantor Subsidiaries (in thousands):
CONSOLIDATING BALANCE SHEET
As of
October 2, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
1,416
|
|
|
$
|
429
|
|
|
$
|
41,115
|
|
|
$
|
—
|
|
|
$
|
42,960
|
|
Accounts Receivable, Net
|
|
66,065
|
|
|
50,636
|
|
|
44,009
|
|
|
—
|
|
|
160,710
|
|
Intercompany Accounts Receivable
|
|
37,178
|
|
|
6,942
|
|
|
45,540
|
|
|
(89,660
|
)
|
|
—
|
|
Inventories, Net
|
|
222,452
|
|
|
161,963
|
|
|
86,392
|
|
|
—
|
|
|
470,807
|
|
Deferred Income Tax Asset
|
|
29,162
|
|
|
11,978
|
|
|
2,553
|
|
|
—
|
|
|
43,693
|
|
Prepaid Expenses and Other Current Assets
|
|
29,453
|
|
|
5,935
|
|
|
6,082
|
|
|
—
|
|
|
41,470
|
|
Total Current Assets
|
|
385,726
|
|
|
237,883
|
|
|
225,691
|
|
|
(89,660
|
)
|
|
759,640
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
128,300
|
|
|
—
|
|
|
33,370
|
|
|
$
|
—
|
|
|
161,670
|
|
Investments
|
|
52,049
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,049
|
|
Investments in Subsidiaries
|
|
510,845
|
|
|
—
|
|
|
—
|
|
|
(510,845
|
)
|
|
—
|
|
Intercompany Note Receivable
|
|
982
|
|
|
84,641
|
|
|
53,457
|
|
|
(139,080
|
)
|
|
—
|
|
Other Intangible Assets, Net
|
|
—
|
|
|
53,202
|
|
|
50,116
|
|
|
—
|
|
|
103,318
|
|
Long-Term Deferred Income Tax Asset
|
|
76,502
|
|
|
—
|
|
|
2,459
|
|
|
(29,231
|
)
|
|
49,730
|
|
Other Long-Term Assets, Net
|
|
12,117
|
|
|
4,306
|
|
|
1,065
|
|
|
—
|
|
|
17,488
|
|
Total Other Assets
|
|
780,795
|
|
|
142,149
|
|
|
140,467
|
|
|
(679,156
|
)
|
|
384,255
|
|
PLANT AND EQUIPMENT, NET
|
|
277,018
|
|
|
24,527
|
|
|
27,258
|
|
|
—
|
|
|
328,803
|
|
TOTAL ASSETS
|
|
$
|
1,443,539
|
|
|
$
|
404,559
|
|
|
$
|
393,416
|
|
|
$
|
(768,816
|
)
|
|
$
|
1,472,698
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
114,995
|
|
|
$
|
48,576
|
|
|
$
|
22,897
|
|
|
$
|
—
|
|
|
$
|
186,468
|
|
Intercompany Accounts Payable
|
|
34,012
|
|
|
9,634
|
|
|
46,014
|
|
|
(89,660
|
)
|
|
—
|
|
Short-Term Debt
|
|
50,175
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,175
|
|
Accrued Liabilities
|
|
66,303
|
|
|
39,868
|
|
|
23,534
|
|
|
—
|
|
|
129,705
|
|
Total Current Liabilities
|
|
265,485
|
|
|
98,078
|
|
|
92,445
|
|
|
(89,660
|
)
|
|
366,348
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
Accrued Pension Cost
|
|
305,112
|
|
|
355
|
|
|
852
|
|
|
—
|
|
|
306,319
|
|
Accrued Employee Benefits
|
|
23,341
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,341
|
|
Accrued Postretirement Health Care Obligation
|
|
22,418
|
|
|
13,702
|
|
|
—
|
|
|
—
|
|
|
36,120
|
|
Intercompany Note Payable
|
|
98,621
|
|
|
—
|
|
|
40,459
|
|
|
(139,080
|
)
|
|
—
|
|
Other Long-Term Liabilities
|
|
37,530
|
|
|
24,698
|
|
|
16,541
|
|
|
(29,231
|
)
|
|
49,538
|
|
Long-Term Debt
|
|
221,456
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221,456
|
|
Total Other Liabilities
|
|
708,478
|
|
|
38,755
|
|
|
57,852
|
|
|
(168,311
|
)
|
|
636,774
|
|
TOTAL SHAREHOLDERS’ INVESTMENT
|
|
469,576
|
|
|
267,726
|
|
|
243,119
|
|
|
(510,845
|
)
|
|
469,576
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
|
|
$
|
1,443,539
|
|
|
$
|
404,559
|
|
|
$
|
393,416
|
|
|
$
|
(768,816
|
)
|
|
$
|
1,472,698
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 Income Tax Asset
|
|
30,260
|
|
|
12,470
|
|
|
2,006
|
|
|
—
|
|
|
44,736
|
|
Prepaid Expenses and Other Current Assets
|
|
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 Income 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
|
|
Intercompany Note Payable
|
|
123,232
|
|
|
—
|
|
|
41,191
|
|
|
(164,423
|
)
|
|
—
|
|
Other Long-Term Liabilities
|
|
37,005
|
|
|
26,679
|
|
|
16,587
|
|
|
(29,172
|
)
|
|
51,099
|
|
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
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the
Three Months Ended
October 2, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net Sales
|
|
$
|
144,146
|
|
|
$
|
98,861
|
|
|
$
|
81,685
|
|
|
$
|
(37,895
|
)
|
|
$
|
286,797
|
|
Cost of Goods Sold
|
|
119,430
|
|
|
87,089
|
|
|
65,652
|
|
|
(37,895
|
)
|
|
234,276
|
|
Gross Profit
|
|
24,716
|
|
|
11,772
|
|
|
16,033
|
|
|
—
|
|
|
52,521
|
|
Engineering, Selling, General and Administrative Expenses
|
|
38,965
|
|
|
17,396
|
|
|
15,702
|
|
|
—
|
|
|
72,063
|
|
Equity in Earnings of Unconsolidated Affiliates
|
|
1,816
|
|
|
1,412
|
|
|
—
|
|
|
—
|
|
|
3,228
|
|
Equity in Loss (Earnings) from Subsidiaries
|
|
2,001
|
|
|
—
|
|
|
—
|
|
|
(2,001
|
)
|
|
—
|
|
Income (Loss) from Operations
|
|
(14,434
|
)
|
|
(4,212
|
)
|
|
331
|
|
|
2,001
|
|
|
(16,314
|
)
|
Interest Expense
|
|
(4,436
|
)
|
|
(67
|
)
|
|
(2
|
)
|
|
—
|
|
|
(4,505
|
)
|
Other Income (Loss), Net
|
|
(404
|
)
|
|
11
|
|
|
850
|
|
|
—
|
|
|
457
|
|
Income (Loss) before Income Taxes
|
|
(19,274
|
)
|
|
(4,268
|
)
|
|
1,179
|
|
|
2,001
|
|
|
(20,362
|
)
|
Provision (Credit) for Income Taxes
|
|
(5,126
|
)
|
|
(1,548
|
)
|
|
460
|
|
|
—
|
|
|
(6,214
|
)
|
Net Income (Loss)
|
|
$
|
(14,148
|
)
|
|
$
|
(2,720
|
)
|
|
$
|
719
|
|
|
$
|
2,001
|
|
|
$
|
(14,148
|
)
|
Comprehensive Income (Loss)
|
|
$
|
(10,034
|
)
|
|
$
|
(2,347
|
)
|
|
$
|
1,064
|
|
|
$
|
1,283
|
|
|
$
|
(10,034
|
)
|
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the
Three Months Ended
September 27, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net Sales
|
|
$
|
149,500
|
|
|
$
|
106,506
|
|
|
$
|
82,492
|
|
|
$
|
(49,040
|
)
|
|
$
|
289,458
|
|
Cost of Goods Sold
|
|
128,601
|
|
|
93,485
|
|
|
64,241
|
|
|
(49,040
|
)
|
|
237,287
|
|
Restructuring Charges
|
|
—
|
|
|
1,995
|
|
|
464
|
|
|
—
|
|
|
2,459
|
|
Gross Profit
|
|
20,899
|
|
|
11,026
|
|
|
17,787
|
|
|
—
|
|
|
49,712
|
|
Engineering, Selling, General and Administrative Expenses
|
|
37,805
|
|
|
16,954
|
|
|
17,375
|
|
|
—
|
|
|
72,134
|
|
Restructuring Charges
|
|
890
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
914
|
|
Equity in Loss (Earnings) from Subsidiaries
|
|
3,695
|
|
|
—
|
|
|
—
|
|
|
(3,695
|
)
|
|
—
|
|
Income (Loss) from Operations
|
|
(21,491
|
)
|
|
(5,952
|
)
|
|
412
|
|
|
3,695
|
|
|
(23,336
|
)
|
Interest Expense
|
|
(4,472
|
)
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(4,536
|
)
|
Other Income, Net
|
|
703
|
|
|
790
|
|
|
(38
|
)
|
|
—
|
|
|
1,455
|
|
Income (Loss) before Income Taxes
|
|
(25,260
|
)
|
|
(5,226
|
)
|
|
374
|
|
|
3,695
|
|
|
(26,417
|
)
|
Provision (Credit) for Income Taxes
|
|
(7,089
|
)
|
|
(1,898
|
)
|
|
741
|
|
|
—
|
|
|
(8,246
|
)
|
Net Income (Loss)
|
|
$
|
(18,171
|
)
|
|
$
|
(3,328
|
)
|
|
$
|
(367
|
)
|
|
$
|
3,695
|
|
|
$
|
(18,171
|
)
|
Comprehensive Income (Loss)
|
|
$
|
(28,802
|
)
|
|
$
|
(3,601
|
)
|
|
$
|
(6,506
|
)
|
|
$
|
10,107
|
|
|
$
|
(28,802
|
)
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the
Three Months Ended
October 2, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net Cash Provided by (Used in) Operating Activities
|
|
$
|
(51,795
|
)
|
|
$
|
(26,097
|
)
|
|
$
|
1,692
|
|
|
$
|
(297
|
)
|
|
$
|
(76,497
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
(13,463
|
)
|
|
(881
|
)
|
|
(1,420
|
)
|
|
—
|
|
|
(15,764
|
)
|
Proceeds Received on Disposition of Plant and Equipment
|
|
—
|
|
|
17
|
|
|
35
|
|
|
—
|
|
|
52
|
|
Proceeds on Sale of Investments in Marketable Securities
|
|
3,343
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,343
|
|
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt
|
|
(20,273
|
)
|
|
—
|
|
|
—
|
|
|
20,273
|
|
|
—
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
(30,393
|
)
|
|
(864
|
)
|
|
(1,385
|
)
|
|
20,273
|
|
|
(12,369
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Net Borrowings (Repayments) on Loans, Revolver, Notes Payable and Long-Term Debt
|
|
50,175
|
|
|
26,649
|
|
|
(6,376
|
)
|
|
(20,273
|
)
|
|
50,175
|
|
Treasury Stock Purchases
|
|
(8,654
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,654
|
)
|
Payment of Acquisition Contingent Liability
|
|
—
|
|
|
—
|
|
|
(813
|
)
|
|
—
|
|
|
(813
|
)
|
Stock Option Exercise Proceeds and Tax Benefits
|
|
1,117
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,117
|
|
Cash Dividends Paid
|
|
—
|
|
|
—
|
|
|
(297
|
)
|
|
297
|
|
|
—
|
|
Net Cash (Used in) Provided by Financing Activities
|
|
42,638
|
|
|
26,649
|
|
|
(7,486
|
)
|
|
(19,976
|
)
|
|
41,825
|
|
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents
|
|
—
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
162
|
|
Net Decrease in Cash and Cash Equivalents
|
|
(39,550
|
)
|
|
(312
|
)
|
|
(7,017
|
)
|
|
—
|
|
|
(46,879
|
)
|
Cash and Cash Equivalents, Beginning
|
|
40,966
|
|
|
741
|
|
|
48,132
|
|
|
—
|
|
|
89,839
|
|
Cash and Cash Equivalents, Ending
|
|
$
|
1,416
|
|
|
$
|
429
|
|
|
$
|
41,115
|
|
|
$
|
—
|
|
|
$
|
42,960
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the
Three Months Ended
September 27, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Briggs & Stratton
Corporation
|
|
Guarantor
Subsidiary
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net Cash Used in Operating Activities
|
|
$
|
(67,715
|
)
|
|
$
|
(8,420
|
)
|
|
$
|
(6,311
|
)
|
|
$
|
(243
|
)
|
|
$
|
(82,689
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
(10,916
|
)
|
|
(1,126
|
)
|
|
(386
|
)
|
|
—
|
|
|
(12,428
|
)
|
Proceeds Received on Disposition of Plant and Equipment
|
|
—
|
|
|
504
|
|
|
11
|
|
|
—
|
|
|
515
|
|
Cash Investment in Subsidiary
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash Paid for Acquisition, Net of Cash Acquired
|
|
—
|
|
|
—
|
|
|
(2,174
|
)
|
|
—
|
|
|
(2,174
|
)
|
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt
|
|
2,489
|
|
|
—
|
|
|
—
|
|
|
(2,489
|
)
|
|
—
|
|
Net Cash Used in Investing Activities
|
|
(8,427
|
)
|
|
(622
|
)
|
|
(2,549
|
)
|
|
(2,489
|
)
|
|
(14,087
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt
|
|
38,410
|
|
|
(8,063
|
)
|
|
5,574
|
|
|
2,489
|
|
|
38,410
|
|
Treasury Stock Purchases
|
|
(11,178
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,178
|
)
|
Stock Option Exercise Proceeds and Tax Benefits
|
|
6,433
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,433
|
|
Cash Investment in Subsidiary
|
|
—
|
|
|
—
|
|
|
(243
|
)
|
|
243
|
|
|
—
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
33,665
|
|
|
(8,063
|
)
|
|
5,331
|
|
|
2,732
|
|
|
33,665
|
|
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents
|
|
—
|
|
|
—
|
|
|
(1,284
|
)
|
|
—
|
|
|
(1,284
|
)
|
Net Decrease in Cash and Cash Equivalents
|
|
(42,477
|
)
|
|
(17,105
|
)
|
|
(4,813
|
)
|
|
—
|
|
|
(64,395
|
)
|
Cash and Cash Equivalents, Beginning
|
|
45,395
|
|
|
17,237
|
|
|
55,758
|
|
|
—
|
|
|
118,390
|
|
Cash and Cash Equivalents, Ending
|
|
$
|
2,918
|
|
|
$
|
132
|
|
|
$
|
50,945
|
|
|
$
|
—
|
|
|
$
|
53,995
|
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES