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EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 - BRIGGS & STRATTON CORPex321-bggx3292015.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 - BRIGGS & STRATTON CORPex311-bggx3292015.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 - BRIGGS & STRATTON CORPex312-bggx3292015.htm
EXCEL - IDEA: XBRL DOCUMENT - BRIGGS & STRATTON CORPFinancial_Report.xls
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 - BRIGGS & STRATTON CORPex322-bggx3292015.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2015
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-1370
________________________________________
BRIGGS & STRATTON CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________________ 
Wisconsin
 
39-0182330
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
(Address of Principal Executive Offices) (Zip Code)
(414) 259-5333
(Registrant’s telephone number, including area code)
____________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes  x    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨    No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
 
Outstanding at May 1, 2015
COMMON STOCK, par value $0.01 per share
 
44,599,944 Shares



BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
 
 
 
Page No.
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
Condensed Consolidated Balance Sheets – March 29, 2015 and June 29, 2014
 
 
 
 
Condensed Consolidated Statements of Operations – Three and Nine Months Ended March 29, 2015 and March 30, 2014
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows – Nine Months Ended March 29, 2015 and March 30, 2014
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

2


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)


ASSETS
 
 
 
 
 
 
 
 
March 29,
2015
 
June 29,
2014
CURRENT ASSETS:
 
 
 
 
Cash and Cash Equivalents
 
$
49,694

 
$
194,668

Accounts Receivable, Net
 
315,725

 
220,590

Inventories -
 
 
 
 
Finished Products and Parts
 
323,059

 
268,116

Work in Process
 
115,145

 
102,431

Raw Materials
 
8,692

 
5,556

Total Inventories
 
446,896

 
376,103

Deferred Income Tax Asset
 
48,958

 
48,958

Prepaid Expenses and Other Current Assets
 
35,463

 
30,016

Total Current Assets
 
896,736

 
870,335

OTHER ASSETS:
 
 
 
 
Goodwill
 
156,278

 
144,522

Investments
 
29,354

 
27,137

Debt Issuance Costs
 
3,950

 
4,671

Other Intangible Assets, Net
 
95,405

 
80,317

Long-Term Deferred Income Tax Asset
 
129

 
15,178

Other Long-Term Assets, Net
 
12,445

 
10,539

Total Other Assets
 
297,561

 
282,364

PLANT AND EQUIPMENT:
 
 
 
 
Cost
 
1,028,368

 
1,035,848

Less - Accumulated Depreciation
 
728,136

 
738,841

Total Plant and Equipment, Net
 
300,232

 
297,007

TOTAL ASSETS
 
$
1,494,529

 
$
1,449,706



3



BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except per share data)
(Unaudited)
 

LIABILITIES & SHAREHOLDERS’ INVESTMENT
 
 
 
 
 
 
 
 
March 29,
2015
 
June 29,
2014
CURRENT LIABILITIES:
 
 
 
 
Accounts Payable
 
$
197,476

 
$
169,271

Short-Term Debt
 
60,100

 

Accrued Liabilities
 
158,644

 
133,916

Total Current Liabilities
 
416,220

 
303,187

OTHER LIABILITIES:
 
 
 
 
Accrued Pension Cost
 
107,992

 
126,529

Accrued Employee Benefits
 
24,487

 
24,491

Accrued Postretirement Health Care Obligation
 
51,750

 
59,290

Deferred Income Tax Liability
 
3,414

 

Other Long-Term Liabilities
 
40,822

 
38,775

Long-Term Debt
 
225,000

 
225,000

Total Other Liabilities
 
453,465

 
474,085

SHAREHOLDERS’ INVESTMENT:
 
 
 
 
Common Stock - Authorized 120,000 shares, $.01 par value, issued 57,854 shares
 
579

 
579

Additional Paid-In Capital
 
76,332

 
78,466

Retained Earnings
 
1,056,981

 
1,048,466

Accumulated Other Comprehensive Loss
 
(218,840
)
 
(195,257
)
Treasury Stock at cost, 13,174 and 11,536 shares, respectively
 
(290,208
)
 
(259,820
)
Total Shareholders’ Investment
 
624,844

 
672,434

TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
$
1,494,529

 
$
1,449,706



The accompanying notes are an integral part of these statements.
4


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
NET SALES
 
$
619,015

 
$
628,403

 
$
1,355,931

 
$
1,362,299

COST OF GOODS SOLD
 
492,847

 
498,927

 
1,080,883

 
1,106,148

RESTRUCTURING CHARGES
 
7,088

 
(774
)
 
20,780

 
4,704

Gross Profit
 
119,080

 
130,250

 
254,268

 
251,447

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
72,714

 
74,863

 
216,767

 
215,402

RESTRUCTURING CHARGES
 
943

 

 
2,481

 
425

Income from Operations
 
45,423

 
55,387

 
35,020

 
35,620

INTEREST EXPENSE
 
(5,233
)
 
(4,720
)
 
(14,641
)
 
(13,823
)
OTHER INCOME, Net
 
2,323

 
2,295

 
6,749

 
6,138

Income Before Income Taxes
 
42,513

 
52,962

 
27,128

 
27,935

PROVISION FOR INCOME TAXES
 
8,592

 
13,809

 
1,542

 
7,429

NET INCOME
 
$
33,921

 
$
39,153

 
$
25,586

 
$
20,506

 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
Basic
 
$
0.75

 
$
0.82

 
$
0.56

 
$
0.43

Diluted
 
0.75

 
0.82

 
0.56

 
0.43

 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
 
 
 
 
Basic
 
44,160

 
46,129

 
44,605

 
46,549

Diluted
 
44,241

 
46,245

 
44,656

 
46,615

 
 
 
 
 
 
 
 
 
DIVIDENDS PER SHARE
 
$
0.125

 
$
0.12

 
$
0.375

 
$
0.36



The accompanying notes are an integral part of these statements.
5


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)


 
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
Net Income
 
$
33,921

 
$
39,153

 
$
25,586

 
$
20,506

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
Cumulative Translation Adjustments
 
(12,925
)
 
2,212

 
(34,045
)
 
(1,160
)
Unrealized Gain (Loss) on Derivative Instruments, Net of Tax
 
(173
)
 
1,381

 
3,333

 
2,568

Unrecognized Pension & Postretirement Obligation, Net of Tax
 
2,377

 
4,381

 
7,129

 
13,168

Other Comprehensive Income (Loss)
 
(10,721
)
 
7,974

 
(23,583
)
 
14,576

Total Comprehensive Income
 
$
23,200

 
$
47,127

 
$
2,003

 
$
35,082




The accompanying notes are an integral part of these statements.
6


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net Income
 
$
25,586

 
$
20,506

Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
 
 
 
 
Depreciation and Amortization
 
39,302

 
38,333

Stock Compensation Expense
 
4,840

 
5,822

Loss on Disposition of Plant and Equipment
 
300

 
462

Provision (Credit) for Deferred Income Taxes
 
914

 
(8,705
)
Equity in Earnings of Unconsolidated Affiliates
 
(5,005
)
 
(4,277
)
Dividends Received from Unconsolidated Affiliates
 
4,381

 
4,069

Non-Cash Restructuring Charges
 
12,445

 
3,386

Change in Operating Assets and Liabilities:
 
 
 
 
Accounts Receivable
 
(88,898
)
 
(147,738
)
Inventories
 
(58,715
)
 
11,713

Other Current Assets
 
5,917

 
(9,083
)
Accounts Payable, Accrued Liabilities and Income Taxes
 
18,844

 
76,335

Other, Net
 
(12,046
)
 
(4,856
)
Net Cash Used in Operating Activities
 
(52,135
)
 
(14,033
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to Plant and Equipment
 
(44,157
)
 
(29,471
)
Proceeds Received on Disposition of Plant and Equipment
 
318

 
109

Cash Paid for Acquisition, Net of Cash Acquired
 
(59,855
)
 

Other, Net
 
(250
)
 

Net Cash Used in Investing Activities
 
(103,944
)
 
(29,362
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Repayments on Short-Term Debt
 

 
(300
)
Net Borrowings on Revolver
 
60,100

 

Debt Issuance Costs
 

 
(949
)
Treasury Stock Purchases
 
(39,560
)
 
(30,066
)
Stock Option Exercise Proceeds and Tax Benefits
 
3,921

 
4,361

Cash Dividends Paid
 
(11,374
)
 
(11,387
)
Net Cash Provided by (Used in) Financing Activities
 
13,087

 
(38,341
)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(1,982
)
 
529

NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(144,974
)
 
(81,207
)
CASH AND CASH EQUIVALENTS, Beginning
 
194,668

 
188,445

CASH AND CASH EQUIVALENTS, Ending
 
$
49,694

 
$
107,238



The accompanying notes are an integral part of these statements.
7


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General Information
 
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 Briggs & Stratton Corporation (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 May 2014, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("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, 2016, including interim periods within that reporting period, under either full or modified retrospective adoption. Early application is not permitted. Management is currently assessing the potential impact of this new accounting pronouncement on the Company's results of operations, financial position, and cash flow.

8


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


3. Accumulated Other Comprehensive Income (Loss)
The following tables set forth the changes in accumulated other comprehensive income (loss) (in thousands):
 
 
Three Months Ended March 29, 2015
 
 
Cumulative Translation Adjustments
 
Derivative Financial Instruments
 
Pension and Postretirement Benefit Plans
 
Total
Beginning Balance
 
$
(8,067
)
 
$
2,422

 
$
(202,474
)
 
$
(208,119
)
Other Comprehensive Income (Loss) Before Reclassification
 
(12,925
)
 
3,824

 

 
(9,101
)
Income Tax Benefit (Expense)
 

 
(1,453
)
 

 
(1,453
)
Net Other Comprehensive Income (Loss) Before Reclassifications
 
(12,925
)
 
2,371

 

 
(10,554
)
Reclassifications:
 
 
 
 
 
 
 


Realized (Gains) Losses - Foreign Currency Contracts (1)
 

 
(4,728
)
 

 
(4,728
)
Realized (Gains) Losses - Commodity Contracts (1)
 

 
319

 

 
319

Realized (Gains) Losses - Interest Rate Swaps (1)
 

 
306

 

 
306

Amortization of Prior Service Costs (Credits) (2)
 

 

 
(644
)
 
(644
)
Amortization of Actuarial Losses (2)
 

 

 
4,477

 
4,477

Total Reclassifications Before Tax
 

 
(4,103
)
 
3,833

 
(270
)
Income Tax Expense (Benefit)
 

 
1,559

 
(1,456
)
 
103

Net Reclassifications
 

 
(2,544
)
 
2,377

 
(167
)
Other Comprehensive Income (Loss)
 
(12,925
)
 
(173
)
 
2,377

 
(10,721
)
Ending Balance
 
$
(20,992
)
 
$
2,249

 
$
(200,097
)
 
$
(218,840
)
(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 10 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 8 for information related to pension and postretirement benefit plans.

9


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


 
 
Three Months Ended March 30, 2014
 
 
Cumulative Translation Adjustments
 
Derivative Financial Instruments
 
Pension and Postretirement Benefit Plans
 
Total
Beginning Balance
 
$
8,514

 
$
(2,486
)
 
$
(224,354
)
 
$
(218,326
)
Other Comprehensive Income (Loss) Before Reclassification
 
2,212

 
323

 

 
2,535

Income Tax Benefit (Expense)
 

 
(124
)
 

 
(124
)
Net Other Comprehensive Income (Loss) Before Reclassifications
 
2,212

 
199

 

 
2,411

Reclassifications:
 
 
 
 
 
 
 
 
Realized (Gains) Losses - Foreign Currency Contracts (1)
 

 
448

 

 
448

Realized (Gains) Losses - Commodity Contracts (1)
 

 
1,165

 

 
1,165

Realized (Gains) Losses - Interest Rate Swaps (1)
 

 
302

 

 
302

Amortization of Prior Service Costs (Credits) (2)
 

 

 
(679
)
 
(679
)
Amortization of Actuarial Losses (2)
 

 

 
7,780

 
7,780

Total Reclassifications Before Tax
 

 
1,915

 
7,101

 
9,016

Income Tax Expense (Benefit)
 

 
(733
)
 
(2,720
)
 
(3,453
)
Net Reclassifications
 

 
1,182

 
4,381

 
5,563

Other Comprehensive Income (Loss)
 
2,212

 
1,381

 
4,381

 
7,974

Ending Balance
 
$
10,726

 
$
(1,105
)
 
$
(219,973
)
 
$
(210,352
)
(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 10 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 8 for information related to pension and postretirement benefit plans.



10


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


 
 
Nine Months Ended March 29, 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
 
(34,045
)
 
10,629

 

 
(23,416
)
Income Tax Benefit (Expense)
 

 
(4,039
)
 

 
(4,039
)
Net Other Comprehensive Income (Loss) Before Reclassifications
 
(34,045
)
 
6,590

 

 
(27,455
)
Reclassifications:
 
 
 
 
 
 
 


Realized (Gains) Losses - Foreign Currency Contracts (1)
 

 
(7,025
)
 

 
(7,025
)
Realized (Gains) Losses - Commodity Contracts (1)
 

 
841

 

 
841

Realized (Gains) Losses - Interest Rate Swaps (1)
 

 
931

 

 
931

Amortization of Prior Service Costs (Credits) (2)
 

 

 
(1,933
)
 
(1,933
)
Amortization of Actuarial Losses (2)
 

 

 
13,432

 
13,432

Total Reclassifications Before Tax
 

 
(5,253
)
 
11,499

 
6,246

Income Tax Expense (Benefit)
 

 
1,996

 
(4,370
)
 
(2,374
)
Net Reclassifications
 

 
(3,257
)
 
7,129

 
3,872

Other Comprehensive Income (Loss)
 
(34,045
)
 
3,333

 
7,129

 
(23,583
)
Ending Balance
 
$
(20,992
)
 
$
2,249

 
$
(200,097
)
 
$
(218,840
)
(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 10 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 8 for information related to pension and postretirement benefit plans.

11


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


 
 
Nine Months Ended March 30, 2014
 
 
Cumulative Translation Adjustments
 
Derivative Financial Instruments
 
Pension and Postretirement Benefit Plans
 
Total
Beginning Balance
 
$
11,886

 
$
(3,673
)
 
$
(233,141
)
 
$
(224,928
)
Other Comprehensive Income (Loss) Before Reclassification
 
(1,160
)
 
(2,757
)
 

 
(3,917
)
Income Tax Benefit (Expense)
 

 
1,056

 

 
1,056

Net Other Comprehensive Income (Loss) Before Reclassifications
 
(1,160
)
 
(1,701
)
 

 
(2,861
)
Reclassifications:
 
 
 
 
 
 
 
 
Realized (Gains) Losses - Foreign Currency Contracts (1)
 

 
1,197

 

 
1,197

Realized (Gains) Losses - Commodity Contracts (1)
 

 
4,823

 

 
4,823

Realized (Gains) Losses - Interest Rate Swaps (1)
 

 
899

 

 
899

Amortization of Prior Service Costs (Credits) (2)
 

 

 
(2,037
)
 
(2,037
)
Amortization of Actuarial Losses (2)
 

 

 
23,333

 
23,333

Total Reclassifications Before Tax
 

 
6,919

 
21,296

 
28,215

Income Tax Expense (Benefit)
 

 
(2,650
)
 
(8,128
)
 
(10,778
)
Net Reclassifications
 

 
4,269

 
13,168

 
17,437

Other Comprehensive Income (Loss)
 
(1,160
)
 
2,568

 
13,168

 
14,576

Ending Balance
 
$
10,726

 
$
(1,105
)
 
$
(219,973
)
 
$
(210,352
)
(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 10 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 8 for information related to pension and postretirement benefit plans.

4. 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. The total cash consideration, net of cash acquired, decreased by $2.2 million during the third quarter of fiscal 2015 due to finalization of the working capital adjustment. 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 national and regional equipment rental companies, equipment dealers and distributors. Allmand sells its products and service parts in approximately 40 countries. As of March 29, 2015, the Company recorded a preliminary purchase price allocation based on its initial estimates of fair value. The preliminary purchase price allocation resulted in the recognition of $15.5 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.

The results of operations of Allmand have been included in the Condensed Consolidated Statements of Operations since the date of acquisition. Pro forma financial information and allocation of the preliminary purchase price are not presented as the effects of the acquisition are not material to the Company's consolidated results of operations or financial position.

12


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

5. Restructuring Actions
During the first quarter of 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 reduce costs. The Company closed its McDonough, Georgia plant in the fourth quarter of fiscal 2015 and is consolidating production into existing facilities in Wisconsin and New York. 

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 restructuring actions discussed above resulted in pre-tax charges of $8.0 million ($5.2 million after tax or $0.11 per diluted share) and $23.3 million ($15.1 million after tax or $0.33 per diluted share) recorded within the Products Segment for the third quarter and first nine months of fiscal 2015, respectively. Total estimated pre-tax restructuring cost estimates for the restructuring actions remain unchanged at $30 million to $37 million, including non-cash write-downs of $15 million to $20 million.

The following is a rollforward of the restructuring reserve (included in Accrued Liabilities within the Condensed Consolidated Balance Sheets) attributable to Products Segment restructuring activities for the nine month period ended March 29, 2015 (in thousands):
 
 
Termination Benefits
 
Other Costs
 
Total
Reserve Balance at June 29, 2014
 
$

 
$
105

 
$
105

Provisions
 
5,326

 
17,935

 
23,261

Cash Expenditures
 
(650
)
 
(5,595
)
 
(6,245
)
Other Adjustments (1)
 

 
(12,445
)
 
(12,445
)
Reserve Balance at March 29, 2015
 
$
4,676

 
$

 
$
4,676

(1) Other adjustments includes $1.2 million of asset impairments and $11.2 million of accelerated depreciation.
6. 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):
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
Net Income
 
$
33,921

 
$
39,153

 
$
25,586

 
$
20,506

Less: Allocation to Participating Securities
 
(893
)
 
(1,150
)
 
(626
)
 
(552
)
Net Income Available to Common Shareholders
 
$
33,028

 
$
38,003

 
$
24,960

 
$
19,954

Average Shares of Common Stock Outstanding
 
44,160

 
46,129

 
44,605

 
46,549

Diluted Average Shares Outstanding
 
44,241

 
46,245

 
44,656

 
46,615

Basic Earnings Per Share
 
$
0.75

 
$
0.82

 
$
0.56

 
$
0.43

Diluted Earnings Per Share
 
$
0.75

 
$
0.82

 
$
0.56

 
$
0.43



13


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 per share as the exercise prices were greater than the average market price of the common shares:
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
Options to Purchase Shares of Common Stock (in thousands)
 
845

 
508

 
845

 
916

Weighted Average Exercise Price of Options Excluded
 
$
20.33

 
$
36.68

 
$
20.33

 
$
29.62


On January 22, 2014, the Board of Directors of the Company authorized up to $50 million in funds for use in the Company’s common share repurchase program. On August 13, 2014, the Board of Directors of the Company authorized up to an additional $50 million in funds associated with the common share repurchase program. As of March 29, 2015, the total remaining authorization was approximately $47.7 million with an expiration date of June 30, 2016. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants. During the nine months ended March 29, 2015, the Company repurchased 2,039,399 shares on the open market at an average price of $19.40 per share, as compared to 1,479,626 shares purchased on the open market at an average price of $20.32 per share during the nine months ended March 30, 2014.

7. Investments

This caption represents the Company’s investments in unconsolidated affiliated companies.

During the third quarter of fiscal 2014, the Company joined with one of its independent distributors to form a 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, the venture acquired a third independent distributor. The Company uses the equity method to account for this investment, and the earnings of the unconsolidated affiliate are recorded within the Products Segment. As of March 29, 2015, the Company's total investment in the venture was $10.1 million, and its ownership percentage was 11.9%.
8. 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
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
Components of Net Periodic Expense (Income):
 
 
 
 
 
 
 
 
Service Cost
 
$
858

 
$
1,911

 
$
74

 
$
83

Interest Cost on Projected Benefit Obligation
 
12,445

 
13,436

 
902

 
1,150

Expected Return on Plan Assets
 
(18,659
)
 
(18,538
)
 

 

Amortization of:
 
 
 
 
 
 
 
 
Prior Service Cost (Credit)
 
45

 
45

 
(689
)
 
(724
)
Actuarial Loss
 
3,315

 
6,276

 
1,162

 
1,504

Net Periodic Expense (Income)
 
$
(1,996
)
 
$
3,130

 
$
1,449

 
$
2,013


14


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Nine Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
Components of Net Periodic Expense (Income):
 
 
 
 
 
 
 
 
Service Cost
 
$
2,574

 
$
5,735

 
$
222

 
$
250

Interest Cost on Projected Benefit Obligation
 
37,336

 
40,307

 
2,706

 
3,450

Expected Return on Plan Assets
 
(55,978
)
 
(55,614
)
 

 

Amortization of:
 
 
 
 
 
 
 
 
Prior Service Cost (Credit)
 
135

 
135

 
(2,068
)
 
(2,172
)
Actuarial Loss
 
9,946

 
18,821

 
3,486

 
4,512

Net Periodic Expense (Income)
 
$
(5,987
)
 
$
9,384

 
$
4,346

 
$
6,040


On January 1, 2014, an amendment to the Company's defined benefit retirement plans became effective that froze accruals for all U.S. non-bargaining employees. Also, on January 1, 2014, amendments became effective that increased benefits under the defined contribution plans.

The Company expects to make benefit payments of $3.2 million attributable to its non-qualified pension plans during fiscal 2015. During the first nine months of fiscal 2015, the Company made payments of approximately $2.3 million for its non-qualified pension plans. The Company anticipates making benefit payments of approximately $12.7 million for its other postretirement benefit plans during fiscal 2015. During the first nine months of fiscal 2015, the Company made payments of $11.7 million for its other postretirement benefit plans.
 
During the first nine months of fiscal 2015, 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 during the remainder of fiscal 2015. In addition, the Company expects it will not be required to make minimum contributions to the qualified pension plan in fiscal 2016 through fiscal 2019. The Company may be required to make further contributions in future years depending upon the actual return on plan assets and the funded status of the plan in future periods.
9. 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 $1.5 million and $4.8 million for the three and nine months ended March 29, 2015, respectively. For the three and nine months ended March 30, 2014, stock based compensation expense was $1.3 million and $5.8 million, respectively.

15


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

10. 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 on 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 1.17% to 1.60% for a notional principal amount of $95 million with expiration dates ranging from July 2017 through May 2019.

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 twenty-four 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.
    

16


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

As of March 29, 2015 and June 29, 2014, the Company had the following outstanding derivative contracts (in thousands):
Contract
 
Notional Amount
 
 
 
 
March 29,
2015
 
June 29,
2014
Interest Rate:
 
 
 
 
 
 
LIBOR Interest Rate (U.S. Dollars)
 
Fixed
 
95,000

 
95,000

Foreign Currency:
 
 
 
 
 
 
Australian Dollar
 
Sell
 
13,801

 
19,904

Brazilian Real
 
Sell
 
11,608

 

Canadian Dollar
 
Sell
 
6,700

 
3,100

Chinese Renminbi
 
Buy
 
223,575

 

Euro
 
Sell
 
46,590

 
49,300

Euro
 
Buy
 
6,000

 

Japanese Yen
 
Buy
 
1,014,000

 
530,000

Mexican Peso
 
Sell
 

 
3,000

Commodity:
 
 
 
 
 
 
Natural Gas (Therms)
 
Buy
 
10,304

 
5,686


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
 
 
March 29,
2015
 
June 29,
2014
Interest rate contracts
 
 
 
 
Other Long-Term Assets
 
$

 
$
43

Other Long-Term Liabilities
 
(1,354
)
 
(1,209
)
Foreign currency contracts
 
 
 
 
Other Current Assets
 
9,740

 
337

Other Long-Term Assets
 
31

 
12

Accrued Liabilities
 
(1,235
)
 
(665
)
Other Long-Term Liabilities
 
(47
)
 
(9
)
Commodity contracts
 
 
 
 
Other Current Assets
 

 
39

Accrued Liabilities
 
(598
)
 
(35
)
Other Long-Term Liabilities
 
(221
)
 
(14
)
 
 
$
6,316

 
$
(1,501
)

17


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


The effect of derivative instruments on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows (in thousands):
 
 
Three months ended March 29, 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
 
$
(381
)
 
Net Sales
 
$
(306
)
 
$

Foreign currency contracts - sell
 
(120
)
 
Net Sales
 
5,146

 

Foreign currency contracts - buy
 
357

 
Cost of Goods Sold
 
(418
)
 

Commodity contracts
 
(29
)
 
Cost of Goods Sold
 
(319
)
 

 
 
$
(173
)
 
 
 
$
4,103

 
$


 
 
Three months ended March 30, 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
 
$
15

 
Net Sales
 
$
(302
)
 
$

Foreign currency contracts - sell
 
348

 
Net Sales
 
(138
)
 

Foreign currency contracts - buy
 
170

 
Cost of Goods Sold
 
(310
)
 

Commodity contracts
 
848

 
Cost of Goods Sold
 
(1,165
)
 

 
 
$
1,381

 
 
 
$
(1,915
)
 
$

 
 
Nine months ended March 29, 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
 
$
(120
)
 
Net Sales
 
$
(931
)
 
$

Foreign currency contracts - sell
 
3,720

 
Net Sales
 
7,689

 

Foreign currency contracts - buy
 
(51
)
 
Cost of Goods Sold
 
(664
)
 

Commodity contracts
 
(216
)
 
Cost of Goods Sold
 
(841
)
 

 
 
$
3,333

 
 
 
$
5,253

 
$


 
 
Nine months ended March 30, 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
 
$
20

 
Net Sales
 
$
(899
)
 
$

Foreign currency contracts - sell
 
(751
)
 
Net Sales
 
(248
)
 

Foreign currency contracts - buy
 
142

 
Cost of Goods Sold
 
(949
)
 

Commodity contracts
 
3,157

 
Cost of Goods Sold
 
(4,823
)
 

 
 
$
2,568

 
 
 
$
(6,919
)
 
$



18


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

During the next twelve months, the estimated net amount of income on cash flow hedges as of March 29, 2015 expected to be reclassified out of AOCI into earnings is $4.8 million.
11. 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 March 29, 2015 and June 29, 2014 (in thousands):
 
 
 
 
Fair Value Measurements Using
 
 
March 29,
2015
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Derivatives
 
$
9,771

 
$

 
$
9,771

 
$

Liabilities:
 
 
 
 
 
 
 
 
Derivatives
 
$
3,455

 
$

 
$
3,455

 
$

 
 
June 29,
2014
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Derivatives
 
$
431

 
$

 
$
431

 
$

Liabilities:
 
 
 
 
 
 
 
 
Derivatives
 
$
1,932

 
$

 
$
1,932

 
$


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 16) at March 29, 2015 and June 29, 2014 was $248.6 million and $251.4 million, respectively, compared to the carrying value of $225.0 million on each date. 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 16) 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 March 29, 2015 and June 29, 2014 due to the short-term nature of these instruments.

19


12. 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):
 
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
Beginning Balance
 
$
44,744

 
$
45,037

Payments
 
(20,106
)
 
(20,336
)
Provision for Current Year Warranties
 
22,493

 
20,889

Changes in Estimates
 
(46
)
 
(616
)
Ending Balance
 
$
47,085

 
$
44,974


13. Income Taxes
The effective tax rates for the third quarter and first nine months of fiscal 2015 were 20.2% and 5.7%, compared to 26.1% and 26.6% for the respective periods last year. The tax rates for the third quarter and first nine months of fiscal 2015 were primarily impacted by incremental federal research & development (R&D) tax credits related to prior years, offset by reserves for unrecognized tax positions for a net tax benefit of $4.7 million and $5.0 million, respectively. In addition, the tax rate for the first nine months of fiscal 2015 was impacted by the reversal of previously recorded reserves as a result of the effective settlement of the Company’s IRS audit. The tax rates for the third quarter and the first nine months of fiscal 2014 included a taxpayer election filed pursuant to the outcome of a U.S. court case that provided the Company precedent to record a tax benefit of $2.9 million for the permanent exclusion of qualified export activity from prior years’ taxable income.

For the three and nine months ended March 29, 2015, the Company's unrecognized tax benefits increased by $4.2 million and $2.1 million, respectively, all of which impacted the current effective tax rate. This amount substantially consists of the reversal of previously recorded reserves as a result of the effective settlement of the Company’s IRS audit, offset by the recording of additional reserves associated with incremental R&D credit claimed.

Income tax returns are filed in the U.S., state, and foreign jurisdictions and related audits occur on a regular basis. The Company is no longer subject to U.S. federal income tax examinations before fiscal 2012 and is currently under audit by various other jurisdictions. With respect to the Company's major foreign jurisdictions, they are no longer subject to tax examinations before fiscal 2004.

14. Commitments and Contingencies
Briggs & Stratton 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 seeks an injunction preventing the alleged unilateral termination or reduction in insurance coverage to the class of retirees, a permanent injunction preventing defendants from ever making changes to the retirees' insurance coverage, restitution with interest (if applicable) and attorneys' fees and costs. A class has been certified, and discovery has concluded. Both parties moved for summary judgment, which was fully

20


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

briefed on December 23, 2014. Summary judgment is currently pending before the court, and no hearing date or trial date has been set.
Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes the unresolved legal actions will not have a material adverse effect on its results of operations, financial position or cash flows.
15. Segment Information

The Company maintains two reportable business segments that are managed separately based on fundamental differences in their operations. Beginning in fiscal 2015, the Company is using “segment income (loss)” as the primary measure to evaluate operating performance and allocate capital resources for the Engines and Products Segments. Previously, the Company used income (loss) from operations. Segment income (loss) is defined as income (loss) from operations plus equity in earnings of unconsolidated affiliates. The Company has recast prior year amounts for comparability. Summarized segment data is as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
NET SALES:
 
 
 
 
 
 
 
 
Engines
 
$
432,248

 
$
452,359

 
$
857,067

 
$
901,858

Products
 
211,135

 
205,160

 
576,313

 
529,724

Inter-Segment Eliminations
 
(24,368
)
 
(29,116
)
 
(77,449
)
 
(69,283
)
Total
 
$
619,015

 
$
628,403

 
$
1,355,931

 
$
1,362,299

GROSS PROFIT:
 
 
 
 
 
 
 
 
Engines
 
$
98,885

 
$
107,930

 
$
189,580

 
$
187,423

Products
 
19,908

 
22,365

 
64,505

 
62,149

Inter-Segment Eliminations
 
287

 
(45
)
 
183

 
1,875

Total
 
$
119,080

 
$
130,250

 
$
254,268

 
$
251,447

SEGMENT INCOME (LOSS):
 
 
 
 
 
 
 
 
Engines
 
$
54,928

 
$
62,071

 
$
59,967

 
$
54,805

Products
 
(8,128
)
 
(4,913
)
 
(20,125
)
 
(16,783
)
Inter-Segment Eliminations
 
287

 
(45
)
 
183

 
1,875

Total
 
$
47,087

 
$
57,113

 
$
40,025

 
$
39,897

 
 
 
 
 
 
 
 
 
Reconciliation from Segment Income (Loss) to Income Before Income Taxes:
 
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Affiliates
 
1,664

 
1,726

 
5,005

 
4,277

Income from Operations
 
$
45,423

 
$
55,387

 
$
35,020

 
$
35,620

INTEREST EXPENSE
 
(5,233
)
 
(4,720
)
 
(14,641
)
 
(13,823
)
OTHER INCOME, Net
 
2,323

 
2,295

 
6,749

 
6,138

Income Before Income Taxes
 
42,513

 
52,962

 
27,128

 
27,935

PROVISION FOR INCOME TAXES
 
8,592

 
13,809

 
1,542

 
7,429

Net Income
 
$
33,921

 
$
39,153

 
$
25,586

 
$
20,506



21


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

Pre-tax restructuring charges and acquisition-related charges included in gross profit were as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
PRE-TAX RESTRUCTURING CHARGES AND ACQUISITION-RELATED CHARGES INCLUDED IN GROSS PROFIT:
 
 
 
 
 
 
 
 
Engines
 
$

 
$
(774
)
 
$

 
$
2,622

Products
 
7,088

 

 
21,952

 
2,082

Total
 
$
7,088

 
$
(774
)
 
$
21,952

 
$
4,704

    
Pre-tax restructuring charges and acquisition-related charges included in segment income (loss) were as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
PRE-TAX RESTRUCTURING CHARGES AND ACQUISITION-RELATED CHARGES INCLUDED IN SEGMENT INCOME (LOSS):
 
 
 
 
 
 
 
 
Engines
 
$

 
$
(774
)
 
$

 
$
3,047

Products
 
8,141

 

 
24,902

 
2,082

Total
 
$
8,141

 
$
(774
)
 
$
24,902

 
$
5,129

16. Debt

The following is a summary of the Company’s indebtedness (in thousands):
 
 
March 29,
2015
 
June 29,
2014
Senior Notes
 
$
225,000

 
$
225,000

Multicurrency Credit Agreement
 
60,100

 

 
 
$
285,100

 
$
225,000

 
On December 20, 2010, the Company issued $225 million of 6.875% Senior Notes ("Senior Notes") due December 15, 2020.  

On October 21, 2013, the Company entered into an amendment to its $500 million multicurrency credit agreement (the “Revolver”), which, among other things, extended the maturity of the Revolver to October 21, 2018. The initial maximum availability under the revolving credit facility is $500 million. Availability under the revolving credit facility is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability under the revolving credit facility by up to $250 million if certain conditions are satisfied. In connection with the amendment to the Revolver in the second quarter of fiscal 2014, 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. As of March 29, 2015, $60.1 million was outstanding under the Revolver.

The Senior Notes and Revolver contain restrictive covenants. These covenants include restrictions on the Company’s ability to: pay dividends; repurchase shares; incur indebtedness; create liens; enter into sale and leaseback transactions; consolidate or merge with other entities; sell or lease all or substantially all of its assets; and dispose of assets or use proceeds from sales of its assets. The Revolver contains financial covenants that require the Company to maintain a minimum interest coverage ratio and impose a maximum average leverage ratio.

22


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


17. 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 March 29, 2015 and June 29, 2014. 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):
 
 
March 29, 2015 Carrying Amount
 
Maximum
Guarantee
Senior Notes
 
$
225,000

 
$
225,000

Multicurrency Credit Agreement
 
$
60,100

 
$
500,000


23


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 March 29, 2015
(Unaudited)
 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
5,946

 
$
455

 
$
43,293

 
$

 
$
49,694

Accounts Receivable, Net
 
164,675

 
95,655

 
55,395

 

 
315,725

Intercompany Accounts Receivable
 
19,650

 
6,690

 
38,401

 
(64,741
)
 

Inventories, Net
 
209,572

 
160,022

 
77,302

 

 
446,896

Deferred Income Tax Asset
 
31,697

 
15,414

 
1,847

 

 
48,958

Prepaid Expenses and Other Current Assets
 
26,630

 
1,768

 
7,065

 

 
35,463

Total Current Assets
 
$
458,170

 
$
280,004

 
$
223,303

 
$
(64,741
)
 
$
896,736

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
128,300

 
$

 
$
27,978

 
$

 
$
156,278

Investments
 
29,354

 

 

 

 
29,354

Investments in Subsidiaries
 
504,606

 

 

 
(504,606
)
 

Intercompany Note Receivable
 
37,667

 
72,354

 
22,918

 
(132,939
)
 

Debt Issuance Costs
 
3,950

 

 

 

 
3,950

Other Intangible Assets, Net
 

 
55,007

 
40,398

 

 
95,405

Long-Term Deferred Income Tax Asset
 
23,271

 

 
129

 
(23,271
)
 
129

Other Long-Term Assets, Net
 
7,783

 
3,262

 
1,400

 

 
12,445

Total Other Assets
 
$
734,931

 
$
130,623

 
$
92,823

 
$
(660,816
)
 
$
297,561

PLANT AND EQUIPMENT, NET
 
246,041

 
27,931

 
26,260

 

 
300,232

TOTAL ASSETS
 
$
1,439,142

 
$
438,558

 
$
342,386

 
$
(725,557
)
 
$
1,494,529

 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts Payable
 
$
115,794

 
$
55,909

 
$
25,773

 
$

 
$
197,476

Intercompany Accounts Payable
 
30,074

 
7,511

 
27,156

 
(64,741
)
 

Short-Term Debt
 
60,100

 

 

 

 
60,100

Accrued Liabilities
 
96,202

 
42,053

 
20,389

 

 
158,644

Total Current Liabilities
 
$
302,170

 
$
105,473

 
$
73,318

 
$
(64,741
)
 
$
416,220

OTHER LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accrued Pension Cost
 
$
107,115

 
$
381

 
$
496

 
$

 
$
107,992

Accrued Employee Benefits
 
24,487

 

 

 

 
24,487

Accrued Postretirement Health Care Obligation
 
37,529

 
14,221

 

 

 
51,750

Intercompany Note Payable
 
86,864

 

 
46,075

 
(132,939
)
 

Deferred Income Tax Liabilities
 

 
15,781

 
10,904

 
(23,271
)
 
3,414

Other Long-Term Liabilities
 
31,133

 
8,824

 
865

 

 
40,822

Long-Term Debt
 
225,000

 

 

 

 
225,000

Total Other Liabilities
 
$
512,128

 
$
39,207

 
$
58,340

 
$
(156,210
)
 
$
453,465

TOTAL SHAREHOLDERS’ INVESTMENT
 
624,844

 
293,878

 
210,728

 
(504,606
)
 
624,844

TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
$
1,439,142

 
$
438,558

 
$
342,386

 
$
(725,557
)
 
$
1,494,529





24


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


CONSOLIDATING BALANCE SHEET
As of June 29, 2014
 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
138,926

 
$
2,680

 
$
53,062

 
$

 
$
194,668

Accounts Receivable, Net
 
86,099

 
100,062

 
34,429

 

 
220,590

Intercompany Accounts Receivable
 
15,987

 
3,492

 
32,826

 
(52,305
)
 

Inventories, Net
 
165,159

 
146,749

 
64,195

 

 
376,103

Deferred Income Tax Asset
 
33,343

 
13,904

 
1,711

 

 
48,958

Prepaid Expenses and Other Current Assets
 
17,436

 
3,508

 
9,072

 

 
30,016

Total Current Assets
 
$
456,950

 
$
270,395

 
$
195,295

 
$
(52,305
)
 
$
870,335

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
128,300

 
$

 
$
16,222

 
$

 
$
144,522

Investments
 
27,137

 

 

 

 
27,137

Investments in Subsidiaries
 
470,391

 

 

 
(470,391
)
 

Intercompany Note Receivable
 
49,293

 
84,567

 
13,876

 
(147,736
)
 

Debt Issuance Costs
 
4,671

 

 

 

 
4,671

Other Intangible Assets, Net
 

 
55,909

 
24,408

 

 
80,317

Long-Term Deferred Income Tax Asset
 
32,507

 

 
677

 
(18,006
)
 
15,178

Other Long-Term Assets, Net
 
7,120

 
2,088

 
1,331

 

 
10,539

Total Other Assets
 
$
719,419

 
$
142,564

 
$
56,514

 
$
(636,133
)
 
$
282,364

PLANT AND EQUIPMENT, NET
 
241,166

 
39,863

 
15,978

 

 
297,007

TOTAL ASSETS
 
$
1,417,535

 
$
452,822

 
$
267,787

 
$
(688,438
)
 
$
1,449,706

 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts Payable
 
$
105,532

 
$
45,171

 
$
18,568

 
$

 
$
169,271

Intercompany Accounts Payable
 
21,859

 
6,002

 
24,444

 
(52,305
)
 

Accrued Liabilities
 
85,735

 
31,863

 
16,318

 

 
133,916

Total Current Liabilities
 
$
213,126

 
$
83,036

 
$
59,330

 
$
(52,305
)
 
$
303,187

OTHER LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accrued Pension Cost
 
$
125,481

 
$
421

 
$
627

 
$

 
$
126,529

Accrued Employee Benefits
 
24,491

 

 

 

 
24,491

Accrued Postretirement Health Care Obligation
 
44,928

 
14,362

 

 

 
59,290

Intercompany Note Payable
 
85,343

 

 
62,393

 
(147,736
)
 

Deferred Income Tax Liabilities
 

 
18,006

 

 
(18,006
)
 

Other Long-Term Liabilities
 
26,732

 
11,037

 
1,006

 

 
38,775

Long-Term Debt
 
225,000

 

 

 

 
225,000

Total Other Liabilities
 
$
531,975

 
$
43,826

 
$
64,026

 
$
(165,742
)
 
$
474,085

TOTAL SHAREHOLDERS’ INVESTMENT
 
672,434

 
325,960

 
144,431

 
(470,391
)
 
672,434

TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
$
1,417,535

 
$
452,822

 
$
267,787

 
$
(688,438
)
 
$
1,449,706


 






25


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 29, 2015
(Unaudited)
 
 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
 
$
408,530

 
$
165,804

 
$
95,155

 
$
(50,474
)
 
$
619,015

Cost of Goods Sold
 
321,429

 
150,392

 
71,500

 
(50,474
)
 
492,847

Restructuring Charges
 

 
7,088

 

 

 
7,088

Gross Profit
 
87,101

 
8,324

 
23,655

 

 
119,080

Engineering, Selling, General and Administrative Expenses
 
43,252

 
19,504

 
9,958

 

 
72,714

Restructuring Charges
 

 
943

 

 

 
943

Equity in Earnings from Subsidiaries
 
(5,072
)
 

 

 
5,072

 

Income (Loss) from Operations
 
48,921

 
(12,123
)
 
13,697

 
(5,072
)
 
45,423

Interest Expense
 
(5,159
)
 
(72
)
 
(2
)
 

 
(5,233
)
Other Income, Net
 
1,375

 
293

 
655

 

 
2,323

Income (Loss) before Income Taxes
 
45,137

 
(11,902
)
 
14,350

 
(5,072
)
 
42,513

Provision (Credit) for Income Taxes
 
11,216

 
(4,448
)
 
1,824

 

 
8,592

Net Income (Loss)
 
$
33,921

 
$
(7,454
)
 
$
12,526

 
$
(5,072
)
 
$
33,921

Comprehensive Income (Loss)
 
$
23,200

 
$
(8,010
)
 
$
4,740

 
$
3,270

 
$
23,200

CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 30, 2014
(Unaudited)
 
 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
 
$
429,788

 
$
172,493

 
$
78,767

 
$
(52,645
)
 
$
628,403

Cost of Goods Sold
 
334,097

 
158,623

 
58,852

 
(52,645
)
 
498,927

Restructuring Charges
 
(774
)
 

 

 

 
(774
)
Gross Profit
 
96,465

 
13,870

 
19,915

 

 
130,250

Engineering, Selling, General and Administrative Expenses
 
43,267

 
20,938

 
10,658

 

 
74,863

Equity in Earnings from Subsidiaries
 
(3,658
)
 

 

 
3,658

 

Income (Loss) from Operations
 
56,856

 
(7,068
)
 
9,257

 
(3,658
)
 
55,387

Interest Expense
 
(4,720
)
 

 

 

 
(4,720
)
Other Income, Net
 
2,078

 
15

 
202

 

 
2,295

Income (Loss) before Income Taxes
 
54,214

 
(7,053
)
 
9,459

 
(3,658
)
 
52,962

Provision (Credit) for Income Taxes
 
15,061

 
(2,598
)
 
1,346

 

 
13,809

Net Income (Loss)
 
$
39,153

 
$
(4,455
)
 
$
8,113

 
$
(3,658
)
 
$
39,153

Comprehensive Income (Loss)
 
$
47,127

 
$
(4,542
)
 
$
9,276

 
$
(4,734
)
 
$
47,127








26


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended March 29, 2015
(Unaudited)

 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
 
$
816,386

 
$
413,772

 
$
295,066

 
$
(169,293
)
 
$
1,355,931

Cost of Goods Sold
 
650,398

 
372,129

 
227,649

 
(169,293
)
 
1,080,883

Restructuring Charges
 

 
20,780

 

 

 
20,780

Gross Profit
 
165,988

 
20,863

 
67,417

 

 
254,268

Engineering, Selling, General and Administrative Expenses
 
120,553

 
55,248

 
40,966

 

 
216,767

Restructuring Charges
 

 
2,481

 

 

 
2,481

Equity in Loss from Subsidiaries
 
930

 

 

 
(930
)
 

Income (Loss) from Operations
 
44,505

 
(36,866
)
 
26,451

 
930

 
35,020

Interest Expense
 
(14,460
)
 
(178
)
 
(3
)
 

 
(14,641
)
Other Income, Net
 
4,690

 
1,069

 
990

 

 
6,749

Income (Loss) before Income Taxes
 
34,735

 
(35,975
)
 
27,438

 
930

 
27,128

Provision (Credit) for Income Taxes
 
9,149

 
(13,426
)
 
5,819

 

 
1,542

Net Income (Loss)
 
$
25,586

 
$
(22,549
)
 
$
21,619

 
$
930

 
$
25,586

Comprehensive Income (Loss)
 
$
2,003

 
$
(23,041
)
 
$
2,677

 
$
20,364

 
$
2,003

CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended March 30, 2014
(Unaudited)

 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
 
$
855,142

 
$
425,041

 
$
229,465

 
$
(147,349
)
 
$
1,362,299

Cost of Goods Sold
 
688,280

 
388,123

 
177,094

 
(147,349
)
 
1,106,148

Restructuring Charges
 
2,693

 
228

 
1,783

 

 
4,704

Gross Profit
 
164,169

 
36,690

 
50,588

 

 
251,447

Engineering, Selling, General and Administrative Expenses
 
123,019

 
56,628

 
35,755

 

 
215,402

Restructuring Charges
 
77

 

 
348

 

 
425

Equity in Loss from Subsidiaries
 
1,459

 

 

 
(1,459
)
 

Income (Loss) from Operations
 
39,614

 
(19,938
)
 
14,485

 
1,459

 
35,620

Interest Expense
 
(13,796
)
 

 
(27
)
 

 
(13,823
)
Other Income, Net
 
5,882

 
199

 
57

 

 
6,138

Income (Loss) before Income Taxes
 
31,700

 
(19,739
)
 
14,515

 
1,459

 
27,935

Provision (Credit) for Income Taxes
 
11,194

 
(7,275
)
 
3,510

 

 
7,429

Net Income (Loss)
 
$
20,506

 
$
(12,464
)
 
$
11,005

 
$
1,459

 
$
20,506

Comprehensive Income (Loss)
 
$
35,082

 
$
(12,747
)
 
$
11,785

 
$
962

 
$
35,082







27


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended March 29, 2015
(Unaudited)
 
 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Cash Provided by (Used in) Operating Activities
 
$
(44,164
)
 
$
(9,889
)
 
$
3,398

 
$
(1,480
)
 
$
(52,135
)
Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
Additions to Plant and Equipment
 
(34,008
)
 
(4,680
)
 
(5,469
)
 

 
(44,157
)
Proceeds Received on Disposition of Plant and Equipment
 
90

 
156

 
72

 

 
318

Cash Investment in Subsidiary
 
(6,880
)
 

 

 
6,880

 

Cash Paid for Acquisition, Net of Cash Acquired
 
(59,855
)
 

 

 

 
(59,855
)
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt
 
(1,000
)
 

 

 
1,000

 

Other, Net
 
(250
)
 

 

 

 
(250
)
Net Cash Provided by (Used in) Investing Activities
 
(101,903
)
 
(4,524
)
 
(5,397
)
 
7,880

 
(103,944
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
Net Borrowings (Repayments) on Loans, Revolver, Notes Payable and Long-Term Debt
 
60,100

 
12,188

 
(11,188
)
 
(1,000
)
 
60,100

Treasury Stock Purchases
 
(39,560
)
 

 

 

 
(39,560
)
Stock Option Exercise Proceeds and Tax Benefits
 
3,921

 

 

 

 
3,921

Cash Dividends Paid
 
(11,374
)
 

 

 

 
(11,374
)
Cash Investment in Subsidiary
 

 

 
5,400

 
(5,400
)
 

Net Cash Provided by (Used in) Financing Activities
 
13,087

 
12,188

 
(5,788
)
 
(6,400
)
 
13,087

Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents
 

 

 
(1,982
)
 

 
(1,982
)
Net Increase (Decrease) in Cash and Cash Equivalents
 
(132,980
)
 
(2,225
)
 
(9,769
)
 

 
(144,974
)
Cash and Cash Equivalents, Beginning
 
138,926

 
2,680

 
53,062

 

 
194,668

Cash and Cash Equivalents, Ending
 
$
5,946

 
$
455

 
$
43,293

 
$

 
$
49,694


28


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended March 30, 2014
(Unaudited)
 
 
 
Briggs & Stratton
Corporation
 
Guarantor
Subsidiary
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Cash Provided by (Used in) Operating Activities
 
$
(48,051
)
 
$
1,925

 
$
32,093

 
$

 
$
(14,033
)
Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
Additions to Plant and Equipment
 
(26,474
)
 
(1,932
)
 
(1,065
)
 

 
(29,471
)
Proceeds Received on Disposition of Plant and Equipment
 
57

 
33

 
19

 

 
109

Cash Investment in Subsidiary
 
8,107

 

 
(8,107
)
 

 

Net Cash Provided by (Used in) Investing Activities
 
(18,310
)
 
(1,899
)
 
(9,153
)
 

 
(29,362
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
        Repayments on Short-Term Debt
 

 

 
(300
)
 

 
(300
)
Net Borrowings (Repayments) on Loans, Notes Payable and Long-Term Debt
 
(668
)
 
668

 

 

 

Debt Issuance Costs
 
(949
)
 

 

 

 
(949
)
Treasury Stock Purchases
 
(30,066
)
 

 

 

 
(30,066
)
Stock Option Exercise Proceeds and Tax Benefits
 
4,361

 

 

 

 
4,361

Cash Dividends Paid
 
(11,387
)
 

 

 

 
(11,387
)
Net Cash Provided by (Used in) Financing Activities
 
(38,709
)

668

 
(300
)
 

 
(38,341
)
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents
 

 

 
529

 

 
529

Net Increase (Decrease) in Cash and Cash Equivalents
 
(105,070
)
 
694

 
23,169

 

 
(81,207
)
Cash and Cash Equivalents, Beginning
 
162,628

 
1,275

 
24,542

 

 
188,445

Cash and Cash Equivalents, Ending
 
$
57,558

 
$
1,969

 
$
47,711

 
$

 
$
107,238

 











29


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results by segment, excluding restructuring actions and acquisition-related charges, for the three months ended fiscal March 2015 and 2014 (in thousands, except per share data):
 
 
Three Months Ended Fiscal March
 
 
2015 Reported
 
Adjustments(1)
 
2015 Adjusted (2)
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted(2)
NET SALES:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
432,248

 
$

 
$
432,248

 
$
452,359

 
$

 
$
452,359

Products
 
211,135

 

 
211,135

 
205,160

 

 
205,160

Inter-Segment Eliminations
 
(24,368
)
 

 
(24,368
)
 
(29,116
)
 

 
(29,116
)
Total
 
$
619,015

 
$

 
$
619,015

 
$
628,403

 
$

 
$
628,403

 
 
 
 
 
 
 
 
 
 
 
 
 
GROSS PROFIT:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
98,885

 
$

 
$
98,885

 
$
107,930

 
$
(774
)
 
$
107,156

Products
 
19,908

 
7,088

 
26,996

 
22,365

 

 
22,365

Inter-Segment Eliminations
 
287

 

 
287

 
(45
)
 

 
(45
)
Total
 
$
119,080

 
$
7,088

 
$
126,168

 
$
130,250

 
$
(774
)
 
$
129,476

 
 
 
 
 
 
 
 
 
 
 
 
 
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
45,345

 
$

 
$
45,345

 
$
47,585

 
$

 
$
47,585

Products
 
27,369

 
110

 
27,259

 
27,278

 

 
27,278

Total
 
$
72,714

 
$
110

 
$
72,604

 
$
74,863

 
$

 
$
74,863

 
 
 
 
 
 
 
 
 
 
 
 
 
RESTRUCTURING CHARGES:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$

 
$

 
$

 
$

 
$

 
$

Products
 
943

 
943

 

 

 

 

Total
 
$
943

 
$
943

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
1,388

 
$

 
$
1,388

 
$
1,726

 
$

 
$
1,726

Products
 
276

 

 
276

 

 

 

Total
 
$
1,664

 
$

 
$
1,664

 
$
1,726

 
$

 
$
1,726

 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME (LOSS) (3):
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
54,928

 
$

 
$
54,928

 
$
62,071

 
$
(774
)
 
$
61,297

Products
 
(8,128
)
 
8,141

 
13

 
(4,913
)
 

 
(4,913
)
Inter-Segment Eliminations
 
287

 

 
287

 
(45
)
 

 
(45
)
Total
 
$
47,087

 
$
8,141

 
$
55,228

 
$
57,113

 
$
(774
)
 
$
56,339


30


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

 
 
Three Months Ended Fiscal March
 
 
2015 Reported
 
Adjustments(1)
 
2015 Adjusted (2)
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted(2)
SEGMENT INCOME (LOSS) (3):
 
47,087

 
8,141

 
55,228

 
57,113

 
(774
)
 
56,339

Reconciliation from Segment Income (Loss) to Income Before Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Affiliates
 
1,664

 

 
1,664

 
1,726

 

 
1,726

Income from Operations
 
$
45,423

 
$
8,141

 
$
53,564

 
$
55,387

 
$
(774
)
 
$
54,613

 
 
 
 
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
(5,233
)
 

 
(5,233
)
 
(4,720
)
 

 
(4,720
)
OTHER INCOME, Net
 
2,323

 

 
2,323

 
2,295

 

 
2,295

Income Before Income Taxes
 
42,513

 
8,141

 
50,654

 
52,962

 
(774
)
 
52,188

PROVISION FOR INCOME TAXES
 
8,592

 
2,849

 
11,441

 
13,809

 
(271
)
 
13,538

Net Income
 
$
33,921

 
$
5,292

 
$
39,213

 
$
39,153

 
$
(503
)
 
$
38,650

 
 
 
 
 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.75

 
$
0.11

 
$
0.86

 
$
0.82

 
$
(0.01
)
 
$
0.81

Diluted
 
0.75

 
0.11

 
0.86

 
0.82

 
(0.01
)
 
0.81


(1) For the third quarter of fiscal 2015, includes restructuring charges of $8,031 net of $2,811 of taxes and acquisition-related charges of $110 net of $38 of taxes. For the third quarter of fiscal 2014, includes restructuring income of $774 net of $271 of taxes.
(2) Adjusted financial results are non-GAAP financial measures. The Company believes this information is meaningful to investors as it isolates the impact that restructuring charges and acquisition related charges have on reported financial results and facilitates comparisons between peer companies. The Company may utilize non-GAAP financial measures as a guide in the forecasting, budgeting, and long-term planning process. While the Company believes that adjusted financial results are useful supplemental information, such adjusted financial results are not intended to replace its GAAP financial results and should be read in conjunction with those GAAP results.
(3) The Company defines segment income (loss) as income from operations plus equity in earnings of unconsolidated affiliates.

NET SALES

Consolidated net sales for the third quarter of fiscal 2015 were $619.0 million, a decrease of $9.4 million or 1.5% from the third quarter of fiscal 2014. Engines shipped to third party OEM customers increased slightly in the quarter; however, shipments to its Products Segment were down in the quarter due to higher shipments earlier in the year to enable production in advance of the McDonough plant closure. The strengthening of the US dollar, predominantly against the Australian dollar, Brazilian real and Euro, led to an unfavorable foreign exchange impact on sales of $6.7 million. In addition, net sales were unfavorably impacted by reduced generator sales and unfavorable mix of engines shipped. Net sales benefited by higher sales in international markets, particularly Australia and Europe, and the results of the Allmand acquisition, which closed in August of this fiscal year.

Engine Segment net sales were $432.2 million in the third quarter of fiscal 2015, a decrease of $20.1 million or 4.5% from the prior year. Total engine volumes shipped in the quarter decreased by 1.6% or approximately 50,000 engines. Engines shipped to third party OEM customers increased slightly in the quarter; however, shipments to its Products Segment were down in the quarter due to higher shipments earlier in the year to enable production in advance of the McDonough plant closure. Net sales also decreased due to an unfavorable sales mix of engines sold. Despite an unfavorable foreign exchange impact of $4.3 million, largely due to the weakening of the Euro, sales into the European market increased on improved placement of its engines and an anticipated improved lawn and garden season.

Products Segment net sales were $211.1 million in the third quarter of fiscal 2015, which was an increase of $6.0 million or 2.9% from the prior year. This increase was due to higher sales in international markets, increased commercial lawn and garden equipment sales in the North American market and the results of the Allmand acquisition. Grass growing conditions in the Australian market improved in fiscal 2015, which led to increased net sales. Partially offsetting the increase was an unfavorable foreign exchange impact of $2.4 million, primarily related

31


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

to the weakening of the Australian dollar and Brazilian real. In addition, generator sales decreased due to fewer major power outages.

GROSS PROFIT

The consolidated gross profit percentage was 19.2% in the third quarter of fiscal 2015, a decrease from 20.7% in the same period last year.

The Engines Segment gross profit percentage, including restructuring and acquisition related charges, was 22.9% in the third quarter of fiscal 2015, lower than the 23.9% in the third quarter of fiscal 2014. The Engines Segment gross profit percentage was 22.9% in the third quarter of fiscal 2015, a decrease of 80 basis points from the prior year adjusted gross profit percentage. Manufacturing throughput decreased by 6% during the quarter, which reduced adjusted gross profit margins by approximately 140 basis points. The decrease was largely timing related as we accelerated production to earlier quarters in fiscal 2015 in order to accommodate the footprint restructuring of its Products Segment and to build engine inventories in advance of beginning production of the EXi engine platform in the second quarter of fiscal 2015. In addition, unfavorable foreign exchange, primarily related to the Euro, reduced adjusted gross profit margins by 70 basis points. Partially offsetting the lower adjusted gross profit margins were the previously announced retirement plan changes, which improved fiscal 2015 adjusted gross profit margins by $3.2 million, or 70 basis points. Manufacturing efficiency improvements in fiscal 2015 also helped offset the decrease in adjusted gross profit margins.

The Products Segment gross profit percentage, including restructuring and acquisition related charges, was 9.4% for the third quarter of fiscal 2015, down from 10.9% in the third quarter of fiscal 2014. The adjusted gross profit percentage of 12.8% increased by 190 basis points year over year. Manufacturing throughput for the first three quarters of fiscal 2015 increased by over 20%. This favorable absorption of fixed costs led to an improvement of approximately 190 basis points in the third quarter. In addition, favorable sales mix improved adjusted gross margins due to a focus on selling higher margin lawn and garden equipment and the benefit of the Allmand acquisition. Partially offsetting the increase in adjusted gross profit margins was an unfavorable foreign exchange impact of approximately 80 basis points primarily due to the weakening of the Australian dollar and Brazilian real.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses were $72.7 million in the third quarter of fiscal 2015, a decrease of $2.1 million or 2.9% from the third quarter of fiscal 2014.

The Engines Segment engineering, selling, general and administrative expenses were $45.3 million in the third quarter of fiscal 2015, a decrease of $2.2 million from the third quarter of fiscal 2014. The decrease was primarily due to the retirement plan changes. Higher compensation expense in fiscal 2015 was offset by the benefit of the movement in foreign exchange rates.

The Products Segment fiscal 2015 third quarter engineering, selling, general and administrative expenses were $27.4 million, an increase of $0.1 million from the third quarter of fiscal 2014. Higher spend due to the Allmand acquisition and increased compensation expense was offset by $2.3 million in savings related to the restructuring actions announced in July 2014.


32


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results by segment, excluding restructuring actions and acquisition-related charges, for the nine months ended fiscal March 2015 and 2014 (in thousands, except per share data):

 
 
Nine Months Ended Fiscal March
 
 
2015 Reported
 
Adjustments(1)
 
2015 Adjusted (2)
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted(2)
NET SALES:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
857,067

 
$

 
$
857,067

 
$
901,858

 
$

 
$
901,858

Products
 
576,313

 

 
576,313

 
529,724

 

 
529,724

Inter-Segment Eliminations
 
(77,449
)
 

 
(77,449
)
 
(69,283
)
 

 
(69,283
)
Total
 
$
1,355,931

 
$

 
$
1,355,931

 
$
1,362,299

 
$

 
$
1,362,299

 
 
 
 
 
 
 
 
 
 
 
 
 
GROSS PROFIT:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
189,580

 
$

 
$
189,580

 
$
187,423

 
$
2,622

 
$
190,045

Products
 
64,505

 
21,952

 
86,457

 
62,149

 
2,082

 
64,231

Inter-Segment Eliminations
 
183

 

 
183

 
1,875

 

 
1,875

Total
 
$
254,268

 
$
21,952

 
$
276,220

 
$
251,447

 
$
4,704

 
$
256,151

 
 
 
 
 
 
 
 
 
 
 
 
 
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
133,612

 
$

 
$
133,612

 
$
136,470

 
$

 
$
136,470

Products
 
83,155

 
469

 
82,686

 
78,932

 

 
78,932

Total
 
$
216,767

 
$
469

 
$
216,298

 
$
215,402

 
$

 
$
215,402

 
 
 
 
 
 
 
 
 
 
 
 
 
RESTRUCTURING CHARGES:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$

 
$

 
$

 
$
425

 
$
425

 
$

Products
 
2,481

 
2,481

 

 

 

 

Total
 
$
2,481

 
$
2,481

 
$

 
$
425

 
$
425

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
3,999

 
$

 
$
3,999

 
$
4,277

 
$

 
$
4,277

Products
 
1,006

 

 
1,006

 

 

 

Total
 
$
5,005

 
$

 
$
5,005

 
$
4,277

 
$

 
$
4,277

 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME (LOSS) (3):
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
59,967

 
$

 
$
59,967

 
$
54,805

 
$
3,047

 
$
57,852

Products
 
(20,125
)
 
24,902

 
4,777

 
(16,783
)
 
2,082

 
(14,701
)
Inter-Segment Eliminations
 
183

 

 
183

 
1,875

 

 
1,875

Total
 
$
40,025

 
$
24,902

 
$
64,927

 
$
39,897

 
$
5,129

 
$
45,026




33


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

 
 
Nine Months Ended Fiscal March
 
 
2015 Reported
 
Adjustments(1)
 
2015 Adjusted (2)
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted(2)
SEGMENT INCOME (LOSS) (3):
 
40,025

 
24,902

 
64,927

 
39,897

 
5,129

 
45,026

Reconciliation from Segment Income (Loss) to Income Before Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Affiliates
 
5,005

 

 
5,005

 
4,277

 

 
4,277

Income from Operations
 
$
35,020

 
$
24,902

 
$
59,922

 
$
35,620

 
$
5,129

 
$
40,749

 
 
 
 
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
(14,641
)
 

 
(14,641
)
 
(13,823
)
 

 
(13,823
)
OTHER INCOME, Net
 
6,749

 

 
6,749

 
6,138

 

 
6,138

Income Before Income Taxes
 
27,128

 
24,902

 
52,030

 
27,935

 
5,129

 
33,064

PROVISION FOR INCOME TAXES
 
1,542

 
8,716

 
10,258

 
7,429

 
1,186

 
8,615

Net Income
 
$
25,586

 
$
16,186

 
$
41,772

 
$
20,506

 
$
3,943

 
$
24,449

 
 
 
 
 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.56

 
$
0.35

 
$
0.91

 
$
0.43

 
$
0.08

 
$
0.51

Diluted
 
0.56

 
0.35

 
0.91

 
0.43

 
0.08

 
0.51


(1) For the first nine months of fiscal 2015, includes restructuring charges of $23,261 net of $8,141 of taxes and acquisition-related charges of $1,641 net of $575 of taxes. For the first nine months of fiscal 2014, includes restructuring charges of $5,129 net of $1,186 of taxes.
(2) Adjusted financial results are non-GAAP financial measures. The Company believes this information is meaningful to investors as it isolates the impact that restructuring charges and acquisition related charges have on reported financial results and facilitates comparisons between peer companies. The Company may utilize non-GAAP financial measures as a guide in the forecasting, budgeting, and long-term planning process. While the Company believes that adjusted financial results are useful supplemental information, such adjusted financial results are not intended to replace its GAAP financial results and should be read in conjunction with those GAAP results.
(3) The Company defines segment income (loss) as income (loss) from operations plus equity in earnings of unconsolidated affiliates.

NET SALES

Consolidated net sales for the first nine months of fiscal 2015 were $1.36 billion, a decrease of $6.4 million or 0.5% from the first nine months of fiscal 2014. The decrease is due to reduced shipment volumes of engines to OEM customers in North America, lower generator sales, and an unfavorable foreign exchange impact of approximately $14.0 million, predominantly due to the weakening of the Euro, Australian dollar, and Brazilian real compared with the US dollar. The decrease in net sales was partially offset by higher sales in Europe and Australia, higher sales of commercial lawn and garden equipment and pressure washers in North America, and the results of the Allmand acquisition.

Engines Segment net sales of $857.1 million in the first nine months of fiscal 2015 decreased $44.8 million or 5.0% from the prior year. Total engine volumes shipped in the first nine months of fiscal 2015 decreased by 4.8% or approximately 290,000 engines compared to the same period last year. The decrease in unit shipments was due to reduced shipments of small engines used on walk mowers in North America resulting from slightly elevated channel inventories following this past lawn and garden season. Net sales were also lower due to an unfavorable foreign exchange impact of $6.5 million, largely due to the weakening of the Euro and Australian dollar compared with the US dollar. Partially offsetting the decrease in net sales was an improved sales mix of large engines used on lawn and garden equipment for the North American and European markets.

Products Segment net sales of $576.3 million in the first nine months of fiscal 2015 increased by $46.6 million or 8.8% from the prior year. This increase was due to the results of the Allmand acquisition, higher sales in international markets, and higher sales of pressure washers and commercial lawn and garden equipment in North America. Grass growing conditions in the Australian market improved in fiscal 2015, which led to increased net sales. Partially offsetting the increase was an unfavorable foreign exchange impact of $7.6 million, primarily related to the weakening of the Australian dollar and Brazilian real compared with the US dollar. In addition, generators sales decreased due to adequate channel inventories and no major storm activity.

34


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


GROSS PROFIT

The consolidated gross profit percentage was 18.8% in the first nine months of fiscal 2015, an increase from 18.5% in the same period last year.

The Engines Segment gross profit percentage, including restructuring and acquisition related charges, was 22.1% in the first nine months of fiscal 2015, higher than the 20.8% in the first nine months of fiscal 2014. The Engines Segment adjusted gross profit percentage for the first nine months of 2015 was 22.1%, an increase of 100 basis points from the adjusted gross profit percentage of 21.1% earned in the first nine months of fiscal 2014. Engines Segment adjusted gross profit margins improved due to an improved product sales mix of large engines and lower retirement plan expense. Favorable sales mix of large engines improved adjusted gross profit margins by 50 basis points. The previously announced retirement plan changes, which were implemented in January of calendar 2014, improved fiscal 2015 adjusted gross profit margins by $8.0 million or 90 basis points. Partially offsetting the improved gross profit margins was the impact of unfavorable foreign exchange, primarily related to the Euro, which reduced adjusted gross profit margins by $4.3 million or 30 basis points.

The Products Segment gross profit percentage, including restructuring and acquisition related charges, was 11.2% for the first nine months of fiscal 2015, down from 11.7% in the first nine months of fiscal 2014. The Products Segment adjusted gross profit percentage for the first nine months of 2015 was 15.0%, an improvement of 290 basis points from the 12.1% earned in the first nine months of fiscal 2014. Products Segment adjusted gross profit margins increased due to improved sales mix and higher manufacturing throughput. Favorable sales mix improved adjusted gross margins by 290 basis points due to a focus on selling higher margin lawn and garden equipment and the benefit of the Allmand acquisition. In addition, manufacturing throughput increased year over year by 22%, benefiting adjusted gross margins by approximately 150 basis points. Throughput is increased due to higher production of pressure washers and riding mowers to facilitate the previously announced upcoming closure of the McDonough plant. Offsetting the increase in adjusted gross profit margins was an unfavorable foreign exchange impact of approximately $7.2 million or 110 basis points primarily due to the devaluation of the Australian dollar and Brazilian Real, and an unfavorable impact of 40 basis points due to slightly higher material costs.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses were $216.8 million in the first nine months of fiscal 2015, an increase of $1.4 million or 0.6% from the first nine months of fiscal 2014.

The Engines Segment engineering, selling, general and administrative expenses were $136.5 million in the first nine months of fiscal 2015, a decrease of $2.9 million from the first nine months of fiscal 2014. The decrease was primarily due to the previously announced retirement plan changes, which reduced engineering, selling, general and administrative expenses by $6.0 million. Higher compensation expense in fiscal 2015 was partially offset by the benefit of the changes in foreign exchange rates.

The Products Segment engineering, selling, general and administrative expenses for the first nine months of fiscal 2015 were $83.2 million, an increase of $4.2 million from the first nine months of fiscal 2014. The Products Segment adjusted engineering, selling, general and administrative expenses for the first nine months of fiscal 2015 were $82.7 million, an increase of $3.8 million from the first nine months of fiscal 2014. The increase was mainly due to $5.5 million related to the Allmand acquisition and increased compensation expense, partially offset by $5.1 million in savings related to the restructuring actions announced in July 2014.

ACQUISITION

On August 29, 2014, the Company completed the acquisition of Allmand Bros., Inc. for approximately $60 million in cash, net of cash acquired. Allmand is a leading designer and manufacturer of high quality towable light towers, industrial heaters, and solar LED arrow boards. Allmand, which is included within its Products Segment, has historical annual net sales of approximately $80 million.


35


BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

INTEREST EXPENSE

Interest expense for the third quarter and first nine months of fiscal 2015 was higher by $0.5 million and $0.8 million, respectively, compared to the same periods a year ago due to higher average borrowings primarily during the third quarter of fiscal 2015.

PROVISION FOR INCOME TAXES

The effective tax rates for the third quarter and first nine months of fiscal 2015 were 20.2% and 5.7%, compared to 26.1% and 26.6% for the same respective periods last year. The tax rates for the third quarter and first nine months of fiscal 2015 were lower than the statutory rates due to the impact of incremental federal research & development (R&D) tax credits related to prior years, offset by reserves for unrecognized tax positions for a net tax benefit of $4.7 million and $5.0 million, respectively. In addition, the tax rate for the first nine months of fiscal 2015 was impacted by the reversal of previously recorded reserves as a result of the effective settlement of the Company’s IRS audit. The tax rates for the third quarter and the first nine months of fiscal 2014 included a taxpayer election filed pursuant to the outcome of a U.S. court case that provided the Company precedent to record a tax benefit of $2.9 million for the permanent exclusion of qualified export activity from prior years’ taxable income.

RESTRUCTURING ACTIONS

During the third quarter of fiscal 2015, the Company continued progress on implementing the previously announced 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 reduce costs. The Company began production of pressure washers at its Milwaukee plant during the third quarter and ceased production at the McDonough, Georgia plant shortly after the end of the third quarter. Pre-tax restructuring costs for the third quarter and first nine months of fiscal 2015 were $8.0 million and $23.3 million, respectively, and pre-tax savings were $2.3 million and $5.1 million, respectively. Pre-tax restructuring cost estimates for fiscal 2015 remain unchanged at $30 million to $37 million. Total annual cost savings as a result of these actions are anticipated to be approximately $15 million to $20 million with approximately $5 million to $7 million expected to be realized in fiscal 2015 and the remainder realized in fiscal 2016.

LIQUIDITY AND CAPITAL RESOURCES
    
Cash flows used in operating activities for the first nine months of fiscal 2015 were $52.1 million compared to $14.0 million in the first nine months of fiscal 2014. The increase in operating cash flows used was primarily related to higher inventory levels to facilitate the upcoming closure of the McDonough plant and the introduction of a new engine line in fiscal 2015 as well as lower accounts payable.

Cash flows used in investing activities were $103.9 million and $29.4 million during the first nine months of fiscal 2015 and fiscal 2014, respectively. The $74.5 million increase in cash used in investing activities was primarily related to $59.9 million of cash paid for the Allmand acquisition and a $14.7 million increase in additions to plant and equipment during the first nine months of fiscal 2015 compared to the same period last year.

Cash flows provided by financing activities were $13.1 million during the first nine months of fiscal 2015 as compared to $38.3 million of cash flows used in financing activities during the first nine months of fiscal 2014. The $51.4 million increase in cash provided by financing activities was primarily attributable to $60.1 million of borrowings on the Revolver in fiscal 2015 compared to no such borrowings in fiscal 2014, partially offset by a $9.5 million increase in treasury stock purchases in fiscal 2015 compared to fiscal 2014.

FUTURE LIQUIDITY AND CAPITAL RESOURCES

On December 20, 2010, the Company issued $225 million of 6.875% Senior Notes ("Senior Notes") due December 15, 2020.  

On October 21, 2013, the Company entered into an amendment to its $500 million multicurrency credit agreement (the “Revolver”), which, among other things, extended the maturity of the Revolver to October 21, 2018. The initial maximum availability under the revolving credit facility is $500 million. Availability under the revolving credit facility is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability

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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

under the revolving credit facility by up to $250 million if certain conditions are satisfied. As of March 29, 2015, $60.1 million was outstanding under the Revolver.

On January 22, 2014 the Board of Directors of the Company authorized up to $50 million in funds associated with the common share repurchase program. On August 13, 2014, the Board of Directors authorized up to an additional $50 million in funds for use in the Company’s common share repurchase program. As of March 29, 2015, the total remaining authorization was approximately $47.7 million with an expiration date of June 30, 2016. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants. During the nine months ended March 29, 2015, the Company repurchased 2,039,399 shares on the open market at an average price of $19.40 per share.

The Company expects capital expenditures to be approximately $60 million to $65 million in fiscal 2015. These anticipated expenditures reflect its plans to continue to reinvest in efficient equipment and innovative new products.

During the first nine months of fiscal 2015, the Company made no cash contributions to the qualified pension plan. Based upon current regulations and actuarial studies, the Company estimates that it will not be required to make minimum contributions to the qualified pension plan during the remainder of fiscal 2015. In addition, the Company expects it will not be required to make minimum contributions to the qualified pension plan in fiscal 2016 through fiscal 2019. The Company may be required to make further contributions in future years depending upon the actual return on plan assets and the funded status of the plan in future periods.

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

The Revolver and the Senior Notes contain restrictive covenants. These covenants include restrictions on the Company’s ability to: pay dividends; repurchase shares; incur indebtedness; create liens; enter into sale and leaseback transactions; consolidate or merge with other entities; sell or lease all or substantially all of its assets; and dispose of assets or use proceeds from sales of its assets. The Revolver contains financial covenants that require the Company to maintain a minimum interest coverage ratio and impose a maximum leverage ratio. As of March 29, 2015, the Company was in compliance with these covenants, and expects to be in compliance with all covenants during the remainder of fiscal 2015.

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes since the August 26, 2014 filing of the Company’s Annual Report on Form 10-K.

CONTRACTUAL OBLIGATIONS

There have been no material changes since the August 26, 2014 filing of the Company’s Annual Report on Form 10-K, except that the Company expects it will be required to make no minimum contributions to the qualified pension plan in fiscal 2016 through fiscal 2019.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies since the August 26, 2014 filing of its Annual Report on Form 10-K. As discussed in its annual report, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of its financial statements include a goodwill assessment, estimates as to the realizability of accounts receivable and inventory assets, as well as estimates used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty,

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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

product liability, group health insurance, litigation and taxation. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and, in some instances, actuarial techniques. The Company re-evaluates these significant factors as facts and circumstances change.
NEW ACCOUNTING PRONOUNCEMENTS

A discussion of new accounting pronouncements is included in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q under the heading "New Accounting Pronouncements" and is incorporated herein by reference.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words “believe”, “estimate”, “expect”, “forecast”, “intend”, “plan”, “project”, and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on the Company’s current views and assumptions and involve risks and uncertainties that include, among other things, the ability to successfully forecast demand for its products; changes in interest rates and foreign exchange rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; changes in laws and regulations; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic and foreign economic conditions; the ability to bring new productive capacity on line efficiently and with good quality; outcomes of legal proceedings and claims; and other factors disclosed from time to time in its SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K and in its periodic reports on Form 10-Q. We are not undertaking any obligation to update any forward-looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made.

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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the August 26, 2014 filing of the Company’s Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There has not been any change in the Company’s internal control over financial reporting during the third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A discussion of legal proceedings is included in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q under the heading "Commitments and Contingencies" and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes since the August 26, 2014 filing of the Company’s Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the quarterly period ended March 29, 2015.
2015 Fiscal Month
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Program (1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under  the Program (1)
December 29, 2014 to January 25, 2015
 
215,982

 
$
19.55

 
215,982

 
$
55,470,492

January 26, 2015 to February 22, 2015
 
210,000

 
19.14

 
210,000

 
51,451,092

February 23, 2015 to March 29, 2015
 
184,829

 
20.06

 
184,829

 
47,743,422

Total Third Quarter
 
610,811

 
$
19.56

 
610,811

 
$
47,743,422

(1)
On January 22, 2014, the Board of Directors of the Company authorized up to $50 million in funds associated with the common share repurchase program. On August 13, 2014, the Board of Directors authorized up to an additional $50 million in funds for use in the Company’s common share repurchase program with an expiration date of June 30, 2016.

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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES


ITEM 6. EXHIBITS
 
Exhibit
Number
 
Description
 
 
 
31.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
 
 
 
31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
 
 
 
32.1
 
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
 
 
 
 
 
 
32.2
 
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
 
 
 
101
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related Notes to Condensed Consolidated Financial Statements

 

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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
BRIGGS & STRATTON CORPORATION
 
 
 
 
(Registrant)
 
 
 
 
 
 
Date:
May 5, 2015
 
/s/ David J. Rodgers
 
 
 
 
David J. Rodgers
 
 
 
 
Senior Vice President and Chief Financial Officer and
Duly Authorized Officer
 
 

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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
 
 
31.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
 
 
 
31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
 
 
 
32.1
 
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
 
 
 
32.2
 
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
 
 
 
101
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related Notes to Condensed Consolidated Financial Statements

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