Briggs & Stratton Corporation Reports Results for the Third Quarter of Fiscal 2010
MILWAUKEE, April 22 -- Briggs & Stratton Corporation
Briggs & Stratton today announced third quarter fiscal 2010 consolidated net income of $24.1 million or $0.48 per diluted share, that when adjusted for a litigation settlement of $30.6 million ($18.7 million after-tax) would result in an adjusted consolidated net income of $42.7 million or $0.85 per diluted share on consolidated net sales of $694.6 million. The litigation settlement relates to a class action lawsuit regarding horsepower labeling that was previously disclosed in a Current Report on Form 8-K filed on March 2, 2010. The third quarter of fiscal 2009 had consolidated net income of $25.4 million or $0.51 per diluted share on consolidated net sales of $673.8 million. Consolidated net sales increased $20.8 million or 3% from the third quarter of the prior year. The increase is primarily attributable to higher sales volumes in the Engines Segment. Third quarter adjusted consolidated net income increased $17.3 million from net income in the same period a year ago. Engines Segment operating results were the primary driver of the improved adjusted net income.
For the first nine months of fiscal 2010, consolidated net income was $18.4 million or $0.36 per diluted share, that when adjusted for the litigation settlement of $30.6 million ($18.7 million after-tax), would result in an adjusted consolidated net income of $37.1 million or $0.73 per diluted share on consolidated net sales of $1.412 billion. For the same period a year ago, consolidated net sales were $1.609 billion, and consolidated net income was $26.6 million or $0.53 per diluted share. The majority of the $197.0 million or 12% decrease in consolidated net sales was the result of lower sales volume in the Power Products Segment. The remainder of the net sales decrease reflects lower engine volume and lower prices. The nine-month adjusted consolidated net income increased by $10.5 million from net income in the same period a year ago. Engines Segment operating results were the primary driver of the improved adjusted net income.
Engines:
Third quarter net sales for fiscal 2010 were $498.9 million versus $480.2 million for the same period a year ago, an increase of $18.7 million or 4%. The increase in net sales was primarily the result of an engine unit shipment increase of 6% from the same period a year ago. Offsetting the volume improvement were lower average prices in effect for fiscal 2010. Shipments of engines increased in the third quarter for lawn and garden applications due to the shift of OEM production to the last half of the fiscal year from the fiscal second quarter reflecting the desire of the channel participants to control their working capital commitments at the end of the calendar year.
Net sales for the first nine months of fiscal 2010 were $983.6 million versus $1.078 billion in the prior year, a decrease of $94.5 million or 9%. Unit volume decreases of 7% through nine months were the result of lower engine demand for portable generators, soft engine shipments to European lawn and garden equipment manufacturers and minor market share losses in various engine categories. The majority of the remainder of the net sales decrease was due to lower pricing implemented for fiscal 2010.
Income from operations for the third quarter of fiscal 2010 was $43.8 million. Income from operations, after adjusting for the $30.6 million litigation settlement, was $74.4 million, a $27.8 million improvement from the $46.6 million reported for the same period in the prior year. The $27.8 million improvement was primarily the result of lower manufacturing costs for materials, labor and fixed overhead. Improvement in the adjusted income from operations from sales and manufacturing volume increases was offset by the previously discussed lower prices.
Income from operations for the first nine months of fiscal 2010 was $56.0 million. Income from operations after adjusting for the litigation settlement was $86.6 million, a $23.5 million improvement from the $63.1 million reported for the same period a year ago. The $23.5 million improvement for the first nine months was the result of similar lower manufacturing costs as mentioned for the third fiscal quarter, offset by lower sales volume, production volume and pricing.
Power Products:
Fiscal 2010 third quarter net sales were $245.3 million versus $250.2 million for the same period a year ago, a decrease of $4.9 million. The net sales decrease was primarily the result of lower portable generator sales in the quarter, as the current year's quarter did not have hurricane replenishment shipments that were experienced in last year's third quarter. The portable generator sales decrease was partially offset by stronger pressure washer volume and a small improvement in shipments of lawn and garden equipment.
Net sales for the first nine months of fiscal 2010 were $565.5 million versus $697.7 million in the prior year, a $132.2 million decrease. Lower portable generator sales for this nine-month period accounted for almost all of the net sales decrease primarily due to the absence of any hurricane activity in fiscal 2010.
There was a loss from operations of $7.1 million in the third quarter of fiscal 2010, a $4.2 million greater loss than experienced in the prior year. The increase in the loss from operations resulted from lower plant utilization, primarily production of portable generators that decreased over 90% in the current third quarter compared to the same period a year ago.
The loss from operations for the first nine months of fiscal 2010 was $8.0 million, a small improvement from the $8.9 million operating loss generated for the same period a year ago. The improvement in the loss from operations for the quarter was the result of lower manufacturing costs, primarily related to lower commodity costs and planned cost saving initiatives. The improvements were offset by lower sales and production volumes primarily related to the significantly lower portable generator shipments and production in fiscal 2010.
General:
Other income for the third quarter and first nine months of fiscal 2010 was greater than the same periods last year primarily because of improved earnings in our joint ventures. Interest expense for the third quarter of fiscal 2010 was less than the prior year because of lower borrowings offset by a premium expense of $1.4 million to repurchase a portion of outstanding senior notes during the quarter. Interest expense for the first nine months of fiscal 2010 was also lower due to lower borrowings offset by a premium expense of $2.4 million to repurchase a portion of outstanding senior notes during fiscal 2010.
The effective tax rate was 27.1% for the third quarter and 22.3% for the first nine months of fiscal 2010 versus 31.4% and 23.4% for the same periods last year, respectively. The variation reflected between years was due to the required recognition of the tax effect of certain events as discrete items in the quarter in which they occurred rather than in the overall expected annual tax rate.
The 8.875% Senior Notes that are due in March 2011 have been classified as a Current Maturity on Long-term Debt in the consolidated balance sheet as of the end of fiscal March 2010. The company believes it will be able to replace these borrowings with new financing.
Outlook:
The company, after recognizing the litigation settlement in the third quarter, now projects that fiscal 2010 net income will be in the range of $24 to $31 million or $0.48 to $0.62 per diluted share. This current forecast range is the same as the forecast provided in January 2010, except it now incorporates the litigation settlement and the bottom end of the forecast has been increased. Consolidated net sales are projected to be approximately 6% lower between years primarily due to the absence of hurricane related sales of portable generators and their related engines, the continued impact of year over year pricing changes and lower engine shipments to Europe for lawn and garden applications. While the lawn and garden season has started, there remains uncertainty that the market growth built in to our projections should be changed at this time. Production levels for substantially all products are planned to be lower in fiscal 2010 to decrease our investment in working capital. Operating income margins are projected to be in the range of 2.8% to 3.1% after recognition of the litigation expense but still in the previously disclosed 4% to 5% range if the litigation expense is removed. Interest expense and other income are forecasted for the full year at $26 million and $5 million, respectively. The effective tax rate for the full year is projected to be in a range of 27% to 30%.
The company will host a conference call today at 10:00 AM (EDT) to review this information. A live web cast of the conference call will be available on our corporate website: http://www.briggsandstratton.com/shareholders. Also available is a dial-in number to access the call real-time at (866) 281-6502. A replay will be offered beginning approximately two hours after the call ends and will be available for one week. Dial (888) 266-2081 to access the replay. The pass code will be 1445952.
This release 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 "anticipate", "believe", "could", "estimate", "expect", "forecast", "intend", "may", "objective", "plan", "project", "seek", "think", "will", 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 our products and appropriately adjust our manufacturing and inventory levels; changes in our operating expenses; changes in interest 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; the seasonal nature of our business; changes in laws and regulations, including environmental, tax, pension funding and accounting standards; the ability of ourselves and our customers to secure adequate working capital funding and meet related covenants; work stoppages or other consequences of any deterioration in our employee relations; work stoppages by other unions that affect the ability of suppliers or customers to manufacture; acts of war or terrorism that may disrupt our business operations or those of our customers and suppliers; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic economic conditions, including housing starts and consumer confidence; changes in the market value of the assets in our defined benefit pension plan and any related funding requirements; changes in foreign economic conditions, including currency rate fluctuations; the actions of customers of our OEM customers; the ability to bring new productive capacity on line efficiently and with good quality; the ability to successfully realize the maximum market value of assets that may require disposal if products or production methods change; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; and other factors that may be disclosed from time to time in our 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. Some or all of the factors may be beyond our control. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings for the Fiscal Periods Ended March
----------------------------------------------------------------------
(In Thousands, except per share data)
(Unaudited)
Third Quarter Nine Months
------------- -----------
2010 2009 2010 2009
---- ---- ---- ----
NET SALES $694,575 $673,794 $1,412,231 $1,609,426
COST OF GOODS SOLD 554,093 561,724 1,148,709 1,356,740
------- ------- --------- ---------
Gross Profit on Sales 140,482 112,070 263,522 252,686
ENGINEERING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 71,394 68,118 192,526 196,271
LITIGATION SETTLEMENT 30,600 - 30,600 -
------ --- ------ ---
Income from Operations 38,488 43,952 40,396 56,415
INTEREST EXPENSE (7,323) (7,709) (20,979) (24,320)
OTHER INCOME, Net 1,860 806 4,287 2,692
----- --- ----- -----
Income before Income Taxes 33,025 37,049 23,704 34,787
PROVISION FOR INCOME TAXES 8,952 11,638 5,293 8,140
----- ------ ----- -----
Net Income $24,073 $25,411 $18,411 $26,647
======= ======= ======= =======
Average Shares Outstanding 49,597 49,571 49,595 49,568
====== ====== ====== ======
BASIC EARNINGS PER SHARE $0.48 $0.51 $0.37 $0.53
===== ===== ===== =====
Diluted Average Shares
Outstanding 50,060 49,728 49,987 49,699
====== ====== ====== ======
DILUTED EARNINGS PER SHARE $0.48 $0.51 $0.36 $0.53
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Non-GAAP Financial Measures
When a company discloses material information containing non-GAAP financial measures, SEC regulations require that the disclosure include a presentation of the most directly comparable GAAP measure and a reconciliation of the GAAP and non-GAAP financial measure. Management's inclusion of non-GAAP financial measures in this release is intended to supplement, not replace, the presentation of the financial results in accordance with GAAP. Management believes that the non-GAAP financial measures in this release aid investors in understanding the magnitude of the improvement in earnings between years due to recurring operations. The following table is a reconciliation of the non-GAAP financial measures:
Adjusted Net Income & Diluted Earnings Per Share for the Fiscal
Periods Ended March
---------------------------------------------------------------
(In Thousands, except per share data)
(Unaudited)
Third Quarter Nine Months
------------- -----------
2010 2009 2010 2009
---- ---- ---- ----
Net Income $24,073 $25,411 $18,411 $26,647
Tax effected charges to reported
net income:
Litigation Settlement 18,666 - 18,666 -
------ --- ------ ---
Adjusted Net Income $42,739 $25,411 $37,077 $26,647
======= ======= ======= =======
Diluted Earnings Per Share $0.48 $0.51 $0.36 $0.53
Tax effected charges to reported
diluted earnings
per share:
Litigation Settlement 0.37 - 0.37 -
---- --- ---- ---
Adjusted Diluted Earnings Per Share $0.85 $0.51 $0.73 $0.53
===== ===== ===== =====
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Segment Information
-------------------
(In Thousands)
(Unaudited)
Third Quarter Nine Months
------------- -----------
2010 2009 2010 2009
---- ---- ---- ----
NET SALES:
Engines $498,897 $480,216 $983,632 $1,078,124
Power Products 245,342 250,176 565,524 697,719
Inter-Segment
Eliminations (49,664) (56,598) (136,925) (166,417)
Total * $694,575 $673,794 $1,412,231 $1,609,426
======== ======== ========== ==========
* International sales
based on product
shipment destination
included in net sales $177,507 $145,174 $410,319 $421,971
GROSS PROFIT ON SALES:
Engines $122,597 $94,556 $218,906 $200,680
Power Products 16,161 17,294 52,205 49,778
Inter-Segment
Eliminations 1,724 220 (7,589) 2,228
----- --- ------ -----
Total $140,482 $112,070 $263,522 $252,686
INCOME (LOSS) FROM
OPERATIONS:
Engines $43,841 $46,600 $55,970 $63,059
Power Products (7,077) (2,868) (7,985) (8,872)
Inter-Segment
Eliminations 1,724 220 (7,589) 2,228
Total $38,488 $43,952 $40,396 $56,415
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Consolidated Balance Sheets as of the End of Fiscal March
---------------------------------------------------------
(In Thousands)
(Unaudited)
CURRENT ASSETS: 2010 2009
---- ----
Cash and Cash Equivalents $27,867 $16,473
Accounts Receivable, Net 438,146 484,294
Inventories 456,905 511,533
Deferred Income Tax Asset 54,859 56,559
Other 26,246 34,614
Total Current Assets 1,004,023 1,103,473
--------- ---------
OTHER ASSETS:
Goodwill 255,016 248,663
Investments 18,307 19,427
Prepaid Pension - 100,668
Other Intangible Assets, Net 90,934 98,124
Deferred Income Tax Asset 17,096 -
Other Long-Term Assets, Net 12,509 10,828
Total Other Assets 393,862 477,710
------- -------
PLANT AND EQUIPMENT:
At Cost 974,286 991,894
Less -Accumulated Depreciation 637,831 620,568
Assets Held For Sale 4,000 -
Plant and Equipment, Net 340,455 371,326
------- -------
$1,738,340 $1,952,509
========== ==========
CURRENT LIABILITIES: 2010 2009
---- ----
Accounts Payable $164,163 $179,253
Short-Term Debt 142,355 242,906
Current Maturity on Long-Term Debt 206,098 -
Accrued Liabilities 177,777 170,587
Total Current Liabilities 690,393 592,746
------- -------
OTHER LIABILITIES:
Deferred Income Tax Liability - 56,259
Accrued Pension Cost 130,289 37,266
Accrued Employee Benefits 19,627 18,752
Accrued Postretirement Health
Care Obligation 147,936 152,990
Other Long-Term Liabilities 29,901 34,853
Long-Term Debt - 246,976
Total Other Liabilities 327,753 547,096
------- -------
SHAREHOLDERS' INVESTMENT:
Common Stock and Additional
Paid-in Capital 80,825 77,302
Retained Earnings 1,078,205 1,076,483
Accumulated Other
Comprehensive Loss (234,826) (132,064)
Treasury Stock, at Cost (204,010) (209,054)
Total Shareholders' Investment 720,194 812,667
------- -------
$1,738,340 $1,952,509
========== ==========
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-------------------------------------
(In Thousands)
(Unaudited)
Nine Months Ended
Fiscal March
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2010 2009
---- ----
Net Income $18,411 $26,647
Depreciation and Amortization 48,629 51,417
Stock Compensation Expense 6,155 3,136
Loss on Disposition of Plant and Equipment 1,656 2,807
(Provision) Credit for Deferred Income Taxes (4,195) 2,051
Increase in Accounts Receivable (175,159) (166,324)
Decrease in Inventories 20,474 27,257
Decrease in Other Current Assets 12,363 360
Increase in Accounts Payable and Accrued
Liabilities 60,241 4,664
Other, Net (5,085) (9,587)
Net Cash Used by Operating Activities (16,510) (57,572)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (24,816) (30,963)
Cash Paid for Acquisition, Net of Cash
Acquired - (24,757)
Proceeds Received on Disposition of Plant and
Equipment 209 2,538
Other, Net (144) -
Net Cash Used by Investing Activities (24,751) (53,182)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings on Loans, Notes Payable, and
Long-Term Debt 63,872 119,661
Dividends (11,001) (21,811)
Net Cash Provided by Financing Activities 52,871 97,850
------ ------
EFFECT OF EXCHANGE RATE CHANGES 265 (3,091)
--- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 11,875 (15,995)
CASH AND CASH EQUIVALENTS, Beginning 15,992 32,468
CASH AND CASH EQUIVALENTS, Ending $27,867 $16,473
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