Attached files

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EX-12 - COMPUTATION OF RATIO OF EARNINGS (LOSS) TO FIXED CHARGES - BRIGGS & STRATTON CORPex-12.htm
EX-21 - SUBSIDIARIES OF THE REGISTRANT - BRIGGS & STRATTON CORPex-21.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 - BRIGGS & STRATTON CORPex-322.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 - BRIGGS & STRATTON CORPex-312.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 - BRIGGS & STRATTON CORPex-311.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 - BRIGGS & STRATTON CORPex-321.htm
EX-23.1 - CONSENT OF DELOITTE & TOUCHE LLP - BRIGGS & STRATTON CORPex-231.htm
EX-10.16(A) - AMENDMENT TO EXPATRIATE AGREEMENT - BRIGGS & STRATTON CORPex-1016a.htm





UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________ 
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 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)
Registrant’s telephone number, including area code: 414-259-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock (par value $0.01 per share)
 
New York Stock Exchange
Common Share Purchase Rights
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x    No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o    No  x
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  o
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  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment of this Form 10-K.  o
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 o   No   x
The aggregate market value of Common Stock held by nonaffiliates of the registrant was approximately $883.4 million based on the last reported sale price of such securities as of December 26, 2014, the last business day of the most recently completed second fiscal quarter.
Number of Shares of Common Stock Outstanding at August 14, 2015: 43,986,042.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting to be held on October 29, 2015.







BRIGGS & STRATTON CORPORATION
FISCAL 2015 FORM 10-K
TABLE OF CONTENTS
PART I
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
Item 15.
 
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 "anticipate", “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 our products; changes in interest rates and foreign exchange rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine 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; the ability to realize anticipated savings from restructuring actions; and other factors disclosed from time to time in our SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of this Annual Report on Form 10-K and in the Company's periodic reports on Form 10-Q. We undertake no obligation to update forward-looking statements made in this report to reflect events or circumstances after the date of this report.







PART I
ITEM 1.
BUSINESS
Briggs & Stratton Corporation (the “Company”) is the world’s largest producer of air cooled gasoline engines for outdoor power equipment. Briggs & Stratton designs, manufactures, markets, sells and services these products for original equipment manufacturers (OEMs) worldwide. In addition, the Company markets and sells related service parts and accessories for its engines. Briggs & Stratton is recognized worldwide for its strong brand name and a reputation for quality, design, innovation and value.
The Company's wholly owned subsidiaries include North America’s number one marketer of pressure washers, and it is a leading designer, manufacturer and marketer of power generation, lawn and garden, turf care and job site products through its Simplicity®, Snapper®, Snapper Pro®, Ferris®, PowerBoss®, Allmand™, Billy Goat®, Murray®, Branco® and Victa® brands. Briggs & Stratton products are designed, manufactured, marketed and serviced in over 100 countries on six continents.
The Company conducts its operations in two reportable segments: Engines and Products. Further information about Briggs & Stratton’s business segments is contained in Note 9 of the Notes to Consolidated Financial Statements.
The Company’s internet address is www.basco.com. The Company makes available free of charge (other than an investor’s own internet access charges) through its internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission. Charters of the Audit, Compensation, Finance, Nominating and Governance Committees, Corporate Governance Guidelines, Stock Ownership Guidelines and code of business conduct and ethics contained in the Briggs & Stratton Business Integrity Manual are available on the Company’s website and are available in print to any shareholder upon request to the Corporate Secretary. The information contained on and linked from the Company's website is not incorporated by reference into this Annual Report on Form 10-K.
Engines Segment
General
Briggs & Stratton manufactures four-cycle aluminum alloy gasoline engines with horsepower ranging from 5.5hp up to 37hp and torques that range from 4.50 ft-lbs gross torque to 21.00 ft-lbs gross torque. The Company’s engines are used primarily by the lawn and garden equipment industry, which accounted for 84% of the Engines segment's fiscal 2015 engine sales to OEMs. Major lawn and garden equipment applications include walk-behind lawn mowers, riding lawn mowers, garden tillers and snow throwers. The remaining 16% of engine sales to OEMs in fiscal 2015 were for use on products for industrial, construction, agricultural and other consumer applications that include portable and standby generators, pumps and pressure washers. Many retailers specify the Company's engines on the power equipment they sell and the Briggs & Stratton logo is often featured prominently on a product because of the appeal and reputation of the brand.
In fiscal 2015 approximately 33% of the Engines segment net sales were derived from sales in international markets, primarily to customers in Europe. The Company serves its key international markets through its European regional office in Switzerland, its distribution center in the Netherlands and sales and service subsidiaries in Australia, Austria, Brazil, Canada, China, the Czech Republic, England, France, Germany, India, Italy, Japan, Malaysia, Mexico, New Zealand, Russia, South Africa, Spain, Sweden and the United Arab Emirates. Briggs & Stratton is a leading supplier of gasoline engines in developed countries where there is an established lawn and garden equipment market. Briggs & Stratton also exports engines to developing nations where its engines are used in agricultural, marine, construction and other applications. More information about its foreign operations is in Note 9 of the Notes to Consolidated Financial Statements.
The Company's engines are sold primarily by its worldwide sales force through direct interaction with customers. The Company’s marketing staff and engineers provide support and technical assistance to its sales force.


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The Engines segment also manufactures replacement engines and service parts and sells them to sales and service distributors. During fiscal 2014, the Company joined with one of its independent domestic 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. Subsequent to its formation, the venture acquired the service businesses of two additional independent domestic distributors. Subsequent to fiscal 2015, the venture added a fourth independent distributor through an acquisition. The Company's remaining domestic distributors are independently owned and operated. The Company owns its principal international distribution centers, but also uses independently owned and operated distributors.
These distributors supply service parts and replacement engines directly to independently owned, authorized service dealers throughout the world. These distributors and service dealers incorporate the Company’s commitment to reliability and service.
Customers
The Company's engine sales are primarily to OEMs. The Company's three largest external engine customers in fiscal years 2015, 2014 and 2013 were Husqvarna Outdoor Products Group (HOP), MTD Products Inc. (MTD) and Deere & Company. Engines segment sales to the top three customers combined were 48%, 51% and 48% of Engines segment sales in fiscal 2015, 2014 and 2013, respectively. Under purchasing plans available to all of its gasoline engine customers, Briggs & Stratton typically enters into annual engine supply arrangements. In certain cases, the Company has entered into longer supply arrangements of two to three years.
The Company believes that in fiscal 2015 more than 80% of all lawn and garden powered equipment sold in the United States was sold through mass merchandisers such as The Home Depot, Inc. (The Home Depot), Lowe’s Companies, Inc. (Lowe’s), Sears Holdings Corporation (Sears) and Wal-Mart Stores, Inc. (Wal-Mart). Given the buying power of the mass merchandisers, Briggs & Stratton, through its customers, has continued to experience pricing pressure; however, the Company attempts to recover increases in commodity costs through increased pricing. In addition, development of new and innovative products assists the Company and its customers in realizing higher margins.
Competition
The Company’s major competitors in engine manufacturing are Honda Motor Co., Ltd. (Honda), Kawasaki Heavy Industries, Ltd. (Kawasaki) and Kohler Co. (Kohler). Several Japanese and Chinese small engine manufacturers, of which Honda and Kawasaki are the largest, compete directly with the Company in world markets in the sale of engines to other OEMs and indirectly through their sale of end products.
The Company believes it has a significant share of the worldwide market for engines that power outdoor equipment.
The Company believes the major areas of competition from all engine manufacturers include product quality, brand, price, delivery and service. Other factors affecting competition are short-term market share objectives, short-term profit objectives, exchange rate fluctuations, technology, new product innovation, product support, distribution strength, and advertising. The Company believes its technology, product value, distribution, marketing, and service reputation have given it strong brand name recognition and enhanced its competitive position.
Seasonality of Demand
Sales of engines to lawn and garden OEMs are highly seasonal because of consumer buying patterns. The majority of lawn and garden equipment is sold during the spring and summer months when most lawn care and gardening activities are performed. Sales of lawn and garden equipment are also influenced by consumer sentiment, employment levels, new and existing home sales and weather conditions. Engine sales in the Company’s fiscal third quarter have historically been the highest, while sales in the first fiscal quarter have historically been the lowest.
In order to efficiently use its capital investments and meet seasonal demand for engines, the Company pursues a relatively balanced production schedule throughout the year. The schedule is adjusted to reflect changes in estimated demand, customer inventory levels and other matters outside the control of the


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Company. Accordingly, inventory levels generally increase during the first and second fiscal quarters in anticipation of customer demand. Inventory levels begin to decrease as sales increase in the third fiscal quarter. This seasonal pattern results in high inventories and low cash flow for the Company in the first, second and the beginning of the third fiscal quarters. The pattern generally results in higher cash flow in the latter portion of the third fiscal quarter and in the fourth fiscal quarter as inventories are liquidated and receivables are collected.
Manufacturing
The Company manufactures engines and parts at the following locations: Auburn, Alabama; Statesboro, Georgia; Murray, Kentucky; Poplar Bluff, Missouri; Wauwatosa, Wisconsin; and Chongqing, China. Briggs & Stratton has a parts distribution center in Menomonee Falls, Wisconsin. The Engines segment also purchases certain products under contract manufacturing agreements.
The Company manufactures a majority of the structural components used in its engines, including aluminum die castings, carburetors and ignition systems. The Company purchases certain parts such as piston rings, spark plugs, valves, ductile and grey iron castings, plastic components, some stampings and screw machine parts and smaller quantities of other components. Raw material purchases consist primarily of aluminum and steel. The Company believes its sources of supply are adequate.
The Company has joint ventures with Daihatsu Motor Company for the manufacture of engines in Japan, and with Starting Industrial of Japan for the production of rewind starters and punch press components in the United States.
The Company has a strategic relationship with Mitsubishi Heavy Industries (MHI) for the global distribution of air cooled gasoline engines manufactured by MHI in Japan under Briggs & Stratton’s Vanguard brand.
Products Segment
General
The Products segment’s ("Products") principal product lines include portable and standby generators, pressure washers, snow throwers, lawn and garden power equipment, turf care, and job site products. Products sells its products through multiple channels of retail distribution, including consumer home centers, warehouse clubs, mass merchants and independent dealers. The Company sells its lawn and garden products and standby generators primarily through an independent dealer network and sells its pressure washers and portable generators primarily through the U.S. mass retail channel.
The Products segment product lines are marketed under its own brands such as Briggs & Stratton, Simplicity®, Snapper®, Snapper Pro®, Ferris®, Allmand™, Billy Goat®, Murray®, Branco® and Victa®, as well as other brands such as Craftsman, GE, and Troy-Bilt.
In fiscal 2013, the Company exited placement of lawn and garden products at national mass retailers. The Engines segment continues to support lawn and garden equipment OEMs who provide lawn and garden equipment to these retailers. In certain cases, the Company may license its brand name to others for use in selling lawn and garden equipment in the U.S. mass retail channel. The Products segment continues to focus on innovative, higher margin products that are sold through its independent dealer network and regional retailers. The Company also continues to sell pressure washers and portable and standby generators through the U.S. mass retail channel.
In fiscal 2015, the Company announced and began implementing restructuring actions to narrow its assortment of lower-priced Snapper consumer lawn and garden equipment and to consolidate its Products manufacturing facilities in order to further reduce costs. The Company closed its McDonough, Georgia location in the fourth quarter of fiscal 2015 and consolidated production into existing facilities. Production of pressure washers and snow throwers has been moved to the Wauwatosa, Wisconsin facility. Production of riding mowers will begin at the Wauwatosa, Wisconsin facility during the first half of fiscal 2016.
On August 29, 2014, the Company acquired all of the outstanding shares of Allmand Bros., Inc. ("Allmand") of Holdrege, Nebraska. 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


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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.
On May 20, 2015, the Company acquired all of the outstanding shares of Billy Goat Industries, Inc. ("Billy Goat") of Lee's Summit, Missouri. Billy Goat is a leading manufacturer of specialty turf equipment, which includes aerators, sod cutters, overseeders, power rakes, brush cutters, walk behind blowers, lawn vacuums, and debris loaders.
Products has a network of independent dealers worldwide for the sale and service of snow throwers, standby generators and lawn and garden powered equipment. To support its international business, Products has leveraged the existing Briggs & Stratton worldwide distribution network and regional sales offices.
During fiscal 2014, the Company joined with one of its independent domestic 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. Subsequent to its formation, the venture acquired the service businesses of two additional independent domestic distributors. Subsequent to fiscal 2015, the venture added a fourth independent distributor.
Customers
Historically, Products’ major customers have included Lowe’s, Sears, The Home Depot, Wal-Mart, Tractor Supply Inc., Bunnings Warehouse, and a network of independent dealers. Sales to the top three customers combined were 27%, 27% and 28% of Products segment net sales in fiscal 2015, 2014 and 2013, respectively.
Competition
The principal competitive factors in the power products industry include price, service, product performance, brand, innovation and delivery. Products has various competitors, depending on the type of equipment. Primary competitors include: Honda (portable generators, pressure washers and lawn and garden equipment), Generac Power Systems, Inc. (portable and standby generators and job site products), Alfred Karcher GmbH & Co. (pressure washers), Techtronic Industries (pressure washers and portable generators), Deere & Company (commercial and consumer lawn mowers), MTD (commercial and consumer lawn mowers), The Toro Company (commercial and consumer lawn mowers), Scag Power Equipment, a Division of Metalcraft of Mayville, Inc. (commercial lawn mowers), and HOP (commercial and consumer lawn mowers).
Seasonality of Demand
A significant portion of Products’ sales are subject to seasonal patterns. Due to seasonal and regional weather factors, sales of pressure washers and lawn and garden powered equipment are typically higher during the third and fourth fiscal quarters than at other times of the year. Sales of portable generators and snow throwers are typically higher during the first and second fiscal quarters and can spike during weather related power outage events.
Manufacturing
Products’ manufacturing facilities are located in Munnsville, New York; Wauwatosa, Wisconsin; Holdrege, Nebraska; Lee's Summit, Missouri; and Sydney, Australia. Products also purchases certain powered equipment under contract manufacturing agreements.
Products manufactures core components for its products, where such integration improves operating profitability by providing lower costs.
Products purchases engines from its parent, Briggs & Stratton, as well as from Honda, Kawasaki and Kohler. Products has not experienced any difficulty obtaining necessary engines or other purchased components.
Products assembles products for the international markets at its U.S. and Australian locations and through contract manufacturing agreements with other OEMs and suppliers.


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Consolidated
General Information
The Company holds patents on features incorporated in its products; however, the success of the Company’s business is not considered to be primarily dependent upon patent protection. The Company owns several trademarks which it believes significantly affect a consumer’s choice of outdoor powered equipment and job site products, and therefore create value. Licenses, franchises and concessions are not a material factor in the Company’s business.
For the fiscal years ended June 28, 2015, June 29, 2014 and June 30, 2013, the Company spent approximately $19.9 million, $19.7 million and $18.5 million, respectively, on research activities relating to the development of new products or the improvement of existing products.
In October 2012, the Board of Directors of the Company authorized an amendment to the Company's defined benefit retirement plans for U.S., non-bargaining employees. The amendment froze accruals for all non-bargaining employees effective January 1, 2014. The Company recorded a pre-tax curtailment charge of $1.9 million in the second quarter of fiscal 2013 related to the defined benefit plan change.
The average number of persons employed by the Company during fiscal 2015 and fiscal 2014 was 5,682 and 5,790, respectively. Employment in fiscal 2015 ranged from a high of 5,837 in February 2015 to a low of 5,480 in June 2015.
Export Sales
Export sales for fiscal 2015, 2014 and 2013 were $334.0 million (18% of net sales), $314.6 million (17% of net sales) and $334.9 million (18% of net sales), respectively. These sales were principally to customers in Europe, Asia, Australia, and Canada.
Refer to Note 9 of the Notes to Consolidated Financial Statements for financial information about geographic areas. Also, refer to Item 7A of this Form 10-K and Note 16 of the Notes to Consolidated Financial Statements for information about Briggs & Stratton’s foreign exchange risk management.
ITEM 1A.
RISK FACTORS
In addition to the risks referred to elsewhere in this Annual Report on Form 10-K, the following risks, among others, may have affected, and in the future could materially affect, the Company and its subsidiaries’ business, financial condition or results of operations.
Demand for products fluctuates significantly due to seasonality. In addition, changes in the weather and consumer confidence impact demand.
Sales of our products are subject to seasonal and consumer buying patterns. Consumer demand in our markets can be reduced by unfavorable weather and weak consumer confidence. Although we manufacture throughout the year, our sales are concentrated in the second half of our fiscal year. This operating method requires us to anticipate demand of our customers many months in advance. If we overestimate or underestimate demand during a given year, we may not be able to adjust our production quickly enough to avoid excess or insufficient inventories, and that may in turn limit our ability to maximize our potential sales or maintain optimum working capital levels.
We have only a limited ability to pass through cost increases in our raw materials to our customers during the year.
We generally enter into annual purchasing plans with our largest customers, so our ability to raise our prices during a particular year to reflect increased raw materials costs is limited.


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A significant portion of our net sales comes from major customers and the loss of any of these customers would negatively impact our financial results.
In fiscal 2015, our three largest customers accounted for 33% of our consolidated net sales. The loss of any of these customers or a significant portion of the business from one or more of our key customers would significantly impact our net sales and profitability.
Changes in environmental or other laws could require extensive changes in our operations or to our products.
Our operations and products are subject to a variety of foreign, federal, state and local laws and regulations governing, among other things, emissions to air, discharges to water, noise, the generation, handling, storage, transportation, treatment and disposal of waste and other materials and health and safety matters. We do not expect these laws and regulations to have an adverse effect on us, but we cannot be certain that these or other proposed changes in applicable laws or regulations, or their enforcement, will not adversely affect our business or financial condition in the future.
Our international operations are subject to risks and uncertainties, which could adversely affect our business or financial results.
In fiscal 2015, we derived approximately 31% of our consolidated net sales from international markets, primarily Europe. Our international operations are subject to various economic, political, and other risks and uncertainties that could adversely affect our business and operating results, including, but not limited to, regional or country specific economic downturns, fluctuations in currency exchange rates, labor practices, complications in complying with, or exposure to liability under, a variety of laws and regulations, including anti-corruption laws and regulations, political instability and significant natural disasters and other events or factors impacting local infrastructure.
Actions of our competitors could reduce our sales or profits.
Our markets are highly competitive and we have a number of significant competitors in each market. Competitors may reduce their costs, lower their prices or introduce innovative products that could adversely affect our sales or profits. In addition, our competitors may focus on reducing our market share to improve their results.
Disruptions caused by labor disputes or organized labor activities could harm our business and reputation.
Currently, approximately 10% of our workforce is represented by labor unions. In addition, we may from time to time experience union organizing activities in our non-union facilities. Disputes with the current labor union or new union organizing activities could lead to work slowdowns or stoppages and make it difficult or impossible for us to meet scheduled delivery times for product shipments to our customers, which could result in loss of business and damage to our reputation. In addition, union activity could result in higher labor costs, which could harm our financial condition, results of operations and competitive position.
Our level of debt and our ability to obtain debt financing could adversely affect our operating flexibility and put us at a competitive disadvantage.
Our level of debt and the limitations imposed on us by the indenture relating to the Senior Notes (as defined below) and our other credit agreements could have important consequences, including the following:
we will have to use a portion of our cash flow from operations for debt service rather than for our operations;
we may not be able to obtain additional debt financing for future working capital, capital expenditures or other corporate purposes or may have to pay more for such financing;
some or all of the debt under our current or future revolving credit facilities will be at a variable interest rate, making us more vulnerable to increases in interest rates;
we could be less able to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;
we may be more vulnerable to general adverse economic and industry conditions; and
we may be disadvantaged compared to competitors with less leverage.


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The terms of the indenture for the 6.875% Senior Notes due December 2020 (the "Senior Notes") do not fully prohibit us from incurring substantial additional debt in the future and our revolving credit facilities permit additional borrowings, subject to certain conditions. If incremental debt is added to our current debt levels, the related risks we now face could intensify.
We expect to obtain the money to pay our expenses and to pay the principal and interest on the outstanding Senior Notes, the credit facilities and other debt primarily from our operations or by refinancing part of our existing debt. Our ability to meet our expenses thus depends on our future performance, which will be affected by financial, business, economic and other factors. We will not be able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors. We cannot be certain that the money we earn will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations. If we do not have enough money, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We cannot guarantee that we will be able to do so on terms acceptable to us. In addition, the terms of existing or future debt agreements, including the revolving credit facilities and our indentures, may restrict us from adopting certain of these alternatives.
We are restricted by the terms of the outstanding Senior Notes and our other debt, which could adversely affect us.
The indenture relating to the Senior Notes and our multicurrency credit agreement include a number of financial and operating restrictions, which may prevent us from capitalizing on business opportunities and taking some corporate actions. These covenants could adversely affect us by limiting our ability to plan for or react to market conditions or to meet our capital needs. These covenants include, among other things, restrictions on our ability to:
incur more debt;
pay dividends, redeem stock or make other distributions;
make certain investments;
create liens;
transfer or sell assets;
merge or consolidate; and
enter into transactions with our affiliates.
In addition, our multicurrency credit agreement contains financial covenants that, among other things, require us to maintain a minimum interest coverage ratio and impose a maximum average leverage ratio.
Our failure to comply with the restrictive covenants described above could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates.
Worldwide economic conditions may adversely affect our industry, business and results of operations.
General worldwide economic conditions have experienced volatility in recent years due to the sequential effects of the subprime lending crisis, general credit market crisis, sovereign debt crisis, collateral effects on the finance and banking industries, changes in energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. These conditions make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they may cause U.S. and foreign OEMs and consumers to slow spending on our products. We cannot predict the timing or duration of any future economic slowdown or the timing or strength of a subsequent economic recovery, worldwide or in the specific end markets we serve. If the consumer and commercial lawn and garden markets significantly deteriorate due to these economic effects, our business, financial condition and results of operations will likely be adversely affected. Additionally, our stock price could decrease if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a worldwide economic downturn.


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We have goodwill and intangible assets, which were written-down in prior years. If we determine that goodwill and other intangible assets have become further impaired in the future, net income in such years would be adversely affected.
At June 28, 2015, goodwill and other intangible assets represented approximately 19.0% of our total assets. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. We are required to evaluate whether our goodwill and indefinite-lived intangible assets have been impaired on an annual basis, or more frequently if indicators of impairment exist. In fiscal 2015, there was no impairment of goodwill or other intangible assets. In fiscal 2014 and 2013, we recorded pre-tax non-cash goodwill and tradename impairment charges of $8.5 million and $90.1 million, respectively. The impairments were determined as part of the fair value assessments of goodwill and other intangible assets. Any additional write-down of our goodwill or intangible assets could adversely affect our results of operations.
We are subject to litigation, including product liability and warranty claims, that may adversely affect our business and results of operations.
We are a party to litigation that arises in the normal course of our business operations, including product warranty and liability (strict liability and negligence) claims, patent and trademark matters, contract disputes and environmental, asbestos, employment and other litigation matters. We face an inherent business risk of exposure to product liability and warranty claims in the event that the use of our products is alleged to have resulted in injury or other damage. In addition, we face an inherent risk that our competitors will allege that aspects of our product designs infringe their protected intellectual property. While we currently maintain general liability and product liability insurance coverage in amounts that we believe are adequate, we cannot be sure that we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any claims brought against us, with or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes, the expenses associated with defending such claims, the diversion of our management’s resources and time and the potential adverse effect to our business reputation.
Our pension and postretirement benefit plan obligations are currently underfunded, and we may have to make significant cash payments to some or all of these plans, which would reduce the cash available for our businesses.
We have unfunded obligations under our domestic and foreign pension and postretirement benefit plans. As of June 28, 2015, our pension plans were underfunded by approximately $212 million. The funded status of our pension plans is dependent upon many factors, including returns on invested assets, the level of certain market interest rates, the mortality tables used, and the discount rate used to determine pension obligations. Unfavorable returns on the plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount of required plan funding, which would reduce the cash available for our businesses. In addition, a decrease in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of our pension plans and future contributions, as well as the periodic pension cost in subsequent fiscal years.
Our dependence on, and the price of, raw materials may adversely affect our profits.
The principal raw materials used to produce our products are aluminum, copper and steel. We source raw materials on a global or regional basis, and the prices of those raw materials are susceptible to significant price fluctuations due to supply/demand trends, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic climate and other unforeseen circumstances. If we are unable to pass on raw material price increases to our customers, our future profitability may be adversely affected.


8






We may be adversely affected by health and safety laws and regulations.
We are subject to various laws and regulations relating to the protection of human health and safety and have incurred and will continue to incur capital and other expenditures to comply with these regulations. Failure to comply with regulations could subject us to future liabilities, fines or penalties or the suspension of production, as well as damage our reputation.
The operations and success of our Company can be impacted by natural disasters, terrorism, acts of war, international conflict and political and governmental actions, which could harm our business.
Natural disasters, acts or threats of war or terrorism, international conflicts and the actions taken by the United States and other governments in response to such events could cause damage or disrupt our business operations, our suppliers or our customers, and could create political or economic instability, any of which could have an adverse effect on our business. Although it is not possible to predict such events or their consequences, these events could decrease demand for our products, could make it difficult or impossible for us to deliver products or could disrupt our supply chain. We may also be impacted by actions by foreign governments, including currency devaluation, tariffs and nationalization, where our facilities are located, which could disrupt manufacturing and commercial operations. In addition, our foreign operations make us subject to certain U.S. laws and regulations, including the Export Administration Regulations administered by the U.S. Department of Commerce, the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control and the Foreign Corrupt Practices Act. A violation of these laws and regulations could adversely affect our business, financial condition, and results of operations and reputation.
We are subject to tax laws and regulations in many jurisdictions, and the inability to successfully defend claims from taxing authorities could adversely affect our operating results and financial position.
We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our operating results and financial position.
If we fail to remain current with changes in gasoline engine technology or if the technology becomes less important to customers in our markets due to the impact of alternative fuels, our results would be negatively affected.
Our ability to remain current with changes in gasoline engine technology may significantly affect our business. Any advances in gasoline engine technology, including the impact of alternative fuels, may inhibit our ability to compete with other manufacturers. Our competitors may also be more effective and efficient at integrating new technologies. In addition, developing new manufacturing technologies and capabilities requires a significant investment of capital. There can be no assurance that our products will remain competitive in the future or that we will continue to be able to timely implement innovative manufacturing technologies.
Through our Products segment, we compete with certain customers of our Engines segment, thereby creating inherent channel conflict that may impact the actions of engine manufacturers and OEMs with whom we compete.
Through our Products segment, we compete with certain customers of our Engines segment. Any further forward integration of our products may strain relationships with OEMs that are significant customers of our Engines segment and have an adverse impact on operating results.
The financial stability of our suppliers and the ability of our suppliers to produce quality materials could adversely affect our ability to obtain timely and cost-effective raw materials.
The loss of certain of our suppliers or interruption of production at certain suppliers from adverse financial conditions, work stoppages, equipment failures or other unfavorable events would adversely affect our ability to obtain raw materials and other inputs used in the manufacturing process. Our cost of purchasing raw materials and other inputs used in the manufacturing process could be higher and could temporarily affect our


9






ability to produce sufficient quantities of our products, which could harm our financial condition, results of operations and competitive position.
An inability to successfully manage information systems, or to adequately maintain these systems and their security, as well as to protect data and other confidential information, could adversely affect our business and reputation.
We depend on our information systems to successfully manage our business. Any inability to successfully manage these systems, including matters related to system and data security, privacy, reliability, compliance, performance and access, as well as any inability of these systems to fulfill their intended purpose within our business, could have an adverse effect on our business.
In the ordinary course of business, we collect and store sensitive data and information, including our proprietary and regulated business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our employees. Our information systems, like those of other companies, are susceptible to outages due to natural disasters, power loss, telecommunications failures, viruses, break-ins and similar events, breaches of security, or during system upgrades or new system implementations. We have taken steps to maintain adequate data security and address these risks and uncertainties by implementing security technologies, internal controls, network and data center resiliency and recovery processes. However, any operational failure or breach of security from increasingly sophisticated cyber threats could lead to the loss or disclosure of both our and our customers’ financial, product and other confidential information, result in regulatory actions and legal proceedings, and have an adverse effect on our business and reputation.
We have implemented, and Wisconsin law contains, anti-takeover provisions that may adversely affect the rights of holders of our common stock.
Our articles of incorporation contain provisions that could have the effect of discouraging or making it more difficult for someone to acquire us through a tender offer, a proxy contest or otherwise, even though such an acquisition might be economically beneficial to our shareholders. These provisions include a board of directors divided into three classes of directors serving staggered terms of three years each and the removal of directors only for cause and only with the affirmative vote of a majority of the votes entitled to be cast in an election of directors.
Each currently outstanding share of our common stock includes, and each newly issued share of our common stock through October 20, 2015 will include, a common share purchase right. The rights are attached to and trade with the shares of common stock and are exercisable only under limited circumstances. The rights will become exercisable if a person or group acquires, or announces an intention to acquire, 20% or more of our outstanding common stock, subject to certain exceptions. The rights have some anti-takeover effects and generally will cause substantial dilution to a person or group that attempts to acquire control of us without conditioning the offer on either redemption of the rights or amendment of the rights to prevent this dilution. The rights could have the effect of delaying, deferring or preventing a change of control. The rights and the related rights agreement expire by their terms on October 21, 2015.
We are subject to the Wisconsin Business Corporation Law, which contains several provisions that could have the effect of discouraging non-negotiated takeover proposals or impeding a business combination.
These provisions include:
requiring a supermajority vote of shareholders, in addition to any vote otherwise required, to approve business combinations not meeting adequacy of price standards;
prohibiting some business combinations between an interested shareholder and us for a period of three years, unless the combination was approved by our board of directors prior to the time the shareholder became a 10% or greater beneficial owner of our shares or under some other circumstances;
limiting actions that we can take while a takeover offer for us is being made or after a takeover offer has been publicly announced; and
limiting the voting power of shareholders who own more than 20% of our stock.



10






An inability to identify, complete and integrate acquisitions may adversely impact our sales, results of operations, cash flow and liquidity.
Our historical growth has included acquisitions, and our future growth strategy includes acquisition opportunities. For example, in fiscal 2015, the Company acquired Allmand, a leading designer and manufacturer of high quality towable light towers, industrial heaters and solar LED arrow boards, for approximately $59.9 million in cash. Also, in fiscal 2015, the Company acquired Billy Goat, a leading manufacturer of specialty turf equipment, which includes aerators, sod cutters, overseeders, power rakes, brush cutters, walk behind blowers, lawn vacuums, and debris loaders, for total cash consideration of $28.3 million, subject to customary post closing working capital adjustments. We may not be able to identify acquisition targets or successfully complete acquisitions in the future due to the absence of quality companies in our target markets, economic conditions, competition from other bidders, or price expectations from sellers. If we are unable to complete additional acquisitions, our growth may be limited.
Additionally, as we grow through acquisitions, we will continue to place significant demands on management, operational, and financial resources. Recent and future acquisitions will require integration of operations, sales and marketing, information technology, finance and administrative operations, which could decrease the time available to serve and attract customers. We cannot assure that we will be able to successfully integrate acquisitions, that these acquisitions will operate profitably, or that we will be able to achieve the desired financial or operational success. Our financial condition, cash flows, liquidity and results of operations could be adversely affected if we do not successfully integrate the newly acquired businesses, or if our other businesses suffer due to the increased focus on the newly acquired businesses. 
An inability to successfully manage the implementation of a new global enterprise resource planning ("ERP") system could adversely affect our operations and operating results.



We are in the process of implementing a new global ERP system. This system will replace many of our existing operating and financial systems. Such an implementation is a major undertaking both financially and from a management and personnel perspective. Should the system not be implemented successfully and within budget, or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations and results of operations, including our ability to report accurate and timely financial results.
Our common stock is subject to substantial price and volume fluctuations.
The market price of shares of our common stock may be volatile. Among the factors that could affect our common stock price are those previously discussed, as well as:
quarterly fluctuation in our operating income and earnings per share results;
decline in demand for our products;
significant strategic actions by our competitors, including new product introductions or technological advances;
fluctuations in interest rates or foreign currency exchange;
cost increases in energy, raw materials or labor;
changes in revenue or earnings estimates or publication of research reports by analysts; and
domestic and international economic and political factors unrelated to our performance.
In addition, the stock markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.


11






ITEM 2.
PROPERTIES
The Company maintains leased and owned manufacturing, office, warehouse, distribution and testing facilities throughout the world. The Company believes that its owned and leased facilities are adequate to perform its operations in a reasonable manner. As the Company’s business is seasonal, additional warehouse space may be leased when inventory levels are at their peak. Facilities in the United States occupy approximately 5.9 million square feet, of which 63% is owned. Facilities outside of the United States occupy approximately 0.9 million square feet, of which 29% is owned. Certain of the Company’s facilities are leased through operating lease agreements. See Note 10 to the Consolidated Financial Statements for information on the Company’s operating leases.

The following table provides information about each of the Company’s facilities (exceeding 25,000 square feet) as of June 28, 2015:
 
 
 
 
 
 
 
Location
 
Type of Property
 
Owned/Leased
 
Segment
U.S. Locations:
 
 
 
 
 
 
Auburn, Alabama
 
Manufacturing, office and warehouse
 
Owned and Leased
 
Engines
McDonough, Georgia (1)
 
Manufacturing, office and warehouse
 
Owned and Leased
 
Products
Statesboro, Georgia
 
Manufacturing, office and warehouse
 
Owned and Leased
 
Engines
Murray, Kentucky
 
Manufacturing, office and warehouse
 
Owned and Leased
 
Engines
Lee's Summit, Missouri
 
Manufacturing, office and warehouse
 
Owned
 
Products
Poplar Bluff, Missouri
 
Manufacturing, office and warehouse
 
Owned and Leased
 
Engines
Holdrege, Nebraska
 
Manufacturing, office and warehouse
 
Owned
 
Products
Munnsville, New York
 
Manufacturing and office
 
Owned
 
Products
Sherrill, New York
 
Warehouse
 
Leased
 
Products
Menomonee Falls, Wisconsin
 
Distribution and office
 
Leased
 
Engines, Products
Wauwatosa, Wisconsin
 
Manufacturing, office and warehouse
 
Owned
 
Engines, Products, Corporate
 
 
 
 
Non-U.S. Locations:
 
 
 
 
 
 
Melbourne, Australia
 
Office and warehouse
 
Leased
 
Engines, Products
Sydney, Australia
 
Manufacturing and office
 
Leased
 
Products
Curitiba, Brazil
 
Office and warehouse
 
Leased
 
Engines, Products
Mississauga, Canada
 
Office and warehouse
 
Leased
 
Products
Chongqing, China
 
Manufacturing, office and warehouse
 
Owned
 
Engines
Shanghai, China
 
Office and warehouse
 
Leased
 
Engines, Products
Queretaro, Mexico
 
Office and warehouse
 
Leased
 
Engines, Products
Nijmegen, Netherlands
 
Distribution and office
 
Leased
 
Engines, Products
  
(1) During fiscal 2015, the Company closed its McDonough, Georgia manufacturing facility and consolidated production into its existing facilities. At June 28, 2015, the Company had $3.8 million classified as assets held for sale, which is included in Prepaid Expenses and Other Current Assets within the Consolidated Balance Sheets, related to the McDonough, Georgia manufacturing location.
ITEM 3.
LEGAL PROCEEDINGS
The Company is subject to various unresolved legal actions that arise in the normal course of its business. These actions typically relate to product liability (including asbestos-related liability), patent and trademark matters, and disputes with customers, suppliers, distributors and dealers, competitors and employees.


12






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 briefed on December 23, 2014. Summary judgment is currently pending before the court, and no hearing date or trial date has been set.
On May 12, 2010, Exmark Manufacturing Company, Inc. ("Exmark") filed suit against Briggs & Stratton Power Products Group, LLC (Case No. 8:10CV187, U.S. District Court for the District of Nebraska), alleging that certain Ferris® and Snapper Pro® mower decks infringe an Exmark mower deck patent. Exmark is seeking damages relating to sales since 2004 and attorneys’ fees. As a result of a reexamination proceeding in 2012, the United States Patent and Trademark Office (the “USPTO”) initially rejected the asserted Exmark claims as invalid.  However, that decision was reversed by the USPTO on appeal. Following discovery, each of the Company and Exmark filed motions for summary judgment, which were decided by the Court on July 28, 2015. The Court concluded that one of the Company's mower deck designs infringed Exmark’s patent, leaving for trial the issues of whether another of the designs infringes, damages and willfulness of the Company's conduct. Trial is scheduled to begin on September 8, 2015. The Company believes it has strong defenses and intends to defend the lawsuit vigorously, through appeal if necessary. At this stage, the Company cannot make a reasonable estimate of the possible loss, if any, arising from this lawsuit as there are significant issues to be resolved in connection with the trial.
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.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.


13






Executive Officers of the Registrant
Name, Age, Position
  
Business Experience for At Least Past Five Years
TODD J. TESKE, 50
Chairman, President & Chief Executive Officer (1)(2)
  
Mr. Teske was elected to his current position effective October 2010. He previously was President & Chief Executive Officer from January 2010 to October 2010. He served as President and Chief Operating Officer from September 2008 to January 2010; as Executive Vice President & Chief Operating Officer from September 2005 through August 2008; and as Senior Vice President and President - Briggs & Stratton Power Products Group, LLC from September 2003 to August 2005. Mr. Teske also serves as a director of Badger Meter, Inc. and Lennox International, Inc.
 
 
KATHRYN M. BUONO, 53
Vice President, General Counsel & Secretary
 
Ms. Buono was elected to her position effective April 2015.  Prior to joining Briggs & Stratton, she held the position of Managing Partner of the Milwaukee, Wisconsin office of the Quarles & Brady LLP law firm from March 2014 through December 2014 and was a partner practicing in its Business Law Group.    
 
 
 
 
 
 
RANDALL R. CARPENTER, 58
Vice President – Marketing
  
Mr. Carpenter was elected to his current position effective September 2009. He served as Vice President - Marketing from May 2007 through August 2009. Prior to joining Briggs & Stratton, he held the position of Vice President Marketing and Product Development for Royal Appliance Manufacturing.
  
  
  
  
  
 
 
DAVID G. DEBAETS, 52
Vice President – Global Engine Operations
  
Mr. DeBaets was elected to his current position in August 2015, to be effective as of September 1, 2015. He previously served as Vice President - North American Operations from September 2007 through August, 2015; as Vice President and General Manager - Large Engine Division from September 2006 through August 2007; and as Vice President & President - Home Power Products Group from May 2006 through August 2006.
  
  
 
 
ANDREA L. GOLVACH, 44
Vice President & Treasurer
 
Ms. Golvach was elected to her current position effective November 2011 after serving as Vice President of Treasury from May 2011 to November 2011. Prior to joining Briggs & Stratton, she held the position of Director of Finance & Cash Management at Harley-Davidson, Inc., a global motorcycle manufacturer, from December 2007 to May 2011 and Director of Finance & Cash Management for Harley-Davidson Financial Services from August 2005 to December 2007.
 
 
 
 
 
 
 
 
 
HAROLD L. REDMAN, 50
Senior Vice President & President –
Turf & Consumer Products
  
Mr. Redman was elected to his current position effective September 2014. He previously served as Senior Vice President and President - Products Group from October 2010 through August 2014; as Senior Vice President and President - Home Power Products Group from September 2009 to October 2010; and as Vice President and President - Home Power Products Group from September 2006 through August 2009. Prior to joining Briggs & Stratton, he served as Senior Vice President - Sales & Marketing of Simplicity Manufacturing, Inc.

  
  
  
  
  
  
 
 


14






Name, Age, Position
  
Business Experience for At Least Past Five Years
WILLIAM H. REITMAN, 59
Senior Vice President & President – Global Service
  
Mr. Reitman was elected to his current position in August 2015, to be effective as of September 1, 2015. He previously served as Senior Vice President - Managing Director Europe & Global Service from September 2014 through August 2015; as Senior Vice President & Managing Director - Europe from September 2013 through August 2014; as Senior Vice President - Business Development & Customer Support from October 2010 through August 2013; as Senior Vice President - Sales & Customer Support from September 2007 to October 2010; as Senior Vice President - Sales & Marketing from May 2006 through August 2007; and as Vice President - Sales & Marketing from October 2004 to May 2006.
  
  
  
  
  
  
DAVID J. RODGERS, 44
Senior Vice President & President – Engines Group
  
Mr. Rodgers was elected to his current position effective August 17, 2015. He previously served as Senior Vice President & Chief Financial Officer from June 2010 through August 16, 2015 and as Vice President - Finance from February 2010 to June 2010. He served as Controller from December 2006 to February 2010 and was elected an executive officer in September 2007. Prior to joining Briggs & Stratton, he was employed by Roundy’s Supermarkets, Inc. as Vice President - Corporate Controller from September 2005 to November 2006 and Vice President - Retail Controller from May 2003 to August 2005.
  
  
  
  
  
 
  
 
 
MARK A. SCHWERTFEGER, 38
Senior Vice President & Chief Financial Officer
  
Mr. Schwertfeger was elected to his current position effective August 17, 2015. He previously served as Vice President & Controller (an executive officer position) from September 2014 through August 2015; as Controller from February 2010 through August 2014; and as International Controller from September 2008 to February 2010. Prior to joining Briggs & Stratton, he held the position of Director with KPMG LLP.
  
  
 
 
 
EDWARD J. WAJDA, 55
Senior Vice President & President –
Standby/Job Site Products
  
Mr. Wajda was elected to his current position in August 2015, to be effective as of September 1, 2015. He previously served as Senior Vice President & President - Standby/Job Site Products & International from September 2014 through August 2015; as Senior Vice President & General Manager - International from September 2013 through August 2014; and as Vice President & General Manager- International from July 2008 through August 2013. Mr. Wajda was elected as an executive officer effective as of February 2011. Prior to joining Briggs & Stratton, he held the position of Senior Vice President - Global Medical Vehicle Group for Oshkosh Corporation.

  
  
  
  
  
 
 
 
(1) Officer is also a Director of Briggs & Stratton.
(2) Member of the Board of Directors Executive Committee.
Officers are elected annually and serve until they resign, die, are removed, or a different person is appointed to the office.


15






PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Briggs & Stratton common stock and its common share purchase rights are traded on the NYSE under the symbol “BGG”. Information required by this Item is incorporated by reference from the “Quarterly Financial Data, Dividend and Market Information” (unaudited), included in Item 8 of this report.
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
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 June 28, 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)
March 30, 2015 to April 26, 2015
 
121,557

 
$
20.07

 
121,557

 
$
45,303,773

April 27, 2015 to May 24, 2015
 
99,268

 
19.81

 
99,268

 
43,337,274

May 25, 2015 to June 28, 2015
 
162,820

 
18.91

 
162,820

 
40,258,348

Total Fourth Quarter
 
383,645

 
$
19.51

 
383,645

 
$
40,258,348

(1) On August 13, 2014, the Board of Directors authorized up to an additional $50 million in funds for use in the Company’s existing common share repurchase program 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 debt covenants.
Five-year Stock Performance Graph
The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) at the close of business on June 30, 2010 in each of Briggs & Stratton common stock, the Standard & Poor’s (S&P) Smallcap 600 Index and the S&P Machinery Index.


16






ITEM 6.
SELECTED FINANCIAL DATA
Fiscal Year
 
2015(1)

 
2014(2)

 
2013(3)

 
2012(4)

 
2011(5)

(dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
SUMMARY OF OPERATIONS 
 
 
 
 
 
 
 
 
 
 
NET SALES
 
$
1,894,750

 
$
1,859,060

 
$
1,862,498

 
$
2,066,533

 
$
2,109,998

GROSS PROFIT
 
359,099

 
346,783

 
329,140

 
336,725

 
398,316

PROVISION (CREDIT) FOR INCOME TAXES
 
11,271

 
8,787

 
(18,484
)
 
867

 
7,699

NET INCOME (LOSS)
 
45,687

 
28,347

 
(33,657
)
 
29,006

 
24,355

EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
 
 
 
 
 
 
 
 
 
 
Basic
 
1.00

 
0.59

 
(0.73
)
 
0.58

 
0.49

Diluted
 
1.00

 
0.59

 
(0.73
)
 
0.57

 
0.48

PER SHARE OF COMMON STOCK:
 
 
 
 
 
 
 
 
 
 
Cash Dividends
 
0.50

 
0.48

 
0.48

 
0.44

 
0.44

Shareholders’ Investment
 
$
12.94

 
$
14.50

 
$
14.16

 
$
12.91

 
$
14.85

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)
 
44,392

 
46,366

 
47,172

 
48,965

 
49,677

DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)
 
44,442

 
46,436

 
47,172

 
49,909

 
50,409

OTHER DATA 
 
 
 
 
 
 
 
 
 
 
SHAREHOLDERS’ INVESTMENT
 
$
574,250

 
$
672,434

 
$
667,938

 
$
631,970

 
$
737,943

LONG-TERM DEBT
 
225,000

 
225,000

 
225,000

 
225,000

 
225,000

CAPITAL LEASES
 

 

 

 
133

 
571

TOTAL ASSETS
 
1,458,962

 
1,449,706

 
1,447,551

 
1,608,231

 
1,666,218

PLANT AND EQUIPMENT
 
1,035,326

 
1,035,848

 
1,019,355

 
1,026,845

 
1,016,892

PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
 
314,838

 
297,007

 
287,195

 
301,249

 
329,225

PROVISION FOR DEPRECIATION
 
48,496

 
47,190

 
52,290

 
60,297

 
59,920

EXPENDITURES FOR PLANT AND EQUIPMENT
 
71,710

 
60,371

 
44,878

 
49,573

 
59,919

WORKING CAPITAL
 
$
460,127

 
$
567,148

 
$
584,226

 
$
605,591

 
$
634,356

Current Ratio
 
2.4 to 1

 
2.9 to 1

 
3.1 to 1

 
3.0 to 1

 
2.8 to 1

NUMBER OF EMPLOYEES AT YEAR-END
 
5,480

 
5,695

 
5,980

 
6,321

 
6,716

NUMBER OF SHAREHOLDERS AT YEAR-END
 
2,681

 
2,815

 
3,153

 
3,184

 
3,289

QUOTED MARKET PRICE:
 
 
 
 
 
 
 
 
 
 
High
 
$
21.09

 
$
23.02

 
$
25.52

 
$
20.81

 
$
24.18

Low
 
$
17.14

 
$
18.21

 
$
16.20

 
$
12.36

 
$
16.50

(1)
In fiscal 2015, the Company had restructuring charges of $17.7 million after-tax, or $0.40 per diluted share, and acquisition-related charges of $1.4 million after-tax, or $0.03 per diluted share.
(2)
In fiscal 2014, the Company had goodwill and tradename impairment charges of $5.5 million after-tax, or $0.12 per diluted share, and restructuring charges of $5.2 million after-tax, or $0.11 per diluted share.
(3)
In fiscal 2013, the Company had goodwill and tradename impairment charges of $62.0 million after-tax, or $1.30 per diluted share, restructuring charges of $15.5 million after-tax, or $0.33 per diluted share, and a litigation settlement of $1.2 million after-tax, or $0.03 per diluted share.
(4)
In fiscal 2012, the Company had restructuring charges of $28.8 million after-tax, or $0.58 per diluted share.
(5)
In fiscal 2011, the Company had a goodwill impairment charge of $34.3 million after-tax, or $0.68 per diluted share, restructuring charges of $2.2 million after-tax, or $0.04 per diluted share, and debt redemption costs of $2.4 million after-tax, or $0.05 per diluted share.




17






ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
FISCAL 2015 COMPARED TO FISCAL 2014
The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results by segment, excluding restructuring charges, acquisition-related charges, and goodwill and tradename impairments (in thousands, except per share data):
 
 
For the fiscal year ended June
 
 
2015 Reported
 
Adjustments(1)
 
2015 Adjusted (2)
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted (2)
NET SALES:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
1,208,914

 
$

 
$
1,208,914

 
$
1,219,627

 
$

 
$
1,219,627

Products
 
788,564

 

 
788,564

 
736,312

 

 
736,312

Inter-Segment Eliminations
 
(102,728
)
 

 
(102,728
)
 
(96,879
)
 

 
(96,879
)
Total
 
$
1,894,750

 
$

 
$
1,894,750

 
$
1,859,060

 
$

 
$
1,859,060

 
 
 
 
 
 
 
 
 
 
 
 
 
GROSS PROFIT:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
267,778

 
$

 
$
267,778

 
$
257,441

 
$
3,099

 
$
260,540

Products
 
89,268

 
25,710

 
114,978

 
87,682

 
2,742

 
90,424

Inter-Segment Eliminations
 
2,053

 

 
2,053

 
1,660

 

 
1,660

Total
 
$
359,099

 
$
25,710

 
$
384,809

 
$
346,783

 
$
5,841

 
$
352,624

 
 
 
 
 
 
 
 
 
 
 
 
 
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
179,566

 
$

 
$
179,566

 
$
184,803

 
$

 
$
184,803

Products
 
110,350

 
693

 
109,657

 
106,564

 

 
106,564

Total
 
$
289,916

 
$
693

 
$
289,223

 
$
291,367

 
$

 
$
291,367

 
 
 
 
 
 
 
 
 
 
 
 
 
RESTRUCTURING CHARGES AND GOODWILL AND TRADENAME IMPAIRMENT:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$

 
$

 
$

 
$
425

 
$
425

 
$

Products
 
3,000

 
3,000

 

 
8,733

 
8,733

 

Total
 
$
3,000

 
$
3,000

 
$

 
$
9,158

 
$
9,158

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
5,668

 
$

 
$
5,668

 
$
6,087

 
$

 
$
6,087

Products
 
1,635

 

 
1,635

 
177

 

 
177

Total
 
$
7,303

 
$

 
$
7,303

 
$
6,264

 
$

 
$
6,264

 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME (LOSS) (3):
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
93,880

 
$

 
$
93,880

 
$
78,300

 
$
3,524

 
$
81,824

Products
 
(22,447
)
 
29,403

 
6,956

 
(27,438
)
 
11,475

 
(15,963
)
Inter-Segment Eliminations
 
2,053

 

 
2,053

 
1,660

 

 
1,660

Total
 
$
73,486

 
$
29,403

 
$
102,889

 
$
52,522

 
$
14,999

 
$
67,521



18






 
 
For the fiscal year ended June

 
 
2015 Reported
 
Adjustments(1)
 
2015 Adjusted (2)
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted (2)
SEGMENT INCOME (LOSS) (3):
 
$
73,486

 
$
29,403

 
$
102,889

 
$
52,522

 
$
14,999

 
$
67,521

Reconciliation from Segment Income (Loss) to Income Before Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Affiliates
 
7,303

 

 
7,303

 
6,264

 

 
6,264

Income from Operations
 
$
66,183

 
$
29,403

 
$
95,586

 
$
46,258

 
$
14,999

 
$
61,257

 
 
 
 
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
(19,532
)
 

 
(19,532
)
 
(18,466
)
 

 
(18,466
)
OTHER INCOME, Net
 
10,307

 

 
10,307

 
9,342

 

 
9,342

Income Before Income Taxes
 
56,958

 
29,403

 
86,361

 
37,134

 
14,999

 
52,133

PROVISION FOR INCOME TAXES
 
11,271

 
10,280

 
21,551

 
8,787

 
4,307

 
13,094

Net Income
 
$
45,687

 
$
19,123

 
$
64,810

 
$
28,347

 
$
10,692

 
$
39,039

 
 
 
 
 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.00

 
$
0.42

 
$
1.42

 
$
0.59

 
$
0.23

 
$
0.82

Diluted
 
1.00

 
0.42

 
1.42

 
0.59

 
0.23

 
0.82

(1) For the fiscal year ended June 28, 2015, includes restructuring charges of $27,288 net of $9,539 of taxes, and acquisition-related charges of $2,115 net of $741 of taxes. For the fiscal year ended June 29, 2014, includes restructuring charges of $6,539 net of $1,376 of taxes, and goodwill and tradename impairment charges of $8,460 net of $2,931 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 goodwill and tradename impairments 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 our 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 fiscal 2015 were $1.89 billion. Consolidated net sales increased $36 million or 1.9% from fiscal 2014, which includes $29 million related to unfavorable currency rates. Consolidated net sales increased $65 million or 3.5% before the impact of unfavorable currency rates. The increase in net sales is due to the results from the Allmand and Billy Goat acquisitions, a 3% increase in global engine unit shipments and higher sales of commercial lawn and garden equipment and pressure washers in North America. Partially offsetting the increase were reduced sales of generators, unfavorable engine sales mix and the planned actions to narrow the assortment of lower-priced Snapper consumer lawn and garden equipment.
Engines segment net sales for fiscal 2015 were $1.2 billion, which was $10.7 million or 0.9% lower than the prior year. This decrease is due to an unfavorable foreign exchange impact of approximately $15.3 million and an unfavorable mix of engines sold, partially offset by a 3% increase in unit shipments of global engines. Fiscal 2015 sales skewed proportionately towards small engines due to elevated levels of large engines in the channel entering this lawn and garden season.
Products segment net sales for fiscal 2015 were $788.6 million, an increase of $52.3 million or 7.1% from the prior year. The increase in net sales is due to the results of the Allmand and Billy Goat acquisitions, higher commercial lawn and garden equipment sales, higher sales in Australia on an improved lawn and garden season and higher pressure washer sales. Partially offsetting the increase is the unfavorable impact of foreign exchange of $13.6 million, reduced sales of generators due to fewer major power outages, and the planned actions to narrow the assortment of lower-priced Snapper consumer lawn and garden equipment.



19






Gross Profit Percentage

The consolidated gross profit percentage was 19.0% in fiscal 2015, an increase of 0.3% from fiscal 2014.

Included in consolidated gross profit were pre-tax charges of $24.3 million related to previously announced restructuring actions and $1.4 million related to acquisition-related charges recorded in the Products segment during fiscal 2015. During fiscal 2014, the Engines segment and Products segment recorded pre-tax restructuring charges within gross profit of $3.1 million and $2.7 million, respectively.
The Engines segment gross profit percentage for fiscal 2015 was 22.2%, which was higher than the 21.1% in fiscal 2014. Adjusted gross profit percentage for fiscal 2015 was 22.2%, which was 80 basis points higher compared to fiscal 2014. The previously announced retirement plan changes improved adjusted gross profit margins by approximately 90 basis points. Slightly lower material costs and cost reductions also improved margins by 50 basis points. Partially offsetting this increase was the impact of unfavorable foreign exchange, primarily related to the Euro, which reduced adjusted gross profit margins by approximately 40 basis points, and an unfavorable mix of engines produced as production slightly skewed toward small units rather than large engines, which reduced margins by 10 basis points.
The Products segment gross profit percentage for fiscal 2015 was 11.3%, which was lower than the 11.9% in fiscal 2014. The Products segment adjusted gross profit percentage for fiscal 2015 was 14.6%, which was 230 basis points higher compared to the adjusted gross profit percentage for fiscal 2014. Adjusted gross profit percentage improved due to favorable sales mix by approximately 140 basis points, the impact of acquisitions by 90 basis points, and by 30 basis points or $2.6 million from incremental savings realized from restructuring actions. Manufacturing throughput increased by 13.0%, which led to an increase in adjusted gross profit percentage of 60 basis points. Partially offsetting the higher gross profit percentage was the impact of unfavorable foreign exchange of 90 basis points, primarily the Brazilian real and Australian dollar.

Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses were $289.9 million in fiscal 2015, a decrease of $1.5 million or 0.5% from fiscal 2014.
The Engines segment engineering, selling, general and administrative expenses were $179.6 million in fiscal 2015, or $5.2 million lower compared to fiscal 2014. The decrease was largely due to the retirement plan changes. Higher compensation expense and international expenses in fiscal 2015 were partially offset by the benefit of the movement in foreign exchange rates.
The Products segment engineering, selling, general and administrative expenses were $110.4 million in fiscal 2015, an increase of $3.8 million from fiscal 2014. The increase was primarily attributable to higher expenses due to the Allmand and Billy Goat acquisitions, increased compensation expense, and higher international expenses. Partially offsetting the increase were $7.4 million in savings related to the restructuring actions and the impact of foreign exchange.
Restructuring Actions
During the fourth quarter of fiscal 2015, the Company made 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 ceased production at the McDonough, Georgia plant during the fourth quarter of fiscal 2015 and has begun producing pressure washers and snow throwers at its Wauwatosa, Wisconsin plant. Production of riding mowers at the Wauwatosa plant will begin in the first half of fiscal 2016. Pre-tax restructuring costs for the fourth quarter and twelve months ended June 28, 2015 were $4.0 million and $27.3 million, respectively, and pre-tax savings were $4.8 million and $10.0 million, respectively. Incremental pre-tax restructuring costs in fiscal 2016 are expected to be $4 million to $8 million. Incremental cost savings as a result of these actions are anticipated to be approximately $5 million to $7 million in fiscal 2016.



20






Allmand Bros., Inc. and Billy Goat Industries, Inc. Acquisitions
On August 29, 2014, the Company completed the acquisition of Allmand Bros., Inc. for approximately $59.9 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 is included within the Products segment.

On May 20, 2015, the Company acquired all of the outstanding shares of Billy Goat Industries, Inc. for approximately $28.3 million, net of cash acquired, subject to customary post-closing working capital adjustments. Billy Goat is a leading manufacturer of specialty turf equipment, which includes aerators, sod cutters, overseeders, power rakes, brush cutters, walk behind blowers, lawn vacuums, and debris loaders. Billy Goat is included within the Products segment.
Interest Expense
Interest expense for fiscal 2015 was $19.5 million, which was $1.1 million higher than fiscal 2014, due to higher borrowings on the Revolver during fiscal 2015.
Provision for Income Taxes
The effective tax rates for the year ended fiscal 2015 was 19.8% compared to 23.7% for the same period last year. The tax rate for the year ended fiscal 2015 was lower than statutory rates due to a net tax benefit of $5 million related to recognizing incremental federal research & development tax credits related to prior years.  In addition, the year ended fiscal 2015 tax rate was impacted by the reversal of previously recorded reserves as a result of the favorable resolution of an IRS audit.  The year ended fiscal 2014 tax rate 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.
















21






FISCAL 2014 COMPARED TO FISCAL 2013
The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results by segment, excluding restructuring charges, goodwill and tradename impairments, and a litigation settlement (in thousands, except per share data):
 
 
For the fiscal year ended June
 
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted (2)
 
2013 Reported
 
Adjustments(1)
 
2013 Adjusted(2)
NET SALES:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
1,219,627

 
$

 
$
1,219,627

 
$
1,189,674

 
$

 
$
1,189,674

Products
 
736,312

 

 
736,312

 
805,450

 

 
805,450

Inter-Segment Eliminations
 
(96,879
)
 

 
(96,879
)
 
(132,626
)
 

 
(132,626
)
Total
 
$
1,859,060

 
$

 
$
1,859,060

 
$
1,862,498

 
$

 
$
1,862,498

 
 
 
 
 
 
 
 
 
 
 
 
 
GROSS PROFIT:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
257,441

 
$
3,099

 
$
260,540

 
$
236,486

 
$
9,008

 
$
245,494

Products
 
87,682

 
2,742

 
90,424

 
87,392

 
9,753

 
97,145

Inter-Segment Eliminations
 
1,660

 

 
1,660

 
5,262

 

 
5,262

Total
 
$
346,783

 
$
5,841

 
$
352,624

 
$
329,140

 
$
18,761

 
$
347,901

 
 
 
 
 
 
 
 
 
 
 
 
 
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
184,803

 
$

 
$
184,803

 
$
173,958

 
$
1,877

 
$
172,081

Products
 
106,564

 

 
106,564

 
102,230

 

 
102,230

Total
 
$
291,367

 
$

 
$
291,367

 
$
276,188

 
$
1,877

 
$
274,311

 
 
 
 
 
 
 
 
 
 
 
 
 
RESTRUCTURING CHARGES AND GOODWILL AND TRADENAME IMPAIRMENT:
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
425

 
$
425

 
$

 
$
3,435

 
$
3,435

 
$

Products
 
8,733

 
8,733

 

 
90,080

 
90,080

 

Total
 
$
9,158

 
$
9,158

 
$

 
$
93,515

 
$
93,515

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
6,087

 
$

 
$
6,087

 
$
4,244

 
$

 
$
4,244

Products
 
177

 

 
177

 

 

 

Total
 
$
6,264

 
$

 
$
6,264

 
$
4,244

 
$

 
$
4,244

 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME (LOSS) (3):
 
 
 
 
 
 
 
 
 
 
 
 
Engines
 
$
78,300

 
$
3,524

 
$
81,824

 
$
63,337

 
$
14,320

 
$
77,657

Products
 
(27,438
)
 
11,475

 
(15,963
)
 
(104,918
)
 
99,833

 
(5,085
)
Inter-Segment Eliminations
 
1,660

 

 
1,660

 
5,262

 

 
5,262

Total
 
$
52,522

 
$
14,999

 
$
67,521

 
$
(36,319
)
 
$
114,153

 
$
77,834



22






 
 
For the fiscal year ended June

 
 
2014 Reported
 
Adjustments(1)
 
2014 Adjusted (2)
 
2013 Reported
 
Adjustments(1)
 
2013 Adjusted(2)
SEGMENT INCOME (LOSS) (3):
 
52,522

 
14,999

 
67,521

 
(36,319
)
 
114,153

 
77,834

Reconciliation from Segment Income (Loss) to Income (Loss) Before Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Affiliates
 
6,264

 

 
6,264

 
4,244

 

 
4,244

Income (Loss) from Operations
 
$
46,258

 
$
14,999

 
$
61,257

 
$
(40,563
)
 
$
114,153

 
$
73,590

 
 
 
 
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
(18,466
)
 

 
(18,466
)
 
(18,519
)
 

 
(18,519
)
OTHER INCOME, Net
 
9,342

 

 
9,342

 
6,941

 

 
6,941

Income (Loss) Before Income Taxes
 
37,134

 
14,999

 
52,133

 
(52,141
)
 
114,153

 
62,012

PROVISION (CREDIT) FOR INCOME TAXES
 
8,787

 
4,307

 
13,094

 
(18,484
)
 
35,442

 
16,958

Net Income (Loss)
 
$
28,347

 
$
10,692

 
$
39,039

 
$
(33,657
)
 
$
78,711

 
$
45,054

 
 
 
 
 
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER SHARE
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.59

 
$
0.23

 
$
0.82

 
$
(0.73
)
 
$
1.66

 
$
0.93

Diluted
 
0.59

 
0.23

 
0.82

 
(0.73
)
 
1.66

 
0.93

(1) For the fiscal year ended June 29, 2014, includes restructuring charges of $6,539 net of $1,376 of taxes, and goodwill and tradename impairment charges of $8,460 net of $2,931 of taxes. For the fiscal year ended June 30, 2013, includes restructuring charges of $22,196 net of $6,669 of taxes, goodwill and tradename impairment charges of $90,080, of which $13,807 related to non-deductible goodwill for tax purposes with the remaining impairment generating a $28,116 tax benefit, and a litigation settlement of $1,877 net of $657 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, goodwill and tradename impairments, and litigation settlements 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 our 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 fiscal 2014 were $1.9 billion, a decrease of $3.4 million or 0.2% from fiscal 2013, due to lower sales of generators and the engines that power them. The impact of fewer weather related events creating demand for generators and the related engines was an estimated sales decrease of $100 million for fiscal 2014. This decrease was offset by higher sales of engines used on U.S. lawn and garden equipment, increased sales of pressure washers and sales from Branco, which was acquired mid-year in fiscal 2013.
Engines segment net sales for fiscal 2014 were $1.2 billion, which was $30.0 million or 2.5% higher than fiscal 2013. This increase in net sales was primarily driven by higher sales of engines used on U.S. lawn and garden equipment and related service parts and sales from Branco, which was acquired mid-year in fiscal 2013. The increase in net sales was partially offset by lower sales of engines used on generators due to the lack of storm activity during fiscal 2014.
Products segment net sales for fiscal 2014 were $736.3 million, a decrease of $69.1 million or 8.6% from fiscal 2013. The decrease in net sales was primarily due to lower sales of standby and portable generators due to the lack of storm activity during fiscal 2014, lower replenishment of snow throwers in Europe following the previous year's dry winter, and unfavorable foreign exchange predominantly due to the Australian dollar and Brazilian real. The decrease in net sales was partially offset by higher sales of pressure washers and sales from Branco, which was acquired mid-year in fiscal 2013.


23







Gross Profit Percentage

The consolidated gross profit percentage was 18.7% in fiscal 2014, an increase of 1% from fiscal 2013.

Included in consolidated gross profit were pre-tax charges of $5.8 million during fiscal 2014 related to previously announced restructuring actions. The Engines segment and Products segment recorded $3.1 million and $2.7 million, respectively, of pre-tax restructuring charges within gross profit during fiscal 2014. During fiscal 2013, the Engines segment and Products segment recorded pre-tax restructuring charges within gross profit of $9.0 million and $9.8 million, respectively.
The Engines segment gross profit percentage for fiscal 2014 was 21.1%, which was higher than the 19.9% in fiscal 2013. Adjusted gross profit percentage for 2014 was 21.4%, which was 80 basis points higher compared to fiscal 2013. The adjusted gross profit percentage increased due to a favorable sales mix, including the impact of new product introductions, and by 60 basis points due to a 1% increase in manufacturing throughput with fixed cost absorption benefiting from a 14% increase in the production of large engines. Lower material costs were mostly offset by reduced pricing.
The Products segment gross profit percentage for fiscal 2014 was 11.9%, which was higher than the 10.9% in fiscal 2013. The Products segment adjusted gross profit percentage for fiscal 2014 was 12.3%, which was 20 basis points higher compared to the adjusted gross profit percentage for fiscal 2013. The increase in adjusted gross profit percentage was primarily due to a 80 basis point benefit from improved manufacturing efficiencies and incremental footprint restructuring savings of $1.6 million. The adjusted gross profit percentage also benefited from additional margin from a favorable mix of products sold. Partially offsetting the increase in adjusted gross profit percentage was an unfavorable foreign exchange impact of 60 basis points.

Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses were $291.4 million in fiscal 2014, an increase of $15.2 million or 5.5% from fiscal 2013.
The Engines segment engineering, selling, general and administrative expenses were $184.8 million in fiscal 2014, or $10.8 million higher compared to fiscal 2013. The increase was primarily due to increased international sales and marketing expenses, research and development costs, corporate development and legal expenses, additional expenses from Branco, and higher compensation costs, partially offset by lower retirement plan expenses.
The Products segment engineering, selling, general and administrative expenses were $106.6 million in fiscal 2014, an increase of $4.4 million from fiscal 2013. The increase was primarily attributable to additional expenses from Branco and higher advertising costs related to new product launches, partially offset by favorable foreign exchange.
Other Intangible Asset Impairment
During the fourth quarter of fiscal 2014, the Company performed its annual impairment testing of other intangible assets. Based on a combination of factors, predominantly driven by a slower than anticipated recovery of the North America lawn and garden market and the operating results of the Products segment during fiscal 2013 and fiscal 2014 leading up to the impairment, which lacked the benefit of certain weather related events that would have been favorable to the business, the Company’s forecasted cash flow estimates used in the assessment of goodwill and other intangible assets were adversely impacted. The Company concluded that the carrying value of a tradename within the Products reporting unit exceeded its fair value as of June 29, 2014. The non-cash intangible asset impairment charge recorded in the fourth quarter of fiscal 2014 was $5.5 million. The impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants under its revolving credit facility. No impairment charges were recorded within the Engines segment.
Restructuring Actions
The restructuring actions that were in progress at the beginning of fiscal 2014 concluded as planned as of


24






June 29, 2014. These restructuring actions resulted in pre-tax restructuring costs for the fourth quarter and twelve months ended June 29, 2014 of $1.4 million and $6.5 million, respectively. Incremental pre-tax restructuring savings for fiscal 2014 were $2.5 million.
Interest Expense
Interest expense for fiscal 2014 was $18.5 million, which was comparable to fiscal 2013.
Provision for Income Taxes
The effective tax rate for fiscal 2014 was 23.7% compared to 35.6% for fiscal 2013. The tax rate for fiscal 2014 was mainly impacted by 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 as well as a U.S. manufacturers deduction of $1.8 million. The tax rate for fiscal 2013 was primarily driven by tax benefits related to foreign operations of $2.4 million and state credits of $2.0 million with an offsetting $5.6 million non-deductible goodwill impairment charge. 
Liquidity and Capital Resources
FISCAL YEARS 2015, 2014 AND 2013
Net cash provided by operating activities was $148 million, $127 million and $161 million in fiscal 2015, 2014 and 2013, respectively.
Cash flows provided by operating activities for fiscal 2015 were $148 million compared to $127 million in fiscal 2014. The increase in operating cash flows was primarily related to higher net income and changes in working capital, specifically lower accounts receivable and higher accounts payable.
Cash flows provided by operating activities for fiscal 2014 were $127 million compared to $161 million in fiscal 2013. The decrease in operating cash flows was primarily related to changes in working capital as higher fourth quarter sales in fiscal 2014 led to a larger accounts receivable balance compared to fiscal 2013. The change was partially offset by no contributions to the pension plan in fiscal 2014 compared to $29.4 million in contributions in fiscal 2013.
Net cash used in investing activities was $158 million, $60 million and $92 million in fiscal 2015, 2014 and 2013, respectively. These cash flows include capital expenditures of $72 million, $60 million and $45 million in fiscal 2015, 2014 and 2013, respectively. The capital expenditures related primarily to reinvestment in equipment and new products and technology. Further, in fiscal 2015, approximately $88 million of cash was used for the acquisitions of Allmand Bros., Inc. and Billy Goat Industries, Inc. In fiscal 2013, approximately $60 million of cash was used for the acquisition of Branco and approximately $12.5 million was received from dispositions of plant and equipment.
Net cash used in financing activities was $65 million, $62 million and $36 million in fiscal 2015, 2014 and 2013, respectively. In fiscal 2015, the Company repurchased treasury stock at a total cost of $47 million compared to $43 million and $30 million stock repurchases in fiscal 2014 and 2013, respectively. In fiscal 2015, the Company received proceeds of $5 million from the exercise of stock options. In fiscal 2014, the Company received proceeds of $5 million from the exercise of stock options. Also in fiscal 2014, as disclosed in Note 11 of the Notes to Consolidated Financial Statements, the Company incurred $0.9 million of debt issuance costs associated with the refinancing of its revolving credit facility. In fiscal 2013, the Company received proceeds of $20 million from the exercise of stock options and made repayments totaling $3 million on short-term loans. The Company paid cash dividends on its common stock of $23 million in each of fiscal 2015, 2014 and 2013.
Given the Company's international operations, a portion of the Company's cash and cash equivalents are held in non-U.S. subsidiaries where its undistributed earnings are considered to be permanently reinvested. Generally, these would be subject to U.S. tax if repatriated. As of June 28, 2015, approximately $56 million of the Company's $118 million of cash and cash equivalents was held in non-U.S. subsidiaries.


25






Future Liquidity and Capital Resources
In December 2010, the Company issued $225 million aggregate principal amount of 6.875% Senior Notes due December 2020 (the "Senior Notes").
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 Revolver is $500 million. Availability under the Revolver is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability under the Revolver by up to $250 million if certain conditions are satisfied. There were no borrowings under the Revolver as of June 28, 2015 and June 29, 2014.
In August 2015, the Company announced that its Board of Directors declared an increase in the quarterly dividend from $0.125 per share to $0.135 per share on the Company's common stock, payable September 30, 2015 to shareholders of record at the close of business on September 17, 2015.
In August 2012, the Board of Directors authorized $50 million in funds for use in the common share repurchase program with an expiration date of June 30, 2014. On January 22, 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 extension of the expiration date to June 30, 2016. 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. Share repurchases, among other things, allow the Company to offset any potentially dilutive impacts of share-based compensation. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing debt covenants. In fiscal 2015, the Company repurchased 2,423,044 shares on the open market at a total cost of $47.0 million, or $19.42 per share. There were 2,100,499 shares repurchased in fiscal 2014 at a total cost of $43.0 million, or $20.49 per share.
The Company expects capital expenditures to be approximately $65 to $70 million in fiscal 2016. These anticipated expenditures reflect the Company's plans to continue to reinvest in efficient equipment and innovative new products.
On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21 Act) was signed into law. The MAP-21 Act included certain pension-related provisions which included changes to the methodology used to determine discount rates for ERISA funding purposes for qualified defined benefit pension plans. Based on historical interest rates, the MAP-21 Act allows plan sponsors to utilize a higher discount rate to value pension liabilities, which results in lower required pension plan contributions under ERISA. On August 8, 2014, the Highway and Transportation Funding Act of 2014 (HATFA Act) was enacted. The HATFA Act extends the pension provisions included in the MAP-21 Act. During fiscal 2015, the Company made no cash contributions to the qualified pension plan. Based upon current regulations and actuarial studies the Company is required to make no minimum contributions to the qualified pension plan in fiscal 2016 through fiscal 2019. The Company may be required to make further contributions in future years depending on the actual return on plan assets and the funded status of the plan in future periods.
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 average leverage ratio. As of June 28, 2015, the Company was in compliance with these covenants.


26






Financial Strategy
Management believes that the value of the Company is enhanced if the capital invested in operations yields a cash return that is greater than the cost of capital. Consequently, management’s first priority is to reinvest capital into physical assets and products that maintain or grow the global cost leadership and market positions that the Company has achieved, and drive the economic value of the Company. Management’s next financial objective is to identify strategic acquisitions or alliances that may enhance revenues and provide a higher economic return. Finally, management believes that when capital cannot be invested for returns greater than the cost of capital, the Company should return capital to the capital providers through dividends and/or share repurchases.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements or significant guarantees to third parties not fully recorded in our Consolidated Balance Sheets or fully disclosed in our Notes to Consolidated Financial Statements. The Company’s significant contractual obligations include our debt agreements and certain employee benefit plans.
Contractual Obligations
A summary of the Company’s expected payments for significant contractual obligations as of June 28, 2015 is as follows (in thousands):
 
 
Total
 
Fiscal
2016
 
Fiscal
2017-2018
 
Fiscal
2019-2020
 
Thereafter
Long-Term Debt
 
$
225,000

 
$

 
$

 
$

 
$
225,000

Interest on Long-Term Debt
 
85,079

 
15,469

 
30,938

 
30,938

 
7,734

Operating Leases
 
70,554

 
14,661

 
19,491

 
8,747

 
27,655

Purchase Obligations
 
60,256

 
58,208

 
2,048

 

 

Other Liabilities (a)
 

 

 

 
200

 
6,800

 
 
$
440,889

 
$
88,338

 
$
52,477

 
$
39,885

 
$
267,189

(a) Includes an estimate of future expected funding requirements related to our pension plans. Any further funding requirements for pension plans beyond fiscal 2021 cannot be estimated at this time. Because their future cash outflows are uncertain, liabilities for unrecognized tax benefits and other sundry items are excluded from the table above.
Critical Accounting Policies
The Company’s critical accounting policies are more fully described in Note 2 and Note 17 of the Notes to Consolidated Financial Statements. As discussed in Note 2, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) 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 Company believes the following critical accounting policies represent the more significant judgments and estimates used in preparing the consolidated financial statements. There have been no material changes made to the Company’s critical accounting policies and estimates during the periods presented in the consolidated financial statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities assumed arising from business combinations. Goodwill is not amortized. The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of the end of the fourth fiscal quarter, or more frequently if events or circumstances indicate that the assets may be impaired.
Generally, the Company first determines based on a qualitative assessment whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will test


27






goodwill using a two-step process. The first step of the goodwill impairment test is to identify a potential impairment by comparing the carrying values of each of the Company’s reporting units to their estimated fair values as of the test dates. The estimates of fair value of the reporting units are computed using an income approach. The income approach utilizes a multi-year forecast of estimated cash flows and a terminal value at the end of the cash flow period. The forecast period assumptions consist of internal projections that are based on the Company’s budget and long-range strategic plan. The discount rate used at the test date is the weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn.
If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not deemed impaired and the second step of the impairment test is not performed. If the book value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of the reporting unit to the estimated fair value of its existing tangible assets and liabilities as well as existing identified intangible assets and previously unrecognized intangible assets in a manner similar to a purchase price allocation. The unallocated portion of the estimated fair value of the reporting unit is the implied fair value of goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
As discussed in Note 7 to the Consolidated Financial Statements, the Company performed the annual impairment test on its reporting units as of June 28, 2015. Based on a qualitative assessment of its Engines reporting unit, the Company determined that it is more likely than not that the fair value of its reporting unit exceeds its carrying amount. As a result, the Company concluded that the Engines reporting unit is not impaired as of June 28, 2015.
The Company also performed an impairment test over its Products reporting segment, which consists of four reporting units, specifically Turf & Consumer, Standby, Job Site, and Chore reporting units. The Standby reporting unit does not have goodwill. The impairment testing performed by the Company at June 28, 2015 indicated that the estimated fair value of the Turf & Consumer, Job Site, and Chore reporting units exceeded its corresponding carrying amount, including recorded goodwill, and as such, no impairment existed.
At June 28, 2015, the Turf & Consumer reporting unit had an insignificant amount of goodwill. The Job Site reporting unit's goodwill was acquired during the current year through the Allmand acquisition in August 2014. At June 28, 2015, the fair value of the Job Site reporting unit's goodwill exceeded its carrying value by approximately 4%. The discount rate used for the Job Site reporting unit was 13.2%. The growth rate and gross profit margin used for the terminal value calculation for the Job Site reporting unit was 3.5% and 23.7%, respectively. The Chore reporting unit's goodwill was acquired during the current year through the Billy Goat acquisition in May 2015.
The assumptions included in the impairment test require judgment, and changes to these inputs could impact the results of the calculation. Other than management’s internal projections of future cash flows, the primary assumptions used in the impairment test were the weighted-average cost of capital and long-term growth rates.
Qualitative assessments of goodwill and quantitative assessments of goodwill and tradenames involve significant judgments by management. Although the Company’s cash flow forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying businesses, there is significant judgment in determining the expected future cash flows attributable to these businesses. Changes in such estimates or the application of alternative assumptions could produce significantly different results.
Tradenames are not amortized. If impairment occurs, the impaired amount of the tradename is written off immediately. For purposes of the tradename impairment analysis, the Company performs its assessment of fair value based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. The Company determines the fair value of each tradename by applying a royalty rate


28






to a projection of net sales discounted using a risk adjusted cost of capital. The Company believes the relief-from-royalty method to be an acceptable methodology due to its common use by valuation specialists in determining the fair value of intangible assets. Sales growth rates are determined after considering current and future economic conditions, recent sales trends, discussions with customers, planned timing of new product launches and many other variables. Each royalty rate is based on profitability of the business to which it relates and observed market royalty rates.
As discussed in Note 7 to the consolidated financial statements, the Company performed the annual impairment test on its indefinite-lived intangible assets as of June 28, 2015. In fiscal 2015, the Company determined that no intangible asset impairment existed. The Company recognized a $5.5 million non-cash impairment charge in the fourth quarter of fiscal 2014 related to a tradename in the Products reporting unit. In fiscal 2013, the Company recognized a $18.8 million non-cash impairment charge related to a tradename in the Products reporting unit. The assumptions included in the impairment test require judgment, and changes to these inputs could impact the results of the calculation.
Definite-lived intangible assets consist primarily of customer relationships and patents. These definite-lived intangible assets are amortized over their estimated useful lives and are subject to impairment testing if events or changes in circumstances indicate that an asset may be impaired.
Income Taxes
The Company’s estimate of income taxes payable, deferred income taxes, tax contingencies and the effective tax rate is based on a complex analysis of many factors including interpretations of federal, state and foreign income tax laws, the difference between tax and financial reporting bases of assets and liabilities, estimates of amounts currently due or owed in various jurisdictions, and current accounting standards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known. In addition, federal, state and foreign taxing authorities periodically review the Company’s estimates and interpretation of income tax laws. Adjustments to the effective income tax rate and recorded tax related assets and liabilities may occur in future periods if actual results differ significantly from original estimates and interpretations.
Pension and Other Postretirement Plans
The pension benefit obligation and related pension expense or income are impacted by certain actuarial assumptions, including the discount rate, mortality tables, and the expected rate of return on plan assets. These rates are evaluated on an annual basis considering such factors as market interest rates and historical asset performance. Actuarial valuations at June 28, 2015 used a discount rate of 4.55% and the determination of fiscal 2015 expense used an expected rate of return on plan assets of 8.00%. Our discount rate was selected using a methodology that matches plan cash flows with a selection of Standard and Poor’s AA or higher rated bonds, resulting in a discount rate that better matches a bond yield curve with comparable cash flows. A 0.25% decrease in the discount rate would decrease annual pension service and interest costs by approximately $1.5 million. A 0.25% decrease in the expected return on plan assets would increase our annual pension service and interest costs by approximately $2.3 million. In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted for forward looking considerations, including inflation assumptions and active management of the plan’s invested assets, knowing that our investment performance has been in the top decile compared to other plans. Changes in the discount rate, mortality tables, and return on assets can have a significant effect on the funded status of our pension plans, shareholders' investment and related expense. We cannot predict these changes in discount rates or investment returns and, therefore, cannot reasonably estimate whether the impact in subsequent years will be significant.
The funded status of the Company’s pension plan is the difference between the projected benefit obligation and the fair value of its plan assets. The projected benefit obligation is the actuarial present value of all benefits expected to be earned by the employees’ service adjusted for future potential wage increases. At June 28, 2015 and June 29, 2014, the fair value of plan assets was less than the projected benefit obligation by approximately $212 million and $130 million, respectively.


29






On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21 Act) was signed into law. The MAP-21 Act included certain pension-related provisions which included changes to the methodology used to determine discount rates for ERISA funding purposes for qualified defined benefit pension plans. Based on historical interest rates, the MAP-21 Act allows plan sponsors to utilize a higher discount rate to value pension liabilities, which results in lower required pension plan contributions under ERISA. On August 8, 2014, the Highway and Transportation Funding Act of 2014 (HATFA Act) was enacted. The HATFA Act extends the pension provisions included in the MAP-21 Act. During fiscal 2015, the Company made no cash contributions to the qualified pension plan. Based upon current regulations and actuarial studies the Company is required to make no minimum contributions to the qualified pension plan in fiscal 2016 through fiscal 2019. The Company may be required to make further contributions in future years depending on the actual return on plan assets and the funded status of the plan in future periods.
In October 2012, the Board of Directors of the Company authorized an amendment to the Company's defined benefit retirement plans for U.S., non-bargaining employees. The amendment froze accruals for all non-bargaining employees effective January 1, 2014. The Company recorded a pre-tax curtailment charge of $1.9 million in fiscal 2013 related to the defined benefit plan change.
The other postretirement benefits obligation and related expense or income are impacted by certain actuarial assumptions, including the health care trend rate. An increase of one percentage point in health care costs would increase the accumulated postretirement benefit obligation by $1.6 million and would increase the service and interest cost by $0.1 million. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by $1.6 million and decrease the service and interest cost by $0.1 million.
For pension and postretirement benefits, actuarial gains and losses are accounted for in accordance with U.S. GAAP. Refer to Note 17 of the Notes to the Consolidated Financial Statements for additional discussion.
Other Reserves
The reserves for customer rebates, warranty, product liability, inventory and doubtful accounts are fact specific and take into account such factors as specific customer situations, historical experience, and current and expected economic conditions.
New Accounting Pronouncements
In May 2015, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-07, "Fair Value Measurement (Topic 820)." The core principle of the guidance is to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. A reporting entity should apply the guidance retrospectively to all periods presented. Earlier application is permitted. The Company adopted ASU No. 2015-07 beginning with the fiscal year ended June 28, 2015. In Note 17, certain investments within the Company's pension plan assets that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The adoption of this ASU did not have any impact on the Company's results of operations, financial position, and cash flow.
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, 2017, including interim periods within that reporting period, under either full or modified retrospective adoption. Early application is only permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently assessing the potential impact of this new accounting pronouncement on the Company's results of operations, financial position, and cash flow.


30






Other Matters
Labor Agreements
The Company has collective bargaining agreements with its unions. These collective bargaining agreements cover approximately 10% of the total employees as of June 28, 2015. These agreements expire at various times beginning in calendar 2016. 
Emissions
The United States Environmental Protection Agency (EPA), the California Air Resources Board (CARB), Canada and the European Union (EU) have adopted multiple stages of emission standards for small air cooled engines. The Company currently has product offerings that comply with those standards.
In addition, China has adopted emission standards which parallel those adopted by EPA and were phased in from 2011 to 2013. The Company has specific products that meet these standards and are certified for sale in China. Australia has announced that it will be adopting emission standards. These standards are generally expected to be based on the EPA standards, but a timetable for their adoption has not yet been published. The Company does not anticipate that compliance with either of these emission standards will have a material adverse effect on its financial position or operations as they are expected to be substantially similar to the existing standards adopted by EPA, CARB, Canada and the EU.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange rates, commodity prices and interest rates. To reduce the risk from changes in certain foreign exchange rates, commodity prices and interest rates, the Company uses financial instruments. The Company does not hold or issue financial instruments for trading purposes.
Foreign Currency
The Company’s earnings are affected by fluctuations in the value of the U.S. Dollar against various currencies. The Company receives Euros for certain products sold to European customers and receives Canadian dollars for certain products sold to Canadian customers. The Yen and Renminbi are used to purchase engines from the Company's joint venture in Japan and the Company's subsidiary in China, respectively. The Company receives Mexican Pesos for certain products sold to the Company's subsidiary in Mexico. The Company's foreign subsidiaries’ earnings are also influenced by fluctuations of local currencies, including the Australian dollar and Brazilian Real, against the U.S. dollar as these subsidiaries purchase components and inventory from vendors and the parent in U.S. dollars. Forward foreign exchange contracts are used to partially hedge against the earnings effects of such fluctuations.
At June 28, 2015, the Company had the following forward foreign exchange contracts outstanding with the fair value (gains) losses shown (in thousands):
Hedge
Currency
 
Notional
Value
 
Fair Value
 
Conversion
Currency
 
(Gain) Loss
at Fair Value
Australian Dollar
 
29,473

 
$
22,329

 
U.S.
 
$
(637
)
Brazilian Real
 
22,443

 
$
7,470

 
U.S.
 
$
(190
)
Canadian Dollar
 
9,326

 
$
7,558

 
U.S.
 
$
(41
)
Chinese Renminbi
 
259,350

 
$
41,127

 
U.S.
 
$
(604
)
Euro
 
62,740

 
$
70,338

 
U.S.
 
$
(2,359
)
Japanese Yen
 
711,000

 
$
5,762

 
U.S.
 
$
222

Fluctuations in currency exchange rates may also impact the shareholders’ investment in the Company. Amounts invested in the Company's non-U.S. subsidiaries and joint ventures are translated into U.S. dollars at the exchange rates in effect at fiscal year-end. The resulting cumulative translation adjustments are recorded in Shareholders’ Investment as Accumulated Other Comprehensive Income (Loss). The cumulative translation adjustments component of Shareholders’ Investment decreased by $32.2 million during fiscal


31






2015. Using the year-end exchange rates, the total amount invested in non-U.S. subsidiaries on June 28, 2015 was approximately $201.3 million.
Commodity Prices
The Company is exposed to fluctuating market prices for commodities, including steel, natural gas, copper and aluminum. The Company has established programs to manage commodity price fluctuations through contracts that fix the price of certain commodities, some of which are financial derivative instruments. The maturities of these contracts coincide with the expected usage of the commodities for periods up to the next thirty-six months. At June 28, 2015 the Company had the following outstanding commodity derivative contracts with the fair value (gains) losses shown (in thousands):
Hedge
Commodity
 
Notional
Value
 
Fair Value
 
(Gain) Loss
at Fair Value
Natural Gas (Therms)
 
11,324

 
$
10,697

 
$
627

Interest Rates
The Company is exposed to interest rate fluctuations on its borrowings, depending on general economic conditions. On June 28, 2015, long-term loans consisted of the following (in thousands):
Description
 
Amount
 
Maturity
 
Weighted Average
Interest Rate
6.875% Senior Notes
 
$
225,000

 
December 2020
 
6.875%
The Senior Notes carry a fixed rate of interest and are therefore not subject to market fluctuation.

The Company is also exposed to interest rate risk associated with programs under which the Company shares the expense of financing certain dealer and distributor inventories through a third party financing source. The Company enters into interest rate swaps to manage a portion of this interest rate risk. 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 to May 2019.



32






ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
 
 
Consolidated Balance Sheets, June 28, 2015 and June 29, 2014
 
 
For the Fiscal Years Ended June 28, 2015, June 29, 2014, and June 30, 2013:
 
          Consolidated Statements of Operations
          Consolidated Statements of Comprehensive Income (Loss)
          Consolidated Statements of Shareholders' Investment
          Consolidated Statements of Cash Flows
          Notes to Consolidated Financial Statements
 
 
Reports of Independent Registered Public Accounting Firm
 
 
FINANCIAL STATEMENT SCHEDULES
 
 Schedule II – Valuation and Qualifying Accounts



33


Consolidated Balance Sheets
 
 
 
 
 


AS OF JUNE 28, 2015 AND JUNE 29, 2014
(in thousands)
 
ASSETS
 
2015
 
2014
CURRENT ASSETS:
 
 
 
 
Cash and Cash Equivalents
 
$
118,390

 
$
194,668

Receivables, Less Reserves of $3,463 and $6,352, Respectively
 
215,841

 
220,590

Inventories:
 
 
 
 
Finished Products
 
266,726

 
268,116

Work in Process
 
101,285

 
102,431

Raw Materials
 
10,677

 
5,556

Total Inventories
 
378,688

 
376,103

Deferred Income Tax Asset
 
45,871

 
48,958

Prepaid Expenses and Other Current Assets
 
36,453

 
30,016

Total Current Assets
 
795,243

 
870,335

GOODWILL
 
165,522

 
144,522

INVESTMENTS
 
30,779

 
27,137

DEBT ISSUANCE COSTS, Net
 
3,714

 
4,671

OTHER INTANGIBLE ASSETS, Net
 
111,280

 
80,317

LONG-TERM DEFERRED INCOME TAX ASSET
 
22,452

 
15,178

OTHER LONG-TERM ASSETS, Net
 
15,134

 
10,539

PLANT AND EQUIPMENT:
 
 
 
 
Land and Land Improvements
 
14,584

 
16,173

Buildings
 
126,313

 
131,159

Machinery and Equipment
 
841,538

 
849,470

Construction in Progress
 
52,891

 
39,046

 
 
1,035,326

 
1,035,848

Less - Accumulated Depreciation
 
720,488

 
738,841

Total Plant and Equipment, Net
 
314,838

 
297,007

 
 
$
1,458,962

 
$
1,449,706



















The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
34




 
 
 
 
 
 



AS OF JUNE 28, 2015 AND JUNE 29, 2014
(in thousands, except per share data)
 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
2015
 
2014
CURRENT LIABILITIES:
 
 
 
 
Accounts Payable
 
$
182,676

 
$
169,271

Accrued Liabilities:
 
 
 
 
Wages and Salaries
 
57,051

 
45,585

Warranty
 
29,580

 
27,066

Accrued Postretirement Health Care Obligation
 
12,299

 
13,882

Other
 
53,510

 
47,383

Total Accrued Liabilities
 
152,440

 
133,916

Total Current Liabilities
 
335,116

 
303,187

ACCRUED PENSION COST
 
208,623

 
126,529

ACCRUED EMPLOYEE BENEFITS
 
23,298

 
24,491

ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION
 
47,545