Thursday, May 27, 2010

US Predicts Up To 7 Major Hurricanes in 2010

US PREDICTS UP TO SEVEN MAJOR HURRICANES IN 2010

MIAMI – May 27 -- The Atlantic hurricane season will likely be a busy one that may spawn as many as 23 named tropical storms, including up to seven major hurricanes, a number that's not likely to be affected by theGulf oil spill, the U.S. government said Thursday.

The National Oceanic and Atmospheric Administration predicted that eight to 14 storms would strengthen into hurricanes, with top winds of 74 mph or higher. Three to seven of those could become major storms that reach Category 3 or higher — meaning they bring sustained winds of at least 111 mph.

"If this outlook holds true, this season could be one of the more active on record," NOAA administrator Jane Lubchenco said in a statement. "The greater likelihood of storms brings an increased risk of a landfall. In short, we urge everyone to be prepared."

A hurricane might help break up the oil spill staining the Gulf of Mexico, but the oil won't affect significantly how tropical storms develop, forecasters said. They don't know what kind of environmental hazards to expect, though there are fears that winds and waves could push the oil deeper into estuaries and wetlands.

Government scientists said Thursday that anywhere from 500,000 gallons to a million gallons a day has been leaking from the site where an oil rig exploded April 20, killing 11 people. BP PLC, which leased the rig and is responsible for the cleanup, and the Coast Guard previously had estimated the flow was about 210,000 gallons per day.

The expanding slick already has coated wildlife and marshes in Louisiana, but Lubchenco said the spill is still small relative to hurricanes — which sometimes can span the entire Gulf.

Although some oil could be pushed inland by a storm as it makes landfall, it could be difficult to determine whether it leaked from flooded cars or factories, Federal Emergency Management Agency chief Craig Fugate said.

The 2010 government forecast is based on the weakening of El Nino. The Pacific Ocean phenomenon created strong wind shear that helped suppress storm development in the Atlantic last season. Record warm water temperatures also will feed storms crossing the Atlantic this year.

Three hurricanes developed out of nine tropical storms in 2009. None of the hurricanes came ashore in the United States. Hurricane Ida hit Nicaragua as a Category 1 storm in November.

Husqvarna To Close Beatrice Plant, Move Production to Orangeburg, SC

CHARLOTTE -- May 27 -- Husqvarna has previously communicated its intention to implement a number of structural changes in order to improve efficiency and reduce costs. In line with these changes, Husqvarna has decided to close the plant in Beatrice, Nebraska, and transfer production to the plant in Orangeburg, South Carolina.

The closure and transfer will be implemented in the second half of 2010. The cost for the measures is estimated at approximately SEK 110m, whereof cash items amount to approximately SEK 70m, which will be charged to income in the second quarter of 2010.

Annual savings from the measures are expected to amount to approximately SEK 40m and will be generated gradually from the start of 2011 with full effect as of 2012

The Beatrice plant assembles mainly Zero Turn Radius lawn mowers. The factory in Orangeburg manufactures similar products including riding garden tractors and tillers. 

Together with an earlier announcement to close a factory in Greece, operating income in the second quarter of 2010 will be charged with restructuring costs totaling SEK 160m.

The total annual savings from the measures are estimated at approximately SEK 60m and will be generated gradually from the start of 2011 with full effect as of 2012.

Ariens Acquires Countax Ltd., British Maker of Riding Mowers

Milwaukee – May 26 -- Ariens Co., a Brillion manufacturer of lawn and garden equipment, has acquired a British maker of riding lawn mowers.

The British firm, Countax Ltd., has 130 employees in Oxfordshire and sells products in the United Kingdom, Germany, France and the Netherlands.

Ariens has more than 1,200 employees, with operations in Wisconsin, Nebraska, Indiana, Alabama and Australia.

Terms of the acquisition were not made public by either of the privately held companies.

Countax will give Ariens a European base of operations, said company President Dan Ariens in a news release.

"We are committed to reinvigorating Countax and see opportunity for growth," Ariens said.

Harry Handkammer, Countax managing director, said: "There is a strong synergy between the Countax and Ariens business, as both are privately owned and enjoy common markets in landscaping and ground care."

Generac Holdings Inc. - SEC Form 10-Q - Period March 31, 2010 - Excerpts

Generac Holdings Inc. (the Company) owns all of the common stock of Generac Acquisition Corp., which in turn, owns all of the common stock of Generac Power Systems, Inc. (the Subsidiary). The Company designs, manufactures, and markets a complete line of backup power generation products for residential, light-commercial, and industrial markets.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany amounts and transactions have been eliminated in consolidation.

The consolidated balance sheet as of March 31, 2010, the consolidated statement of redeemable stock and stockholders’ equity (deficit) for the three months ended March 31, 2010, and the consolidated statements of operations and cash flows for the three months ended March 31, 2010 and 2009 have been prepared by the Company and have not been audited. 

In the opinion of management, all adjustments, consisting of only normal recurring adjustments necessary for the fair presentation of the financial position, results of operation and cash flows, have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

Expenses are charged to operations in the year incurred. However, for interim reporting purposes certain expenses are charged to operations based on a proportionate share of annual amounts rather than as they are actually incurred.

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Initial Public Offering and Conversion of Class B Common Stock and Series A preferred Stock
On February 17, 2010, we completed our initial public offering (IPO) of 18,750,000 shares of our common stock at a price of $13.00 per share. In addition, the underwriters exercised their over-allotment option outlined in the underwriters agreement, and purchased an additional 1,950,500 shares of the Company’s common stock on March 18, 2010. We received approximately $269,100,000 in gross proceeds from the IPO and over-allotment exercise, or approximately $247,631,000 in net proceeds after deducting the underwriting discount and total expenses related to the offering.  Our capitalization prior to the initial public offering consisted of Series A Preferred Stock, Class B Common Stock and Class A Common Stock. Upon closing of the IPO, all shares of convertible Class B Common stock and Series A Preferred stock were automatically converted into 88,476,530 and 19,511,018 Class A Common shares, respectively. The 88,476,530 shares of Class A Common stock were subject to a 3.294 for 1 reverse stock split, resulting in 26,859,906 Class A Common shares related to the Class B Common stock conversion, and the Class A Common stock was re-designated as “Common Stock”. Subsequent to the IPO, the Company has one class of common stock. The share and per share data used in basic and diluted earnings per share has been retrospectively restated to reflect the 3.294 for 1 reverse stock split immediately prior to the IPO.

Overview
We are a leading designer and manufacturer of a wide range of standby generators for the residential, industrial and commercial markets. As the only significant market participant focused exclusively on these products, we have one of the leading market positions in the standby generator market in the United States and Canada. We design, engineer and manufacture generators with an output of between 800W and 9mW of power. We design, manufacture, source and modify engines, alternators, automatic transfer switches and other components necessary for our products. Our generators are fueled by natural gas, liquid propane, gasoline, diesel and Bi-Fuel™. Our products are available through a broad network of independent dealers, retailers and wholesalers.

Business drivers and measures
In operating our business and monitoring its performance, we pay attention to a number of industry trends, performance measures and operational factors. The statements in this section are based on our current expectations.

Industry trends
Our performance is affected by the demand for reliable back-up power solutions by our customer base. This demand is influenced by several important trends affecting our industry, including the following:

Increasing penetration opportunity.    Although there have been recent increases in product costs for installed standby generators in the residential and light-commercial markets (driven in the last two years by raw material costs), these costs have declined overall over the last decade, and many potential customers are not aware of the costs and benefits of backup power solutions. We estimate that penetration rates for residential products are approximately 2% of U.S. single-family detached, owner-occupied households with a home value of over $100,000, as defined by the U.S. Census Bureau’s 2007 American Housing Survey for the United States, and penetration rates of many light-commercial outlets such as restaurants, drug stores, and gas stations are significantly lower than penetration of hospitals and industrial locations. We believe that by expanding our distribution network, continuing to develop our product line, and targeting our marketing efforts, we can continue to build awareness and increase penetration for our standby generators.

Effect of large scale power disruptions.    Power disruptions are an important driver of consumer awareness and have historically influenced demand for generators. Disruptions in the aging U.S. power grid and tropical and winter storm activity increase product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period, which we believe may last for six to twelve months for standby generators. While there are power outages every year across all regions of the country, major outage activity is unpredictable by nature and, as a result, our sales levels and profitability may fluctuate from period to period.

Impact of business capital investment cycle.    The market for commercial and industrial generators is affected by the capital investment cycle and overall durable goods spending, as businesses either add new locations or make investments to upgrade existing locations. These trends can have a material impact on demand for industrial and commercial generators. However the capital investment cycle may differ for the various industrial and commercial end markets (industrial, telecommunications, distribution, retail health care facilities and municipal infrastructure, among others). The market for generators is also affected by general economic conditions, credit availability and trends in durable goods spending by consumers and businesses.

Operational factors
We are subject to various factors that can affect our results of operations, which we attempt to mitigate through factors we can control, including continued product development, expanded distribution, pricing and cost control. The operational factors that affect our business include the following:

New product start-up costs.    When we launch new products, we generally experience an increase in start-up costs, including engineering expenses, air freight expenses, testing expenses and marketing expenses, resulting in lower gross margins during the initial launch of a new product. Margins on new product introductions generally increase over the life of the product as these start-up costs decline and we focus our engineering efforts on product cost reduction.

Effect of commodity and component price fluctuations.    Industry-wide price fluctuations of key commodities, such as steel, copper and aluminum and other components we use in our products, can have a material impact on our results of operations. We have historically attempted to mitigate the impact of commodity and component prices through improved product design, price increases and select hedging transactions. Our results are also influenced by changes in fuel prices in the form of freight rates, which in some cases are borne by our customers and in other cases are paid by us.

Other factors
Other factors that affect our results of operations include the following:

Factors influencing interest and amortization expense.    We anticipate that interest expense will decrease in future periods because, during the three months ended March 31, 2010, we used the net proceeds from our initial public offering and available cash on hand, to repay a substantial portion of outstanding indebtedness. The expiration of certain interest rate swap agreements in January 2010 will also decrease interest expense in future periods.

Factors influencing provision for income taxes.    Because we made a Section 338(h)(10) election in connection with the 2006 CCMP transactions described below, we have $1.4 billion of tax-deductible goodwill and intangible asset amortization remaining as of December 31, 2009 that we expect to generate cash tax savings of $557 million through 2021, assuming continued profitability and a 38.5% tax rate. The amortization of these assets for tax purposes is expected to be $122 million annually through 2020 and $102 million in 2021, which generates annual cash tax savings of $47 million through 2020 and $39 million in 2021, assuming profitability and a 38.5% tax rate. Additionally, we have federal net operating loss, or NOL, carry forwards of $161.8 million as of December 31, 2009, which we expect to generate an additional $57 million of federal cash tax savings at a 35% rate when and if utilized. Based on current business plans, we believe that our cash tax obligations through 2021 will be significantly reduced by these tax attributes. However, any subsequent accumulations of common stock ownership leading to a change of control under Section 382 of the U.S. Internal Revenue Code of 1986, including through sales of stock by large stockholders, all of which are outside of our control, could limit and defer our ability to utilize our net operating loss carry forwards to offset future federal income tax liabilities.

Seasonality.    Although there is demand for our products throughout the year, in each of the past three years approximately 20% to 25% of our net sales occurred in the first quarter, 22% to 25% in the second quarter, 25% to 29% in the third quarter and 25% to 30% in the fourth quarter, with different seasonality depending on the timing of major outage activity in each year. We maintain a flexible production schedule in order to respond to outage-driven peak demand, but typically increase production levels in the second and third quarters of each year.

Transactions with CCMP
In November 2006, affiliates of CCMP Capital Advisors, LLC, or CCMP, together with affiliates of Unitas Capital Ltd., (Unitas), and members of our management, purchased an aggregate of $689 million of our equity capital. In addition, on November 10, 2006, Generac Power Systems borrowed an aggregate of $1,380 million, consisting of an initial drawdown of $950 million under a $1.1 billion first lien secured credit facility and $430 million under a $430 million second lien secured credit facility. With the proceeds from these equity and debt financings, together with cash on hand at Generac Power Systems, we (1) acquired all of the capital stock of Generac Power Systems and repaid certain pre-transaction indebtedness of Generac Power Systems for $2.0 billion, (2) paid $66 million in transaction costs related to the transaction and (3) retained $3 million for general corporate purposes. 

During the three months ended March 31, 2009, affiliates of CCMP acquired $16,000,000 par value of Second Lien term loans for approximately $6,662,000. CCMP exchanged this debt for additional shares of Series A Preferred stock issued by the Company. The Company subsequently contributed this debt to its Subsidiary. The fair value of the shares exchanged was $6,662,000. These shares had beneficial conversion features which are contingent upon a future event (see note 1 to the Condensed Consolidated Financial Statements). The Company recorded this transaction as Series A Preferred stock of $6,662,000 based on the fair value of the debt contributed by CCMP which approximated the fair value of shares exchanged. The debt was held in treasury at face value. Consequently, the Company recorded a gain on extinguishment of debt of $9,096,000, which includes the write-off of deferred financing fees and other closing costs, in the consolidated statement of operations for the three months ended March 31, 2009.

Corporate reorganization
Our capitalization prior to the initial public offering consisted of Series A Preferred Stock, Class B Common Stock and Class A Common Stock. Our Series A Preferred Stock was entitled to a priority return preference equal to a 14% annual return on the amount originally paid for such shares and equity participation equal to 24.3% of the remaining equity value of the Company. Our Class B Common Stock was entitled to a priority return preference equal to a 10% annual return on the amount originally paid for such shares. In connection with the initial public offering, we undertook a corporate reorganization which gave effect to the conversion of our Series A Preferred Stock and Class B Common Stock into the same class of our common stock that was sold in our initial public offering while taking into account the rights and preference of those shares, including the priority returns of our Series A Preferred Stock and our Class B Common Stock and the equity participation rights of the Series A Preferred Stock. A reverse stock split was needed to reduce the number of shares to be issued to holders of our Class A and Class B Common Stock to the number that correctly reflected the proportionate interest of such stockholders in the Company, taking into account the number of shares of common stock to be issued upon the conversion of our Series A Preferred Stock and the number and value of shares of common stock to be issued and sold to new investors in the initial public offering. We refer to these transactions as the “Corporate Reorganization.” 

Initial public offering
On February 17, 2010, we completed our initial public offering of 18,750,000 shares of our common stock at a price of $13.00 per share. In addition, the underwriters exercised their option and purchased an additional 1,950,500 shares of our common stock from us on March 18, 2010. We received a total of approximately $247.6 million in net proceeds from the initial public offering and underwriters’ option exercise, after deducting the underwriting discounts and expenses.

The Company adopted an equity incentive plan on February 10, 2010 in connection with the IPO.  A registration statement on Form S-8 was filed registering the 6,637,835 shares of common stock issuable under the equity incentive plan.  At the time of the IPO, 4,341,504 stock options and 456,249 shares of restricted stock and other stock awards were granted to employees and Board members of the Company pursuant to the equity incentive plan.  The stock options have an exercise price equal to the IPO price and vest in equal installments over five years, subject to the grantee’s continued employment or service. The restricted stock awards will vest in full on the third anniversary of the date of grant, subject to the grantee’s continued employment.

Following the Corporate Reorganization, the IPO and underwriters’ option exercise, we had 67,529,290 shares of common stock outstanding.

Subsequent repayment of debt
In February 2010, we used $221.6 million in net proceeds from the initial closing of the IPO to pay down our second lien term loan in full and to pay down a portion of our first lien term loan. In addition, in March 2010, we used $138.5 million of cash and cash equivalents on hand to further pay down our first lien term loan. As a result of these pay downs, at March 19, 2010, the outstanding balance on the first lien credit facility had been reduced to $731.4 million, and our second lien credit facility had been repaid in full and terminated. This reduction in debt will have a significant impact on cash flows as a result of lower debt service costs in future periods, based on current LIBOR rates.

Net sales.    Net sales decreased $9.7 million, or 6.9%, to $130.7 million for the three months ended March 31, 2010 from $140.4 million for the three months ended March 31, 2009. This decrease was driven by a $4.5 million, or 5.1%, decrease in sales of residential products due to a weaker winter ice storm season during the first quarter of 2010 compared to 2009 which impacted portable generator volume during the current quarter.  In addition, industrial and commercial product sales declined $6.8 million, or 15.0%, due to continued declines in sales to industrial and commercial national account customers.  Additionally, as a late cycle business, further weakness in U.S. non-residential construction activity has also had a negative impact on the market demand for commercial and industrial standby generators.

Costs of goods sold.    Costs of goods sold decreased $13.6 million, or 14.7%, to $79.3 million for the three months ended March 31, 2010 from $92.9 million for the three months ended March 31, 2009. Materials cost decreased $11.3 million year-over-year due to a decrease in sales volume, lower commodity costs, primarily steel, copper and aluminum, as well as engineering and sourcing cost reductions implemented during 2009. Freight cost and labor and overhead costs also decreased $0.7 million and $1.6 million, respectively, year over year.

Gross profit.    Gross profit increased $3.9 million, or 8.2%, to $51.4 million for the three months ended March 31, 2010 from $47.5 million for the three months ended March 31, 2009, primarily due to the factors affecting cost of goods sold described above. As a percentage of net sales, gross profit increased to 39.3% for the three months ended March 31, 2010 from 33.8% for the three months ended March 31, 2009. Gross profit margin increased as our first quarter 2010 gross margin benefited from lower commodity costs versus the prior year quarter.  In addition, gross profit margins improved year-over-year due to price increases implemented during first quarter 2009 and cost reductions implemented throughout 2009 .

Operating expenses.    Operating expenses increased $2.2 million, or 6.7%, to $36.0 million for the three months ended March 31, 2010 from $33.7 million for the three months ended March 31, 2009. Selling and service expenses remained relatively flat due to lower variable expenses related to our decrease in net sales, such as warranty and commission, offset by higher advertising investment. Research and development expenses increased year over year $1.1 million from increased product development and engineering resource investment. General and administrative expenses increased $1.3 million mainly due to $1.2 million of stock based compensation expense recorded during the three months ended March 31, 2010 to account for the stock option, restricted stock and other stock awards issued in connection with our IPO.  In addition, general and administrative expenses increased due to additional public company administrative costs incurred during the current year period.

Other expense.    Other expense increased $5.0 million, or 63.1%, to $12.9 million for the three months ended March 31, 2010 from $7.9 million for the three months ended March 31, 2009. This increase was caused by a number of factors.  As a result of the previously discussed CCMP debt buy-backs during the three months ended March 31, 2009, we realized a $9.1 million gain on the extinguishment of debt during the first quarter of 2009, which did not recur in 2010.  In addition, the subsequent repayment of debt following our IPO in the first quarter of 2010 resulted in an acceleration of deferred financing cost amortization of $4.2 million that did not occur in 2009.  Lastly, a reduction in interest expense of $9.5 million was the result of (i) debt buy-backs in 2009, (ii) the subsequent repayment of debt post IPO in 2010, (iii) lower LIBOR rates year-over-year, and (iv) the expiration of interest rate swap contracts in January 2010.

Provision for income taxes.    Income tax expense was $0.1 million for the three months ended March 31, 2010 and 2009. Income tax expense primarily relates to certain state income taxes based on profitability measures other than net income.

Net income.    As a result of the factors identified above, we generated net income of $2.5 million for the three months ended March 31, 2010 compared to $5.8 million for the three months ended March 31, 2009.

Adjusted EBITDA.   Non-GAAP adjusted EBITDA improved to $31.8 million for the three months ended March 31, 2010from $28.9 million for the three months ended March 31, 2009.  The previously mentioned improvements in gross profit are the primary drivers of this increase.  See “Non-GAAP measures” for a discussion of how we calculate this non-GAAP measure and limitations on its’ usefulness.

Toro Reports Fiscal 2010 Second Quarter Results

BLOOMINGTON, Minn., May 20, 2010 --The Toro Company today reported net earnings of $45.7 million, or $1.34 per share, on net sales of $562.8 million for its fiscal second quarter ended April 30, 2010. In the comparable fiscal 2009 period, the company reported net earnings of $36.9 million, or $1.00 per share, on net sales of $499.9 million.

For the fiscal year to date, Toro reported net earnings of $56.6 million, or $1.65 per share, on net sales of $894.2 million. In the first half of fiscal 2009, the company posted net earnings of $43.6 million, or $1.18 per share, on net sales of $840 million. The company's net earnings for the same period last year were reduced by $2.1 million, or $0.04 per share on an after-tax basis, to account for workforce adjustments.

"In 2009 we fought through a difficult economic environment with a focus on what we could control to emerge even stronger when our markets started to improve," said Michael J. Hoffman, Toro's chairman and chief executive officer. "In this early stage of the recovery, we are extremely pleased with the strong performance of our residential business and the rebound in our professional businesses. Increased end-user demand, gross margin improvement and a leaner cost structure are now driving solid improvements to our profitability.

Additionally, we achieved a major goal set in January 2007 to drive our 12-month average net working capital as a percent of sales down 'into the teens.' At the end of the second quarter, our 12-month average net working capital was 19 percent of sales. I'm proud of our dedicated team of employees for achieving this transformational goal sooner than expected, and we are confident our discipline in this area will continue."

SEGMENT RESULTS

Professional

Professional segment net sales for the fiscal 2010 second quarter totaled $349.6 million, up 12.6 percent compared with the same period last year. Shipments of landscape contractor products saw significant gains from strong customer acceptance for zero-turn riding mowers and stand-on machines. Worldwide shipments for golf maintenance equipment increased on renewed demand as the golf market begins to recover. And, in the area of precision irrigation, worldwide sales for micro irrigation products continued to strengthen as growers focus on improving crop yields and saving water resources. For the year to date, professional segment net sales were $562.4 million, up 4.2 percent from the first half of fiscal 2009.

Professional segment earnings for the fiscal 2010 second quarter totaled $67.6 million, up $10.7 million from the same period last year. For the year to date, professional segment earnings were $93.4 million, up $6.4 million from the first half of fiscal 2009.

Residential

Residential segment net sales for the fiscal 2010 second quarter totaled $210.1 million, an increase of 14.5 percent compared with the same period last year. Favorable spring weather and additional product placement at dealers and key retailers drove higher shipments for zero-turn riding mowers. Additionally, sales of Toro(R) walk power mowers were up, including initial orders for the new Toro eCycler(TM) cordless electric mower. Shipments of snow products also increased due to strong snowfalls that extended into the second quarter. For the year to date, residential segment net sales were $326.9 million, up 12.5 percent from the first half of fiscal 2009.

Residential segment earnings for the fiscal 2010 second quarter totaled $25.1 million, up $8.5 million from the same period last year. For the fiscal year to date, residential segment earnings were $38.5 million, up $17.1 million from the first half of fiscal 2009.

REVIEW OF OPERATIONS

Gross margin for the fiscal 2010 second quarter improved to 33.3 percent from 32.3 percent in last year's second quarter. For the first half of fiscal 2010, gross margin improved to 34.0 percent compared with 33.3 percent in the first half of fiscal 2009. The margin improvement in both periods resulted primarily from reduced commodity costs, lower manufacturing variances and cost reduction initiatives, partially offset by higher freight expense.

Selling, general and administrative (SG&A) expenses for the fiscal 2010 second quarter totaled $115.3 million, up 12.8 percent from last year's second quarter, but were flat as a percent of sales with the previous year at 20.5 percent. For the year to date, SG&A expenses were $211.9 million, up 2.5 percent from the same period last year; however, expenses decreased to 23.7 percent of net sales compared with 24.6 percent in the first half of fiscal 2009. The decline reflects the company's leaner cost structure and continued spending discipline, somewhat offset by higher employee incentive expense.

Interest expense for the fiscal 2010 second quarter was $4.3 million compared with $4.4 million in the prior year's second quarter. For the year to date, interest expense totaled $8.5 million compared with $8.8 million in the first half of fiscal 2009.

The effective tax rate for the fiscal 2010 second quarter was 33.6 percent compared with 34.2 percent in last year's second quarter.

Accounts receivable at the end of the fiscal 2010 second quarter totaled $260.8 million, down $147 million from last year's second quarter, on a sales increase of 12.6 percent. The decline resulted primarily from the sale of certain floor plan and open account inventory receivables to the Red Iron Acceptance joint venture formed in August 2009. Net inventories in the second quarter were $174.4 million, down $41.4 million from the same period last year. Trade payables were $171.3 million, up $72.7 million from last year's second quarter due to the company's supply chain initiative and increased production over last year when inventories were being reduced.

As a result of higher earnings and working capital improvements, the company's cash flow from operations generated cash of $80.8 million in the first half of fiscal 2010, compared with a use of cash of $72.9 million in the same period last year. During the first half of fiscal 2010, the company repurchased $54.1 million of company stock.

BUSINESS OUTLOOK

"As the first half performance shows, our businesses are benefiting from the renewed strength in our markets," said Hoffman. "We are especially encouraged with our growth prospects as momentum starts to build and we realize the benefits of staying the course on engineering and other investments during fiscal 2009. As a result, the company's many innovative new products are capturing the attention of customers looking to maintain beautiful landscapes, increase productivity, and save valuable water resources. Our talented team of employees and business partners has accomplished a great deal so far in 2010, and I'm confident we will build on these achievements to further strengthen and grow our business."

Based on Toro's financial performance through the first half of fiscal 2010, and as previously announced on May 10, the company expects earnings for fiscal 2010 to be about $2.40 per share on a revenue increase of approximately 7 percent.

Non-GAAP Financial Measure

The company's long-term asset management goal was to reduce average net working capital as a percent of net sales below 20 percent, or "into the teens." The company defines net working capital as accounts receivable plus inventory less trade payables. In fiscal 2009, Toro's average net working capital as a percentage of net sales was 26.2 percent.

Husqvarna Forecasts Slight Rise in Demand

HUSKVARNA, Sweden, May 19 - Garden equipment maker Husqvarna said on Wednesday it still saw a low single-digit percentage rise in demand this year as markets recovered from the lows hit in the wake of the financial crisis.
Demand for gardening products was slammed by the economic downturn last year and retailers on both sides of the Atlantic have been careful about scaling up inventories amid lingering doubts over the strength of the recovery in consumer spending.
"I think there is an overall recovery in the market," Husqvarna Chief Executive Magnus Yngen told Reuters on the sidelines of a capital market day for investors and analysts.
"It is not that we see any strong recovery, but that there is hope that there is no further decline and rather a slight recovery along the lines of the odd percent."
Yngen also said Husqvarna stood by its forecast issued in April for sales in the second quarter being in line with last year's, but said it was getting positive signals from retailers though these were still cautious.
"The tone is more optimistic," he said. "They (retailers) are extremely cautious, but it still feels a bit better."
"If the spring season does not suddenly end, I think we will have a slight growth in demand ... My gut feeling is that the market has bottomed out and that we've have seen the worst."
Yngen also repeated Husqvarna, which makes lawn mowers, chain saws as well as diamond-tipped tools for the construction industry, would have difficulty regaining this year volumes lost during the downturn in the United States, its biggest market.




Friday, May 14, 2010

J.D. Power: Shoppers More Picky When Shopping for Lawn Mowers



May 13 -- If the grass-cutting season hasn't arrived yet where you are, you can be sure that it'll be there before long. That means shopping for a lawn mower, if you don't already have one, or replacing that workhorse you've been using for the last umpteen years.

People seem to be taking that chore seriously. According to the J.D. Power and Associates 2010 Walk-Behind Lawn Mower Study, a larger proportion of buyers are considering more than one lawn mower brand, compared with 2009.

The study measures customer satisfaction with walk-behind lawn mowers by examining six key factors: durability; ease of use; maintenance; performance; price; and warranty. The study is designed to provide information that helps customers with purchase decisions, as well as to assist lawn mower manufacturers in their efforts to improve customer satisfaction and brand loyalty.

Honda ranks highest in satisfying customers with walk-behind lawn mowers for a second consecutive year, achieving a score of 766 on a 1,000-point scale. Honda performs particularly well in three of six factors: ease of use, durability and performance. John Deere (760) and Toro (742) follow Honda in the ranking.

Robert of Wesley Chapel, FL, bought a Honda, but isn't particularly happy with it."I carried it in for broken throttle -- this was the second time I have had to carry it in for the same problem within eight months of purchase," he tells ConsumerAffairs.com. He says the manager of the store where he bought the mower told him he should have purchased extra warranty coverage. "I told her I didn't think I would need extra coverage on a $693.99 lawnmower -- especially in a eight month span of owning it."

Michael of Audubon, PA, says he thought he was buying a Toro mower, but " you are not buying a Toro just the name. Toro had a great reputation and you get these companies buying just the name and well it is crap. The mower since the first week I got was trouble. The push handle would not lock in place so the handle would be useless and would not allow you to mow. I found out that TORO was made by Murray and Murray was made by MTD. You do not know this when you buy it,they just use the TORO name to sucker people in."

The study also finds that this year, nearly 70 percent of walk-behind lawn mower owners say that they considered more than one brand while shopping, compared with 62 percent in 2009. In addition, since only approximately one-third of lawn mower shoppers selected the brand they wanted to purchase prior to visiting a retailer, there is ample opportunity for lawn mower manufacturers to influence decisions at the point of purchase.

"Most walk-behind lawn mower shoppers go to a retailer without doing much research beforehand and primarily rely on in-store displays to educate themselves about the different brands and models available," said Christina Cooley, senior manager of the real estate and construction industries practice at J.D. Power and Associates. "Without spending much time up front investigating what lawn mower best meets their needs, the shopper is likely to base their decision mainly on price."

J.D. Power and Associates offers the following tips to consumers who are shopping for a walk-behind lawn mower:

1.      The lifespan of a lawn mower averages between seven to 10 years, and consumers typically spend approximately $300 on their walk-behind mower, on average. Therefore, it pays to research several brands and models to determine the best lawn mower for your needs before making the investment. Without performing this research, the lawn mower may fall short of your expectations.

2.      In conducting your research, seek out the following: manufacturer and retailer websites; recommendations from friends and family; in-store product displays; and retail staff.

3.      Visit multiple retailers. Many lawn mower owners choose a store at which to shop first, and then select a lawn mower from the brands that are available there. Going to more than one retailer may present you with more options from which to choose.

In addition, it's a good idea to look at lawn mower ads carefully to make sure the machine you think you're buying is the one you get.

The 2010 Walk-Behind Lawn Mower Study is based on responses from more than 2,900 owners who purchased a new lawn mower within the past 24 months and who have used their lawn mower a minimum of four times.

Exmark Files Patent Infringement Lawsuit


Lincoln, NE -- May 13 -- Beatrice lawn mower maker Exmark Manufacturing sued Briggs & Stratton Power Products Group and Schiller Grounds Care Inc. Wednesday alleging their mowers infringe on its patents.

The lawsuit filed in U.S. District Court in Omaha sought an injunction against Briggs, a Wisconsin company, and Schiller, a Pennsylvania company, both alleged to be making and selling mowers covered by an Exmark patent.

Exmark's attorney, Jill Robb Ackerman of Omaha, said in the suit that the infringing mowers include those sold under the names: Snapper Pro S200X, Ferris Comfort Control DD, mowers with the Briggs' iCD Cutting Systems, all made by Briggs; and Bob-Cat FastCat Pro and Hydro Walk-Behind, made by Schiller.

Exmark has been damaged by the infringement and will continue to be until it is stopped, she said.

John Wright, a spokesman for Exmark’s parent company, Toro, said the company does not coment on pending litigation. However, he said that the company will “vigorously defend” its intellectual property.

Exmark, which has been in business in Gage County since 1982, manufactures professional turf care equipment including lawn mowers and lawn mower parts. It is a unit of the Toro Co.

Generac Profit Falls in First Quarter


May 7 -- A weak economy and a lack of winter storms resulted in a 57% drop in first-quarter profit at Generac Holdings Inc., a generator manufacturer.

But there are encouraging "pockets of demand" for generators at hospitals, wastewater treatment plants, schools and other facilities, Aaron Jagdfeld, chief executive of the Waukesha-based company, said Friday in a conference call with analysts.

"We continue to believe the aging power grid is more susceptible to power outages," he said.

Generac said its quarterly profit fell to $2.47 million from $5.79 million a year ago.

The company has been publicly traded since Feb. 11.

Its recent results were hurt by weak industrial and commercial market conditions and a weaker storm season.

Residential product sales were $84 million, down 5.1% from $88.5 million a year ago.
Industrial and commercial product sales of $38.3 million were down 15% from $45.1 million in the year-ago quarter.

"We continue to be cautious about the economic environment as our end customers closely monitor big ticket capital spending," Jagdfeld said. Sales trends are expected to continue as they have because of weaker storm activity and softness in non-residential construction, he said.

"The first-quarter results were modestly below our expectations, though underlying trends were largely consistent with our expectations," analyst Michael Halloran with Robert W. Baird & Co. said in a note to clients.

"Though we are modestly disappointed in the outlook, we are not surprised that revenue trends were lowered. Further, we are more focused on the long-term growth potential of the company, which remains intact and is promising," Halloran wrote.

There have not been many big storms in recent months to trigger generator sales. But the weather-altering El Niño condition in the Pacific Ocean seems to be easing and could be over by June, government climate experts reported Thursday.

Last month, forecasters Philip J. Klotzbach and William M. Gray of Colorado State University said they foresee above-average storm activity for the Atlantic hurricane season due to a warming of tropical Atlantic "and a more confident view that the current El Niño will weaken."

The government's hurricane forecast for this summer is due out later this month.

If conditions revert to neutral, it could complicate forecasting this summer's hurricanes, since El Niño years tend to have fewer storms than normal in the Atlantic and Gulf of Mexico.

Meanwhile, the U.S. market for standby generators, which are units tied into the electric system of homes or businesses, has barely been tapped, with only about 1% or 2% of homes having standby power units.

This summer, Generac plans to begin selling a standby generator with a suggested retail price of $1,699 - not including installation costs, which could exceed $1,000.

"We are being conservative coming out of the gate," Jagdfeld said, adding that much of the product's initial success will depend on getting good placement in stores.

www.jsonline.com    Rick Barrett

Briggs and Stratton Corporation SEC Form 10-Q - May 5 - Excerpts


RESULTS OF OPERATIONS

SALES

Consolidated net sales for the third quarter of fiscal 2010 were $695 million, an increase of $21 million or 3% when compared to the same period a year ago.

Third quarter fiscal 2010 net sales for the Engines Segment were $499 million versus $480 million in the third quarter of fiscal 2009, an increase of $19 million or 4%. The increase in net sales was primarily the result of an engine unit shipment increase of 6% from the same period a year ago.

Offsetting the volume improvement were lower average prices in effect for fiscal 2010. Shipments of engines increased in the third quarter for lawn and garden applications due to the shift of OEM production to the last half of the fiscal year from the fiscal second quarter reflecting the desire of the channel participants to control their working capital commitments at the end of the calendar year.

Third quarter fiscal 2010 Power Products Segment net sales were $245 million, a $5 million or 2% decrease from the third quarter of fiscal 2009. The net sales decrease was primarily the result of lower portable generator sales in the quarter, as the current year’s quarter did not have hurricane replenishment shipments that were experienced in last year’s third quarter. The portable generator sales decrease was partially offset by stronger pressure washer volume and a small improvement in shipments of lawn and garden equipment.

Consolidated net sales for the first nine months of fiscal 2010 were $1.41 billion, a decrease of $197 million or 12% when compared to the same period a year ago.

Engines Segment net sales for the first nine months of fiscal 2010 were $984 million, a $95 million or 9% decrease compared to the first nine months of fiscal 2009. Unit volume decreases of 7% through the first nine months of fiscal 2010 were the result of lower engine demand for portable generators, soft engine shipments to European lawn and garden equipment manufacturers and minor market share losses in various engine categories. The majority of the remainder of the net sales decrease was due to lower pricing implemented for fiscal 2010.

Power Products Segment net sales for the first nine months of fiscal 2010 were $566 million, a $132 million or 19% decrease compared to the first nine months of fiscal 2009. Lower portable generator sales for this nine-month period accounted for almost all of the net sales decrease primarily due to the absence of any hurricane activity in fiscal 2010.

GROSS PROFIT MARGIN

The consolidated gross profit margin improved to 20.2% for the third quarter of fiscal 2010 from 16.6% in the same period last year.

Engines Segment gross profit margin increased to 24.6% for the third quarter of fiscal 2010 from 19.7% in the third quarter of fiscal 2009. The improvement was primarily the result of lower manufacturing costs for materials, labor and fixed overhead, offset by the lower selling prices as discussed above.

The Power Products Segment gross profit margin decreased to 6.6% for the third quarter of fiscal 2010 from 6.9% in the third quarter of fiscal 2009. The decrease resulted from lower plant utilization, primarily production of portable generators that decreased over 90% in the current third quarter compared to the same period a year ago

The consolidated gross profit margin for the first nine months of fiscal 2010 improved to 18.7% from 15.7% in the first nine months of fiscal 2009.

The Engines Segment gross profit margin increased to 22.3% for the first nine months of fiscal 2010 from 18.6% in the first nine months of fiscal 2009. The improvement was the result of lower manufacturing costs for materials, labor and fixed overhead, offset by lower sales volume, production volume and pricing.

The Power Products Segment gross profit margin increased to 9.2% for the first nine months of fiscal 2010 from 7.1% in the first nine months of fiscal 2009. The improvement was the result of lower manufacturing costs, primarily related to lower commodity costs and planned cost saving initiatives.

The improvements were offset by lower sales and production volumes primarily related to the significantly lower portable generator shipments and production in fiscal 2010 and startup inefficiencies as a result of moving production to other plants during the quarter.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses were $71.4 million in the third quarter of fiscal 2010, an increase of $3.3 million or 5% from the third quarter of fiscal 2009. Engineering, selling, general and administrative expenses were $192.5 million for the first nine months of fiscal 2010, a decrease of $3.8 million or 2% from the first nine months of fiscal 2009.

The third quarter increase is attributable to increased salaries and fringes, offset by reduced professional services and marketing expenses. The fiscal year to date decrease is attributable to reduced professional services and marketing expenses, offset by increased salaries and fringes.

LITIGATION SETTLEMENT

On February 24, 2010, the Company entered into a Stipulation of Settlement (“Settlement”) that, if given final court approval, will resolve over 65 class-action lawsuits that have been filed against Briggs & Stratton and other engine and lawnmower manufacturers alleging, among other things, misleading power labeling on its lawnmower engines. Other parties to the Settlement are Sears, Roebuck and Co., Sears Holdings Corporation, Kmart Holdings Corporation, Deere & Company, Tecumseh Products Company, The Toro Company, Electrolux Home Products, Inc. and Husqvarna Outdoor Products, Inc. (now known as Husqvarna Consumer Outdoor Products, N.A., Inc.) (collectively with the Company referred to below as the “Settling Defendants”). All other defendants settled all claims separately.

As part of the Settlement, the Company denies any and all liability and seeks resolution to avoid further protracted and expensive litigation. If finally approved, the Settlement resolves all horsepower-labeling claims brought by “all persons or entities in the United States who, beginning January 1, 1994 through the date notice of the Settlement is first given, purchased, for use and not for resale, a lawn mower containing a gas combustible engine up to 30 horsepower provided that either the lawn mower or the engine of the lawn mower was manufactured or sold by a Defendant.”

As part of the Settlement, the Settling Defendants as a group agreed to pay an aggregate amount of $51.0 million. In addition, the Company, along with the other Settling Defendants, agreed to injunctive relief regarding their future horsepower labeling, as well as procedures that will allow purchasers of lawnmower engines to seek a one-year extended warranty free of charge.

On February 26, 2010, Judge Adelman preliminarily approved the Settlement, certified a settlement class, appointed settlement class counsel, and stayed all proceedings against all the Settling Defendants. On March 11, 2010, Judge Adelman entered an order approving a notice plan for the Settlement, and set a final approval hearing for June 22, 2010 to determine the fairness of the Settlement, and whether final judgment should be entered thereon.

As a result of the pending Settlement, the Company recorded a total charge of $30.6 million, or $18.7 million after-tax, in the third quarter of fiscal 2010 representing the total of the Company’s monetary portion of the Settlement and the estimated costs of extending the warranty period for one year. The amount has been included as a Litigation Settlement expense reducing income from operations on the Consolidated Condensed Statements of Income.

INTEREST EXPENSE

Interest expense for the third quarter of fiscal 2010 was $7.3 million compared to $7.7 million in fiscal 2009. Interest expense for the first nine months of fiscal 2010 was $21.0 million compared to $24.3 million in fiscal 2009. These decreases are attributable to lower average borrowings for working capital purposes.

PROVISION FOR INCOME TAXES

The effective tax rate was 27.1% for the third quarter and 22.3% for the first nine months of fiscal 2010 versus 31.4% and 23.4% for the same periods last year, respectively. The variation reflected between years was due to the required recognition of the tax effect of certain events as discrete items in the quarter in which they occurred.

LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in the first nine months of fiscal 2010 was $16.5 million, a $41.1 million improvement from the $57.6 million used by operating activities in the first nine months of fiscal 2009. This improvement was primarily attributable to $58.6 million less of working capital requirements between years, offset by lower operating results due to the litigation settlement. The improvement in working capital requirements is primarily the result of increased accounts payable due to the timing and level of vendor payments.

Cash used by investing activities was $24.8 million and $53.2 million in the first nine months of fiscal 2010 and fiscal 2009, respectively. The $28.4 million decrease was primarily the result of the absence of the $24.8 million used for the acquisition of Victa Lawncare Pty. Ltd. in the first nine months of fiscal 2009 and planned reductions to plant and equipment spending.

Cash provided by financing activities was $52.9 million and $97.9 million in the first nine months of fiscal 2010 and fiscal 2009, respectively. This $45.0 million decrease is attributable to decreased net borrowings for working capital purposes, offset by a reduction in dividends paid.

FUTURE LIQUIDITY AND CAPITAL RESOURCES
On July 12, 2007, the Company entered into a $500 million amended and restated multicurrency credit agreement. The Amended Credit Agreement (“Revolver”) provides a revolving credit facility for up to $500 million in revolving loans, including up to $25 million in swing-line loans.

The Revolver has a term of five years and all outstanding borrowings on the Revolver are due and payable on July 12, 2012. As of March 28, 2010, borrowings on the Revolver totaled $139.4 million. This credit facility and the Company’s other indebtedness contain restrictive covenants as described in Note 9 of the Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K. As of the end of the third quarter of fiscal 2010, the Company was in compliance with these covenants.

The Company expects capital expenditures to be approximately $50 to $55 million in fiscal 2010. These anticipated expenditures reflect our plans to continue to reinvest in equipment, new products, and capacity enhancements.

The Company is not required to make any contributions to the qualified pension plan during fiscal 2010, but may be required to make contributions in future years depending upon the actual return on plan assets and the funded status of the plan in future periods.

The Company’s $206.1 million of 8.875% Senior Notes will mature in March 2011. At this time, the Company believes it will be able to replace these borrowings with new financing.

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 and liquidity requirements for the foreseeable future.

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes since the August 27, 2009, filing of the Company’s Annual Report on Form 10-K.

CONTRACTUAL OBLIGATIONS

There have been no material changes since the August 27, 2009, filing of the Company’s Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies since the August 27, 2009 filing of its Annual Report on Form 10-K. As discussed in our annual report, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.

Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of our financial statements include a goodwill assessment, estimates as to the realizability of accounts receivable and inventory assets, as well as estimates used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, group health insurance, litigation and taxation. Various assumptions and other factors underlie the determination of these significant estimates.

The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and, in some instances, actuarial techniques. The Company continues to evaluate these significant factors as facts and circumstances change.