Executives
James Brenn - Senior VicePresident and Chief Financial Officer
John Shiely - Chairman and ChiefExecutive Officer
Analysts
George Nissan – Merrill Lynch
Steven Weiss - Midflow Capital
Ned Borland - Next Generation
Craig Kennison - Robert W. Baird
James Bank – Sidoti & Company
Peter Jacobs - Ragen MacKenzie
Tom Lewis - Century Management
Adam Simon - Boyington Capital
Sam Darkatsh - Raymond James
Mike Hamilton - RBC Dain
Briggs & Stratton Corporation(BGG) F2Q08 (Qtr End 12/31/07) Earnings Call January 17, 2008 10:00 AM ET
Operator
Good day, ladies and gentlemen,and welcome to the Briggs & Stratton Second Quarter Earnings release ConferenceCall. At this time, all participants are in a listen-only mode. Later, we willconduct a question-and-answer session and instructions will follow at thattime. (Operator Instructions) As a reminder, this program is being recorded.
I would now like to introduceyour host for today's program, Mr. James Brenn. Please go ahead, sir.
James Brenn - Senior Vice President and Chief Financial Officer
Good morning, everyone. I'm JimBrenn, Chief Financial Officer. And today with me is John Shiely, our Chairmanand Chief Executive Officer.
Today's presentation and answers toyour questions will include forward-looking statements. These statements arebased on our current assessment of the markets we operate in and other factorsthat could affect our business. Actual results could differ materially from anystated or implied projections due to changes in one or more of the factors thatare described in our public filings with the SEC.
This conference call will be madeavailable on our website and via phone replay shortly after the end of thiscall. Now, here is John, to cover our second quarter results.
John Shiely - Chairman and Chief Executive Officer
Thanks, Jim, and thank you forjoining us this morning. As you saw in this morning's earnings release,consolidated net sales were $479 million, an increase of $56 million from therevenues in the second quarter of last year. The release also reported netincome of $5 million versus the $4 million net loss experienced in the sameperiod last year.
Consolidated net sales, increasedbetween years, was primarily volume related in most product categories, except thelawn-and-garden equipment. Engines were stronger than a year ago for severalreasons, including improved engine placement for the 2008 season, as well asseveral OEM customers taking product earlier than they did last year inpreparation for the 2008 spring season.
Sales of portable generators,pressure washers and air compressors all did better than last year. Generator sawincreases because of the December ice storms in many parts of the country.Pressure washers continue to have year-over-year improvements, as retailers, weserve continue to emphasize the product. The year-over-year improvements experiencedin air compressors is due to the fact that, that it’s a new and growingcategory for us.
Lawn-and-garden volume waslighter than last year's second quarter, but flat year-to-date. Volume in thefirst quarter had been up, ahead of a price increase that was effective at thestart of the second quarter. So, we believe some volume shifted betweenquarters. The $100 million improvement in net income is effectively the net impactof the two items that we had pre-announced in December.
We had received preferred stockin 1999, as partial consideration for the sale of two foundries. Redemption of thoseshares and payment of dividends associated with those shares on December 28thresulted in an after-tax gain of $25 million. Offsetting the gain associatedwith the preferred stock redemption is the expense associated with the snow enginerecall that we initiated in June 2007.
We have recognized an additional$18 million of expenses, $13 million on an after-tax basis in the secondquarter, which we believe recognizes what our total exposure could representout through 2012. The net of these two items alone improved net income in thesecond quarter by $12 million. So, there were some operational items in thesecond quarter in both of our business segments that offset the benefit of the secondquarter's higher sales. I will address these next as I talk about the segmentsindividually.
The Engine segment in the secondquarter net sales increase of 13% between years, driven by the higher enginevolume, I described earlier. We continue to feel that domestic inventories atall levels of the channel are good going into the spring selling season. Ourplacement and that of our competition is about where we anticipated it and potentiallyprovides us with some incremental market share.
We do see some softness in orders,we anticipated from Europe, but believe that we can makethem up overall. As I'll discuss in my outlook comments, the overridingquestion really is, what impact will the current economic environment have onthe upcoming season?
Income from operations for thesecond quarter after removing the impact of the snow engine recall, improved50% between years. The primary contributor to the second quarter's improvement wasthe impact and the increased shipments I mentioned earlier. There wereapproximately $3 million in expenses in the second quarter related to theclosing of the Rolla engine facility that partially offset some of the volumegain. At the end of December, the closure of the Rolla facility was effectivelycomplete and the third and fourth quarter should start to realize the benefitsfrom the footprint change.
Now, let me turn to the Power Productsegment. As I mentioned earlier, second quarter net sales were up in thesegment, also for almost every product line expect lawn-and-garden equipment.Our forecast for the year for portable generators has volume in it for eventslike ice storms. The ice activity in December occurred earlier in the thirdquarter -- earlier than the third quarter, where we had originally forecasted. So,we are not increasing our generator forecast at this time.
The lawn-and-garden equipment shipmentdecrease to dealers appears to be timing, as I indicated earlier. Dealerinventories of lawn equipment appeared to be at normal levels. And in manyareas of the country, inventory levels of snow thrower equipment were reducedsignificantly, which could make dealers more comfortable with their inventoryinvestments ahead of the spring mower season. Lawn equipment deliveries to themass market merchandisers were not significant in the second quarter, but willbe more significant in our third quarter for the first time.
The Brute by Briggs &Stratton and the Snapper brands have been strategically placed at key majorretailers for the 2008 season. These products were in our forecast but notdiscussed previously, as we waited for the release of the information from ourretail partners.
The second quarter operating lossfor the Power Products segment increased from the same period a year ago by $12million. Major reason for the decline was $5 million of expenses to finalizethe start-up of the previously announced [lawn mower] facility in Newbern, Tennessee, and the completion of thereorganization of our existing commercial and riding equipment facilities toprovide for better product focus and productivity.
Another contributor to thedecline was the lower utilization of the lawn equipment facilities due to therearrangements that were undertaken as well as the focus on running productionlevels this year closer to the season in an effort to do a better jobcontrolling working capital.
Finally, the mix of product shiftfavored lower margin units, which did not allow us to benefit from the up tickin the sales volume. There have been cost increases in materials and componentsthat have made certain SKUs and our line up was profitable and we will beaddressing that issue going forward.
Now, that concludes what we wantto say about the second quarter results, and now I will close with somecomments on our projections for fiscal 2008. The preferred stock transactionswith an after-tax benefit of $25 million and the snow engine recall that had anegative $13 million after-tax impact combined for a favorable net incomeimpact of $12 million in the second quarter. However, the net income forecastfor the year was impacted by only $3 million, because our forecast for the yearhad already anticipated the receipt of dividends on the preferred stock thathad approximately a $9 million after-tax favorable impact on net income.Therefore, we have increased our forecast for the year by raising the top endof our projected range to $68 million to reflect the net impact of the secondquarter items on the annual forecast.
Our positives for the fiscal yearcontinue to be improved placement of engines with quantities that are greaterthan last year, and the positive impact this will have on margins from both thesales and production volume perspective. We also have the cost of our facilityfootprint changes behind this, essentially at the cost we estimated. We shouldsee an anticipated benefit of lower cost in the second half of the year.
However, we left the bottom endof the range where it was because we remained cautious about the market forlawn-and-garden equipment this spring, especially since consumer spending andretailer confidence appears to be even more of a potential concern than theywere the last time we spoke.
In addition, we are seeingincreasing pressure on certain component and commodity costs. For example,scraps deal in aluminum, which could negatively impact us since our productionthis year is more concentrated in the second half of the year closer to themarket.
Now, we'd like to open up thecall for questions.
Question-and-Answer Session
Operator
(Operator Instructions). Ourfirst question comes from George Nissan from Merrill Lynch.
James Brenn
Good morning, George.
George Nissan
Yes, hello.
James Brenn
Hello.
George Nissan
A couple of things, you guystalked earlier about improving on your cost initiatives. What are youroperational improvement initiatives in terms of like lean manufacturing, SixSigma, things like that?
James Brenn
Well, that's an ongoing eventthat the manufacturing guys are always working on. I think this year in effectwe've targeted in the engine part of the business about $20 million ofimprovements from a, not only inventory reduction, but looking at productivityimprovements and those types of things in the plant. We had similar typeinitiatives in the home and the yard group. Yard was somewhat covered by thefact that we've changed the footprints and relocated things and took advantageof that to kind of look at productivity. In the home, it's a little bit more,we are looking for about $10 million there. But by definition because theirproduction is being down so low, we haven't got all the benefits in thatparticular operation that we had expected in, in '08.
John Shiely
Yeah, this is John Shiely. The Briggs& Stratton cost reduction is really the primary value discipline of thepeople at Briggs and it is our focus and we achieve that through improvementsin productivity and volume purchasing and achieving ways to push down cost. Wehave a unique operating model because we have to deliver most of our productduring a third of the year, and so it requires some unique approaches tomanufacturing and some of the approaches that you read about in the papersreally don't apply in that seasonally environment. However, we are the best atwhat we do in the market for outdoor power equipment. We have a facility in Kentucky,for example, that produces an engine with one half-hour of labor, which allowsus to compete globally. So we put our facilities in low cost areas, we pounddown every nickel that we can. And we do it in a way where we're still able todeliver huge volumes of product into a very seasonal market.
George Nissan
John, regarding that, what kindof metrics you are using to manage the manufacturing facilities like return onnet assets, OEE, how you are measuring them?
John Shiely
Well, our primary metric that weuse for virtually every thing is EVA or Economic Value Added. And we've beencommitted to that since 1989 and all of our programs are built around that. Aspart of the incentive program, the EVA incentive program, at the lower levelswe have what we call value driving metrics, that if you hold everything elseconstant these are the metrics that will improve Economic Value Added overtime. And those are things like cycle time and cost per product. But theprimary metric, the one that drives all behavior at Briggs & Strattonultimately is our ability to deliver cash return on the cost of capital.
George Nissan
And a final question for youguys, you guys had a good quarter congratulations. How long is your continuousimprovement program been in place? And what systems do you have in place toaccelerate the CI initiatives?
John Shiely
It's interesting, we -- becausethe TQM and lean and all these things come and go, but we've maintained thisincredible cost discipline. If you could see one of our southern focusfactories operating, you would see how effectively that we worked, that thethousands of little things that we've done in order to lower cost and reducethe amount of human interaction with the product. We use automation where itworks in a seasonal environment and where it provides the biggest bang for thebuck. So we have our own Briggs &Stratton approach to this and it's been very effective over the years, I meanthink about it and we've had 30 years of -- 40 years of competition from theJapanese and 10 or 15 from the Chinese and we can still make a competitive productin the United States.
George Nissan
Regarding that…
James Brenn
Thanks George. George, we aregoing to move on to the next one, okay. John, think could you give me the nextcall?
Operator
Certainly. Our next questioncomes from [Steven Weiss from Midflow Capital].
Steven Weiss
Good morning.
Operator
Steven Weiss, your line is open.
James Brenn
(inaudible). Okay. Next one then.
Operator
All right. Our next questioncomes from Ned Borland from Next Generation.
Ned Borland
Good morning, guys.
James Brenn
Good morning, Ned.
Ned Borland
Just talk on engine productionfor a minute here. Are you going to change your engine production forecast forthe year?
James Brenn
No. I think we've still got thesame forecast, it's just more back-end loaded than it has been in the prioryears, just to be able to control the inventory levels. I think on ayear-over-year basis at this point in the season, we are close to about 850,000fewer units. And that's because felt in prior years we've had -- we would carrytoo much inventory into seasons that slowed up and, in effect, we then had tocut back in the latter half of the year. This year we tempered it in the fronthalf of the year and are going work full out in the backyard.
Ned Borland
Okay. So, it's still forecast ofabout 10.8 million to 10.9 million units.
James Brenn
Yes.
Ned Borland
Okay. And then on the benefit youexpect to see from the shutdown at Rolla. Is that still in the $3 million to $4million range?
James Brenn
Yes, on a pre-tax basis.
Ned Borland
Okay. And then on the Snapperbrand going into Sears is that -- I mean is that a move that has caused anyfrank discussions with some of your OEM customers?
James Brenn
I think we always havediscussions with the customers on those types of things. And in fact, in somecases they know about it before it's going to happen. So, I would tell you thatthey are all aware of it and they are all choosing to react however they wantto react.
John Shiely
Decision of Briggs & Strattonto go into producing end product was driven by a number of things. One of themwas the fact, that one of our major OEM filed bankruptcy and was unable to keepgoing. A similar situation drove our decision to get into the generatorbusiness. We thought that, we needed to wait in there, to protect our generatorengine volume, which had really dropped precipitously.
As we face the ever greaterconcentration of retailers and the evermore demanding requirements that theyhave, as we deal with the fact that the major brands, retail dealer brands havemoved into the mass market. And as we deal with the threat of the Chinesecompetitors who are going to come into the United States, not as engineproducers and/or lawnmowers producers. They are going to come in as engine andlawnmowers producers. We believe we need to be integrated to do that. Now thereis more than one way to do that. One is through a merger, which is what we didin the case of generator business.
The other one is to maintain avirtually integrated position with some of our customers and we have some ofthose types of relationships. For a major customer, we make their walk-behindlawnmowers. We make generators and pressure washers that are marketed undertheir brands, significant brands. So, we believe that the future of thisindustry is in integration and then ultimately the engine producers and the --we're the only remaining domestic producer of small engines for walk-behindlawnmowers.
But, there will be a higher levelof integration with or without actual business combination to the point whereit will improve the cost. It will develop, the integration will result indeveloping a higher value product that can be sold in the marketplace and thatthere will be better management of inventories, which in the traditionalenvironment has not been very good. So, that's our vision.
Ned Borland
Okay.
John Shiely
And another thing is we hadcustomers that said, we are going to go put a Chinese engine on a unit and sellit in the marketplace. We needed to be able to respond competitively to thatand we have, and we have effectively.
Ned Borland
Okay. And then SG&A as apercentage of sales, looks like its trended downward, I mean historically it'sbeen about, I don’t know 12%, 13%, 14% of the sales I mean where do you seethat going forward?
James Brenn
I would tell you, Ned that mostof the impact that you are seeing to-date is where we -- the levels ofexpenditures are not going down but the volume is picking up again. So, I thinklast year, where we did a $40 million reduction in the SG&A, I think whatwe are trying now to do is to hold strongly to that number in between years. Iknow it's up slightly, but I think focus more on the level of spending than therelationship to the sales line and you will get a good sense of where we'regoing to be at. Probably, relatively close to where we were a year ago.
Ned Borland
Okay. And then finally on sharerepurchase, I mean, I know previously you've discussed it being sort of asecond half '08 event. Are we looking at may be fourth quarter or?
John Shiely
Well, I think as you know we haveauthorization to do it. I think in the current economic environment, I thinkwe're going to be very cautious. So, I would not look for us to make a movewithout considering it. My guess is later in the fourth quarter.
Ned Borland
Okay. Thank you.
James Brenn
Okay.
Operator
Thank you. Our next questioncomes from Craig Kennison from Robert W. Baird.
James Brenn
Good morning, Craig.
Craig Kennison
Hi.
James Brenn
How are you doing?
Craig Kennison
Good. Great, thank you. Talkingabout your guidance here, can you just talk about the key economic assumptionsthat supports that outlook?
James Brenn
Well, I think we had talkedoriginally, as we took a look at '07 versus '08, we think that we've improvedon the amount of units that we are going to shift from an engine perspective.We've talked in the past where '07 was around the $10.4 million level. We thinkthat the '08, if there is a market out there, based on our acquisition of somemarket share from some players would tell us that it's probably at an 11 or11.1 million unit a year.
We believe that generators areflat. We have not built anything incremental into that, in fact we have takenthat down last couple of times. We do believe that the pressure washer businessis going to be up slightly from last year, at least to date through almost sixmonths of operation. Pressure washers have sold better at retail then they didin the prior year. So, we don’t see that weakness there. I think it’s that --it’s those volume increases, the fact that we can run our plants a little bitbetter that would tell us that we think that if there is a market there, whichwe kind of indicated on the conference call. If there is no market, if retailfalls completely apart, if lawn and garden becomes a discretionary item, and wehappen to believe that it’s a little bit like white goods, and that if you needto replace the unit at some point in time you are going to do that and it’s notan outrageous expense to do it. So, we are assuming that there is still amarket that would be up.
Craig Kennison
So to compare the 11.1 millionunits to 10.4 million that’s a 700,000 unit delta. How much of that is theshare gain?
James Brenn
I would tell you we forecast ineffect of flat market. So, we were telling you that’s basically the share fromboth the U.S.and international operations.
Craig Kennison
And so, if the economy were tohead into a recession, would that be incremental to your assumptions? In otherwords, remain essentially a flat environment, so if we were to head in to arecession and that were to affect the lawn and garden season that would be morenegative?
James Brenn
Well, my guess is -- yeah, if infact the flat market doesn’t exist. I would tell you that the market sharegains that we have at least made will make us better off than everyone else inthe market at this particular point in time.
So to clarify your example, ifthere was a season that dropped off by a million units, we have 70% marketshare, right, a little bit over 70%. So, our unit volume would gocorrespondingly down, but we would be better-off because our placement is atmore places this year than it was last year. So we get a bigger share of thatdown market.
John Shiely
There is one caveat, and you knowthis from having looked at the company. There is an interesting difference incorrelating economic events to the performance of Briggs & Stratton.
Probably a decade and a half agowe did a study in the United Kingdom,which has basically homogenous weather, you know, if it's raining in Birmingham,it's raining in London kind of athing. And we did a regression analysis of the relationship between our enginesales; the first instance leading economic indicators and in the secondinstance weather. And believe it or not, there was a higher correlation betweenrainfall in the UKthan there was leading economic indicators.
We've had good years in time ofrecession. We've had bad years when things are really going great guns with theeconomy. Weather is the huge wildcard in this equation. So if you wanted thebest indication of how Briggs & Stratton is going to do, take a look ofthat.
Craig Kennison
That's a good example. In thatparticular model was there any evidence of any major change in housing starts,as I would believe, that would an important input into your demand curve?
John Shiely
The model that we use to predictdemand, and we've used it for a couple of decade, attributes somewhat over 80%of demand to a seven-year replacement cycle. The problem with weather is thatit can cause one of those seven years to pass without demand. In other words,if you have a drought, now you are out to eight years that kind of a deal.
We've had three down years in arow. So there is an overhang of potential demand out there due to the fact thatwe've had some down years. So you look at this and you can say, it reallydepends on the current state of the weather.
In terms of housing starts,probably our model would show about 15% of demand explained by housing startslagged by a year. In other words, you build a new house, it takes you a year togrow the grass and put in a lawnmower. But again, the model gets blown up ifyou have a drought or you have unanticipated really good rainfall or weatherevents. We're a pretty pure weather play.
Craig Kennison
Okay. That's helpful. And thenjust with respect to guidance, the change in guidance versus the last time youprovided guidance. If you exclude the impact of the gain and the product recalland just look apples-to-apples, could you just help us understand what changesyou may have made to that guidance?
James Brenn
I think, well, we review thepress release to some extent, but what we are basically saying is that there isa -- for the year in our forecast, there was an overall net $3 million benefitfrom the transactions that took place in the second quarter. You had a $25million after-tax benefit from the preferred stock transaction. It was offsetby approximately $13 million of warranty expense impact. And so, on the…
Craig Kennison
Probably that's snow?
James Brenn
That's snow, I am sorry, the snowwarranty and recall.
Craig Kennison
Right.
James Brenn
And so, at the end of the day,that would have led you to believe that guidance could have been going upalmost $12 million. But inside of the forecast that we've had out there sinceday one was the assumption that we were going to receive at least $10 millionof preferred stock dividends, which would have had an after-tax impact ofalmost $9 million.
So, there's a $12 million benefitthat occurs in the second quarter. We looked at what the total year impactwould have been, which was $9 million. So there's a net $3 million. So whatwe've done is literally kept the same forecast in place. In the Octoberrelease, we were at 60 to 65; we're now 62 to 68. We didn't go 63 to 68,because basically, as John said in the conference call, who knows what thismarket is going to be like. So we left ourselves on the downside.
Craig Kennison
Okay. Thank you.
James Brenn
Okay.
Operator
Thank you. Our next questioncomes from James Bank from Sidoti and Company.
John Shiely
Good morning, James.
James Bank
Hi. Good morning. Just a quickquestion on the startup costs and the costs due to the closure of the enginefacility, is it totaling $8 million, one, for the closure of $3 million and thenew facility was $5 million? Did I hear that right in the prepared remarks?
James Brenn
I think we had $5 million pre-taxin total in the quarter.
James Bank
Okay, for the costs. Okay, good.Now in terms of, you guys are now producing closer to the retail season; you'reexpecting your fixed cost to improve. Can you help us, maybe, clear that up alittle bit in terms of year-over-year improvement what you expect?
John Shiely
Well, think of the fixed costsimprovement, the fixed costs are really, literally, just that fixed. But theabsorption of the activity going to the plant is going to increase in thesecond half of the year. So we should absorb more of the burden cost and, inparticular, fixed as we go forward. So the fixed costs are there, but we, ineffect, under produced in the first half of the year vis-à-vis the prior year,and we'll over produce in the second part of the year.
James Bank
Right. Okay. That's fine. Sothere's going to be a higher rate of utilization.
John Shiely
Yeah.
James Bank
Okay, fine. And I think earliersomeone was trying to ask how much was from the share from Tecumseh exiting theindustry? You are pretty much projecting flat growth for your engine, so the 7%to 8% top line for the engines is primarily because Tecumseh is out of theindustry from share gain?
John Shiely
Well, I wouldn't say 100%,obviously, because we picked up some share we believe in Europe.They've been out of Europe now for a year, probably twoyears.
James Bank
Okay.
John Shiely
I think, in effect, in anindirect way, you could probably attribute it to Tecumseh. I think that therewere gains, obviously, at one of the major retailers on the total productswhich they've talked about.
James Bank
Okay.
John Shiely
Probably offset by our numbersdid anticipate that there would be some increased Chinese presence this year.So, I guess you could. Kind of in the US,I would tell you it's primarily Tecumseh related.
James Bank
Okay. In terms of your balancesheet, how many generators do you have on the books right now and how many arein the retail channel?
John Shiely
We think that the retail channelis drifted down probably closer to 70,000 to 80,000, and ourselves, I believe,we're kind of in the 50,000 to 60,000 range.
James Bank
Okay. And then the first quarter,I think there was a pension cost. Did that -- was that just sort of a specificquarter where I think you guys had done something?
James Brenn
No, if you take -- it didactually affects each quarter we've restated the prior year.
James Bank
Okay. That was okay.
James Brenn
In each quarter, yeah, right.
James Bank
I didn't see in a press release,how much it affected the second quarter?
James Brenn
You know, I don't know that atthe top of my head. I am going to guesstimate about $2 million, but I will getback to you with that exact number.
James Bank
Okay. And, I'm just going to tryin because I have a few more, I'll do it as quickly as I can. In terms of thesnow recall, John, I believe you mentioned something that it could continue oninto fiscal 2012 or were you talking about something else?
John Shiely
Well, when you accrue for thesethings you try to take it out four or five years and say.
James Bank
Okay.
John Shiely
Let's capture the entire cost outthere. Most of it's going to be front-loaded because there was big pressure onsnow equipment early in the year with the late November and early Decembersnowfalls, so the people will bring it in and when they bring it in, the fix isdone on them. And so I think we shook out a pretty healthy chunk of it early inthe snow season here.
James Bank
Okay.
John Shiely
But they'll continue to dribblein, and whenever anybody brings one into to be fixed for something else, it isa failure that tends to be an infant failure, the one that occurs early becauseas the engine operates longer and longer it tends to work itself out just becauseof the mechanics of the problem. But you've got to run your, you got to lookat, look out several years and say, let's capture the total cost here, so wedon't have to come back in three years and say there is still some left onthis.
James Bank
Okay. So the warranty expense,did this 17.7 million is what you are saying, I mean, that that's an accrualthat is going to carry a few to 2012?
John Shiely
Yes, about 10 million of thatnumber was actually cash payments. And there is another about 7.5 million,that's now accrued for.
James Bank
Okay
John Shiely
That anything else comes in overthe next several years.
James Bank
Okay, great. Also now for otherincome for modeling purposes, basically we'll see zero for the most part,because it was really that preferred dividend that was giving you the gains inother income all these years?
John Shiely
I think we've run -- other incomeis run in the $13 million to $14 million range and in there you would have hadanywhere, given the year a $10 million to $12 million. So I wouldn't negate itcompletely. I think just probably a $1 million to $2 million that couldpotentially still show up in other income. Because that's where we book, wehave some other joint ventures where we have income and fewer things like that.So, I would not negate it completely.
James Bank
Okay. And, so then 10 million to12 million then maybe for next year as well?
John Shiely
No. I am saying that it'sprobably take the dividend out of there, and what you can look at going forwardon an annual basis is somewhere between $1million and $2 million.
James Bank
Okay. All right, thank you. Andone last question. John, you mentioned that some volume potentially shiftedfrom the third quarter into the second quarter, I guess with the increasedengine volume sales that you saw in the second?
John Shiely
Yeah, one of the things Imentioned was a price increase that we implemented when we do that, often timessome of the volume is accelerated people taking deliveries in order to takeadvantage of the old prices.
James Bank
Okay.
John Shiely
There is some of that.
James Brenn
James remember what we weretalking about there was in the lawn-and-garden equipment part of the business,specifically our dealer business.
James Bank
Okay.
James Brenn
That's a simplicity snap orfairest thing.
James Bank
Okay.
John Shiely
Dealer, those sales were up inQ1, softer in Q2, and if they moved, we think it moved into Q1 ahead of theprice increase.
James Bank
Okay. All right, terrific. That'sall I have. Thank you very much.
John Shiely
Okay.
Operator
Thank you. Our next questioncomes from Peter Jacobs from Ragen MacKenzie.
John Shiely
Good morning Peter.
Peter Jacobs
Hi, good morning gentlemen.
John Shiely
Sure.
Peter Jacobs
A couple of questions, first, anychange in the capital spending outlook?
John Shiely
I would tell you that we probablystill are on track for the year at about $75 million, which should be prettyclose to depreciation.
Peter Jacobs
Thank you. Secondly, the gainfrom the note receipt during the quarter. How much, if you had not gotten that,how much would have been just in the dividend income? That's would either been3 or…?
John Shiely
There would have been $2 millionin the second quarter, $10 million for the full year. So there would have beenanother $8 million that were shown up in the second half of the year.
Peter Jacobs
Okay. That means you had none inthe first quarter?
John Shiely
Correct.
Peter Jacobs
And could you just, I guess,conceptually talk about the competitive environment in Europe,how you think you're doing? And then also perhaps discuss opportunities thatyou see in other regions of the world, if there is anything that we should bekind of thinking about over the next couple of years?
John Shiely
Sure .The European market is aninteresting one. It's one that traditionally we have served that market withouthaving a engine manufacturing presence in Europe. Inother words, we would make a very cost effective engine and, for example, in Kentuckyand ship it at significant expense to Europe and believeit or not actually compete effectively with a facility that Tecumseh maintainedin Italy. Thatwas kind of a high cost facility for the European market. And for the betterpart of our history, that's how we approached the market.
A couple of years ago, one of ourmajor customers, decided to take a shot at sourcing some Chinese engines andwithin time had brought in 200,000 or 300,000 of these Chinese engines. Realizingthat at that point they are shipping from halfway around the world, we areshipping from halfway around the world, neither one providing in-market lowcost production. We decided to build a factory to produce high volume lawnmower engines in Europe.
We chose the Eastern Czech Republic because its low cost, it's a very engagingcommunity from the standpoint of business development. Eastern Europe is the fastest growing market in Europe.Europe is a region with a mowing culture, which is animportant thing. So we now have the in-market advantage that we have in the United States, we have in Europe.And as Jim mentioned earlier, we've picked up significant volume, basicallygotten -- recouped that volume from the Chinese.
Our customers love the enginesthat are coming out of there, I visited the factory a couple of months ago andthere it's – it's a dynamic place, bright young [check], I call them kids, onlybecause they are younger now, who are excited, there is some of the samedynamic that we began to see years ago in China. Chinais another fascinating market, understand that the engines that we make in Chinaand -- what we're going to make Jim, 600,000, 700,000 there this year?
James Brenn
A little bit less than that, Iwould tell you we are more in probably the 350 range.
John Shiely
Okay. You mean including the[relevant]?
James Brenn
Oh I am sorry, China– 660 I think it is.
John Shiely
Yeah.
James Brenn
660,000.
John Shiely
Yeah, okay. The -- those 650,000engines and basically not some much lawn and garden engines as they are utilityengines, for generators, pressure washers, tillers things on that order. Thoseare world engines, and I guess to put this in perspective I've always viewedBriggs and Stratton as being in terms of economic development a two way ofcompany. The first way of being selling engines for agricultural commercial anddevelopment uses for jobsites, construction jobsites, agricultural efficiencyand such. And so that's where we expect to see big growth in the Asian market.
The Asian market does not have amowing cultural, it's funny if you want to follow the mowing culture you go tocountries that were part of the old British Empire, the Australia, SouthAfrica, Canada, United States etcetera, etcetera. So, where we look for growthin China is inthose commercial and agriculture, I mean most of the people in Chinaare still employed as subsistence farmers. And as the size and efficiencies ofthose farms begins to grow they are going to need powered equipment to achievethat. Now there is -- it’s interesting some of the -- a lot of the transplants,U.S. and European transplants to Europe and a lot of the emerging middle-classin China is kind of trending towards a U.S. suburban type lifestyle.
You can drive through some ofthese places outside of Shanghaiand other places and if they dropped you down in a helicopter, you'll thinkthat you are in West Des Moines, Iowaor something. But, and so, there is developing and modest mowing market there,but it's still largely a market for first wave agriculture and commercialproducts and we have a very efficient, very low cost factory there and itcontinues to grow.
Peter Jacobs
Okay. Great, And then just onelast housekeeping question, I think Jimmy gave some unit sale numbers forfiscal of 2007 of 10.4 million units and you are looking for maybe 11 to 11.1this year, if I got that right. What, could you just refresh my memory on what'06 and '05 were please?
James Brenn
You got a challenge for me here alittle bit. Let me call you back on that Peter, I just saw at the top of myhead. I want to make sure I give you the right numbers.
Peter Jacobs
Okay. As I probably have it in my note somewhere as well, but, yeah,we can just talk offline about that. I will appreciate it.
James Brenn
Yeah. Thank you.
Peter Jacobs
Yeah, those are my questions.Thanks.
Operator
Thank you. Our next questioncomes from Tom Lewis from Century Management.
James Brenn
Good morning, Tom.
Tom Lewis
Good morning,
James Brenn
Hi there.
Tom Lewis
First question, interestingcomments there on Europe. Now early on in the call youexpressed a little concern about maybe some slowing orders there. And it soundslike you've been doing business in Europe for a longtime. Is that a market where consumer spending for things like mowers, lawn andgarden equipment, is it -- or do you consider it more or less dynamic,volatile, economically sensitive, I don't know how I want to put it?
James Brenn
Well Tom, to some extend and Johncan chime in. But theoretically mowing cost, mowers are a lot more expensive inEurope than they are out here in the U.S.
Tom Lewis
Right.
James Brenn
And so, consequently, my reactionwould be that if there is a slowdown over there, mowers would have a tendency toprobably be impacted a little bit more than it would be over here. They're just-- the scale of the cost, something that you might find for $279 in a massretailer, here, I mean you may pay $700, $800 for, in certain countries overthere. I would tell you they might be little bit more susceptible.
John Shiely
There is reason for a concern.The European mowing market is very, very different than the United States market, and then about half of thevolume of lawn mowers that are sold in Europe are believeit or not electric mowers.
Tom Lewis
Right.
John Shiely
They are mowers that you pluginto the wall and if you plug into to a 220 outlet, you can actually get adecent amount of torque to cut your grass. And many of them have postage stampsize lawns. The concern would be that if there is a significant economicdownturn then they would trade down from the more expensive gas powered unitsand try to make do with the cheaper corded electric unit.
Tom Lewis
Are you rolling? Is Snapper goinginto Sears in a big way this year? I mean is it or is it more focused oncertain parts of the country?
John Shiely
I think it's focused across thecountry. I would tell you that in the press release its indicated that it isabout 6 queues or a three walks, two riding type units, and the ZTR units. So,I would tell you that it occupies a niche at Sears at this particular point intime.
John Shiely
Our spokesperson is Brett Favre,and we figure if the Packers win the Super Bowl it would probably be a muchmore national phenomenon, so.
Tom Lewis
But you wouldn't be too biasedabout that one?
John Shiely
No. Not at all.
Tom Lewis
Al right, now it's my impressionthat snow throwers has been kind of a challenging category for a couple ofyears now. And it sounds like, well it sounds like I have moved out of thatcorner of the country just in time. But my impression is that, and you sort ofspoke to how there -- about the snow thrower did move at inventory. Was thereenough of an impact on inventories and such to so that this might be a sourceof improved volume in the year -- not this year, but next year?
John Shiely
Well, I think with the earlysnowfalls, I think as you look forward to next year, this is queuing up to bepotentially one of the better snow years that we have seen in a while don't youthink, Jim.
James Brenn
I think so. And I think you callit right, Tom, and that the engines for snow throwers probably are kind of aMay, June, July phenomenon for us and then the actual production of snow throwerproduct then is kind of in the call it the July through November timeframe. So,it queues itself up as a benefit probably a little bit maybe for us at the endof this year, but more so into next year.
Tom Lewis
Will I be correct in assuming ifwe go back a year or two the weather had been kind of a headwind as opposed toa tailwind?
James Brenn
Right. That's correct, yeah.
Tom Lewis
Right.
James Brenn
And snow has not been very good.
Tom Lewis
Okay. Now, in the compressorproduct that you talked about, it sounds like this is relatively new to you,but are you there in a major way just in engines?
James Brenn
Well, these are actually -- weare not. Compressors, we're basically with one major retailer right now, and Iwould tell you…
Tom Lewis
These are electric…
James Brenn
Yes, they are electric. Thequantity is not that large.
John Shiely
We do power, gas compressors thatare produced by our customers. But this is an initiative with particularly onemajor retailer where we decided, and it was kind of the forerunner for thebrute Briggs & Stratton lawnmower. It's a totally sourced product, so thereis not a lot of overhead and inventory. Well, there is inventory, but not a lotof overhead and fixed cost and such.
But it's an interesting categoryfor us. We're credible in the category. We understand the design and dynamicsof the product. And it's another effort on our part in accordance with our,what we call, our powerful solution strategy.
Tom Lewis
Yeah.
John Shiely
To extend the Briggs brand tocategories where we think people will find it credible.
Tom Lewis
Right. Okay. And the brutelawnmower, is that just in the process or showing up in the stores --
John Shiely
That will be --
Tom Lewis
-- second quarter at all.
John Shiely
It will be there in the spring.
Tom Lewis
In spring? All right. Lastquestion, you talked in terms of direct facility startup expenses andidentifiable disruptions from shifting production to Newbern as being done. Myunderstanding is that you're going to exiting Port Washingtonsometime early next fiscal year, do you anticipate that involving additional,either direct expenses or disruptions, and is there anything else that weshould be thinking about in terms of getting to the end of these kind ofoffsets to otherwise improving operating improvement performance?
James Brenn
I think from a physicalwrite-down of assets, that was all taken care of. I think that there will besome potential expenses at some point as we shut down the factory, maybe moveout some last pieces of equipment that we can use in other places. But I don'tbelieve that they're going to be significant. There may be some people costrelated to it.
The one thing I can think of,Tom, quite honestly is that, right now, we are scheduled to close down inOctober, and I would think that we are in discussions with people to understandif we can shut the thing down a little bit earlier. And if that happens, theremay be some compensation that is due to the employees for closing out beforethe contract was ended. So that's about the only thing I can think of at thispoint of time.
Tom Lewis
Okay. Fair enough. Thanks.
Operator
Thank you. Our next questioncomes from [Adam Simon] from [Boyington Capital].
James Brenn
Morning, Adam.
Adam Simon
Good morning, Jim. How are youdoing today?
James Brenn
Good.
Adam Simon
Two quick questions. One, just onhow you thought about selling the preferred stake? I see in the cash flowstatement you sold it for about $66 million.
James Brenn
Yes.
Adam Simon
And you were getting like, Idon't know; call it $10 million to $12 million of income from that, which seemslike a pretty good return, call it 15% or so. So, was that preferred going togo down overtime or is it going to go up overtime, because 15% return on yourcapital compared to the rest of your business, which, obviously, is strugglinga bit, seems pretty good to me.
James Brenn
It does. But Adam, you have toremember that this was an entity that we sold the foundries back in 1999. Andthe only reason we were still an owner in the foundries was because we had totake some paper that couldn't pay us all cash at that time. And what they'vedone is, that entity has continued to expand, has bought other foundries, andhas slowly -- we were the last preferred share owner they had. They haveliquidated everyone else.
So, this is not totally ourdecision. This is them looking to take us out and get back to what theyoriginally intended to do, which was to acquire the foundries from us.
Adam Simon
Okay. So if it was up to you, youwould have collected a 50% coupon and been happy on your capital for a while.
James Brenn
If you could have looked forwardin time and assume that you would have been able to get that the entire time.
John Shiely
There is some downside in thatequation though, because for a while the preferred dividends were passed. Itall depends on the health of the foundry business and they were able to catchup to the dividends. As you look out in the future, maybe they wouldn't, andmaybe those dividends would be passed.
Adam Simon
Understood. Thanks for the colorthere. And then, secondly, not to beat a dead horse here, but regarding yourguidance on shipments or production, I mean over the past six months I thinkit's fair to say everyone thinks the housing market has got incrementallyworse. To the extent it impacts your business to some degree, understandingweather is a big wild card, I'm just trying to figure out why, if it's soobvious that the housing market has gotten worse and there is some impact onyour business, why are you keeping shipments or production flat from, say, yourguidance three or six months ago?
John Shiely
Maybe a realistic answer to that,Adam, would be, my guess is we have not anything from the retailer or the OEMsat this point in time that would tell us if they are going to order anydifferent. Absent some indicator from them that something is changing in theirmind, I guess it's quite hard. I quite honestly don't know where I would takethe guidance to. Do I move it down by 0.5 million units or 1 million units or 2million units? So, until we get a signal, and the strongest signal for usoccurs in the third quarter when we start to see how it's moving at retail andhow the retailers feel, that's about the earliest I can call it.
Adam Simon
Okay.
John Shiely
I have no basis to do it for anyother reason.
James Brenn
And there is the other side ofthe equation, and that's this huge overhang of potential demand that's not yet beensatisfied because of the three down years.
Adam Simon
Yeah. Understood. That's wherelike weather I guess is the wildcard.
John Shiely
Yeah. It is the reason that wedidn't raise them for what it's worth. We didn't raise lower end of ourforecast.
Adam Simon
Understood. All right. Thanks alot guys.
John Shiely
Take care.
Operator
Thank you. Our next questioncomes from Sam Darkatsh from Raymond James.
James Brenn
Good morning, Sam
Sam Darkatsh
Good morning John, Jim. How areyou?
John Shiely
Good.
James Brenn
Fabulous.
Sam Darkatsh
Most of my questions have beenanswered, probably mercifully, so far by listening. Three of them for you. Yourguidance for operating margins, Jim, is 4%, where if I back out the warrantyexpense charge, that comes to 4.8. Previously, if my notes hold are true, Ihave 5.1 to 5.4. Did you actually ratchet down your operating marginexpectation or am I being too fine with how I am looking at this?
James Brenn
No, I would think that's correctand what you'll find in effect is the, our interest expenses gone down in ourminds for the year from the last forecast. So, we are seeing some increasedcost in some of the portions of the business like home power or in thegenerator/pressure washer part. So, we actually did fine tune that, but theoffset is in the interest expense.
Sam Darkatsh
Got you. Second question, youtalked, John, about the Simplicity and Ferris, where it was decent in Q1 andcame off in Q2 from some price increase and some timing of shipments. But whatare your expectations for the commercial and professional end market over thenext couple quarters? And what are you seeing there and what are the macrobackdrop for that -- what's the macro backdrop for that?
John Shiely
Well, if you look at Briggs andyou look at other players that have commercial pieces to their businesses, thecommercial part tends to be a little less acceptable to the kind offluctuations that we see on the consumer side. And so I think that we probablyhave a lot more confidence in what we are projecting for Ferris and Simplicitythan we are what we do in the mass market.
Sam Darkatsh
So, are the dealers optimistic,less pessimistic, how would you view and where the inventory, I mean, what isthe commercial outlook near term look like?
John Shiely
Sam, they are guarded. They arenot building up huge inventories, but I don't think they've freaked out yet,Jim, what do you think?
James Brenn
No, I don't think so. I would, atleast, the professional one was a very strong as we ended it the last year orso. Last year was not exactly the greatest part of the economy either and wehad basically sold out on commercial equipments. So, again we are assuming thatit's going to be at least as good as it was last year and that the overallincrease that we are seeing in that yard area of the business is probably justfrom some additional placement at mass. I think we are calling the commercialstuff at least flat between years.
John Shiely
Sam, we also see Ferris pickingup share. They make a marvelous product and it is very high-tech. It is verydurable commercial stuff and it's a pretty, the market itself has many playersand Ferris' is one of the major ones and it had some really good productdevelopment recently which is paying off in share.
Sam Darkatsh
Last question and this may be areal basic, I am looking for maybe a 20,000 or 30,000 foot view. You don't givequarterly guidance and I think that's more than fair based on all the movingparts. If you exclude the recall, and exclude the preferred stock issue, howdid the second quarter relate to your own internal expectations becausesometimes we may look at it, it missed or it met our expectations but we don'ta view a in terms of how your plan shakes out and (inaudible) goes throughoutthe year. How did it compare or contrastto what you guys were looking at internally?
James Brenn
I was looking internally forabout a break-even. So we are off a little bit from where we thought we'd be inthe second quarter.
Sam Darkatsh
And then primarily variance Jimbeing?
James Brenn
It was primarily in the -- yardwas not as great as we thought it would be when we posted our forecast. Wedidn't believe that there was a shift to the first quarter. We thought that thesecond quarter of yard would continue on at the pace it was on in the first,and I think that we've moved out in the Home Power Product, the engine part ofthe business kind of met our expectations. I would think generators andpressure washer was even a little bit less. Pressure washers in the case ifthere were some recondition sales that went out rather than normal marginsales. So, I'd tell you it was in the Power Product segment of the business.
Sam Darkatsh
Okay. Thank you very muchgentlemen.
Operator
Thank you. Our next questioncomes from Mike Hamilton from RBC Dain.
James Brenn
Hi Mike.
Mike Hamilton
Making it a marathon today.
John Shiely
Yeah exactly.
Mike Hamilton
John conceptually when you talkabout the seven year cycle, we've obviously seen some overall fear go to ridermowers. Do you have enough data to have a feel whether we get a longer cyclethere and if bigger ticket item conceivably carried forward better?
John Shiely
Yeah, we have never drawn thestrength, the distinction. It is biggerproduct from standpoint of displacement, but, in general, it suffers from thesame kind of deterioration factors that, that walk-behind lawn mower does.There is still a fair amount of wear and tear on the thing and it's notnecessarily the engine stops after seven years, but the other parts, thetransmission drive train and all that stuff ultimately get to the point wherethey have to be replaced. We don't draw distinction between the two.
What is interesting is that whenI say that we've had three down years since 2004, the down years have been moretaxing on the rider business than on the walk-behind business and that's thereal reason for the disappointment that we've had in our results in the lastcouple of years, is that we have significantly greater aggregate gross marginsin both the engine -- the rider product and the engines we sell to power them.
So it's been a hugedisappointment and I guess the way I look at it is if the riders are down, havebeen down more than the walkers, if we come back to whatever normal state is,my hope would be that the riders would come back stronger than walkers.
Mike Hamilton
Do you have any thoughts rightnow on the draught we saw last year in the South East?
John Shiely
Yeah, we need some rain and weneed it quick. There has been some, I mean, you just -- I have grown to spend ainterminable amount of time watching the weather channel. But there have beensome recent fronts come through Floridaand Georgia,those are all good. We really need no hazard type situation particularly in Georgia.Georgia is thegeographic center of the lawn and garden market and it's critical to us.
Mike Hamilton
Historically, you've had a laggedimpact as I recall [also] as draught, anticipation would be that is not thegreat year in the Southeast. Is that an accurate way to look at it?
James Brenn
I don't think there is. I wouldnot say that if we had a substantially significant increase in rain, that itwouldn’t pop back immediately; it would. The draught, yeah, there is a littlebit it takes a while for its thinking with the consumer that, gee the grasshasn’t grown for a while, maybe I don't have to go out and buy one more. But ifthe rain falls and the grass grows, it's stamps back really quick. I mean Iwish for those days back in '03, '04 when I was getting calls from customersaying you just got to make a few more engines for me this week.
Mike Hamilton
One final one for James andthat's tax rate outlook on the back half for the year?
James Brenn
I think the guidance we gave was32 to 34, and would tell you that it would tend towards the higher end of that.
Mike Hamilton
Okay. Thank you very much
James Brenn
Yeah.
Operator
Thank you. Our next question is afollow-up question from Craig Kennison from Robert W. Baird.
Craig Kennison
Yeah, thank you. I don't want tobeat a dead horse here with the guidance, but I need to clarify something thatdoesn't reconcile for me. When we look at the gains, you have a $37 milliongain, which you already assumed $10 million in your guidance, so you have a netbenefit of approximately $27 million. That is offset about by about $17 millionfrom the recall. So that net I get is a $10 million benefit.
James Brenn
I think the thing that you arenot seeing is that, in the forecast for the year, when we would have taken a$10 million dividend, we assume that there was 80% dividend exclusion on that.So that in effect that $10 million dividend benefits net income by $9 million.
John Shiely
Let me say this a little simpler.The preferred stock redemption had an after-tax benefit of $25 millionpositive. So, take your pencil plus 25. This no recall had a negative $13million after-tax impact. So, the two of those put together had a favorableimpact of $12 million.
Now, we had already included inour forecast an after-tax positive for dividends on preferred stock, the stockthat was redeemed. So the bottom-line is, we are not getting that. So you takethe $12 million minus the $9 million, and that gives you the $3 million, thatwe add to the $65 million to get to $68 million.
James Brenn
Great, I think and John'sreiterated I think what we have talked about, but in the $25 million after taximpact of the $37 million. In affect that did not receive the full 80% dividendexclusion that we had, that we normally took when we were just receiving $10million at that time. So, there is a difference between the tax rates that werein our assumptions for the forecast and the tax rates were actually able toapply based upon the financial statements of the company to pay the dividend.
John Shiely
Generally when corporations payeach others dividends, there is a deduction to avoid at least some of thedouble taxation that occurs. There was a quirkiness in this transaction andthat some of the redemption proceeds did not qualify for that deduction.
James Brenn
If that doesn’t help, Craig, Ican walk you through that individually too.
Craig Kennison
No, that’s helped, and may be onequick final question. Congress is considering some sort of stimulus package.Historically have you seen any benefit in spending on your products related tonew government stimulus package?
James Brenn
I would say we have no data thatsays if they do that, that it helps us. It depends on, remember, a small partof our model is based upon consumer confidence and consumer disposable income.So from that aspect I suppose we could tell you the model theoretically assumesthat I have never seen anything that would say that it's going to move theneedle significantly for us.
John Shiely
It would be peanuts compared todecent weather.
Craig Kennison
Thank you.
John Shiely
Honestly.
Operator
Thank you. Our next questioncomes from James Bank from Sidoti & Company.
James Bank
Well, hi, guys. Well, I am sorry,one quick follow-up question. Just wanted to clarify the $5 million in closingcosts and start up costs, inclusive of Rolla, as well as Newbern, Tennessee, that for the most part, is done?
James Brenn
Yes
James Bank
Okay. But then, there could be,may be some remaining cost planned up in the Milwaukeearea, I guess that was.
James Brenn
For the Port of Washington.
James Bank
At the Port of Washington. Okay
James Brenn
There were relocations inGeorgia, McDonough, Georgia;Newbern, Tennessee,actually in New York, get thatplant also and then along with the shut down of Rolla. So, there were threeplants that were having a change of their footprint.
James Bank
Okay
James Brenn
And one that was been shut down.
James Bank
Could you give us a bull and bearcase or what was your best case scenario in terms of what the cost could bewith the closure of the Port Washington, if you did it earlier in the severancecost that you had incur or if you would wait until October of this year?
James Brenn
I can't at this point in timebecause there are pension considerations along with.
James Bank
Okay.
James Brenn
Severance considerations thathave to be looked at.
James Bank
Okay. Fair enough.
John Shiely
If we went there out it would be,there would be an anticipation that it would be more than made up by the earlyclosing.
James Bank
Okay.
John Shiely
Or at least there would be anoffsetting benefit that we justify making that decision.
James Bank
Okay. It's terrific. Thank you.That's all I have.
Operator
Thank you. Our next question is afollow up question from Peter Jacobs from RagenMacKenzie
Peter Jacobs
Thanks. Two things. First, Jamesor John, could you quantify the financial impact during the quarter of the plantclosure in the engine business and the opening of the plant in the powerbusiness. So I could help put some numbers around that.
John Shiely
Well, it's a $5 million pre-taxnumber.
Peter Jacobs
Okay. For both combined?
John Shiely
For everything combined, yes.
Peter Jacobs
Okay. Thanks. Secondly, John, could you just give a couple ofsentences on your thoughts on the dividend and the company's thoughts on thedividend and the ability and the desire to maintain it at these, where thestock is right now, it's pull up another five plus percent dividend and whatkind of assurances, I guess, or comfort could you give to current shareholdersabove that dividend.
John Shiely
At the current stock price it'squite nice yield. The payment of the dividend has always been something that webelieved in significantly and Briggs & Stratton returned some of thecapital to our shareholders on a regular basis. I think in the near term, youare looking at a yield that's out of whack with what it's been traditionally. Idon't think in the near term that we've been inclined to change our dividendpolicy. The Board of Directors met yesterday and approved the continued paymentof the dividend. We have no liquidity issues. We can pay the dividend and Ibelieve for the foreseeable future, we'll continue to pay the dividend. Absentsome major transaction that would change the character of the company from whatit is now, paying a dividend has been very consistent with the way we viewthings.
Now, we look at a kind of a hierarchy.Once you get passed the annual dividend, we look at a hierarchy and that's doyou have ways you can invest funds going forward to improve the business. Andwe've gone there out, we've made the investments in buying the Murraylawn mower companies, Simplicity, Snapper, Ferris, the generator business, andwe'll do that when we get the opportunity. And in every event we try to do thatand still maintain the kind of liquidity we need to pay that consistentdividend to the shareholders.
If we -- in the past we'veaccumulated a lot of cash at various times. We've either done share repurchasesor bump the dividend at various points and time. But that is our hierarchy andpaying a consistent dividend is part of the calculus. It's clearly an issuethat a lot of companies are going to have to come with terms with. But if youlook at our track record, we've been pretty reliable on that.
Peter Jacobs
Okay. Thanks.
Operator
Thank you. I'm not showing anyfurther questions in the phone queue at this time.
James Brenn
All right, then with that, Ithink we'll sign off. Thanks for listening. Thanks for participating for longas we have had you on the call. We will see you in April. Thank you.
John Shiely
Thank you.
Operator
Thank you, ladies and gentlemenfor your participation in today's conference. This does conclude the program.You may now disconnect. Good day.
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