1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X][ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JULY 1, 2001
--------------------JUNE 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
-----------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 WEST WIRTH STREET
WAUWATOSA, WISCONSIN 53222
-------------------- ------ ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-259-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock (par value $0.01 per share) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X[X] No --- ---[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $799,176,000$794,324,000 based on the reported last sale price
of such securities as of August 23, 2001.22, 2002.
Number of Shares of Common Stock Outstanding at August 23, 2001: 21,598,983.22, 2002: 21,645,984.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K Into Which Portions
Document of Document are Incorporated
-------- -------------------------------------
Proxy Statement for Annual Meeting
on October 17, 200116, 2002 Part III
The Exhibit Index is located on page 40.42.
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BRIGGS & STRATTON CORPORATION
20012002 FORM 10-K - TABLE OF CONTENTS
PAGE
PART I ----
PART I
Item 1. Business 1
Item 2. Properties 54
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Executive Officers of the Registrant 6
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 98
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 109
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 1413
Item 8. Financial Statements and Supplementary Data 1514
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 3637
PART III
Item 10. Directors and Executive Officers of the Registrant 3637
Item 11. Executive Compensation 3637
Item 12. Security Ownership of Certain Beneficial Owners and Management 3637
Item 13. Certain Relationships and Related Transactions 3637
Item 14. Controls and Procedures 37
PART IV
Item 14.15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 3638
Signatures 3940
Certifications 41
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Item 1. Business, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Letter to
Shareholders may contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. The words
"anticipate", "believe",
"estimate", "expect", "intend", "may", "objective", "plan", "seek", "think","anticipate," "believe," "estimate," "expect," "intend," "may," "objective,"
"plan," "seek," "think," "will" and similar expressions are intended to identify
forward-looking statements. The forward-looking statements are based on the Company'sBriggs &
Stratton's current views and assumptions and involve risks and uncertainties
that include, among other things,things: our ability to successfully forecast demand
for our products and appropriately adjust our manufacturing and inventory
levels; changes in our operating expenses; our ability to successfully integrate the acquisition of
Generac Portable Products, Inc. into our operations; changes in interest rates; the
effects of weather on the purchasing patterns of consumers and original
equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with
whom we compete; the seasonal nature of our business; changes in laws and
regulations, including environmental and accounting standards; work stoppages or
other consequences of any deterioration in our employee relations; changes in
consumercustomer and OEM demand; changes in prices of purchased raw materials and parts that we
purchase;parts;
changes in domestic economic conditions, including housing starts and changes in
consumer disposable income; changes in foreign economic conditions, including
currency rate fluctuations; and other factors that may be disclosed from time to
time in our SEC filings or otherwise. Some or all of the factors may be beyond
our control. We caution you that any forward-looking statement reflects only our
belief at the time the statement is made. We undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which the statement is made.
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PART I
ITEM 1. BUSINESS
Briggs & Stratton Corporation (the Company) is the world's largest producer of air cooled gasoline engines
for outdoor power equipment. The CompanyBriggs & Stratton designs, manufactures, markets
and services these products for original equipment manufacturers (OEMs)
worldwide. These engines are primarily aluminum alloy gasoline engines ranging
from 3 throughto 25 horsepower.
Additionally, through the Company's wholly-ownedits wholly owned subsidiary, Generac Portable Products,
Inc. (Generac), acquired on May 15, 2001, the CompanyLLC, Briggs & Stratton is a leading designer, manufacturer and marketer of
portable generators, pressure washers and related accessories. Since its acquisition ofOn May 15, 2001,
Briggs & Stratton acquired Generac the CompanyPortable Products, Inc. Generac Portable
Products, Inc. was merged with, and into Generac Portable Products, LLC (GPP) on
June 30, 2002.
Briggs & Stratton conducts its operations in two reportable segments: enginesEngines
and Generac PortablePower Products. Further information about the Company'sBriggs & Stratton's business
segments is contained in Note 5 of the Notes to Consolidated Financial
Statements in Item 8 of this report.
ENGINES
GENERAL
The Company'sBriggs & Stratton's engines are used primarily by the lawn and garden equipment
industry, which accounted for 84%85% of fiscal 20012002 OEM engine sales. Major lawn
and garden equipment applications include walk-behind lawn mowers, riding lawn
mowers and garden tillers. The remaining 16%15% of OEM sales in fiscal 20012002 were
for use on many products for industrial, construction, agricultural and other
consumer applications, includingthat include generators, pumps and pressure washers. Many
retailers specify the Company'sBriggs & Stratton's engines on the powered equipment they sell
and the Briggs & Stratton name is often featured prominently on a product
despite the fact that the engine is just a component. Briggs & Stratton engines
are marketed under various brand names including Classic(TM), Sprint(TM),
Quattro(TM), Quantum(R), INTEK(TM), I/C(R), Industrial Plus(TM) and
Vanguard(TM).
In fiscal 2001,2002, approximately 25%24% of the Company'sBriggs & Stratton's net sales were derived
from sales in international markets, primarily to customers in Europe. Briggs &
Stratton serves its key international markets through its European regional
office in Switzerland, its distribution center in the Netherlands and sales and
service subsidiaries in Australia, Austria, Canada, the Czech Republic, France,
Germany, Mexico, New Zealand, Philippines, South Africa, Sweden and the United
Kingdom. The
CompanyBriggs & Stratton is a leading supplier of gasoline engines in
developed countries where there is an established lawn and garden equipment
market. The CompanyBriggs & Stratton also exports engines to developing nations where its
engines are used in agricultural, marine, construction and other applications.
Briggs & Stratton engines are sold primarily by its worldwide sales force
through direct calls on customers. The Company'sBriggs & Stratton's marketing staff and
engineers in the United States provide support and technical assistance to its
sales force.
Briggs & Stratton also manufactures replacement engines and service parts and
sells them to sales and service distributors. The CompanyBriggs & Stratton owns its
principal international distributors. In the United States the distributors are
independently owned and operated. These distributors supply service parts and
replacement engines directly to approximately 34,00035,000 independently owned,
authorized service dealers throughout the world. These distributors and service
dealers implement Briggs & Stratton's commitment to reliability and service.
CUSTOMERS
The Company'sBriggs & Stratton's engine sales are made primarily to original equipment
manufacturers. The Company'sOEMs. Briggs & Stratton's
three largest engine customers in each of the last three fiscal years were AB
Electrolux (principally its Electrolux Home Products group)Group), MTD Products Inc.
and the Murray GroupInc. (owned by Summersong Investments, Inc.). Sales to each of these
customers were more than 10% of net sales in fiscal 2002, 2001, 2000, and 1999.2000. Sales
to all three combined were 47% of net sales in fiscal 2002, 46% of net sales in
fiscal 2001 44%and 45% of net sales in fiscal 2000 and 42% of net sales in fiscal
1999.2000. Under purchasing plans
available
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4 to all of its gasoline engine customers, the CompanyBriggs & Stratton typically
enters into annual engine supply arrangements with these large customers.
The Company has no
reason to anticipate a change in this practice.1
Over the past several years, sales in the United States of lawn and garden equipment by mass merchandisers have
increased significantly in the United States, while sales by independent
distributors and dealers have declined. The CompanyBriggs & Stratton believes that in
fiscal 20012002 more than 75% of all lawn and garden equipment sold in the United
States was sold through mass merchandisers such as Sears, Roebuck and Co.
(Sears), The Home Depot, Inc. (The Home Depot), Wal*Mart Stores, Inc. and Lowe's
Home Centers, Inc. (Lowe's). Given the buying power of the mass merchandisers,
the Company,Briggs & Stratton, through its customers, has continued to experience pricing
pressure. The CompanyBriggs & Stratton expects that this pricing trend will continue in the
foreseeable future. The CompanyBriggs & Stratton believes that a similar trend has
developed for engineits products forin industrial and consumer applications outside of
the lawn and garden market.
COMPETITION
The small gasoline engine industry is highly competitive. The Company'sBriggs & Stratton's
major domestic competitors in engine manufacturing are Tecumseh Products Company
(Tecumseh), Honda Motor Co., Ltd. (Honda), Kohler Co. and Kawasaki Heavy
Industries, Ltd. (Kawasaki). Also, a domestic lawn mower manufacturer, The Toro
Co.Company under its Lawn-Boy brand, manufactures some of theirits own engines. Eight
Japanese small engine manufacturers, of which Honda and Kawasaki are the
largest, compete directly with the CompanyBriggs & Stratton in world markets in the sale of
engines to other OEMs and indirectly through their sale of end products.
Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe.
The CompanyBriggs & Stratton believes the major areas of competition from all engine
manufacturers include product quality, brand strength, price, timely delivery
and service. Other factors affecting competition are short-term market share
objectives, short-term profit objectives, exchange rate fluctuations,
technology,
and product support and distribution strength. Briggs & Stratton
believes its product value and service reputation have given it strong brand
name recognition and enhance its competitive position.
SEASONALITY OF DEMAND
Sales of engines to lawn and garden equipment manufacturers are highly seasonal
because of theretail customer buying patterns of retail customers.patterns. The majority of lawn and garden
equipment is sold during the spring and summer months when most lawn care and
gardening activities are performed. Sales of lawn and garden equipment are also
influenced by weather conditions. Sales in the Company'sBriggs & Stratton's fiscal third
quarter have historically been the highest, while sales in the first fiscal
quarter have historically been the lowest.
In order to efficiently use its capital investments and meet seasonal demand for
engines, the CompanyBriggs & Stratton pursues a relatively balanced production schedule
throughout the year, subject to ongoing adjustmentyear. The schedule is adjusted to reflect changes in estimated
demand, customer inventory levels and other matters outside the control of
the Company.Briggs & Stratton. Accordingly, inventory levels are generally higher during the
first and second fiscal quarters in anticipation of increased customer demand in the third fiscal quarter, at which time inventorydemand.
Inventory levels begin to decrease as sales increase.increase in the third fiscal
quarter. This seasonal pattern which results in high inventories and low cash flow for
the CompanyBriggs & Stratton in the second and the beginning of the third fiscal quarters, shifts ultimately toquarters.
The pattern results in higher cash flow in the latter portion of the third
fiscal quarter and in the fourth fiscal quarter as inventories are liquidated
and receivables are collected.
MANUFACTURING
Briggs & Stratton manufactures engines and parts at the following locations in
the United States:locations:
Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and Rolla, Missouri;
Auburn, Alabama; and Statesboro, Georgia. The CompanyBriggs & Stratton has a parts
distribution center in Menomonee Falls, Wisconsin.
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Briggs & Stratton manufactures a majority of the structural components used in
its engines, including aluminum die castings, and a high percentage of other
major components, such as carburetors and ignition systems.
The CompanyBriggs & Stratton purchases certain parts such as piston rings, spark plugs,
valves, ductile and grey iron castings, zinc die castings and plastic
components, some stampings and screw machine parts and smaller quantities of
other components. Raw material purchases are principallyconsist primarily of aluminum and
steel. The CompanyBriggs & Stratton believes its sources of supply are adequate.
The Company2
Briggs & Stratton has joint ventures with Daihatsu Motor Company for the
manufacture of engines in Japan, with Puling Machinery Works and Yimin Machinery
Plant for the production of engines in China and with Starting Industrial of
Japan for the production of rewind starters in the U.S.
The Company also has a joint venture
in India with Hero Motors, part of the Hero Group, for the manufacture of
engines and transmissions for use in two wheel transportation vehicles.
The CompanyBriggs & Stratton has a strategic relationship with Mitsubishi Heavy Industries
(MHI) for the global distribution of air cooled gasoline engines manufactured by
MHI in Japan under the Company'sBriggs & Stratton's Vanguard(TM) brand.
GENERAC PORTABLEPOWER PRODUCTS
GENERAL
In May 2001, Briggs & Stratton Corporation acquired Generac (the company).
Generac'sGPP. GPP's two principal product lines
are portable generators and pressure washers. The companyGPP sells its products through
multiple channels of retail distribution, including the leading home center chains,centers, warehouse
clubs, mass merchants and warehouse clubs as well as independent dealers. GeneracUnder the Craftsman(TM) label,
GPP or its predecessor has been aone of Sear's major suppliersuppliers of portable
generators to Sears since 1961(since 1961) and is a major
supplier to Sears of pressure washers, both marketed under the Craftsman(TM)
label. The companywashers. GPP is also a core supplier of
portable generators and pressure
washers, both marketed under the Generac Portable Products label,products to The Home Depot and Lowe's. In addition, the companyGPP is a core supplier for
many of the leading retail home centers and do-it-yourself retailers throughout
the United States, Canada and Europe.
The company sells its products to mass merchants, home centers and independent
dealers who sell to consumers. GeneracGPP has assembled a comprehensive after-sales service network in North America
for portable generators and pressure washers comprised of approximately 3,000
authorized independent dealers. Although most
independent dealers do not generate the traffic to be competitive with mass
merchants, home centers or warehouse clubs, Generac continues to maintainGPP maintains its independent dealer network for
the express purpose of providing the after salesafter-sales service capability that supports its
products.
To support the company'sGPP's European power generator business, local sales offices have
been established in the United Kingdom, Germany and Spain.
CUSTOMERS
The companyGPP sells to consumer home centers and warehouse clubs, as well as mass
merchants hardware stores and outdoor power equipmentindependent dealers. Historically, theGPP's major customers have been
Costco, Lowe's, The Home Depot and Sears. Other U.S. retail customers include
B.J.'s Wholesale Club, Lowe's, Sam's Club, Tractor Supply Company and Tru-Serv
Incorporated.
COMPETITION
The U.S. engine powered tools industry has experienced significant consolidation
over the last 10 to 15 years. The number of competitors in its product
categories has decreased fromis highly concentrated with approximately
20 in 1985 to approximately 10
today, of which only four companies have national distribution capabilities.five competitors. The principal competitive factors in the engine powered tools
industry include price, service, product performance, technical innovation and
delivery. In the manufacture and sale of 3
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portable generators, GeneracGPP competes
primarily with Coleman Powermate (a division of The Coleman Company, Inc.), an
affiliate of Sunbeam Corporation) and Honda. In the manufacture and sale of
pressure washers, GeneracGPP competes primarily with DeVilbiss Air Power Company (an
affiliate of Pentair, Inc.) and to a lesser extent, with The Coleman Company, Inc.,Powermate,
Alfred Karcher GmbH & Co. and Campbell Hausfeld (an affiliate of Berkshire
Hathaway, Inc.).
The companyGPP believes it has a significant share of the largest North American market share offor
portable generators and a significant share of consumer pressure washers.
SEASONALITY OF DEMAND
Sales of Generac'sGPP's products are subject to seasonal patterns. Due to seasonal and
regional weather factors, sales of pressure washers and related working capital
requirements are typically higher during the fiscal third and fourth quarters
than at other times of the year. Sales of generators are typically higher during
the summer storm season. The residential and commercial construction markets are
sensitive to cyclical changes in the economy.
MANUFACTURING
Generac'sGPP's U.S. manufacturing location in the United Statesfacility is located in Jefferson, Wisconsin. In this facility the company primarilyGPP
produces portable generators and pressure washers. Generacwashers at this location.
GPP manufactures core components for portable generators, and pressure washers, including alternators, and pressure washer
pumps,
where such integration improves operating profitability by providing lower
costs.
Generac3
GPP purchases engines from its parent, Briggs & Stratton, Corporation, as well as from
Generac Power Systems, Inc., Tecumseh and Honda. The companyGPP has not experienced any difficulty
obtaining necessary purchased components.
To service Generac'sGPP's European customer base more effectively, the companyGPP designs and
assembles its European products in its Cheshire, England facility. This facility
imports alternators, engines and other components and assembles portable
generators to meet European product requirements.
CONSOLIDATED
GENERAL INFORMATION
The CompanyBriggs & Stratton holds certain patents on features incorporated in its products;
however, the success of the Company'sBriggs & Stratton's business is not considered to be
primarily dependent upon patent protection. Licenses,Trademarks, licenses, franchises and
concessions are not a material factor in the Company'sBriggs & Stratton's business.
For the years ending June 30, 2002, July 1, 2001 and July 2, 2000, and June 27, 1999, the CompanyBriggs &
Stratton spent approximately $23.7 million, $21.5 million $24.3 million and $17.9$24.3 million,
respectively, on Company sponsored research activities relating to the development of new products
or the improvement of existing products.
The average number of persons employed by the CompanyBriggs & Stratton during the fiscal
year was 7,160.7,019. Employment ranged from a low of 6,4476,192 in MaySeptember 2001 to a
high of 7,4897,371 in October 2000.December 2001.
EXPORT SALES
Export sales for fiscal 2002, 2001 and 2000 were $365.5 million (24% of total
sales), $325.6 million (25% of total sales), for
fiscal 2000 were and $358.1 million (23% of total
sales) and for fiscal 1999 were
$316.1 million (21% of total sales)., respectively. These sales were principally to customers in European
countries. SeeRefer to Note 5 of Notes to Consolidated Financial Statements for
financial information about geographic areas. Also, seerefer to Item 7A of this
Form 10-K and Note 1211 of Notes to Consolidated Financial Statements for
information about the
Company'sBriggs & Stratton's foreign exchange risk management.
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ITEM 2. PROPERTIES
The corporate offices and one of the Company'sBriggs & Stratton's engine manufacturing
facilities are located in a suburb of Milwaukee, Wisconsin. The CompanyBriggs & Stratton
also has engine manufacturing facilities in Murray, Kentucky; Poplar Bluff and
Rolla, Missouri; Auburn, Alabama and Statesboro, Georgia. These are owned
facilities containing 3.6 million square feet of office and production area.
The CompanyBriggs & Stratton occupies warehouse space totalling approximately 400,000
square feet in a suburb of Milwaukee, Wisconsin under a reservation of interest
agreement. The CompanyBriggs & Stratton also leases 80,000 square feet of engine component manufacturingwarehouse space in the Milwaukee
area.
Generac'slocalities of
its engine manufacturing facilities, except Wisconsin, totalling 810,000 square
feet.
GPP's offices and one of itsdomestic manufacturing facilities are located in Jefferson,
Wisconsin. GeneracGPP also has a manufacturing facility in Cheshire, England. These are
owned facilities containing 295,000250,000 square feet of office and production area.
GeneracGPP leases warehouse space totalling 270,000210,000 square feet in 5three communities in
Wisconsin.
The engine business with the OEMs is seasonal, with demand for engines at its
height in the winter and early spring. Engine manufacturing operations run at
capacity levels during the peak season, with many operations running three
shifts. Engine operations generally run fewer shifts in the summer, when demand
is weakest and production is considerably under capacity. During the winter,
when finished goods inventories reach their highest levels, owned warehouse
space may be insufficient and capacity may be expanded through rented space.
Excess warehouse space exists in the spring and summer seasons.
The CompanyBriggs & Stratton leases approximately 207,000300,000 square feet of space to house its
foreign sales and service operations in Australia, Austria, Canada, China, the
Czech Republic, France, Germany, Mexico, the Netherlands, New Zealand,
Philippines, Russia, South Africa, Spain, Sweden, Switzerland, United Arab
Emirates and the United Kingdom.
The Company'sBriggs & Stratton's owned properties are well maintained. The CompanyBriggs & Stratton
believes that its owned and leased facilities are adequate to perform its
operations in a reasonable manner.
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ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedingsBriggs & Stratton has announced the voluntary recall of approximately 162,000
engines used on Fun Karts. Fuel from the engine can spill out if the Fun Kart
overturns making serious injury a possibility. The recall only applies to
engines that are requiredinstalled on Fun Karts, which look and ride like go carts, but
were sold for personal use. The models included in the recall are:
- - All 5 hp model series beginning with numbers 1352XX installed on Fun Karts.
- - Only Fun Power model series beginning with numbers 1362XX made before June
22, 1995 and installed on Fun Karts.
Briggs & Stratton discontinued sale of these engines to be reported under
this item.OEM manufacturers in
1995.
The entire estimated cost of the recall and a related civil penalty imposed by
the Consumer Product Safety Commission is reflected in fiscal 2002 net income at
$1.5 million or $.06 per diluted share.
We do not believe the recall will have a material effect on Briggs & Stratton's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended July 1,
2001.June 30,
2002.
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EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
Name, Age, Position Business Experience for Past Five Years
------------------- ---------------------------------------
FREDERICK P. STRATTON, JR., 6263 Mr. Stratton was elected to the position of Chairman
in
Chairman of the Board (1)(2) in November 1986. Mr. Stratton also held the
position of Chief Executive Officer from May 1977
through June 2001.
JOHN S. SHIELY, 4950 Mr. Shiely was elected to his current position
President and Chief Executive Officer effective July 2001, after serving as President and
(1)(2)(3) Chief Operating Officer since August 1994.
MICHAEL D. HAMILTON, 5960 Mr. Hamilton was elected to his current position
Executive Vice President and effective July 2001, after serving as Executive
Vice
President - Briggs & Stratton Asia Vice President - Sales and Service since June 1989.
JAMES E. BRENN, 5354 Mr. Brenn was elected to his current position in
Senior Vice President and October 1998, after serving as Vice President and
Chief Financial Officer Controller since November 1988. He also served as
Treasurer from November 1999 until January 2000.
RICHARD J. FOTSCH, 46MARK R. HAZELTINE, 59 Mr. FotschHazeltine was elected to his current position in
May
Senior Vice President and 1999May 2002, after serving as Senior Vice President and Sales
Sales Manager - GeneralConsumer Products Manager Operations- Consumer Lawn & Garden since JanuaryJuly
1999. He had previously held
the position Senior Vice President - Engine Groupalso served as Sales Manager since
July 1997 and prior to that Vice President; General
Manager - Small Engine Division.
HUGO A. KELTZ, 53February 1995.
ROBERT F. HEATH, 54 Mr. KeltzHeath was elected to his current position effectivein
Secretary January 2002. He served as Assistant Secretary
since January 2001. In addition, Mr. Heath is Vice
President and Managing July 2001, after servingGeneral Counsel and has served in
these positions since January 2001. He also served
as Vice President -
Director - Briggs & Stratton Europe InternationalGeneral Counsel since May 1992.December 1997.
CURTIS E. LARSON, JR., 5354 Mr. Larson was elected to his current position in
Vice President - Distribution October 1995.
Sales and Customer Support
PAUL M. NEYLON, 5455 Mr. Neylon was elected to his current position in
Senior Vice President - Engine Products October 2001, after serving as Senior Vice President
Division - Production from August 2000 after servingto October 2001 and
as Vice President - Production since May 1999.
He previously served as Vice President - Operations
Support since January 1999 and prior to that held the
position of Vice President;President and General Manager -
Spectrum Division.
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DORRANCE J. NOONAN, JR., 4849 Mr. Noonan was elected to his current position
Senior Vice President and effective upon completion of the Company's acquisitionBriggs & Stratton's
President - Briggs & Stratton acquisition of Generac Portable Products, Inc. in May
2001. Prior
Home Power Products 2001. Prior to the acquisition, he held the position of
President, Chief Executive Officer and Director of
Generac Portable Products, LLC and Director of
Generac Portable Products, Inc. since July 1998 and was Vice President of Generac
Portable Products, Inc. since September 1999. He served in
various management positions with Generac Corporation from
1990 to 1998, most recently as Chief Operating Officer of the
Portable Products Division from 1997 to 1998.
KASANDRA K. PRESTON, 57 Ms. Preston was elected to her current position in July
Vice President and Secretary 2000, after serving as Director of Corporate Compliance
and Shareholder Relations since June 1995.
WILLIAM H. REITMAN, 4546 Mr. Reitman was elected an executive officer
effective
Vice President - Marketing effective April 1998. He has served as Vice President
- Marketing since November 1995.
6
STEPHEN H. RUGG, 5455 Mr. Rugg was elected to his current position in May
Senior Vice President - Sales and Service 1999, after serving as Vice President - Sales since
November 1995.
THOMAS R. SAVAGE, 5354 Mr. Savage was elected to his current position
Senior Vice President - Administration effective July 1997, after serving as Vice President
- Administration and General Counsel since
November 1994. He also served as Secretary from
November 1999 to June 2000.
MICHAEL D. SCHOEN, 4142 Mr. Schoen was elected to his current position
Vice President - International effective July 2001. He was elected an executive
officer in August 2000, after serving as Vice
President - Operations Support since July 1999. He
previously held the position of Vice President
- International Operations since July 1996.
VINCENT R. SHIELY, 42 Mr. Shiely was elected to the position of Vice
Vice President and General President and General Manager - Engine Products
Manager - Engine Products effective in September 2002 after serving as Vice
(3) President and General Manager - Business Units
since December 2001. He also served as Vice
President and General Manager - Electrical
Products Division since October 1998.
TODD J. TESKE, 3637 Mr. Teske was elected to his current position
effective
Vice President - Corporate Development effective March 2001 after serving as Controller
since October 1998. He previously served as
Assistant Controller.
CARITA R. TWINEM, 4647 Ms. Twinem was elected to her current position in
Treasurer February 2000, after serving as Tax Director since
July 1994.
JOSEPH C. WRIGHT, 43 Mr. Wright was elected an executive officer effective
Vice President and General September 2002. He has served as Vice President
Manager - Small Engine Division and General Manager - Small Engine Division since
July 1997. He previously served at Plant Manager.
(1) Officer is also a Director of the Company.Briggs & Stratton. (2) Member of Executive
Committee. (3) John S. Shiely and Vincent R. Shiely are brothers.
Officers are elected annually and serve until they resign, die, are removed, or
a different person is appointed to the office.
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10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Briggs & Stratton common stock and its common share purchase rights are traded
on the NYSE under the symbol "BGG". Information required by this Item is
incorporated by reference tofrom the "Quarterly Financial Data, Dividend and
Market Information" (unaudited) on page 35.
Private Offering of Convertible Senior Notes. On May 14, 2001, Briggs & Stratton
Corporation issued and sold, in a private placement, $140 million aggregate
principal amount of its 5.00% Convertible Senior Notes due May 15, 2006. The
convertible notes are convertible at the option of the holders into shares of
Briggs & Stratton common stock, at any time prior to their maturity or
redemption, at the conversion rate of 20.1846 shares of common stock per $1,000
principal amount of convertible notes, subject to adjustment in certain
circumstances. This is equivalent to a conversion price of approximately $49.54
per share.
The convertible notes were sold to Goldman, Sachs & Co. and Banc of America
Securities LLC, as "accredited investors" within the meaning of Rule 501 under
the Securities Act of 1933, in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act for transactions by an issuer not
involving any public offering, and were offered and sold by the initial
purchasers to "qualified institutional buyers" in reliance on Rule 144A under
the Securities Act. Pursuant to a registration rights agreement entered into in
connection with the private offering, Briggs & Stratton has filed a shelf
registration statement to permit the registered resale of the convertible notes
and the common stock issuable upon conversion of the convertible notes.
The aggregate offering price of the convertible notes was $140 million, 100% of
the principal amount thereof. The purchase price paid to the Company by the
initial purchasers was the initial offering price less an underwriting discount
of $3.675 million, 2.625% of the principal amount of the convertible notes.
Concurrently with the offering of the convertible notes, the Company offered and
sold $275 million aggregate principal amount of our 8.875% Senior Notes due
March 15, 2011, which are not convertible, in a private placement to the same
initial purchasers for offering to qualified institutional buyers in reliance on
Rule 144A, with exchange and registration rights.
The net proceeds from the sale of the senior notes and convertible senior notes
were used to fund the acquisition of Generac, including the replacement of
Generac's outstanding debt, and to repay a portion of our unrated commercial
paper and short-term borrowings under our credit facilities. The senior notes
and the convertible senior notes are guaranteed by Generac and its subsidiaries.
836.
7
11
ITEM 6. SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Fiscal Year 2002 2001 2000 1999 1998
1997
- ----------------------------------------------------------------------------------------------------------------------------------- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
SUMMARY OF OPERATIONS (1)OPERATIONS(1)
NET SALES (2) $ 1,312,446 $ 1,592,564 $ 1,503,964 $ 1,329,457 $ 1,318,337SALES(2) ............................ $1,529,372 $1,310,173 $1,591,236 $1,502,522 $1,329,141
GROSS PROFIT ON SALES 239,063 339,454 305,355 254,674 221,216SALES(2) ................ 272,033 236,790 338,126 303,913 254,356
PROVISION FOR INCOME TAXES .............. 27,390 23,860 80,150 63,670 42,500
37,740
NET INCOMEINCOME(3) ........................... 53,120 48,013 136,473 106,101 70,645 61,565
PER SHARE OF COMMON STOCK:
Basic Earnings ........................ 2.46 2.22 5.99 4.55 2.86
2.16
Diluted Earnings ...................... 2.36 2.21 5.97 4.52 2.85
2.15
Cash Dividends ........................ 1.26 1.24 1.20 1.16 1.12
1.09
Shareholders' Investment .............. $ 20.78 $ 19.57 $ 18.83 $ 15.77 $ 13.28 $ 13.82
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in 000's) .... 21,615 21,598 22,788 23,344 24,666 28,551
DILUTED NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in 000's) .... 24,452 21,966 22,842 23,459 24,775
28,678
OTHER DATA (1)DATA(1)
SHAREHOLDERS' INVESTMENT ................ $ 449,646 $ 422,752 $ 409,465 $ 365,910 $ 316,488
$ 351,097
LONG-TERM DEBT .......................... 499,022 508,134 98,512 113,307 128,102
142,897
TOTAL ASSETS ............................ 1,349,033 1,296,195 930,245 875,885 793,409
842,189
PLANT AND EQUIPMENT ..................... 879,635 890,191 838,655 859,848 812,428 796,714
PLANT AND EQUIPMENT, NET OF RESERVESRESERVES..... 395,215 416,361 395,580 404,454 391,927
396,266
PROVISION FOR DEPRECIATION .............. 61,091 56,117 51,097 49,346 47,511
43,345
EXPENDITURES FOR PLANT AND EQUIPMENTEQUIPMENT..... 43,928 61,322 71,441 65,998 45,893
71,262
WORKING CAPITAL ......................... $ 403,921 $ 371,248 $ 158,516 $ 160,350 $ 149,846
$ 199,039
Current Ratio ......................... 2.5 TOto 1 2.5 to 1 1.5 to 1 1.6 to 1 1.7 to 1
1.9 to 1
NUMBER OF EMPLOYEES AT YEAR END ......... 6,971 6,974 7,233 7,994 7,265 7,661
NUMBER OF SHAREHOLDERS AT YEAR END ...... 4,686 4,129 4,385 4,628 4,911
5,336
QUOTED MARKET PRICE:
High .................................. $ 48.39 $ 48.38 $ 63.63 $ 70.94 $ 53.38
Low ................................... $ 53.63
Low29.65 $ 30.38 $ 31.00 $ 33.69 $ 36.88 $ 36.50
(1) The above amounts include the acquisition of Generac Portable ProductsGPP since May 15, 2001. SeeRefer to the
Notes to Consolidated Financial Statements.
(2) Reflects the adoption of EITF No. 00-1001-09 for all fiscal years presented.
SeeRefer to the Notes to Consolidated Financial Statements.
9(3) Fiscal year 2000 includes a $10.4 million gain on the disposition of foundry
assets. Refer to the Notes to Consolidated Financial Statements.
8
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2002 COMPARED TO FISCAL 2001
Sales
Fiscal 2002 net sales were approximately $1.5 billion, an increase of $219
million, or 17% compared to the previous year. Generac Portable Products (GPP),
included for a full fiscal year first time, added $186 million in sales the
fiscal year. Our engine unit volume increase of 8%, offset by an unfavorable
sales mix weighted towards lower priced engines accounts for the majority of the
remaining increase.
Gross Profit
The total Company gross profit rate of approximately 18% was comparable with
fiscal 2001. The Engine segment gross profit rate remained approximately 18% in
fiscal 2002. Reductions in manufacturing costs of $25 million (primarily,
repairs and maintenance, processing supplies, utilities and warranty) were
offset by $17 million of increased costs (primarily, fringe benefits which
included rising healthcare costs). GPP margins were approximately 9% for fiscal
2002, similar to their results for the 12 months ended June, 2001.
Engineering, Selling, General and Administrative Costs
Engineering, selling, general and administrative costs increased $16 million or
12% compared to fiscal 2001. The increase is entirely attributable to the
inclusion of $18 million of GPP engineering, selling, general, and
administrative costs for a full year. The Engine segment Engineering, Selling
and Administrative cost category experienced increased salaries and fringe
benefit expenses of approximately $8 million, but these increases were offset by
a $6 million impact of lower bad debt write-off experience and a bad debt
recovery, and $3 million of lower marketing expenses.
Interest Expense
Interest expense increased $14 million in fiscal 2002 compared to fiscal 2001,
essentially the impact of increased borrowings associated with the GPP
acquisition.
Other Income
Other income increased $3 million in fiscal 2002 compared to fiscal 2001. This
increase is attributable to a $9 million increase in foreign currency
transaction gains offset by $5 million in derivative losses and $1 million in
amortization of deferred financing costs from the GPP acquisition.
Provision for Income Taxes
The effective tax rate increased to 34.0% in fiscal 2002 from 33.2%. The
effective rates both reflect a refund on Foreign Sales Corporation tax benefits,
however, the fiscal 2001 refund was larger.
FISCAL 2001 COMPARED TO FISCAL 2000
Acquisition
On May 15, 2001, the CompanyBriggs & Stratton acquired Generac Portable ProductsGPP for net cash of $267 million.
SeeRefer to Note 3 to the Consolidated Financial Statements for additional
information on the acquisition.
RESULTS OF OPERATIONS
FISCAL 2001 COMPARED TO FISCAL 2000
Sales
Net sales for fiscal 2001 totaled $1,312 million,approximately $1.3 billion, a decrease of $280$281
million or 18% compared to the preceding year. The primary factors were a 10%
decline in engine unit volume, 15% lower sales of service components due to
the Company'sBriggs & Stratton's distributors having an adequate stocksstock of parts, and an
unfavorable sales mix as the entire 10% engine unit decline was made up of
larger horsepower engines. Inventories of riding equipment at the OEMs and
retailretailers were more than adequate to address soft demand for riding lawn and
garden equipment.
The other major factor adversely affecting the fiscal year was the weak Euro
which lowered revenues by $24 million. TheseAdditionally, these revenues decreased
because the
Company'sBriggs & Stratton's pricing reflected the need to remain competitive in
the European market.
The acquisition of GeneracGPP added $30 million in sales.
Gross Profit
The gross profit rate decreased to 18% from 21% in fiscal 2000. The major
reasons for the decrease were lower plant utilization having a $32 million
impact and the weak Euro of $24 million. Offsetting these factors was the
favorable pension income impact of $12 million. Pension income included in gross
profit totaled $24 million in fiscal 2001.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses increased $6$5 million
or 4% compared to fiscal 2000. Expenses in this category increased almost $20
million. The majority of the increase was due to the following factors: a $16
million planned expansion of staff and expenditures for business development and
introduction of new product, a
9
$3 million bad debt write-off, and $3 million of Generac'sGPP's operating costs
incurred since the acquisition. The increased costs were offset by $14 million
of lower employee benefit costs for profit sharing and increased pension income.
Pension income in this category was $4 million in fiscal 2001.
Interest Expense
Interest expense increased $9 million or 44% in fiscal 2001 compared to fiscal
2000 because the level of borrowings was greater in fiscal 2001. The increased
level of borrowings resulted from increased seasonal working capital needs and
the funding of the GeneracGPP acquisition.
Other Income
Other income decreased $13 million in fiscal 2001 compared to fiscal 2000. This
decrease is attributed primarily to an $8 million reduction in equity income
from joint ventures and investments and $5 million in translationforeign currency
transaction losses.
Provision for Income Taxes
The effective tax rate decreased to 33.2% in fiscal 2001 from 37.0% in the
previous year. The majority of the decrease was the result of the finalization
and approval by the Congressional Joint Committee on Taxation of a refund on our
Federal taxes related to Foreign Sales Corporation tax benefits.
FISCAL 2000 COMPARED TO FISCAL 1999
Sales
Net sales for fiscal 2000 totaled $1,593 million, an increase of $89 million or
6% compared to the preceding year. The primary factors were a $104 million
increase in sales dollars related to a 6% increase in engine unit shipments, a
favorable mix of engines sold amounting to $24 million and $9 million from
increased prices. Offsetting these factors was a $48 million decrease of
castings sales resulting from the disposition of the Company's ductile iron
foundries in the first quarter of fiscal 2000.
Gross Profit
The gross profit rate increased to 21% in fiscal 2000 from 20% in fiscal 1999.
Favorable factors to the gross profit were $18 million attributed to the benefit
of higher production during the year and $9 million of price increases.
Offsetting these improvements were $6 million of higher costs for purchased
items including increased costs for imported engines due to currency exchange
rates.
10
13
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses increased $9 million
or 7% compared to fiscal 1999. This increase was primarily from a $6 million
increase in research and development costs and a $3 million increase in profit
sharing expenses due to improved results. These increases were offset by a $2
million decrease in costs related to the Company's POWERCOM software business
that was sold in the first quarter of the preceding year.
Interest Expense
Interest expense increased $4 million or 25% in fiscal 2000 compared to fiscal
1999. These increases were the result of the Company's higher level of
short-term borrowings during the year to fund working capital needs.
Gain on Disposition of Foundry Assets
At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc. (MTHC) in exchange for $24
million in cash and $45 million aggregate par value convertible preferred stock.
The provisions of the preferred stock include a 15% cumulative dividend and
conversion rights into a minimum of 31% of MTHC common stock. Pursuant to
Emerging Issues Task Force Abstract No. 86-29, the Company considered this
contribution to be a monetary transaction, given the significant amount of cash
received and recorded the consideration received at fair value. The preferred
stock received was determined to have a fair value of $22 million based on
provisions of the stock and the prevailing market returns for similar
investments, estimated to be 30%, as of the date of the transaction.
Other Income
Other income increased $9 million in fiscal 2000 compared to fiscal 1999. This
increase is primarily attributed to increased equity income from joint ventures.
Provision for Income Taxes
The effective tax rate used in fiscal 2000 was 37.0% compared with 37.5% in
fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEARS 2002, 2001 2000 AND 19992000
Cash flow from operating activities was $200 million, $68 million $77 million and $116$77
million, in fiscal 2002, 2001 and 2000, respectively.
The fiscal 2002 cash flow from operating activities increased $132 million,
which was driven primarily by a reduction in inventory and 1999, respectively.an increase in
accounts payable and accrued liabilities. The decrease in inventory levels was
achieved through increased sales volume, while holding production levels
consistent between years.
The fiscal 2001 cash flow from operating activities decreased $10 million, which
reflects lower gains on the disposition of plant and equipment of $16 million.
The lower gains from disposition of plant and equipment were because fiscal 2000
contained the disposition of the foundry assets. The increase in inventories was
$114 million less in fiscal 2001 compared to the fiscal 2000 increase. This
decrease was the result of planned inventory increases in fiscal 2000 to
replenish abnormally low inventories to more normal levels. The change in
accounts payable and accrued liabilities was $48 million less in fiscal 2001 due
to timing of payments and lack of accruals for profit sharing due to lower
performance. The $18 million increase in pension income is attributable to
the
Company'sBriggs & Stratton's over funded pension plan.
The fiscal 2000 cash flow from operating activities decreased $38 million. This
reflects increased net income of $30 million offset by the gain on disposition
of foundry assets of $17 million and an increased requirement for operating
capital of $41 million caused by increases in inventories at the end of fiscal
2000 offset by lower accounts receivable.
The increase in inventories was
planned as inventories at the end of fiscal 1999 were unusually low. Lower
accounts receivable was caused by lower sales in June 2000 compared to June
1999.
The fiscal 1999 cash flow from operating activities declined $20 million. This
reflects improved net income of $35 million, offset by an increased requirement
for operating capital of $49 million, caused primarily by strong fourth quarter
business which increased year-end receivables and a restoration of inventories
to higher year-end levels.
Net cash used in investing activities amounted to $38 million, $318 million $43 million and
$67$43 million in fiscal 2002, 2001 2000 and 1999,2000, respectively. These cash flows
included additions to plant and equipmentinclude capital expenditures of $44 million, $61 million $71 million and $66$71 million in
fiscal 2001, 2000 and 1999, respectively. Fiscal2002, 2001 and 19992000, respectively. These capital expenditures relate primarily to reinvestment in equipment and new
products. The fiscal 2000 capital expenditures related
primarily to reinvestment in equipment, capacity additions and new products.
The fiscal 2001 cash used in investing activities includes $267 million of cash
paid for the GeneracGPP acquisition, net of cash acquired. The fiscal 2000 cash used in
investing activities is net of $24 million of proceeds received on the disposition
of plant and equipment.
11
14
NetBriggs & Stratton used cash provided byin financing activities amounted tototalling $38 million and
$77 million in fiscal 2002 and 2000, respectively. Briggs & Stratton provided
cash through financing activities totalling $324 million in fiscal 2001. InDuring
fiscal 2000 and 1999 cash used by financing2002 Briggs & Stratton repaid $10 million of its 7.25% Senior Notes due
2007. Financing activities was $77 million
and $73 million, respectively. Fiscalin fiscal 2001 included $399 million of proceeds
received from issuing the 5.00% Convertible Senior Notes due 2006 and the 8.875%
Senior Notes due 2011, in order to fund the acquisition of GeneracGPP and payment of
short term-borrowings.term borrowings. During fiscal 2000, the CompanyBriggs & Stratton repaid the
remaining $30 million on the 9.21% Senior Notes due 2001. There was no gain or loss associated
with this repayment. In fiscal 1999 the Company paid $15Briggs & Stratton
repurchased $6 million on these notes.
Proceeds from the exerciseand $69 million of stock options amounted to $45 million in fiscal
1999, substantially higher than in fiscal 2001 and 2000. Also, the Company
repurchased fewer common shares in fiscal 2001 comparedand 2000,
respectively. There were no common shares repurchased in fiscal 2002.
Briggs & Stratton's significant contractual obligations are its pension plans,
post retirement benefit obligations and deferred compensation arrangements. All
of these obligations are recorded on our Balance Sheets and disclosed more fully
in the Notes to the Consolidated Financial Statements. In addition, Briggs &
Stratton is subject to certain financial and operating restrictions under its
domestic debt agreements. As is fully disclosed in Note 6 of the notes to
consolidated financial statements, these restrictions limit our ability to: pay
dividends; incur further indebtedness; create liens; enter into sale and/or
leaseback transactions; consolidate, sell or
10
lease all or substantially all of our assets; and dispose of assets or the
proceeds of our assets, in addition to certain financial covenants. We believe
we will remain in compliance with these covenants in fiscal 2000 and 1999.2003.
Future Liquidity and Capital Resources
The CompanyBriggs & Stratton has in place a $250three-year $300 million revolving credit facility. This
credit facility to beis used to fund seasonal working capital requirements and other
financing needs. While this
credit facility expires in April 2002, the Company is currently negotiating its
replacement and expects to be completed during the second quarter of fiscal
2002. This facility and the Company'sBriggs & Stratton's other indebtedness
contain certain restrictive covenants, seecovenants. Refer to Note 6 to the Consolidated
Financial Statements.
The CompanyBriggs & Stratton expects capital expenditures to be $67$60 million for fiscal
2002.2003. These anticipated expenditures are for continued investments in equipment
and new products.
Management believes that available cash, the credit facility, cash generated
from operations, existing lines of credit and access to debt markets will be
adequate to fund the Company'sBriggs & Stratton's capital requirements for the foreseeable
future.
FINANCIAL STRATEGY
Management of the Company subscribes to the premisebelieves that the value of the
CompanyBriggs & Stratton is enhanced if the
capital invested in the Company's operations yields a cash return that is greater than the
Company's cost of capital. Given this
belief,In addition, Management believes that when capital cannot be
invested for returns greater than the Company implemented this financial strategy by meanscost of a "dutch
auction" tender offer and a public debt offering in fiscal 1997. The Company
also continuedcapital, they should return the
repurchase of its outstanding common stock incapital to the open market
in fiscal years 1998 through 2001. The Company believes this will provide a
capital structure that makes greater use of financial leverage without imposing
excessive risk on either the Company's shareholders or creditors. The Companyproviders. Briggs & Stratton also believes that the
substitution of lower (after-tax) cost debt for equity in its permanent capital
structure will reduce its overall cost of capital. Examples of the above beliefs
are the repurchase of common stock from fiscal 1997 to 2001 when capital was not
required for operational expansion and thatthe fiscal 2001 increase of capital
through debt for an acquisition. Briggs & Stratton believes its profitability
and strong cash flows will accommodate the increased use of debt without
impairing its ability to finance growth or increase cash dividends per share on
its common stock.
The CompanyBriggs & Stratton has remaining authorization to buy up to 1.8 million shares of
companyits stock in open market or private transactions under the June 2000 Board of
Directors' authorization to repurchase up to 2.0 million shares. The CompanyBriggs &
Stratton did not repurchase shares in fiscal 2002 and does not anticipate repurchasing sharesany
repurchases in fiscal 2002.2003.
Also as a part of its financial strategy, subject to the discretion of its Board
of Directors and the requirements of applicable law and debt covenants, the
CompanyBriggs &
Stratton currently intends to increase future cash dividends per share at a rate
approximating the inflation rate.
OUTLOOKOTHER MATTERS
Early Retirement Incentive Program
In the second quarter of fiscal 2002, Briggs & Stratton offered and finalized an
early retirement incentive program. The Company projects sales to increase by almost 30%net reduction in the global salaried
workforce was approximately 7%.
The impact for fiscal 2002. Ayear 2002 was a reduction in net income on an after-tax
basis of $2.5 million, after consideration of approximately $3 million in
savings for lower salary related expenditures. The majority of the increase is because Generac's sales will be inimpact on net
income was the numbersresult of recognizing the cost of the special termination
benefits, which reduced net periodic pension income. The anticipated net income
impact of salary related savings for a full
year at approximately $310 million. Engine sales are anticipated to increase 7%
due to engine volume, sales mix and some new products and services.
The gross profit percentagefiscal 2003 is projected to be
approximately 17.5% for the
year. This is down from fiscal 2001, because of the weighting of Generac sales
which are projected to have lower gross margins than the Company's engine
business. The other negative impact$6 million on gross margins is the anticipated lower
engine production between years and the new product and service introductions
that are projected to have negative margins during startup.
Engineering, selling, general and administrative expenses are projected to
increase from $140 million to $165 million. Generac's expenses in this category
are $24 million of the anticipated $25 million increase.
Interest expense is anticipated to be $45 million, depreciation $60 million and
capital expenditures $67 million. The Company currently expects to have an effective tax rate of 35.0%.
The Company anticipates the first quarter operating results to be significantly
lower than the prior years, due to slower sales and significantly lower
production levels. The Company expects both sales and production levels to peak
in a more historical pattern in fiscal 2002, which is basically late in the
second fiscal quarter and then during the full third fiscal quarter.
12
15
OTHER MATTERSafter-tax basis.
General
On October 5, 2000, it was announced that one of the Company's largest
customers, the Murray Group, was acquired by Summersong Investments, Inc. The
Company does not expect this acquisition to adversely impact its annual supply
arrangement with the Murray Group for the fiscal 2002 outdoor power equipment
selling season, as there was no adverse impact in fiscal 2001.
In July 2001, the CompanyBriggs & Stratton extended its collective bargaining agreement
with one of its unions. This agreement expires in 2006, and contains provisions
for future wage increases, medical cost sharing and increased pension benefits.
Emissions
Briggs & Stratton implemented a supplemental compliance plan for model years
2000 and 2001 with the California Air Resources Board (CARB), as required of
companies that sold more than a threshold number of Class I engines into
California. The objective of the plan was to achieve additional reductions in
extreme non-attainment areas. While CARB's aggressive program resulted in a
reduced product offering by Briggs & Stratton in California, the California
program did not have a material effect on Briggs & Stratton's financial
condition or results of operations.
The U.S. Environmental Protection Agency (EPA) has developed national emission
standards under a two phase process for small air cooled engines. The CompanyBriggs &
Stratton currently has a complete product offering which complies with the EPA's
Phase I engine emission standards. The EPA finalized its Phase II emission standards in
March of 1999. The Phase II program will imposeimposes more stringent
standards over the useful life of the engine and will beis being phased in from 2001 to
2005 for Class II (225 or greater cubic centimeter displacement) engines and
from 2003 to 2008 for Class I (under 225 cubic centimeter displacement) engines.
The CompanyBriggs & Stratton does not believe compliance with the new standards will have a
material adverse effect on its financial position or results of operations.
The Company implemented a supplemental compliance plan for model years 2000 and
2001 with the California Air Resources Board (CARB), as required of companies
which sell11
Critical Accounting Policies
Briggs & Stratton's accounting policies are more than a threshold number of Class I engines into California. The
objectivefully described in Note 1 of
the plans isNotes to achieve additional reductionsthe Consolidated Financial Statements. As discussed in extreme
non-attainment areas. While CARB's aggressive program resultedNote 1, the
preparation of financial statements in a reduced
product offering byconformity with accounting principles
generally accepted in the CompanyU.S. requires management to make estimates and
assumptions about future events that affect the amounts reported in California, the California program did not
have a material effect on the
financial condition orstatements 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 difference may be material to the
financial statements.
The most significant accounting estimates inherent in the preparation of operationsour
financial statements include estimates as to the recovery of accounts
receivable, as well as those used in the Company.determination of liabilities related to
customer rebates, pension obligations, warranty, product liability, group health
insurance 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. Briggs & Stratton reevaluates these
significant factors as facts and circumstances change. Historically, actual
results have not differed significantly from our estimates.
New Accounting Pronouncements
The Emerging Issues Task Force (EITF) issued EITF Abstract No. 00-10,01-09,
"Accounting for Shipping and Handling Fees and Costs", and EITF Abstract No.
00-22, "Accounting for Points and Certain Time-Based and Volume-Based Sales
Incentive Offers and Offers for Free Products or ServicesConsideration Given by a Vendor to be Delivered in the
Future"a Customer (Including a
Reseller of Vendor's Products)". These wereThis was adopted during fiscal 2001. The impact of adopting of2002. Pursuant
to EITF No. 00-1001-09, Briggs & Stratton was to reclassify approximately $2 million of shipping revenue from
cost of sales into revenue in each of fiscal 2001, 2000 and 1999. There was no
impact of adopting EITF No. 00-22.
EITF Abstract No. 00-25, "Vendor Income Statements Characterization of
Consideration Paid to a Re-Seller of a Vendor's Products", is to be adopted as
of December 31, 2001. The Company will be required to reclassify co-op
advertising expense frompreviously reported as selling expense to sales as a reduction of grossin net
sales. The reclassification will not have a material adverse effect on the Company's
resultsimpact of operations.adopting EITF 01-09 was to reduce net sales by $7.2
million, $2.3 million and $1.3 million in fiscal 2002, 2001 and 2000,
respectively.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for the
elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. An early adoption provision exists for companies with
fiscal years beginning after March 15, 2001. On July 2, 2001, the CompanyBriggs & Stratton adopted SFAS No.
142. Application of the nonamortization provision of SFAS No. 142 is expected to resultresulted in an
increase in net income of approximately $.7 million in fiscal 2002.
13In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." SFAS No. 144 also supersedes the
accounting and reporting provisions of APB Opinion No. 30, related to the
disposal of a segment of a business. Briggs & Stratton adopted SFAS No. 144 on
July 1, 2002. Management does not expect that SFAS No. 144 will have a material
impact on Briggs & Stratton's consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" and requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002. Briggs & Stratton does not expect that the adoption of this
statement will have a material impact on its results of operations or financial
position.
12
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The CompanyBriggs & Stratton is exposed to market risk from changes in foreign exchange and
interest rates. To reduce the risk from changes in foreign exchange rates,
the
Company selectivelyBriggs & Stratton uses financial instruments. The CompanyBriggs & Stratton does not hold or
issue financial instruments for trading purposes.
FOREIGN CURRENCY
The Company'sBriggs & Stratton's earnings are affected by fluctuations in the value of the
U.S. dollar against the Japanese Yen and Euro. The Yen is used to purchase
engines from the Company'sBriggs & Stratton's joint venture, while the CompanyBriggs & Stratton receives
Euros for certain products sold to European customers. The Company'sBriggs & Stratton's
foreign subsidiaries' earnings are also influenced by fluctuations of the local
currency against the U.S. dollar as these subsidiaries purchase inventory from
the parent in U.S. dollars. Forward foreign exchange contracts are used to
partially hedge against the earnings effects of such fluctuations. At July 1, 2001, the CompanyJune 30,
2002, Briggs & Stratton had the following forward foreign exchange contracts
outstanding with the Fair Value Gains (Losses) shown (in thousands):
CurrencyHedge Notional -------------- Fair Market Conversion (Gain)/Loss
Currency Value Amount Type Value $Currency at Fair Value
- -------- -------- ----------- ------ ---- ----------------- -------------
Japanese Yen 1,330,024 11,375239,485 2,008 U.S. (622)(158)
Euro 36,000 33,569100,900 99,203 U.S. 3,0565,554
Japanese Yen 27,638 443 Australian (4)26,881 399 Austrailian 10
Austrailian Dollars 1,950 1,086 U.S. (11)
Canadian Dollars 900 592 U.S. 6
British Pounds 622 1,691 Austrailian (26)
U.S. Dollars 5,242 9,733 Australian 275
U.S. Dollars 3,290 5,021 Canadian (25)
British Pounds 682 1,921 Australian (15)421 748 Austrailian 26
All of the above contracts expire within twelve months.
Fluctuations in currency exchange rates may also impact the shareholders'
investment in the Company.Briggs & Stratton. Amounts invested in the Company'sBriggs & Stratton's
non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in
effect at fiscal year end. The resulting translation adjustments are recorded in
shareholders' investment as cumulative translation adjustments. The cumulative
translation adjustments component of shareholders' investment decreased $2.5increased $4
million during the year. Using the year-end exchange rates, the total amount
invested in non-U.S. subsidiaries at July 1, 2001on June 30, 2002 was approximately $21.7$26.8 million.
INTEREST RATES
The CompanyBriggs & Stratton is exposed to interest rate fluctuations on its borrowings.
The
CompanyBriggs & Stratton manages its interest rate exposure through a combination of
fixed and variable rate debt. Depending on general economic conditions, the CompanyBriggs &
Stratton has typically used variable rate debt for short-term borrowings and
fixed rate debt for longer-term borrowings.
At July 1, 2001, the CompanyOn June 30, 2002, Briggs & Stratton had the following short-term loans
outstanding (amounts in thousands):
Weighted Average
Currency Amount Interest Rate
- -------- ------ -----------------------------
German Mark 33,062 5.85%
Dutch Guilder 1,277 6.32%Euro 15,074 5.46%
U.S. Dollars 2,625 4.00%
Canadian Dollars 2,120 5.10%
U.S. Dollars 3,300 5.18%
French Franc 208 4.54%493 3.10%
All of the aboveThese loans carry variable interest rates. Assuming borrowings are outstanding
for an entire year an increase (decrease) of one percentage point in the
weighted average interest rate, would increase (decrease) interest expense by
$.2 million.
Long-term loans, net of unamortized discount, consisted of the following
(amounts in thousands):
Description Amount Maturity
- ----------- ------ --------
5.00% Convertible Notes $ 140,000$140,000 2006
7.25% Notes $ 98,71889,031 2007
8.875% Notes $ 269,416$269,991 2011
The aboveThese loans carry fixed rates of interest.
1413
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTSBALANCE SHEETS
- --------------------------------------------------------------------------------
AS OF EARNINGS
FOR THE FISCAL YEARS ENDEDJUNE 30, 2002 AND JULY 1, 2001
(in thousands)
ASSETS 2002 2001
--------- ---------
CURRENT ASSETS
Cash and Cash Equivalents ............................................... $ 215,945 $ 88,743
Receivables, Less Reserves of $1,703 and $1,599, Respectively ........... 201,910 145,138
Inventories-
Finished Products and Parts ................................. 126,152 218,671
Work in Process ............................................. 61,748 99,247
Raw Materials ............................................... 3,059 3,782
---------- ----------
Total Inventories ............................... 190,959 321,700
Future Income Tax Benefits .............................................. 41,383 38,434
Prepaid Expenses and Other Current Assets ............................... 19,747 19,415
---------- ----------
Total Current Assets ............................ 669,944 613,430
GOODWILL, Net ......................................................................... 161,030 166,659
INVESTMENTS ........................................................................... 46,889 46,071
PREPAID PENSION ....................................................................... 60,343 36,275
DEFERRED LOAN COSTS, Net .............................................................. 9,304 10,429
OTHER LONG-TERM ASSETS, Net ........................................................... 6,308 6,970
PLANT AND EQUIPMENT:
Land and Land Improvements............................................... 16,356 16,308
Buildings ............................................................... 153,049 150,396
Machinery and Equipment ................................................. 691,334 694,416
Construction in Progress ................................................ 18,902 29,071
---------- ----------
879,635 890,191
Less- Accumulated Depreciation .......................................... 484,420 473,830
---------- ----------
Total Plant and Equipment, Net .................. 395,215 416,361
---------- ----------
$1,349,033 $1,296,195
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
14
- --------------------------------------------------------------------------------
AS OF JUNE 30, 2002 AND JULY 2, 2000 AND JUNE 27, 19991, 2001
(in thousands, except per share data)
2002 2001
---- ----
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts Payable ........................................................ $ 103,648 $ 102,559
Domestic Notes Payable .................................................. 2,625 3,300
Foreign Loans ........................................................... 15,270 16,291
Accrued Liabilities-
Wages and Salaries .......................................... 28,408 21,084
Warranty .................................................... 46,346 47,480
Other ....................................................... 56,828 47,161
---------- ----------
Total Accrued Liabilities ....................... 131,582 115,725
Federal and State Income Taxes .......................................... 12,898 4,307
---------- ----------
Total Current Liabilities ....................... 266,023 242,182
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT ....................................... 15,364 15,536
DEFERRED INCOME TAX LIABILITY ......................................................... 27,405 18,351
ACCRUED PENSION COST .................................................................. 15,750 14,494
ACCRUED EMPLOYEE BENEFITS ............................................................. 13,070 12,979
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION ......................................... 62,753 61,767
LONG-TERM DEBT ........................................................................ 499,022 508,134
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT:
Common Stock-
Authorized 60,000 Shares $.01 Par Value,
Issued 28,927 in 2002 and 2001 .................. 289 289
Additional Pain-In Capital .............................................. 35,459 36,043
Retained Earnings ....................................................... 769,131 743,230
Accumulated Other Comprehensive Loss .................................... (6,626) (6,182)
Unearned Compensation on Restricted Stock ............................... (199) (305)
Treasury Stock at cost
7,288 Shares in 2002 and 7,328 Shares in 2001 ............... (348,408) (350,323)
---------- ----------
Total Shareholders' Investment .................. 449,646 422,752
---------- ----------
$1,349,033 $1,296,195
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
15
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000
(in thousands, except per share data)
2002 2001 2000 1999
---- ---- ----
NET SALES ..................................................................................... $ 1,312,4461,529,372 $ 1,592,5641,310,173 $ 1,503,9641,591,236
COST OF GOODS SOLD ................................................................... 1,257,339 1,073,383 1,253,110 1,198,609
----------- ----------- -----------
Gross Profit on Sales... ................. 239,063 339,454 305,355Sales ................................ 272,033 236,790 338,126
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ................... 139,957 134,225 125,219.................................. 153,675 137,684 132,897
----------- ----------- -----------
Income from Operations .................................................. 116,358 99,106 205,229
180,136
INTEREST EXPENSE ....................................................................... (44,433) (30,665) (21,267) (17,024)
GAIN ON DISPOSITION OF FOUNDRY ASSETS ............................. -- -- 16,545 --
OTHER INCOME, Net ..................................................................... 6,585 3,432 16,116 6,659
----------- ----------- -----------
Income Before Provision for Income Taxes ............. 80,510 71,873 216,623 169,771
PROVISION FOR INCOME TAXES ................................................... 27,390 23,860 80,150 63,670
----------- ----------- -----------
NET INCOME ................................................................................... $ 53,120 $ 48,013 $ 136,473 $ 106,101
=========== =========== ===========
Weighted Average Shares Outstanding ........................ 21,615 21,598 22,788 23,344
BASIC EARNINGS PER SHARE ....................................................... $ 2.46 $ 2.22 $ 5.99 $ 4.55
=========== =========== ===========
Diluted Average Shares Outstanding .......................... 24,452 21,966 22,842 23,459
DILUTED EARNINGS PER SHARE ................................................... $ 2.36 $ 2.21 $ 5.97 $ 4.52
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
1516
18
CONSOLIDATED BALANCE SHEETS
ASSTATEMENTS OF SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000
(in thousands)thousands, except per share data)
ASSETS 2001 2000
---- ----Accumulated Unearned
Additional Other Com- Compensation
Common Paid-In Retained prehensive on Restricted Treasury Comprehensive
Stock Capital Earnings Loss Stock Stock Income
-------- -------- --------- ----------- -------- ------- --------
CURRENT ASSETS:
Cash and Cash Equivalents .................................................... $ 88,743 $ 16,989
Receivables, Less Reserves of $1,599 and $1,544, Respectively ................ 145,138 140,097
Inventories -
Finished Products and Parts .............................................. 218,671 181,800
Work in Process .......................................................... 99,247 70,908
Raw Materials ............................................................ 3,782 5,066
---------- ----------
Total Inventories ................................................... 321,700 257,774
Future Income Tax Benefits ................................................... 38,434 39,138
Prepaid Expenses and Other Current Assets .................................... 19,415 17,296
---------- ----------
Total Current Assets ................................................ 613,430 471,294
INVESTMENTS .................................................................... 46,071 50,228
PREPAID PENSION ................................................................ 36,275 5,506
DEFERRED LOAN COSTS ............................................................ 10,429 703
CAPITALIZED SOFTWARE ........................................................... 6,552 6,934
INTANGIBLE ASSETS .............................................................. 167,077 -
PLANT AND EQUIPMENT:
Land and Land Improvements ................................................... 16,308 15,087
Buildings .................................................................... 150,396 139,588
Machinery and Equipment ...................................................... 694,416 651,740
Construction in Progress ..................................................... 29,071 32,240
---------- ----------
890,191 838,655
Less - Accumulated Depreciation .............................................. 473,830 443,075
---------- ----------
Total Plant and Equipment, Net ...................................... 416,361 395,580
---------- ----------
$1,296,195 $ 930,245
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
16
19
AS OF JULY 1, 2001 AND JULY 2, 2000
(in thousands)
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2001 2000
---- ----
CURRENT LIABILITIES:
Accounts Payable ..............................................................
BALANCES, JUNE 27, 1999 .................. $ 102,559289 $ 117,556
Domestic Notes Payable ........................................................ 3,300 48,80937,657 $ 612,807 $ (1,732) $ (235) $(282,876)
Comprehensive Income -
Net Income .............................. -- -- 136,473 -- -- -- $ 136,473
Foreign Loans ................................................................. 16,291 13,356
Accrued Liabilities -
Wages and Salaries ......................................................... 21,084 39,464
Warranty ................................................................... 47,480 46,352
Other ...................................................................... 47,161 42,622
-----------Currency Translation
Adjustments ........................... -- -- -- (1,816) -- -- (1,816)
Unrealized Loss on Marketable
Securities, net of tax of $(247) ........ -- -- -- (383) -- -- (383)
---------
Total Accrued Liabilities ............................................... 115,725 128,438
Federal and StateComprehensive Income Taxes ................................................ 4,307 4,619
-----------.............. -- -- -- -- -- -- $ 134,274
=========
Cash Dividends Paid
($1.20 per share) ....................... -- -- (27,300) -- -- --
Purchase of Common Stock
for Treasury ............................ -- -- -- -- -- (69,083)
Exercise of Stock Options ................ -- (1,194) -- -- -- 6,755
Restricted Stock Issued .................. -- 10 -- -- (60) 50
Amortization of Unearned
Compensation ............................ -- -- -- -- 69 --
Shares Issued to Directors ............... -- 5 -- -- -- 29
--------------------------------------------------------------------------
BALANCES, JULY 2, 2000 ................... $ 289 $ 36,478 $ 721,980 $ (3,931) $ (226) $ (345,125)
Comprehensive Income -
Net Income .............................. -- -- 48,013 -- -- -- $ 48,013
Foreign Currency Translation
Adjustments ............................ -- -- -- (2,530) -- -- (2,530)
Unrealized Loss on Marketable
Securities, net of tax of $(607) ....... -- -- -- (947) -- -- (947)
Unrealized Gain on Derivatives .......... -- -- -- 1,226 -- -- 1,226
---------
Total Current Liabilities ............................................... 242,182 312,778
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT .................................. 15,536 15,679
DEFERRED INCOME TAX LIABILITY .................................................... 18,351 4,011
ACCRUED PENSION COST ............................................................. 14,494 11,428
ACCRUED EMPLOYEE BENEFITS ........................................................ 12,979 12,607
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION .................................... 61,767 65,765
LONG-TERM DEBT ................................................................... 508,134 98,512
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT:Comprehensive Income .............. -- -- -- -- -- -- $ 45,762
=========
Cash Dividends Paid
($1.24 per share) ....................... -- -- (26,763) -- -- --
Purchase of Common Stock
-
Authorized 60,000 Shares $.01 Par Value,for Treasury ............................ -- -- -- -- -- (6,118)
Exercise of Stock Options ................ -- (368) -- -- -- 643
Restricted Stock Issued 28,927 in 2001 and 2000 .......................................... 289 289
Additional Paid-In Capital .................................................... 36,043 36,478
Retained Earnings ............................................................. 743,230 721,980
Accumulated Other Comprehensive Loss .......................................... (6,182) (3,931).................. -- (58) -- -- (181) 239
Amortization of Unearned
Compensation ............................ -- -- -- -- 102 --
Shares Issued to Directors ............... -- (9) -- -- -- 38
--------------------------------------------------------------------------
BALANCES, JULY 1, 2001 ................... $ 289 $ 36,043 $ 743,230 $ (6,182) $ (305) $(350,323)
Comprehensive income -
Net Income .............................. -- -- 53,120 -- -- -- $ 53,120
Foreign Currency Translation
Adjustments ............................ -- -- -- 4,017 -- -- 4,017
Unrealized Loss on Restricted Stock ..................................... (305) (226)
Treasury Stock at cost,
7,328 Shares in 2001 and 7,181 Shares in 2000 .............................. (350,323) (345,125)
-----------Marketable
Securities, net of tax of $(95) ........ -- -- -- (148) -- -- (148)
Unrealized Loss on Derivatives .......... -- -- -- (4,313) -- -- (4,313)
---------
Total Shareholders' Investment .......................................... 422,752 409,465
----------- ---------Comprehensive Income .............. -- -- -- -- -- -- $ 1,296,19552,676
=========
Cash Dividends Paid
($1.26 per share) ....................... -- -- (27,219) -- -- --
Exercise of Stock Options ................ -- (576) -- -- -- 1,877
Amortization of Unearned
Compensation ............................ -- -- -- -- 106 --
Shares Issued to Directors ............... -- (8) -- -- -- 38
--------------------------------------------------------------------------
BALANCES, JUNE 30, 2002 .................. $ 930,245
=========== =========289 $ 35,459 $ 769,131 $ (6,626) $ (199) $(348,408)
==========================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
17
20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENTCASH FLOWS
- --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 AND JUNE 27, 1999
(in thousands)
Accumulated Unearned
Additional Other Com- Compensation
Common Paid-in Retained prehensive on Restricted Treasury Comprehensive
Stock Capital Earnings Income (Loss) Stock Stock Income
------ ---------- -------- ------------- ------------- -------- -------------2002 2001 2000
---- ---- ----
BALANCES, JUNE 28, 1998 ............... $289 $ 37,776 $ 533,805 $(2,110) $-- $(253,272)
Comprehensive Income -CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................... $ 53,120 $ 48,013 $ 136,473
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and Amortization .......................... -- -- 106,101 -- -- -- $ 106,101
Foreign Currency Translation
Adjustments ....................... -- -- -- (199) -- -- (199)
Unrealized Gain65,968 59,711 53,277
Equity in Earnings of Unconsolidated Affiliates ........ (6,181) (5,041) (13,333)
(Gain) Loss on Marketable
Securities, netDisposition of taxPlant and Equipment ...... 3,192 1,493 (14,167)
Provision for Deferred Income Taxes .................... 20,286 17,973 1,542
Change in Operating Assets and Liabilities, Net of $368 .... -- -- -- 577 -- -- 577Effects
of Acquisition -
(Increase) Decrease in Receivables ..................... (56,772) 34,686 51,837
(Increase) Decrease in Inventories ..................... 120,719 (7,307) (121,685)
Increase in Prepaid Expenses and
Other Current Assets .................................. (2,996) (50) (2,488)
Increase (Decrease) in Accounts Payable,
Accrued Liabilities and Income Taxes .................. 26,061 (46,740) 1,519
(Increase) Decrease in Prepaid Pension ................. (22,812) (28,378) (10,509)
Other, Net ............................................. (768) (6,392) (4,984)
--------- Total Comprehensive Income--------- ---------
Net Cash Provided by Operating Activities ............ 199,817 67,968 77,482
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment ......................... (43,928) (61,322) (71,441)
Proceeds Received on Disposition of Plant and Equipment .. 406 4,152 23,511
Cash Paid for Acquisition, Net of Cash Acquired .......... -- -- -- -- -- -- $ 106,479
=========- (267,174) -
Other, Net ............................................... 5,120 6,296 5,142
--------- --------- ---------
Net Cash Used by Investing Activities ................ (38,402) (318,048) (42,788)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes Payable ... (1,696) (42,574) 44,005
Borrowings (Repayments) on Long-Term Debt ................ (10,393) 399,415 (30,000)
Cash Dividends Paid ($1.16 per share) ................... -- -- (27,099) -- -- --...................................... (27,219) (26,763) (27,300)
Purchase of Common Stock for Treasury ........................ -- -- -- -- -- (75,141).................... - (6,118) (69,083)
Proceeds from Exercise of Stock Options ............. -- (13) -- -- -- 45,143
Restricted Stock Issued ............... -- (106) -- -- (288) 394
Amortization.................. 1,078 275 5,561
--------- --------- ---------
Net Cash Provided by (Used by) Financing Activities... (38,230) 324,235 (76,817)
--------- --------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS ..................... 4,017 (2,401) (1,694)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ......................................... 127,202 71,754 (43,817)
CASH AND CASH EQUIVALENTS:
Beginning of Unearned
Compensation ........................ -- -- -- -- 53 --
---- --------Year ........................................ 88,743 16,989 60,806
--------- ------- ----- --------- BALANCES, JUNE 27, 1999 ............... $289---------
End of Year .............................................. $ 37,657215,945 $ 612,807 $(1,732) $(235) $(282,876)
Comprehensive88,743 $ 16,989
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Paid ............................................ $ 39,669 $ 26,339 $ 21,202
========= ========= =========
Income -
Net Income .......................... -- -- 136,473 -- -- --Taxes Paid ........................................ $ 136,473
Foreign Currency Translation
Adjustments ....................... -- -- -- (1,816) -- -- (1,816)
Unrealized Loss on Marketable
Securities, net of tax of $247 .... -- -- -- (383) -- -- (383)
---------
Total Comprehensive Income .......... -- -- -- -- -- --2,904 $ 134,2747,831 $ 84,535
========= Cash Dividends Paid
($1.20 per share) ................... -- -- (27,300) -- -- --
Purchase of Common Stock
for Treasury ........................ -- -- -- -- -- (69,083)
Exercise of Stock Options ............. -- (1,194) -- -- -- 6,755
Restricted Stock Issued ............... -- 10 -- -- (60) 50
Amortization of Unearned
Compensation ........................ -- -- -- -- 69 --
Shares Issued to Directors ............ -- 5 -- -- -- 29
---- -------- --------- ------- ----- ---------
BALANCES, JULY 2, 2000 ................ $289 $ 36,478 $ 721,980 $(3,931) $(226) $(345,125)
Comprehensive Income -
Net Income .......................... -- -- 48,013 -- -- -- $ 48,013
Foreign Currency Translation
Adjustments ....................... -- -- -- (2,530) -- -- (2,530)
Unrealized Loss on Marketable
Securities, net of tax of $607 .... -- -- -- (947) -- -- (947)
Unrealized Gain on Derivatives ...... -- -- -- 1,226 -- -- 1,226
---------
Total Comprehensive Income .......... -- -- -- -- -- -- $ 45,762
=========
Cash Dividends Paid
($1.24 per share) ................... -- -- (26,763) -- -- --
Purchase of Common Stock
for Treasury ........................ -- -- -- -- -- (6,118)
Exercise of Stock Options ............. -- (368) -- -- -- 643
Restricted Stock Issued ............... -- (58) -- -- (181) 239
Amortization of Unearned
Compensation ........................ -- -- -- -- 102 --
Shares Issued to Directors ............ -- (9) -- -- -- 38
---- -------- --------- ------- ----- ---------
BALANCES, JULY 1, 2001 ................ $289 $ 36,043 $ 743,230 $(6,182) $(305) $(350,323)
==== ======== ========= ======= ===== =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
18
21NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF CASH FLOW- --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 AND JUNE 27, 1999
(in thousands)
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .............................................................. $ 48,013 $ 136,473 $ 106,101
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and Amortization ......................................... 59,711 53,277 51,687
Equity in Earnings of Unconsolidated Affiliates ....................... (5,041) (13,333) (5,275)
(Gain) Loss on Disposition of Plant and Equipment ..................... 1,493 (14,167) 2,355
Provision for Deferred Income Taxes ................................... 17,973 1,542 4,052
Pension Income, Net ................................................... (28,378) (10,509) (8,389)
Change in Operating Assets and Liabilities, Net of Effects
of Acquisition -
(Increase) Decrease in Receivables .................................... 34,686 51,837 (58,738)
Increase in Inventories ............................................... (7,307) (121,685) (29,570)
Increase in Prepaid Expenses and
Other Current Assets ................................................ (50) (2,488) (3,863)
Increase (Decrease) in Accounts Payable,
Accrued Liabilities and Income Taxes ................................ (46,740) 1,519 61,890
Other, Net ............................................................ (6,392) (4,984) (4,538)
--------- --------- ---------
Net Cash Provided by Operating Activities ........................... 67,968 77,482 115,712
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment ........................................ (61,322) (71,441) (65,998)
Proceeds Received on Disposition of Plant and Equipment ................. 4,152 23,511 1,142
Cash Paid for Acquisition, Net of Cash Acquired ......................... (267,174) -- --
Other, Net .............................................................. 6,296 5,142 (1,764)
--------- --------- ---------
Net Cash Used in Investing Activities ............................... (318,048) (42,788) (66,620)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes Payable .................. (42,574) 44,005 (401)
Proceeds from Issuance of Long-Term Debt ................................ 399,415 -- --
Repayment on 9.21% Senior Notes Due 2001 ................................ -- (30,000) (15,000)
Cash Dividends Paid ..................................................... (26,763) (27,300) (27,099)
Purchase of Common Stock for Treasury ................................... (6,118) (69,083) (75,141)
Proceeds from Exercise of Stock Options ................................. 275 5,561 45,130
--------- --------- ---------
Net Cash Provided by (Used in) Financing Activities ................. 324,235 (76,817) (72,511)
--------- --------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS .................................... (2,401) (1,694) (302)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................................................ 71,754 (43,817) (23,721)
CASH AND CASH EQUIVALENTS:
Beginning of Year ....................................................... 16,989 60,806 84,527
--------- --------- ---------
End of Year ............................................................. $ 88,743 $ 16,989 $ 60,806
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Paid ........................................................... $ 26,339 $ 21,202 $ 16,820
========= ========= =========
Income Taxes Paid ....................................................... $ 7,831 $ 84,535 $ 54,491
========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JULY 1, 2001, JULY 2, 2000 AND JUNE 27, 1999
(1) NATURE OF OPERATIONS:
Briggs & Stratton Corporation (the Company)("the Company") is a U.S. based producer of air cooled
gasoline engines. These engines are sold worldwide, primarily to original
equipment manufacturers of lawn and garden equipment and other gasoline engine
powered equipment. Additionally, through the Company's wholly-ownedwholly owned subsidiary,
Generac Portable Products, Inc.LLC (GPP), the company is a designer, manufacturer
and marketer of portable and standby generators, pressure washers and related
accessories. GPP's products are sold throughout the United States, Canada and
Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks, ending on the
Sunday nearest the last day of June in each year. Therefore, the 2002 and 2001
fiscal year wasyears were 52 weeks long, and the 2000 fiscal year was 53 weeks long and the 1999
fiscal year was 52 weeks long. All
references to years relate to fiscal years rather than calendar years.
Principles of Consolidation: The consolidated financial statements include the
accounts of Briggs & Stratton Corporationthe Company and its wholly owned domestic and foreign subsidiaries
after elimination of intercompany accounts and transactions.
Accounting Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results couldmay differ from those
estimates.
Cash and Cash Equivalents: This caption includes cash, commercial paper and
certificates of deposit. The Company considers all highly liquid investments
purchased with aan original maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at cost, which does not exceed market. The
last-in, first-out (LIFO) method was used for determining the cost of
approximately 68% of total inventories at June 30, 2002 and 77% of total
inventories at July 1, 2001, 91% of total inventories
at July 2, 2000 and 89% at June 27, 1999.2001. The cost for the remaining portion of the
inventories was determined using the first-in, first-out (FIFO) method. During
2002, a reduction in inventory quantities resulted in a liquidation of LIFO
inventories carried at lower costs prevailing in prior years. The liquidation of
these inventories has reduced cost of sales by $2.6 million in 2002. If the FIFO
inventory valuation method had been used exclusively, inventories would have
been $51.2 million, $45.2$44.8 million and $43.9$51.2 million higher in the respective years. The LIFO
inventory adjustment was determined on an overall basis, and accordingly, each
class of inventory reflects an allocation based on the FIFO amounts.
Investments: This caption represents the Company's investments in fourthree
50%-owned
foreign joint ventures, preferred stock in a privately-heldprivately held iron castings
business and common stock in a publicly traded software company. The common
stock in the publicly traded company is being classified as available-for-sale
and is reported at a fair market value of $.5 million as of July 1, 2001, $2.1
million as of July 2, 2000 and $2.7 million as of June 27, 1999. The unrealized
lossvalue. Unrealized losses incurred on this stock
isare recorded as a component of Accumulated Other Comprehensive Loss in the
Shareholders' Investment section of the balance sheet. The investments in the
joint ventures and the privately held business are accounted for under the
equity method.
Deferred Loan Costs: Expenses associated with the issuance of debt instruments
are capitalized and are being amortized over the terms of the respective
financing arrangement using the effective interest ratestraight-line method over periods ranging from
five to ten years. Capitalized Software:Accumulated amortization amounted to $1.6 million as of June
30, 2002 and $.1 million as of July 1, 2001.
Other Long-Term Assets: This caption primarily represents costs of software used
in the Company's business. Amortization of Capitalized Softwarecapitalized software is computed on
an item-by-item basis over a period of three to ten years, depending on the
estimated useful life of the software. Accumulated amortization amounted to $8.4
million as of June 30, 2002 and $7.4 million as of July 1, 2001, $6.2 million as of July 2, 2000 and $5.7 million as
of June 27, 1999.
Intangible Assets:2001.
Goodwill: This caption represents primarily goodwill related to the recognized
portionacquisition of GPP in
fiscal 2001 (See Note 3). Goodwill reflects the cost of an acquisition in excess
of the fair values assigned to identifiable net assets acquired which is amortized on a straight-line basis
over twenty years and other identifiable intangible assets, which are amortized
20
23
NOTES...
on a straight-line basis over periods of six to seven years. As of July 1, 2001,
accumulated amortization was $1.1 million.acquired. The Company assesses the carrying
value of goodwill was
19
NOTES ...
- --------------------------------------------------------------------------------
$161.0 million and other intangibles for possible$166.7 million at June 30, 2002 and July 1, 2001,
respectively. In accordance with SFAS 142, no goodwill amortization was recorded
in fiscal year 2002, $1.1 million was reported in fiscal year 2001. The Company
performed the required impairment at each balance
sheet date.test of goodwill in fiscal 2002 and found no
impairment of the asset.
Plant and Equipment and Depreciation: Plant and equipment are stated at cost and
depreciation is computed using the straight-line method at rates based upon the
estimated useful lives of the assets.assets (20-30 years for land improvements, 20-50
years for buildings and 8-16 years for machinery and equipment).
Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for major renewals and betterments, which significantly extend the
useful lives of existing plant and equipment, are capitalized and depreciated.
Upon retirement or disposition of plant and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in other income.
Impairment of Long-Lived Assets: Property, plant and equipment and other
long-term assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and carrying value of the asset or group of assets. There
were no adjustments to the carrying value of long-lived assets in fiscal 2001.2002,
2001 and 2000.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." SFAS No. 144 also supersedes the
accounting and reporting provisions of APB Opinion No. 30, related to the
disposal of a segment of a business. The Company adopted SFAS No. 144 on July 1,
2002. Management does not expect SFAS No. 144 to have a material impact on the
Company's consolidated financial statements.
Revenue Recognition: Revenue is recognized when title to the products being sold
transfers to the customer, which is generally upon shipment. The impact of Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", did
not have an impact on the results of operations.
Deferred Revenue on Sale of Plant &and Equipment: In fiscal 1997, the Company
sold its Menomonee Falls, Wisconsin facility for approximately $16.0 million.
The provisions of the contract state that the Company will continue to own and
occupy the warehouse portion of the facility for a period of up to ten years
(the Reservation Period). The contract also contains a buyout clause, at the
buyer's option and under certain circumstances, of the remaining Reservation
Period. Under the provisions of SFAS No. 66, "Accounting for Sales of Real
Estate," the Company is required to account for this as a financing transaction
as the Companylong as it continues to have substantial involvement with the facility during
the Reservation Period or until the buyout option is exercised. Under this
method, the cash received is reflected as a deferred revenue and the assets and
the accumulated depreciation remain on the Company's books. Depreciation expense
continues to be recorded each period and imputed interest expense is also
recorded and added to deferred revenue. Offsetting this is the imputed fair
value lease income on the non-Companynon-Briggs & Stratton occupied portion of the
building. A pretax gain, which will be recognized at the earlier of the exercise
of the buyout option or the expiration of the Reservation Period, is estimated
to be $10 million to- $12 million. The annual cost of operating the warehouse portion of
the facility is not material.
Income Taxes: The Provision for Income Taxes includes Federal, state and foreign
income taxes currently payable and those deferred or prepaid because of
temporary differences between the financial statement and tax basis of assets
and liabilities. The Future Income Tax Benefits represent temporary differences
relating to current assets and current liabilities and the Deferred Income Tax
Assets/Liabilities represent temporary differences relating to noncurrent assets
and liabilities.
Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements and refinements to
existing products, are expensed as incurred. The amounts charged against income
were $23.7 million in fiscal 2002, $21.5 million in fiscal 2001 and $24.3
million in 2000 and $17.9 million in 1999.fiscal 2000.
20
NOTES ...
- --------------------------------------------------------------------------------
Advertising Costs: Advertising costs, included in Engineering, Selling, General
and Administrative Expenses on the accompanying Consolidated Statements of
Earnings, are expensed as incurred. These expenses totaled $10.1$8.3 million in
2001, $8.1fiscal 2002, $7.8 million in 2000fiscal 2001 and $7.7$6.8 million in 1999.
21
24
NOTES...fiscal 2000.
The Company adopted EITF Abstract No. 00-25, "Vendor Income Statements Characterization of01-09, "Accounting for Consideration PaidGiven by a
Vendor to a Re-SellerCustomer (Including a Reseller of a Vendor's Products"Products), is" in the third
quarter of fiscal 2002. Pursuant to be adopted as
of December 31, 2001. TheEITF No. 01-09, the Company will bewas required to
reclassify co-op advertising expense frompreviously reported as selling expense to sales as a
reduction of grossin net sales. The reclassification will not have a material adverse effect on resultsimpact of operations.adopting EITF 01-09 was to reduce net
sales by $7.2 million, $2.3 million and $1.3 million in fiscal 2002, 2001 and
2000, respectively.
Shipping and Handling Fees and Costs: During the fourth quarter of 2001, the
company adopted the provisions of the EITF Abstract No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." In accordance with EITF No. 00-10,
revenueRevenue received from shipping and
handling fees is reflected in net sales. The
reclassification of shippingShipping fee revenue out offor fiscal 2002,
2001 and 2000 was $1.6 million, $1.7 million and $2.0 million, respectively.
Shipping and handling costs are included in cost of sales for the years
ended July 1, 2001, July 2, 2000 and June 27, 1999 was $1.7 million, $2.0
million and $2.2 million respectively.goods sold.
Foreign Currency Translation: Foreign currency balance sheet accounts are
translated into United States dollars at the rates of exchange in effect at
fiscal year end. Income and expenses are translated at the average rates of
exchange in effect during the year. The related translation adjustments are made
directly to a separate component of Shareholders' Investment.
Earnings Per Share: The Company's earnings per share were computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share, for each period presented, were
computed on the assumption that stock options were exercised at the beginning of
the periods reported. The difference between weighted average shares outstanding
and diluted average shares outstanding reflects the dilutive effects of stock
options and the convertible senior notes.
The Company's share repurchase program
may affect the year-to-date comparisons.
The shares outstanding used to compute diluted earnings per share for fiscal
2002, 2001 2000 and 19992000 excluded outstanding options to purchase 1,841,640,
1,679,564 1,079,564 and 348,5301,079,564 shares of common stock, respectively, with
weighted-average exercise prices of $55.14, $56.33 $61.95 and $61.90,$61.95, respectively. The
options were excluded because their exercise prices were greater than the
average market price of the common shares and their inclusion in the computation
would have been antidulitive.antidilutive.
Information on earnings per share is as follows (in thousands of dollars, except
per share data):
Fiscal Year Ended
------------------------------------------------------
June 30, 2002 July 1, 2001 July 2, 2000
------------- ------------ ------------
Net income used in basic earnings per share ................................ $ 53,120 $ 48,013 $ 136,473
Adjustment to net income to add after-tax interest expense on
convertible notes .......................................................... 4,620 576 -
----------- ---------- ----------
Adjusted net income used in diluted earnings per share ..................... $ 57,740 $ 48,589 $ 136,473
=========== ========== ==========
Average shares of common stock outstanding ................................. 21,615 21,598 22,788
Incremental common shares applicable to common stock options based on the
common stock average market price during the period ...................... 6 10 52
Incremental common shares applicable to restricted common stock based on
the common stock average market price during the period .................. 5 5 2
Incremental common shares applicable to convertible notes based on the
conversion provisions of the convertible note ............................ 2,826 353 -
----------- ---------- ----------
Diluted average common shares outstanding .................................. 24,452 21,966 22,842
=========== ========== ==========
21
NOTES ...
- --------------------------------------------------------------------------------
Comprehensive Income: SFAS No. 130, "Reporting Comprehensive Income," requires
the reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting method that
includes disclosure of certain financial information that historically has not been
recognized in the calculation of net income. The Company has chosen to report
Comprehensive Income and Accumulated Other Comprehensive Income (Loss) which
encompasses net income, unrealized gain (loss) on marketable securities, foreign
currency translation, and unrealized gain on derivatives in the Consolidated
Statements of Shareholders' Investment. Information on accumulated other
comprehensive income (loss) is as follows (in thousands of dollars):
Unrealized Accumulated
Gain (Loss) Cumulative Unrealized Other
on Marketable Translation Gain (Loss) on Comprehensive
Securities Adjustments Derivatives Income (Loss)Loss
---------- ----------- ----------- -----------------
Balance at June 28, 1998 ..................27, 1999 ...... $ 577 $ (2,309) $ - $(2,110) $ - $(2,110)
Current(1,732)
Fiscal year change ....................... 577 (199) - 378
------- ------- ------- -------
Balance at June 27, 1999 .................. 577 (2,309) - (1,732)
Current year change ................................... (383) (1,816) - (2,199)
------- ------- ------- -------
BALANCE AT JULY(2,189)
---------- --------- ---------- ---------
Balance at July 2, 2000 .......................... 194 (4,125) - (3,931)
CURRENT YEAR CHANGE .......................Fiscal year change ............ (947) (2,530) 1,226 (2,251)
------- ------- ------- -------
BALANCE AT JULY---------- --------- ---------- ---------
Balance at July 1, 2001 .......................... (753) (6,655) 1,226 (6,182)
Fiscal year change ............ (148) 4,017 (4,313) (444)
---------- --------- ---------- ---------
Balance at June 30, 2002 ...... $ (753) $(6,655)(901) $ 1,226 $(6,182)
======= ======= ======= =======(2,638) $ (3,087) $ (6,626)
========== ========= ========== =========
22
25
NOTES...
Derivatives: On July 2, 2000, theThe Company adoptedenters into derivative contracts designated as cash
flow hedges to manage its foreign currency exposures. These instruments
generally do not have a maturity of more than twelve months. SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Any changes in fair value of these instruments are
recorded in the income statement or other comprehensive income. TheOn July 2, 2000,
the impact of adopting SFAS No. 133 on Accumulated Other Comprehensive Loss
resulted in a loss of $15 thousand. The Company reclassified derivative gains of $1.8 millionimmaterial amounts
to the income statement during the fiscal year.2002 and 2001. The cumulative effect of
adopting SFAS No. 133 on the results of operations was immaterial.
The Company enters into derivative contracts designated as cash flow hedges to
manage its foreign currency exposures. These instruments generally do not have a
maturity of more than twelve months.
During the fiscal year, there were no derivative instruments that were deemed to
be ineffective. The amounts included in Accumulated Other Comprehensive Loss
will be reclassified into income when the forecasted transaction occurs,
generally within the next twelve months. These forecasted transactions represent
the exporting of products for which the Company will receive foreign currency
and the importing of products for which the Company will be required to pay in a
foreign currency.
Sales Incentives: In January 2001, EITF Abstract No. 00-22 "Accounting for
'Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers and
Offers for Free Products or Services to be Delivered in the Future" was issued.
EITF No. 00-22 prescribes guidance requiring certain rebate offers and free
products that are delivered subsequent to a single exchange transaction to be
recognized when incurred and reported as a reduction of revenue. The Company
adopted EITF No. 00-22 in the fourth quarter of fiscal 2001. It did not impact
the results of operations because the Company's past and current accounting
policy is to report such costs as reductions of revenue.
Reclassification: Certain amounts in prior year financial statements have been
reclassified to conform to current year presentation.
Business Combinations: In June 2001, the Financial Accounting Standards Board
issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets" having a required effective date for fiscal years
beginning after December 31, 2001. Under certain circumstances companies are
permitted to adopt these statements before the required date. Under the new rules, goodwill and other
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.
The Company adopted the new rules on accounting for goodwill and other
intangible assets in the first quarter of fiscal 2002. Application of the
nonamortization provisions of the SFAS No. 142 is expected to result in an
increase in net income of approximately $.7 million in fiscal 2002. The Company will perform the first ofperformed the
required impairment teststest of goodwill and indefinite lived intangible assets duringin
fiscal 2002 and found no impairment of the assets as of June 30, 2002. Had the
provisions of SFAS No. 142 been applied in fiscal 2001, the Company's fiscal
2001 net income would have increased $.7 million, or $.03 per basic and diluted
earnings per share.
Future Accounting Pronouncement: In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" SFAS No. 146
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)" and requires that a
liability for a cost
22
NOTES ...
- --------------------------------------------------------------------------------
associated with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect that the adoption
of this statement will have a material impact on the Company's results of
operations or financial position.
(3) ACQUISITION:
On May 15, 2001, the Company acquired Generac Portable Products, Inc. Generac
Portable Products, Inc. was merged with, and into Generac Portable Products, LLC
(GPP) on June 30, 2002. GPP is a designer, manufacturer and marketer of portable
and standby generators, pressure washers and related accessories. The aggregate
purchase price of $288.1 million included $267.6 million of cash and $20.5
million of liabilities assumed. The cash paid included $.5 million of cash
acquired and $4.5 million of direct acquisition costs, and was funded through
the issuance of the 8.875% senior notes as more fully described in FootnoteNote 6.
The provisions of the acquisition includeincluded a contingent purchase price based on
the operating results of Generac.GPP. The Company doeswill not expect to pay any additional purchase
price pursuant to these provisions.
23
26
NOTES...The provisions of the acquisition also provide for a potential purchase price
refund based on the final valuation of the acquired inventory. The amount of
this purchase price refund, if any, will be recorded as a reduction in goodwill
when it is received.
The acquisition has been accounted for using the purchase method of accounting
and accordingly, theaccounting.
The purchase price was allocated on a preliminary basis to identifiable assets
acquired and liabilities assumed based upon their estimated fair values, with
the excess purchase price recorded as goodwill. Final
adjustments to theThis initial purchase price
allocation are not expected to be material to
the consolidated financial statements. Goodwill ofresulted in approximately $167.7 million has been recorded as a result of the acquisition and has beengoodwill which was
amortized on a straight-line basis over twenty years.years until the Company adopted
SFAS No. 142 on July 2, 2001. Under SFAS No. 142, goodwill is no longer
amortized, but is subject to periodic impairment tests.
In 2002 the Company reduced goodwill by approximately $5.7 million related to
the finalization of the purchase price allocation. This decrease was primarily
the result of recording $16.0 million of deferred taxes related to differences
in GPP's financial reporting versus tax reporting, offset by approximately $10.3
million of additional inventory and fixed asset reserves.
The following table sets forth the unaudited pro forma information for the
Company as if the acquisition of GeneracGPP had occurred on June 28, 1999July 2, 2000 (in millions,
except per share data):
2001
2000
---- ----
Net Sales .............................. $1,465.3 $1,911.2......................... $ 1,465.3
Net Income ..................................................... $ 26.6 $ 136.0
Basic Earnings Per Share ......................... $ 1.23 $ 5.96
Diluted Earnings Per Share ............. $ 1.21........ $ 5.961.21
In the first quarter of fiscal 2002, the Company adopted SFAS No. 142. Under the
new rules, goodwill and other intangible assets with indefinite lives will no
longer be amortized but will be subject to annual impairment tests.
(4) INCOME TAXES:
The provision for income taxes consists of the following (in thousands of
dollars):
Current2002 2001 2000
1999Current ---- ---- ----
Federal .............................. $ 4,950 $ 4,042 $66,169 $51,344$ 66,169
State .................................. 587 594 10,425
7,014
Foreign .............................. 1,567 1,251 2,014
1,260
------- ------- --------------- -------- --------
7,104 5,887 78,608 59,61876,608
Deferred ................................. 20,286 17,973 1,542
4,052
------- ------- -------
$23,860 $80,150 $63,670
======= ======= =======-------- -------- --------
$ 27,390 $ 23,860 $ 80,150
======== ======== ========
A reconciliation of the U.S. statutory tax rates to the effective tax rates
follows:
2002 2001 2000 1999
---- ---- ----
U.S. statutory rate ....................... 35.0% 35.0% 35.0%
State taxes, net of
Federal tax benefit .................. 2.4% 2.5% 3.2% 2.9%
Foreign Sales Corporation
tax benefit .................................. (1.5%) (3.5%) (.5%)
(.5%)
Other ................................................... (1.9%) (.8%) (.7%) .1%
---- ---- ----
Effective tax rate ......................... 34.0% 33.2% 37.0% 37.5%
==== ==== ====
The increase in theCompany received a refund of Foreign Sales Corporation tax benefit was attributable to a
significant refund recorded by the Company.benefits in
fiscal 2002 and 2001.
The components of deferred income taxes at the end of the fiscal year were (in
thousands of dollars):
2002 2001 2000
---- ----
Future Income Tax Benefits:
Inventory .......................................................... $ 3,4246,971 $ 4,1523,424
Payroll related accruals ............................ 4,890 3,846 4,539
Warranty reserves .......................................... 17,780 18,311 18,077
Other accrued liabilities .......................... 15,501 10,769
11,011
Miscellaneous .................................................. (3,749) 2,084 1,359
-------- --------
$ 38,43441,383 $ 39,13838,434
======== ========
23
NOTES ...
- --------------------------------------------------------------------------------
2002 2001
---- ----
Deferred Income Taxes:
Difference between book and
tax methods applied to
maintenance and supply
inventories .................................................... $ 9,325 $ 10,723
$ 11,429
Pension cost .................................................... (22,532) (13,187) (1,338)
Accumulated depreciation ............................ (56,025) (55,163) (53,719)
Accrued employee benefits .......................... 10,570 10,060
9,405
PostretirementPost retirement
health care obligation .............................. 24,474 24,089 25,649
Deferred revenue on sale
of plant & equipment ............. 5,992 6,059
Miscellaneous ..................... 6,059 6,115
Miscellaneous .............................791 (932) (1,552)
-------- --------
$(27,405) $(18,351) $ (4,011)
======== ========
The Company has not recorded deferred income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations. These undistributed earnings amounted to approximately $8.4$8.0 million
at July 1, 2001.June 30, 2002. If these earnings were remitted to the U.S., they would be
subject to U.S. income tax.
However, this tax would be substantially less than the U.S. statutory income tax
because of available foreign tax credits.
24
27
NOTES...
(5) SEGMENT AND GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS:
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" and subsequent to the May 15, 2001 acquisition
described in FootnoteNote 3, the Company has concluded that it operates two reportable
business segments whichthat are managed separately based on fundamental differences
in their operations. Certain information concerning the Company's
business segmentsSummarized segment data is presented belowas follows (in thousands of
dollars):
2002 2001 2000 1999
---- ---- ----
NET SALES -
Engines .................................................. $ 1,291,6491,366,947 $ 1,592,5641,289,858 $ 1,503,964
Generac Portable1,591,236
Power Products ..................... 30,069 -................... 216,006 29,587 -
Eliminations ........................................ (53,581) (9,272) - -
----------- ----------- -----------
$ 1,312,4461,529,372 $ 1,592,5641,310,173 $ 1,503,9641,591,236
=========== =========== ===========
INCOME FROM OPERATIONS -
Engines .................................................. $ 117,104 $ 99,156 $ 205,229
$ 180,136
Generac PortablePower Products ........................................ 2,052 1,118 -
-
Eliminations ........................................ (798) (1,168) - -
----------- ----------- -----------
$ 99,106118,356 $ 205,22999,108 $ 180,136205,229
=========== =========== ===========
ASSETS -
Engines .................................................. $ 1,080,259 $ 1,012,438 $ 930,245
$ 875,885
Generac PortablePower Products ........................................ 279,199 287,058 -
-
Eliminations ........................................ (10,425) (3,301) - -
----------- ----------- -----------
$ 1,349,033 $ 1,296,195 $ 930,245 $ 875,885
=========== =========== ===========
CAPITAL EXPENDITURES -
Engines .................................................. $ 42,086 $ 60,841 $ 71,441
$ 65,998
Generac PortablePower Products ........................................ 1,842 481 - -
----------- ----------- -----------
$ 43,928 $ 61,322 $ 71,441 $ 65,998
=========== =========== ===========
DEPRECIATION & AMORTIZATION -
Engines .................................................. $ 63,157 $ 58,362 $ 53,277
$ 51,687
Generac PortablePower Products ........................................ 2,811 1,349 - -
----------- ----------- -----------
$ 65,968 $ 59,711 $ 53,277 $ 51,687
=========== =========== ===========
Information regarding the Company's geographic sales by the location in which
the sale
originated is as follows (in thousands of dollars):
2002 2001 2000 1999
---- ---- ----
United States ...................... $1,228,307 $1,503,730 $1,425,226$ 1,437,739 $ 1,226,035 $ 1,502,402
All Other Countries ................ 91,633 84,139 88,834
78,738
---------- ---------- --------------------- ----------- -----------
Total .............................. $1,312,446 $1,592,564 $1,503,964
========== ========== ==========$ 1,529,372 $ 1,310,179 $ 1,591,236
=========== =========== ===========
The Company has no material long lived assets in an individual foreign country.
In the fiscal years 2002, 2001 2000 and 1999,2000, there were sales to three major engine
customers that individually exceeded 10% of total Company net sales. The sales
to these customers are summarized below (in thousands of dollars and percent of
total Company net sales):
2002 2001 2000 1999
---- ---- ----
Customer SALESSales % Sales % Sales %
----- --- ----- --- ----- ---
A $229,785 19% $267,516 20% $287,769 18%
$250,755B 255,119 17% B $187,001187,001 14% $229,873 14% $219,209 14%229,873 15%
C $150,682165,670 11% 150,682 12% $190,659190,659 12%
$161,857 11%
-------- ------ -------- ------ -------- ------
$720,754 47% $605,199 46% $708,301 44% $631,821 42%45%
======== ====== ======== ====== ======== ======
24
NOTES ...
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(6) INDEBTEDNESS:
TheAs of November 15, 2001, the Company has access toreplaced its $250 million revolving credit
facility that would have expired in April 2002, with a $250.0three-year $300 million
revolving credit facility (the Credit
Facility) whichcredit facility) that expires in April 2002.September 2004.
The Company also has access to additional
domestic lines of credit (domestic lines)
totaling $18.0$15.0 million whichthat remain in effect until canceled by either party. TheyThe
domestic lines provide amounts for short-term use at the then prevailing rate.
There are no significant compensating balance requirements for any of these
domestic lines. There were no borrowings at July 1, 2001 using these domestic lines or the
Credit Facility. Oncredit facility as of June 30, 2002 and July 2, 2000, there were $45 million of borrowings
that were included in the domestic notes payable.1, 2001.
Borrowings under the Credit Facilitycredit facility by the Company bear interest at a rate per
annum equal to, at its option, either:
(1) a 1, 2, 3 or 6 month LIBOR rate plus a margin varying from 0.50% to 1.75%,
depending upon the rating of the Company's long-term debt by Standard & Poor's
Rating group, a division of McGraw-Hill Companies (S&P) and Moody's Investors
Service, Inc. (Moody's) or
(2) the higher of (a) the bank's referencefederal funds rate plus 0.50% or (b) 0.5% per annum above the Federal Funds rate; or
(2) LIBORbank's prime
rate plus a margin that may be adjustedof up or down basedto 0.25%, also depending on the Company's debtlong-term
credit ratings.
In addition, the Company is subject to a 0.10% to 0.35% commitment fee and a
0.50% to 1.75% letter of credit fee, depending on the Company's long-term credit
ratings.
The following data relates to domestic notes payable (in thousands of dollars):
2002 2001 2000
---- ----
Balance at
Fiscal Year End .... $ 2,625 $ 3,300 $ 48,809
Weighted Average
Interest Rate at
Fiscal Year End .... 4.00% 5.18% 6.91%
25
28
NOTES...
The lines of credit available to the Company in foreign countries are in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. These amounts total $5.9$26.2 million, expire at various times
through April, 20022003 and are renewable. There were borrowings of $1.4$15.3 million at
July 1, 2001June 30, 2002 using these lines of credit and are included in foreign loans.
None of these arrangements had material commitment fees or compensating balance
requirements.
The following information relates to foreign loans (in thousands of dollars):
2002 2001 2000
---- ----
Balance at
Fiscal Year End .................... $16,291 $13,356.... $ 15,270 $ 16,291
Weighted Average
Interest Rate at
Fiscal Year End ........................ 5.41% 5.80% 5.40%
The Long-Term Debt caption consists of the following (in thousands of dollars):
2002 2001 2000
---- ----
5.00% Convertible Senior Notes
Due 2006 ............................ $140,000 $140,000
7.25% Senior Notes Due 2007,
Net of Unamortized Discount of
$969 in 2002 and
$1,282 in 2001 ...................... 89,031 98,718
8.875% Senior Notes Due 2011,
Net of Unamortized Discount of
$5,009 in 2002 and
$5,584 in 2001 ............................... $269,416 $ -
5.00% Convertible Senior Notes
Due 2006 ..................................... 140,000 -
7.25% Senior Notes Due 2007,
Net of Unamortized Discount of
$1,282 in 2001 and
$1,488 in 2000 ............................... 98,718 98,512...................... 269,991 269,416
-------- --------
Total Long-Term Debt ......................................... $499,022 $508,134 $ 98,512
======== ========
In May 2001, the Company issued $275.0 million of 8.875% Senior Notes due March
15, 2011 and $140.0 million of 5.00% Convertible Senior Notes due May 15, 2006.
The convertible senior notes are convertible at the option of the holders into
the Company's common stock at the conversion rate of 20.1846 shares per each
$1,000 of convertible notes. Interest is paid semi-annually on both series of
notes. No principal payments are due before the maturity dates.
The net proceeds from the sale of the 8.875% senior notes and 5.00% convertible
senior notes were used to fund the Company's acquisition of GeneracGPP, including the
replacement of Generac'sGPP's outstanding debt and to repay a portion of the Company's
unrated commercial paper and short-term borrowings under its credit facilities.
The 7.25% senior notes are due September 15, 2007. NoIn accordance with the
agreement, no principal payments are due before that date.the maturity date, however the
Company repurchased $10 million of the bonds in the fourth quarter of fiscal
year 2002 after receiving unsolicited offers from bondholders.
The separate indentures providing for the 7.25% senior notes, the 8.875% senior
notes, and the 5.00% convertible senior notes and the Company's revolving credit
agreement25
NOTES...
- --------------------------------------------------------------------------------
facility (collectively, the Domestic Indebtedness) each include a number of
financial and operating restrictions. These covenants include among other
things, restrictions on
the Company's ability to: pay dividends; incur indebtedness; create liens; enter
into sale and leaseback transactions; consolidate, merge, sell or lease all or
substantially all of its assets; and dispose of assets or the proceeds of sales
of its assets. In addition, the
revolvingThe credit facility contains financial covenants that among other things, require the
Company to maintain a minimum interest coverage ratio and thatnet worth (for fiscal
2003 the Company is required to maintain a minimum net worth of $376.6 million),
impose a maximum leverage ratio.ratio and total funded debt to EBITDA ratio and impose
capital expenditure limits. In addition, the credit facility contains provisions
that only apply if the Company's credit rating from S&P is BB or below or from
Moody's is Ba2 or below. As of July 1, 2001,June 30, 2002, the Company was in compliance with
these covenants.
Additionally, under the terms of the indentures governing the Domestic
Indebtedness, Generac and its subsidiariesGPP became a joint and several guarantorsguarantor of amounts outstanding
under the Domestic Indebtedness. 26
29
NOTES...Refer to Note 15 to the Consolidated Financial
Statements for subsidiary guarantor financial information.
(7) SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS
Under the terms of the Company's Domestic Indebtedness as described in Footnote
6, Generac and its subsidiaries became joint and several guarantors of the
Domestic Indebtedness. Additionally, if at any time a domestic subsidiary of the
Company constitutes a significant domestic subsidiary, then such domestic
subsidiary will also become a guarantor of the Domestic Indebtedness. Each
guarantee of the Domestic Indebtedness is the obligation of the guarantor and
ranks equally and ratably with the existing and future senior unsecured
obligations of that guarantor accordingly, Generac has provided a full and
unconditional guarantee of the Domestic Indebtedness. The following condensed
supplemental consolidating financial information reflects the operations of
Generac since the acquisition date of May 15, 2001 (in thousands of dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR
AS OF JULY 1, 2001 CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------------ ----------- ------------ ------------ ------------ ------------
Current Assets ..................................... $ 482,158 $ 98,523 $ 52,182 $ (19,433) $ 613,430
Investment in Subsidiary ........................... 292,543 - - (292,543) -
Noncurrent Assets .................................. 491,624 188,535 2,606 - 682,765
----------- ----------- ----------- ----------- -----------
$ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195
=========== =========== =========== =========== ===========
Current Liabilities ................................ $ 207,336 $ 18,737 $ 29,731 $ (13,622) $ 242,182
Long-Term Debt ..................................... 508,134 - - - 508,134
Other Long-Term Obligations ........................ 122,292 835 - - 123,127
Stockholders' Equity ............................... 428,563 267,486 25,057 (298,354) 422,752
----------- ----------- ----------- ----------- -----------
$ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195
=========== =========== =========== =========== ===========
STATEMENT OF EARNINGS:
FOR THE FISCAL YEAR ENDED JULY 1, 2001
- --------------------------------------
Net Sales .......................................... $ 1,253,253 $ 30,069 $ 80,701 $ (51,577) $ 1,312,446
Cost of Goods Sold ................................. 1,037,817 25,814 61,159 (51,407) 1,073,383
----------- ----------- ----------- ----------- -----------
Gross Profit ..................................... 215,436 4,255 19,542 (170) 239,063
Engineering, Selling, General and
Administrative Expenses .......................... 125,937 3,138 10,882 - 139,957
----------- ----------- ----------- ----------- -----------
Income from Operations ............................. 89,499 1,117 8,660 (170) 99,106
Interest Expense ................................... (28,024) (23) (2,642) 24 (30,665)
Other (Expense) Income, Net ........................ 8,574 (1,073) 8,841 (12,910) 3,432
----------- ----------- ----------- ----------- -----------
Income Before Provision for Income Taxes ......... 70,049 21 14,859 (13,056) 71,873
Provision for Income Taxes ......................... 22,036 7 1,817 - 23,860
----------- ----------- ----------- ----------- -----------
Net Income ......................................... $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013
=========== =========== =========== =========== ===========
27
30
NOTES...
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR
FOR THE FISCAL YEAR ENDED JULY 1, 2001 CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- -------------------------------------- ----------- ------------ ------------ ------------ ------------
Cash Flows from Operating Activities:
Net Income ....................................... $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities-
Depreciation and Amortization .................. 57,724 1,349 638 - 59,711
Equity (Earnings) Loss of Affiliates and
Subsidiaries ................................. (5,762) - 159 562 (5,041)
(Gain) Loss on Disposition of Plant and
Equipment .................................... 1,499 - (6) - 1,493
Pension (Income) Expense, Net .................. (28,646) 268 - - (28,378)
Provision for Deferred Taxes ................... 17,691 282 - - 17,973
Change in Operating Assets and Liabilities-
Decrease in Receivables ........................ 35,479 1,868 5,375 (8,036) 34,686
(Increase) Decrease in Inventories ............. (6,325) (2,811) 1,659 170 (7,307)
(Increase) Decrease in Other Current Assets .... 22 89 (161) - (50)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities ...................... (47,372) 4,349 (11,753) 8,036 (46,740)
Other, Net ....................................... (6,183) (209) - - (6,392)
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Operating Activities ....................... $ 66,140 $ 5,199 $ 8,953 $ (12,324) $ 67,968
--------- --------- --------- --------- ---------
Cash Flows from Investing Activities:
Additions to Plant and Equipment ............... $ (60,262) $ (481) $ (579) $ - $ (61,322)
Proceeds Received on Disposition of
Plant and Equipment .......................... 4,113 - 39 - 4,152
Investments in Subsidiaries, Net of
Cash Acquired ................................ (270,632) 456 3,002 - (267,174)
Other, Net ..................................... 6,434 - (138) - 6,296
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Investing Activities ....................... $(320,347) $ (25) $ 2,324 $ - $(318,048)
--------- --------- --------- --------- ---------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on Loans and
Notes Payable ................................ $ (41,175) $ (4,334) $ 2,935 $ - $ (42,574)
Net Proceeds from Issuance of
Long-Term Debt ............................... 399,415 - - - 399,415
Dividends ...................................... (26,763) - (12,324) 12,324 (26,763)
Net Common and Treasury Stock Activities ....... (5,843) - - - (5,843)
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Financing Activities ....................... $ 325,634 $ (4,334) $ (9,389) $ 12,324 $ 324,235
--------- --------- --------- --------- ---------
Effect of Exchange Rate Changes .................. $ - $ (157) $ (2,244) $ - $ (2,401)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents ............................... $ 71,427 $ 683 $ (356) $ - $ 71,754
Cash and Cash Equivalents, Beginning ............. 13,855 - 3,134 - 16,989
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, Ending ................ $ 85,282 $ 683 $ 2,778 $ - $ 88,743
========= ========= ========= ========= =========
28
31
NOTES...
(8) OTHER INCOME:
The components of other income (expense) are (in thousands of dollars):
2002 2001 2000
1999
---- ---- ----------- ------- -------
Interest income ........................................... $ 2,189 $ 2,069 $ 1,589 $ 1,993
Loss on the disposition of
plant and equipment ............................... (3,192) (1,493) (2,378)
(2,355)
Income from joint
ventures ........................investments ................ 70,071 5,485 14,364
5,442
TranslationTransaction gain (loss) ........................... 3,757 (4,973) 206
(364)Derivatives gain (loss) ................ (3,829) 1,438 -
Deferred financing costs ............... (1,420) (133) -
Amortization of intangibles ................... (56) (1,052) - -
Other items ....................... 3,396............................ 2,065 2,091 2,335
1,943
-------- -------- --------------- ------- -------
Total ............................................................... $ 6,585 $ 3,432 $ 16,116 $ 6,659
======== ======== ========$16,116
======= ======= =======
(9)(8) COMMITMENTS AND CONTINGENCIESCONTINGENCIES:
Product and general liability claims arise against the Company from time to time
in the ordinary course of business. The Company is generally self-insured for
claims up to $1 million per claim. Accordingly, a reserve is maintained for the
estimated costs of such claims. AtOn June 30, 2002 and July 1, 2001 and July 2, 2000 the reserve
for product and general liability claims was $2.8 million and $3.6 million,
and $4.0 million,
respectively, based on available information. No reasonable range of possible
losses can be determined, becauserespectively. Because there is inherent uncertainty as to the eventual
resolution of unsettled claims.claims, no reasonable range of possible losses can be
determined. Management does not expectanticipate that the
likely outcome of these claims, excluding the
impact of insurance proceeds and reserves, will have a material adverse effect
on the financial condition or results of operations of the Company.
The Company has no material commitments for materials or capital expenditures at
July 1, 2001.
(10)as
of June 30, 2002.
(9) STOCK OPTIONS:
The Company has a Stock Incentive Plan under which 5,361,935 shares of common
stock have been reserved for issuance. The Company accounts for the plan under
Accounting Principles Board Opinion No. 25, under whichand no compensation cost has been
recognized. Had compensation cost for these plans been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
2002 2001 2000 1999
---- ---- ----
Net Income (in thousands):
As Reported .................. $ 48,013 $ 136,473 $ 106,101................... $53,120 $48,013 $136,473
Pro Forma .................... $ 44,814 $ 134,600 $ 105,283..................... $49,494 $44,814 $134,600
Basic Earnings Per Share:
As Reported .................. $ 2.22 $ 5.99 $ 4.55................... $2.46 $2.22 $5.99
Pro Forma .................... $ 2.07 $ 5.91 $ 4.51..................... $2.29 $2.07 $5.91
Diluted Earnings Per Share:
As Reported .................. $ 2.21 $ 5.97 $ 4.52................... $2.36 $2.21 $5.97
Pro Forma .................... $ 2.04 $ 5.89 $ 4.49..................... $2.21 $2.04 $5.89
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to July 2, 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
Information on the options outstanding is as follows:
Wtd. Avg.
Shares Ex. Price
------ ---------
Balance, June 28, 1998 ...................... 1,791,819 $ 47.98
Granted during the year ..................... 354,020 44.98
Exercised during the year ................... (926,000) 45.30
Expired during the year ..................... (177,828) 48.37
---------
Balance, June 27, 1999 ......................1999......................... 1,042,011 $ 49.28
Granted during the year .....................year........................ 471,020 $ 74.53
Exercised during the year ...................year...................... (151,033) 38.49
Expired during the year .....................year........................ (58,970) 67.55
---------
BALANCE, JULYBalance, July 2, 2000 .......................2000.......................... 1,303,028 $ 58.83
GRANTED DURING THE YEAR .....................Granted during the year........................ 600,000 $ 46.22
EXERCISED DURING THE YEAR ...................Exercised during the year...................... (13,449) 20.45
EXPIRED DURING THE YEAR .....................Expired during the year........................ (180,738) 49.08
---------
BALANCE, JULYBalance, July 1, 2001 .......................2001.......................... 1,708,841 $ 55.73
Granted during the year........................ 371,490 $ 49.19
Exercised during the year...................... (39,597) 27.64
Expired during the year........................ (199,094) 54.59
---------
Balance, June 30, 2002......................... 1,841,640 $ 55.14
=========
26
NOTES...
- --------------------------------------------------------------------------------
Grant Summary
- --------------------------------------------------------------------------------
Fiscal Grant Exercise Date Options Expiration
Year Date Price Exercisable Outstanding Date
- ------ ---- ---- ------------- ----------- ----------- ----------
----
1992 5-18-92 21.525 50%, 1-1-96; 29,277 5-17-02
50%, 1-1-97
1997 8-6-96 53.300 8-6-99 86,584 8-6-01
1998 8-5-97 65.690 8-5-00 233,480223,440 8-5-02
1999 8-5-98 44.980 8-5-01 327,560307,070 8-5-03
2000 8-4-99 74.530 8-4-02 431,940403,670 8-4-04
2001 8-3-00 46.220 8-3-03 600,000559,910 8-3-07
2002 8-7-01 49.190 8-7-04 347,550 8-7-08
29
32
NOTES...
The exercise price of the 1992 grant has been adjusted as appropriate to reflect
a two-for-one stock split in October 1994 and the spin-off of the Company's lock
business in February 1995.
The fair value of each option is estimated using the Black-Scholes option
pricing model. The grant-date fair market value of the options and assumptions
used to determine such value are as follows:are:
Options granted during 2002 2001 2000 1999
---- ---- ----
Grant date fair value ............... $ 11.47 $ 13.07 $ 5.04........ $12.53 $11.47 $13.07
Assumptions:
Risk-free interest rate .............. 5.1% 6.0% 6.0%
5.4%
Expected volatility ...................... 40.3% 37.6% 30.1% 22.3%
Expected dividend yield .............. 3.1% 2.6% 2.5% 2.5%
Expected term (in years) ............ 7.0 5.07.0 5.0
(11)(10) SHAREHOLDER RIGHTS PLAN:
On August 6, 1996, the Board of Directors declared a dividend distribution of
one common stock purchase right (a right) for each share of the Company's common
stock outstanding on August 19, 1996. Each right would entitle shareowners to
buy one-half of one share of the Company's common stock at an exercise price of
$160.00 per full common share, subject to adjustment. The rights are not
currently exercisable, but would become exercisable if certain events occurred relating
to a person or group acquiring or attempting to acquire 15 percent or more of
the outstanding shares of common stock. The rights expire on August 19, 2006,
unless redeemed or exchanged by the Company earlier.
(12)(11) FOREIGN EXCHANGE RISK MANAGEMENT:
The Company enters into forward exchange contracts to hedge purchase commitmentspurchases and sales
that are denominated in foreign currencies. The termterms of these currency
derivatives doesgenerally do not exceed twelve months and the purpose is to protect
the Company from the risk that the eventual dollars being transferred will be
adversely affected by changes in exchange rates.
The Company has forward foreign currency exchange contracts to purchase 1.3
billion Japanese
yen for $11.4 million through December, 2001.yen. These contracts are used to hedge the commitments to purchase engines from
the Company's Japanese joint venture. At July 1, 2001 the loss on these contracts at fair
value totaled $.6 million.
The Company also has forward contracts to
sell 36 million Euros for $33.6
million through October, 2001.foreign currency. These contracts are used to hedge foreign currency
collections on sales of inventory. The gain on theseCompany's foreign currency forward
contracts on July 1, 2001are carried at fair market value totaled $3.1 million.based on current exchange rates.
The Company has the following forward currency contracts outstanding at the end
of fiscal 2002:
In Millions
Hedge ---------------------------------------------------
- --------------------------- Notional Contract Fair Market (Gain)/Loss Conversion Latest
Currency Contract Value Value Value at Fair Value Currency Expiration Date
- -------- -------- -------- -------- ----------- ------------- ---------- ---------------
Japanese Yen Buy 239.5 1.8 2.0 (.2) U.S. September 2002
Euro Sell 100.9 93.6 99.2 5.6 U.S. April 2003
Australian Dollar Sell 2.0 1.1 1.1 - U.S. December 2002
Canadian Dollar Sell .9 .6 .6 - U.S. November 2002
The Company's foreign subsidiaries have the following forward currency contracts
outstanding at the end of fiscal 2001:2002:
In Millions
----------------
LocalHedge ---------------------------------------------------
- --------------------------- Notional Contract Fair Market (Gain)/Loss Conversion Latest
Currency Contract Value Value Value at Fair Value Currency Amount Dollars Expiration Date
- -------- -------- ------ --------------- -------- ----------- ------------- ---------- ---------------
Japanese Yen 27.6Sell 26.9 .4 .4 - Australian July 2001August 2002
U.S. Dollars 5.2 9.7Buy .4 .8 .8 - Australian January 2001August 2002
British Pounds .7 1.9Buy .6 1.7 1.7 - Australian January 2001
U.S. Dollars 3.3 5.0 Canadian June 20022003
At July 1, 2001 the gain on these contracts at fair value
totaled $.2 million.
The Company continuously evaluates the effectiveness of its hedging program by
evaluating its foreign exchange contracts compared to the anticipated underlying
transactions.
3027
33
NOTES...
(13)- --------------------------------------------------------------------------------
(12) EMPLOYEE BENEFIT COSTS:
Retirement Plan and Postretirement Benefits
The Company has noncontributory, defined benefit retirement plans and
postretirement benefit plans covering most Wisconsin employees. The following
provides a reconcilationreconciliation of obligations, plan assets and funded status of the
plans for the two years indicated, (dollars in thousands):
Pension Benefits Other Postretirement Benefits
-------------------------------------------------- -----------------------------
2002 2001 20002002 2001
2000
---- ---- ---- ------------- --------- --------- ---------
Actuarial Assumptions:
- ----------------------
Discounted Rate Used to Determine Present
Value of Projected Benefit Obligation .......................... 7.25% 7.5% 7.5% 7.5%7.25% 7.5%
Expected Rate of Future Compensation
Level Increases .....................................increases ................................. 4.0-5.0% 5.0%4.0-5.0% n/a n/a
Expected Long-Term Rate of Return on
Plan Assets .............................................................................. 9.0% 9.0% n/a n/a
Change in Benefit Obligations:
- ------------------------------
Actuarial Present Value of Benefit Obligations
at Beginning of Year ............................................................ $ 703,275 $ 666,392 $ 689,397108,557 $ 99,793
$ 109,485
Service Cost ................................................................................ 10,014 9,482 10,6221,341 1,215 1,307
Interest Cost .............................................................................. 51,203 48,079 47,4758,028 7,091 7,343
Plan Amendments .......................................................................... - 29,190 - -
-
Acquisition .................................................................................. - 2,671 - -
Special Termination Benefits ...................... 4,907 - 2,183 -
Actuarial (Gain) Loss .............................................................. 30,692 (10,478) (37,124)12,337 13,035 (6,657)
Benefits Paid .............................................................................. (52,470) (42,061) (43,978)(8,981) (12,577) (11,685)
--------- --------- --------- ---------
Actuarial Present Value of Benefit Obligation
at End of Year ........................................................................ $ 747,621 $ 703,275 $ 666,392123,465 $ 108,557 $ 99,793
--------- --------- --------- ---------
Change in Plan Assets:
- ----------------------
Plan Assets at Fair Value at Beginning of Year ............ $ 951,757940,582 $ 886,422951,757 $ - $ -
Actual Return on Plan Assets ................................................ (32,866) 29,084 108,544 - -
Acquisition .................................................................................. - 1,018 - - -
Employer Contributions ............................................................ 1,257 784 7698,981 12,577 11,685
Benefits Paid .............................................................................. (52,470) (42,061) (43,978)(8,981) (12,577) (11,685)
--------- --------- --------- ---------
Plan Assets at Fair Value at End of Year ........................ $ 940,582856,503 $ 951,757940,582 $ - $ -
--------- --------- --------- ---------
Plan Assets in Excess of (Less Than) Projected
Benefit Obligation ................................................................ $ 108,882 $ 237,307 $ 285,365$(123,465) $(108,557) $ (99,793)
Remaining Unrecognized Net Obligation (Asset) .............. -- (4,517) (9,995)275 321 368
Unrecognized Net Loss (Gain) ................................................ (95,547) (244,579) (285,144)40,177 29,673 17,221
Unrecognized Prior Service Cost .......................................... 29,942 32,739 3,02471 103 134
--------- --------- --------- ---------
Net Amount Recognized at End of Year ................................ $ 43,277 $ 20,950 $ (6,750)(82,942) $ (78,460) $ (82,070)
========= ========= ========= =========
Amounts Recognized on the Balance Sheets:
- -----------------------------------------
Prepaid Pension .......................................................................... $ 36,27560,343 $ 5,50636,275 $ - $ -
Accrued Pension Cost ................................................................ (15,750) (14,494) (11,428) - -
Accrued Wages and Salaries .................................................... (1,316) (831) (828) - -
Accrued Post Retirement Health Care Obligation ............ - - (62,753) (61,767) (65,765)
Other Accruals ............................................................................ - - (4,800)(8,000) (4,800)
Accrued Employee Benefits ...................................................... - - (12,189) (11,893) (11,505)
--------- --------- --------- ---------
Net Amount Recognized at End of Year ................................ $ 43,277 $ 20,950 $ (6,750)(82,942) $ (78,460) $ (82,070)
========= ========= ========= =========
3128
34
NOTES...
- --------------------------------------------------------------------------------
The following table summarizes the plans' income and expense for the three years
indicated (dollars in thousands):
Pension Benefits Other Postretirement Benefits
------------------------------------ ----------------------------------
--------------------------------2002 2001 2000 19992002 2001 2000
1999
---- ---- ---- ---- ---- ------------ -------- -------- -------- -------- --------
Components of Net Periodic Benefit Cost:
- ----------------------------------------
Service Cost-Benefits Earned During the Year ........... $ 10,014 $ 9,482 $ 10,622 $ 10,0731,341 $ 1,215 $ 1,307 $ 1,437
Interest Cost on Projected Benefit Obligation ......... 51,203 48,079 47,475 44,9118,028 7,091 7,343 6,466
Expected Return on Plan Assets ....................................... (77,192) (73,053) (63,845) (58,252) - - -
AmoritizationAmortization of:
Transition Obligation (Asset) ................................... (4,517) (5,306) (5,306) (5,306)46 47 46 47
Prior Service Cost ......................................................... 2,797 242 186 (106) 31 31 7131
Actuarial (Gain) Loss ................................................... (8,328) (7,822) 359 2911,834 583 1,111 41
-------- -------- -------- -------- -------- --------
Net Periodic Benefit Expense (Income) ......................... $(26,023) $(28,378) $(10,509) $ (8,389)11,280 $ 8,967 $ 9,838 $ 8,062
======== ======== ======== ======== ======== ========
In the second quarter of fiscal 2002, the Company offered and finalized an early
retirement incentive program. As a result, the Company recorded $4.9 million of
expense offsetting pension income of $26 million and $2.2 million was added to
postretirement health care expense. The impact for the full fiscal year of 2002
reduced net income on an after-tax basis by $2.5 million, after consideration of
salary and related expenditures savings.
In July 2001, the Company extended its collective bargaining agreement with one
of its unions. As part of this contract extension, the Company agreed to pay
certain amounts to employees who were hired prior to January 1, 1980 upon their
retirement. The impact of this plan amendment is included in the above tables.
As described in Note 15,14, the Company contributed its two ductile iron foundries
to MTHC.Metal Technologies Holding Company, Inc. (MTHC). In connection with the
contribution, MTHC agreed to assume pension and postretirement benefit
obligations related to employees working at the foundries at the time of the
transaction. The Company transferred to MTHC pension assets amounting to $11.3
million in fiscal 2001. The assumption of obligations by MTHC and transfer of
pension assets did not result in a gain or loss to the Company.
The Company's supplemental pension plan has benefit obligations in excess of
plan assets. The benefit obligation, accumulated benefit obligation and fair
value of plan assets were $25.2 million, $17.9 million and $.1 million
respectively for fiscal year 2002 and $19.0 million, $14.9 million and $0
respectively for the 2001 fiscal year and $17.7 million, $14.9 million and $0 respectively for
the 2000 fiscal year.2001. The postretirement benefit plans are
essentially unfunded.
For measurement purposes a 10%9% annual rate of increase in the per capita cost of
covered health care claims was assumed for the fiscal year 20022003 decreasing
gradually to 5% for the fiscal year 2008. The health care cost trend rate
assumption has a significant effect on the amounts reported. An increase of one
percentage point, would increase the accumulated postretirement benefit by $6.7$8.1
million and would increase the service and interest cost by $.7$.8 million for the
year. A corresponding decrease of one percentage point, would decrease the
accumulated postretirement benefit by $6.4$7.5 million and decrease the service and
interest cost by $.6$.7 million for the fiscal year.
Defined Contribution Plans
The Company has a defined contribution retirement plan that includes most U.S.
non-Wisconsin employees. Under the plan, the Company makes an annual
contribution on behalf of covered employees equal to 2% of each participant's
gross income, as defined. For the fiscal years 2002, 2001 2000 and 1999,2000, the net
expense related to these plans was $1.6 million, $.2 million $2.1 million and $1.9$2.1 million,
respectively.
Wisconsin employees of the Company may participate in a salary reduction
deferred compensation retirement plan. A maximum of 1-1/2% or 3% of each
participant's salary, depending upon the participant's group, is matched by the
Company. The Company contributions totaled $4.1 million in 2002, $4.7 million in
2001 and $4.6 million in 2000 and $4.2 million in 1999.2000.
29
NOTES...
- --------------------------------------------------------------------------------
Postemployment Benefits
The Company accrues the expected cost of postemployment benefits over the years
that the employees render service. These benefits are substantially smaller
amounts because they apply only to employees who permanently terminate
employment prior to retirement. The items include disability payments, life
insurance and medical benefits. These amounts are also discounted using a
32
35
NOTES...an
interest rate of 7.25% and 7.5% interest rate.for fiscal year 2002 and 2001, respectively.
Amounts are included in Accrued Employee Benefits in the balance sheet.
(14)(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents, Receivables, Accounts Payable, Domestic Notes
Payable, Foreign Loans and Foreign Loans:Accrued Liabilities: The carrying amounts approximate
fair market value because of the short maturity of these instruments.
Long-Term Debt: The fair market value of the Company's long-term debt is
estimated based on market quotations made on similar issues.at year end.
The estimated fair market values of the Company's financial instruments are as follows
(in
thousands of dollars):
2001
-------------------------2002
-------------------------------
CARRYING FAIR
AMOUNT VALUE
------ -----
CASH AND CASH EQUIVALENTSCash and Cash Equivalents .......... $ 215,945 $ 215,945
Receivables ........................ $ 201,910 $ 201,910
Accounts payable ................... $ 103,648 $ 103,648
Domestic notes payable ............. $ 2,625 $ 2,625
Foreign loans ...................... $ 15,270 $ 15,270
Accrued liabilities ................ $ 131,582 $ 131,582
Long-term debt -
5.00% Convertible Notes
due 2006 ....................... $ 140,000 $ 150,865
7.25% Notes due 2007 ............. $ 89,031 $ 88,712
8.875% Notes due 2011 ............ $ 88,743269,991 $ 88,743
DOMESTIC NOTES PAYABLE ............... $ 3,300 $ 3,300
FOREIGN LOANS ........................ $ 16,291 $ 16,291
LONG-TERM DEBT -
7.25% NOTES DUE 2007 .............. $ 98,718 $ 96,237
5.00% CONVERTIBLE NOTES
DUE 2006 ........................ $140,000 $150,066
8.875% NOTES DUE 2011 ............. $269,416 $277,608288,562
2000
------------------------
Carrying Fair
Amount Value2001
-------------------------------
CARRYING FAIR
AMOUNT VALUE
------ -----
Cash and cash equivalents ............. $16,989 $16,989.......... $ 88,743 $ 88,743
Receivables ........................ $ 145,138 $ 145,138
Accounts payable ................... $ 102,559 $ 102,559
Domestic notes payable ................ $48,809 $48,809............. $ 3,300 $ 3,300
Foreign loans ......................... $13,356 $13,356...................... $ 16,291 $ 16,291
Accrued liabilities ................ $ 115,725 $ 115,725
Long-term debt -
5.00% Convertible Notes
due 2006 ....................... $ 140,000 $ 150,066
7.25% Notes due 2007 ................ $98,512 $98,633............. $ 98,718 $ 96,237
8.875% Notes due 2011 ............ $ 269,416 $ 277,608
(15)(14) DISPOSITION OF BUSINESS:
At the end of August 1999, the Company contributed its two ductile iron
foundries to MTHC in exchange for $23.6 million in cash and $45.0 million
aggregate par value convertible preferred stock. The provisions of the preferred
stock include a 15% cumulative dividend and conversion rights into a minimum of
31% of MTHC common stock. Pursuant to EITF Abstract No. 86-29, the Company
considered this contribution to be a monetary transaction, given the significant
amount of cash received and recorded the consideration received at fair value.
The preferred stock received was determined to have a fair value of $21.6
million based on provisions of the stock and the prevailing market returns for
similar investments, estimated to be 30%, as of the date of the transaction.
MTHC is the primary supplier to the Company for iron castings. There are no
other material arrangements between the Company and MTHC.
Based on the above and the fair market value of all consideration received, the
transaction resulted in a $16.5 million gain.
30
NOTES...
- --------------------------------------------------------------------------------
(15) SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS
Under the terms of the Company's Domestic Indebtedness (described in Note 6),
GPP became a joint and several guarantor of the Domestic Indebtedness.
Additionally, if at any time a domestic subsidiary of the Company constitutes a
significant domestic subsidiary, then the domestic subsidiary will also become a
guarantor of the Domestic Indebtedness. Each guarantee of the Domestic
Indebtedness is the obligation of the guarantor and ranks equally and ratably
with the existing and future senior unsecured obligations of that guarantor;
accordingly, GPP has provided a full and unconditional guarantee of the Domestic
Indebtedness. The condensed supplemental consolidating financial information
reflects the operations of GPP (in thousands of dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR
AS OF JUNE 30, 2002 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------------- ----------- ---------- ------------ ------------ ------------
Current Assets................................... $ 527,111 $ 96,534 $ 70,387 $ (24,088) $ 669,944
Investment in Subsidiary......................... 312,679 - - (312,679)
Noncurrent Assets................................ 494,052 182,665 2,372 - 679,089
------------ ----------- ------------ ----------- -----------
$ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033
============ =========== ============ =========== ===========
Current Liabilities.............................. $ 244,497 $ 10,133 $ 30,327 $ (18,934) $ 266,023
Long-Term Debt................................... 499,022 - - - 499,022
Other Long-Term Obligations...................... 135,192 (850) - - 134,342
Stockholders' Equity............................. 455,131 269,916 $ 42,432 $ (317,833) 449,646
------------ ----------- ------------ ----------- -----------
$ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033
============ =========== ============ =========== ===========
STATEMENT OF EARNINGS:
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
- ---------------------------------------
Net Sales........................................ $ 1,334,891 $ 216,006 $ 80,976 $ (102,501) $ 1,529,372
Cost of Goods Sold............................... 1,102,548 195,533 62,416 (103,158) 1,257,339
------------ ----------- ------------ ----------- -----------
Gross Profit................................... 232,343 20,473 18,560 657 272,033
Engineering, Selling, General and
Administrative Expenses........................ 123,114 18,420 12,141 - 153,675
------------ ----------- ------------ ----------- -----------
Income from Operations......................... 109,229 2,053 6,419 657 118,358
Interest Expense................................. (43,600) (50) (889) 106 (44,433)
Other (Expense) Income, Net...................... 12,553 149 13,609 (19,726) 6,585
------------ ----------- ------------ ----------- -----------
Income Before Provision for Income Taxes....... 78,182 2,152 19,139 (18,963) 80,510
Provision for Income Taxes....................... 25,062 761 1,567 - 27,390
------------ ----------- ------------ ----------- -----------
Net Income....................................... $ 53,120 $ 1,391 $ 17,572 $ (18,963) $ 53,120
============ =========== ============ =========== ===========
31
NOTES...
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR
FOR THE FISCAL YEAR ENDED JUNE 30, 2002 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------- ----------- ---------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................ $ 53,120 $ 1,391 $ 17,572 $ (18,963) $ 53,120
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities-
Depreciation and Amortization ................... 62,590 2,812 566 - 65,968
Equity in Earnings of Unconsolidated Affiliates.. (23,222) - 189 16,852 (6,181)
(Gain) Loss on Disposition of Plant and
Equipment ...................................... 3,593 (387) (14) - 3,192
Provision for Deferred Income Taxes ............. 12,103 8,183 - - 20,286
Change in Operating Assets and Liabilities-
(Increase) Decrease in Receivables .............. (44,781) (1,361) (15,942) 5,312 (56,772)
(Increase) Decrease in Inventories .............. 125,277 (2,352) (1,549) (657) 120,719
Increase in Prepaid Expenses and
Other Current Assets ........................... (2,763) (122) (111) - (2,996)
Increase (Decrease) in Accounts Payable,
Accrued Liabilities and Income Taxes ........... 32,714 (2,958) 1,617 (5,312) 26,061
(Increase) Decrease in Prepaid Pension .......... (23,101) 289 - - (22,812)
Other, Net ........................................ (17) (751) - - (768)
--------- --------- --------- --------- ---------
Net Cash Provided by Operating Activities ...... $ 195,513 $ 4,744 $ 2,328 $ (2,768) $ 199,817
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment .................. $ (41,048) $ (1,824) $ (1,056) $ - $ (43,928)
Proceeds Received on Disposition of
Plant and Equipment ............................. 362 9 35 - 406
Other, Net ........................................ 5,120 - - 5,120
--------- --------- --------- --------- ---------
Net Cash Used by Investing Activities .......... $ (35,566) $ (1,815) $ (1,021) $ - $ (38,402)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and
Notes Payable ................................... $ 3,022 $ (3,697) $ (1,021) $ - $ (1,696)
Borrowings (Repayments) on
Long-Term Debt .................................. (10,393) - - - (10,393)
Cash Dividends Paid ............................... (27,219) - (2,768) 2,768 (27,219)
Proceeds from Exercise of Stock Options ........... 1,078 - - - 1,078
Net Cash Provided by (Used by)
--------- --------- --------- --------- ---------
Financing Activities ........................ $ (33,512) $ (3,697) $ (3,789) $ 2,768 $ (38,230)
--------- --------- --------- --------- ---------
EFFECT OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS .............................. $ (106) $ 1,040 $ 3,083 $ - $ 4,017
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................. $ 126,329 $ 272 $ 601 $ - $ 127,202
Cash and Cash Equivalents, Beginning of Year ....... 85,282 683 2,778 - 88,743
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, End of Year ............. $ 211,611 $ 955 $ 3,379 $ - $ 215,945
========= ========= ========= ========= =========
32
NOTES ...
- --------------------------------------------------------------------------------
The condensed supplemental consolidated financial information reflects the
operations of GPP for the 2001 fiscal year (in thousands of dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR
AS OF JULY 1, 2001 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------------ ----------- ---------- ------------ ------------ ------------
Current Assets .............................. $ 482,158 $ 98,523 $ 52,182 $ (19,433) $ 613,430
Investment in Subsidiary .................... 292,543 - - (292,543) -
Noncurrent Assets ........................... 491,624 188,535 2,606 - 682,765
----------- ----------- ----------- ------------ -----------
$ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195
=========== =========== =========== ============ ===========
Current Liabilities ......................... $ 207,336 $ 18,737 $ 29,731 $ (13,622) $ 242,182
Long-Term Debt .............................. 508,134 - - - 508,134
Other Long-Term Obligations ................. 122,292 835 - - 123,127
Stockholders' Equity ........................ 428,563 267,486 25,057 (298,354) 422,752
----------- ----------- ----------- ------------ -----------
$ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195
=========== =========== =========== ============ ===========
STATEMENT OF EARNINGS:
FOR THE FISCAL YEAR ENDED JULY 1, 2001
- --------------------------------------
Net Sales ................................... $ 1,251,462 $ 29,587 $ 80,701 $ (51,577) $ 1,310,173
Cost of Goods Sold .......................... 1,037,817 25,814 61,159 (51,407) 1,073,383
----------- ----------- ----------- ------------ -----------
Gross Profit .............................. 213,645 3,773 19,542 (170) 236,790
Engineering, Selling, General and
Administrative Expenses ................... 124,146 2,656 10,882 - 137,684
----------- ----------- ----------- ------------ -----------
Income from Operations .................... 89,499 1,117 8,660 (170) 99,106
Interest Expense ............................ (28,024) (23) (2,642) 24 (30,665)
Other (Expense) Income, Net ................. 8,574 (1,073) 8,841 (12,910) 3,432
----------- ----------- ----------- ------------ -----------
Income Before Provision for Income Taxes... 70,049 21 14,859 (13,056) 71,873
Provision for Income Taxes .................. 22,036 7 1,817 - 23,860
----------- ----------- ----------- ------------ -----------
Net Income .................................. $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013
=========== =========== =========== ============ ===========
33
36NOTES ...
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR
FOR THE FISCAL YEAR ENDED JULY 1, 2001 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- -------------------------------------- ----------- ---------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................... $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities-
Depreciation and Amortization ................... 57,724 1,349 638 - 59,711
Equity in Earnings of Unconsolidated Affiliates.. (5,762) - 159 562 (5,041)
(Gain) Loss on Disposition of Plant and
Equipment ...................................... 1,499 - (6) - 1,493
Provision for Deferred Income Taxes ............. 17,691 282 - - 17,973
Change in Operating Assets and Liabilities-
Decrease in Receivables ......................... 35,479 1,868 5,375 (8,036) 34,686
(Increase) Decrease in Inventories .............. (6,325) (2,811) 1,659 170 (7,307)
(Increase) Decrease in Prepaid Expenses and
Other Current Assets ........................... 22 89 (161) - (50)
Increase (Decrease) in Accounts Payable,
Accrued Liabilities and Income Taxes ........... (47,372) 4,349 (11,753) 8,036 (46,740)
(Increase) Decrease in Prepaid Pension .......... (28,646) 268 - - (28,378)
Other, Net ....................................... (6,183) (209) - - (6,392)
Net Cash Provided by (Used in)
--------- --------- --------- --------- ---------
Operating Activities .......................... $ 66,140 $ 5,199 $ 8,953 $ (12,324) $ 67,968
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment ................. $ (60,262) $ (481) $ (579) $ - $ (61,322)
Proceeds Received on Disposition of
Plant and Equipment ............................. 4,113 - 39 - 4,152
Investments in Subsidiaries, Net of
Cash Acquired ................................... (270,632) 456 3,002 - (267,174)
Other, Net ....................................... 6,434 - (138) - 6,296
Net Cash Provided by (Used by)
--------- --------- --------- --------- ---------
Investing Activities .......................... $(320,347) $ (25) $ 2,324 $ - $(318,048)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and
Notes Payable ................................... $ (41,175) $ (4,334) $ 2,935 $ - $ (42,574)
Borrowings (Repayments) on
Long-Term Debt .................................. 399,415 - - - 399,415
Cash Dividends Paid .............................. (26,763) - (12,324) 12,324 (26,763)
Proceeds from Exercise of Stock Options .......... (5,843) - - - (5,843)
Net Cash Provided by (Used by)
--------- --------- --------- --------- ---------
Financing Activities .......................... $ 325,634 $ (4,334) $ (9,389) $ 12,324 $ 324,235
--------- --------- --------- --------- ---------
EFFECT OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS ............................. $ - $ (157) $ (2,244) $ - $ (2,401)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................. $ 71,427 $ 683 $ (356) $ - $ 71,754
Cash and Cash Equivalents, Beginning of Year ...... 13,855 - 3,134 - 16,989
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, End of Year ............ $ 85,282 $ 683 $ 2,778 $ - $ 88,743
========= ========= ========= ========= =========
34
INDEPENDENT AUDITORS' REPORTS
- --------------------------------------------------------------------------------
To the Shareholders of
Briggs & Stratton Corporation:
We have audited the accompanying consolidated balance sheet of Briggs & Stratton
Corporation (a Wisconsin Corporation) and subsidiaries, as of June 30, 2002, and
the related consolidated statement of earnings, shareholders' investment and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The consolidated
financial statements of Briggs & Stratton Corporation as of July 1, 2001 and
for the years ended July 1, 2001 and July 2, 2000 were audited by other
auditors who have ceased operations. Those other auditors expressed an
unqualified opinion on those consolidated financial statements in their report
dated July 26, 2001.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 2002 financial statements present fairly, in all material
respects, the financial position of Briggs & Stratton Corporation and
subsidiaries, as of June 30, 2002, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
August 1, 2002
THIS REPORT SET FORTH BELOW IS A COPY OF INDEPENDENT PUBLIC ACCOUNTANTSA PREVIOUSLY ISSUED AUDIT REPORT BY
ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH ITS INCLUSION IS THIS FORM 10-K.
To the Shareholders of
Briggs & Stratton Corporation:
We have audited the accompanying consolidated balance sheets of Briggs &
Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of July 1,
2001 and July 2, 2000 and the related consolidated statements of earnings,
shareholders' investment and cash flow for each of the three years in the period
ended July 1, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Briggs & Stratton Corporation
and subsidiaries as of July 1, 2001 and July 2, 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
July 1, 2001, in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 26, 2001
3435
37
QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED)
- ---------------------------------------------------------------------
In Thousands Per Share of Common Stock
------------------------------------------- -------------------------------------------------------------------------------------------- ---------------------------------------------------
Market Price Range
on New York
Net Net Stock Exchange
Quarter Net Gross Income Income Dividends -------------------
Ended Sales Profit (Loss) (Loss) Declared High Low
- ----- ----- ------ ------ ------ -------- ---- --------- ------
FISCAL 20012002
SEPTEMBER $ 181,251219,629(1) $ 25,79819,821(1) $ (17,424) $ (.81) $ .31 $ 43.85 $ 29.65
DECEMBER 333,689(1) 54,994(1) 2,379 .11 .31 43.99 29.81
MARCH 516,758 102,495 37,614 1.58 .32 48.39 38.54
JUNE 459,296 94,723 30,551 1.30 .32 46.35 36.71
---------- ---------- ---------- ---------- ----------
TOTAL $1,529,372 $ 272,033 $ 53,120 $ 2.36(2) $ 1.26
========== ========== ========== ========== ==========
Fiscal 2001
September $ 180,763(1) $ 25,312(1) $ (6,304) $ (.29) $ .31 $ 44.56 $ 32.13
DECEMBER 368,207 69,606December 367,720(1) 69,117(1) 19,928 .92 .31 46.00 30.38
MARCH 430,683 86,395March 430,187 85,899 29,889 1.38 .31 48.38 36.50
JUNE 332,305 57,264June 331,503 56,462 4,500 .21 .31 45.90 35.00
---------- -------- --------- -------- --------
TOTAL $1,312,446 $239,063---------- ---------- ---------- ----------
Total $1,310,173 $ 236,790 $ 48,013 $ 2.21 *2.21(2) $ 1.24
========== ======== ========= ======== ========
Fiscal 2000
September $ 299,404 $ 55,382 $ 25,703 $ 1.10 $ .30 $ 63.63 $ 55.88
December 422,879 99,723 41,144 1.77 .30 59.63 49.75
March 469,289 101,840 42,056 1.84 .30 53.88 31.00
June 400,992 82,509 27,570 1.24 .30 44.63 34.25
---------- -------- --------- -------- --------
Total $1,592,564 $339,454 $ 136,473 $ 5.97 * $ 1.20
========== ======== ========= ======== ================== ========== ==========
The number of record holders of Briggs & Stratton Corporation Common Stock
on August 23, 200122, 2002 was 4,101.4,669.
The above amounts include the acquisition of GPP since May 15, 2001. Refer
to the Notes to Consolidated Financial Statements.
Net Income per share of Common Stock represents Diluted Earnings per Share.
* See(1) Reflects the adoption of EITF No. 01-09 in the third quarter of fiscal
2002. Refer to the Notes to Consolidated Financial Statements.
(2) Refer to Note 2 to Consolidated Financial Statements, for information
about earnings per share. Amounts do not total because of differing numbers of
shares outstanding at the end of each quarter.
3536
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company has notBriggs & Stratton changed independent accountants in May 2002 from Arthur
Andersen LLP to Deloitte & Touche LLP. Information regarding the last two years.change in
accountants was reported in Briggs & Stratton's Current Report on Form 8-KA
dated May 20, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the Corporation'sBriggs & Stratton's definitive Proxy Statement, prepared for
the 20012002 Annual Meeting of Shareholders, under the captions "Election of
Directors" and "Security Ownership of Management - Section 16(a) Beneficial
Ownership Reporting Compliance", is incorporated herein by reference. The
information concerning "Executive Officers of the Registrant", as a separate
item, appears in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information in the Corporation'sBriggs & Stratton's definitive Proxy Statement, prepared for
the 20012002 Annual Meeting of Shareholders, concerning this item, in the subsection
titled "Director Compensation" under the caption "Election of Directors" and the
"Executive Compensation" section, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information in the Corporation'sBriggs & Stratton's definitive Proxy Statement, prepared for
the 20012002 Annual Meeting of Shareholders, concerning this item, under the
captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management", is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
In addition to the information that is incorporated in this item by reference to
the Proxy Statement, the following chart gives aggregate information under all
equity compensation plans of Briggs & Stratton through June 30, 2002.
Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding future issuance under
Plan Category warrants and rights options, warrants equity compensation plans
and rights (excluding securities
reflected in 1st column)
Equity compensation plans 1,900,640 $55.07 1,897,728
approved by security holders
(1)
Equity compensation plans not - N/A -
approved by security holders
Total 1,900,640 $55.07 1,897,728
(1) Represents options and restricted stock granted under Briggs & Stratton's
Stock Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The CompanyBriggs & Stratton has no relationships or related transactions to report
pursuant to Item 13.
ITEM 14. CONTROLS AND PROCEDURES
There were no significant changes in Briggs & Stratton's internal controls or in
other factors that could significantly affect these controls subsequent to the
time when those controls were last evaluated by management, including any
corrective actions with respect to significant deficiencies and material
weaknesses.
37
PART IV
ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are included under the caption
"Financial Statements and Supplementary Data" in Part II, Item 8 hereof
and are
incorporated herein by reference:
Consolidated Balance Sheets, June 30, 2002 and July 1, 2001
For the Years Ended June 30, 2002, July 1, 2001 and July 2, 2000
For the Years Ended July 1, 2001, July 2, 2000 and June 27, 1999:2000:
Consolidated Statements of Earnings
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash FlowFlows
Notes to Consolidated Financial Statements
Report of Independent Public AccountantsAuditors' Reports
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Independent Auditors' Report
Report of Independent Public Accountants
All other financial statement schedules provided for which provision
is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions.
3. Exhibits
SeeRefer to the Exhibit Index following the SignatureCertification Page, which is
incorporated herein by reference. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit to
this report is identified in the Exhibit Index by an asterisk following
the Exhibit Number.
36
39
(b) Reports on Form 8-K
On AprilMay 23, 2002 and May 30, 2001, the Company2002, Briggs & Stratton filed a report on
Form 8-K and 8-KA respectively, dated April 27,
2001,May 20, 2002 to report a change in
its intent to offer $275,000,000 of senior notes due 2011
and $125,000,000 of convertible senior notes due 2006, to be convertible
into the Company's common stock, in separate private placements.
On May 15, 2001, the Company filed a report on Form 8-K dated May 14, 2001,
to report it had completed the previously announced proposed offerings of
$275,000,000 of 8.875% senior notes due 2011 and $140,000,000 of 5.00%
convertible senior notes due 2006 in separate private placements.
On May 29, 2001, the Company filed a report on Form 8-K dated May 15, 2001,
to report that the previously reported pending acquisition of Generac was
completed on May 15, 2001 and Generac was now a wholly owned subsidiary of
the Company.
On June 19, 2001, the Company filed a report on Form 8-K dated June 14,
2001, to report that on June 14, 2001, the Board of Directors of the
Company had adopted amended and restated Bylaws of the Company.
On June 28, 2001, the Company filed Amendment No. 1 on Form 8-K/A to amend
and restate its Form 8-K dated May 15, 2001, reporting the Company's
acquisition of Generac Portable Products, Inc. to include the historical
financial statements and pro forma financial information required to be
filed in connection with the acquisition.
37independent public accounting firm.
38
40
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 AND JUNE 27, 1999
Reserve for Balance Additions Balance
Doubtful Accounts Beginning Charged Charges to End of
Receivable of Year to Earnings Reserve, Net Other Year
---------- ------- ----------- ------------ ----- ----
2002 $1,599,000 (1,222,000) 1,326,000 - $1,703,000
2001 $ 1,544,000$1,544,000 3,631,000 (3,667,000) 91,000* $ 1,599,000$1,599,000
2000 $ 1,516,000$1,516,000 52,000 (24,000) - $ 1,544,000
1999 $ 1,537,000 (277,000) 256,000 - $ 1,516,000$1,544,000
*Consists of additions to the reserve related to the acquisition of Generac.GPP.
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Briggs & Stratton Corporation:
We have audited the consolidated financial statements of Briggs & Stratton
Corporation and subsidiaries as of June 30, 2002, and for the year then ended
and have issued our report thereon dated August 1, 2002; such report is included
elsewhere in this Form 10-K. Our audit also included the consolidated financial
statement schedule of Briggs & Stratton Corporation for the year ended June 30,
2002, listed in Item 15. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic 2002 consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
August 1, 2002
THIS REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY
ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH ITS INCLUSION IS THIS FORM 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Briggs & Stratton Corporation:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in the Briggs &
Stratton Corporation annual report to shareholders on Form 10-K, and have issued
our report thereon dated July 26, 2001. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index in item 14(a)(2) is the responsibility of the Corporation's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 26, 2001
3839
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BRIGGS & STRATTON CORPORATION
By /s/ James E. Brenn
-------------------------------------------
James E. Brenn
September 11 , 2001 Senior Vice President and
- ------------------------ Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.*
/s/ John S. Shiely /s/ David L. Burner
- ----------------------------------------- -----------------------------------------
John S. Shiely David L. Burner
President and Chief Executive Officer and Director
Director (Principal Executive Officer)
/s/ James E. Brenn /s/ E. Margie Filter
- ----------------------------------------- -----------------------------------------
James E. Brenn E. Margie Filter
Senior Vice President and Chief Financial Director
Officer (Principal Financial Officer and
Principal Accounting Officer)
/s/ F.P. Stratton, Jr. /s/ Peter A. Georgescu
- ----------------------------------------- -----------------------------------------
F.P. Stratton, Jr. Peter A. Georgescu
Chairman and Director Director
/s/ Jay H. Baker /s/ Robert J. O'Toole
- ----------------------------------------- -----------------------------------------
Jay H. Baker Robert J. O'Toole
Director Director
/s/ Michael E. Batten /s/ Charles I. Story
- ----------------------------------------- -----------------------------------------
Michael E. Batten Charles I. Story
Director Director
*Each signature affixed as of
September 11 , 2001.
-----------------
39BRIGGS & STRATTON CORPORATION
By /s/ James E. Brenn
-------------------------------
James E. Brenn
September 17 , 2002 Senior Vice President and Chief
- ------------- Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.*
/s/ John S. Shiely /s/ David L. Burner
- ----------------------------------------- -------------------------------
John S. Shiely David L. Burner
President and Chief Executive Officer and Director
Director (Principal Executive Officer)
/s/ E. Margie Filter
/s/ James E. Brenn -------------------------------
- ----------------------------------------- E. Margie Filter
James E. Brenn Director
Senior Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer) /s/ Peter A. Georgescu
-------------------------------
Peter A. Georgescu
/s/ F. P. Stratton, Jr. Director
- -----------------------------------------
F. P. Stratton, Jr.
Chairman and Director /s/ Robert J. O'Toole
-------------------------------
Robert J. O'Toole
/s/ Jay H. Baker Director
- -----------------------------------------
Jay H. Baker
Director /s/ Charles I. Story
-------------------------------
Charles I. Story
/s/ Michael E. Batten Director
- -----------------------------------------
Michael E. Batten
Director
*Each signature affixed as of
September 17 , 2002.
--------------
40
42CERTIFICATIONS
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, John S. Shiely, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Briggs & Stratton
Corporation;
(2) Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report.
Date: September 17, 2002
/s/ John S. Shiely
-----------------------------------
John S. Shiely, President and Chief
Executive Officer - Principal Executive
Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, James E. Brenn, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Briggs & Stratton
Corporation;
(2) Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report.
Date: September 17, 2002
/s/ James E. Brenn
---------------------------------------------
James E. Brenn, Senior Vice President and
Chief Financial Officer - Principal Financial
Officer
41
BRIGGS & STRATTON CORPORATION
(Commission File No. 1-1370)
EXHIBIT INDEX
20012002 ANNUAL REPORT ON FORM 10-K
Exhibit
Number Document Description
- ------ --------------------
2 Agreement and Plan of Merger, dated as of March 21, 2001, by
and among Briggs & Stratton Corporation, GPP Merger
Corporation, Generac Portable Products, Inc. and The Beacon
Group III - Focus Value Fund, L.P.
(Filed as Exhibit 2 to the Company's Report on Form 8-K
dated March 21, 2001 and incorporated by reference herein.)
3.1 Articles of Incorporation.
(Filed as Exhibit 3.2 to the Company's Report on Form 10-Q
for the quarter ended October 2, 1994 and incorporated by
reference herein.)
3.2 Bylaws, as amended and restated June 14, 2001.
(Filed as Exhibit 99 to the Company's Report on Form 8-K
dated June 14, 2001 and incorporated by reference herein.)
4.0 Rights Agreement dated as of August 7, 1996, between Briggs &
Stratton Corporation and Firstar Trust Company which includes
the form of Right Certificate as Exhibit A and the Summary of
Rights to Purchase Common Shares as Exhibit B.
(Filed as Exhibit 4.1 to the Company's Registration
Statement on Form 8-A, dated as of August 7, 1996 and
incorporated by reference herein.)
4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton
Corporation and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.1 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs &
Stratton Corporation issued pursuant to the Indenture dated
as of June 4, 1997 between Briggs & Stratton Corporation and
Bank One, N.A., as Trustee.
(Filed as Exhibit 4.2 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.3 Resolutions of the Board of Directors of Briggs & Stratton
Corporation authorizing the public offering of debt
securities of Briggs & Stratton Corporation in an aggregate
principal amount of up to $175,000,000.
(Filed as Exhibit 4.3 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.4 Actions of the Authorized Officers of Briggs & Stratton
Corporation authorizing the issuance of $100,000,000
aggregate principal amount of 7-1/4% Notes due September 15,
2007.
(Filed as Exhibit 4.4 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.5 Officers' Certificate and Company Order of Briggs & Stratton
Corporation executed in conjunction with the issuance of
$100,000,000 aggregate principal amount of 7-1/4% Notes due
September 15, 2007.
(Filed as Exhibit 4.5 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
40
43
Exhibit
Number Document Description
4.6 Indenture dated as of May 14, 2001 between Briggs & Stratton
Corporation, the Guarantors listed on Schedule I thereto and
Bank One, N.A., as Trustee, providing for 5.00% Convertible
Senior Notes due May 15, 2006 (including form of Note, form
of Notation of Guarantee and other exhibits).
(Filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
42
Exhibit
Number Document Description
- ------ --------------------
4.7 Form of Supplemental Indenture dated as of May 15, 2001
between Subsequent Guarantors (Generac Portable Products,
Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products,
LLC), Briggs & Stratton Corporation, and Bank One, N.A., as
Trustee.
(Filed as Exhibit 4.7 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.8 Registration Rights Agreement dated as of May 8, 2001 between
Briggs & Stratton Corporation and Goldman, Sachs & Co. and
Banc of America Securities LLC, as Representatives of the
Several Purchasers, providing for the registration of the
5.00% Convertible Senior Notes due May 15, 2006.
(Filed as Exhibit 4.8 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.9 Indenture dated as of May 14, 2001 between Briggs & Stratton
Corporation, the Guarantors listed on Schedule I thereto and
Bank One, N.A., as Trustee, providing for 8.875% Senior Notes
due March 15, 2011 (including form of Note, form of Notation
of Guarantee and other exhibits).
(Filed as Exhibit 4.9 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.10 Form of Supplemental Indenture dated as of May 15, 2001
between Subsequent Guarantors (Generac Portable Products,
Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products,
LLC), Briggs & Stratton Corporation, and Bank One, N.A., as
Trustee.
(Filed as Exhibit 4.10 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.11 Exchange and Registration Rights Agreement dated as of May 9,
2001 between Briggs & Stratton Corporation and Goldman, Sachs
& Co. and Banc of America Securities LLC, as Representatives
of the Several Purchasers, providing for the registration or
exchange of the 8.875% Senior Notes due March 15, 2011.
(Filed as Exhibit 4.11 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.12 First Supplemental Indenture dated as of May 14, 2001 between
Briggs & Stratton Corporation and Bank One, N.A., as Trustee
under the Indenture dated as of June 4, 1997.
(Filed as Exhibit 4.12 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
41
44
Exhibit Document Description
Number
4.13 Form of Indenture Supplement to Add a Subsidiary Guarantor
dated as of May 15, 2001 among each Subsidiary Guarantor
(Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and
Generac Portable Products, LLC), Briggs & Stratton
Corporation, and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.13 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.14 Multicurrency Credit Agreement dated as of September 28,
2001, by and among Briggs & Stratton Corporation, Bank of
America, N.A., as Administrative Agent, and the other
financial institutions party thereto (the "Credit
Agreement").
(Filed as Exhibit 4.1 (a) to the Company's Report on Form
10-Q for the quarter ended December 30, 2001 and
incorporated by reference herein.)
43
Exhibit
Number Document Description
- ------ --------------------
4.15 First Amendment to the Credit Agreement, dated as of November
15, 2001.
(Filed as Exhibit 4.1 (b) to the Company's Report on Form
10-Q for the quarter ended December 30, 2001 and
incorporated by reference herein.)
10.0* Form of Officer Employment Agreement.
(Filed as Exhibit 10.0 to the Company's Report on Form 10-Q
for the quarter ended March 29, 1998 and incorporated by
reference herein.)
10.1* Amended and Restated Supplemental Executive Supplemental Retirement Plan.
(Filed as Exhibit 10.010.1 to the Company's Report on Form 10-Q
for the quarter ended March 26, 200031, 2002 and incorporated by
reference herein.)
10.2 (a)* Economic Value Added Incentive Compensation Plan, as amended
and restated.
(Filed as Exhibit 10.3 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.2 (b)* Amendment to10.2* Amended and Restated Economic Value Added Incentive
Compensation Plan.
(Filed as Exhibit 10.010.2 to the Company's Report on Form 10-Q
for the quarter ended DecemberMarch 31, 2000.)
10.2 (c)* Amendment to Amended2002 and Restated Economic Value Added
Incentive Compensation Plan.
(Filed herewith.incorporated by
reference herein.)
10.3* Form of Change of Control Employment Agreements.
(Filed as Exhibit 10.4 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)
10.4 (a)10.4(a)* Trust Agreement with an independent trustee to provide
payments under various compensation agreements with company
employees upon the occurrence of a change in control.
(Filed as Exhibit 10.5(a)10.5 (a) to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.4 (b)10.4(b)* Amendment to Trust Agreement with an independent trustee
to provide payments under various compensation agreements
with company employees.
(Filed as Exhibit 10.5(b)10.5 (b) to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.5 (a)10.5(a)* 1999 Amended and Restated Stock Incentive Plan.
(Filed as Exhibit A to the Company's 1999 Annual Meeting
Proxy Statement and incorporated by reference herein.)
10.5 (b)10.5(b)* Amendment to Amended and Restated Stock Incentive Plan.
(Filed as Exhibit 10.0(b)10.0 (b) to the Company's Report on Form
10-Q for the quarter ended September 26, 1999 and
incorporated by reference herein.)
10.6 (a)*10.6* Amended and Restated Leveraged Stock Option Program.
(Filed as Exhibit 10.7(c)10.4 to the Company's Annual Report on Form 10-K10-Q
for fiscal yearthe quarter ended June 27, 1999March 31, 2002 and incorporated by
reference herein.)
10.6 (b)* Amendment to Amended and Restated Leveraged Stock Option
Program.
(Filed herewith.)
10.7* Amended and Restated Deferred Compensation Agreement for
Fiscal 1995.
(Filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
42
45
Exhibit Document Description
Number
10.8* Deferred Compensation Agreement for Fiscal 1998.
(Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for fiscal year ended June 29, 1997 and
incorporated by reference herein.)
10.9* Deferred Compensation Agreement for Fiscal 1999.
(Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for fiscal year ended June 28, 1998 and
incorporated by reference herein.)
10.10* Deferred Compensation Agreement for Fiscal 2000.
(Filed as Exhibit 10.12 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.11* Amended and Restated Deferred Compensation Plan for
Directors.
(Filed as Exhibit 10.00 to the Company's Report on Form
10-Q for the quarter ended December 26, 1999 and
incorporated by reference herein.)
10.12 (a)*10.12* Amended and Restated Director's Leveraged Stock Option Plan.
(Filed as Exhibit 10.1410.3 to the Company's Annual Report on Form 10-K10-Q
for fiscal yearthe quarter ended June 29, 1997March 31, 2002 and incorporated by
reference herein.)
10.12 (b)* Amendment to Director's Leveraged Stock Option Plan.
(Filed as44
Exhibit
10.14(b) to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)Number Document Description
- ------ --------------------
10.13* Agreement with Executive Officer.
(Filed as Exhibit 10.2 to the Company's Report on Form 10-Q
for the quarter ended December 27, 1998 and incorporated by
reference herein.)
10.14* Executive Life Insurance Plan.
(Filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.15 (a)10.15(a)* Key Employees Savings and Investment Plan.
(Filed as Exhibit 10.18 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.15 (b)10.15(b)* Amendment to Key Employees Savings and Investment Plan.
(Filed as Exhibit 10.1 to the Company's Report on Form 10-Q
for the quarter ended December 31, 2000 and incorporated by
reference herein.)
10.16* Consultant Reimbursement Arrangement.
(Filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
11 Computation10.17* Notice of Earnings Per ShareElection for Fixed Price Cash Pay-Out Under
Deferred Compensation Agreement by Frederick P. Stratton, Jr.
dated January 3, 2002, and Approval of Common Stock.Compensation Committee
dated January 15, 2002.
(Filed as Exhibit 10 to the Company's Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated by
reference herein.)
10.18* Briggs & Stratton Product Program.
(Filed herewith.)
12 Computation of Ratio of Earnings to Fixed Charges.
(Filed herewith.)
21 Subsidiaries of the Registrant.
(Filed herewith.)
23 ConsentIndependent Auditors' Consent.
(Filed herewith.)
99.1 Certification of Independent Public Accountants.Principal Executive Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
(Filed herewith.)
99.2 Certification of Principal Financial Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
(Filed herewith.)
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K.
4345