UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended JUNE 27, 2004
OR
For the fiscal year ended JULY 3, 2005
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________ |
For the transition period fromto
Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
(Exact name of registrant as specified in its charter)
A Wisconsin Corporation | 39-0182330 | |
(State or other jurisdiction of | (I.R.S. Employer | |
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. Yesþý No¨o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yesþý Noo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨o No ý
The aggregate market value of Common Stock held by nonaffiliates of the registrant was approximately $1,457,565,089$2,061,460,445 based on the reported last sale price of such securities as of December 26, 2003,2004, the last business day of the most recently completed second fiscal quarter.
Number of Shares of Common Stock Outstanding at August 25, 2004: 25,612,270.17, 2005: 51,845,825.
DOCUMENTS INCORPORATED BY REFERENCE
| Part of Form 10-K Into Which Portions | ||
Document | of Document are Incorporated | ||
Proxy Statement for Annual Meeting | |||
on October | Part III |
The Exhibit Index is located on page 50.55.
BRIGGS & STRATTON CORPORATION
FISCAL 20042005 FORM 10-K
Cautionary Statement on Forward-Looking Statements
Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and other statements located elsewhere in this Annual Report 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,” “forecast,” “intend,” “may,” “objective,” “plan,” “project,” “seek,” “think,” “will” and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on Briggs & Stratton’s current views and assumptions and involve risks and uncertainties that include, among other things: our ability to successfully forecast demand for our products and appropriately adjust our manufacturing and inventory levels; changes in our operating expenses; changes in interest rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; the seasonal nature of our business; changes in laws and regulations, including environmental, tax, pension funding and accounting standards; work stoppages or other consequences of any deterioration in our employee relations; work stoppages by other unions that affect the ability of suppliers or customers to manufacture; acts of war or terrorism that may disrupt our business operations or those of our customers and suppliers; changes in customer and OEM demand; changes in prices of purchased raw materials and parts that we purchase; changes in domestic economic conditions, including housing starts and changes in consumer disposable income; changes in foreign economic conditions, including currency rate fluctuations; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; oura successful transition supply agreement with Murray; the actions of other suppliers and the customers of Murray; the ability to successfully integraterealize the Simplicity Manufacturing, Inc. acquisition;maximum market value of acquired assets; work stoppages or other consequences of any deterioration in Murray’s employee relations; 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.
Briggs & Stratton is the world’s largest producer of air cooled gasoline engines for outdoor power equipment. Briggs & 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 to 31 horsepower.
Additionally, through its wholly owned subsidiary, Briggs & Stratton Power Products Group, LLC, Briggs & Stratton is a leading designer, manufacturer and marketer of portable generators (portable and home standby), pressure washers, snow throwers, lawn and garden powered equipment (riding and walk behind mowers, tillers, chipper/shredders, leaf blowers and vacuums) and related accessories.
Briggs & Stratton conducts its operations in two reportable segments: Engines and Power Products. Further information about Briggs & Stratton’s business segments is contained in Note 56 of the Notes to Consolidated Financial Statements.
The Company’s Internet address is www.briggsandstratton.com. The Company makes available free of charge (other than an investor’s own Internet access charges) through its Internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission. Charters of the Audit, Compensation, Nominating and Governance Committees; Corporate Governance Guidelines and code of business conduct and ethics contained in the Briggs & Stratton Business Integrity Manual are available on the Company’s website and are available in print to any shareholder upon request to the Corporate Secretary.
Engines
General
General
Briggs & Stratton’s engines are used primarily by the lawn and garden equipment industry, which accounted for 77%80% of fiscal 20042005 engine sales to OEMs. Major lawn and garden equipment applications include walk-behind lawn mowers, riding lawn mowers and garden tillers. The remaining 23%20% of OEM sales in fiscal 20042005 were for use on products for industrial, construction, agricultural and other consumer applications, that include generators, pumps, pressure washers and pressure washers.snow throwers. Many retailers specify Briggs & 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 only a component. Briggs & Stratton engines are marketed under various brand names including ClassicClassic™, Sprint™, Sprint™Quattro™, Quattro™Quantum®, Quantum®, INTEK™INTEK™, I/C®C®, Industrial Plus™Plus™ and Vanguard™Vanguard™.
In fiscal 2004,2005, approximately 17%23% of Briggs & Stratton’s Engine Segment 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, Brazil, Canada, China, the Czech Republic, England, France, Germany, Italy, Japan, Mexico, New Zealand, the Philippines, Russia, South Africa, Spain, Sweden and United Arab Emirates. Briggs & Stratton is a leading supplier of gasoline engines in developed countries where there is an established lawn and garden equipment market. Briggs & Stratton also exports engines to developing nations where its engines are used in agricultural, marine, construction and other applications. More detailed information about our foreign operations is in Note 56 of the Notes to Consolidated Financial Statements.
Briggs & Stratton engines are sold primarily by its worldwide sales force through direct calls on customers. Briggs & 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. Briggs & 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 39,00040,000 independently owned, authorized service dealers throughout the world. These distributors and service dealers implement Briggs & Stratton’s commitment to reliability and service.
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Customers
Briggs & Stratton’s engine sales are made primarily to OEMs. Briggs & Stratton’s three largest engine customers in each of the last three fiscal yearsyear 2005 were AB Electrolux (principally its Electrolux HomeOutdoor Products Group)Group, EOP), MTD Products Inc. (MTD) and Global Garden Products. Briggs & Stratton’s three largest engine customers in fiscal 2004 and 2003 were EOP, MTD and Murray Inc. (owned by Summersong Investments, Inc.). Sales to each of these customersEOP and MTD were more than 9% of net sales in fiscal 2004, 2003 and 2002. Sales to all three combined were 42%, 41% and 47%10% of consolidated net sales in fiscal 2005, 2004 and 2003, respectively. Sales to the top three customers combined were 44%, 51% and 2002,48% of Engine Segment net sales in fiscal 2005, 2004 and 2003, respectively. Under purchasing plans available to all of its gasoline engine customers, Briggs & Stratton typically enters into annual engine supply arrangements with these large customers.arrangements.
Briggs & Stratton believes that in fiscal 20042005 more than 80% of all lawn and garden powered equipment sold in the United States was sold through mass merchandisers such as Sears Roebuck and Co.Holdings Corporation (Sears), The Home Depot, Inc. (The Home Depot), Wal*MartWal-Mart Stores, Inc. (Wal*Mart)(Wal-Mart) and Lowe’s Home Centers,Companies, Inc. (Lowe’s). Given the buying power of the mass merchandisers, Briggs & Stratton, through its customers, has continued to experience pricing pressure. Briggs & Stratton expects that this pricing trend will continue in the foreseeable future. Briggs & Stratton believes that a similar trend has developed for its products in industrial and consumer applications outside of the lawn and garden market.
Competition
Briggs & 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), Kohler Co. (Kohler) and Tecumseh Products Company (Tecumseh). Several Japanese small engine manufacturers, of which Honda and Kawasaki are the largest, compete directly with Briggs & 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. Additionally, some Chinese competitors have begun to sell product in Europe.
Briggs & Stratton believes it has a significant share of the worldwide market for engines that power outdoor equipment.
Briggs & 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, 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 OEMs are highly seasonal because of consumer buying patterns. The majority of lawn and garden equipment is sold during the spring and summer months when most lawn care and gardening activities are performed. Sales of lawn and garden equipment are also influenced by weather conditions. SalesEngine sales in Briggs & 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, Briggs & Stratton pursues a relatively balanced production schedule throughout the year. The schedule is adjusted to reflect changes in estimated demand, customer inventory levels and other matters outside the control of Briggs & Stratton. Accordingly, inventory levels generally increase during the first and second fiscal quarters in anticipation of customer demand. Inventory levels begin to decrease as sales increase in the third fiscal quarter. This seasonal pattern results in high inventories and low cash flow for Briggs & Stratton in the second and the beginning of the third fiscal quarters. 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: Wauwatosa, Wisconsin;Auburn, Alabama; Statesboro, Georgia; Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, Alabama; Statesboro, Georgia;Wauwatosa, Wisconsin; and Chongqing, China. Briggs & Stratton has a parts distribution center in Menomonee Falls, Wisconsin.
Briggs & Stratton manufactures a majority of the structural components used in its engines, including aluminum die castings, carburetors and ignition systems. Briggs & Stratton purchases certain parts such as piston rings, spark plugs, valves, ductile and grey iron castings, zinc die castings and plastic components,
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some stampings and screw machine parts and smaller quantities of other components. Raw material
purchases consist primarily of aluminum and steel. Briggs & Stratton believes its sources of supply are adequate.
Briggs & Stratton has joint ventures with Daihatsu Motor Company for the manufacture of engines in Japan and with Starting Industrial of Japan for the production of rewind starters in the U.S.United States.
Briggs & 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 Briggs & Stratton’s VanguardVanguard™ brand.
™Power Products brand.
General
Power Products
General
Briggs & Stratton Power Products Group, LLC’s (BSPPG) twofour principal product lines are portableinclude generators, pressure washers, snow throwers and home stand-by generators (“generators”)lawn and pressure washers.garden powered equipment. BSPPG sells its products through multiple channels of retail distribution, including consumer home centers, warehouse clubs, mass merchants and independent dealers. BSPPG product lines are marketed under various brands including Briggs & Stratton, Craftsman®, Ferris, Giant Vac, Murray, Simplicity, Snapper and Troybuilt®.
BSPPG has assembled a comprehensive after-sales service network in North America for generators and pressure washers comprised of approximately 4,300 authorized9,500 independent dealers. BSPPG maintains its independent dealer networkdealers worldwide for the purposesale and service of providing the after-sales service capability that supports its products.snow throwers and lawn and garden powered equipment.
To support its international business, BSPPG has leveraged the existing Briggs & Stratton worldwide distribution network.
Customers
BSPPG sells to consumer home centers and warehouse clubs, as well as mass merchants and independent dealers. Historically, BSPPG’s major customers have been Lowe’s, The Home Depot and Sears. Other U.S. retail customers include Tractor Supply Inc., True Value Company, Tru-Serv Incorporated,Sam’s Club and Wal*Mart.Wal-Mart.
Competition
The U.S. engine powered equipment industry (the “power products industry”), in which Briggs & Stratton competes is served by approximately five competitors. The principal competitive factors in the power products industry include price, service, product performance, technical innovation and delivery. In the manufacture and sale of generators, BSPPG competes primarily with Coleman Powermate and Honda. InBSPPG has various competitors, depending on the manufacture and saletype of equipment. Primary competitors include: Honda (generators, pressure washers BSPPG competes primarily withand lawn and garden equipment), Coleman Powermate Corporation (generators), DeVilbiss Air Power Company, and to a lesser extent with Coleman Powermate,Division of Black & Decker (pressure washers), Alfred Karcher GmbH & Co. (pressure washers), John Deere (lawn mowers), MTD (lawn mowers), the Toro Company (lawn mowers), and Campbell Hausfeld (partScag Power Equipment, a Division of Berkshire Hathaway,Metalcraft of Mayville, Inc.) (commercial lawn mowers).
BSPPG believes it has a significant share of the North American market for generators and consumer pressure washers.
Seasonality of Demand
Sales of BSPPG’s products are subject to seasonal patterns. Due to seasonal and regional weather factors, sales of pressure washers and related working capital requirementslawn and garden powered equipment are typically higher during the fiscal third and fourth quarters than at other times of the year. Sales of generators and snow throwers are typically higher during the summer and fall tropical storm seasons.
Manufacturing
BSPPG’s U.S. manufacturing facility isfacilities are located in Jefferson, Wisconsin.Watertown and Port Washington, Wisconsin; McDonough, Georgia and Munnsville, New York. BSPPG produces generators and pressure washers at this location.also purchases certain powered equipment under contract manufacturing agreements.
BSPPG manufactures core components for generators,its products, where such integration improves operating profitability by providing lower costs.
BSPPG purchases engines from its parent, Briggs & Stratton, as well as from Generac Power Systems, Inc., Honda, Kawasaki, Kohler and Honda.Tecumseh. BSPPG has not experienced any difficulty obtaining necessary purchased components.
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To service BSPPG’s international customer base more effectively, BSPPG designs and assembles its international products at its Jefferson, Wisconsin locationU.S. locations and through a contract manufacturing arrangement in the Netherlands.
Consolidated In addition, Briggs & Stratton has a facility in China that serves both U.S. and international markets.
Consolidated
General Information
Briggs & Stratton holds patents on features incorporated in its products; however, the success of Briggs & Stratton’s business is not considered to be primarily dependent upon patent protection. Trademarks, licenses,The Company owns several trademarks which it believes significantly affect a consumer’s choice of outdoor powered equipment and therefore create value. Licenses, franchises and concessions are not a material factor in Briggs & Stratton’s business.
For the years ending July 3, 2005, June 27, 2004 and June 29, 2003, and June 30, 2002, Briggs & Stratton spent approximately $33.5 million, $25.9 million $26.4 million and $23.7$26.4 million, respectively, on research activities relating to the development of new products or the improvement of existing products.
The average number of persons employed by Briggs & Stratton during the fiscal year was 7,438.9,169. Employment ranged from a low of 7,0949,084 in September 2003June 2005 to a high of 7,7329,230 in June 2004.January 2005.
Export Sales
Export sales for fiscal 2005, 2004 and 2003 and 2002 were $336.7$477.4 million (17%(18% of net sales), $401.2$362.4 million (24%(19% of net sales) and $365.5$400.5 million (24% of net sales), respectively. These sales were principally to customers in European countries. Refer to Note 56 of the Notes to Consolidated Financial Statements for financial information about geographic areas. Also, refer to Item 7A of this Form 10-K and Note 1213 of the Notes to Consolidated Financial Statements for information about Briggs & Stratton’s foreign exchange risk management.
The corporate offices and one of Briggs & Stratton’s engine manufacturing facilities are located in Wauwatosa, Wisconsin. Briggs & Stratton also has engine manufacturing facilities in Auburn, Alabama; Statesboro, Georgia; Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, AlabamaMissouri and Statesboro, Georgia.Chongqing, China. These are owned facilities containing 3.6approximately 3.3 million square feet of office and production area. Briggs & Stratton occupies warehouse space totalling approximately 380,000 square feet in Menomonee Falls, Wisconsin under a reservation of interest agreement. Briggs & Stratton also leases warehouse space in the localities of its engine manufacturing facilities, except Wisconsin and China, totalling approximately 500,000 square feet.
BSPPG’sBSPPG maintains office space and domestic manufacturing facility are locatedfacilities in Jefferson Wisconsinand Port Washington, Wisconsin; McDonough, Georgia; Munnsville, New York and Qingpu, China. Of these, the domestic facilities are owned and contain 250,000approximately 1.5 million square feet of office and production area.feet. BSPPG also leases warehouse space totaling 625,000in Jefferson, Watertown and Port Washington, Wisconsin; McDonough, Georgia; Grand Prairie, Texas; Greenville, Ohio and Reno, Nevada totalling approximately 1.1 million square feet in three communities in Wisconsin.feet. Additionally, the Qingpu, China facility is leased and contains approximately 124,000 square feet.
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 levels are lower. During the winter, when finished goods inventories reach their highest levels, owned warehouse space may be insufficient and warehouse capacity may be expanded through rented space.
Briggs & Stratton leases approximately 360,000290,000 square feet of space to house its foreign sales and service operations in Australia, Austria, Brazil, Canada, China, the Czech Republic, England, France, Germany, Italy, Japan, Mexico, the Netherlands, New Zealand, the Philippines, Russia, South Africa, Spain, Sweden, Switzerland and United Arab Emirates.
Briggs & Stratton’s owned properties are well maintained. Briggs & Stratton believes that its owned and leased facilities are adequate to perform its operations in a reasonable manner.
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Briggs & Stratton is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability) and patent and trademark matters.
On June 3, 2004, eight individuals who claim to have purchased lawnmowers in Illinois and Minnesota filed a lawsuit(Ronnie Phillips et al. v. Sears Roebuck Corporation et al., No. 04-L-334 (20th Judicial Circuit, St. Clair County, IL)) against the Company and other defendants alleging that the horsepower labels on the products they purchased were inaccurate. The plaintiffs seek certification of a class of all persons in the United States who, beginning January 1, 1995 through the present, purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured by defendants.
The complaint seeks an injunction, compensatory and punitive damages, and attorneys’ fees. No orders have been entered in the case, and there has been no discovery. The Company intends to vigorously defend this case. On April 20, 2005, the court issued an order staying proceedings in the case pending settlement negotiations.
Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, Briggs & Stratton believes these unresolved legal actions will not have a material effect on its financial position or results of operations.position.
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 June 27, 2004.
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Executive Officers of the Registrant
Name, Age, Position | Business Experience for Past Five Years | ||
JOHN S. SHIELY, 53 | Mr. Shiely was elected to his current position effective January 2003, after serving as President and Chief Executive Officer since July 2001 and President and Chief Operating Officer since August 1994. | ||
TODD J. TESKE, 40 | Mr. Teske was elected to his current position effective September 2005 after serving as Senior Vice President and President – Briggs & Stratton Power Products Group, LLC since September 2003. He previously served as Vice President and President – Briggs & Stratton Power Products Group, LLC since February 2003. He also served as Vice President – Corporate Development from March 2001 after serving as Controller since October 1998. | ||
JAMES E. BRENN, 57 | Mr. Brenn was elected to his current position in October 1998, after serving as Vice President and Controller since November 1988. He also served as Treasurer from November 1999 until January 2000. | ||
DAVID G. DEBAETS, 42 General Manager – Large Engine Division | Mr. DeBaets was elected to his current position effective September 2003. He has served as Vice President and General Manager – Large Engine Division since April 2000. He also served as Vice President and General Manager – Die Cast Components from May 1996 to April 2000. | ||
RICKY T. DILLON, 34 | Mr. Dillon was elected an executive officer effective September 1, 2004. He has served as Controller since March 2002. He was previously | ||
MARK R. HAZELTINE, 62 Sales Manager – Consumer Products | Mr. Hazeltine was elected to his current position in May 2002, after serving as Vice President and Sales Manager – Consumer Lawn & Garden since July 1999. He also served as Sales Manager from February 1995 to June 1999. | ||
ROBERT F. HEATH, 57 | Mr. Heath was elected to his current position in January 2002. He served as Assistant Secretary from January 2001 to December 2001. In addition, Mr. Heath is Vice President and General Counsel and has served in these positions since January 2001. He also served as General Counsel since December 1997. | ||
PAUL M. NEYLON, 58 | Mr. Neylon was elected to his current position | ||
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WILLIAM H. REITMAN, 49 | Mr. Reitman was elected to his current position effective | |
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THOMAS R. SAVAGE, 57 | Mr. Savage was elected to his current position 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, 45 | Mr. Schoen was elected to his current position effective September 2005 after serving as Vice President – International Group since 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, 45
| Mr. Shiely was elected to his current position effective September | |
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CARITA R. TWINEM, 50 | Ms. Twinem was elected to her current position in February 2000, after serving as Tax Director since July 1994. | |
JOSEPH C. WRIGHT, 46
| Mr. Wright was elected to his current position in September | |
(1) Officer is also a Director of 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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ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Briggs & Stratton common stock and its common share purchase rights are traded on the NYSE under the symbol “BGG”. Information required by this Item is incorporated by reference from the “Quarterly Financial Data, Dividend and Market Information” (unaudited) on page 45.50.
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Briggs & Stratton did not make any purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act.
Fiscal Year | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
| (dollars in thousands, except per share data) | |||||||||||||||
SUMMARY OF OPERATIONS(1) | |||||||||||||||
NET SALES | $ | 1,947,364 | $ | 1,657,633 | $ | 1,529,300 | $ | 1,306,638 | $ | 1,591,442 | |||||
GROSS PROFIT ON SALES | 439,872 | 328,079 | 269,964 | 233,255 | 338,332 | ||||||||||
PROVISION FOR INCOME TAXES | 68,890 | 37,940 | 27,390 | 23,860 | 80,150 | ||||||||||
NET INCOME(2) | 136,114 | 80,638 | 53,120 | 48,013 | 136,473 | ||||||||||
PER SHARE OF COMMON STOCK: | |||||||||||||||
Basic Earnings | 6.01 | 3.73 | 2.46 | 2.22 | 5.99 | ||||||||||
Diluted Earnings | 5.53 | 3.49 | 2.36 | 2.21 | 5.97 | ||||||||||
Cash Dividends | 1.32 | 1.28 | 1.26 | 1.24 | 1.20 | ||||||||||
Shareholders’ Investment | $ | 32.05 | $ | 23.66 | $ | 20.78 | $ | 19.57 | $ | 18.83 | |||||
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s) | 22,643 | 21,639 | 21,615 | 21,598 | 22,788 | ||||||||||
DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s) | 25,340 | 24,480 | 24,452 | 21,966 | 22,842 | ||||||||||
OTHER DATA(1) | |||||||||||||||
SHAREHOLDERS’ INVESTMENT | $ | 817,595 | $ | 514,987 | $ | 449,646 | $ | 422,752 | $ | 409,465 | |||||
LONG-TERM DEBT | 360,562 | 503,397 | 499,022 | 508,134 | 98,512 | ||||||||||
TOTAL ASSETS | 1,637,153 | 1,475,193 | 1,356,601 | 1,306,243 | 940,950 | ||||||||||
PLANT AND EQUIPMENT | 867,987 | 876,664 | 879,635 | 890,191 | 838,655 | ||||||||||
PLANT AND EQUIPMENT, NET OF RESERVES | 356,542 | 370,784 | 395,215 | 416,361 | 395,580 | ||||||||||
PROVISION FOR DEPRECIATION | 59,816 | 58,325 | 61,091 | 56,117 | 51,097 | ||||||||||
EXPENDITURES FOR PLANT AND EQUIPMENT | 52,962 | 40,154 | 43,928 | 61,322 | 71,441 | ||||||||||
WORKING CAPITAL | $ | 681,432 | $ | 505,752 | $ | 411,241 | $ | 381,443 | $ | 170,326 | |||||
Current Ratio | 3.3 to 1 | 2.7 to 1 | 2.6 to 1 | 2.6 to 1 | 1.5 to 1 | ||||||||||
NUMBER OF EMPLOYEES AT YEAR-END | 7,732 | 7,249 | 6,971 | 6,974 | 7,233 | ||||||||||
NUMBER OF SHAREHOLDERS AT YEAR-END | 4,230 | 4,503 | 4,686 | 4,129 | 4,385 | ||||||||||
QUOTED MARKET PRICE: | |||||||||||||||
High | $ | 88.44 | $ | 51.50 | $ | 48.39 | $ | 48.38 | $ | 63.63 | |||||
Low | $ | 49.35 | $ | 30.75 | $ | 29.65 | $ | 30.38 | $ | 31.00 | |||||
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AcquisitionITEM 6.SELECTED FINANCIAL DATA
Fiscal Year |
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
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SUMMARY OF OPERATIONS (1) (2) |
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NET SALES |
| $ | 2,654,875 |
| $ | 1,947,364 |
| $ | 1,657,633 |
| $ | 1,529,300 |
| $ | 1,306,638 |
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GROSS PROFIT ON SALES |
| 504,891 |
| 439,872 |
| 328,079 |
| 269,964 |
| 233,255 |
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PROVISION FOR INCOME TAXES |
| 57,548 |
| 68,890 |
| 37,940 |
| 27,390 |
| 23,860 |
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INCOME BEFORE EXTRAORDINARY GAIN |
| 116,767 |
| 136,114 |
| 80,638 |
| 53,120 |
| 48,013 |
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INCOME BEFORE EXTRAORDINARY GAIN PER SHARE OF COMMON STOCK: |
|
|
|
|
|
|
|
|
|
|
| |||||
Basic Earnings |
| 2.27 |
| 3.01 |
| 1.86 |
| 1.23 |
| 1.11 |
| |||||
Diluted Earnings |
| 2.25 |
| 2.77 |
| 1.74 |
| 1.18 |
| 1.11 |
| |||||
PER SHARE OF COMMON STOCK: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Dividends |
| .68 |
| .66 |
| .64 |
| .63 |
| .62 |
| |||||
Shareholders’ Investment |
| $ | 17.22 |
| $ | 16.03 |
| $ | 11.83 |
| $ | 10.39 |
| $ | 9.79 |
|
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s) |
| 51,472 |
| 45,286 |
| 43,279 |
| 43,230 |
| 43,196 |
| |||||
DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING |
| 51,954 |
| 50,680 |
| 48,959 |
| 48,904 |
| 43,932 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
OTHER DATA (1) (2) |
|
|
|
|
|
|
|
|
|
|
| |||||
SHAREHOLDERS’ INVESTMENT |
| $ | 889,186 |
| $ | 817,595 |
| $ | 514,987 |
| $ | 449,646 |
| $ | 422,752 |
|
LONG-TERM DEBT |
| 486,321 |
| 360,562 |
| 503,397 |
| 499,022 |
| 508,134 |
| |||||
CAPITAL LEASES |
| 1,988 |
| — |
| — |
| — |
| — |
| |||||
TOTAL ASSETS |
| 1,998,968 |
| 1,637,153 |
| 1,475,193 |
| 1,356,601 |
| 1,306,243 |
| |||||
PLANT AND EQUIPMENT |
| 981,943 |
| 867,987 |
| 876,664 |
| 879,635 |
| 890,191 |
| |||||
PLANT AND EQUIPMENT, NET OF RESERVES |
| 434,830 |
| 356,542 |
| 370,784 |
| 395,215 |
| 416,361 |
| |||||
PROVISION FOR DEPRECIATION |
| 66,348 |
| 59,816 |
| 58,325 |
| 61,091 |
| 56,117 |
| |||||
EXPENDITURES FOR PLANT AND EQUIPMENT |
| 86,075 |
| 52,962 |
| 40,154 |
| 43,928 |
| 61,322 |
| |||||
WORKING CAPITAL |
| $ | 766,537 |
| $ | 681,432 |
| $ | 505,752 |
| $ | 411,241 |
| $ | 381,443 |
|
Current Ratio |
| 3.2 to 1 |
| 3.3 to 1 |
| 2.7 to 1 |
| 2.6 to 1 |
| 2.6 to 1 |
| |||||
NUMBER OF EMPLOYEES AT YEAR-END |
| 9,073 |
| 7,732 |
| 7,249 |
| 6,971 |
| 6,974 |
| |||||
NUMBER OF SHAREHOLDERS AT YEAR-END |
| 4,058 |
| 4,230 |
| 4,503 |
| 4,686 |
| 4,129 |
| |||||
QUOTED MARKET PRICE: |
|
|
|
|
|
|
|
|
|
|
| |||||
High |
| $ | 44.50 |
| $ | 44.22 |
| $ | 25.75 |
| $ | 24.20 |
| $ | 24.19 |
|
Low |
| $ | 30.83 |
| $ | 24.68 |
| $ | 15.38 |
| $ | 14.83 |
| $ | 15.19 |
|
(1) The amounts include the acquisitions of Generac Portable Products, Inc. since May 15, 2001, Simplicity Manufacturing, Inc. since July 7, 2004, and certain assets of Murray, Inc. and Murray Canada Co. since February 11, 2005. Refer to the Notes to Consolidated Financial Statements.
(2) Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
9
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Acquisitions
On July 7, 2004, Briggs & Stratton Corporation and its subsidiary, Briggs & Stratton Power Products Group, LLC, acquired Simplicity Manufacturing, Inc. (“Simplicity”) for $227 million plus certain transaction related expenses. Simplicity designs, manufactures and markets a wide variety of premium yard and garden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. On February 11, 2005, Briggs & Stratton Corporation and its subsidiaries Briggs & Stratton Power Products Group, LLC and Briggs & Stratton Canada Inc. acquired certain assets of Murray, Inc. and Murray Canada Co (collectively “Murray”) for $121 million and entered into a transition supply agreement (“TSA”). The TSA gave Briggs & Stratton the right to purchase finished lawn, garden and snow products from Murray for a period up to eighteen months. Briggs & Stratton has reached an agreement with Murray to end the TSA effective September 30, 2005. See Note 153 of the Notes to Consolidated Financial Statements for detailed information on these acquisitions.
Results of Operations
FISCAL 2005 COMPARED TO FISCAL 2004
Net Sales
Fiscal 2005 consolidated net sales were approximately $2.7 billion, an increase of $708 million, or 36% compared to the previous year. The increase is attributable almost entirely to growth within the Power Products Segment.
Engine Segment net sales were $1.7 billion versus $1.6 billion in the prior year, an improvement of $122 million or 8%. The improvement was the result of a 10% engine unit shipment increase, which contributed $148 million; and $35 million from pricing and a favorable Euro exchange rate. The increase in Engine unit shipments was driven by market share gains as well as $119 million in increased shipments to our Power Products Segment, that were eliminated in consolidation. These favorable items were offset by: a mix of product that favored lower priced units and $22 million of lower service and component sales.
Power Products net sales were $1.2 billion versus $489 million in the prior year, a $704 million increase. The acquisition of Simplicity and Murray contributed $389 and $214 million respectively to the Segment’s growth. In addition, increased generator demand sparked by unprecedented hurricane activity early in the year, as well as Florida legislation that provided for a tax holiday on purchases of hurricane related supplies late in the fiscal year, resulted in increased segment sales of $102 million.
Gross Profit
Consolidated gross profit increased $65 million between years. The acquisition of Simplicity added $69 million. The sales of Murray branded products and components added $2 million. These increases along with other volume and price improvements in both segments were offset by significant cost increases, which led to margin percentage decreases in both segments.
Engine Segment margins decreased from 24% in fiscal 2004 to 21% in fiscal 2005. Pricing improvements, including the impact of the Euro, added $35 million to the Engine Segment margin. Manufacturing cost reduction programs contributed an additional $12 million. These positive margin enhancers were not enough to overcome a $59 million increase in manufacturing costs, primarily overhead, raw materials and component costs, and a $19 million decrease from a mix of lower margined product. Consistent with the prior year, the cost increases reflect initiatives by many vendors to pass along higher costs due to price pressures on scrap aluminum and steel. We currently anticipate that our 4.5% price increase and continued manufacturing cost reduction efforts should offset these costs in fiscal 2006.
The Power Products Segment margin decreased to 11% in fiscal 2005 from 12% in fiscal 2004. The acquisition of Simplicity contributed 9% gross margin in fiscal 2005 after the application of purchase accounting on acquired inventory. Murray sales were essentially at a zero margin after the application of purchase accounting, which reduced the overall segment margin by 3%. The margins on generators and pressure washers declined between years as the $10 million impact of pricing improvements was offset by component and freight costs on expedited shipments to meet generator demand early in the year. In addition, Euro purchases reduced the gross margin of the Power Products Segment by $4 million. Under the Company’s foreign currency management program, this negative impact on margins was offset by the positive impact of the Euro discussed for the Engine Segment.
10
Engineering, Selling, General and Administrative Costs
Engineering, selling, general and administrative costs increased $108 million or 53% compared to fiscal 2004. The write-off of a trade receivable from Murray, Inc. accounts for $39 million of the increase. The acquisition of Simplicity added another $56 million to the category. The remaining increase is attributable to planned increases in advertising expenses, increased salaries and fringe benefits, and increased international variable selling costs, including $1 million from the impact of a stronger Euro.
Interest Expense
Interest expense decreased approximately $1 million in fiscal 2005 compared to fiscal 2004. The decrease is attributable to lower borrowings between years.
Other Income
Other income increased $12 million between fiscal years 2005 and 2004. The increase is due to the receipt of $12 million in cash dividends from an equity investment in preferred stock of Metal Technologies, Inc., the entity that acquired two ductile foundries from the Company in August of 1999. Refer to Note 9 of the Notes to Consolidated Financial Statements for the details of the components of other income.
Provision for Income Taxes
The effective tax rate decreased from 34% in fiscal 2004 to 33% in fiscal 2005. The decrease is primarily attributable to a tax benefit on dividend income in the current year.
Extraordinary Gain
The extraordinary gain represents the difference between the estimated fair value of the selected assets acquired from Murray and the cash paid, after all tax considerations. See Note 3 of the Notes to Consolidated Financial Statements for additional information on this acquisition. The following Management Discussion and Analysis does not include a discussion of Simplicity’s operating results because this transaction occurred subsequent to our fiscal year-end.
Results of Operations
FISCAL 2004 COMPARED TO FISCAL 2003
Net Sales
Fiscal 2004 consolidated net sales were approximately $1.9 billion, an increase of $290 million, or 17% compared to the previous year. The improvement was driven primarily by increased sales volume in both Segments.
Engine Segment net sales were $1.6 billion in fiscal 2004, an increase of $189 million or 13% compared to the prior year. Engine Segment increases were driven by an 11% increase in unit volume resulting in $163 million in net sales. $59 million or 4% of the increase in engine unit volume is attributable to sales to our Power Products Segment. Lawn and garden sales volume gains were driven by a strong selling season at retail. Inventory levels were low at the major original equipment manufacturers going into this fiscal year. As a result, the demand for engines was high all year long in anticipation of a strong season, which materialized. We believe the volume increase is reflective of market growth and market penetration in the U.S. While our European sales unit volume was down due to the drought conditions in Europe during much of fiscal 2004, the Euro exchange rate drove a $26 million increase in net sales.
Power Products net sales were $489 million in fiscal 2004, an increase of $160 million, or 48%, over fiscal 2003. Generator volume benefited significantly by the wide spread power outages that occurred in the first quarter of fiscal 2004, as a result of the eastern electrical grid failure and the landfall of a major hurricane. There were no major power outages in fiscal 2003. These events, along with increased marketing efforts, increased consumer awareness which continued to drive the demand for generators higher in fiscal 2004. Pressure washer net sales gains were driven by continued advertising and promotions at major retailers, consistent with programs launched in the prior year and increased placement at a major retailer.
Gross Profit
Consolidated gross profit increased $112 million between years. Volume increases generated $76 million of the improvement; with approximately $60 million from increases in the Engine Segment and the remainder from the Power Products Segment. The remaining $36 million of gross margin increases came from gross margin percentage improvements in the Engine Segment.
Engine Segment margins improved from 20% to 24%. Pricing improvement due to the impact of a stronger Euro on European sales contributed $26 million to the improvement. A 14% increase in production volume contributed $18 million in absorption benefits and our manufacturing cost reduction programs contributed an additional $14
11
$14 million to the improvement. These positive margin enhancers were partially offset by a $22 million net increase in manufacturing costs, primarily overhead, raw materials and component costs. These cost increases reflect initiatives by many vendors to pass along higher costs due to price pressures on scrap aluminum and steel. We expect these cost increases to continue in fiscal 2005. We currently anticipate that our cost reduction programs and sales pricing initiatives should offset these higher costs.
The Power Products Segment margin was at 12% in both fiscal 2004 and fiscal 2003. A 55% production volume improvement and manufacturing cost reduction efforts were offset by increased purchased component costs. The Power Products Segment purchases a major pressure washer component from a European supplier in Euros. In fiscal 2004 the Euro purchases reduced gross margins of the Power Products Segment by approximately $12 million. Under the Company’s foreign currency management program, this negative impact on margins was offset by the positive impact of the Euro discussed for the Engine Segment.
Engineering, Selling, General and Administrative Costs
Engineering, selling, general and administrative costs increased $28 million or 15% compared to fiscal 2003. Increases in this category include salaries and fringe benefit cost increases of approximately $6 million, professional services of $6 million, marketing cost increases of $5 million and international variable selling cost increases of $6 million. In addition, $2 million of the increase is attributable to bad debt expense associated with a prior fiscal year customer bankruptcy. The increases in salaries and fringe benefits reflect increased incentive compensation awards in the current year, as well as increased employee benefit costs, essentially pension and health care. The increase in professional services is attributable to several consulting projects related to our distributor channels, emissions regulations and Sarbanes-Oxley compliance efforts. Increased marketing costs were driven by increased spending on Power Products’ market expansion and international marketing efforts. Increases in international variable selling costs include $2 million attributable to translating Euro denominated expenditures by a stronger Euro.
Interest Expense
Interest expense decreased $3 million in fiscal 2004 compared to fiscal 2003. The decrease is essentially the result of reduced working capital borrowings in the current year and the impact of a fixed to variable interest rate swap. On March 16, 2004, the Company called for the redemption of its $140 million 5% convertible senior notes due in 2006. Substantially all of the holders of the notes exercised their conversion rights prior to the redemption date of May 15, 2004. This resulted in the issuance of approximately three million treasury shares in May 2004 and the write-off of approximately $2 million in deferred financing costs. The redemption of these bonds eliminated all convertible debt and reduced our long-term debt to approximately $361 million. The redemption will also eliminate approximately $7 million in interest expense in fiscal 2005. In April 2004, all interest rate swaps were terminated resulting in a net gain of approximately $500 thousand.
Other Income
Other income remained at approximately $9 million in fiscal 2004, consistent with prior years. Refer to Note 89 of the Notes to Consolidated Financial Statements for detail of the components of other income.
Provision for Income Taxes
The effective tax rate increased from 32% in fiscal 2003 to 34% in fiscal 2004. The rate reflects less of a benefit from foreign and state tax credits. Earnings from some of our foreign subsidiaries waswere down due to market conditions, while the domestic income contribution increased. The impact of lower tax credits was offset by a reduction in the tax provision due to the closing of a tax audit year and recording additional tax benefits related to the filing of our fiscal 2003 income tax return.
FISCAL 2003 COMPARED TO FISCAL 2002
Net Sales
Fiscal 2003 consolidated net sales were approximately $1.7 billion, an increase of $128 million, or 8% compared to the previous year. Power Products sales increased $105 million, accounting for the majority of the increase. Generator sales increased $54 million to $152 million, up from $98 million in 2002. Fiscal 2003 marked the return of significant demand-creating events such as hurricanes and ice storms after a two-year absence of significant activity. The generator market decreased significantly after the record demand created by the concern over year 2000 issues. We do not believe this market to be mature and have developed marketing campaigns to increase brand awareness and drive purchase decisions. We believe our efforts have generated demand resulting in increased household penetration. Our marketing efforts in fiscal 2003 included retailer specific flyers and promotions, national and regional advertising, and television and radio ads. We believe the return of weather events and our cooperative promotional activities together resulted in the sales increase in fiscal 2003. Pressure washer sales increased $49 million to $164 million, up from $115 million in fiscal 2002. Pressure washer sales also benefited from similar promotional campaigns, as described above. The remainder of the consolidated sales increase was attributable to the Engine Segment. Improved engine unit volume resulted in a $28 million sales increase and greater volume in component parts and international service sales provided another $22 million sales increase. The remainder of the increase was primarily price improvement on international sales, as a result of a stronger Euro. Offsetting the Engine Segment improvements were $46 million of increased sales to the Power Products Segment that were eliminated in consolidation. Engine Segment volume improvements were driven by market growth.
Gross Profit
Consolidated gross profit increased $58 million over the previous year. Volume increases generated $23 million of the improvement, with approximately $13 million from volume increases in the Engine Segment and the remainder from the Power Products Segment volume. The remaining $35 million of gross margin increases came from improvements in gross margin percentages in both business Segments. Engines improved from 18% to 20% and Power Products improved from 10% to 12%. The gross margin percentage change in Engines resulted in approximately $28 million of improvement to gross margins between years. Pricing improvement, primarily due to the impact on European sales of a stronger Euro, contributed $12 million to the improvement and net reductions in manufacturing costs and an 11% increase in production volume each provided another $8 million of gross margin improvement.
On an ongoing basis we challenge our operations group to lower our manufacturing costs in order to remain competitive in the marketplace. Historical areas of focus have been product engineering, labor productivity, controllable overhead spending, warranty and quality costs, as well as purchased component pricing. While none of these items account for an individually significant portion of our savings, the net impact across our six production facilities was a reduction in cost of $8 million.
The Power Products gross margin percentage increase of 2% resulted in approximately $7 million of improved gross margin. A 59% production volume increase was the primary driver of the improvement. As previously discussed, an increase in weather related events and promotional activities increased demand for generators and pressure washers in fiscal 2003. The increased demand allowed us to increase production volume between years.
Engineering, Selling, General and Administrative Costs
Engineering, selling, general and administrative costs increased $24 million or 16% compared to fiscal 2002. Increases in this category include salaries and fringe benefit cost increases of approximately $13 million, marketing cost increases of $6 million and international variable selling cost increases of $4 million. The increases in salaries and fringe benefits reflect increased incentive compensation awards in fiscal 2003, as well as increased employee benefit costs, essentially pension and health care. Increased marketing costs were driven by increased spending on Power Products market expansion and international marketing efforts.
Interest Expense
Interest expense decreased $4 million in fiscal 2003 compared to fiscal 2002. The decrease is essentially the result of reduced working capital borrowings in the current year and the impact of a fixed to variable interest rate swap.
Other Income
Other income remained at $9 million in fiscal 2003, consistent with prior years. Refer to Note 8 of the Notes to Consolidated Financial Statements for detail as to the components of other income.
Provision for Income Taxes
The effective tax rate decreased from 34% in fiscal 2002 to 32% in fiscal 2003. This decrease is attributable to tax credits related to increased foreign sourced income.
Liquidity and Capital Resources
FISCAL YEARS 2005, 2004 2003 AND 20022003
Cash flows from operating activities were $46$149 million, $167$50 million and $200$174 million in fiscal 2005, 2004 and 2003 respectively.
The fiscal 2005 cash flows from operations were $98 million higher than the prior year. Fiscal 2005 did not experience the significant increase in inventories experienced in 2004, resulting in a $142 million improvement in cash flows in fiscal 2005. During fiscal 2004, inventories for engines and 2002, respectively.power products were increased to what management believes are a more normal level. Accordingly, no such incremental inventory build-up was required in fiscal 2005. Offsetting the favorable impact of inventory levels on cash flows was a $27 million reduction in accounts payable and accrued liabilities between years. The decrease is primarily attributable to a $19 million reduction in incentive compensation accruals between years and $5 million in lower rebate accruals.
12
The fiscal 2004 cash flowflows from operating activities were $122$123 million lower than the prior year. Fiscal 2004 experienced a significant increase in inventory levels, which reduced cash flows from operating activities by $129 million in fiscal 2004 and $117 million between years. Engine inventories increased $76 million between years. This increase is attributable to strong production levels through the end of the fiscal year driven by a strong selling season at retail. In addition, we believebelieved that the increased inventory iswas needed to meet our forecast for fiscal 2005. Our Power Products Segment also experienced an increase in inventory levels of $53 million between years. This increase in inventory reflects strong production levels throughout the year in order to replenish depleted inventories after the demand creating events for generators in the current year. The current
inventory levels reflect our judgment of levels needed to maintain our position as the market leader in responsiveness to customer demand.fiscal 2004. Pressure washer inventory levels reflectreflected increasing demand for the product due to significant market growth in the category. Inventory on hand will always reflect demand and our ability to respond to market changes at our production facilities in a timely manner.
Also contributing to the lower cash flows from operating activities in fiscal 2004 were increased receivables growth between years of $23 million, which reflects our sales growth at both Segments and timing of payments, lower payable increases between years of $40 million and lower deferred tax provisions between years of $11 million. Offsetting these reductions in cash flows in fiscal 2004 were increased earnings of $55 million, a reduction in prepaid expenses between years of $7 million and lower pension income of $7 million.
The fiscal 2003 cash flowflows from operating activities was $32were $26 million lower than the prior year. Fiscal 2003 did not experience the significant reduction in inventory investment experienced in fiscal 2002, which caused cash flows to be $134 million less between years. Inventory levels are a function of planned production levels based on anticipated demand, contrasted with actual sell through of product at retail. In fiscal 2001 the market was soft resulting in lower than anticipated sales for the year and increased inventory levels throughout the channel. As a result of the unusually high inventory levels at the end of fiscal 2001, we lowered our planned production in 2002. The 2002 lawn and garden selling season was strong, and we were successful in getting our inventory levels back to a level we considered normal. The fiscal 2003 selling season was also strong resulting in no significant change in our inventory levels.
Offsetting this reduction in cash flowflows in fiscal 2003 were improved cash flows related to increased earnings of $28 million, a lower accounts receivable increase between years of $51 million and higher current liabilities of $19 million. Accounts receivable levels increased in fiscal 2002 because of strong fourth quarter sales versus the prior year. Sales strength in the fourth quarter was similar between fiscal 2003 and 2002 resulting in an accounts receivable balance that did not change significantly. Current liabilities, primarily accruals for profit sharing were greater between years because better performance in fiscal 2003 resulted in larger bonus awards than the prior year.
Cash used in investing activities was $42$437 million, $27$47 million and $38$33 million in fiscal 2005, 2004 and 2003, and 2002, respectively. CashThese cash flows include capital expenditures of $86 million, $53 million $40 million and $44$40 million in fiscal 2005, 2004 and 2003, and 2002, respectively. TheseThe capital expenditures relate primarily to reinvestment in equipment, capacity additions and new products.
In fiscal 2005, cash used in investing activities also includes $232 million in cash paid for the Simplicity acquisition and $122 million for the acquisition of certain Murray assets.
In fiscal 2004, Briggs & Stratton received $6 million as a refund of a portion of the cash paid for the BSPPG acquisition in fiscal 2001. The amount was to adjust the original purchase price for the actual value received in acquired receivables and inventory.
In fiscal 2003, Briggs & Stratton increased its investment in its China joint venture from 52% to 90%. This increase in ownership interest gave Briggs & Stratton control over the joint venture. Accordingly, its operating results are now reflected in Briggs & Stratton’s consolidated financial statements. The actual cash outlay in fiscal 2003 for the restructuring was $343 thousand; however, the consolidation resulted in an increase in cash of approximately $4 million.
Briggs & Stratton provided cash from financing activities totaling $106 million and $13 million in fiscal 2004.2005 and 2004 respectively. Briggs & Stratton used $37 million of cash in financing activities totaling $37 million and $38in fiscal 2003. Early in fiscal 2005 the Company used its available cash to finance the acquisition of Simplicity. To finance the acquisition of the Murray assets the Company issued $125 million in term notes in fiscal 20032005. The Company incurred $1 million in fees in fiscal 2005 negotiating the term notes and 2002, respectively.an amendment to its revolving credit facility. During fiscal 2004, Briggs & Stratton did not use its revolver to finance working capital needs. In fiscal 2003 the companyCompany used available cash to pay off its short-term loans and notes payable of $15 million.
13
During fiscal 2005, the Company received $45$20 million from the exercise of stock options as opposedcompared to $5 million and $1$45 million in fiscal 20032004 and 2002, respectively.$5 million in fiscal 2003. The stock and option activity is a direct reflection of the market value of the Company’s stock and option strike prices which encouragedthat encourage the exercise of the options.
During fiscal 2003, the Company paid down $15 million of its short-term loans and notes payable. These loans were primarily used to fund the short-term working capital needs of Briggs & Stratton’s foreign operations. Given the level of cash flows the last two fiscal years and the available cash on hand, Briggs & Stratton made the decision to pay off these borrowings and fund these operations with available cash. Briggs & Stratton did not use its revolver to finance working capital needs during fiscal 2004. In fiscal 2004, Briggs & Stratton also incurred $2 million to negotiate a new revolving credit agreement. During fiscal 2002 Briggs & Stratton repaid $10 million of its 7.25% Senior Notes due in 2007.
Future Liquidity and Capital Resources
As previously noted, Briggs & Stratton acquired Simplicity Manufacturing, Inc. in July of fiscal 2005, using its available cash. We don’t believe the acquisition of Simplicity will significantly alter our future liquidity and capital needs given its profitability and existing receivable financing arrangements.
Briggs & Stratton has negotiated a new five-year $275$350 million revolving credit facility that expires in May 2009. This credit facility will be used to fund seasonal working capital requirements and other financing needs. This facility and Briggs & Stratton’s other indebtedness contain certain restrictive covenants described in Note 78 of the Notes to Consolidated Financial Statements. Because of our financial strength we were able to negotiate less restrictive covenants under the new revolving credit facility, specifically the covenants do not include the springing lien provisions of our previous credit facility.
Briggs & Stratton expects capital expenditures to be $87$80 million in fiscal 2005.2006. These anticipated expenditures reflect our plans to continue to reinvest in equipment, new products, and capacity enhancements.
Management believes that available cash, the credit facility, cash generated from future operations, existing lines of credit and access to debt markets will be adequate to fund Briggs & Stratton’s capital requirements for the foreseeable future.
Financial Strategy
Management believes that the value of Briggs & Stratton is enhanced if the capital invested in operations yields a cash return that is greater than the cost of capital. Consequently, management’s first priority is to reinvest capital into physical assets and products that maintain or grow the global cost leadership and market positions that Briggs & Stratton has achieved, and drive the economic value of the Company. Management’s next financial objective is to identify strategic acquisitions or alliances that enhance revenues and provide a superior economic return. Several successful joint ventures and the acquisition of BSPPGGenerac Portable Products, Inc. and Simplicity are examples of our successful execution of this strategy. Finally, management believes that when capital cannot be invested for returns greater than the cost of capital, we should return capital to the capital providers. This approach is apparent in the programs we executed to repurchase commonproviders through dividends and/or stock from fiscal 1997 through 2001.buy-back.
Off-Balance Sheet Arrangements
Briggs & Stratton has no off-balance sheet arrangements or significant guarantees to third parties not fully recorded in our Balance Sheets or fully disclosed in our Notes to Consolidated Financial Statements. Briggs & Stratton’s significant contractual obligations include our debt agreements and certain employee benefit plans.
Briggs & Stratton is subject to financial and operating restrictions in addition to certain financial covenants under its domestic debt agreements. As is fully disclosed in Note 78 of the Notes to Consolidated Financial Statements, these restrictions could limit our ability to: pay dividends; incur further indebtedness; create liens; enter into sale and/or leaseback transactions; consolidate, sell or lease all or substantially all of our assets; and dispose of assets or the proceeds of our assets. We believe we will remain in compliance with these covenants in fiscal 2005.2006. Briggs & Stratton has obligations concerning certain employee benefits including 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 Consolidated Financial Statements.
Contractual Obligations
A summary of the Company’s expected payments for significant contractual obligations as of June 27, 2004July 3, 2005 is as follows (in thousands):
| 2005 | 2006-2007 | 2008-2009 | Thereafter | Total |
| 2006 |
| 2007-2008 |
| 2009-2010 |
| Thereafter |
| Total |
| ||||||||||||||||
Long-Term Debt | $ | — | $ | 89,403 | $ | — | $ | 271,159 | $ | 360,562 |
| $ | — |
| $ | 215,000 |
| $ | — |
| $ | 275,000 |
| $ | 490,000 |
| |||||
Interest on Long-Term Debt | 30,931 | 57,512 | 48,812 | 42,710 | 179,965 |
| 36,530 |
| 63,327 |
| 48,813 |
| 17,288 |
| 165,958 |
| |||||||||||||||
Capital Leases |
| 758 |
| 1,539 |
| — |
| — |
| 2,297 |
| ||||||||||||||||||||
Operating Leases | 7,552 | 6,845 | 2,794 | 1,265 | 18,456 |
| 11,508 |
| 16,578 |
| 9,609 |
| 7,019 |
| 44,714 |
| |||||||||||||||
Consulting Agreement |
| 288 |
| 175 |
| — |
| — |
| 463 |
| ||||||||||||||||||||
Transition Supply Agreement |
| 92,513 |
| — |
| — |
| — |
| 92,513 |
| ||||||||||||||||||||
| $ | 141,597 |
| $ | 296,619 |
| $ | 58,422 |
| $ | 299,307 |
| $ | 795,945 |
| ||||||||||||||||
| $ | 38,483 | $ | 153,760 | $ | 51,606 | $ | 315,134 | $ | 558,983 | ||||||||||||||||||||||
14
As of June 27, 2004,July 3, 2005, the Company had no material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment which generally have terms of less than 90 days. The Company also has long-term obligations related to its pension and postretirement plans which are discussed in detail in Note 13 to the financial statements. As of its most recent actuarial measurement date, no pension plan contributions are required in fiscal 2005, and postretirement medical claims are paid as they are submitted.
Other Matters
Early Retirement Incentive Program
In the second quarter of fiscal 2002, Briggs & Stratton offered and finalized an early retirement incentive program. The net reduction in the global salaried workforce was approximately 7%.
The impact for fiscal year 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 impact on net income was the result of recognizing the cost of the special termination benefits, which reduced net periodic pension income.
Labor Agreement
Briggs & Stratton has collective bargaining agreements with its unions. These agreements expire in 2006 for the Engines Segment and in 2007 for the Power Products Segment.at various times ranging from 2006-2008.
Emissions
The U.S. Environmental Protection Agency (EPA) has developed national emission standards under a two phase process for small air cooled engines. Briggs & Stratton currently has a complete product offering which complies with the EPA’s Phase I engine emission standards. The Phase II program imposes more stringent standards over the useful life of the engine and is beinghas been phased in through 2005 for Class II (225 or greater cubic centimeter) displacement engines and will be phased in through 2008 for Class I (under 225 cubic centimeter) displacement engines. The majority of Briggs & Stratton’s engines are certified to be compliant with the EPA’s Phase II standards. Accordingly, Briggs & Stratton does not believe compliance with the new standards will have a material adverse effect on its financial position or results of operations.
EPA is also evaluating the development of Phase III standards to further reduce engine exhaust emissions and to control evaporative emissions from small off-road engines and equipment they are used in. A draft regulation is scheduled for publication by the end ofin early calendar year 2004.2006. We cannot predict the scope of any proposal or of the final regulations that EPA may ultimately adopt, and accordingly cannot estimate what, if any, impact such regulations could have on future financial performance.
The California Air Resources Board (CARB) staff issued a revised proposed Tier 3 regulation requiring additional reductions to engine exhaust emissions and also requiring new controls on evaporative emissions from small engines. The CARB staff proposal is phased in between 2006 and 2008 depending upon the size of the engine and type of control. While Briggs & Stratton believes the cost of the proposed regulation on a per engine basis may be significant, Briggs & Stratton does not believe the CARB staff proposal will have a material effect on its financial condition or results of operations. This assessment is based on a number of factors, including the “Bond Amendment”federal regulation, which precludes other states from opting into the California standard, revisions CARB made to its proposal from that published in September 2003 in response to recommendations from Briggs & Stratton and others in the regulated category, the fact that California represents a relatively small percentage of Briggs & Stratton’s engine sales and our ability and intention to pass increased costs associated with the CARB regulation on to California consumers.
The European Commission adopted an engine emission Directive regulating exhaust emissions from engines manufactured by Briggs & Stratton. The European Directive parallels the regulation previously promulgated by the U.S. EPA; therefore,EPA. Stage 1 was effective in February, 2004 and Stage 2 will be phased in from 2005 to 2007, with some limited extensions available for specific size and type engines until 2010. Briggs & Stratton’s full European product line has been compliant with Stage 1 since 2004. Briggs & Stratton anticipates havingintends to have a full European product line offering which compliescompliant with Stage I and II of the Directive.2. Briggs & Stratton does not believe compliance with the new Directive will have a material adverse effect on its financial position or results of operations.
Critical Accounting Policies
Briggs & Stratton’s critical accounting policies are more fully described in Note 2 and Note 914 of the Notes to Consolidated Financial Statements. As discussed in Note 2, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the recovery of accounts receivable and inventory reserves, as well as those used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, litigation and taxation.
15
The reserves for customer rebates, warranty, product liability, inventory reserves and doubtful accounts are fact specific and take into account such factors as specific customer situations, historical experience, and current and expected economic conditions. Changes in these reserves may be required if actual experience differs from the original estimates.
The Company’s estimate of income taxes payable, deferred income taxes, and the effective tax rate is based on a complex analysis of many factors including interpretations of Federal, state and foreign income tax laws, the difference between tax and financial reporting basisbases of assets and liabilities, estimates of amounts currently due or owed in various jurisdictions, and current accounting standards. We review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known. In addition, Federal, state and foreign taxing authorities periodically review the Corporation’sCompany’s estimates and interpretation of income tax laws. Adjustments to the effective income tax rate and recorded assets and liabilities may occur in future periods if actual results differ significantly from original estimates and interpretations.
The pension benefit obligation and related pension income are calculated in accordance with Statement of Financial Accounting Standard (SFAS) No. 87, “Employers“Employer’s Accounting for Pensions”, and are impacted by certain actuarial assumptions, including the discount rate and the expected rate of return on plan assets. These rates are evaluated on an annual basis considering such factors as market interest rates and historical asset performance. Actuarial valuations at June 27, 2004July 3, 2005 used a discount rate of 6.25%5.25% and an expected rate of return on plan assets of 8.75%. Our discount rate was selected using a benchmark approach against the Moody’s Aa Corporate Bond rate and the Citigroup Pension Liability Index. A 0.25%.25% decrease in the discount rate would decreaseincrease annual pension incomeexpense by approximately $1.3$1.2 million. A 0.25%.25% decrease in the expected return on plan assets would decreaseincrease our annual pension incomeexpense by approximately $2.0 million.
The Other Postretirement Benefits Obligationother postretirement benefits obligation and related expense charge are calculated in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” and are impacted by certain actuarial assumptions, including the health care trend rate. An increase of one percentage point in health care costs would increase the accumulated postretirement benefit obligation by $16.1$22.2 million and would increase the service and interest cost by $900 thousand.$1.7 million. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by $15.0$20.3 million and decrease the service and interest cost by $900 thousand.$1.5 million.
New Accounting Pronouncements
In January 2003,December 2004, the Financial Accounting Standards Board (“FASB”) issued revised Statement 123R, “Share-Based Payment,” to be effective for annual periods beginning after June 15, 2005; thereby, becoming effective for Briggs & Stratton in the first quarter of fiscal 2006. Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the income statement. The cost is recognized over the requisite service period based on fair values measured on grant dates. The new standard may be adopted using either the modified prospective transition method or the modified retrospective method. We are currently evaluating our share-based employee compensation programs, the potential impact of this statement on our consolidated financial position and results of operations, and the alternative adoption methods.
In November 2004, the FASB Interpretationissued SFAS No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities, and151, “Inventory Costs – an Interpretationamendment of ARB No. 51”.43, Chapter 4.” SFAS No. 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. This statement addressesis effective for the consolidation by business enterprises of variable interest entities (“VIEs”), as defined by the statement.company on July 2, 2006. The Company has adopted the provisions of this statement, evaluated its interest in VIEs and determined it is not the primary beneficiary of any VIEs. The Company alsocompany does not believe its variable interest in any VIE is significant to its financial statements taken as a whole. As such, the adoption of this statement did notSFAS No. 151 will have an effecta material impact on the Company’s financial condition or results of operations.its Consolidated Financial Statements.
In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement revises employers’ disclosure about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. It requires additional disclosures to those in the original SFAS No. 132. The adoption of this statement had no effect on the Company’s financial condition or results of operations.16
Briggs & Stratton is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, Briggs & Stratton uses financial instruments. Briggs & Stratton does not hold or issue financial instruments for trading purposes.
Foreign Currency
Briggs & Stratton’s earnings are affected by fluctuations in the value of the U.S. dollar against the Japanese Yen and the Euro. The Yen is used to purchase engines from Briggs & Stratton’s joint venture. Briggs & Stratton purchases components in Euros from third parties and receives Euros for certain products sold to European customers. Briggs & 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 June 27, 2004,July 3, 2005, Briggs & Stratton had the following forward foreign exchange contracts outstanding with the Fair Value (Gains) Losses shown (in thousands):
Hedge Currency | Notional Value | Fair Market Value | Conversion Currency | (Gain)/Loss at Fair Value | ||||||||||||||||||
Hedge |
| Notional |
| Fair Market |
| Conversion |
| (Gain)/Loss |
| |||||||||||||
Currency |
| Value |
| Value |
| Currency |
| at Fair Value |
| |||||||||||||
Japanese Yen | 1,680,000 | $ | 15,698 | U.S. | $ | (171 | ) |
| 2,550,000 |
| $ | 23,240 |
| U.S. |
| $ | 1,221 |
| ||||
Euro | 87,000 | $ | 105,747 | U.S. | $ | 2,839 |
| 35,000 |
| $ | 42,319 |
| U.S. |
| $ | (1,585 | ) | |||||
Australian Dollars | 375 | $ | 261 | U.S. | $ | 14 |
| 2,391 |
| $ | 1,781 |
| U.S. |
| $ | (11 | ) | |||||
All of the above contracts expire within twelve months.
Fluctuations in currency exchange rates may also impact the shareholders’ investment in Briggs & Stratton. Amounts invested in Briggs & Stratton’s non-U.S. subsidiaries and joint ventures are translated into U.S. dollars at the exchange rates in effect at fiscal year-end. The resulting cumulative translation adjustments are recorded in Shareholders’ Investment as Accumulated Other Comprehensive Income. The cumulative translation adjustments component of Shareholders’ Investment increased $3.0$0.9 million during the year. Using the year-end exchange rates, the total amount invested in non-U.S. subsidiaries on June 27, 2004July 3, 2005 was $59.4$87.3 million.
Interest Rates
Briggs & Stratton is exposed to interest rate fluctuations on its borrowings. Dependingborrowings, depending on general economic conditions, Briggs & Stratton has typically used variable rate debt for short-term borrowings and fixed rate debt for longer-term borrowings.conditions.
On June 27, 2004,July 3, 2005, Briggs & Stratton had the following short-term loans outstanding (in thousands):
|
|
| Weighted Average |
| ||||||
Currency | Amount | Weighted Average Interest Rate |
| Amount |
| Interest Rate |
| |||
Australian Dollars | 1,000 | 7.01 | % |
| 250 |
| 7.19 | % | ||
Euro | 993 | 8.00 | % |
| 214 |
| 5.00 | % | ||
U.S. Dollars | 1,220 | 2.98 | % | |||||||
These 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 $32$5 thousand.
Long-term loans, net of unamortized discount, consisted of the following (in thousands):
Description | Amount | Maturity | |||
7.25% Notes | $ | 89,403 | 2007 | ||
8.875% Notes | $ | 271,159 | 2011 | ||
Description |
| Amount |
| Maturity |
| ||
7.25% | Senior Notes |
| $ | 89,589 |
| 2007 |
|
8.875% | Senior Notes |
| $ | 271,732 |
| 2011 |
|
Variable Rate Term Notes |
| $ | 125,000 |
| 2008 |
| |
These loansThe Senior Notes carry fixed rates of interest.interest and are therefore not subject to market fluctuation. The Variable Rate Term Note is subject to interest rate fluctuations, therefore an increase (decrease) of one percentage point in the weighted average interest rate would increase (decrease) interest expense by $1.25 million.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
AS OF JULY 3, 2005 AND JUNE 27, 2004 AND JUNE 29, 2003
(in thousands)
| 2004 | 2003 |
| 2005 |
| 2004 |
| |||||||
| ASSETS |
|
|
|
|
| ||||||||
CURRENT ASSETS: |
|
|
|
|
| ||||||||
|
|
|
|
|
| ||||||||
Cash and Cash Equivalents | $ | 342,394 | $ | 324,815 |
| $ | 161,573 |
| $ | 342,394 |
| ||
Receivables, Less Reserves of $1,584 and $1,780, Respectively | 230,510 | 201,948 | |||||||||||
Inventories: | |||||||||||||
Receivables, Less Reserves of $5,461 and $1,584, Respectively |
| 360,786 |
| 230,510 |
| ||||||||
Inventories: |
|
|
|
|
| ||||||||
Finished Products and Parts | 206,638 | 128,998 |
| 283,405 |
| 206,638 |
| ||||||
Work in Process | 124,483 | 76,929 |
| 174,648 |
| 124,483 |
| ||||||
Raw Materials | 6,610 | 3,211 |
| 11,612 |
| 6,610 |
| ||||||
Total Inventories | 337,731 | 209,138 |
| 469,665 |
| 337,731 |
| ||||||
Deferred Income Tax Asset | 47,623 | 48,674 |
| 92,251 |
| 47,623 |
| ||||||
Prepaid Expenses and Other Current Assets | 23,735 | 22,572 |
| 34,930 |
| 23,735 |
| ||||||
Total Current Assets |
| 1,119,205 |
| 981,993 |
| ||||||||
|
|
|
|
| |||||||||
Total Current Assets | 981,993 | 807,147 | |||||||||||
GOODWILL | 151,991 | 159,756 |
| 253,066 |
| 151,991 |
| ||||||
|
|
|
|
|
| ||||||||
OTHER INTANGIBLE ASSETS, Net |
| 96,445 |
| 175 |
| ||||||||
|
|
|
|
|
| ||||||||
INVESTMENTS | 49,259 | 44,175 |
| 49,783 |
| 49,259 |
| ||||||
|
|
|
|
|
| ||||||||
PREPAID PENSION | 81,730 | 74,005 |
| — |
| 81,730 |
| ||||||
|
|
|
|
|
| ||||||||
DEFERRED LOAN COSTS, Net | 6,325 | 8,314 |
| 6,016 |
| 6,325 |
| ||||||
|
|
|
|
|
| ||||||||
OTHER LONG-TERM ASSETS, Net | 9,313 | 11,012 |
| 39,623 |
| 9,138 |
| ||||||
|
|
|
|
|
| ||||||||
PLANT AND EQUIPMENT: |
|
|
|
|
| ||||||||
|
|
|
|
|
| ||||||||
Land and Land Improvements | 16,027 | 15,938 |
| 20,554 |
| 16,027 |
| ||||||
Buildings | 163,621 | 156,823 |
| 172,093 |
| 163,621 |
| ||||||
Machinery and Equipment | 674,047 | 689,100 |
| 768,091 |
| 674,047 |
| ||||||
Construction in Progress | 14,292 | 14,803 |
| 21,205 |
| 14,292 |
| ||||||
| 981,943 |
| 867,987 |
| |||||||||
| 867,987 | 876,664 | ||||||||||||
Less - Accumulated Depreciation | 511,445 | 505,880 |
| 547,113 |
| 511,445 |
| ||||||
Total Plant and Equipment, Net | 356,542 | 370,784 |
| 434,830 |
| 356,542 |
| ||||||
| $ | 1,998,968 |
| $ | 1,637,153 |
| |||||||
| $ | 1,637,153 | $ | 1,475,193 | ||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
18
AS OF JUNEJULY 3, 2005 AND JULY 27, 2004 AND JUNE 29, 2003
(in thousands, except per share data)
| 2004 | 2003 |
| 2005 |
| 2004 |
| |||||||||
| LIABILITIES AND SHAREHOLDERS’ INVESTMENT |
|
|
|
|
| ||||||||||
|
|
|
|
|
| ||||||||||
CURRENT LIABILITIES: |
|
|
|
|
| ||||||||||
|
|
|
|
|
| ||||||||||
Accounts Payable | $ | 120,409 | $ | 134,441 |
| $ | 155,973 |
| $ | 120,409 |
| ||||
Domestic Notes Payable | 1,220 | 2,075 | |||||||||||||
Foreign Loans | 1,907 | 865 | |||||||||||||
Short-term Debt |
| 443 |
| 3,127 |
| ||||||||||
Accrued Liabilities: |
|
|
|
|
| ||||||||||
Wages and Salaries | 55,528 | 44,667 |
| 42,715 |
| 55,528 |
| ||||||||
Warranty | 43,148 | 47,590 |
| 59,625 |
| 43,148 |
| ||||||||
Accrued Postretirement Health Care Obligation | 22,000 | 17,000 |
| 26,000 |
| 22,000 |
| ||||||||
Other | 56,349 | 54,757 |
| 67,912 |
| 56,349 |
| ||||||||
Total Accrued Liabilities |
| 196,252 |
| 177,025 |
| ||||||||||
Total Current Liabilities |
| 352,668 |
| 300,561 |
| ||||||||||
DEFERRED INCOME TAX LIABILITY |
| 113,794 |
| 70,454 |
| ||||||||||
|
|
|
|
| |||||||||||
Total Accrued Liabilities | 177,025 | 164,014 | |||||||||||||
ACCRUED PENSION COST |
| 47,944 |
| 20,603 |
| ||||||||||
|
|
|
|
| |||||||||||
Total Current Liabilities | 300,561 | 301,395 | |||||||||||||
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT | 14,929 | 15,163 | |||||||||||||
DEFERRED INCOME TAX LIABILITY | 70,454 | 57,917 | |||||||||||||
ACCRUED PENSION COST | 20,603 | 20,368 | |||||||||||||
ACCRUED EMPLOYEE BENEFITS | 14,201 | 13,901 |
| 15,125 |
| 14,201 |
| ||||||||
|
|
|
|
|
| ||||||||||
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION | 38,248 | 48,065 |
| 77,607 |
| 38,248 |
| ||||||||
|
|
|
|
|
| ||||||||||
LONG-TERM DEBT | 360,562 | 503,397 |
| 486,321 |
| 360,562 |
| ||||||||
|
|
|
|
|
| ||||||||||
OTHER LONG-TERM LIABILITIES |
| 16,323 |
| 14,929 |
| ||||||||||
|
|
|
|
|
| ||||||||||
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
| ||||||||||
|
|
|
|
|
| ||||||||||
SHAREHOLDERS’ INVESTMENT: |
|
|
|
|
| ||||||||||
|
|
|
|
|
| ||||||||||
Common Stock - |
|
|
|
|
| ||||||||||
Authorized 60,000 Shares $.01 Par Value, Issued 28,927 Shares | 289 | 289 | |||||||||||||
Additional Paid-in Capital | 48,657 | 35,074 | |||||||||||||
Authorized 120,000* and 60,000 Shares $.01 Par Value, Issued 57,854* and 28,927 Shares |
| 579 |
| 289 |
| ||||||||||
Additional Paid-In Capital |
| 55,793 |
| 48,657 |
| ||||||||||
Retained Earnings | 927,766 | 822,060 |
| 1,029,329 |
| 927,766 |
| ||||||||
Accumulated Other Comprehensive Income (Loss) | 4,028 | (734 | ) | ||||||||||||
Accumulated Other Comprehensive (Loss) Income |
| (48,331 | ) | 4,028 |
| ||||||||||
Unearned Compensation on Restricted Stock | (1,490 | ) | (287 | ) |
| (1,985 | ) | (1,490 | ) | ||||||
Treasury Stock at cost, 3,382 Shares in 2004 and 7,142 Shares in 2003 | (161,655 | ) | (341,415 | ) | |||||||||||
Treasury Stock at cost, |
|
|
|
|
| ||||||||||
6,114* Shares in 2005 and 3,382 Shares in 2004 |
| (146,199 | ) | (161,655 | ) | ||||||||||
Total Shareholders’ Investment | 817,595 | 514,987 |
| 889,186 |
| 817,595 |
| ||||||||
| $ | 1,998,968 |
| $ | 1,637,153 |
| |||||||||
| $ | 1,637,153 | $ | 1,475,193 | ||||||||||||
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
19
Consolidated Statements of Earnings
FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003 AND JUNE 30, 2002
(in thousands, except per share data)
| 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||||||
NET SALES | $ | 1,947,364 | $ | 1,657,633 | $ | 1,529,300 |
| $ | 2,654,875 |
| $ | 1,947,364 |
| $ | 1,657,633 |
| ||||||
COST OF GOODS SOLD | 1,507,492 | 1,329,554 | 1,259,336 |
| 2,149,984 |
| 1,507,492 |
| 1,329,554 |
| ||||||||||||
Gross Profit on Sales | 439,872 | 328,079 | 269,964 | |||||||||||||||||||
Gross Profit |
| 504,891 |
| 439,872 |
| 328,079 |
| |||||||||||||||
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 205,663 | 178,157 | 153,712 |
| 314,123 |
| 205,663 |
| 178,157 |
| ||||||||||||
Income from Operations | 234,209 | 149,922 | 116,252 |
| 190,768 |
| 234,209 |
| 149,922 |
| ||||||||||||
INTEREST EXPENSE | (37,665 | ) | (40,389 | ) | (44,433 | ) |
| (36,883 | ) | (37,665 | ) | (40,389 | ) | |||||||||
OTHER INCOME, Net | 8,460 | 9,045 | 8,691 |
| 20,430 |
| 8,460 |
| 9,045 |
| ||||||||||||
Income Before Provision for Income Taxes | 205,004 | 118,578 | 80,510 |
| 174,315 |
| 205,004 |
| 118,578 |
| ||||||||||||
PROVISION FOR INCOME TAXES | 68,890 | 37,940 | 27,390 |
| 57,548 |
| 68,890 |
| 37,940 |
| ||||||||||||
Income Before Extraordinary Item |
| 116,767 |
| 136,114 |
| 80,638 |
| |||||||||||||||
EXTRAORDINARY GAIN - NEGATIVE GOODWILL |
| 19,800 |
| — |
| — |
| |||||||||||||||
NET INCOME | $ | 136,114 | $ | 80,638 | $ | 53,120 |
| $ | 136,567 |
| $ | 136,114 |
| $ | 80,638 |
| ||||||
EARNINGS PER SHARE DATA* |
|
|
|
|
|
|
| |||||||||||||||
Weighted Average Shares Outstanding | 22,643 | 21,639 | 21,615 |
| 51,472 |
| 45,286 |
| 43,279 |
| ||||||||||||
BASIC EARNINGS PER SHARE | $ | 6.01 | $ | 3.73 | $ | 2.46 | ||||||||||||||||
Income Before Extraordinary Item |
| $ | 2.27 |
| $ | 3.01 |
| $ | 1.86 |
| ||||||||||||
Extraordinary Gain |
| .38 |
| — |
| — |
| |||||||||||||||
Basic Earnings Per Share |
| $ | 2.65 |
| $ | 3.01 |
| $ | 1.86 |
| ||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Diluted Average Shares Outstanding | 25,340 | 24,480 | 24,452 |
| 51,954 |
| 50,680 |
| 48,959 |
| ||||||||||||
DILUTED EARNINGS PER SHARE | $ | 5.53 | $ | 3.49 | $ | 2.36 | ||||||||||||||||
Income Before Extraordinary Item |
| $ | 2.25 |
| $ | 2.77 |
| $ | 1.74 |
| ||||||||||||
Extraordinary Gain |
| .38 |
| — |
| — |
| |||||||||||||||
Diluted Earnings Per Share |
| $ | 2.63 |
| $ | 2.77 |
| $ | 1.74 |
| ||||||||||||
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
20
Consolidated Statements of Shareholders’ Investment
FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003 AND JUNE 30, 2002
(in thousands, except per share data)
|
|
|
|
|
|
| Accumulated |
| Unearned |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Unearned Compensation on Restricted Stock | Treasury Stock | Comprehensive Income |
|
|
| Additional |
|
|
| Other |
| Compensation |
|
|
|
|
| ||||||||||||||||||||||||||||
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 Marketable Securities, net of tax of $(95) | — | — | — | (148 | ) | — | — | (148 | ) | ||||||||||||||||||||||||||||||||||||||||
Unrealized Loss on Derivatives | — | — | — | (4,313 | ) | — | — | (4,313 | ) | ||||||||||||||||||||||||||||||||||||||||
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| on Restricted |
| Treasury |
| Comprehensive |
| |||||||||||||||||||||||||||||||||||
Total Comprehensive Income | — | — | — | — | — | — | $ | 52,676 | |||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Stock |
| Stock |
| Income |
| |||||||||||||||||||||||||||||||||||
BALANCES, JUNE 30, 2002 | $ | 289 | $ | 35,459 | $ | 769,131 | $ | (6,626 | ) | $ | (199 | ) | $ | (348,408 | ) |
| $ | 289 |
| $ | 35,459 |
| $ | 769,131 |
| $ | (6,626 | ) | $ | (199 | ) | $ | (348,408 | ) |
|
| |||||||||||||
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Net Income | — | — | 80,638 | — | — | — | $ | 80,638 |
| — |
| — |
| 80,638 |
| — |
| — |
| — |
| $ | 80,638 |
| |||||||||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | 4,454 | — | — | 4,454 |
| — |
| — |
| — |
| 4,454 |
| — |
| — |
| 4,454 |
| |||||||||||||||||||||||||||
Unrealized Gain on Marketable Securities, net of tax of $581 | — | — | — | 901 | — | — | 901 |
| — |
| — |
| — |
| 901 |
| — |
| — |
| 901 |
| |||||||||||||||||||||||||||
Unrealized Gain on Derivatives | — | — | — | 3,100 | — | — | 3,100 |
| — |
| — |
| — |
| 3,100 |
| — |
| — |
| 3,100 |
| |||||||||||||||||||||||||||
Minimum Pension Liability Adjustment, net of tax of $(1,638) | — | — | — | (2,563 | ) | — | — | (2,563 | ) |
| — |
| — |
| — |
| (2,563 | ) | — |
| — |
| (2,563 | ) | |||||||||||||||||||||||||
Total Comprehensive Income | — | — | — | — | — | — | $ | 86,530 |
| — |
| — |
| — |
| — |
| — |
| — |
| $ | 86,530 |
| |||||||||||||||||||||||||
Cash Dividends Paid ($1.28 per share) | — | — | (27,709 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Exercise of Stock Options | — | (234 | ) | — | — | — | 5,835 | ||||||||||||||||||||||||||||||||||||||||||
Cash Dividends Paid ($0.64* per share) |
| — |
| — |
| (27,709 | ) | — |
| — |
| — |
|
|
| ||||||||||||||||||||||||||||||||||
Stock Option Activity, net of tax |
| — |
| (234 | ) | — |
| — |
| — |
| 5,835 |
|
|
| ||||||||||||||||||||||||||||||||||
Restricted Stock Issued | — | (97 | ) | — | — | (238 | ) | 335 |
| — |
| (97 | ) | — |
| — |
| (238 | ) | 335 |
|
|
| ||||||||||||||||||||||||||
Amortization of Unearned Compensation | — | — | — | — | 150 | — |
| — |
| — |
| — |
| — |
| 150 |
| — |
|
|
| ||||||||||||||||||||||||||||
Issuance of Treasury Shares | — | (44 | ) | — | — | — | 760 |
| — |
| (44 | ) | — |
| — |
| — |
| 760 |
|
|
| |||||||||||||||||||||||||||
Shares Issued to Directors | — | (10 | ) | — | — | — | 63 |
| — |
| (10 | ) | — |
| — |
| — |
| 63 |
|
|
| |||||||||||||||||||||||||||
BALANCES, JUNE 29, 2003 | $ | 289 | $ | 35,074 | $ | 822,060 | $ | (734 | ) | $ | (287 | ) | $ | (341,415 | ) |
| $ | 289 |
| $ | 35,074 |
| $ | 822,060 |
| $ | (734 | ) | $ | (287 | ) | $ | (341,415 | ) |
|
| |||||||||||||
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Net Income | — | — | 136,114 | — | — | — | $ | 136,114 |
| — |
| — |
| 136,114 |
| — |
| — |
| — |
| $ | 136,114 |
| |||||||||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | 3,042 | — | — | 3,042 |
| — |
| — |
| — |
| 3,042 |
| — |
| — |
| 3,042 |
| |||||||||||||||||||||||||||
Unrealized Gain on Derivatives | — | — | — | 487 | — | — | 487 |
| — |
| — |
| — |
| 487 |
| — |
| — |
| 487 |
| |||||||||||||||||||||||||||
Minimum Pension Liability Adjustment, net of tax of $(788) | — | — | — | 1,233 | — | — | 1,233 | ||||||||||||||||||||||||||||||||||||||||||
Minimum Pension Liability Adjustment, net of tax of $788 |
| — |
| — |
| — |
| 1,233 |
| — |
| — |
| 1,233 |
| ||||||||||||||||||||||||||||||||||
Total Comprehensive Income | — | — | — | — | — | — | $ | 140,876 |
| — |
| — |
| — |
| — |
| — |
| — |
| $ | 140,876 |
| |||||||||||||||||||||||||
Cash Dividends Paid ($1.32 per share) | — | — | (30,408 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Exercise of Stock Options | — | 7,667 | — | — | — | 41,194 | |||||||||||||||||||||||||||||||||||||||||||
Cash Dividends Paid ($0.66* per share) |
| — |
| — |
| (30,408 | ) | — |
| — |
| — |
|
|
| ||||||||||||||||||||||||||||||||||
Stock Option Activity, net of tax |
| — |
| 7,667 |
| — |
| — |
| — |
| 41,194 |
|
|
| ||||||||||||||||||||||||||||||||||
Restricted Stock Issued | — | 322 | — | — | (1,494 | ) | 1,171 |
| — |
| 322 |
| — |
| — |
| (1,494 | ) | 1,171 |
|
|
| |||||||||||||||||||||||||||
Amortization of Unearned Compensation | — | — | — | — | 291 | — |
| — |
| — |
| — |
| — |
| 291 |
| — |
|
|
| ||||||||||||||||||||||||||||
Issuance of Treasury Shares | — | 5,546 | — | — | — | 137,270 |
| — |
| 5,546 |
| — |
| — |
| — |
| 137,270 |
|
|
| ||||||||||||||||||||||||||||
Shares Issued to Directors | — | 48 | — | — | — | 125 |
| — |
| 48 |
| — |
| — |
| — |
| 125 |
|
|
| ||||||||||||||||||||||||||||
BALANCES, JUNE 27, 2004 | $ | 289 | $ | 48,657 | $ | 927,766 | $ | 4,028 | $ | (1,490 | ) | $ | (161,655 | ) |
| $ | 289 |
| $ | 48,657 |
| $ | 927,766 |
| $ | 4,028 |
| $ | (1,490 | ) | $ | (161,655 | ) |
|
| ||||||||||||||
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Net Income |
| — |
| — |
| 136,567 |
| — |
| — |
| — |
| $ | 136,567 |
| |||||||||||||||||||||||||||||||||
Foreign Currency Translation Adjustments |
| — |
| — |
| — |
| 881 |
| — |
| — |
| 881 |
| ||||||||||||||||||||||||||||||||||
Unrealized Gain on Derivatives |
| — |
| — |
| — |
| 419 |
| — |
| — |
| 419 |
| ||||||||||||||||||||||||||||||||||
Minimum Pension Liability Adjustment, net of tax of $(34,306) |
| — |
| — |
| — |
| (53,659 | ) | — |
| — |
| (53,659 | ) | ||||||||||||||||||||||||||||||||||
Total Comprehensive Income |
| — |
| — |
| — |
| — |
| — |
| — |
| $ | 84,208 |
| |||||||||||||||||||||||||||||||||
Cash Dividends Paid ($0.68* per share) |
| — |
| — |
| (35,004 | ) | — |
| — |
| — |
|
|
| ||||||||||||||||||||||||||||||||||
Stock Option Activity, net of tax |
| — |
| 6,990 |
| — |
| — |
| — |
| 14,752 |
|
|
| ||||||||||||||||||||||||||||||||||
Restricted Stock Issued |
| — |
| 316 |
| — |
| — |
| (1,006 | ) | 688 |
|
|
| ||||||||||||||||||||||||||||||||||
Amortization of Unearned Compensation |
| — |
| — |
| — |
| — |
| 511 |
| — |
|
|
| ||||||||||||||||||||||||||||||||||
Stock Split |
| 290 |
| (290 | ) | — |
| — |
| — |
| — |
|
|
| ||||||||||||||||||||||||||||||||||
Deferred Stock |
| — |
| 3 |
| — |
| — |
| — |
| — |
|
|
| ||||||||||||||||||||||||||||||||||
Shares Issued to Directors |
| — |
| 117 |
| — |
| — |
| — |
| 16 |
|
|
| ||||||||||||||||||||||||||||||||||
BALANCES, JULY 3, 2005 |
| $ | 579 |
| $ | 55,793 |
| $ | 1,029,329 |
| $ | (48,331 | ) | $ | (1,985 | ) | $ | (146,199 | ) |
|
| ||||||||||||||||||||||||||||
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
21
Consolidated StatementsStatement of Cash Flows
FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003 AND JUNE 30, 2002
(in thousands)
| 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
| |||||||||||||||
Net Income | $ | 136,114 | $ | 80,638 | $ | 53,120 |
| $ | 136,567 |
| $ | 136,114 |
| $ | 80,638 |
| ||||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
| |||||||||||||||
Extraordinary Gain |
| (19,800 | ) | — |
| — |
| |||||||||||||||
Depreciation and Amortization | 66,898 | 63,526 | 65,968 |
| 73,543 |
| 66,898 |
| 63,526 |
| ||||||||||||
Equity in Earnings of Unconsolidated Affiliates | (7,876 | ) | (5,224 | ) | (6,181 | ) | ||||||||||||||||
Earnings of Unconsolidated Affiliates, Net of Dividends |
| 678 |
| (3,484 | ) | 1,106 |
| |||||||||||||||
Loss on Disposition of Plant and Equipment | 7,390 | 3,850 | 3,192 |
| 2,418 |
| 7,390 |
| 3,850 |
| ||||||||||||
Provision for Deferred Income Taxes | 12,800 | 24,278 | 20,286 |
| (3,896 | ) | 12,800 |
| 24,278 |
| ||||||||||||
Change in Operating Assets and Liabilities, Net of Effects of Acquisition: |
|
|
|
|
|
|
| |||||||||||||||
Increase in Receivables | (28,588 | ) | (5,958 | ) | (56,684 | ) |
| (26,892 | ) | (28,588 | ) | (5,958 | ) | |||||||||
(Increase) Decrease in Inventories | (128,594 | ) | (11,932 | ) | 121,713 | |||||||||||||||||
Decrease (Increase) in Inventories |
| 12,784 |
| (128,594 | ) | (11,932 | ) | |||||||||||||||
Decrease (Increase) in Prepaid Expenses and Other Current Assets | 2,017 | (4,663 | ) | (1,519 | ) |
| 2,650 |
| 2,017 |
| (4,663 | ) | ||||||||||
Increase in Accounts Payable, Accrued Liabilities and Income Taxes | 4,696 | 44,321 | 24,979 | |||||||||||||||||||
Increase in Prepaid Pension | (6,070 | ) | (13,566 | ) | (22,812 | ) | ||||||||||||||||
(Decrease) Increase in Accounts Payable, Accrued Liabilities and Income Taxes |
| (27,673 | ) | 4,696 |
| 44,321 |
| |||||||||||||||
Increase in Accrued/Prepaid Pension |
| (1,050 | ) | (6,070 | ) | (13,566 | ) | |||||||||||||||
Other, Net | (13,023 | ) | (7,875 | ) | (2,245 | ) |
| (771 | ) | (13,023 | ) | (7,875 | ) | |||||||||
Net Cash Provided by Operating Activities | 45,764 | 167,395 | 199,817 |
| 148,558 |
| 50,156 |
| 173,725 |
| ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
| |||||||||||||||
Additions to Plant and Equipment | (52,962 | ) | (40,154 | ) | (43,928 | ) |
| (86,075 | ) | (52,962 | ) | (40,154 | ) | |||||||||
Proceeds Received on Disposition of Plant and Equipment | 720 | 3,464 | 406 |
| 1,940 |
| 720 |
| 3,464 |
| ||||||||||||
Proceeds Received on Sale of Certain Assets of a Subsidiary |
| 4,050 |
| — |
| — |
| |||||||||||||||
Refund of Cash Paid for Acquisition | 5,686 | — | — |
| — |
| 5,686 |
| — |
| ||||||||||||
Increase in Investment in China Joint Venture | — | 3,531 | — | |||||||||||||||||||
Other, Net | 4,392 | 6,330 | 5,120 | |||||||||||||||||||
Cash Paid for Acquisitions, Net of Cash Acquired |
| (355,094 | ) | — |
| — |
| |||||||||||||||
Investment in Joint Venture |
| (1,500 | ) | — |
| 3,531 |
| |||||||||||||||
Net Cash Used by Investing Activities | (42,164 | ) | (26,829 | ) | (38,402 | ) |
| (436,679 | ) | (46,556 | ) | (33,159 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
| |||||||||||||||
Net Borrowings (Repayments) on Loans and Notes Payable | 187 | (14,955 | ) | (1,696 | ) | |||||||||||||||||
Repayments on Long-Term Debt | (22 | ) | — | (10,393 | ) | |||||||||||||||||
Net (Repayments) Borrowings on Loans and Notes Payable |
| (2,684 | ) | 187 |
| (14,955 | ) | |||||||||||||||
Net Borrowings (Repayments) on Long-Term Debt |
| 125,000 |
| (22 | ) | — |
| |||||||||||||||
Issuance Cost of Debt | (1,789 | ) | — | — |
| (925 | ) | (1,789 | ) | — |
| |||||||||||
Cash Dividends Paid | (30,408 | ) | (27,709 | ) | (27,219 | ) |
| (35,065 | ) | (30,408 | ) | (27,709 | ) | |||||||||
Proceeds from Exercise of Stock Options | 45,314 | 5,490 | 1,078 |
| 20,139 |
| 45,314 |
| 5,490 |
| ||||||||||||
Net Cash Provided by (Used by) Financing Activities | 13,282 | (37,174 | ) | (38,230 | ) |
| 106,465 |
| 13,282 |
| (37,174 | ) | ||||||||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 697 | 5,478 | 4,017 |
| 835 |
| 697 |
| 5,478 |
| ||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 17,579 | 108,870 | 127,202 | |||||||||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| (180,821 | ) | 17,579 |
| 108,870 |
| |||||||||||||||
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
| |||||||||||||||
Beginning of Year | 324,815 | 215,945 | 88,743 |
| 342,394 |
| 324,815 |
| 215,945 |
| ||||||||||||
End of Year | $ | 342,394 | $ | 324,815 | $ | 215,945 |
| $ | 161,573 |
| $ | 342,394 |
| $ | 324,815 |
| ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
| |||||||||||||||
Interest Paid | $ | 38,884 | $ | 39,448 | $ | 40,488 |
| $ | 36,357 |
| $ | 38,884 |
| $ | 39,448 |
| ||||||
Income Taxes Paid | $ | 53,253 | $ | 20,724 | $ | 3,222 |
| $ | 66,410 |
| $ | 53,253 |
| $ | 20,724 |
| ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
22
Notes to Consolidated Financial Statements
FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003 AND JUNE 30, 2002
(1) Nature of Operations:
Briggs & Stratton (“the Company”(the “Company”) is a U.S. based producer of air cooled gasoline engines. Theseengines and engine powered outdoor equipment. The engines are sold worldwide, primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment. Additionally, through theThe Company’s wholly owned subsidiary, Briggs & Stratton Power Products Group, LLC (“BSPPG”), the Company is a designer, manufacturer and marketer of portable and standby generators, pressure washersa wide range of outdoor power equipment and related accessories. BSPPG’s products are sold throughout the United States, Canada and Europe.worldwide.
(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 2005 fiscal year was 53 weeks long and the 2004 2003 and 20022003 fiscal years were 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 the Company and its majority 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 may 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 an original maturity of three months or less to be cash equivalents.
Receivables: Receivables are recorded at the original carrying value less reserves for estimated uncollectible accounts. In fiscal 2005, Briggs & Stratton wrote off a $38.9 million trade receivable from Murray, Inc., a major original equipment manufacturer. See Note 3 for additional discussion of Murray, Inc.
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 48% of total inventories at July 3, 2005 and 56% of total inventories at June 27, 2004 and 60% of total inventories at June 29, 2003.2004. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. During fiscal 2003, and 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 reduced cost of goods sold by $0.2 million in 2003 and $2.6 million in 2002.2003. There was no such reduction of inventory in fiscal 2005 and 2004. If the FIFO inventory valuation method had been used exclusively, inventories would have been $51.4$52.5 million and $47.3$51.4 million higher in 20042005 and 2003,2004, respectively. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts.
Goodwill:Goodwill and Other Intangible Assets: This caption represents goodwill related to the acquisition of BSPPG 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. Other Intangible Assets reflect identifiable intangible assets that arise from purchase acquisitions. Other Intangible Assets are comprised of trademarks, patents and customer relationships. Goodwill and trademarks, which are considered to have indefinite lives are not amortized; however, both must be tested for impairment annually. Amortization is recorded on a straight line basis for other intangible assets with finite lives. Patents have been assigned an estimated weighted average useful life of thirteen years. The customer relationships have been assigned an estimated useful life of twenty-five years. The Company is subject to financial statement risk in the event that goodwill and intangible assets become impaired. The Company performed the required goodwill impairment testtests in fiscal 2005, 2004 2003 and 2002,2003, and found no impairment of the asset.assets.
Investments: This caption represents the Company’s investment in its 50%-owned joint ventures and preferred stock in a privately held iron castings business. The investments in the joint ventures and the privately held business are accounted
23
for under the equity method. In fiscal 2003, the Company determined losses on an investment in common stock of a publicly traded software company were “other than temporary”, and as a result, the Company reclassified the pretax unrealized loss of $1.8 million to earnings.
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 straight-line method over periods ranging from fivethree to ten years. Accumulated amortization related to open issues amounted to $7.7 million as of July 3, 2005 and $5.9 million as of June 27, 2004 and $5.1 million as of June 29, 2003. In fiscal 2004, the Company expensed $1.7 million in capitalized costs upon conversion of the 5.00% Convertible Senior Notes.
Notes…2004.
Other Long-Term Assets: This caption includes costs of software used in the Company’s business. Amortization of capitalized 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 $11.3 million as of July 3, 2005 and $8.7 million as of June 27, 2004 and $6.0 million as of June 29, 2003. In fiscal 2003, this caption also included a long-term asset associated with interest rate swaps designated as effective fair value hedges. See discussion in Note 7.2004.
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 (20-30 years for land improvements, 20-50 years for buildings and 8-163-16 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 income from operations.
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 2005, 2004 2003 or 2002.2003.
Warranty: The Company recognizes the cost associated with its standard warranty on engines and power products at the time of sale. The amount recognized is based on historical failure rates and current claim cost experience. The following is a reconciliation of the changes in accrued warranty costs for fiscal year2005 and 2004 and 2003 (in thousands):
| 2004 | 2003 |
| 2005 |
| 2004 |
| |||||||||
Balance, Beginning of Period | $ | 47,590 | $ | 46,346 |
| $ | 43,148 |
| $ | 47,590 |
| ||||
Adjustment Related to Acquisitions |
| 10,623 |
| — |
| ||||||||||
Payments | (30,761 | ) | (30,613 | ) |
| (35,796 | ) | (30,761 | ) | ||||||
Provision for Current Year Warranties | 29,150 | 27,605 |
| 41,761 |
| 29,150 |
| ||||||||
(Credit) Provision for Prior Years Warranties | (2,831 | ) | 4,252 | ||||||||||||
Credit for Prior Years Warranties |
| (111 | ) | (2,831 | ) | ||||||||||
Balance, End of Period | $ | 43,148 | $ | 47,590 |
| $ | 59,625 |
| $ | 43,148 |
| ||||
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 long 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 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-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 when the expiration ofCompany no longer has substantial
24
involvement with the Reservation Period,facility, is estimated to be $5$6.2 million. As management believes it may cease operations at this facility by the end of fiscal 2006, this gain could be recognized during fiscal 2006, but will be recognized no later than the first quarter of fiscal 2007, when the Reservation Period expires. The annual cost of operating the warehouse portion of the facility is not material.
Revenue Recognition: Net sales includesinclude sales of engines, power products, and related componentservice parts for servicing engines,and accessories, net of allowances for cash discounts, customer volume rebates and discounts, and advertising allowances. In accordance with Staff Accounting Bulletin No. 101104 as amended, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. This is generally upon shipment, except for certain international shipments, where revenue is recognized when the customer receives the product.
Notes…Included in net sales are costs associated with programs under which Briggs & Stratton shares the expense of financing certain dealer and distributor inventories, referred to as floor plan expense. This represents interest for a pre-established length of time based on a variable rate from a contract with a third party financing source for dealer and distributor inventory purchases. Sharing the cost of these financing arrangements is used by Briggs & Stratton as a marketing incentive for customers to buy inventory. The financing costs included in net sales in fiscal 2005 were $10.6 million. There were no similar costs in fiscal 2004 and fiscal 2003.
The Company also offers a variety of customer rebates and sales incentives. The Company accruesrecords estimates for estimated rebates/rebates and incentives at the time of sale, as a reduction in net sales.
Income Taxes: The Provision for Income Taxes includes Federal, state and foreign income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basisbases of assets and liabilities. The Deferred Income Tax Asset represents temporary differences relating to current assets and current liabilities, and the Deferred Income Tax Liability represents temporary differences relating to noncurrent assets and liabilities.
Retirement Plans: The Company has noncontributory, defined benefit retirement plans and postretirement benefit plans covering certain employees. Retirement benefits represent a form of deferred compensation, which are subject to change due to changes in assumptions. Management reviews underlying assumptions on an annual basis. Refer to Note 1314 of the Notes to Consolidated Financial Statements.
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 $33.5 million in fiscal 2005, $25.9 million in fiscal 2004 and $26.4 million in fiscal 2003 and $23.7 million in fiscal 2002.2003.
Advertising Costs: Advertising costs, included in Engineering, Selling, General and Administrative Expenses onin the accompanying Consolidated Statements of Earnings, are expensed as incurred. These expenses totaled $35.8 million in fiscal 2005, $15.0 million in fiscal 2004 and $13.2 million in fiscal 2003 and $8.3 million in fiscal 2002.2003.
The Company reports co-op advertising expense as a reduction in net sales. Co-op advertising expense reported as a reduction in net sales totaled $23.6 million in fiscal 2005, $12.8 million in fiscal 2004 and $9.5 million in fiscal 2003 and $7.2 million in fiscal 2002.2003.
Shipping and Handling Fees and Costs: Revenue received from shipping and handling fees is reflected in net sales. Shipping fee revenue for fiscal 2005, 2004 and 2003 and 2002 was $1.8$4.1 million, $1.6$1.8 million and $1.6 million, respectively. Shipping and handling costs are included in cost of 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 incurred in a foreign currency 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: Basic earnings per share, for each period presented, is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per
25
share, for each period presented, is computed reflecting the potential dilution that would occur if options or other contracts to issue common stock were exercised or converted into common stock at the beginning of the period.
The fiscal 2005 diluted earnings per share calculation includes all options outstanding as of July 3, 2005. The shares outstanding used to compute diluted earnings per share for fiscal 2004 and 2003 and 2002 excludedexcludes outstanding options to purchase 214,260, 1,675,790428,520* and 1,886,6403,351,580* shares of common stock, respectively, with weighted-average exercise prices of $74.53, $53.40$37.27* and $55.20,$26.70*, respectively. The options wereare excluded because their exercise prices wereare greater than the average market price of the common shares, and their inclusion in the computation would have beenbe antidilutive.
Notes…
Information on earnings per share is as follows (in thousands, except per share data)thousands):
| Fiscal Year Ended | |||||||||
| June 27, 2004 | June 29, 2003 | June 30, 2002 | |||||||
Net Income Used in Basic Earnings Per Share | $ | 136,114 | $ | 80,638 | $ | 53,120 | |||
Adjustment to Net Income to Add After-tax Interest Expense on Convertible Notes | 4,053 | 4,760 | 4,620 | ||||||
Adjusted Net Income Used in Diluted Earnings Per Share | $ | 140,167 | $ | 85,398 | $ | 57,740 | |||
Average Shares of Common Stock Outstanding | 22,643 | 21,639 | 21,615 | ||||||
Incremental Common Shares Applicable to Common Stock Options Based on the Common Stock Average Market Price During the Period | 180 | — | 6 | ||||||
Incremental Common Shares Applicable to Restricted Common Stock Based on the Common Stock Average Market Price During the Period | 13 | 15 | 5 | ||||||
Incremental Common Shares Applicable to Convertible Notes Based on the Conversion Provisions of the Convertible Notes | 2,504 | 2,826 | 2,826 | ||||||
Diluted Average Common Shares Outstanding | 25,340 | 24,480 | 24,452 | ||||||
|
| Fiscal Year Ended |
| |||||||
|
| July 3, 2005 |
| June 27, 2004 |
| June 29, 2003 |
| |||
Net Income Before Extraordinary Gain Used in Basic Earings Per Share |
| $ | 116,767 |
| $ | 136,114 |
| $ | 80,638 |
|
Adjustment to Net Income Before Extraordinary Gain to Add After-tax Interest Expense on Convertible Notes |
| — |
| 4,053 |
| 4,760 |
| |||
Adjusted Net Income Before Extraordinary Gain Used in Diluted Earnings Per Share |
| $ | 116,767 |
| $ | 140,167 |
| $ | 85,398 |
|
Extraordinary Gain Used in Basic and Diluted Earinings Per Share |
| $ | 19,800 |
| $ | — |
| $ | — |
|
Net Income Used in Basic Earnings Per Share |
| $ | 136,567 |
| $ | 136,114 |
| $ | 80,638 |
|
Adjustment to Net Income to Add After-tax Interest Expense on Convertible Notes |
| — |
| 4,053 |
| 4,760 |
| |||
Adjusted Net Income Used in Diluted Earnings Per Share |
| $ | 136,567 |
| $ | 140,167 |
| $ | 85,398 |
|
Average Shares of Common Stock Outstanding* |
| 51,472 |
| 45,286 |
| 43,279 |
| |||
Incremental Common Shares Applicable to Common Stock Options Based on the Common Stock Average Market Price During the Period* |
| 446 |
| 360 |
| — |
| |||
Incremental Common Shares Applicable to Restricted Common Stock Based on the Common Stock Average Market Price During the Period* |
| 36 |
| 26 |
| 28 |
| |||
Incremental Common Shares Applicable to Convertible Notes Based on the Conversion Provisions of the Convertible Notes* |
| — |
| 5,008 |
| 5,652 |
| |||
Diluted Average Common Shares Outstanding* |
| 51,954 |
| 50,680 |
| 48,959 |
| |||
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
Comprehensive Income: Comprehensive income is a more inclusive financial reporting method that includes disclosure of 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, cumulative translation adjustments, unrealized gain (loss) on derivatives and minimum pension liability adjustmentadjustments in the Consolidated Statements of Shareholders’ Investment. Information on Accumulated Other Comprehensive Income (Loss) is as follows (in thousands):
| Unrealized |
|
|
|
|
| Minimum |
| Accumulated |
| ||||||||||||||||||||||||||
| Unrealized Gain (Loss) on Marketable Securities | Cumulative Translation Adjustments | Unrealized Gain (Loss) on Derivatives | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) |
| Gain (Loss) |
| Cumulative |
| Unrealized |
| Pension |
| Other |
| |||||||||||||||||||||
Balance at July 1, 2001 | $ | (753 | ) | $ | (6,655 | ) | $ | 1,226 | $ | — | $ | (6,182 | ) | |||||||||||||||||||||||
Fiscal Year Change | (148 | ) | 4,017 | (4,313 | ) | — | (444 | ) | ||||||||||||||||||||||||||||
|
| on Marketable |
| Translation |
| Gain (Loss) on |
| Liability |
| Comprehensive |
| |||||||||||||||||||||||||
| Securities |
| Adjustments |
| Derivatives |
| Adjustment |
| Income (Loss) |
| ||||||||||||||||||||||||||
Balance at June 30, 2002 | (901 | ) | (2,638 | ) | (3,087 | ) | — | (6,626 | ) |
| $ | (901 | ) | $ | (2,638 | ) | $ | (3,087 | ) | $ | — |
| $ | (6,626 | ) | |||||||||||
Fiscal Year Change | 901 | 4,454 | 3,100 | (2,563 | ) | 5,892 |
| 901 |
| 4,454 |
| 3,100 |
| (2,563 | ) | 5,892 |
| |||||||||||||||||||
Balance at June 29, 2003 | — | 1,816 | 13 | (2,563 | ) | (734 | ) |
| — |
| 1,816 |
| 13 |
| (2,563 | ) | (734 | ) | ||||||||||||||||||
Fiscal Year Change | — | 3,042 | 487 | 1,233 | 4,762 |
| — |
| 3,042 |
| 487 |
| 1,233 |
| 4,762 |
| ||||||||||||||||||||
Balance at June 27, 2004 | $ | — | $ | 4,858 | $ | 500 | $ | (1,330 | ) | $ | 4,028 |
| — |
| 4,858 |
| 500 |
| (1,330 | ) | 4,028 |
| ||||||||||||||
Fiscal Year Change |
| — |
| 881 |
| 419 |
| (53,659 | ) | (52,359 | ) | |||||||||||||||||||||||||
Balance at July 3, 2005 |
| $ | — |
| $ | 5,739 |
| $ | 919 |
| $ | (54,989 | ) | $ | (48,331 | ) | ||||||||||||||||||||
Derivatives: Derivatives are recorded on the balance sheet as assets or liabilities, measured at fair value. Briggs & Stratton enters into derivative contracts designated as cash flow hedges to manage its foreign
26
currency exposures. These instruments generally do not have a maturity of more than twelve months. Briggs & Stratton has used interest rate swaps designated as fair value hedges to manage its debt portfolio. These instruments generally have maturities and terms consistent with the underlying debt instrument.
Changes in the fair value of cash flow hedges are recorded on the Consolidated Statement of Earnings or as a component of Accumulated Other Comprehensive Income (Loss). The amounts included in Accumulated Other Comprehensive Income (Loss) will be reclassified into income when the forecasted transactions occur, generally within the next twelve months. These forecasted transactions represent the exporting of products for which Briggs & Stratton will receive foreign currency and the importing of products for which it will be required to pay in a foreign currency. Changes in the fair value of fair value hedges related to interest rate swaps are recorded as an increase/decrease to long-term debt. Changes in the fair value of all derivatives deemed to be ineffective are recorded as either income or expense in the accompanying Consolidated Statements of Earnings. See discussion in Note 12.13.
Reclassification: Certain amounts in prior year financial statements have been reclassified to conform to current year presentation.
Notes…(3) Acquisitions:
New Accounting Pronouncements: In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities,On July 7, 2004, Briggs & Stratton and an interpretation of ARB No. 51”. This statement addresses the consolidation by business enterprises of variable interest entities (“VIEs”), as defined by the statement. The Company has adopted the provisions of this statement, evaluated its interest in VIEs and determined it is not the primary beneficiary of any VIEs. The Company also does not believe its variable interest in any VIE is significant to the financial statements taken as a whole. As such, the adoption of this statement did not have an effect on the Company’s financial condition or results of operations.
In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement revises employers’ disclosure about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. It requires additional disclosures to those in the original SFAS No. 132. This statement is effective for fiscal 2004. The adoption had no effect on the Company’s financial condition or results of operations.
(3) Acquisition:
The Company acquired Generac Portable Products, Inc. on May 15, 2001. Generac Portable Products, Inc. was merged with, and into Generac Portable Products, LLC on June 30, 2002, and changed its name tosubsidiary, Briggs & Stratton Power Products Group, LLC effective December 31, 2002. BSPPG is (“BSPPG”) acquired Simplicity Manufacturing, Inc. (“Simplicity”). Simplicity designs, manufactures and markets a designer, manufacturerwide variety of premium yard and marketergarden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. The purchase price included $250.2 million of portablecash, a $2.3 million liability for future tax benefits, and standby generators, pressure washers$135.3 million of liabilities assumed. The cash paid included $17.8 million of cash acquired and related accessories.$9.4 million of direct acquisition costs.
The Simplicity acquisition has been accounted for using the purchase method of accounting. The purchase price was allocated to identifiable assets acquired and liabilities assumed based upon their estimated fair values, with the excess purchase price recorded as goodwill. Final adjustments to the purchase price allocation, which will include the resolution of certain tax matters, are not expected to be material to the consolidated financial statements.
The provisionsfollowing table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition provided(in thousands):
Assets Acquired: |
|
|
| |
Current Assets |
| $ | 123,055 |
|
Property, Plant and Equipment |
| 62,960 |
| |
Goodwill |
| 102,853 |
| |
Other Intangible Assets |
| 98,120 |
| |
Other Noncurrent Assets |
| 867 |
| |
Total Assets |
| 387,855 |
| |
Liabilities Assumed: |
|
|
| |
Current Liabilities |
| 51,299 |
| |
Deferred Tax Liabilities |
| 46,846 |
| |
Post Retirement Benefits |
| 36,665 |
| |
Other Noncurrent Liabilities |
| 503 |
| |
Total Liabilities |
| 135,313 |
| |
Net Assets |
| $ | 252,542 |
|
27
The following table summarizes pro forma results for the twelve months ended June 27, 2004, as though the business combination had been completed at the beginning of the earliest comparable period (in thousands, except per share data):
|
| Twelve Months Ended |
| |
|
| June 27, 2004 |
| |
Net Sales |
| $ | 2,267,222 |
|
Net Income |
| $ | 142,815 |
|
|
|
|
| |
Basic Earnings Per Share |
| $ | 3.15 |
|
Diluted Earnings Per Share |
| $ | 2.90 |
|
On February 11, 2005, Briggs & Stratton Corporation and its subsidiaries, Briggs & Stratton Power Products Group, LLC and Briggs & Stratton Canada, Inc. acquired certain assets of Murray, Inc. and Murray Canada Co. (collectively “Murray”) and entered into a transition supply agreement (“TSA”). The TSA gives Briggs & Stratton the right to purchase finished lawn, garden and snow products from Murray for a period up to eighteen months. Briggs & Stratton has reached an agreement with Murray to end the TSA effective September 30, 2005. The cash purchase price refund based onwas $122.7 million, including direct acquisition costs of $1.8 million. Briggs & Stratton financed the final valuationacquisition through the issuance of $125 million variable rate Term Notes due February 11, 2008, with no prepayment penalty. The Term Notes have financial and operating restrictions consistent with other debt agreements, as disclosed in Note 8. Although no liabilities were assumed pursuant to the acquired receivablesasset purchase agreement, there are certain consumer and inventory. The Company received acustomer related obligations incident to the acquisition that have been considered. In addition, there were certain obligations created by the TSA that have been considered in purchase price refund of $5.7 million, which was recorded as a reduction in goodwill during fiscal 2004.accounting.
InThe Murray acquisition has been accounted for using the purchase method of accounting. The purchase price was allocated on a preliminary basis to identifiable assets acquired and liabilities recognized (as discussed above) based upon their estimated fair values. The estimated fair value of Murray assets acquired exceeded the acquisition cost by $19.8 million, after all tax considerations, and this amount was recognized as an extraordinary gain. Final adjustments to the purchase price allocation are not expected to be material to the consolidated financial statements.
The following table summarizes the fair value of the assets acquired, liabilities assumed and extraordinary gain recognized at the date of acquisition (in thousands):
Assets Acquired: |
|
|
| |
Accounts Receivable, net |
| $ | 78,851 |
|
Inventory, net |
| 83,286 |
| |
Deferred Tax Asset |
| 3,263 |
| |
Total Assets |
| 165,400 |
| |
Liabilities Recognized: |
|
|
| |
Federal and State Taxes Payable |
| 13,015 |
| |
Rebates |
| 4,241 |
| |
Warranty |
| 1,850 |
| |
TSA Obligations |
| 3,810 |
| |
Total Liabilities |
| 22,916 |
| |
Net Assets |
| 142,484 |
| |
Cash Paid |
| 122,684 |
| |
Extraordinary Gain: |
| $ | 19,800 |
|
Subsequent to fiscal year 2005, Briggs & Stratton received a refund of $6.3 million of its purchase price for receivables identified as uncollectible. All remaining acquired receivables, net, have been collected.
28
(4) Goodwill and Other Intangible Assets:
The changes in the carrying amount of goodwill for the fiscal years ended July 3, 2005 and June 27, 2004 are as follows (in thousands):
|
| 2005 |
| 2004 |
| ||
Beginning Goodwill Balance |
| $ | 151,991 |
| $ | 159,756 |
|
Goodwill Acquired During the Period |
| 102,853 |
| — |
| ||
Tax Benefit on Amortization |
| (1,778 | ) | (2,079 | ) | ||
Purchase Accounting Adjustments |
| — |
| (5,686 | ) | ||
Ending Goodwill Balance |
| $ | 253,066 |
| $ | 151,991 |
|
See Note 3 for a discussion of goodwill from business acquisitions during fiscal 2005.
The Company’s other intangible assets, primarily from acquisitions, are valued based on independent appraisals and, for the years ended July 3, 2005 and June 27, 2004 are as follows (in thousands):
|
| 2005 |
| 2004 |
| ||||||||||||||
|
| Gross |
|
|
|
|
| Gross |
|
|
|
|
| ||||||
|
| Carrying |
| Accumulated |
|
|
| Carrying |
| Accumulated |
|
|
| ||||||
|
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net |
| ||||||
Amortized Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patents |
| $ | 13,280 |
| $ | (1,116 | ) | $ | 12,164 |
| $ | 70 |
| $ | (29 | ) | $ | 41 |
|
Customer Relationships |
| 17,910 |
| (716 | ) | 17,194 |
| — |
| — |
| — |
| ||||||
Miscellaneous |
| 279 |
| (192 | ) | 87 |
| 279 |
| (145 | ) | 134 |
| ||||||
Total Amortized Intangible Assets |
| 31,469 |
| (2,024 | ) | 29,445 |
| 349 |
| (174 | ) | 175 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unamortized Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks/Brand Names |
| 67,000 |
| — |
| 67,000 |
| — |
| — |
| — |
| ||||||
Total Unamortized Intangible Assets |
| 67,000 |
| — |
| 67,000 |
| — |
| — |
| — |
| ||||||
Total Intangible Assets |
| $ | 98,469 |
| $ | (2,024 | ) | $ | 96,445 |
| $ | 349 |
| $ | (174 | ) | $ | 175 |
|
Amortization expense of other intangible assets amounts to approximately $1,850,000, $56,000, and $56,000 in 2005, 2004, and 2003, the Company reduced goodwill by approximately $2.1 and $1.3 million, respectively, reflecting the tax benefit associated with the amortization of acquired goodwill for tax purposes.respectively.
The estimated amortization expense of other intangible assets for the next five years is (in thousands):
2006 |
| $ | 1,850 |
|
2007 |
| 1,844 |
| |
2008 |
| 1,804 |
| |
2009 |
| 1,798 |
| |
2010 |
| 1,794 |
| |
|
| $ | 9,090 |
|
(4)(5) Income Taxes:
The provision for income taxes on income before extraordinary gain consists of the following (in thousands):
| 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| ||||||||||
Current |
|
|
|
|
|
|
| ||||||||||||
Federal | $ | 46,506 | $ | 11,404 | $ | 4,950 |
| $ | 51,144 |
| $ | 46,506 |
| $ | 11,404 |
| |||
State | 8,039 | 291 | 587 |
| 7,948 |
| 8,039 |
| 291 |
| |||||||||
Foreign | 1,545 | 1,967 | 1,567 |
| 2,352 |
| 1,545 |
| 1,967 |
| |||||||||
| 61,444 |
| 56,090 |
| 13,662 |
| |||||||||||||
| 56,090 | 13,662 | 7,104 | |||||||||||||||||
Deferred | 12,800 | 24,278 | 20,286 |
| (3,896 | ) | 12,800 |
| 24,278 |
| |||||||||
| $ | 57,548 |
| $ | 68,890 |
| $ | 37,940 |
| ||||||||||
| $ | 68,890 | $ | 37,940 | $ | 27,390 | ||||||||||||||
29
A reconciliation of the U.S. statutory tax rates to the effective tax rates on income before extraordinary gain follows:
| 2004 | 2003 | 2002 | |||||||
U.S. Statutory Rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
State Taxes, Net of Federal Tax Benefit | 3.0 | % | 1.8 | % | 2.4 | % | |||
Foreign Tax Benefits | (0.9 | %) | (3.3 | %) | (1.2 | %) | |||
Resolution of Prior Period Tax Matters | (2.2 | %) | — | — | |||||
Other | (1.3 | %) | (1.5 | %) | (2.2 | %) | |||
Effective Tax Rate | 33.6 | % | 32.0 | % | 34.0 | % | |||
Notes…
|
| 2005 |
| 2004 |
| 2003 |
|
U.S. Statutory Rate |
| 35.0 | % | 35.0 | % | 35.0 | % |
State Taxes, Net of Federal Tax Benefit |
| 2.4 | % | 3.0 | % | 1.8 | % |
Foreign Tax Benefits |
| (0.8 | )% | (0.9 | )% | (3.3 | )% |
Resolution of Prior Period Tax Matters |
| — |
| (2.2 | )% | — |
|
Benefit on Dividends Received |
| (4.0 | )% | — |
| — |
|
Other |
| 0.4 | % | (1.3 | )% | (1.5 | )% |
Effective Tax Rate |
| 33.0 | % | 33.6 | % | 32.0 | % |
The components of deferred income taxes were as follows (in thousands):
| 2004 | 2003 | |||||||
Deferred Income Tax Asset: | ||||||||
Difference Between Book and Tax Methods Applied to | ||||||||
Inventory | $ | 13,443 | $ | 13,145 | ||||
Payroll Related Accruals | 2,627 | 2,483 | ||||||
Warranty Reserves | 16,768 | 18,140 | ||||||
Other Accrued Liabilities | 16,395 | 15,950 | ||||||
Miscellaneous | (1,610 | ) | (1,044 | ) | ||||
| $ | 47,623 | $ | 48,674 | |||||
Deferred Income Tax Liability: | ||||||||
Difference Between Book and Tax Methods Applied to | ||||||||
Pension Cost | $ | (31,875 | ) | $ | (28,862 | ) | ||
Accumulated Depreciation | (59,271 | ) | (58,806 | ) | ||||
Accrued Employee Benefits | 12,333 | 11,545 | ||||||
Postretirement Health Care Obligation | 14,917 | 18,745 | ||||||
Deferred Revenue on Sale of Plant & Equipment | 5,822 | 5,914 | ||||||
Miscellaneous | (12,380 | ) | (6,453 | ) | ||||
| $ | (70,454 | ) | $ | (57,917 | ) | |||
|
| 2005 |
| 2004 |
| ||
Current Asset (Liability): |
|
|
|
|
| ||
Difference Between Book and Tax Methods Applied to: |
|
|
|
|
| ||
Inventory |
| $ | 11,798 |
| $ | 13,443 |
|
Payroll Related Accruals |
| 4,702 |
| 2,627 |
| ||
Warranty Reserves |
| 22,605 |
| 16,768 |
| ||
Workers Compensation Accruals |
| 3,611 |
| 4,257 |
| ||
Other Accrued Liabilities |
| 17,365 |
| 12,338 |
| ||
Minimum Pension Liability |
| 35,157 |
| 850 |
| ||
Miscellaneous |
| (2,987 | ) | (2,660 | ) | ||
Deferred Income Tax Asset |
| $ | 92,251 |
| $ | 47,623 |
|
Long-Term Liability (Asset): |
|
|
|
|
| ||
Difference Between Book and Tax Methods Applied to: |
|
|
|
|
| ||
Pension Cost |
| $ | 32,945 |
| $ | 31,875 |
|
Accumulated Depreciation |
| 79,029 |
| 59,271 |
| ||
Intangibles |
| 58,473 |
| 16,401 |
| ||
Accrued Employee Benefits |
| (13,840 | ) | (12,333 | ) | ||
Postretirement Health Care Obligation |
| (29,940 | ) | (14,917 | ) | ||
Deferred Revenue on Sale of Plant & Equipment |
| (5,717 | ) | (5,822 | ) | ||
Miscellaneous |
| (7,156 | ) | (4,021 | ) | ||
Deferred Income Tax Liability |
| $ | 113,794 |
| $ | 70,454 |
|
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 $10.5$11.1 million at June 27, 2004.July 3, 2005. 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.
(5)(6) Segment and Geographic Information and Significant Customers:
The Company has concluded that it operates two reportable business segments that are managed separately based on fundamental differences in their operations. Summarized segment data is as follows (in thousands):
| 2004 | 2003 | 2002 | ||||||||||
NET SALES: | ||||||||||||
Engines | $ | 1,617,409 | $ | 1,428,411 | $ | 1,366,977 | ||||||
Power Products | 489,250 | 329,488 | 215,904 | |||||||||
Eliminations | (159,295 | ) | (100,266 | ) | (53,581 | ) | ||||||
| $ | 1,947,364 | $ | 1,657,633 | $ | 1,529,300 | |||||||
GROSS PROFIT ON SALES: | ||||||||||||
Engines | $ | 387,582 | $ | 291,937 | $ | 250,150 | ||||||
Power Products | 57,846 | 38,233 | 20,613 | |||||||||
Eliminations | (5,556 | ) | (2,091 | ) | (799 | ) | ||||||
| $ | 439,872 | $ | 328,079 | $ | 269,964 | |||||||
INCOME FROM OPERATIONS: | ||||||||||||
Engines | $ | 209,337 | $ | 134,775 | $ | 114,859 | ||||||
Power Products | 30,428 | 17,238 | 2,192 | |||||||||
Eliminations | (5,556 | ) | (2,091 | ) | (799 | ) | ||||||
| $ | 234,209 | $ | 149,922 | $ | 116,252 | |||||||
Notes…
|
| 2005 |
| 2004 |
| 2003 |
| |||
NET SALES: |
|
|
|
|
|
|
| |||
Engines |
| $ | 1,739,184 |
| $ | 1,617,409 |
| $ | 1,428,411 |
|
Power Products |
| 1,193,616 |
| 489,250 |
| 329,488 |
| |||
Eliminations |
| (277,925 | ) | (159,295 | ) | (100,266 | ) | |||
|
| $ | 2,654,875 |
| $ | 1,947,364 |
| $ | 1,657,633 |
|
| 2004 | 2003 | 2002 | ||||||||||
ASSETS: | ||||||||||||
Engines | $ | 1,435,016 | $ | 1,150,607 | $ | 1,087,943 | ||||||
Power Products | 402,618 | 339,970 | 279,083 | |||||||||
Eliminations | (200,481 | ) | (15,384 | ) | (10,425 | ) | ||||||
| $ | 1,637,153 | $ | 1,475,193 | $ | 1,356,601 | |||||||
CAPITAL EXPENDITURES: | ||||||||||||
Engines | $ | 47,408 | $ | 35,903 | $ | 42,086 | ||||||
Power Products | 5,554 | 4,251 | 1,842 | |||||||||
| $ | 52,962 | $ | 40,154 | $ | 43,928 | |||||||
DEPRECIATION & AMORTIZATION: | ||||||||||||
Engines | $ | 63,744 | $ | 60,875 | $ | 63,157 | ||||||
Power Products | 3,154 | 2,651 | 2,811 | |||||||||
| $ | 66,898 | $ | 63,526 | $ | 65,968 | |||||||
30
|
| 2005 |
| 2004 |
| 2003 |
| |||
GROSS PROFIT ON SALES: |
|
|
|
|
|
|
| |||
Engines |
| $ | 372,162 |
| $ | 382,713 |
| $ | 291,937 |
|
Power Products |
| 133,888 |
| 57,846 |
| 38,233 |
| |||
Eliminations |
| (1,159 | ) | (687 | ) | (2,091 | ) | |||
|
| $ | 504,891 |
| $ | 439,872 |
| $ | 328,079 |
|
|
|
|
|
|
|
|
| |||
INCOME FROM OPERATIONS: |
|
|
|
|
|
|
| |||
Engines |
| $ | 142,653 |
| $ | 204,468 |
| $ | 134,775 |
|
Power Products |
| 49,274 |
| 30,428 |
| 17,238 |
| |||
Eliminations |
| (1,159 | ) | (687 | ) | (2,091 | ) | |||
|
| $ | 190,768 |
| $ | 234,209 |
| $ | 149,922 |
|
|
|
|
|
|
|
|
| |||
ASSETS: |
|
|
|
|
|
|
| |||
Engines |
| $ | 1,297,789 |
| $ | 1,435,016 |
| $ | 1,150,607 |
|
Power Products |
| 877,933 |
| 402,618 |
| 339,970 |
| |||
Eliminations |
| (176,754 | ) | (200,481 | ) | (15,384 | ) | |||
|
| $ | 1,998,968 |
| $ | 1,637,153 |
| $ | 1,475,193 |
|
|
|
|
|
|
|
|
| |||
CAPITAL EXPENDITURES: |
|
|
|
|
|
|
| |||
Engines |
| $ | 67,802 |
| $ | 47,408 |
| $ | 35,903 |
|
Power Products |
| 18,273 |
| 5,554 |
| 4,251 |
| |||
|
| $ | 86,075 |
| $ | 52,962 |
| $ | 40,154 |
|
|
|
|
|
|
|
|
| |||
DEPRECIATION & AMORTIZATION: |
|
|
|
|
|
|
| |||
Engines |
| $ | 59,819 |
| $ | 63,744 |
| $ | 60,875 |
|
Power Products |
| 13,724 |
| 3,154 |
| 2,651 |
| |||
|
| $ | 73,543 |
| $ | 66,898 |
| $ | 63,526 |
|
Information regarding the Company’s geographic sales by the location in which the sale originated is as follows (in thousands):
| 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| ||||||||||
United States | $ | 1,795,128 | $ | 1,546,520 | $ | 1,437,667 |
| $ | 2,481,374 |
| $ | 1,795,128 |
| $ | 1,546,520 |
| |||
All Other Countries | 152,236 | 111,113 | 91,633 |
| 173,501 |
| 152,236 |
| 111,113 |
| |||||||||
Total | $ | 1,947,364 | $ | 1,657,633 | $ | 1,529,300 |
| $ | 2,654,875 |
| $ | 1,947,364 |
| $ | 1,657,633 |
| |||
The Company has no material long lived assets in an individual foreign country.
In fiscal years 2004, 2003 and 2002, there were salesSales to three major enginethe following customers that exceeded 40% of our business and in certain years they individually exceededthe Company’s Engine Segment amount to greater than or equal to 10% of total Companyconsolidated net sales. The sales, to these customers are summarized below (in thousands of dollars and percent of total Company net sales):respectively:
2004 Net Sales | % | 2003 Net Sales | % | 2002 Net Sales | % | |||||||||||||
Customer | ||||||||||||||||||
A | $ | 318,705 | 16 | % | $ | 260,253 | 16 | % | $ | 255,155 | 17 | % | ||||||
B | 334,748 | 17 | % | 253,066 | 15 | % | 299,864 | 19 | % | |||||||||
C | 169,002 | 9 | % | 168,928 | 10 | % | 165,097 | 11 | % | |||||||||
| $ | 822,455 | 42 | % | $ | 682,247 | 41 | % | $ | 720,116 | 47 | % | |||||||
|
| 2005 |
| % |
| 2004 |
| % |
| 2003 |
| % |
| |||
Customer: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
EOP |
| $ | 374,941 |
| 14 | % | $ | 318,705 |
| 16 | % | $ | 260,253 |
| 16 | % |
MTD |
| 316,911 |
| 12 | % | 334,748 |
| 17 | % | 253,066 |
| 15 | % | |||
Murray |
|
|
|
|
|
|
|
|
| 168,928 |
| 10 | % | |||
|
| $ | 691,852 |
| 26 | % | $ | 653,453 |
| 33 | % | $ | 682,247 |
| 41 | % |
(7) Leases:
(6) Leases:
The Company leases certain facilities, vehicles, and equipment under non-cancelableboth capital and operating leases. Assets held under capital leases which expire at various dates.are included in Other Long-Term Assets and Plant and Equipment and are charged to depreciation and interest over the life of the lease. Related liabilities are included in Other Accrued Liabilities and Other Long-Term Liabilities. Operating leases are not capitalized and lease payments are expensed on a straight-line basis over the life of the lease. Terms of the leases, including purchase options,
31
renewals, and maintenance costs, vary by lease. Rental expense for fiscal 2005, 2004 and 2003 and 2002 was $16.1 million, $10.2 million $8.1 million and $8.7$8.1 million, respectively.
Future minimum lease commitments for all non-cancelable operating leases as of June 27, 2004July 3, 2005 are as follows (in thousands):
Fiscal Year |
| Operating |
| Capital |
| |||||
2005 | $ | 7,552 | ||||||||
2006 | 4,570 |
| $ | 11,508 |
| $ | 758 |
| ||
2007 | 2,275 |
| 9,365 |
| 686 |
| ||||
2008 | 1,718 |
| 7,213 |
| 853 |
| ||||
2009 | 1,076 |
| 5,163 |
| — |
| ||||
2010 |
| 4,446 |
| — |
| |||||
Thereafter | 1,265 |
| 7,019 |
| — |
| ||||
| $ | 18,456 | |||||||||
Total future minimum lease commitments |
| $ | 44,714 |
| 2,297 |
| ||||
Less: Interest |
|
|
| (309 | ) | |||||
Present value of minimum capital lease payments |
|
|
| $ | 1,988 |
| ||||
Notes…(8) Indebtedness:
(7) Indebtedness:
On May 28, 2004,March 18, 2005, the Company replacedamended its unsecured three-year $300 million revolving credit facility that would have expired in September 2004 with an unsecured five-year $275 million revolving credit facility (the credit facility) that expires in May 2009.2009 to increase the aggregate amount of the credit facility to $350 million. There were no borrowings using theseunder the credit facilitiesfacility as of July 3, 2005 or June 27, 2004 or June 29, 2003.2004.
Borrowings under the credit 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 2.00%, 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 federal funds rate plus 0.50% or (b) the bank’s prime rate.
In addition, the Company is subject to a 0.10% to 0.375% commitment fee and a 0.50% to 2.00% letter of credit fee, depending on the Company’s long-term credit ratings.
The following data relates to domestic notes payable (in thousands):
| 2004 | 2003 |
| 2005 |
| 2004 |
| |||||||||
Balance at Fiscal Year-End | $ | 1,220 | $ | 2,075 |
| $ | — |
| $ | 1,220 |
| ||||
Weighted Average Interest Rate at Fiscal Year-End | 2.98 | % | 2.86 | % |
| — |
| 2.98 | % | ||||||
The domestic notes payable balance was paid in full as of December 22, 2004.
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 $31.1$11.6 million, expire at various times through AprilNovember 2005 and are renewable. Borrowings of $1.2 million at June 27, 2004 using these lines of credit are included in foreign loans. None of these arrangements had material commitment fees or compensating balance requirements.
The following information relates to foreign loans Borrowings using these lines of credit are included in short-term debt. Outstanding balances are as follows (in thousands):
| 2004 | 2003 |
| 2005 |
| 2004 |
| |||||||||
Balance at Fiscal Year-End | $ | 1,907 | $ | 865 |
| $ | 443 |
| $ | 1,907 |
| ||||
Weighted Average Interest Rate at Fiscal Year-End | 7.64 | % | 5.73 | % |
| 5.93 | % | 7.64 | % | ||||||
32
The Long-Term Debt caption consists of the following (in thousands):
| 2004 | 2003 | |||||
5.00% Convertible Senior Notes Due 2006 | $ | — | $ | 140,000 | ||
7.25% Senior Notes Due 2007, Net of Unamortized Discount of $597 in 2004 and $783 in 2003 | 89,403 | 89,217 | ||||
8.875% Senior Notes Due 2011, Net of Unamortized Discount of $3,841 in 2004 and $4,413 in 2003 | 271,159 | 270,587 | ||||
Fair Value of Interest Rate Swaps | — | 3,593 | ||||
Total Long-Term Debt | $ | 360,562 | $ | 503,397 | ||
|
| 2005 |
| 2004 |
| ||
7.25% Senior Notes Due 2007, Net of Unamortized Discount of $411 in 2005 and $597 in 2004 |
| $ | 89,589 |
| $ | 89,403 |
|
8.875% Senior Notes Due 2011, Net of Unamortized Discount of $3,268 in 2005 and $3,841 in 2004 |
| 271,732 |
| 271,159 |
| ||
Variable Rate Term Notes Due 2008 |
| 125,000 |
| — |
| ||
Total Long-Term Debt |
| $ | 486,321 |
| $ | 360,562 |
|
On February 11, 2005, the Company entered into an unsecured three-year $125 million term loan agreement that expires on February 11, 2008. The Company is required to repay the loans under the agreement in two installments as follows: (a) $40 million on August 11, 2006 (eighteen month anniversary of the closing date); and (b) the aggregate principal amount of the remaining loan on February 11, 2008 (maturity date). The outstanding balance of the loans as of July 3, 2005 was $125 million.
Borrowings under the term loan 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 federal funds rate plus 0.50% or (b) the bank’s prime rate.
In May 2004, the Company initiated and completed the redemption of its 5.00% Convertible Senior Notes due 2006 (“Notes”). With the exception of $22,000 principal amount of Notes which were redeemed for cash, all holders exercised their conversion rights prior to the redemption dates and were issued 2,825,363 shares of Briggs & Stratton Corporation common stock from shares held in treasury.
In April 2004, the Company terminated all outstanding interest rate swaps relating to its 8.875% Senior Notes due 2011. Prior to termination, the swaps converted $50 million of notional amounts from a fixed rate to a floating rate (LIBOR-set-in-arrears), and had a maturity of 2011. The swaps were terminated at a gain of $0.5 million.
In May 2001, the Company issued $275.0 million of 8.875% Senior Notes due March 15, 2011. No principal payments are due before the maturity date.
Notes…
The 7.25% senior notes are due September 15, 2007. In accordance with the agreement, no principal payments are due before 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 provided for the 7.25% senior notes and the 8.875% senior notes, and the Credit Agreements for the variable rate term notes and the Company’s revolving credit facility (collectively, the Domestic Indebtedness)“Domestic Indebtedness”) each include a number of financial and operating restrictions. These covenants include 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. The credit facility contains financial covenants that require the Company to maintain a minimum interest coverage ratio and net worth (for the first quarter(as of fiscal year end 2005 the Company iswas required to maintain a minimum net worth of $575.0$634.0 million) and impose a maximum leverage ratio. As of June 27, 2004,July 3, 2005, the Company was in compliance with these covenants.
Additionally, under the terms of the indentures and Credit Agreements governing the Domestic Indebtedness, BSPPG and its wholly owned subsidiary, Simplicity became a joint and several guarantorguarantors of amounts outstanding under the Domestic Indebtedness. Refer to Note 16 of the Notes to Consolidated Financial Statements for subsidiary guarantor financial information.
33
(8)(9) Other Income:
The components of other income (expense) are as follows (in thousands):
| 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||||||
Interest Income | $ | 2,970 | $ | 2,500 | $ | 2,189 |
| $ | 1,155 |
| $ | 2,970 |
| $ | 2,500 |
| ||||||
Equity in Earnings of Unconsolidated Affiliates | 7,876 | 5,224 | 6,181 | |||||||||||||||||||
Income on Preferred Stock and Equity in Earnings from Unconsolidated Affiliates |
| 17,781 |
| 7,876 |
| 5,224 |
| |||||||||||||||
Deferred Financing Costs | (3,778 | ) | (1,519 | ) | (1,420 | ) |
| (1,233 | ) | (3,778 | ) | (1,519 | ) | |||||||||
Amortization of Intangibles | (56 | ) | (56 | ) | (56 | ) | ||||||||||||||||
Gain on Investment in China | 386 | 2,972 | — |
| — |
| 386 |
| 2,972 |
| ||||||||||||
Other Items | 1,062 | (76 | ) | 1,797 |
| 2,727 |
| 1,006 |
| (132 | ) | |||||||||||
Total | $ | 8,460 | $ | 9,045 | $ | 8,691 |
| $ | 20,430 |
| $ | 8,460 |
| $ | 9,045 |
| ||||||
(9)(10) Commitments and Contingencies:
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 $2.0 million per claim. Accordingly, a reserve is maintained for the estimated costs of such claims. On July 3, 2005 and June 27, 2004 and June 29, 2003 the reserve for product and general liability claims (which includes asbestos-related liabilities) was $6.3$8.0 million and $4.7$6.3 million, respectively. Because there is inherent uncertainty as to the eventual resolution of unsettled claims, no reasonable range of possible losses can be determined. Management does not anticipate that 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.
In October 1998, the Company joined seventeen other companies in guaranteeing a $17.9 million letter of credit issued as a guarantee of certain City of Milwaukee Revenue Bonds used to develop a residential rental property. The Revenue Bonds were issued on behalf of a not-for-profit organization established to manage the project and rental property post construction. The revenues from the rental property are used to fund operating expenses and all debt service requirements. The Company’s share of the guarantee and the maximum exposure to the Company under the agreement is $1.8 million. The letter of credit and underlying guarantee expires August 15, 2008. Management believes the likelihood is remote that material payments will be required under this guarantee. Accordingly, no liability has been reflected in the accompanying Consolidated Balance Sheets related to this item.
Certain Independent Dealers and Distributors finance inventory purchases through a third party financing company. Briggs & Stratton has indemnified the third party finance company against credit default. The Company’s maximum exposure under this agreement due to customer credit default in a fiscal year is $1.6 million. In fiscal 2005, the third party financing company provided financing for $339.4 million of Briggs & Stratton product in fiscal 2005. As of the end of fiscal 2005 there were $188.1 million in receivables outstanding under this arrangement. Briggs & Stratton made no payments under this indemnity in fiscal 2005.
The Company has no material commitments for materials or capital expenditures as of June 27, 2004.July 3, 2005.
(11) Stock Incentives:
(10) Stock Incentives:
The Company hashad a Stock Incentive Plan under which 5,361,935 shares of common stock have beenwere reserved for issuance. Effective October 20, 2004, the Company adopted an Incentive Compensation Plan under which 4,000,000 shares of common stock (8,000,000 shares as a result of the 2-for-1 stock split) were reserved for future issuance. The adoption of this Plan reduced the number of shares available for future issuance under the Stock Incentive Plan to zero. However, as of July 3, 2005, there were 3,092,168 outstanding option and restricted stock awards granted under the Stock Incentive Plan that are or may become exercisable in the future. In accordance with the plan,both plans, the Company can issue eligible employees stock options,
Notes…
stock appreciation rights, restricted stock, deferred stock stock purchase rights and cash bonus awards.awards subject to certain annual limitations. The planplans also allowsallow the Company to issue directors non-qualified stock options and directors’ fees in stock.
34
The Company has issued stock options to certain employees and directors in accordance with the plan,plans, which are accounted for under Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees”, and no compensation cost has been recognized. Had compensation cost for this planthese 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:
| 2005 |
| 2004 |
| 2003 |
| ||||||||||||||||
| 2004 | 2003 | 2002 |
|
|
|
|
|
|
| |||||||||||||
Net lncome (in thousands): | ||||||||||||||||||||||
Net income as reported (in thousands): |
| $ | 136,567 |
| $ | 136,114 |
| $ | 80,638 |
| ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Basic EPS: |
|
|
|
|
|
|
| |||||||||||||||
Deduct employee compensation expense determined under a fair value based method, net of related tax effects |
| (5,837 | ) | (3,528 | ) | (3,056 | ) | |||||||||||||||
Income Available to Common Stockholders: |
| 130,730 |
| 132,586 |
| 77,582 |
| |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Diluted EPS: |
|
|
|
|
|
|
| |||||||||||||||
Add reduction in interest expense related to convertible debt |
| — |
| 4,053 |
| 4,760 |
| |||||||||||||||
Income Available to Common Stockholders: |
| $ | 130,730 |
| $ | 136,639 |
| $ | 82,342 |
| ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Basic Earnings Per Share:* |
|
|
|
|
|
|
| |||||||||||||||
As Reported | $ | 136,114 | $ | 80,638 | $ | 53,120 |
| $ | 2.65 |
| $ | 3.01 |
| $ | 1.86 |
| ||||||
Compensation Cost | (3,528 | ) | (3,056 | ) | (3,626 | ) | ||||||||||||||||
Pro Forma | $ | 132,586 | $ | 77,582 | $ | 49,494 |
| $ | 2.54 |
| $ | 2.93 |
| $ | 1.79 |
| ||||||
|
|
|
|
|
|
| ||||||||||||||||
Basic Earnings Per Share: | ||||||||||||||||||||||
Diluted Earnings Per Share:* |
|
|
|
|
|
|
| |||||||||||||||
As Reported | $ | 6.01 | $ | 3.73 | $ | 2.46 |
| $ | 2.63 |
| $ | 2.77 |
| $ | 1.74 |
| ||||||
Pro Forma | $ | 5.86 | $ | 3.59 | $ | 2.29 |
| $ | 2.52 |
| $ | 2.70 |
| $ | 1.69 |
| ||||||
Diluted Earnings Per Share: | ||||||||||||||||||||||
As Reported | $ | 5.53 | $ | 3.49 | $ | 2.36 | ||||||||||||||||
Pro Forma | $ | 5.40 | $ | 3.38 | $ | 2.21 | ||||||||||||||||
The exercise pricesprice of each stock option issued is in excess of the market value of the stock on the date of grant. 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:
Options Granted During | 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| ||||||||||||
Grant Date Fair Value | $ | 19.95 | $ | 10.61 | $ | 12.53 | ||||||||||||||||
Grant Date Fair Value* |
| $ | 12.12 |
| $ | 9.98 |
| $ | 5.31 |
| ||||||||||||
Assumptions: |
|
|
|
|
|
|
| |||||||||||||||
Risk-free Interest Rate | 4.6 | % | 4.3 | % | 5.1 | % |
| 4.2 | % | 4.6 | % | 4.3 | % | |||||||||
Expected Volatility | 33.1 | % | 38.4 | % | 40.3 | % |
| 28.4 | % | 33.1 | % | 38.4 | % | |||||||||
Expected Dividend Yield | 2.3 | % | 3.3 | % | 3.1 | % |
| 1.9 | % | 2.3 | % | 3.3 | % | |||||||||
Expected Term (In Years) | 10.0 | 7.0 | 7.0 |
| 10.0 |
| 10.0 |
| 7.0 |
| ||||||||||||
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
35
Information on the options outstanding is as follows:
| Shares | Wtd. Avg. Ex. Price | |||||
Balance, July 1, 2001 | 1,753,841 | $ | 55.78 | |||
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 | 1,886,640 | $ | 55.20 | |||
Granted During the Year | 205,980 | $ | 46.69 | |||
Exercised During the Year | (122,060 | ) | 44.98 | |||
Expired During the Year | (294,770 | ) | 63.71 | |||
Balance, June 29, 2003 | 1,675,790 | $ | 53.40 | |||
Granted During the Year | 438,050 | $ | 60.88 | |||
Exercised During the Year | (861,695 | ) | 52.59 | |||
Expired During the Year | (3,000 | ) | 74.53 | |||
Balance, June 27, 2004 | 1,249,145 | $ | 56.53 | |||
Notes…
|
| Shares* |
| Wtd. Avg. |
| |
Balance, June 30, 2002 |
| 3,773,280 |
| $ | 27.60 |
|
|
|
|
|
|
|
|
Granted During the Year |
| 411,960 |
| 23.35 |
| |
Exercised During the Year |
| (244,120 | ) | 22.49 |
| |
Expired During the Year |
| (589,540 | ) | 31.86 |
| |
Balance, June 29, 2003 |
| 3,351,580 |
| $ | 26.70 |
|
|
|
|
|
|
| |
Granted During the Year |
| 876,100 |
| 30.44 |
| |
Exercised During the Year |
| (1,723,390 | ) | 26.29 |
| |
Expired During the Year |
| (6,000 | ) | 37.27 |
| |
Balance, June 27, 2004 |
| 2,498,290 |
| $ | 28.27 |
|
|
|
|
|
|
| |
Granted During the Year |
| 1,149,340 |
| 36.68 |
| |
Exercised During the Year |
| (622,262 | ) | 32.67 |
| |
Expired During the Year |
| (18,200 | ) | 37.27 |
| |
Balance, July 3, 2005 |
| 3,007,168 |
| $ | 30.52 |
|
Grant Summary | |||||||||||||||||||||||||
Grant Summary* | Grant Summary* |
| |||||||||||||||||||||||
Fiscal Year | Grant Date | Date Exercisable | Expiration Date | Exercise Price | Options Outstanding |
|
|
| Grant |
| Date |
| Expiration |
| Exercise |
| Options |
| |||||||
2000 | 8-4-99 | 8-4-02 | 8-31-04 | $ | 74.53 | 214,260 | |||||||||||||||||||
2001 | 8-3-00 | 8-3-03 | 8-3-07 | 46.22 | 221,805 |
|
|
| 8-3-00 |
| 8-3-03 |
| 8-3-07 |
| $ | 23.11 |
| 326,348 |
| ||||||
2002 | 8-7-01 | 8-7-04 | 8-7-08 | 49.19 | 224,820 |
|
|
| 8-7-01 |
| 8-7-04 |
| 8-7-08 |
| 24.60 |
| 402,200 |
| |||||||
2003 | 8-13-02 | 8-13-05 | 8-13-09 | 46.69 | 174,910 |
|
|
| 8-13-02 |
| 8-13-05 |
| 8-13-09 |
| 23.35 |
| 302,580 |
| |||||||
2004 | 8-15-03 | 8-15-06 | 8-15-13 | 60.88 | 413,350 |
|
|
| 8-15-03 |
| 8-15-06 |
| 8-15-13 |
| 30.44 |
| 826,700 |
| |||||||
2005 |
|
|
| 8-13-04 |
| 8-13-07 |
| 8-13-14 |
| 36.68 |
| 1,149,340 |
| ||||||||||||
Under the Stock Incentive Plan,plans, the Company has issued restricted stock to certain employees. During fiscal years 2005,2004 and 2003, the Company issued 24,50026,000, 49,000* and 7,00014,000* shares, respectively. No restricted shares were issued during fiscal year 2002. The restricted stock issued vests on the fifth anniversary date of issue provided that the recipient is still employed by the Company. The aggregate market value on the date of issue of $1.0 million in fiscal 2005, $1.5 million in fiscal 2004 and $0.2 million in fiscal 2003 has been recorded as unearned compensation, a separate component of the Shareholders’ Investment section of the Consolidated Balance Sheets, and is being amortized over the five-year vesting period.
Under the Stock Incentive Planplans, the Company may also issue stock to its directors in lieu of directors fees. The Company has issued 2,6253,463 shares, 1,3175,250* shares and 8002,634* shares in fiscal 2005, 2004 2003 and 2002,2003, respectively under this provision of the plan.plans.
(11)Under the Incentive Compensation Plan, the Company may also issue deferred stock to its officers and key employees. During fiscal 2005, the Company has issued 1,000 shares under this provision. The aggregate market value on the date of issue was $34,000. Expense is recognized ratably over the five-year vesting period.
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
(12) 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 ($80.00 per full common share after taking into consideration the effect of 2-for-1 stock split effective October 29, 2004), subject to adjustment. The rights are not currently exercisable, but would become exercisable if events occurred relating to a person or group acquiring or attempting to
36
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)(13) Foreign Exchange Risk Management:
The Company enters into forward exchange contracts to hedge purchases and sales that are denominated in foreign currencies. The terms of these currency derivatives 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 Japanese yen. These contracts are used to hedge the commitments to purchase engines from the Company’s Japanese joint venture. The Company also has forward contracts to sell foreign currency. These contracts are used to hedge foreign currency collections on sales of inventory. The Company’s foreign currency forward contracts are carried at fair value based on current exchange rates.
The Company has the following forward currency contracts outstanding at the end of fiscal 2004:2005:
Hedge | In Millions | Conversion Currency | Latest Expiration Date | ||||||||||||
| Notional Value | Contract Value | Fair Market Value | (Gain)/Loss at Fair Value | ||||||||||||
Currency | Contract | ||||||||||||||
Japanese Yen | Buy | 1,680.0 | 15.5 | 15.7 | (0.2 | ) | U.S. | March 2005 | |||||||
Euro | Sell | 87.0 | 103.0 | 105.8 | 2.8 | U.S. | April 2005 | ||||||||
Australian Dollar | Sell | 0.4 | 0.2 | 0.3 | 0.1 | U.S. | September 2004 | ||||||||
Notes…
|
| 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 |
| 2,550.0 |
| 24.4 |
| 23.2 |
| 1.2 |
| U.S. |
| June 2006 |
|
Euro |
| Sell |
| 35.0 |
| 43.9 |
| 42.3 |
| (1.6 | ) | U.S. |
| June 2006 |
|
Australian Dollar |
| Sell |
| 2.4 |
| 1.8 |
| 1.8 |
| 0 |
| U.S. |
| May 2006 |
|
The Company had the following forward currency contracts outstanding at the end of fiscal 2003:2004:
|
| In Millions |
|
|
|
|
| |||||||||||||||||||||||
Hedge | In Millions | Conversion Currency | Latest Expiration Date | |||||||||||||||||||||||||||
| Notional Value | Contract Value | Fair Market Value | (Gain)/Loss at Fair Value | Hedge |
| Notional |
| Contract |
| Fair Market |
| (Gain)/Loss |
| Conversion |
| Latest |
| |||||||||||||
Currency | Contract | Conversion Currency |
| Contract |
| Value |
| Value |
| Value |
| at Fair Value |
| Currency |
| Expiration Date |
| |||||||||||||
Japanese Yen | Buy | 410.0 | 3.5 | 3.4 | (0.1 | ) | U.S. | October 2003 |
| Buy |
| 1,680.0 |
| 15.5 |
| 15.7 |
| (0.2 | ) | U.S. |
| March 2005 |
| |||||||
Euro | Sell | 46.0 | 51.0 | 52.4 | 1.4 | U.S. | February 2004 |
| Sell |
| 87.0 |
| 103.0 |
| 105.8 |
| 2.8 |
| U.S. |
| April 2005 |
| ||||||||
Australian Dollar | Sell | 1.5 | 0.9 | 1.0 | 0.1 | U.S. | December 2003 |
| Sell |
| 0.4 |
| 0.2 |
| 0.3 |
| 0.1 |
| U.S. |
| September 2004 |
| ||||||||
Canadian Dollar | Sell | 1.6 | 1.1 | 1.2 | 0.1 | U.S. | November 2003 | |||||||||||||||||||||||
The Company continuously evaluates the effectiveness of its hedging program by evaluating its foreign exchange contracts compared to the anticipated underlying transactions. In fiscal 2004, the Company reclassified approximately $1.1 million of unrealized loss into earnings during fiscal 2004 as forecasted transactions did not materialize in accordance with the hedging plan.
37
Notes…(14) Employee Benefit Costs:
Retirement Plan and Other Postretirement Benefits
(13) Employee Benefit Costs:
Retirement Plan and Postretirement Benefits
The Company has noncontributory, defined benefit retirement plans and other postretirement benefit plans covering certain employees. The Company uses a June 30 measurement date for all of its plans. The following provides a reconciliation of obligations, plan assets and funded status of the plans for the two years indicated, (in thousands):
| Pension Benefits | Other Postretirement Benefits |
| Pension Benefits |
| Other Postretirement Benefits |
| |||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 |
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| |||||||||||||||||
Actuarial Assumptions: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Discounted Rate Used to Determine Present Value of Projected Benefit Obligation | 6.25 | % | 6.00 | % | 6.25 | % | 6.00 | % |
| 5.25 | % | 6.25 | % | 5.25 | % | 6.25 | % | ||||||||||||
Expected Rate of Future Compensation Level Increases | 3.0-5.0 | % | 3.0-5.0 | % | n/a | n/a |
| 3.0-5.0 | % | 3.0-5.0 | % | n/a |
| n/a |
| ||||||||||||||
Expected Long-Term Rate of Return on Plan Assets | 8.75 | % | 8.75 | % | n/a | n/a |
| 8.75 | % | 8.75 | % | n/a |
| n/a |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Change in Benefit Obligations: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Actuarial Present Value of Benefit Obligations at Beginning of Year | $ | 879,588 | $ | 747,621 | $ | 190,410 | $ | 123,465 | |||||||||||||||||||||
Projected Benefit Obligation at Beginning of Year |
| $ | 902,325 |
| $ | 879,588 |
| $ | 243,457 |
| $ | 190,410 |
| ||||||||||||||||
Service Cost | 13,188 | 11,263 | 1,673 | 1,594 |
| 12,993 |
| 13,188 |
| 2,734 |
| 1,673 |
| ||||||||||||||||
Interest Cost | 51,089 | 52,276 | 10,766 | 8,258 |
| 54,448 |
| 51,089 |
| 16,703 |
| 10,766 |
| ||||||||||||||||
Plan Amendments | 1,048 | 1,234 | — | — |
| — |
| 1,048 |
| — |
| — |
| ||||||||||||||||
Acquisition |
| — |
| — |
| 36,665 |
| — |
| ||||||||||||||||||||
Plan Participant Contributions | — | — | 4,018 | 3,464 |
| — |
| — |
| 3,730 |
| 4,018 |
| ||||||||||||||||
Actuarial Loss | 21,171 | 127,441 | 65,629 | 74,534 |
| 124,756 |
| 21,171 |
| 31,744 |
| 65,629 |
| ||||||||||||||||
Benefits Paid | (63,759 | ) | (60,247 | ) | (29,039 | ) | (20,905 | ) |
| (62,508 | ) | (63,759 | ) | (29,942 | ) | (29,039 | ) | ||||||||||||
Actuarial Present Value of Benefit Obligation at End of Year | $ | 902,325 | $ | 879,588 | $ | 243,457 | $ | 190,410 | |||||||||||||||||||||
Projected Benefit Obligation at End of Year |
| $ | 1,032,014 |
| $ | 902,325 |
| $ | 305,091 |
| $ | 243,457 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Change in Plan Assets: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Plan Assets at Fair Value at Beginning of Year | $ | 851,918 | $ | 856,503 | $ | — | $ | — | |||||||||||||||||||||
Fair Value of Plan Assets at Beginning of Year |
| $ | 916,280 |
| $ | 851,918 |
| $ | — |
| $ | — |
| ||||||||||||||||
Actual Return on Plan Assets | 126,575 | 54,350 | — | — |
| 62,165 |
| 126,575 |
| — |
| — |
| ||||||||||||||||
Plan Participant Contributions | 135 | — | 4,018 | 3,464 |
| — |
| 0 |
| 3,730 |
| 4,018 |
| ||||||||||||||||
Employer Contributions | 1,411 | 1,312 | 25,021 | 17,441 |
| 1,506 |
| 1,546 |
| 26,212 |
| 25,021 |
| ||||||||||||||||
Benefits Paid | (63,759 | ) | (60,247 | ) | (29,039 | ) | (20,905 | ) |
| (62,508 | ) | (63,759 | ) | (29,942 | ) | (29,039 | ) | ||||||||||||
Plan Assets at Fair Value at End of Year | $ | 916,280 | $ | 851,918 | $ | — | $ | — | |||||||||||||||||||||
Fair Value of Plan Assets at End of Year |
| $ | 917,443 |
| $ | 916,280 |
| $ | — |
| $ | — |
| ||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Funded Status: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Plan Assets in Excess (Less Than) of Projected Benefit Obligation | $ | 13,955 | $ | (27,670 | ) | $ | (243,457 | ) | $ | (190,410 | ) | ||||||||||||||||||
Plan Assets (Less Than) in Excess of Projected Benefit Obligation |
| $ | (114,571 | ) | $ | 13,955 |
| $ | (305,091 | ) | $ | (243,457 | ) | ||||||||||||||||
Remaining Unrecognized Net Obligation | 74 | 82 | 182 | 228 |
| 65 |
| 74 |
| 135 |
| 182 |
| ||||||||||||||||
Unrecognized Net Loss | 22,682 | 56,237 | 169,559 | 112,284 |
| 155,308 |
| 22,682 |
| 187,056 |
| 169,559 |
| ||||||||||||||||
Minimum Pension Liability | (3,063 | ) | (4,522 | ) | — | — |
| (113,185 | ) | (3,063 | ) | — |
| — |
| ||||||||||||||
Unrecognized Prior Service Cost | 26,179 | 28,210 | 9 | 41 |
| 23,039 |
| 26,179 |
| (22 | ) | 9 |
| ||||||||||||||||
Net Amount Recognized at End of Year | $ | 59,827 | $ | 52,337 | $ | (73,707 | ) | $ | (77,857 | ) |
| $ | (49,344 | ) | $ | 59,827 |
| $ | (117,922 | ) | $ | (73,707 | ) | ||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Amounts Recognized on the Balance Sheets: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Prepaid Pension | $ | 81,730 | $ | 74,005 | $ | — | $ | — |
| $ | — |
| $ | 81,730 |
| $ | — |
| $ | — |
| ||||||||
Accrued Pension Cost | (20,603 | ) | (20,368 | ) | — | — |
| (47,944 | ) | (20,603 | ) | — |
| — |
| ||||||||||||||
Accrued Wages and Salaries | (1,300 | ) | (1,300 | ) | — | — |
| (1,400 | ) | (1,300 | ) | — |
| — |
| ||||||||||||||
Accrued Postretirement Health Care Obligation | — | — | (38,248 | ) | (48,065 | ) |
| — |
| — |
| (77,607 | ) | (38,248 | ) | ||||||||||||||
Accrued Liabilities | — | — | (22,000 | ) | (17,000 | ) |
| — |
| — |
| (26,000 | ) | (22,000 | ) | ||||||||||||||
Accrued Employee Benefits | — | — | (13,459 | ) | (12,792 | ) |
| — |
| — |
| (14,315 | ) | (13,459 | ) | ||||||||||||||
Net Amount Recognized at End of Year | $ | 59,827 | $ | 52,337 | $ | (73,707 | ) | $ | (77,857 | ) |
| $ | (49,344 | ) | $ | 59,827 |
| $ | (117,922 | ) | $ | (73,707 | ) | ||||||
38
Notes…
The accumulated benefit obligation for all defined benefit pension plans was $855,859$967 million and $831,919$856 million at June 30, 20042005 and 2003,2004, respectively.
The following table summarizes the plans’ income and expense for the three years indicated (in thousands):
| Pension Benefits | Other Postretirement Benefits |
| Pension Benefits |
| Other Postretirement Benefits |
| ||||||||||||||||||||||||||||||||||
| 2004 | 2003 | 2002 | 2004 | 2003 | 2002 |
| 2005 |
| 2004 |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||||||||||||||||||
Components of Net Periodic (Income) Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Service Cost-Benefits Earned During the Year | $ | 13,188 | $ | 11,263 | $ | 10,014 | $ | 1,673 | $ | 1,594 | $ | 1,341 |
| $ | 12,993 |
| $ | 13,188 |
| $ | 11,263 |
| $ | 2,734 |
| $ | 1,673 |
| $ | 1,594 |
| |||||||||
Interest Cost on Projected Benefit Obligation | 51,089 | 52,276 | 51,203 | 10,766 | 8,258 | 8,028 |
| 54,448 |
| 51,089 |
| 52,276 |
| 16,703 |
| 10,766 |
| 8,258 |
| |||||||||||||||||||||
Expected Return on Plan Assets | (72,458 | ) | (76,403 | ) | (77,192 | ) | — | — | — |
| (70,806 | ) | (72,458 | ) | (76,403 | ) | — |
| — |
| — |
| ||||||||||||||||||
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Transition Obligation (Asset) | 8 | 8 | (4,517 | ) | 46 | 46 | 46 |
| 8 |
| 8 |
| 8 |
| 46 |
| 46 |
| 46 |
| ||||||||||||||||||||
Prior Service Cost | 3,080 | 2,965 | 2,797 | 31 | 31 | 31 |
| 3,140 |
| 3,080 |
| 2,965 |
| 31 |
| 31 |
| 31 |
| |||||||||||||||||||||
Actuarial Loss (Gain) | 607 | (2,398 | ) | (8,328 | ) | 8,354 | 2,428 | 1,834 |
| 772 |
| 607 |
| (2,398 | ) | 14,249 |
| 8,354 |
| 2,428 |
| |||||||||||||||||||
Net Periodic (Income) Expense | $ | (4,486 | ) | $ | (12,289 | ) | $ | (26,023 | ) | $ | 20,870 | $ | 12,357 | $ | 11,280 |
| $ | 555 |
| $ | (4,486 | ) | $ | (12,289 | ) | $ | 33,763 |
| $ | 20,870 |
| $ | 12,357 |
| ||||||
Significant assumptions used in determining net periodic benefit cost for the fiscal years ended are as follows:
| Pension Benefits |
| Other Postretirement Benefits |
| |||||||||||||||||||||||||||
| Pension Benefits | Other Postretirement Benefits |
| 2005 |
| 2004 |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||||||||||
| 2004 | 2003 | 2002 | 2004 | 2003 | 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Discount Rate | 6.0 | % | 7.25 | % | 7.5 | % | 6.0 | % | 7.25 | % | 7.5 | % |
| 6.25 | % | 6.0 | % | 7.25 | % | 6.25 | % | 6.0 | % | 7.25 | % | ||||||
Expected Return on Plan Assets | 8.75 | % | 9.0 | % | 9.0 | % | n/a | n/a | n/a |
| 8.75 | % | 8.75 | % | 9.0 | % | n/a |
| n/a |
| n/a |
| |||||||||
Compensation Increase Rate | 3.0-5.0 | % | 4.0-5.0 | % | 4.0-5.0 | % | n/a | n/a | n/a |
| 3.0-5.0 | % | 3.0-5.0 | % | 4.0-5.0 | % | n/a |
| n/a |
| n/a |
| |||||||||
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.
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 $28.4 million, $22.0 million and $0.1 million respectively for fiscal year 2004 and $26.5 million, $21.7 million and $0.1 million respectively for fiscal year 2003.
An additional pension obligation is required when the accumulated benefit obligation exceeds the sum of the fair value of plan assets and the accrued pension expense. At July 3, 2005, the Company’s additional pension obligation was $113.2 million, of which $55.0 million was included as a reduction in accumulated other comprehensive income, net of tax benefit of $35.2 million, and $23.0 million was included as an intangible asset as part of the other assets in the consolidated balance sheet. At June 27, 2004, the Company’s additional pension obligation was $3.1 million, of which $1.3 million was included as a reduction in accumulated other comprehensive income, net of tax benefit of $0.9 million, and $0.9 million was included as an intangible asset as part of the other assets in the consolidated balance sheet. At June 29, 2003, the Company’s additional pension obligation was $4.5 million, of which $2.6 million was included as an increase in accumulated other comprehensive loss, net of tax benefit of $1.6 million, and $0.3 million was included as an intangible asset.
The “other postretirement benefitbenefit” plans are essentially unfunded.
For measurement purposes a 10%an 11% annual rate of increase in the per capita cost of covered health care claims was assumed for Briggs & Stratton for the fiscal year 20042005 decreasing gradually to 5% for the fiscal year 2010.2011. In fiscal 2005, Briggs & Stratton acquired the liabilities associated with the Simplicity Post-Retirement Benefit Plan covering certain Port Washington, Wisconsin employees. For measurement purposes this plan assumes a 6.875% annual rate of increase in the per capita cost decreasing gradually to 5% for the fiscal year 2011. The health care cost trend rate assumption hasassumptions have a significant effect on the amounts reported. An increase of one percentage point, would increase the accumulated postretirement benefit by $16.1$22.2 million and would increase the service and interest cost by $0.9$1.7 million for the year. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by $15.0$20.3 million and decrease the service and interest cost by $0.9$1.5 million for the fiscal year.
Notes…
Plan Assets
A Board of Directors appointed Investment Committee (“Committee”) manages the investment of the pension plan assets. The Committee has established and operates under an Investment Policy. It determines the asset allocation and target ranges based upon periodic asset/liability studies and capital market projections. The Committee retains external investment managers to invest the assets. The Investment Policy prohibits certain investment transactions, such as letterlettered stock, commodity contracts, margin transactions and short
39
selling, unless the Committee gives prior approval. Briggs & Stratton’s pension plans weighted-average asset allocations and target allocations at June 30, 2004,2005, and 2003,2004, by asset category are as follows:
Asset Category | Target % | Plan Assets at Year-end | ||||||
| 2004 | 2003 | |||||||
Domestic bonds | 24%-34% | 26 | % | 30 | % | |||
High yield | 3%-10% | 7 | % | 7 | % | |||
Domestic equities | 36%-56% | 48 | % | 45 | % | |||
International equities | 5%-15% | 10 | % | 9 | % | |||
Alternatives | 2%-10% | 5 | % | 5 | % | |||
Real estate | 4%-8% | 4 | % | 4 | % | |||
| 100 | % | 100 | % | |||||
|
|
|
| Plan Assets at Year-end |
| ||
Asset Category |
| Target % |
| 2005 |
| 2004 |
|
Domestic Bonds |
| 12%-30% |
| 15 | % | 26 | % |
Non-Investment Grade Bonds |
| 0%-15% |
| 10 | % | 7 | % |
Non-US Bonds |
| 0%-10% |
| 5 | % | — |
|
Domestic Equities |
| 24%-46% |
| 41 | % | 48 | % |
Global & International Equities |
| 8%-22% |
| 15 | % | 10 | % |
Alternative & Absolute Return |
| 5%-25% |
| 9 | % | 5 | % |
Real Estate |
| 4%-10% |
| 5 | % | 4 | % |
|
|
|
| 100 | % | 100 | % |
The plan’s investment strategy is based on an expectation that, over time, equity securities will provide higher total returns than debt securities. The plan primarily minimizes the risk of large losses through diversification of investments by asset class, by investing in different types of styles within the classes and by using a number of different managers. The Committee monitors the asset allocation and investment performance monthly, with a more comprehensive quarterly review with its consultant.
The plan’s expected return on assets is based on management’s and the Committee’s expectations of long-term average rates of return to be achieved by the plan’s investments. These expectations are based on the plan’s historical returns and expected returns for the asset classes in which the plan is invested.
Contributions
The Company doesis not expectrequired to make any contributions to the pension plans in fiscal 2005.2006.
Estimated Future Benefit Payments
Year Ending | Pension Benefits | Other Postretirement Benefits | |||||||||||||
| Qualified | Non-Qualified | Retiree Medical | Retiree Life | LTD | |||||||||||
2005 | $ | 60,004,000 | $ | 1,433,000 | $ | 25,390,000 | $ | 1,271,000 | $ | 208,000 | |||||
2006 | 58,148,000 | 1,451,000 | 27,507,000 | 1,291,000 | 149,000 | ||||||||||
2007 | 58,634,000 | 1,461,000 | 28,889,000 | 1,311,000 | 98,000 | ||||||||||
2008 | 58,550,000 | 1,461,000 | 29,121,000 | 1,330,000 | 100,000 | ||||||||||
2009 | 58,576,000 | 1,461,000 | 28,817,000 | 1,348,000 | 102,000 | ||||||||||
2010-2014 | 283,856,000 | 7,302,000 | 129,336,000 | 6,985,000 | 368,000 | ||||||||||
Projected benefit payments from the plans as of July 3, 2005 are estimated as follows (in thousands):
|
| Pension Benefits |
| Other Postretirement Benefits |
| |||||||||||
|
|
|
|
|
| Retiree |
|
|
|
|
| |||||
Year Ending |
| Qualified |
| Non-Qualified |
| Medical |
| Retiree Life |
| LTD |
| |||||
2006 |
| $ | 59,890 |
| $ | 1,494 |
| $ | 25,047 |
| $ | 1,283 |
| $ | 149 |
|
2007 |
| 60,309 |
| 1,487 |
| 25,893 |
| 1,303 |
| 105 |
| |||||
2008 |
| 61,212 |
| 1,487 |
| 26,235 |
| 1,323 |
| 107 |
| |||||
2009 |
| 62,344 |
| 1,487 |
| 26,148 |
| 1,342 |
| 110 |
| |||||
2010 |
| 63,256 |
| 1,487 |
| 24,653 |
| 1,360 |
| 111 |
| |||||
2011-2015 |
| 331,975 |
| 7,436 |
| 114,807 |
| 7,018 |
| 378 |
| |||||
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 fiscal 2002, the net expense related to these plans was $1.6 million. Effective July 1, 2002, this plan was frozen, and no future employer contributions will be made.
Employees of the Company may participate in various defined contribution savings plans that allow participants to contribute a salary reduction deferred compensation retirement plan.portion of their earnings in accordance with plan specifications. A maximum of 1-1/2% or 3% of each participant’s salary, depending upon the participant’s group, is matched by the Company. For certain employees, this Company matching contribution is discretionary. The Company contributions totaled $5.5 million in 2005, $4.6 million in 2004 and $4.3 million in 2003 and $4.1 million in 2002.
Notes…2003.
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 an interest rate of 6.25%5.25% and 6.00%6.25% for fiscal year 20042005 and 2003,2004, respectively. Amounts are included in Accrued Employee Benefits in the Consolidated Balance Sheets.
40
(14)(15) 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, Accrued Liabilities and Income Taxes Payable: 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 at year-end.
The estimated fair market values of the Company’s Long-Term Debt is (in thousands):
| 2005 |
| 2004 |
| |||||||||||||||||||||
| 2004 | 2003 |
| Carrying |
| Fair |
| Carrying |
| Fair |
| |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value |
| Amount |
| Value |
| Amount |
| Value |
| |||||||||||||
Long-term Debt - |
|
|
|
|
|
|
|
|
| ||||||||||||||||
5.00% Convertible Notes Due 2006 | $ | — | $ | — | $ | 140,000 | $ | 168,725 | |||||||||||||||||
7.25% Notes Due 2007 | $ | 89,403 | $ | 98,683 | $ | 89,217 | $ | 91,873 |
| $ | 89,589 |
| $ | 95,209 |
| $ | 89,403 |
| $ | 98,683 |
| ||||
8.875% Notes Due 2011 | $ | 271,159 | $ | 328,502 | $ | 270,587 | $ | 324,237 |
| $ | 271,732 |
| $ | 321,457 |
| $ | 271,159 |
| $ | 328,502 |
| ||||
Variable Term Notes Due 2008 |
| $ | 125,000 |
| $ | 125,000 |
| $ | — |
| $ | — |
| ||||||||||||
(15) Subsequent Event
On July 7, 2004 Briggs & Stratton Corporation and its subsidiary, Briggs & Stratton Power Products Group, LLC acquired Simplicity Manufacturing, Inc. for $227 million in cash plus certain transaction related expenses. Simplicity designs, manufactures and markets a wide variety of premium yard and garden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. This acquisition will be accounted for using the purchase accounting provisions of SFAS No. 141 “Business Combinations”. While we have not completed our preliminary purchase price allocation, we have engaged a third party to assist in determining the fair value of the assets acquired. Simplicity has estimated net assets of approximately $75 million as of July 7, 2004.
(16) Separate Financial Information of Subsidiary Guarantors of Indebtedness
In June of 1997, Briggs & Stratton issued $100 million of 7.25% senior notes, and in May 2001, the Company issued $275 million of 8.875% senior notes and in February 2005, the Company issued $125 million of variable rate term notes. In addition, Briggs & Stratton has a $275$350 million revolving credit facility that expires in May 2009 used to finance seasonal working capital needs.
Under the terms of Briggs & Stratton’s 8.875% senior notes, 7.25% senior notes, variable rate term notes and revolving credit agreement, (collectively, the “Domestic Indebtedness”), BSPPG became aand effective July 7, 2004, its wholly owned subsidiary Simplicity Manufacturing, Inc., are joint and several guarantorguarantors of the Domestic Indebtedness (the “Guarantor”). The guarantee is aguarantees are full and unconditional guarantee.guarantees. Additionally, if at any time a domestic subsidiary of Briggs & Stratton constitutes a significant domestic subsidiary, then such domestic subsidiary will also become a guarantor of the Domestic Indebtedness. Currently all of the Domestic Indebtedness is unsecured. If Briggs & Stratton were to fail to make a payment of interest or principal on its
Notes…
due date, the Guarantor is obligated to pay the outstanding Domestic Indebtedness. Briggs & Stratton had the following outstanding amounts related to the guaranteed debt (in thousands):
|
| July 3, 2005 |
|
|
| ||||||||
| Carrying |
| Maximum |
| |||||||||
| June 27, 2004 Carrying Amount | Maximum Guarantee |
| Amount |
| Guarantee |
| |||||||
8.875% Senior Notes, due March 15, 2011 | $ | 271,159 | $ | 275,000 |
| $ | 271,732 |
| $ | 275,000 |
| ||
Variable Rate Term Notes, due February 11, 2008 |
| $ | 125,000 |
| $ | 125,000 |
| ||||||
7.25% Senior Notes, due September 15, 2007 | $ | 89,403 | $ | 90,000 |
| $ | 89,589 |
| $ | 90,000 |
| ||
Revolving Credit Facility, expiring May 2009 | $ | — | $ | 275,000 |
| $ | — |
| $ | 350,000 |
| ||
41
The following condensed supplementssupplemental consolidating financial information reflects the summarized financial information of Briggs & Stratton, its GuarantorGuarantors and Non-GurantorNon-Guarantor Subsidiaries (in thousands):
BALANCE SHEET: As of June 27, 2004 | Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Gurantor Subsidiaries | Eliminations | Consolidated | |||||||||||
Current Assets | $ | 739,007 | $ | 243,300 | $ | 227,786 | $ | (228,100 | ) | $ | 981,993 | |||||
Investment in Subsidiary | 352,207 | — | — | (352,207 | ) | — | ||||||||||
Noncurrent Assets | 471,395 | 175,439 | 8,326 | — | 655,160 | |||||||||||
| $ | 1,562,609 | $ | 418,739 | $ | 236,112 | $ | (580,307 | ) | $ | 1,637,153 | ||||||
Current Liabilities | $ | 226,627 | $ | 111,992 | $ | 180,791 | $ | (218,849 | ) | $ | 300,561 | |||||
Long-Term Debt | 360,562 | — | — | — | 360,562 | |||||||||||
Other Long-Term Obligations | 148,574 | 9,861 | — | — | 158,435 | |||||||||||
Shareholders’ Equity | 826,846 | 296,886 | 55,321 | (361,458 | ) | 817,595 | ||||||||||
| $ | 1,562,609 | $ | 418,739 | $ | 236,112 | $ | (580,307 | ) | $ | 1,637,153 | ||||||
As of June 29, 2003 | ||||||||||||||||
Current Assets | $ | 617,409 | $ | 159,067 | $ | 99,311 | $ | (68,640 | ) | $ | 807,147 | |||||
Investment in Subsidiary | 333,848 | — | — | (333,848 | ) | — | ||||||||||
Noncurrent Assets | 483,227 | 180,903 | 3,916 | — | 668,046 | |||||||||||
| $ | 1,434,484 | $ | 339,970 | $ | 103,227 | $ | (402,488 | ) | $ | 1,475,193 | ||||||
Current Liabilities | $ | 256,476 | $ | 51,610 | $ | 53,846 | $ | (60,537 | ) | $ | 301,395 | |||||
Long-Term Debt | 503,397 | — | — | — | 503,397 | |||||||||||
Other Long-Term Obligations | 151,521 | 3,855 | 38 | — | 155,414 | |||||||||||
Shareholders' Equity | 523,090 | 284,505 | 49,343 | (341,951 | ) | 514,987 | ||||||||||
| $ | 1,434,484 | $ | 339,970 | $ | 103,227 | $ | (402,488 | ) | $ | 1,475,193 | ||||||
Notes…BALANCE SHEET:
STATEMENT OF EARNINGS: For the Fiscal Year Ended June 27, 2004 | Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net Sales | $ | 1,562,114 | $ | 460,122 | $ | 152,236 | $ | (227,108 | ) | $ | 1,947,364 | |||||||||
Cost of Goods Sold | 1,205,950 | 405,720 | 120,253 | (224,431 | ) | 1,507,492 | ||||||||||||||
Gross Profit | 356,164 | 54,402 | 31,983 | (2,677 | ) | 439,872 | ||||||||||||||
Engineering, Selling, General and Administrative Expenses | 155,830 | 24,029 | 25,804 | — | 205,663 | |||||||||||||||
Income from Operations | 200,334 | 30,373 | 6,179 | (2,677 | ) | 234,209 | ||||||||||||||
Interest Expense | (37,236 | ) | (2 | ) | (84 | ) | (343 | ) | (37,665 | ) | ||||||||||
Other (Expense) Income, Net | 28,787 | (55 | ) | 983 | (21,255 | ) | 8,460 | |||||||||||||
Income Before Provision for Income Taxes | 191,885 | 30,316 | 7,078 | (24,275 | ) | 205,004 | ||||||||||||||
Provision for Income Taxes | 64,473 | 11,574 | 1,545 | (8,702 | ) | 68,890 | ||||||||||||||
Net Income | $ | 127,412 | $ | 18,742 | $ | 5,533 | $ | (15,573 | ) | $ | 136,114 | |||||||||
For the Fiscal Year Ended June 29, 2003 | ||||||||||||||||||||
Net Sales | $ | 1,369,785 | $ | 319,000 | $ | 116,875 | $ | (148,027 | ) | $ | 1,657,633 | |||||||||
Cost of Goods Sold | 1,107,515 | 279,436 | 88,158 | (145,555 | ) | 1,329,554 | ||||||||||||||
Gross Profit | 262,270 | 39,564 | 28,717 | (2,472 | ) | 328,079 | ||||||||||||||
Engineering, Selling, General and Administrative Expenses | 141,497 | 20,776 | 15,884 | — | 178,157 | |||||||||||||||
Income from Operations | 120,773 | 18,788 | 12,833 | (2,472 | ) | 149,922 | ||||||||||||||
Interest Expense | (39,912 | ) | (10 | ) | (644 | ) | 177 | (40,389 | ) | |||||||||||
Other (Expense) Income, Net | 28,177 | (346 | ) | (8,941 | ) | (9,845 | ) | 9,045 | ||||||||||||
Income Before Provision for Income Taxes | 109,038 | 18,432 | 3,248 | (12,140 | ) | 118,578 | ||||||||||||||
Provision for Income Taxes | 34,892 | 6,328 | 2,856 | (6,136 | ) | 37,940 | ||||||||||||||
Net Income | $ | 74,146 | $ | 12,104 | $ | 392 | $ | (6,004 | ) | $ | 80,638 | |||||||||
For the Fiscal Year Ended June 30, 2002 | ||||||||||||||||||||
Net Sales | $ | 1,334,921 | $ | 216,243 | $ | 80,976 | $ | (102,840 | ) | $ | 1,529,300 | |||||||||
Cost of Goods Sold | 1,104,862 | 195,630 | 62,340 | (103,496 | ) | 1,259,336 | ||||||||||||||
Gross Profit | 230,059 | 20,613 | 18,636 | 656 | 269,964 | |||||||||||||||
Engineering, Selling, General and Administrative Expenses | 123,165 | 18,421 | 12,126 | — | 153,712 | |||||||||||||||
Income from Operations | 106,894 | 2,192 | 6,510 | 656 | 116,252 | |||||||||||||||
Interest Expense | (43,600 | ) | (50 | ) | (889 | ) | 106 | (44,433 | ) | |||||||||||
Other Income, Net | 14,800 | 8 | 13,521 | (19,638 | ) | 8,691 | ||||||||||||||
Income Before Provision for Income Taxes | 78,094 | 2,150 | 19,142 | (18,876 | ) | 80,510 | ||||||||||||||
Provision for Income Taxes | 26,552 | 761 | 1,567 | (1,490 | ) | 27,390 | ||||||||||||||
Net Income | $ | 51,542 | $ | 1,389 | $ | 17,575 | $ | (17,386 | ) | $ | 53,120 | |||||||||
|
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Corporation |
| Subsidiary |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
As of July 3, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
| $ | 702,178 |
| $ | 424,473 |
| $ | 185,436 |
| $ | (192,882 | ) | $ | 1,119,205 |
|
Investment in Subsidiary |
| 770,539 |
| — |
| — |
| (770,539 | ) | — |
| |||||
Noncurrent Assets |
| 416,503 |
| 447,986 |
| 15,274 |
| — |
| 879,763 |
| |||||
|
| $ | 1,889,220 |
| $ | 872,459 |
| $ | 200,710 |
| $ | (963,421 | ) | $ | 1,998,968 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities |
| $ | 328,914 |
| $ | 74,890 |
| $ | 130,483 |
| $ | (181,619 | ) | $ | 352,668 |
|
Long-Term Debt |
| 486,321 |
| — |
| — |
| — |
| 486,321 |
| |||||
Other Long-Term Obligations |
| 173,536 |
| 96,974 |
| 283 |
| — |
| 270,793 |
| |||||
Shareholders' Equity |
| 900,449 |
| 700,595 |
| 69,944 |
| (781,802 | ) | 889,186 |
| |||||
|
| $ | 1,889,220 |
| $ | 872,459 |
| $ | 200,710 |
| $ | (963,421 | ) | $ | 1,998,968 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
As of June 27, 2004 |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Assets |
| $ | 739,007 |
| $ | 243,300 |
| $ | 227,786 |
| $ | (228,100 | ) | $ | 981,993 |
|
Investment in Subsidiary |
| 352,207 |
| — |
| — |
| (352,207 | ) | — |
| |||||
Noncurrent Assets |
| 471,395 |
| 175,439 |
| 8,326 |
| — |
| 655,160 |
| |||||
|
| $ | 1,562,609 |
| $ | 418,739 |
| $ | 236,112 |
| $ | (580,307 | ) | $ | 1,637,153 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities |
| $ | 226,627 |
| $ | 111,992 |
| $ | 180,791 |
| $ | (218,849 | ) | $ | 300,561 |
|
Long-Term Debt |
| 360,562 |
| — |
| — |
| — |
| 360,562 |
| |||||
Other Long-Term Obligations |
| 148,574 |
| 9,861 |
| — |
| — |
| 158,435 |
| |||||
Shareholders’ Equity |
| 826,846 |
| 296,886 |
| 55,321 |
| (361,458 | ) | 817,595 |
| |||||
|
| $ | 1,562,609 |
| $ | 418,739 |
| $ | 236,112 |
| $ | (580,307 | ) | $ | 1,637,153 |
|
42
Notes…STATEMENT OF EARNINGS:
STATEMENT OF CASH FLOWS: For the Fiscal Year Ended June 27, 2004 | Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Net Income | $ | 127,412 | $ | 18,742 | $ | 5,533 | $ | (15,573 | ) | $ | 136,114 | |||||||||
Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities: | ||||||||||||||||||||
Depreciation and Amortization | 62,995 | 3,154 | 749 | — | 66,898 | |||||||||||||||
Equity in Earnings of Unconsolidated Affiliates | (17,274 | ) | — | (500 | ) | 9,898 | (7,876 | ) | ||||||||||||
Loss on Disposition of Plant and Equipment | 6,252 | 163 | 975 | — | 7,390 | |||||||||||||||
Provision for Deferred Income Taxes | 5,604 | 7,196 | — | — | 12,800 | |||||||||||||||
Changes in Operating Assets and Liabilities: | ||||||||||||||||||||
Increase in Receivables | (34,485 | ) | (10,492 | ) | (132,053 | ) | 148,442 | (28,588 | ) | |||||||||||
Increase in Inventories | (61,003 | ) | (63,860 | ) | (5,475 | ) | 1,744 | (128,594 | ) | |||||||||||
(Increase) Decrease in Prepaid Expenses and Other Current Assets | (76 | ) | 645 | 1,448 | — | 2,017 | ||||||||||||||
Increase in Accounts Payable, Accrued Liabilities and Income Taxes | 24,386 | 2,144 | 108,539 | (130,373 | ) | 4,696 | ||||||||||||||
Increase in Prepaid Pension | (6,022 | ) | (10 | ) | (38 | ) | — | (6,070 | ) | |||||||||||
Other, Net | (15,086 | ) | (160 | ) | 2,223 | — | (13,023 | ) | ||||||||||||
Net Cash Provided by (Used by) Operating Activities | 92,703 | (42,478 | ) | (18,599 | ) | 14,138 | 45,764 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Additions to Plant and Equipment | (43,526 | ) | (5,518 | ) | (3,918 | ) | — | (52,962 | ) | |||||||||||
Proceeds Received on Disposition of Plant and Equipment | 659 | 61 | — | — | 720 | |||||||||||||||
Refund of Cash Paid for Acquisition | 5,686 | — | — | — | 5,686 | |||||||||||||||
Other, Net | 4,617 | — | (225 | ) | — | 4,392 | ||||||||||||||
Net Cash Used by Investing Activities | (32,564 | ) | (5,457 | ) | (4,143 | ) | — | (42,164 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Net (Repayments) Borrowings on Loans and Notes Payable | (50,550 | ) | 51,042 | 17,740 | (18,067 | ) | 165 | |||||||||||||
Issuance Cost of Debt | (1,789 | ) | — | — | — | (1,789 | ) | |||||||||||||
Cash Dividends Paid | (30,408 | ) | — | (3,929 | ) | 3,929 | (30,408 | ) | ||||||||||||
Proceeds from Exercise of Stock Options | 45,314 | — | — | — | 45,314 | |||||||||||||||
Net Cash (Used by) Provided by Financing Activities | (37,433 | ) | 51,042 | 13,811 | (14,138 | ) | 13,282 | |||||||||||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | (675 | ) | 1,372 | — | 697 | ||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 22,706 | 2,432 | (7,559 | ) | — | 17,579 | ||||||||||||||
Cash and Cash Equivalents, Beginning of Year | 304,103 | 1,575 | 19,137 | — | 324,815 | |||||||||||||||
Cash and Cash Equivalents, End of Year | $ | 326,809 | $ | 4,007 | $ | 11,578 | $ | — | $ | 342,394 | ||||||||||
|
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Corporation |
| Subsidiary |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
For the Fiscal Year Ended July 3, 2005 |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Sales |
| $ | 1,687,476 |
| $ | 1,240,377 |
| $ | 173,501 |
| $ | (446,479 | ) | $ | 2,654,875 |
|
Cost of Goods Sold |
| 1,341,686 |
| 1,112,885 |
| 139,269 |
| (443,856 | ) | 2,149,984 |
| |||||
Gross Profit |
| 345,790 |
| 127,492 |
| 34,232 |
| (2,623 | ) | 504,891 |
| |||||
Engineering, Selling, General and Administrative Expenses |
| 200,086 |
| 80,888 |
| 33,149 |
| — |
| 314,123 |
| |||||
Income from Operations |
| 145,704 |
| 46,604 |
| 1,083 |
| (2,623 | ) | 190,768 |
| |||||
Interest Expense |
| (36,352 | ) | (31 | ) | (109 | ) | (391 | ) | (36,883 | ) | |||||
Other (Expense) Income, Net |
| 64,312 |
| 844 |
| 1,227 |
| (45,953 | ) | 20,430 |
| |||||
Income Before Provision for Income Taxes |
| 173,664 |
| 47,417 |
| 2,201 |
| (48,967 | ) | 174,315 |
| |||||
Provision for Income Taxes |
| 59,046 |
| 18,099 |
| 2,352 |
| (21,949 | ) | 57,548 |
| |||||
Income Before Extraordinary Item |
| 114,618 |
| 29,318 |
| (151 | ) | (27,018 | ) | 116,767 |
| |||||
Extraordinary Gain |
| — |
| 19,800 |
| — |
| — |
| 19,800 |
| |||||
Net Income (Loss) |
| $ | 114,618 |
| $ | 49,118 |
| $ | (151 | ) | $ | (27,018 | ) | $ | 136,567 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
For the Fiscal Year Ended June 27, 2004 |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Sales |
| $ | 1,562,114 |
| $ | 460,122 |
| $ | 152,236 |
| $ | (227,108 | ) | $ | 1,947,364 |
|
Cost of Goods Sold |
| 1,205,950 |
| 405,720 |
| 120,253 |
| (224,431 | ) | 1,507,492 |
| |||||
Gross Profit |
| 356,164 |
| 54,402 |
| 31,983 |
| (2,677 | ) | 439,872 |
| |||||
Engineering, Selling, General and Administrative Expenses |
| 155,830 |
| 24,029 |
| 25,804 |
| — |
| 205,663 |
| |||||
Income from Operations |
| 200,334 |
| 30,373 |
| 6,179 |
| (2,677 | ) | 234,209 |
| |||||
Interest Expense |
| (37,236 | ) | (2 | ) | (84 | ) | (343 | ) | (37,665 | ) | |||||
Other (Expense) Income, Net |
| 28,787 |
| (55 | ) | 983 |
| (21,255 | ) | 8,460 |
| |||||
Income Before Provision for Income Taxes |
| 191,885 |
| 30,316 |
| 7,078 |
| (24,275 | ) | 205,004 |
| |||||
Provision for Income Taxes |
| 64,473 |
| 11,574 |
| 1,545 |
| (8,702 | ) | 68,890 |
| |||||
Net Income |
| $ | 127,412 |
| $ | 18,742 |
| $ | 5,533 |
| $ | (15,573 | ) | $ | 136,114 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
For the Fiscal Year Ended June 29, 2003 |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Sales |
| $ | 1,369,785 |
| $ | 319,000 |
| $ | 116,875 |
| $ | (148,027 | ) | $ | 1,657,633 |
|
Cost of Goods Sold |
| 1,107,515 |
| 279,436 |
| 88,158 |
| (145,555 | ) | 1,329,554 |
| |||||
Gross Profit |
| 262,270 |
| 39,564 |
| 28,717 |
| (2,472 | ) | 328,079 |
| |||||
Engineering, Selling, General and Administrative Expenses |
| 141,497 |
| 20,776 |
| 15,884 |
| — |
| 178,157 |
| |||||
Income from Operations |
| 120,773 |
| 18,788 |
| 12,833 |
| (2,472 | ) | 149,922 |
| |||||
Interest Expense |
| (39,912 | ) | (10 | ) | (644 | ) | 177 |
| (40,389 | ) | |||||
Other (Expense) Income, Net |
| 28,177 |
| (346 | ) | (8,941 | ) | (9,845 | ) | 9,045 |
| |||||
Income Before Provision for Income Taxes |
| 109,038 |
| 18,432 |
| 3,248 |
| (12,140 | ) | 118,578 |
| |||||
Provision for Income Taxes |
| 34,892 |
| 6,328 |
| 2,856 |
| (6,136 | ) | 37,940 |
| |||||
Net Income |
| $ | 74,146 |
| $ | 12,104 |
| $ | 392 |
| $ | (6,004 | ) | $ | 80,638 |
|
43
Notes…STATEMENT OF CASH FLOWS:
STATEMENT OF CASH FLOWS: For the Fiscal Year Ended June 29, 2003 | Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Net Income | $ | 74,146 | $ | 12,104 | $ | 392 | $ | (6,004 | ) | $ | 80,638 | |||||||||
Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities: | ||||||||||||||||||||
Depreciation and Amortization | 60,268 | 2,651 | 607 | — | 63,526 | |||||||||||||||
Equity in (Earnings) Loss of Unconsolidated Affiliates | (9,054 | ) | — | 177 | 3,653 | (5,224 | ) | |||||||||||||
Loss (Gain) on Disposition of Plant and Equipment | 4,900 | (1,005 | ) | (45 | ) | — | 3,850 | |||||||||||||
Provision for Deferred Income Taxes | 17,569 | 6,709 | — | — | 24,278 | |||||||||||||||
Change in Operating Assets and Liabilities: | ||||||||||||||||||||
(Increase) Decrease in Receivables | (1,122 | ) | (29,141 | ) | 449 | 23,856 | (5,958 | ) | ||||||||||||
Decrease (Increase) in Inventories | 9,542 | (14,217 | ) | (9,608 | ) | 2,351 | (11,932 | ) | ||||||||||||
Increase in Prepaid Expenses and Other Current Assets | (2,098 | ) | (807 | ) | (1,758 | ) | — | (4,663 | ) | |||||||||||
Increase in Accounts Payable, | ||||||||||||||||||||
Accrued Liabilities and Income Taxes | 21,130 | 12,331 | 34,716 | (23,856 | ) | 44,321 | ||||||||||||||
(Increase) Decrease in Prepaid Pension | (13,609 | ) | 43 | — | — | (13,566 | ) | |||||||||||||
Other, Net | (5,700 | ) | 42 | (2,217 | ) | — | (7,875 | ) | ||||||||||||
Net Cash Provided by (Used by) Operating Activities | 155,972 | (11,290 | ) | 22,713 | — | 167,395 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Additions to Plant and Equipment | (34,855 | ) | (4,251 | ) | (1,048 | ) | — | (40,154 | ) | |||||||||||
Proceeds Received on Disposition of Plant and Equipment | 255 | 3,135 | 74 | — | 3,464 | |||||||||||||||
Other, Net | 6,080 | — | 3,781 | — | 9,861 | |||||||||||||||
Net Cash (Used by) Provided by Investing Activities | (28,520 | ) | (1,116 | ) | 2,807 | — | (26,829 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Net (Repayments) Borrowings on Loans and Notes Payable | (12,741 | ) | 12,191 | (14,405 | ) | — | (14,955 | ) | ||||||||||||
Cash Dividends Paid | (27,709 | ) | — | — | — | (27,709 | ) | |||||||||||||
Proceeds from Exercise of Stock Options | 5,490 | — | — | — | 5,490 | |||||||||||||||
Net Cash (Used by) Provided by Financing Activities | (34,960 | ) | 12,191 | (14,405 | ) | — | (37,174 | ) | ||||||||||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | 835 | 4,643 | — | 5,478 | |||||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 92,492 | 620 | 15,758 | — | 108,870 | |||||||||||||||
Cash and Cash Equivalents, Beginning of Year | 211,611 | 955 | 3,379 | — | 215,945 | |||||||||||||||
Cash and Cash Equivalents, End of Year | $ | 304,103 | $ | 1,575 | $ | 19,137 | $ | — | $ | 324,815 | ||||||||||
Notes…
|
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Corporation |
| Subsidiary |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
For the Fiscal Year Ended July 3, 2005 |
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income (Loss) |
| $ | 114,618 |
| $ | 49,118 |
| $ | (151 | ) | $ | (27,018 | ) | $ | 136,567 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Extraordinary Gain |
| — |
| (19,800 | ) | — |
| — |
| (19,800 | ) | |||||
Depreciation and Amortization |
| 58,821 |
| 13,693 |
| 1,029 |
| — |
| 73,543 |
| |||||
Earnings of Unconsolidated Affiliates, Net of Dividends |
| (17,090 | ) | — |
| (745 | ) | 18,513 |
| 678 |
| |||||
Loss (Gain) on Disposition of Plant and Equipment |
| 2,702 |
| 109 |
| (393 | ) | — |
| 2,418 |
| |||||
Provision for Deferred Income Taxes |
| (4,829 | ) | 2,790 |
| (1,857 | ) | — |
| (3,896 | ) | |||||
Change in Operating Assets and Liabilities, Net of Effects of Acquisition: |
|
|
|
|
|
|
|
|
|
|
| |||||
(Increase) Decrease in Receivables |
| (91,296 | ) | 23,037 |
| 67,106 |
| (25,739 | ) | (26,892 | ) | |||||
(Increase) Decrease in Inventories |
| (16,956 | ) | 34,470 |
| (6,740 | ) | 2,010 |
| 12,784 |
| |||||
(Increase) Decrease in Prepaid Expenses and Other Current Assets |
| (218 | ) | 4,184 |
| (1,316 | ) | — |
| 2,650 |
| |||||
(Decrease) Increase in Accounts Payable, Accrued Liabilities and Income Taxes |
| (30,142 | ) | 25,720 |
| (61,468 | ) | 38,217 |
| (27,673 | ) | |||||
(Increase) Decrease in Accrued/Prepaid Pension |
| (1,056 | ) | 6 |
| — |
| — |
| (1,050 | ) | |||||
Other, Net |
| 4,460 |
| (5,214 | ) | 29 |
| (46 | ) | (771 | ) | |||||
Net Cash Provided by (Used by) Operating Activities |
| 19,014 |
| 128,113 |
| (4,506 | ) | 5,937 |
| 148,558 |
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to Plant and Equipment |
| (60,117 | ) | (17,206 | ) | (8,752 | ) | — |
| (86,075 | ) | |||||
Proceeds Received on Disposition of Plant and Equipment |
| 908 |
| 16 |
| 1,016 |
| — |
| 1,940 |
| |||||
Proceeds Received on Sale of Certain Assets of a Subsidiary |
| — |
| — |
| 4,050 |
| — |
| 4,050 |
| |||||
Cash Investment in Subsidiary |
| (375,799 | ) | — |
| (14,069 | ) | 389,868 |
| — |
| |||||
Cash Paid for Acquisitions, Net of Cash Acquired |
| (719 | ) | (337,713 | ) | (16,662 | ) | — |
| (355,094 | ) | |||||
Investment in Joint Venture |
| (1,500 | ) | — |
| — |
| — |
| (1,500 | ) | |||||
Net Cash Used by Investing Activities |
| (437,227 | ) | (354,903 | ) | (34,417 | ) | 389,868 |
| (436,679 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Borrowings (Repayments) on Loans and Notes Payable |
| 125,289 |
| (125,434 | ) | 9,937 |
| (12,476 | ) | (2,684 | ) | |||||
Net Borrowings on Long-Term Debt |
| 125,000 |
| — |
| — |
| — |
| 125,000 |
| |||||
Issuance Cost of Debt |
| (925 | ) | — |
| — |
| — |
| (925 | ) | |||||
Cash Dividends Paid |
| (35,065 | ) | — |
| (6,539 | ) | 6,539 |
| (35,065 | ) | |||||
Capital Contributions Received |
| — |
| 354,593 |
| 35,275 |
| (389,868 | ) | — |
| |||||
Proceeds from Exercise of Stock Options |
| 20,139 |
| — |
| — |
| — |
| 20,139 |
| |||||
Net Cash Provided by Financing Activities |
| 234,438 |
| 229,159 |
| 38,673 |
| (395,805 | ) | 106,465 |
| |||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
| — |
| — |
| 835 |
| — |
| 835 |
| |||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| (183,775 | ) | 2,369 |
| 585 |
| — |
| (180,821 | ) | |||||
Cash and Cash Equivalents, Beginning of Year |
| 326,809 |
| 4,007 |
| 11,578 |
| — |
| 342,394 |
| |||||
Cash and Cash Equivalents, End of Year |
| $ | 143,034 |
| $ | 6,376 |
| $ | 12,163 |
| $ | — |
| $ | 161,573 |
|
STATEMENT OF CASH FLOWS: For the Fiscal Year Ended June 30, 2002 | Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Net Income | $ | 51,542 | $ | 1,389 | $ | 17,575 | $ | (17,386 | ) | $ | 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) Loss of Unconsolidated Affiliates | (21,645 | ) | — | 189 | 15,275 | (6,181 | ) | |||||||||||||
Loss (Gain) 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 in Receivables | (44,710 | ) | (1,341 | ) | (15,945 | ) | 5,312 | (56,684 | ) | |||||||||||
Decrease (Increase) in Inventories | 126,271 | (2,352 | ) | (1,549 | ) | (657 | ) | 121,713 | ||||||||||||
Increase in Prepaid Expenses and Other Current Assets | (1,286 | ) | (122 | ) | (111 | ) | — | (1,519 | ) | |||||||||||
Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes | 31,650 | (2,976 | ) | 1,617 | (5,312 | ) | 24,979 | |||||||||||||
(Increase) Decrease in Prepaid Pension | (23,101 | ) | 289 | — | — | (22,812 | ) | |||||||||||||
Other, Net | (1,494 | ) | (751 | ) | — | — | (2,245 | ) | ||||||||||||
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 | ) | ||||||||||||
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 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 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 | ||||||||||
44
|
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| Consolidated |
| |||||
For the Fiscal Year Ended June 27, 2004 |
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income |
| $ | 127,412 |
| $ | 18,742 |
| $ | 5,533 |
| $ | (15,573 | ) | $ | 136,114 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation and Amortization |
| 62,995 |
| 3,154 |
| 749 |
| — |
| 66,898 |
| |||||
Earnings of Unconsolidated Affiliates, Net of Dividends |
| (12,657 | ) | — |
| (725 | ) | 9,898 |
| (3,484 | ) | |||||
Loss on Disposition of Plant and Equipment |
| 6,252 |
| 163 |
| 975 |
| — |
| 7,390 |
| |||||
Provision for Deferred Income Taxes |
| 5,604 |
| 7,196 |
| — |
| — |
| 12,800 |
| |||||
Change in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Increase in Receivables |
| (34,485 | ) | (10,492 | ) | (132,053 | ) | 148,442 |
| (28,588 | ) | |||||
Increase in Inventories |
| (61,003 | ) | (63,860 | ) | (5,475 | ) | 1,744 |
| (128,594 | ) | |||||
(Increase) Decrease in Prepaid Expenses and Other Current Assets |
| (76 | ) | 645 |
| 1,448 |
| — |
| 2,017 |
| |||||
Increase in Accounts Payable, Accrued Liabilities and Income Taxes |
| 24,386 |
| 2,144 |
| 108,539 |
| (130,373 | ) | 4,696 |
| |||||
Increase in Accrued/Prepaid Pension |
| (6,022 | ) | (10 | ) | (38 | ) | — |
| (6,070 | ) | |||||
Other, Net |
| (15,086 | ) | (160 | ) | 2,223 |
| — |
| (13,023 | ) | |||||
Net Cash Provided by (Used by) Operating Activities |
| 97,320 |
| (42,478 | ) | (18,824 | ) | 14,138 |
| 50,156 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to Plant and Equipment |
| (43,526 | ) | (5,518 | ) | (3,918 | ) | — |
| (52,962 | ) | |||||
Proceeds Received on Disposition of Plant and Equipment |
| 659 |
| 61 |
| — |
| — |
| 720 |
| |||||
Refund of Cash Paid for Acquisition |
| 5,686 |
| — |
| — |
| — |
| 5,686 |
| |||||
Net Cash Used by Investing Activities |
| (37,181 | ) | (5,457 | ) | (3,918 | ) | — |
| (46,556 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net (Repayments) Borrowings on Loans and Notes Payable |
| (50,528 | ) | 51,042 |
| 17,740 |
| (18,067 | ) | 187 |
| |||||
Net Repayments on Long-Term Debt |
| (22 | ) | — |
| — |
| — |
| (22 | ) | |||||
Issuance Cost of Debt |
| (1,789 | ) | — |
| — |
| — |
| (1,789 | ) | |||||
Cash Dividends Paid |
| (30,408 | ) | — |
| (3,929 | ) | 3,929 |
| (30,408 | ) | |||||
Proceeds from Exercise of Stock Options |
| 45,314 |
| — |
| — |
| — |
| 45,314 |
| |||||
Net Cash (Used by) Provided by Financing Activities |
| (37,433 | ) | 51,042 |
| 13,811 |
| (14,138 | ) | 13,282 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
| — |
| (675 | ) | 1,372 |
| — |
| 697 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 22,706 |
| 2,432 |
| (7,559 | ) | — |
| 17,579 |
| |||||
Cash and Cash Equivalents, Beginning of Year |
| 304,103 |
| 1,575 |
| 19,137 |
| — |
| 324,815 |
| |||||
Cash and Cash Equivalents, End of Year |
| $ | 326,809 |
| $ | 4,007 |
| $ | 11,578 |
| $ | — |
| $ | 342,394 |
|
45
|
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| Consolidated |
| |||||
For the Fiscal Year Ended June 29, 2003 |
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income |
| $ | 74,146 |
| $ | 12,104 |
| $ | 392 |
| $ | (6,004 | ) | $ | 80,638 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation and Amortization |
| 60,268 |
| 2,651 |
| 607 |
| — |
| 63,526 |
| |||||
Earnings of Unconsolidated Affiliates, Net of Dividends |
| (2,974 | ) | — |
| 427 |
| 3,653 |
| 1,106 |
| |||||
Loss (Gain) on Disposition of Plant and Equipment |
| 4,900 |
| (1,005 | ) | (45 | ) | — |
| 3,850 |
| |||||
Provision for Deferred Income Taxes |
| 17,569 |
| 6,709 |
| — |
| — |
| 24,278 |
| |||||
Change in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
(Increase) Decrease in Receivables |
| (1,122 | ) | (29,141 | ) | 449 |
| 23,856 |
| (5,958 | ) | |||||
Decrease (Increase) in Inventories |
| 9,542 |
| (14,217 | ) | (9,608 | ) | 2,351 |
| (11,932 | ) | |||||
Increase in Prepaid Expenses and Other Current Assets |
| (2,098 | ) | (807 | ) | (1,758 | ) | — |
| (4,663 | ) | |||||
Increase in Accounts Payable, Accrued Liabilities and Income Taxes |
| 21,130 |
| 12,331 |
| 34,716 |
| (23,856 | ) | 44,321 |
| |||||
(Increase) Decrease in Accrued/Prepaid Pension |
| (13,609 | ) | 43 |
| — |
| — |
| (13,566 | ) | |||||
Other, Net |
| (5,700 | ) | 42 |
| (2,217 | ) | — |
| (7,875 | ) | |||||
Net Cash Provided by (Used by) Operating Activities |
| 162,052 |
| (11,290 | ) | 22,963 |
| — |
| 173,725 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to Plant and Equipment |
| (34,855 | ) | (4,251 | ) | (1,048 | ) | — |
| (40,154 | ) | |||||
Proceeds Received on Disposition of Plant and Equipment |
| 255 |
| 3,135 |
| 74 |
| — |
| 3,464 |
| |||||
Investment in Joint Venture |
| — |
| — |
| 3,531 |
| — |
| 3,531 |
| |||||
Net Cash (Used by) Provided by Investing Activities |
| (34,600 | ) | (1,116 | ) | 2,557 |
| — |
| (33,159 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net (Repayments) Borrowings on Loans and Notes Payable |
| (12,741 | ) | 12,191 |
| (14,405 | ) | — |
| (14,955 | ) | |||||
Cash Dividends Paid |
| (27,709 | ) | — |
| — |
| — |
| (27,709 | ) | |||||
Proceeds from Exercise of Stock Options |
| 5,490 |
| — |
| — |
| — |
| 5,490 |
| |||||
Net Cash (Used by) Provided by Financing Activities |
| (34,960 | ) | 12,191 |
| (14,405 | ) | — |
| (37,174 | ) | |||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
| — |
| 835 |
| 4,643 |
| — |
| 5,478 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
| 92,492 |
| 620 |
| 15,758 |
| — |
| 108,870 |
| |||||
Cash and Cash Equivalents, Beginning of Year |
| 211,611 |
| 955 |
| 3,379 |
| — |
| 215,945 |
| |||||
Cash and Cash Equivalents, End of Year |
| $ | 304,103 |
| $ | 1,575 |
| $ | 19,137 |
| $ | — |
| $ | 324,815 |
|
46
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Briggs & Stratton Corporation:
We have completed an integrated audit of Briggs & Stratton Corporation’s 2005 consolidated financial statements and of its internal control over financial reporting as of July 3, 2005 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and its subsidiaries at July 3, 2005, and the results of their operations and their cash flows for the year ended July 3, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended July 3, 2005 listed in the accompanying index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that the Company maintained effective internal control over financial reporting as of July 3, 2005 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 3, 2005, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
47
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 15, 2005
48
Report of Independent Registered Public Accounting Firm
To the Shareholders of Briggs & Stratton Corporation:
We have audited the accompanying consolidated balance sheetssheet of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of June 27, 2004, and June 29, 2003, and the related consolidated statements of earnings, shareholders’ investment and cash flows for each of the threetwo years in the period ended June 27, 2004. 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 the standards of the Public Company Accounting Oversight Board (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, such consolidated financial statements present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries as of June 27, 2004, and June 29, 2003, and the results of their operations and their cash flows for each of the threetwo years in the period ended June 27, 2004, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Milwaukee, Wisconsin
July 22, 2004
49
Quarterly Financial Data, Dividend and Market Information (Unaudited)
| In Thousands | Per Share of Common Stock |
| In Thousands |
| ||||||||||||||||||||||||||||||||||||||
Quarter | Net Sales | Gross Profit | Net Income (Loss) | Net Income (Loss) | Dividends Declared | Market Price Range on New York Stock Exchange |
| Net |
| Gross |
| Income |
| Extraordinary |
| Net Income |
| |||||||||||||||||||||||||
| High | Low | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Fiscal 2005 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
September |
| $ | 438,995 |
| $ | 70,818 |
| $ | (1,488 | ) | $ | — |
| $ | (1,488 | ) | ||||||||||||||||||||||||||
December |
| 503,700 |
| 106,142 |
| 7,060 |
| — |
| 7,060 |
| |||||||||||||||||||||||||||||||
March |
| 840,463 |
| 165,728 |
| 60,824 |
| 19,800 |
| 80,624 |
| |||||||||||||||||||||||||||||||
June |
| 871,717 |
| 162,203 |
| 50,371 |
| — |
| 50,371 |
| |||||||||||||||||||||||||||||||
Total |
| $ | 2,654,875 |
| $ | 504,891 |
| $ | 116,767 |
| $ | 19,800 |
| $ | 136,567 |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Fiscal 2004 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
September | $ | 331,395 | $ | 60,195 | $ | 4,016 | $ | .18 | $ | .33 | $ | 60.86 | $ | 49.35 |
| $ | 331,395 |
| $ | 60,195 |
| $ | 4,016 |
| $ | — |
| $ | 4,016 |
| ||||||||||||
December | 415,984 | 90,846 | 20,635 | .87 | .33 | 68.64 | 58.76 |
| 415,984 |
| 90,846 |
| 20,635 |
| — |
| 20,635 |
| ||||||||||||||||||||||||
March | 654,681 | 167,767 | 71,268 | 2.88 | .33 | 70.55 | 63.36 |
| 654,681 |
| 167,767 |
| 71,268 |
| — |
| 71,268 |
| ||||||||||||||||||||||||
June | 545,304 | 121,064 | 40,195 | 1.61 | .33 | 88.44 | 66.59 |
| 545,304 |
| 121,064 |
| 40,195 |
| — |
| 40,195 |
| ||||||||||||||||||||||||
Total | $ | 1,947,364 | $ | 439,872 | $ | 136,114 | $ | 5.53 | (1) | $ | 1.32 |
| $ | 1,947,364 |
| $ | 439,872 |
| $ | 136,114 |
| $ | — |
| $ | 136,114 |
| |||||||||||||||
Fiscal 2003 | ||||||||||||||||||||||||||||||||||||||||||
September | $ | 236,496 | $ | 35,793 | $ | (7,027 | ) | $ | (.32 | ) | $ | .32 | $ | 40.24 | $ | 30.75 | ||||||||||||||||||||||||||
December | 352,562 | 67,640 | 11,744 | .53 | .32 | 43.36 | 32.12 | |||||||||||||||||||||||||||||||||||
March | 560,431 | 116,220 | 42,975 | 1.81 | .32 | 44.40 | 36.94 | |||||||||||||||||||||||||||||||||||
June | 508,144 | 108,426 | 32,946 | 1.39 | .32 | 51.50 | 38.06 | |||||||||||||||||||||||||||||||||||
Total | $ | 1,657,633 | $ | 328,079 | $ | 80,638 | $ | 3.49 | (1) | $ | 1.28 | |||||||||||||||||||||||||||||||
|
| Per Share of Common Stock* |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| Market Price Range |
| ||||||||
|
| Income |
|
|
| Net |
|
|
| on New York |
| ||||||||
Quarter |
| (Loss) Before |
| Extraordinary |
| Income |
| Dividends |
| Stock Exchange |
| ||||||||
Ended |
| Extraordinary Gain |
| Gain |
| (Loss) |
| Declared |
| High |
| Low |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fiscal 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
September |
| $ | (.03 | ) | $ | — |
| $ | (.03 | ) | $ | .17 |
| $ | 44.50 |
| $ | 34.60 |
|
December |
| .14 |
| — |
| .14 |
| .17 |
|
| 42.40 |
|
| 33.63 |
| ||||
March |
| 1.18 |
| .38 |
| 1.56 |
| .17 |
|
| 42.20 |
|
| 36.91 |
| ||||
June |
| .98 |
| — |
| .98 |
| .17 |
|
| 37.36 |
|
| 30.83 |
| ||||
Total |
| $ | 2.25 | (1) | $ | .38 |
| $ | 2.63 | (1) | $ | .68 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fiscal 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
September |
| $ | .09 |
| $ | — |
| $ | .09 |
| $ | .165 |
| $ | 30.43 |
| $ | 24.68 |
|
December |
| .43 |
| — |
| .43 |
| .165 |
|
| 34.32 |
|
| 29.38 |
| ||||
March |
| 1.44 |
| — |
| 1.44 |
| .165 |
|
| 35.28 |
|
| 31.68 |
| ||||
June |
| .81 |
| — |
| .81 |
| .165 |
|
| 44.22 |
|
| 33.30 |
| ||||
Total |
| $ | 2.77 | (1) | $ | — |
| $ | 2.77 | (1) | $ | .66 |
|
|
|
|
| ||
The number of record holders of Briggs & Stratton Corporation Common Stock on August 25, 200417, 2005 was 4,160.4,039.
Net Income per share of Common Stock represents Diluted Earnings per Share.
The Company declared a first quarter fiscal 2006 dividend of $.22 per share and expects to pay comparable quarterly dividends during the remainder of fiscal 2006.
(1) Refer to Note 2 of the Notes to Consolidated Financial Statements, for information about Diluted Earnings per Share. Amounts may not total because of differing numbers of shares outstanding at the end of each quarter.
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
50
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Briggs & Stratton changed independent accountants in August 2004 from Deloitte & Touche LLP to PricewaterhouseCoopers LLP. Information regarding the change in independent accountants was reported in Briggs & Stratton’s Current Report on Amended Form 8-K dated August 4, 2004. There were no disagreements or any reportable events subject to Item 304(b) requiring disclosure.
ITEM 9A.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management has concluded that, as of the end of the period covered by this report, the Company’s internal controls over financial reporting were effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, who has audited the Company’s consolidated financial statements, has also audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of July 3, 2005, and the effectiveness of internal controls over financial reporting as of July 3, 2005 as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
There has not been any change in the Company’s internal control over financial reporting during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Subsequent to the fiscal year end, the Company integrated Simplicity Manufacturing, Inc. onto its existing enterprise-wide information system.
Briggs & Stratton has no information to report pursuant to Item 9B.
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Executive Officers. Reference is made to “Executive Officers of Registrant” in Part I after Item 4.
(b) Directors. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2005 Annual Meeting of Shareholders, under the caption “Election of Directors”, and is incorporated herein by reference.
51
(c) Section 16 Compliance. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2005 Annual Meeting of Shareholders, under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”, and is incorporated herein by reference.
(d) Audit Committee Financial Expert. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2005 Annual Meeting of Shareholders, under the caption “Corporate Governance- Audit Committee”, and is incorporated herein by reference.
(e) Identification of Audit Committee. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2005 Annual Meeting of Shareholders, under the caption “Corporate Governance- Audit Committee”, and is incorporated herein by reference.
|
(f) Code of Ethics. Briggs & Stratton has adopted a written code of ethics, referred to as the Briggs & Stratton Business Integrity Manual applicable to all directors, officers and employees, which includes provisions related to accounting and financial matters applicable to the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Controller. The Briggs & Stratton Business Integrity Manual is available on the Company’s corporate website at www.briggsandstratton.com. If the Company makes any substantive amendment to, or grants any waiver of, the code of ethics for any director or officer, Briggs & Stratton will disclose the nature of such amendment or waiver on its corporate website or in a Current Report on Form 8-K.
ITEM 11.EXECUTIVE COMPENSATION
The information in Briggs & Stratton’s definitive Proxy Statement, prepared for the 20042005 Annual Meeting of Shareholders, concerning this item, in the subsection titled “Director Compensation” under the caption “Election of Directors”“Corporate Governance” and the “Executive Compensation” section, is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
There are no shareholders who own in excess of five percent (5%) of the Company’s common stock.
The information in Briggs & Stratton’s definitive Proxy Statement, prepared for the 20042005 Annual Meeting of Shareholders, concerning this item, under the captions “Security Ownership of Certain Beneficial Owners”, “Security Ownership of Management”Directors & Executive Officers” and “Equity Compensation Plan Information” is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Briggs & Stratton has no relationships or related transactions to report pursuant to Item 13.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 20042005 Annual Meeting of Shareholders, under the caption “Audit Committee Report,”“Independent Auditors Fees”, and is incorporated herein by reference.
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following financial statements are included under the caption “Financial Statements and Supplementary Data” in Part II, Item 8 and are incorporated herein by reference:
Consolidated Balance Sheets, July 3, 2005 and June 27, 2004 |
52
| ||
| ||
| ||
| ||
Reports of Independent Registered Public Accounting Firms | ||
2. Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts | ||
Report of Independent Registered Public Accounting Firm | ||
| ||
All other financial statement schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions.
3. Exhibits
Refer to the Exhibit Index 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.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003 AND JUNE 30, 2002
Reserve for |
| Balance |
| Additions |
| Changes to |
| Adjustment |
| Balance |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Reserve for Doubtful Accounts Receivable | Balance Beginning of Year | Additions Charged to Earnings | Charges to Reserve, Net | Other | Balance End of Year | |||||||||||||||||||||||||
2005 |
| $ | 1,584,000 |
| $ | 39,681,000 | * | $ | (39,382,000 | )* | $ | 3,578,000 |
| $ | 5,461,000 |
| ||||||||||||||
2004 | $ | 1,780,000 | 1,899,000 | (2,095,000 | ) | — | $ | 1,584,000 |
| 1,780,000 |
| 1,899,000 |
| (2,095,000 | ) | — |
| 1,584,000 |
| |||||||||||
2003 | $ | 1,703,000 | 129,000 | (52,000 | ) | — | $ | 1,780,000 |
| 1,703,000 |
| 129,000 |
| (52,000 | ) | — |
| 1,780,000 |
| |||||||||||
2002 | $ | 1,599,000 | (1,222,000 | ) | 1,326,000 | — | $ | 1,703,000 | ||||||||||||||||||||||
* Reflects the write-off of a trade receivable of Murray, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Briggs & Stratton Corporation:
We have audited the consolidated financial statements of Briggs & Stratton Corporation and subsidiaries as of June 27, 2004, and June 29, 2003, and for each of the threetwo years in the period ended JuneJuly 27, 2004, and have issued our report thereon dated July 22, 2004; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Briggs & Stratton Corporation for the years ended June 27, 2004 and June 29, 2003, and 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 audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Milwaukee, Wisconsin
July 22, 2004
53
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 16, 2005 | 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/ Michael E. Batten | |||
John S. Shiely | Michael E. Batten | |||
Chairman, President and Chief Executive | Director | |||
Officer and Director (Principal Executive | ||||
Officer) | ||||
/s/ David L. Burner | ||||
David L. Burner | ||||
/s/ James E. Brenn | Director | |||
James E. Brenn | ||||
Senior Vice President and Chief Financial | ||||
Officer (Principal Financial Officer) | /s/ Mary K. Bush | |||
Mary K. Bush | ||||
Director | ||||
/s/ Ricky T. Dillon | ||||
Ricky T. Dillon | ||||
Controller (Principal Accounting Officer) | /s/ Robert J. O’Toole | |||
Robert J. O’Toole | ||||
Director | ||||
/s/ William F. Achtmeyer | ||||
William F. Achtmeyer | ||||
Director | /s/ Charles I. Story | |||
Charles I. Story | ||||
Director | ||||
/s/ Jay H. Baker | ||||
Jay H. Baker | ||||
Director | ||||
/s/ Brian C. Walker | ||||
Brian C. Walker | ||||
Director | ||||
*Each signature affixed as of | ||||
September |
54
BRIGGS & STRATTON CORPORATION
(Commission File No. 1-1370)
EXHIBIT INDEX
20042005 ANNUAL REPORT ON FORM 10-K
Exhibit | Document Description | ||
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.) | |||
3.1(a) | Amendment to Articles of Incorporation. | ||
(Filed as Exhibit 3.1 to the Company’s Report on Form 10-Q for the quarter ended September 26, 2004 and incorporated by reference herein.) | |||
3.2 | Bylaws, as amended and restated June 14, 2001. | ||
(Filed as Exhibit 99 to the | |||
3.2 (a) | Amendment to Bylaws Adopted by Resolution of the Board of Directors on April 21, 2004. | ||
(Filed as Exhibit 3.2 to the Company’s Report on Form 10-Q for the quarter ended March 28, 2004 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.) | |||
4.0 (a) | First Amendment to the Rights Agreement. | ||
(Filed as Exhibit 4 to the Company’s Report on Form 10-Q for the quarter ended December 29, 2002 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.) |
55
Exhibit | 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 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.) | |||
4.7 | 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 4.10 to the Company’s Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.) | |||
4.8 | 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.) | |||
4.9 | 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.) | |||
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 Retirement Plan. | ||
(Filed as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) | |||
10.1(a)* | Amendment to Supplemental Executive Retirement Plan. | ||
(Filed as Exhibit 10.1 (a) to the Company’s Report on Form 10-K for fiscal year ended June 29, 2003 and incorporated by reference herein.) | |||
10.2* | Amended and Restated Economic Value Added Incentive Compensation Plan. | ||
(Filed herewith.) | |||
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.) | |||
10.3 (a)* | Amendment to Change in Control Employment Agreements. | ||
(Filed | |||
10.4* | 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) to the Company’s Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) |
56
Exhibit | Document Description | ||
10.4 (a)* | |||
Amendment to Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees. | |||
(Filed as Exhibit 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* | 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 | Amendment to Stock Incentive Plan. | ||
(Filed as Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended March 30, 2003 and incorporated by reference herein.) | |||
10.5 | Amendment to Stock Incentive Plan. | ||
(Filed | |||
10.5 (c)* | 2004 Amended and Restated Briggs & Stratton Corporate Incentive Compensation Plan. | ||
(Filed as Exhibit B to the Company’s 2004 Annual Meeting Proxy Statement and incorporated by reference herein.) | |||
10.5 (d)* | Amended and Restated Briggs & Stratton Corporation Incentive Compensation Plan as Modified October 29, 2004. | ||
(Filed as Exhibit 10.5 to the Company’s Report on Form 10-Q for quarter ended September 26, 2004 and incorporated by reference herein.) | |||
10.6* | Premium Option and | ||
(Filed | |||
10.6 (a)* | Form of Stock Option Agreement under the Premium Option and | ||
(Filed herewith.) | |||
10.6 (b)* | Form of Restricted Stock Award Agreement under the Premium Option and Restricted Stock Program. | ||
(Filed as Exhibit 10.6 (b) to the Company’s Report on Form 10-K for fiscal year ended June 27, 2004 and incorporated by reference herein.) | |||
10.6 (c)* | Amended Form of Restricted Stock Award Agreement Under the Premium Option and Stock Award Program. | ||
(Filed herewith.) | |||
10.6 (d)* | Form of Deferred Stock Award Agreement Under the Premium Option and Stock Award Program. | ||
(Filed herewith.) | |||
10.11* | Amended and Restated Deferred Compensation Plan for Directors. | ||
(Filed | |||
10.12* | Amended and Restated Director’s Premium Option and Stock Grant Program. | ||
(Filed herewith.) | |||
10.12 (a)* | Form of Director’s Stock Option Agreement under the | ||
(Filed | |||
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.) |
57
Exhibit | Document Description | |
10.14 (a)* | Amendment to Executive Life Insurance Program. | |
(Filed as Exhibit 10.14 (a) to the Company’s Report on Form 10-K for fiscal year ended June 29, 2003 and incorporated by reference herein.) | ||
10.14 (b)* | Amendment to Executive Life Insurance Plan. | |
(Filed | ||
10.15* | 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 | 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.) | ||
10.15 | Amendment to Key Employee Savings and Investment Plan. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended March 30, 2003 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.) |
10.17* |
| |
Briggs & Stratton Product Program. | ||
(Filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for fiscal year ended June 30, 2002 and incorporated by reference herein.) | ||
10.18* | Consulting Agreement entered into on May 4, 2005 between Briggs & Stratton Corporation and Stephen H. Rugg. | |
(Filed as Exhibit 10.5 to the Company’s Report on Form 8-K dated May 4, 2005 and incorporated by reference herein.) | ||
10.19 | Asset Purchase Agreement, dated January 25, 2005, by and among Briggs & Stratton Power Products Group, LLC, Briggs & Stratton Canada Inc., Murray, Inc. and Murray Canada Co. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 8-K dated January 25, 2005 and incorporated by reference herein.) | ||
10.20 | Transition Supply Agreement, dated February 11, 2005, between Briggs & Stratton Power Products Group, LLC and Murray, Inc. | |
(Form of Transition Supply Agreement filed as Exhibit 10.2 to the Company’s Report on Form 8-K dated January 25, 2005 and incorporated by reference herein.) | ||
10.21 | Term Loan Agreement, dated February 11, 2005, among Briggs & Stratton Corporation and LaSalle Bank N.A., as syndication agent, and Bank of America, N.A., as administrative agent. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 8-K dated February 11, 2005 and incorporated by reference herein.) | ||
10.21 (a) | Term Loan Agreement Amendment, dated March 18, 2005, among Briggs & Stratton Corporation, various financial institutions and Bank of America, N.A., as administrative agent. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 8-K dated March 18, 2005 and incorporated by reference herein.) |
58
Exhibit | Document Description | ||
10.22 | Multicurrency Credit Agreement, dated May 28, 2004, among Briggs & Stratton Corporation, the financial institutions party hereto, and LaSalle Bank National Association, M&I Marshall & Ilsley Bank and U.S. Bank National Association, as co-documentation agents, and Bank of America, N.A., as administrative agent, issuing bank and swing line bank. | ||
(Filed as Exhibit 10.2 to the Company’s Report on Form 8-K dated March 18, 2005 and incorporated by reference herein.) | |||
10.22 (a) | Multicurrency Credit Agreement Amendment, dated March 18, 2005, among Briggs & Stratton Corporation, various financial institutions and Bank of America, N.A., as administrative agent. | ||
(Filed as Exhibit 10.3 to the Company’s Report on Form 8-K dated March 18, 2005 and incorporated by reference herein.) | |||
12 | Computation of Ratio of Earnings to Fixed Charges. | ||
(Filed herewith.) | |||
16 | Letter Regarding Change in Certifying Accountant | ||
(Filed as Exhibit 16.2 to the Company’s Report on Form 8-K/A filed on September 9, 2004 and incorporated by reference herein.) | |||
21 | Subsidiaries of the Registrant. | ||
(Filed herewith.) | |||
23.1 | Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm. | ||
(Filed herewith.) | |||
23.2 | Consent of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm. | ||
(Filed herewith.) | |||
| |||
31.1 | |||
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
(Filed herewith.) | |||
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(Filed herewith.) | |||
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
(Furnished herewith.) | |||
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
(Furnished herewith.) | |||
* Management contracts and executive compensation plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of Form 10-K.
5359