1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 1,September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period fromfrom_______________ to --------------- ---------------_______________
Commission file number 1-1370
------
BRIGGS & STRATTON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0182330
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
414/259-5333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------No____
-----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 23,November 8, 2001
- --------------------------------------------------------------------------------
COMMON STOCK, par value $0.01 per share 21,598,98321,604,183 Shares
1
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
April 1, 2001 and July 2, 2000 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months ended
April 1, 2001 and March 26, 2000 5
Consolidated Condensed Statements of Cash Flow -
Nine Months ended April 1, 2001 and
March 26, 2000 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 2001 and July 1, 2001 3
Consolidated Condensed Statements of Income -
Three Months ended September 30, 2001 and
October 1, 2000 5
Consolidated Condensed Statements of Cash Flow -
Three Months ended September 30, 2001 and
October 1, 2000 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II - OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
2
3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
ASSETS
------
AprilSeptember 30, July 1,
July 2,
2001 2000
------------ -----------2001
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 30,12624,600 $ 16,98988,743
Accounts receivable, net 386,617 140,097156,315 145,138
Inventories -
Finished products and parts 224,379 181,800204,228 218,671
Work in process 65,635 70,908137,838 99,247
Raw materials 4,887 5,066
----------- -----------3,839 3,782
---------- ----------
Total inventories 294,901 257,774345,905 321,700
Future income tax benefits 41,296 39,13838,550 38,434
Prepaid expenses and other current assets 20,026 17,999
----------- -----------18,683 19,415
---------- ----------
Total current assets 772,966 471,997
----------- -----------584,053 613,430
---------- ----------
OTHER ASSETS:
Investments 49,631 50,22846,330 46,071
Prepaid pension 27,018 5,50643,835 36,275
Deferred loan costs 10,371 10,429
Capitalized software 6,808 6,934
----------- -----------6,246 6,552
Goodwill 152,062 166,659
Other 402 418
---------- ----------
Total other assets 83,457 62,668
----------- -----------259,246 266,404
---------- ----------
PLANT AND EQUIPMENT:
Cost 863,549 838,655903,899 890,191
Less accumulated depreciation 464,031 443,075
----------- -----------484,283 473,830
---------- ----------
Total plant and equipment, net 399,518 395,580
----------- -----------
$ 1,255,941 $ 930,245
=========== ===========419,616 416,361
---------- ----------
$1,262,915 $1,296,195
========== ==========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
--------------------------------------
April
September 30, July 1,
July 2,
2001 2000
------------ ------------2001
---- ----
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 106,030104,282 $ 117,556102,559
Domestic notes payable 336,770 48,8093,300 3,300
Foreign loans 13,908 13,35616,427 16,291
Accrued liabilities 132,242 128,438116,959 115,725
Dividends payable 6,696 ---
Federal and state income taxes 17,099 4,619
----------- -----------(4,300) 4,307
---------- ----------
Total current liabilities 612,745 312,778
----------- -----------243,364 242,182
---------- ----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,574 15,67915,498 15,536
Deferred income tax liability 12,226 4,0117,794 18,351
Accrued pension cost 12,557 11,42815,067 14,494
Accrued employee benefits 13,180 12,60713,001 12,979
Accrued postretirement health care obligation 65,584 65,76561,328 61,767
Long-term debt 98,666 98,512
----------- -----------508,280 508,134
---------- ----------
Total other liabilities 217,787 208,002
----------- -----------620,968 631,261
---------- ----------
SHAREHOLDERS' INVESTMENT:
Common stock-stock -
Authorized 60,000 shares, $.01 par value, Issuedissued
28,927 shares 289 289
Additional paid-in capital 35,988 36,043 36,478
Retained earnings 745,421 721,980719,115 743,230
Accumulated other comprehensive loss (5,690) (3,931)(6,323) (6,182)
Unearned compensation on restricted stock (331) (226)(278) (305)
Treasury stock at cost, 7,3287,326 and 7,1817,330 shares, respectively (350,208) (350,323)
(345,125)
----------- --------------------- ----------
Total shareholders' investment 425,409 409,465
----------- -----------
$ 1,255,941 $ 930,245
=========== ===========398,583 422,752
---------- ----------
$1,262,915 $1,296,195
========== ==========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Nine Months Ended
--------------------- --------------------
Apr. 01 Mar. 26 Apr. 01 Mar. 26------------------
September 30, October 1,
2001 2000
2001 2000
--------- --------- --------- ------------- ----
NET SALES $ 430,221 $ 468,678 $ 978,857 $1,189,849$221,329 $181,251
COST OF GOODS SOLD 343,826 366,838 797,058 932,904
--------- --------- --------- ----------199,807 155,453
-------- --------
Gross profit on sales 86,395 101,840 181,799 256,94521,522 25,798
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 33,649 33,285 100,017 96,121
--------- --------- --------- ----------
Income38,224 33,612
-------- --------
Loss from operations 52,746 68,555 81,782 160,824(16,702) (7,814)
INTEREST EXPENSE (8,804) (6,816) (21,689) (15,151)
GAIN ON DISPOSITION OF FOUNDRY ASSETS - - - 16,545(10,422) (4,568)
OTHER INCOME, net 3,497 5,027 8,970 10,645
--------- --------- --------- ----------
Income315 2,373
-------- --------
Loss before provisioncredit for income taxes 47,439 66,766 69,063 172,863
PROVISION(26,809) (10,009)
CREDIT FOR INCOME TAXES 17,550 24,710 25,550 63,960
--------- --------- --------- ----------(9,385) (3,705)
-------- --------
NET INCOMELOSS $(17,424) $ 29,889 $ 42,056 $ 43,513 $ 108,903
========= ========= ========= ==========
EARNINGS(6,304)
======== ========
LOSS PER SHARE DATA -
Average shares outstanding 21,599 22,842 21,600 23,021
====== ====== ====== ======21,612
======== ========
Basic earningsloss per share $ 1.38(0.81) $ 1.84 $ 2.01 $ 4.73
====== ====== ====== ======(0.29)
======== ========
Diluted average shares outstanding 21,612 22,866 21,614 23,104
====== ====== ====== ======21,613 21,629
======== ========
Diluted earningsloss per share $ 1.38(0.81) $ 1.84 $ 2.01 $ 4.71
====== ====== ====== ======(0.29)
======== ========
CASH DIVIDENDS PER SHARE $ 0.31 $ 0.30 $ 0.93 $ 0.90
====== ====== ====== ======0.31
======== ========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
NineThree Months Ended
----------------------------------------------
Sept. 30, 2001 Oct. 1, 2000
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Apr. 01, 2001 Mar. 26, 2000
------------- -------------
Net incomeloss $ 43,513(17,424) $ 108,903(6,304)
Adjustments to reconcile net incomeloss to net cash used forin
operating activities -
Depreciation and amortization 41,685 38,15815,023 13,787
Equity in earnings of unconsolidated affiliates (5,092) (8,209)(645) (1,636)
Loss (gain) on disposition of plant and equipment 371 (16,271)
Increase in prepaid pension (21,512) (9,223)702 54
Pension income, net (6,964) (2,366)
Provision (credit) for deferred income taxes 6,611 (4,062)3,534 (3)
Change in operating assets and liabilities -
Increase in accounts receivable (249,365) (239,750)(11,101) (137)
Increase in inventories (37,128) (103,852)
Decrease (increase)(24,205) (99,100)
(Increase) decrease in prepaid expenses and other
current assets 2,341 (1,928)
Increase(734) 959
Decrease (increase) in accounts payable and accrued
liabilities 12,457 57,1601,564 (32,731)
Other, net 1,571 (177)
----------- -----------(659) (1,091)
--------- ---------
Net cash used in operating activities (204,548) (179,251)
----------- -----------(40,909) (128,568)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (48,645) (53,861)(18,155) (15,326)
Proceeds received on disposition of plant and equipment 2,770 23,882
Other, net 2,933 5,141
----------- -----------287 844
--------- ---------
Net cash used in investing activities (42,942) (24,838)
----------- -----------(17,868) (14,482)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 288,513 216,957136 151,976
Issuance cost of long-term debt (240) --
Dividends (20,072) (20,683)(6,691) (6,689)
Purchase of common stock for treasury -- (6,118) (43,188)
Proceeds from exercise of stock options 275 5,561
----------- -----------52 253
--------- ---------
Net cash (used in) provided by financing activities 262,598 158,647
----------- -----------(6,743) 139,422
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (1,971) (1,559)
----------- -----------1,377 (1,422)
--------- ---------
NET INCREASE (DECREASE)DECREASE IN CASH AND CASH EQUIVALENTS 13,137 (47,001)(64,143) (5,050)
CASH AND CASH EQUIVALENTS, beginning 88,743 16,989
60,806
----------- -------------------- ---------
CASH AND CASH EQUIVALENTS, ending $ 30,12624,600 $ 13,805
=========== ===========11,939
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 21,36212,443 $ 16,217
=========== ===========5,788
========= =========
Income taxes paid $ 6,574186 $ 58,657
=========== ===========1,637
========= =========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
General Information
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of the Company,Briggs & Stratton
Corporation, adequate disclosures have been presented to make the information
not misleading, and all adjustments necessary to present fair statements of the
results of operations and financial position have been included. All of these
adjustments are of a normal recurring nature. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto which were included in the
Company'sour latest Annual Report on Form 10-K.
Comprehensive Income
Financial Accounting Standard No. 130, "Reporting Comprehensive
Income", requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting method that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. Total
comprehensive incomeloss is as follows (in thousands):
Three Months Ended
Nine Months Ended
------------------
---------------------
Apr.September 30, October 1, Mar. 26, Apr. 1, Mar. 26,
2001 2000
2001 2000
---------- ---------- ---------- ---------------- ----
Net income $ 29,889 $ 42,056 $ 43,513 $ 108,903Loss $(17,424) $(6,304)
Unrealized (loss)gainloss on marketable securities (66) 1,602 (866) 2,755(190) (256)
Foreign currency translation adjustments (1,092) (1,024) (2,082) (1,656)1,514 (1,509)
Gain (loss) on derivative instruments 2,945 - 1,189 -
---------- ---------- ---------- ------------(1,465) 12
-------- -------
Total comprehensive income $ 31,676 $ 42,634 $ 41,754 $ 110,002
========== ========== ========== ============loss $(17,565) $(8,057)
======== =======
The components of Accumulated Other Comprehensive Loss are as follows (in
thousands):
Apr.September 30, July 1,
July 2,
2001 2000
--------- ---------2001
---- ----
Unrealized (loss)gainloss on marketable securities $ (672)(943) $ 194(753)
Cumulative translation adjustments (6,207) (4,125)(5,141) (6,655)
Gain (loss) on derivative instruments 1,189 -
--------- ---------(239) 1,226
------- -------
Accumulated other comprehensive loss $ (5,690) $ (3,931)
========= =========$(6,323) $(6,182)
======= =======
At the beginning of the fiscal first quarter, the CompanyDerivatives
On July 2, 2000, Briggs & Stratton adopted Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(FAS(SFAS 133). This statement requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Any changes in
fair value of these instruments are recorded in the income statement or other
comprehensive income. The impactDuring the first quarter of adopting FAS 133 on
Accumulated Other Comprehensive Loss resulted in a loss of $15 thousand. For
both the quarterfiscals 2002 and the nine months, the Company2001, we
reclassified immaterial derivative gains
of $2.5 millionlosses to the income statement.
The cumulative effect of adopting FAS
133 on the results of operations was immaterial.
7
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The CompanyBriggs & Stratton enters into derivative contracts designated as cash
flow hedges to manage its foreign currency exposures. These instruments
generally do not have a maturity of more than thirteentwelve months. During the nine months,quarter,
there were no derivative instruments that were deemed to be ineffective. The
amounts included in Accumulated Other Comprehensive Loss will be reclassified
into income when the forecasted transaction occurs, generally within the next
twelve months. These forecasted transactions represent the exporting of products
for which the CompanyBriggs & Stratton will receive foreign currency and the importing of
products for which the Companyit will be required to pay in a foreign currency.
Acquisition
On May 15, 2001, Briggs & Stratton acquired Generac Portable Products
(GPP), a designer, manufacturer and marketer of portable generators, pressure
washers and related accessories. The aggregate purchase price of $288 million
included $268 million of cash and $20 million of liabilities assumed. The cash
paid included $4.5 million of direct acquisition costs.
The provisions of the acquisition include a contingent purchase price
based on the operating results of GPP. We do not expect to pay any additional
purchase price pursuant to these provisions.
The acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated on a preliminary
basis to identifiable assets acquired and liabilities assumed based upon the
estimated fair values, with the excess purchase price recorded as goodwill.
Final adjustments to the purchase price allocation are not expected to be
material to the consolidated financial statements. A reclassification of
approximately $15 million was made in the first quarter of fiscal 2002 reducing
goodwill and increasing deferred income taxes to record differences in
financial reporting versus tax reporting.
Goodwill of approximately $167 million recorded as a result of the
acquisition and was amortized on a straight-line basis over twenty years, until
July 2, 2001, at which time Briggs & Stratton adopted the provisions of
SFAS No. 142. Under the provisions of SFAS No. 142, goodwill is no longer
amortizable, but is subject to annual impairment tests. The following table
sets forth the unaudited pro forma information for Briggs & Stratton as if the
acquisition of GPP had occurred on July 2, 2000 (in millions, except per
share data):
Three Months Ended
------------------
September 30, October 1,
2001 2000
---- ----
Net Sales $ 221 $ 224
Net Loss $ (17) $ (12)
Basic Loss Per Share $(.81) $(.54)
Diluted Loss Per Share $(.81) $(.54)
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Segment and Geographic Information
In September 2000,accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and subsequent to the May 15, 2001
acquisition of Generac Portable Products, Inc., Briggs & Stratton has concluded
that it operates two reportable business segments which are managed separately
based on fundamental differences in their operations. Summarized segment data is
as follows (in thousands):
Three Months Ended
------------------
September 30, October 1,
2001 2000
---- ----
NET SALES:
Engines $179,487 $181,251
Generac Portable Products 55,128 --
Eliminations (13,286) --
-------- --------
Total * $221,329 $181,251
======== ========
* Includes sales to
international customers $ 56,709 $ 49,711
======== ========
INCOME (LOSS) FROM OPERATIONS:
Engines $(17,620) $ (7,814)
Generac Portable Products 1,643 --
Eliminations (725) --
-------- --------
Total $(16,702) $ (7,814)
======== ========
Sales Incentives
The Emerging Issues Task Force (EITF) issued EITF Abstract No. 00-10 "Accounting for Shipping and Handling Fees and Costs"00-25,
"Vendor Income Statements Characterization of Consideration Paid to a Re-Seller
of a Vendor's Products". Briggs & Stratton plans on adopting EITF No. 00-10 prescribes guidance regarding00-25 in
the income statement classification of
costs incurred for shipping and handling fees and costs. This guidance requires
shipping fees to be recognized in revenue and shipping costs to be recognized in
cost of sales. This statement is to be effective during the fourthsecond quarter of fiscal 2001. The Company2002. We will be required to reclassify shipping fee revenue out of cost ofco-op
advertising expense from selling expense to sales where it currently is classified as a reduction of shipping costs, and
into revenue.
In January 2001, EITF Abstract No. 00-22 "Accounting for `Points' and
Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to be Delivered in the Future" was issued. EITF No.
00-22 prescribes guidance requiring certain rebate offers and free products that
are delivered subsequent to a single exchange transaction to be recognized when
incurred, and reported as a reduction of revenue.gross sales.
The adoption of EITF No. 00-22reclassification will not impact the results of operations because the Company's past and current
accounting policy is to report such costs as reductions of revenue.
The effective dates of EITF No. 00-10 and EITF No. 00-22 are June 30,
2001. The Company does not believe that the adoption of EITF No. 00-10 and EITF
No. 00-22 will have a material adverse effect on theour results of
operations.
Business Combinations
In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets" having a required effective date for fiscal years
beginning after December 31, 2001. Under certain circumstances companies are
permitted to adopt these statements before the required date. Under the new
rules, goodwill and other intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.
Briggs & Stratton adopted the new rules on accounting for goodwill
and other intangible assets in the first quarter of fiscal 2002. Application of
the nonamortization provisions of the SFAS No. 142 is expected to result in an
increase in net income of approximately $.7 million in fiscal 2002. We will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets during the second quarter of fiscal 2002.
There was no proforma impact of adopting SFAS No. 142. No
amortization of goodwill was recorded in the first quarter of fiscals 2002 or
2001, because the acquisition of GPP did not occur until May 15, 2001.
9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Long Lived Assets
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". SFAS No. 144 also supersedes the accounting and reporting
provisions of APB Opinion No. 31, related to the disposal of a segment of a
business. SFAS No. 144 will be adopted on July 1, 2002. Management does not
expect SFAS No. 144 to have a material impact on the consolidated financial
statements.
Financial Information of Subsidiary Guarantors of Indebtedness
Under the terms of Briggs & Stratton's 7.25% senior notes, 8.875%
senior notes and 5.00% convertible senior notes and our revolving credit
agreement, (collectively, the Domestic Indebtedness), GPP and its subsidiaries
became joint and several guarantors of the Domestic Indebtedness. 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. Each guarantee of the Domestic
Indebtedness is the obligation of the guarantor and ranks equally and ratably
with the existing and future senior unsecured obligations of that guarantor;
accordingly, GPP has provided a full and unconditional guarantee of the Domestic
Indebtedness. The following condensed supplemental consolidating financial
information reflects the operations of GPP for the Company.three months ended September
30, 2001 (in thousands of dollars):
BALANCE SHEET: Briggs & Stratton Guarantor Non-Guarantor
As of September 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------ ----------- ------------ ------------ ------------ ------------
Current Assets $ 451,276 $ 99,934 $54,500 $ (21,657) $ 584,053
Investment in Subsidaries 296,196 -- -- (296,196) --
Noncurrent Assets 502,489 173,813 2,560 -- 678,862
---------- -------- ------- --------- ----------
$1,249,961 $273,747 $57,060 $(317,853) $1,262,915
========== ======== ======= ========= ==========
Current Liabilities $ 211,327 $ 16,918 $30,311 $ (15,192) $ 243,364
Long-Term Debt 508,280 -- -- -- 508,280
Other Long-Term Obligations 124,976 (12,288) -- -- 112,688
Stockholders' Equity 405,378 269,117 26,749 (302,661) 398,583
---------- -------- ------- --------- ----------
$1,249,961 $273,747 $57,060 $(317,853) $1,262,915
========== ======== ======= ========= ==========
STATEMENT OF EARNINGS:
For the Three Months Ended September 30, 2001
- ---------------------------------------------
Net Sales $ 170,838 $ 55,128 $18,576 $ (23,213) $ 221,329
Cost of Goods Sold 160,260 47,468 14,637 (22,558) 199,807
---------- -------- ------- --------- ----------
Gross Profit 10,578 7,660 3,939 (655) 21,522
Engineering, Selling, General and
Administrative Expenses 29,036 6,018 3,170 -- 38,224
---------- -------- ------- --------- ----------
Income (Loss) from Operations (18,458) 1,642 769 (655) (16,702)
Interest Expense (10,208) (24) (240) 50 (10,422)
Other (Expense) Income, Net 997 (13) 308 (977) 315
---------- -------- ------- --------- ----------
Income (Loss) Before Provision (Credit)
for Income Taxes (27,669) 1,605 837 (1,582) (26,809)
Provision (Credit) for Income Taxes (10,245) 557 303 -- (9,385)
---------- -------- ------- --------- ----------
Net Income (Loss) $ (17,424) $ 1,048 $ 534 $ (1,582) $ (17,424)
========== ======== ======= ========= ==========
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS:
For the Three Months Ended
- -------------------------- Briggs & Stratton Guarantor Non-Guarantor
September 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------ ----------- ------------ ------------ ------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $(18,352) $ 1,048 $ 534 $ (654) $(17,424)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in
Operating Activities-
Depreciation and Amortization 14,251 610 162 -- 15,023
Equity (Earnings) Loss of Affiliates and
Subsidiaries (945) -- 300 -- (645)
(Gain) Loss on Disposition of Plant and
Equipment 709 -- (7) -- 702
Pension Income, Net (6,964) -- -- -- (6,964)
Provision for Deferred Taxes 2,734 800 -- -- 3,534
Change in Operating Assets and Liabilities-
(Increase) Decrease in Receivables (13,174) 2,231 (1,539) 1,381 (11,101)
(Increase) Decrease in Inventories (22,430) (2,182) (435) 842 (24,205)
(Increase) Decrease in Other Current Assets 408 (742) (400) -- (734)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 5,750 (3,060) 443 (1,569) 1,564
Other, Net (832) 173 -- -- (659)
-------- ------- ------- ------- --------
Net Cash Used in
Operating Activities $(38,845) $(1,122) $ (942) $ -- $(40,909)
-------- ------- ------- ------- --------
Cash Flows from Investing Activities:
Additions to Plant and Equipment $(17,615) $ (396) $ (144) $ -- $(18,155)
Proceeds Received on Disposition of
Plant and Equipment 279 -- 8 -- 287
-------- ------- ------- ------- --------
Net Cash Used in
Investing Activities $(17,336) $ (396) $ (136) $ -- $(17,868)
-------- ------- ------- ------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on
Loans and Notes Payable $ (1,751) $ 1,751 $ 136 $ -- $ 136
Issuance Costs of
Long-Term Debt (240) -- -- -- (240)
Dividends (6,691) -- -- -- (6,691)
Proceeds from Exercise of Stock Options 52 -- -- -- 52
-------- ------- ------- ------- --------
Net Cash (Used in) Provided by
Financing Activities $ (8,630) $ 1,751 $ 136 $ -- $ (6,743)
-------- ------- ------- ------- --------
Effect of Exchange Rate Changes $ -- $ 492 $ 885 $ -- $ 1,377
-------- ------- ------- ------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents $(64,811) $ 725 $ (57) $ -- $(64,143)
Cash and Cash Equivalents, Beginning 85,282 683 2,778 -- 88,743
-------- ------- ------- ------- --------
Cash and Cash Equivalents, Ending $ 20,471 $ 1,408 $ 2,721 $ -- $ 24,600
======== ======= ======= ======= ========
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the Company'sBriggs &
Stratton's financial condition and results of operations for the periods
included in the accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
ACQUISITION
On May 15, 2001, Briggs & Stratton acquired Generac Portable Products
(GPP) for net cash of $267 million. The results of GPP's operations are included
in fiscal 2002's first quarter. The first quarter of fiscal 2001 did not include
results of GPP.
SALES
Net sales for the thirdfirst quarter of fiscal quarter2002 totaled $430$221 million,
a decreasean increase of $38$40 million or 8%22% when compared to the same period of the
preceding year. A major
portion of the decreaseThis increase was the result of an unfavorable mix change in engines
sold of $18 million. Sales of small horsepower engines remained about the same
between comparable periods but fewer larger horsepower engines were sold. Larger
engines are used primarily on riding mower equipment. There appears to be
adequate inventory of riding equipment at original equipment manufacturers and
at retail to handle this season's anticipated demand; therefore, fewer of these
engines have been shipped this quarter. Sales declined $10 million between yearssolely due to lower shipmentsthe inclusion of service parts and replacement engines asGPP's sales in
the Company's
distributors have adequate stocksresults for the upcoming repair season and are
controlling their inventory levels. The impactfirst quarter of a weaker Euro compared to
fiscal 2000 caused revenues to be $6 million lower than last year.
8
9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES2002. Net sales for the nine months totaled $979 million, a decrease of $211
million or 18% compared to the first nine monthsengine
segment of the prior year. This declinebusiness were down slightly between comparable periods because
the volume increase in engine shipments was offset by the negative impact of a
sales mix, which tended towards lower priced engines.
Net sales for GPP totaled $55 million, an increase of $10 million
over their performance a year ago when Briggs & Stratton did not own it. While
this improvement was accomplished by double-digit gains in generator units, GPP
did not experience the type of generator demand that could have resulted from an unfavorable mix change in engines sold of $93 million, a
7%
decrease in engine unit sales amounting to $80 million, $21 million due to the
weak Euro, and lower service parts and replacement engines sales of $18 million.
The unfavorable mix and volume decrease were caused by the lower sales of larger
horsepower units for riding mowers as described above and lower sales of engines
for generator applications. The entire generator market has been weak due to
excess inventories left over from Y2K buildup.normal hurricane season.
GROSS PROFIT MARGIN
The gross profit rate decreased to 20% in the current quarter from 22%
in the preceding year's third quarter. The major reasons for the decrease were a
12% decrease in engine unit production resulting in $7 million of lower
absorption and $6 million due to the weak Euro. Production volumes were lowered
to address the decreased unit sales and to control the level of the fiscal
year-end finished goods inventory. Offsetting the reduction in gross profit were
lower costs in labor benefits resulting from higher pension income of $4 million
and lower profit sharing expenses of $3 million.
The gross profit rate for the nine-month period decreased to 19%10% in the current year from 22%14%
in the preceding year. This decrease resulted primarily
fromdecline was due entirely to results in the same factors discussed aboveengine
segment of the business where the gross profit rate was 8% in fiscal 2002
compared to 14% in fiscal 2001. The major reason for the quarter. The impact of the Eurodecrease was $21 million of the decrease and an 8%less
absorbed fixed costs related to a 37% decrease in engine production volume created
$15between the
years.
Gross profits for GPP were $8 million or 14% of lower spending efficiencies and $12 million of lower absorption.
These decreases were offset bysales. This gross
profit margin was slightly better than a favorable impact of $10 million of additional
pension income and $6 million of lower profit sharing expenses.year ago, reflecting better plant
utilization.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The engineering, selling and administrativeThis category increased $5 million or 14% between years. This
increase is primarily due to expenses remained the same
between the third fiscal quarters of 2001 and 2000. Althoughincurred at GPP. GPP's expenses were $6
million, which were similar in total, there was an increase of about $5 million due to planned
expansions of staff and expenditures for business development and introduction
of new product. Offsetting these increases were lower costs in labor benefits
resulting from lower profit sharingits expenses of $4 million and an additional $1
million of pension income.
The $4 million or 4% increase for the comparative nine-month periods
was due primarily to the same factors discussed above for the quarter. This
reflects approximately $13 million for additional manpower and expenditures
relating to new product and business development offset by $7 million of lower
profit sharing costs and an additional $3 million of pension income.last year.
INTEREST EXPENSE
Interest expense increased 29%$6 million or $2 million128% between years for the
third quarter and 43% or $7 million between years for nine months. These
increases wereyears. This was
the result of the Company's higher level$271 million of short-term borrowings
to fund increased seasonal working capital needs.
9debt incurred for the acquisition of GPP.
12
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
GAIN ON DISPOSITION OF FOUNDRY ASSETS
At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc.,(MTHC), in exchange for
$24 million in cash and $45 million aggregate par value convertible preferred
stock. The provisions of the preferred stock include a 15% cumulative dividend
and conversion rights into a minimum of 31% of MTHC common stock. Pursuant to
Emerging Issues Task Force Abstract No. 86-29, the Company considered this
contribution to be a monetary transaction, given the significant amount of cash
received, and recorded the consideration received at fair value. The preferred
stock received was determined to have a fair value of $22 million based on
provisions of the stock and the prevailing market returns for similar
investments, estimated to be 30%, as of the date of the transaction.
PROVISION FOR INCOME TAXES
The effective tax rate used in both the third quarter and nine-month
periods for the current yearfiscal quarter was 37%35.0%.
This is management's estimate of what the rate will be for the entire 20012002
fiscal year. Last year'sThe rate was also 37% in
both periods.
PROPOSED GENERAC PORTABLE PRODUCTS, INC., ACQUISITION
The Company announced on March 1, 2001, that it had signed a letter of
intent to acquire Generac Portable Products, Inc., (Generac), of Jefferson,
Wisconsin, for $55 million cash and subject to approximately $210 million of
outstanding Generac debt. On March 22, 2001, the Company signed a definitive
agreement to acquire Generac on terms consistent with the letter of intent
previously announced. Generac is a leading designer, manufacturer and marketer
of engine-powered products. Generac's two principal product lines are portable
generators and pressure washers. The acquisition is slated to close in the
fourthfirst quarter of fiscal 2001 and the Company expects to fund it with debt
financing.was 37.0%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flowsflow used in operating activities for the nine-month periodsfirst quarter of
fiscal 2002 was $41 million and $129 million in the first quarter of fiscal
2001, and fiscal 2000 were $205an $88 million and $179 million, respectively, a
$25 million increasedecrease in requirements between the years. The fiscal 2001 cash flow from operating activitiesThis reflects
decreased net income of $65$11 million, including lower gains on the dispositionoffset by reduced working capital
requirements of plant and
equipment of $17$97 million. The lower gains on disposition of plant and equipment
were because fiscal 2000 contained the disposition of the foundry assets.primary decrease in working capital
requirements was due to a reduction in engine inventories. The increase in inventories was $67 million less in fiscal 2001 compared to fiscal
2000. This decrease was the result of planned inventory increases in fiscal 2000
to replenish abnormally low inventories to more normal levels. The increasechange in
accounts payable and accrued liabilities was $45attributable to GPP being included
in the three months ended September 30, 2001 and $16 million less in fiscal 2001of lower payments
of profit sharing accruals as compared to the same period in 2000.
In the first quarter of fiscal 2000. The decrease2002, $18 million of cash was due to timing of payments in accounts
payable, accrued salaries, and accrued payroll taxes and lack of accruals for
profit sharing due to lower performance. The $12 million increase in prepaid
pension is attributable to the Company's over funded pension plan. Also due to
the timing of payments was the $10 million increase in accounts receivable in
fiscal 2001 compared to fiscal 2000.
Net cash used in
investing activities totaled $43 million and $25compared to $14 million in fiscal 2001 and fiscal 2000, respectively. The $18 million increase
is attributed primarily to $24 millionthe first quarter of cash received from the foundry
transaction in fiscal 2000, offset by a $5 million decrease in capital
expenditures in fiscal
2001. 10
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIESAdditions to plant and equipment were the major use of cash.
Net cash provided by financing activities amounteddecreased $146 million
between years. The significant decrease was due to $263 million and
$159 million in fiscal 2001 and 2000, respectively, an increase of $104 million.
These financing activities reflect higher levelsthe level of short-term
domestic borrowings in
fiscal 2001used to fund seasonal working capital requirements, primarily inventory,
causing a $72 million increase in debt between the periods. Also, the Company
repurchased fewer common shares in fiscal 2001 compared to fiscal 2000.needs.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
The CompanyBriggs & Stratton has remaining authorization to buy up to 1.8
million shares of companyits stock in open market or private transactions under the
June 2000 Board of Directors' authorization to repurchase up to 2.0 million
shares. The
CompanyWe did not purchase any shares in the thirdfirst quarter of fiscal 20012002 and
doesdo not anticipate repurchasing additional shares for the remainder of fiscal
2002.
As of November 8, 2001, or fiscal 2002.
Due to expected higher working capital requirements and lower available
cash, the Company arranged for an additional line ofwe replaced our $250 million revolving credit
amounting to $140
million during the second fiscal quarter of 2001. This line expiresfacility that would have expired in November
2001. In connection with the proposed acquisition of Generac, the Company
expects to issue long-term debt to make the acquisition, replace the outstanding
Generac debt and replace the credit line expiring in November 2001. The Company
also plans to operate in the first half of fiscalApril 2002, with working capital
requirements for inventory that are lower than those in the comparable period of
fiscal 2001.
The increased debt that results from the Generac acquisition and the
replacement of the expiringa three-year $300 million
revolving credit line is presently expected to increase
interest expense to approximately $50 million for fiscal 2002.facility.
Management expects cash flows for capital expenditures to total
approximately $65$60 million in fiscal 2001 and $65 to $70 million for fiscal 2002. These capital expenditure levelsanticipated expenditures provide
for base replacement,continued investments in equipment and new product, and
capacity and cost reduction requirements. Theyproducts. These expenditures will
be funded using available cash and short-term borrowings.
The CompanyBriggs & Stratton currently intends to increase future cash dividends
per share at a rate approximating the inflation rate, subject to the discretion
of its Board of Directors any applicable restrictions onand the payment of dividends
and requirements of applicable law.
The Companylaw and debt
covenants.
Management believes that available cash, the credit facility, cash
generated from operations, existing lines of credit and access to debt markets
will be adequate to fund its capital requirements for the foreseeable future.
OUTLOOK
The Company projects fourth quarter net salesProjected results for the engine businesssecond quarter of fiscal 2002 are not as
strong as originally anticipated, but when combined with the improved first
quarter results, we currently expect to be down 5-8% between years. Generacmeet our six-month projections. We
anticipate slower sales, afteras the completionoriginal equipment manufacturers build closer to
the retail spring season, and lower production levels will cause the first half
of the acquisition are anticipatedyear to add $50 to $55 million of sales inyield significantly lower results than the fourth
quarter, assuming the acquisition closes as scheduled. The gross profit
percentage is expected to be in the 15.5% to 16.5 % range, lower than last
year's fourth quarter percentage. This is driven by an estimate of 35% to 45%
lower engine production as the Company reflects weaker shipments and brings
inventories tosame period a level lower than they were last fiscal year-end. The Company's
engineering, selling and administrative expenses for the fourth quarter are
projected to decrease around 15% from last year's level because of lower benefit
costs in fiscal 2001. However, Generac will add $9 to $10 million of expenses to
this category. Finally, interest expense is anticipated to be higher than last
year
by $5 million. About $4 million of this increase is due to the debt
associated with the Generac acquisition.
These projections for the fourth quarter should result in a range of
net income for the full year that is now expected to be $55 to $60 million.
11ago.
13
12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Fiscal 2002 will beSales for the first fullentire fiscal year combining Generac's and the
Company's results. At the current time consolidated net sales are estimated to
approach $1.7 billion. This number reflects the belief that both generator sales
and engine sales for generators will return to a more normal level, and engine
sales for lawn and garden equipment will remain stable between fiscal 2001 and
2002. The projection reflects a continued weak Euro. Gross profits arenow anticipated to improve primarily because of higher engine unit sales, and
greater production that will spread fixed costs over more units. Gross profit
margins are expected to be
approximately 20%.$1.64 billion, about 25% higher than last year but lower than
earlier forecasts. Weakened generator sales account for the reduction. The gross
profit percentage is projected to be approximately 17.8% for the year. The
improvement from earlier projections comes from planned expense controls.
Engineering, selling and administrative expenses, originally projected to
increase from $140 to $165 million, are estimated at 11% of net sales. This percentage is
higher than the Company's traditional target becausenow anticipated to only increase to $159
million. The majority of the higher percentage ofreduction is associated with GPP's costs that are
variable depending on sales committedlevels. Interest expense is anticipated to selling expenses at Generac. Depreciationbe $45
million, depreciation $60 million and the effective tax rate is planned to be
35%. These estimates are expected to beresult in net income between $58 million and goodwill amortization $8$62
million.
OTHER MATTERS
On October 5, 2000, it was announced that one of the Company's largest
customers, the Murray Group, was acquired by Summersong Investments, Inc. The
Company does not expect this acquisition to adversely impact its annual supply
arrangement with the Murray Group for the current outdoor power
equipment-selling season.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of
Financial Condition and Results of Operations may contain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements. The
words "anticipate", "believe", "estimate", "expect", "intend", "may",
"objective", "plan", "seek", "think", "will" and similar expressions are
intended to identify forward-looking statements. The forward-looking statements
are based on the
Company'sBriggs & Stratton's current views and assumptions and involve risks
and uncertainties that include, among other things,things: our ability to successfully
forecast demand for our products and appropriately adjust our manufacturing and
inventory levels; changes in our operating expenses; our ability to complete our proposedsuccessfully
integrate the acquisition of Generac
Portable Products, Inc. and successfully integrate itGPP into our operations; changes in interest rates;
the effects of weather on the purchasing patterns of consumers and original
equipment manufacturers ("OEMs"); changes in the expected
speed and timing of the reduction of generator inventories of Generac and other
generator manufacturers and retailers which had been built up in anticipation of
Y2K concerns;manufacturers; actions of engine manufacturers and OEMs with whom we
compete; the seasonal nature of our business; changes in laws and regulations,
including environmental and accounting standards; work stoppages or other
consequences of any deterioration in our employee relations; changes in consumercustomer
and OEM demand; changes in prices of purchased raw materials and parts that we
purchase; changes in domestic economic conditions, including housing starts and
changes in consumer disposable income; changes in foreign economic conditions,
including currency rate fluctuations; and other factors that may be disclosed
from time to time in our SEC filings or otherwise. Some or all of the factors
may be beyond our control. We caution you that any forward-looking statement
reflects only our belief at the time the statement is made. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 7, 200012, 2001,
filing of the Company's Annual Report on Form 10-K.
12PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 17, 2001, director
nominees named below were elected to a three-year term expiring in 2004 by the
indicated votes cast for and withheld with respect to each nominee.
Name of Nominee For Withheld
--------------- --- --------
David L. Burner 20,188,302 121,797
Eunice M. Filter 20,175,925 134,174
Frederick P. Stratton, Jr. 20,178,341 131,758
14
13
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEMDirectors whose terms of office continue past the Annual Meeting of
Shareholders are: Jay H. Baker; Michael E. Batten; Peter A. Georgescu; Robert J.
O'Toole; John S. Shiely and Charles I. Story.
Item 6. EXHIBITS AND REPORTS ON FORMExhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
2 Agreement10 Amended and Plan of Merger, dated as of March 21, 2001, by
and amongRestated Briggs & Stratton Corporation
GPP Merger
Corporation, Generac Portable Products, Inc. and the Beacon
Group III - FocusEconomic Value Fund, L.P. (incorporated herein by
reference to Exhibit 2 to Briggs & Stratton Corporation's
Current Report on Form 8-K dated March 21, 2001).Added Incentive Compensation Plan*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
*Filed herewith
(b) Reports on Form 8-K.
On March 1, 2001, the Company filed a reportThere were no reports on Form 8-K dated March 1,for the first quarter ended
September 30, 2001, to report the signing ofhowever, a letter of intent to acquire Generac
Portable Products, Inc.
On March 23, 2001, the Company filed a report on Form 8-K dated March
21, 2001, to report that it had signed a definitive agreement to
acquire Generac Portable Products, Inc.was filed on October 18, 2001.
SIGNATURES
Pursuant to the requirements 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
-----------------------------
(Registrant)
Date: April 26,November 13, 2001 /s/ James E. Brenn
---------------------------------------------------------------------
James E. Brenn
Senior Vice President and Chief Financial Officer and
Duly Authorized Officer
13
14
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
2 Agreement and Plan of Merger, dated as of March 21,
2001, by and among Briggs & Stratton Corporation, GPP
Merger Corporation, Generac Portable Products, Inc. and
the Beacon Group III - Focus Value Fund, L.P.
(incorporated herein by reference to Exhibit 2 to Briggs
& Stratton Corporation's Current Report on Form 8-K
dated March 21, 2001).
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
*Filed herewith
1415