UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1,December 31, 2006
OR
oOR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_______________ fromto _______________
Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
(Exact name of registrant as specified in its charter)
39-0182330 | ||
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(State or other jurisdiction of |
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incorporation or organization) | (I.R.S. Employer 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)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No X x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class |
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COMMON STOCK, par value $0.01 per share |
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No. | ||||||||
Item 1. | ||||||||
Consolidated Condensed Balance Sheets – | 3 | |||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||||
Item 3. |
| 23 | ||||||
Item 4. | Controls and Procedures |
| 23 | |||||
Item 1. | Legal Proceedings |
| 24 | |||||
Item 1A. | Risk Factors |
| 24 | |||||
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Submission of Matters to a Vote of Security Holders |
| 24 | ||||||
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Exhibits | 25 | |||||||
26 | ||||||||
27 |
2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
ASSETS
| October 1, |
| July 2, |
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|
| 2006 |
| 2006 |
| ||
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| (Unaudited) |
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CURRENT ASSETS: |
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|
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Cash and cash equivalents |
| $ | 44,170 |
| $ | 95,091 |
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Accounts receivable, net |
| 227,892 |
| 273,502 |
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Inventories - |
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Finished products and parts |
| 500,283 |
| 364,711 |
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Work in process |
| 196,192 |
| 188,358 |
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Raw materials |
| 9,887 |
| 8,946 |
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Total inventories |
| 706,362 |
| 562,015 |
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Deferred income tax asset |
| 61,064 |
| 58,024 |
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Prepaid expenses and other current assets |
| 25,532 |
| 43,020 |
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Total current assets |
| 1,065,020 |
| 1,031,652 |
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|
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OTHER ASSETS: |
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Goodwill |
| 251,885 |
| 251,885 |
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Prepaid pension |
| 76,650 |
| 75,789 |
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Investments |
| 46,474 |
| 48,917 |
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Deferred loan costs, net |
| 4,014 |
| 4,308 |
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Other intangible assets, net |
| 93,985 |
| 94,596 |
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Other long-term assets, net |
| 7,283 |
| 6,765 |
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Total other assets |
| 480,291 |
| 482,260 |
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PLANT AND EQUIPMENT: |
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Cost |
| 1,017,983 |
| 1,008,164 |
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Less - accumulated depreciation |
| 591,220 |
| 577,876 |
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Total plant and equipment, net |
| 426,763 |
| 430,288 |
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| $ | 1,972,074 |
| $ | 1,944,200 |
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December 31, 2006 | July 2, 2006 | |||||
(Unaudited) | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | 36,593 | $ | 95,091 | ||
Accounts receivable, net | 306,473 | 273,502 | ||||
Inventories - | ||||||
Finished products and parts | 538,148 | 364,711 | ||||
Work in process | 228,122 | 188,358 | ||||
Raw materials | 11,134 | 8,946 | ||||
Total inventories | 777,404 | 562,015 | ||||
Deferred income tax asset | 61,632 | 58,024 | ||||
Prepaid expenses and other current assets | 24,554 | 43,020 | ||||
Total current assets | 1,206,656 | 1,031,652 | ||||
OTHER ASSETS: | ||||||
Goodwill | 251,885 | 251,885 | ||||
Prepaid pension | 79,995 | 75,789 | ||||
Investments | 46,781 | 48,917 | ||||
Deferred loan costs, net | 3,722 | 4,308 | ||||
Other intangible assets, net | 93,506 | 94,596 | ||||
Other long-term assets, net | 7,283 | 6,765 | ||||
Total other assets | 483,172 | 482,260 | ||||
PLANT AND EQUIPMENT: | ||||||
Cost | 1,032,868 | 1,008,164 | ||||
Less - accumulated depreciation | 605,361 | 577,876 | ||||
Total plant and equipment, net | 427,507 | 430,288 | ||||
$ | 2,117,335 | $ | 1,944,200 | |||
The accompanying notes are an integral part of these statements.
3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands, except per share data)
LIABILITIES & SHAREHOLDERS’ INVESTMENT
| October 1, |
| July 2, |
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| 2006 |
| 2006 |
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| (Unaudited) |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 152,984 |
| $ | 161,291 |
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Accrued liabilities |
| 160,618 |
| 178,381 |
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Dividends payable |
| 11,267 |
| - |
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Current maturity on long-term debt |
| 81,015 |
| - |
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Short-term debt |
| 121,852 |
| 3,474 |
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Total current liabilities |
| 527,736 |
| 343,146 |
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OTHER LIABILITIES: |
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Long-term debt |
| 302,490 |
| 383,324 |
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Deferred income tax liability |
| 101,965 |
| 102,862 |
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Accrued pension cost |
| 26,091 |
| 25,587 |
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Accrued employee benefits |
| 16,391 |
| 16,267 |
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Accrued postretirement health care obligation |
| 83,272 |
| 84,136 |
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Other long-term liabilities |
| 1,512 |
| 1,672 |
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Total other liabilities |
| 531,721 |
| 613,848 |
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SHAREHOLDERS’ INVESTMENT: |
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Common stock - |
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Authorized 120,000 shares, $.01 par value, issued 57,854 shares |
| 579 |
| 579 |
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Additional paid-in capital |
| 67,684 |
| 65,126 |
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Retained earnings |
| 1,057,123 |
| 1,086,397 |
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Accumulated other comprehensive income |
| 4,231 |
| 4,960 |
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Treasury stock at cost, 8,345 and 6,654 shares, respectively |
| (217,000 | ) | (169,856 | ) | ||
Total shareholders’ investment |
| 912,617 |
| 987,206 |
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| $ | 1,972,074 |
| $ | 1,944,200 |
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December 31, 2006 | July 2, 2006 | |||||||
(Unaudited) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 152,916 | $ | 161,291 | ||||
Accrued liabilities | 168,317 | 178,381 | ||||||
Dividends payable | 10,892 | — | ||||||
Current maturity on long-term debt | 81,056 | — | ||||||
Short-term debt | 273,514 | 3,474 | ||||||
Total current liabilities | 686,695 | 343,146 | ||||||
OTHER LIABILITIES: | ||||||||
Long-term debt | 302,630 | 383,324 | ||||||
Deferred income tax liability | 101,742 | 102,862 | ||||||
Accrued pension cost | 26,868 | 25,587 | ||||||
Accrued employee benefits | 16,400 | 16,267 | ||||||
Accrued postretirement health care obligation | 82,716 | 84,136 | ||||||
Other long-term liabilities | 2,895 | 1,672 | ||||||
Total other liabilities | 533,251 | 613,848 | ||||||
SHAREHOLDERS’ INVESTMENT: | ||||||||
Common stock - | ||||||||
Authorized 120,000 shares, $.01 par value, issued 57,854 shares | 579 | 579 | ||||||
Additional paid-in capital | 69,784 | 65,126 | ||||||
Retained earnings | 1,040,348 | 1,086,397 | ||||||
Accumulated other comprehensive income | 3,702 | 4,960 | ||||||
Treasury stock at cost, 8,346 and 6,654 shares, respectively | (217,024 | ) | (169,856 | ) | ||||
Total shareholders’ investment | 897,389 | 987,206 | ||||||
$ | 2,117,335 | $ | 1,944,200 | |||||
The accompanying notes are an integral part of these statements.
4
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
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| Three Months Ended |
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| October 1, |
| October 2, |
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| 2006 |
| 2005 |
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NET SALES |
| $ | 338,249 |
| $ | 511,709 |
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COST OF GOODS SOLD |
| 293,887 |
| 430,401 |
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Gross profit on sales |
| 44,362 |
| 81,308 |
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ENGINEERING, SELLING, GENERAL AND |
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ADMINISTRATIVE EXPENSES |
| 66,321 |
| 70,277 |
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Income (loss) from operations |
| (21,959 | ) | 11,031 |
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INTEREST EXPENSE |
| (9,037 | ) | (10,028 | ) | ||
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OTHER INCOME, net |
| 3,457 |
| 6,264 |
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Income (Loss) before provision (credit) for income taxes |
| (27,539 | ) | 7,267 |
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PROVISION (CREDIT) FOR INCOME TAXES |
| (9,501 | ) | 2,540 |
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NET INCOME (LOSS) |
| $ | (18,038 | ) | $ | 4,727 |
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EARNINGS PER SHARE DATA - |
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Average shares outstanding |
| 50,583 |
| 51,695 |
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Basic earnings (loss) per share |
| $ | (0.36 | ) | $ | 0.09 |
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Diluted average shares outstanding |
| 50,583 |
| 52,053 |
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Diluted earnings (loss) per share |
| $ | (0.36 | ) | $ | 0.09 |
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CASH DIVIDENDS PER SHARE |
| $ | 0.22 |
| $ | 0.22 |
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Three Months Ended | Six Months Ended | |||||||||||||||
December 31, 2006 | January 1, 2006 | December 31, 2006 | January 1, 2006 | |||||||||||||
NET SALES | $ | 423,059 | $ | 574,313 | $ | 761,308 | $ | 1,086,022 | ||||||||
COST OF GOODS SOLD | 355,695 | 456,961 | 649,582 | 887,362 | ||||||||||||
Gross profit on sales | 67,364 | 117,352 | 111,726 | 198,660 | ||||||||||||
ENGINEERING, SELLING, GENERAL AND | 64,853 | 78,722 | 131,174 | 148,999 | ||||||||||||
Income (loss) from operations | 2,511 | 38,630 | (19,448 | ) | 49,661 | |||||||||||
INTEREST EXPENSE | (11,829 | ) | (11,305 | ) | (20,866 | ) | (21,333 | ) | ||||||||
OTHER INCOME, net | 921 | 6,223 | 4,378 | 12,487 | ||||||||||||
Income (loss) before income taxes | (8,397 | ) | 33,548 | (35,936 | ) | 40,815 | ||||||||||
PROVISION (CREDIT) FOR INCOME TAXES | (2,487 | ) | 11,730 | (11,988 | ) | 14,270 | ||||||||||
NET INCOME (LOSS) | $ | (5,910 | ) | $ | 21,818 | $ | (23,948 | ) | $ | 26,545 | ||||||
EARNINGS PER SHARE DATA - | ||||||||||||||||
Average shares outstanding | 50,583 | 51,695 | 49,983 | 51,714 | ||||||||||||
Basic earnings (loss) per share | $ | (0.12 | ) | $ | 0.42 | $ | (0.48 | ) | $ | 0.51 | ||||||
Diluted average shares outstanding | 50,583 | 52,066 | 49,983 | 52,093 | ||||||||||||
Diluted earnings (loss) per share | $ | (0.12 | ) | $ | 0.42 | $ | (0.48 | ) | $ | 0.51 | ||||||
CASH DIVIDENDS PER SHARE | $ | 0.22 | $ | 0.22 | $ | 0.44 | $ | 0.44 | ||||||||
The accompanying notes are an integral part of these statements.
5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| Three Months Ended |
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| October 1, |
| October 2, |
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| 2006 |
| 2005 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
| $ | (18,038 | ) | $ | 4,727 |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization |
| 18,154 |
| 19,424 |
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Earnings of unconsolidated affiliates, net of dividends |
| 2,806 |
| 2,494 |
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Loss (Gain) on disposition of plant and equipment |
| 37 |
| (6,156 | ) | ||
Provision for deferred income taxes |
| (3,937 | ) | (7,746 | ) | ||
Stock compensation expense |
| 2,819 |
| 2,096 |
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Change in operating assets and liabilities: |
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Decrease in receivables |
| 45,610 |
| 17,136 |
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Increase in inventories |
| (144,347 | ) | (102,980 | ) | ||
Decrease (Increase) in prepaid expenses and other current assets |
| 10,785 |
| (5,450 | ) | ||
(Increase) Decrease in prepaid/accrued pension |
| (357 | ) | 2,862 |
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Decrease in accounts payable, accrued liabilities, and income taxes |
| (20,397 | ) | (7,355 | ) | ||
Other, net |
| (1,364 | ) | (4,186 | ) | ||
Net cash used in operating activities |
| (108,229 | ) | (85,134 | ) | ||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to plant and equipment |
| (13,844 | ) | (16,317 | ) | ||
Proceeds received on sale of plant and equipment |
| 262 |
| 10,474 |
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Refund of cash paid for acquisition |
| - |
| 6,347 |
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Net cash (used in) provided by investing activities |
| (13,582 | ) | 504 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net borrowings on loans and notes payable |
| 118,378 |
| 4,278 |
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Stock option proceeds and tax benefits |
| 750 |
| 2,418 |
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Treasury stock purchases |
| (48,232 | ) | - |
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Net cash provided by financing activities |
| 70,896 |
| 6,696 |
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EFFECT OF FOREIGN CURRENCY EXCHANGE RATE |
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CHANGES ON CASH AND CASH EQUIVALENTS |
| (6 | ) | 928 |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
| (50,921 | ) | (77,006 | ) | ||
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CASH AND CASH EQUIVALENTS, beginning |
| 95,091 |
| 161,573 |
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CASH AND CASH EQUIVALENTS, ending |
| $ | 44,170 |
| $ | 84,567 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Interest paid |
| $ | 15,988 |
| $ | 17,258 |
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Income taxes paid |
| $ | 644 |
| $ | 1,778 |
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Six Months Ended | ||||||||
December 31, 2006 | January 1, 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (23,948 | ) | $ | 26,545 | |||
Adjustments to reconcile net income (loss) to net cash used in | ||||||||
Depreciation and amortization | 36,410 | 38,373 | ||||||
Earnings of unconsolidated affiliates, net of dividends | 2,082 | 1,948 | ||||||
(Gain) Loss on disposition of plant and equipment | 174 | (5,402 | ) | |||||
Provision for deferred income taxes | (4,728 | ) | (9,362 | ) | ||||
Stock compensation expense | 4,896 | 4,385 | ||||||
Change in operating assets and liabilities: | ||||||||
Increase in accounts receivable | (32,971 | ) | (106,462 | ) | ||||
Increase in inventories | (215,389 | ) | (175,175 | ) | ||||
(Increase) Decrease in prepaid expenses and other current assets | 10,515 | (1,254 | ) | |||||
Decrease in accounts payable, accrued liabilities, and income taxes | (13,231 | ) | (3,477 | ) | ||||
Increase (Decrease) in accrued/prepaid pension | (2,925 | ) | 5,360 | |||||
Other, net | (2,078 | ) | (3,407 | ) | ||||
Net cash used in operating activities | (241,193 | ) | (227,928 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Additions to plant and equipment | (29,866 | ) | (34,354 | ) | ||||
Proceeds received on sale of plant and equipment | 442 | 10,696 | ||||||
Investment in joint venture | — | (900 | ) | |||||
Refund of cash paid for acquisition | — | 6,347 | ||||||
Net cash used in investing activities | (29,424 | ) | (18,211 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net borrowings on loans and notes payable | 270,040 | 132,617 | ||||||
Dividends | (11,267 | ) | (11,379 | ) | ||||
Stock option proceeds and tax benefits | 750 | 2,418 | ||||||
Treasury stock purchases | (48,232 | ) | — | |||||
Net cash provided by financing activities | 211,291 | 123,656 | ||||||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES | 828 | 669 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (58,498 | ) | (121,814 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning | 95,091 | 161,573 | ||||||
CASH AND CASH EQUIVALENTS, ending | $ | 36,593 | $ | 39,759 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Interest paid | $ | 18,745 | $ | 20,130 | ||||
Income taxes paid | $ | 1,320 | $ | 21,347 | ||||
The accompanying notes are an integral part of these statements.
6
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 accounting principles generally accepted in the U.S.United States. However, in the opinion of 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 consolidated condensed financial statements should be read in conjunction with the financial statements and the notes thereto which were included in our latest Annual Report on Form 10-K.
Common Stock
Briggs & Stratton repurchased 1,733,200 common shares at a total cost of $48.2 million during the three months ended October 1, 2006.first quarter of fiscal 2007. No shares were repurchased induring the same period a year ago.second quarter of fiscal 2007 or the first six-months of fiscal 2006. The timing and amount of future repurchases will be dependent upondepend on the market price of the stock and certain governing loan covenants.
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 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.
Shares outstanding used to compute diluted earnings per share for the quarter and six months ended October 1,December 31, 2006 excluded approximately 157,000149,000 and 144,000 shares, ofrespectively, for restricted and deferred stock as their inclusion would have been anti-dilutive. For the quarter and outstandingsix months ended January 1, 2006, there was no restricted or deferred stock excluded from the computation of diluted earnings per share. Outstanding options to purchase approximately 3,467,0003,443,000 and 3,317,000 shares of common stock for the quarter and six months ended December 31, 2006, respectively, were excluded, as their inclusion would have been anti-dilutive. In the prior fiscal year for the quarter and six months ended January 1, 2006, outstanding options to purchase approximately 1,504,000 and 1,422,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share forbecause the quarter ended October 2, 2005 because their inclusion would have been anti-dilutive.options’ exercise price was greater than the average market price of the common shares.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Information on earnings per share is as follows (in thousands):
| Three Months Ended |
|
|
| |||||||||||||||||||||
|
| October 1, |
| October 2, |
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| Three Months Ended | Six Months Ended | ||||||||||||||
|
| 2006 |
| 2005 |
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| December 31, | January 1, | December 31, | January 1, | ||||||||||||
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| 2006 | 2006 | 2006 | 2006 | ||||||||||||
Net income (loss) |
| $ | (18,038 | ) | $ | 4,727 |
|
|
|
|
| $ | (5,910 | ) | $ | 21,818 | $ | (23,948 | ) | $ | 26,545 | ||||
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Average shares of common stock outstanding |
| 50,583 |
| 51,695 |
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|
| 50,583 | 51,695 | 49,983 | 51,714 | ||||||||||||
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Incremental common shares applicable to common stock |
| - |
| 322 |
|
|
|
|
| — | 307 | — | 314 | ||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Incremental common shares applicable to restricted common stock based on the common stock average market price during |
| - |
| 36 |
|
|
|
|
| ||||||||||||||||
Incremental common shares applicable to restricted and deferred common stock based on the common stock average market price during the period | — | 64 | — | 65 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted average shares of common stock outstanding |
| 50,583 |
| 52,053 |
|
|
|
|
| 50,583 | 52,066 | 49,983 | 52,093 | ||||||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Comprehensive Income
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. Comprehensive income is defined as net income and other changes in shareholders’ investment from transactions and events other than with shareholders. Total comprehensive income (loss) is as follows (in thousands):
| Three Months Ended |
|
|
| |||||||
|
| October 1, |
| October 2, |
|
|
|
|
| ||
|
| 2006 |
| 2005 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Net income (loss) |
| $ | (18,038 | ) | $ | 4,727 |
|
|
|
|
|
Cumulative translation adjustments |
| 461 |
| 820 |
|
|
|
|
| ||
Unrealized gain (loss) on derivative instruments |
| (1,190 | ) | 5,827 |
|
|
|
|
| ||
Total comprehensive income (loss) |
| $ | (18,767 | ) | $ | 11,374 |
|
|
|
|
|
Three Months Ended | Six Months Ended | ||||||||||||||
December 31, | January 1, | December 31, | January 1, | ||||||||||||
2006 | 2006 | 2006 | 2006 | ||||||||||||
Net income (loss) | $ | (5,910 | ) | $ | 21,818 | $ | (23,948 | ) | $ | 26,545 | |||||
Cumulative translation adjustments | 1,057 | (735 | ) | 1,518 | 85 | ||||||||||
Unrealized gain (loss) on derivative instruments | (1,586 | ) | (3,417 | ) | (2,776 | ) | 2,410 | ||||||||
Total comprehensive income (loss) | $ | (6,439 | ) | $ | 17,666 | $ | (25,206 | ) | $ | 29,040 | |||||
The components of Accumulated Other Comprehensive Income are as follows (in thousands):
| October 1, |
| July 2, |
|
|
|
|
| |||||||||||
|
| 2006 |
| 2006 |
|
|
|
|
| December 31, | July 2, | ||||||||
|
|
|
|
|
|
|
|
|
| 2006 | 2006 | ||||||||
Cumulative translation adjustments |
| $ | 7,985 |
| $ | 7,524 |
|
|
|
|
| $ | 9,042 | $ | 7,524 | ||||
Unrealized loss on derivative instruments |
| (1,526 | ) | (336 | ) |
|
|
|
| (3,112 | ) | (336 | ) | ||||||
Minimum pension liability adjustment |
| (2,228 | ) | (2,228 | ) |
|
|
|
| (2,228 | ) | (2,228 | ) | ||||||
Accumulated other comprehensive income |
| $ | 4,231 |
| $ | 4,960 |
|
|
|
|
| $ | 3,702 | $ | 4,960 | ||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 currency exposures. These instruments generally do not have a maturity of more than twelve months.
Changes in the fair value of cash flow hedges are recorded on the Consolidated Condensed Statements of Income or as a component of Accumulated Other Comprehensive Income. The amounts included in Accumulated Other Comprehensive Income 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 all derivatives deemed to be ineffective are recorded as either income or expense in the accompanying Consolidated Condensed Statements of Income.
Briggs & Stratton manages its exposure to fluctuation in the cost of natural gas used by its operating facilities through participation in a third party managed dollar cost averaging program linked to NYMEX futures. As a participant in the program, Briggs & Stratton hedges a minimum of 50% of its anticipated monthly natural gas usage along with a pool of other companies. Briggs & Stratton does not hold any actual futures contracts, and actual delivery of natural gas is not required of the participants in the program. Cash settlements occur on a monthly basis based on the difference between the average dollar price of the underlying NYMEX futures held by the third party and the actual price of natural gas paid by Briggs & Stratton in the
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
period. The fair value of the underlying NYMEX futures is reflected as an asset or liability on the accompanying Consolidated Condensed Balance Sheets. Changes in fair value are reflected as a Component of Accumulated Other Comprehensive Income, which are reclassified into the income statement as the monthly cash settlements occur and actual natural gas is consumed.
Reduction in Force
Briggs & Stratton recorded an expense of approximately $4.1 million associated with a worldwide employee reduction during the fiscal year ended July 2, 2006. The amount recorded represented expected expenditures for severance and other related employee separation costs associated with the reduction. As of the quarter ended October 1, 2006, no reserve remained.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Segment and Geographic Information
Briggs & Stratton operates two reportable business segments that are managed separately based on fundamental differences in their operations. Summarized segment data is as follows (in thousands):
| Three Months Ended |
|
|
| |||||||
|
| October 1, |
| October 2, |
|
|
|
|
| ||
|
| 2006 |
| 2005 |
|
|
|
|
| ||
NET SALES: |
|
|
|
|
|
|
|
|
| ||
Engines |
| $ | 189,596 |
| $ | 285,429 |
|
|
|
|
|
Power Products |
| 186,887 |
| 300,607 |
|
|
|
|
| ||
Inter-Segment Eliminations |
| (38,234 | ) | (74,327 | ) |
|
|
|
| ||
Total |
| $ | 338,249 |
| $ | 511,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
International Sales (included in above) |
|
|
|
|
|
|
|
|
| ||
Engines |
| $ | 77,619 |
| $ | 93,301 |
|
|
|
|
|
Power Products |
| 33,793 |
| 22,236 |
|
|
|
|
| ||
Total |
| $ | 111,412 |
| $ | 115,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
GROSS PROFIT ON SALES: |
|
|
|
|
|
|
|
|
| ||
Engines |
| $ | 24,699 |
| $ | 59,684 |
|
|
|
|
|
Power Products |
| 20,253 |
| 19,504 |
|
|
|
|
| ||
Inter-Segment Eliminations |
| (590 | ) | 2,120 |
|
|
|
|
| ||
Total |
| $ | 44,362 |
| $ | 81,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
INCOME (LOSS) FROM OPERATIONS: |
|
|
|
|
|
|
|
|
| ||
Engines |
| $ | (24,122 | ) | $ | 8,767 |
|
|
|
|
|
Power Products |
| 2,753 |
| 144 |
|
|
|
|
| ||
Inter-Segment Eliminations |
| (590 | ) | 2,120 |
|
|
|
|
| ||
Total |
| $ | (21,959 | ) | $ | 11,031 |
|
|
|
|
|
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, 2006 | January 1, 2006 | December 31, 2006 | January 1, 2006 | |||||||||||||
NET SALES: | ||||||||||||||||
Engines | $ | 279,018 | $ | 380,844 | $ | 468,614 | $ | 666,273 | ||||||||
Power Products | 170,406 | 256,666 | 357,293 | 557,273 | ||||||||||||
Inter-Segment Eliminations | (26,365 | ) | (63,197 | ) | (64,599 | ) | (137,524 | ) | ||||||||
Total | $ | 423,059 | $ | 574,313 | $ | 761,308 | $ | 1,086,022 | ||||||||
GROSS PROFIT ON SALES: | ||||||||||||||||
Engines | $ | 53,428 | $ | 93,505 | $ | 78,127 | $ | 153,189 | ||||||||
Power Products | 13,477 | 26,470 | 33,730 | 45,974 | ||||||||||||
Inter-Segment Eliminations | 459 | (2,623 | ) | (131 | ) | (503 | ) | |||||||||
Total | $ | 67,364 | $ | 117,352 | $ | 111,726 | $ | 198,660 | ||||||||
INCOME (LOSS) FROM OPERATIONS: | ||||||||||||||||
Engines | $ | 6,030 | $ | 35,701 | $ | (18,092 | ) | $ | 44,468 | |||||||
Power Products | (3,978 | ) | 5,552 | (1,225 | ) | 5,696 | ||||||||||
Inter-Segment Eliminations | 459 | (2,623 | ) | (131 | ) | (503 | ) | |||||||||
Total | $ | 2,511 | $ | 38,630 | $ | (19,448 | ) | $ | 49,661 | |||||||
Warranty
Briggs & Stratton 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 the reporting period (in thousands):
| Three Months Ended |
|
|
| |||||||
|
| October 1, |
| October 2, |
|
|
|
|
| ||
|
| 2006 |
| 2005 |
|
|
|
|
| ||
Beginning balance |
| $ | 53,233 |
| $ | 59,625 |
|
|
|
|
|
Payments |
| (9,437 | ) | (9,436 | ) |
|
|
|
| ||
Provision for current year warranties |
| 8,190 |
| 8,609 |
|
|
|
|
| ||
Adjustments to prior years warranties |
| (1,600 | ) | (1,800 | ) |
|
|
|
| ||
Ending balance |
| $ | 50,386 |
| $ | 56,998 |
|
|
|
|
|
Six Months Ended | ||||||||
December 31, 2006 | January 1, 2006 | |||||||
Beginning balance | $ | 53,233 | $ | 59,625 | ||||
Payments | (17,518 | ) | (21,680 | ) | ||||
Provision for current year warranties | 16,756 | 18,302 | ||||||
Adjustments to prior years’ warranties | (2,900 | ) | (5,087 | ) | ||||
Ending balance | $ | 49,571 | $ | 51,160 | ||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Stock based compensation is calculated by estimating the fair value of incentive stock awards granted and amortizing the estimated value over the awards’ vesting period. Stock based compensation expense was $2.8$2.1 million and $2.1$4.9 million for the quartersquarter and six months ended OctoberDecember 31, 2006, respectively. For the quarter and six months ended January 1, 2006, stock based compensation was $2.3 million and October 2, 2005,$4.4 million, respectively.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Pension and Postretirement Benefits
Briggs & Stratton has noncontributory, defined benefit retirement plans and postretirement plans covering certain employees. The following tables summarize the plans’ income and expense for the periods indicated (in thousands):
| Pension Benefits |
| Other Postretirement Benefits |
| |||||||||
|
| Three Months Ended |
| Three Months Ended |
| ||||||||
|
| October 1, |
| October 2, |
| October 1, |
| October 2, |
| ||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
Components of net periodic expense: |
|
|
|
|
|
|
|
|
| ||||
Service cost-benefits earned |
| $ | 3,352 |
| $ | 4,022 |
| $ | 606 |
| $ | 876 |
|
Interest cost on projected benefit obligation |
| 14,512 |
| 13,096 |
| 3,981 |
| 3,827 |
| ||||
Expected return on plan assets |
| (17,010 | ) | (17,205 | ) | - |
| - |
| ||||
Amortization of: |
|
|
|
|
|
|
|
|
| ||||
Transition obligation |
| 2 |
| 2 |
| 12 |
| 11 |
| ||||
Prior service cost |
| 822 |
| 774 |
| (213 | ) | 8 |
| ||||
Actuarial loss |
| 1,381 |
| 2,701 |
| 3,560 |
| 4,035 |
| ||||
Net periodic expense |
| $ | 3,059 |
| $ | 3,390 |
| $ | 7,946 |
| $ | 8,757 |
|
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
December 31, 2006 | January 1, 2006 | December 31, 2006 | January 1, 2006 | |||||||||||||
Components of net periodic expense: | ||||||||||||||||
Service cost-benefits earned | $ | 3,272 | $ | 3,693 | $ | 606 | $ | 639 | ||||||||
Interest cost on projected benefit obligation | 14,484 | 13,202 | 3,981 | 3,686 | ||||||||||||
Expected return on plan assets | (17,099 | ) | (17,294 | ) | — | — | ||||||||||
Amortization of: | ||||||||||||||||
Transition obligation | 2 | 2 | 12 | 12 | ||||||||||||
Prior service cost | 823 | 872 | (213 | ) | (323 | ) | ||||||||||
Actuarial loss | 1,335 | 2,426 | 3,560 | 3,862 | ||||||||||||
Net periodic expense | $ | 2,817 | $ | 2,901 | $ | 7,946 | $ | 7,876 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||||
December 31, 2006 | January 1, 2006 | December 31, 2006 | January 1, 2006 | |||||||||||||
Components of net periodic expense: | ||||||||||||||||
Service cost-benefits earned | $ | 6,624 | $ | 7,715 | $ | 1,212 | $ | 1,515 | ||||||||
Interest cost on projected benefit obligation | 28,996 | 26,298 | 7,962 | 7,513 | ||||||||||||
Expected return on plan assets | (34,109 | ) | (34,499 | ) | — | — | ||||||||||
Amortization of: | ||||||||||||||||
Transition obligation | 4 | 4 | 24 | 23 | ||||||||||||
Prior service cost | 1,645 | 1,646 | (426 | ) | (315 | ) | ||||||||||
Actuarial loss | 2,716 | 5,127 | 7,120 | 7,897 | ||||||||||||
Net periodic expense | $ | 5,876 | $ | 6,291 | $ | 15,892 | $ | 16,633 | ||||||||
Briggs & Stratton is not required to make any contributions to the pension plans in fiscal 2007 and did not make any contributions in fiscal 2006; however, the Company expects to contribute up to $12 million in fiscal 2007 as approved by the Board of Directors. During the first quarter of fiscal 2007,six months ended December 31, 2006, the Company contributed $3.0$8.0 million to the pension plans.
Briggs & Stratton expects to make benefit payments of approximately $1.7 million for its non-qualified pension plans during fiscal 2007. As of October 1,During the six months ended December 31, 2006, Briggs & Stratton had made payments of approximately $0.4$0.7 million for its non-qualified pension plans. Briggs & Stratton anticipates benefit payments of approximately $35.0$35 million for its other postretirement benefit plans during fiscal 2007. As of October 1,During the six months ended December 31, 2006, Briggs & Stratton had made payments of approximately $8.7$17.2 million for its other postretirement benefit plans.
Commitments and Contingencies
Briggs & Stratton is subject to various unresolved legal actions that arise in the normal course of its business. These actions typically relate to product liability (including asbestos-related liability), patent and trademark matters, and disputes with customers, suppliers, distributors and dealers, competitors and employees.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 Briggs & Stratton and other defendants alleging that the horsepower labels on the products they purchased were inaccurate. The plaintiffs have amended their complaint several times and currently seek an injunction, compensatory and punitive damages, and attorneys’ fees under various federalFederal and state laws including the Racketeer Influenced and Corrupt Organization Act on behalf of all persons in the United States who, beginning January 1, 1994 through the present, purchased a lawnmower containing a two-stroke
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
or four-stroke gasoline combustion engine up to 30 horsepower that was manufactured by the defendants. On May 31, 2006, the defendants removed the case to the U.S. District Court for the Southern District of Illinois (No. 06-412-DRH). The defendants subsequently filed crossclaimscross claims against each other for indemnification and contribution and filed a motion to dismiss the amended complaint.
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.
12
In June 1997, Briggs & Stratton issued $100 million of 7.25% senior notes; in May 2001, Briggs & Stratton issued $275 million of 8.875% senior notes; and in February 2005, Briggs & Stratton issued $125 million of variable rate term notes. In addition, Briggs & Stratton has a $350 million revolving credit facility that expires in May 2009 that is 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 the revolving credit agreement (collectively, the “Domestic Indebtedness”), Briggs & Stratton Power Products Group, LLC and its wholly owned subsidiary, Simplicity Manufacturing, Inc., are joint and several guarantors of the Domestic Indebtedness (the “Guarantor”). The guarantees are full and unconditional 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 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):
| October 1, 2006 |
| Maximum |
| |||
|
| Carrying Amount |
| Guarantee |
| ||
|
|
|
|
|
| ||
8.875% Senior Notes, due March 15, 2011 |
| $ | 267,490 |
| $ | 270,000 |
|
|
|
|
|
|
| ||
Variable Rate Term Notes, due February 11, 2008 |
| $ | 35,000 |
| $ | 35,000 |
|
|
|
|
|
|
| ||
7.25% Senior Notes, due September 15, 2007 |
| $ | 81,015 |
| $ | 81,175 |
|
|
|
|
|
|
| ||
Revolving Credit Facility, expiring May 2009 |
| $ | 118,106 |
| $ | 350,000 |
|
December 31, 2006 Carrying Amount | Maximum Guarantee | |||||
8.875% Senior Notes, due March 15, 2011 | $ | 267,630 | $ | 270,000 | ||
Variable Rate Term Notes, due February 11, 2008 | $ | 35,000 | $ | 35,000 | ||
7.25% Senior Notes, due September 15, 2007 | $ | 81,056 | $ | 81,175 | ||
Revolving Credit Facility, expiring May 2009 | $ | 269,725 | $ | 350,000 |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The following condensed supplemental consolidating financial information reflects the summarized financial information of Briggs & Stratton, its Guarantor and Non-Guarantor Subsidiaries (in thousands):
BALANCE SHEET
As of December 31, 2006
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
Current assets | $ | 775,527 | $ | 765,151 | $ | 182,159 | $ | (516,181 | ) | $ | 1,206,656 | |||||
Investment in subsidiaries | 794,621 | — | — | (794,621 | ) | — | ||||||||||
Non-current assets | 440,108 | 440,570 | 30,001 | — | 910,679 | |||||||||||
$ | 2,010,256 | $ | 1,205,721 | $ | 212,160 | $ | (1,310,802 | ) | $ | 2,117,335 | ||||||
Current liabilities | $ | 664,330 | $ | 383,258 | $ | 137,703 | $ | (498,596 | ) | $ | 686,695 | |||||
Long-term debt | 302,630 | — | — | — | 302,630 | |||||||||||
Other long-term obligations | 128,322 | 101,950 | 349 | — | 230,621 | |||||||||||
Shareholders’ investment | 914,974 | 720,513 | 74,108 | (812,206 | ) | 897,389 | ||||||||||
$ | 2,010,256 | $ | 1,205,721 | $ | 212,160 | $ | (1,310,802 | ) | $ | 2,117,335 | ||||||
BALANCE SHEET
As of July 2, 2006
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
Current assets | $ | 536,849 | $ | 694,535 | $ | 191,913 | $ | (391,645 | ) | $ | 1,031,652 | |||||
Investment in subsidiaries | 794,317 | — | — | (794,317 | ) | — | ||||||||||
Non-current assets | 451,150 | 442,853 | 18,545 | — | 912,548 | |||||||||||
$ | 1,782,316 | $ | 1,137,388 | $ | 210,458 | $ | (1,185,962 | ) | $ | 1,944,200 | ||||||
Current liabilities | $ | 265,185 | $ | 317,133 | $ | 137,325 | $ | (376,497 | ) | $ | 343,146 | |||||
Long-term debt | 383,324 | — | — | — | 383,324 | |||||||||||
Other long-term obligations | 131,453 | 98,729 | 342 | — | 230,524 | |||||||||||
Shareholders’ investment | 1,002,354 | 721,526 | 72,791 | (809,465 | ) | 987,206 | ||||||||||
$ | 1,782,316 | $ | 1,137,388 | $ | 210,458 | $ | (1,185,962 | ) | $ | 1,944,200 | ||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
BALANCE SHEETAs of October 1, 2006
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Corporation |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
| $ | 639,422 |
| $ | 654,295 |
| $ | 200,829 |
| $ | (429,526 | ) | $ | 1,065,020 |
|
Investment in subsidiaries |
| 794,601 |
| — |
| — |
| (794,601 | ) | — |
| |||||
Non-current assets |
| 443,390 |
| 440,836 |
| 22,828 |
| — |
| 907,054 |
| |||||
|
| $ | 1,877,413 |
| $ | 1,095,131 |
| $ | 223,657 |
| $ | (1,224,127 | ) | $ | 1,972,074 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
| $ | 516,301 |
| $ | 272,147 |
| $ | 151,740 |
| $ | (412,452 | ) | $ | 527,736 |
|
Long-term debt |
| 302,490 |
| — |
| — |
| — |
| 302,490 |
| |||||
Other long-term obligations |
| 128,931 |
| 99,962 |
| 338 |
| — |
| 229,231 |
| |||||
Shareholders’ investment |
| 929,691 |
| 723,022 |
| 71,579 |
| (811,675 | ) | 912,617 |
| |||||
|
| $ | 1,877,413 |
| $ | 1,095,131 |
| $ | 223,657 |
| $ | (1,224,127 | ) | $ | 1,972,074 |
|
BALANCE SHEETAs of July 2, 2006
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Corporation |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
| $ | 536,849 |
| $ | 694,535 |
| $ | 191,913 |
| $ | (391,645 | ) | $ | 1,031,652 |
|
Investment in subsidiaries |
| 794,317 |
| — |
| — |
| (794,317 | ) | — |
| |||||
Non-current assets |
| 451,150 |
| 442,853 |
| 18,545 |
| — |
| 912,548 |
| |||||
|
| $ | 1,782,316 |
| $ | 1,137,388 |
| $ | 210,458 |
| $ | (1,185,962 | ) | $ | 1,944,200 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
| $ | 265,185 |
| $ | 317,133 |
| $ | 137,325 |
| $ | (376,497 | ) | $ | 343,146 |
|
Long-term debt |
| 383,324 |
| — |
| — |
| — |
| 383,324 |
| |||||
Other long-term obligations |
| 131,453 |
| 98,729 |
| 342 |
| — |
| 230,524 |
| |||||
Shareholders’ investment |
| 1,002,354 |
| 721,526 |
| 72,791 |
| (809,465 | ) | 987,206 |
| |||||
|
| $ | 1,782,316 |
| $ | 1,137,388 |
| $ | 210,458 |
| $ | (1,185,962 | ) | $ | 1,944,200 |
|
STATEMENT OF INCOMEFor the Three Months Ended Octrober 1, 2006
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Corporation |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 180,185 |
| $ | 181,487 |
| $ | 45,985 |
| $ | (69,408 | ) | $ | 338,249 |
|
Cost of goods sold |
| 158,184 |
| 164,524 |
| 38,358 |
| (67,179 | ) | 293,887 |
| |||||
Gross profit |
| 22,001 |
| 16,963 |
| 7,627 |
| (2,229 | ) | 44,362 |
| |||||
Engineering, selling, general and administrative expenses |
| 40,958 |
| 16,794 |
| 8,569 |
| — |
| 66,321 |
| |||||
Income (Loss) from operations |
| (18,957 | ) | 169 |
| (942 | ) | (2,229 | ) | (21,959 | ) | |||||
Interest expense |
| (9,584 | ) | (5 | ) | (70 | ) | 622 |
| (9,037 | ) | |||||
Other income (expense), net |
| 857 |
| 954 |
| (158 | ) | 1,804 |
| 3,457 |
| |||||
Income (Loss) before income taxes |
| (27,684 | ) | 1,118 |
| (1,170 | ) | 197 |
| (27,539 | ) | |||||
Provision (Credit) for income taxes |
| (9,551 | ) | 4 |
| 141 |
| (95 | ) | (9,501 | ) | |||||
Net income (loss) |
| $ | (18,133 | ) | $ | 1,114 |
| $ | (1,311 | ) | $ | 292 |
| $ | (18,038 | ) |
STATEMENT OF INCOME
For the Three Months Ended October 2, 2005December 31, 2006
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Corporation |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 267,041 |
| $ | 297,859 |
| $ | 50,305 |
| $ | (103,496 | ) | $ | 511,709 |
|
Cost of goods sold |
| 214,529 |
| 280,463 |
| 41,540 |
| (106,131 | ) | 430,401 |
| |||||
Gross profit |
| 52,512 |
| 17,396 |
| 8,765 |
| 2,635 |
| 81,308 |
| |||||
Engineering, selling, general and administrative expenses |
| 42,923 |
| 18,289 |
| 9,065 |
| — |
| 70,277 |
| |||||
Income (Loss) from operations |
| 9,589 |
| (893 | ) | (300 | ) | 2,635 |
| 11,031 |
| |||||
Interest expense |
| (11,371 | ) | (14 | ) | (53 | ) | 1,410 |
| (10,028 | ) | |||||
Other income (expense), net |
| 7,711 |
| 1,776 |
| (988 | ) | (2,235 | ) | 6,264 |
| |||||
Income (Loss) before income taxes |
| 5,929 |
| 869 |
| (1,341 | ) | 1,810 |
| 7,267 |
| |||||
Provision for income taxes |
| 2,075 |
| 698 |
| 640 |
| (873 | ) | 2,540 |
| |||||
Net income (loss) |
| $ | 3,854 |
| $ | 171 |
| $ | (1,981 | ) | $ | 2,683 |
| $ | 4,727 |
|
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 270,431 | $ | 166,225 | $ | 47,204 | $ | (60,801 | ) | $ | 423,059 | |||||||||
Cost of goods sold | 223,773 | 154,134 | 37,775 | (59,987 | ) | 355,695 | ||||||||||||||
Gross profit | 46,658 | 12,091 | 9,429 | (814 | ) | 67,364 | ||||||||||||||
Engineering, selling, general and administrative expenses | 40,316 | 16,710 | 7,827 | — | 64,853 | |||||||||||||||
Income (Loss) from operations | 6,342 | (4,619 | ) | 1,602 | (814 | ) | 2,511 | |||||||||||||
Interest expense | (12,587 | ) | (32 | ) | (63 | ) | 853 | (11,829 | ) | |||||||||||
Other income (expense), net | (1,531 | ) | 1,206 | (165 | ) | 1,411 | 921 | |||||||||||||
Income (Loss) before income taxes | (7,776 | ) | (3,445 | ) | 1,374 | 1,450 | (8,397 | ) | ||||||||||||
Provision (Credit) for income taxes | (2,293 | ) | (939 | ) | 318 | 427 | (2,487 | ) | ||||||||||||
Net income (loss) | $ | (5,483 | ) | $ | (2,506 | ) | $ | 1,056 | $ | 1,023 | $ | (5,910 | ) | |||||||
15STATEMENT OF INCOME
For the Six Months Ended December 31, 2006
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 450,616 | $ | 347,712 | $ | 93,189 | $ | (130,209 | ) | $ | 761,308 | |||||||||
Cost of goods sold | 381,957 | 318,658 | 76,133 | (127,166 | ) | 649,582 | ||||||||||||||
Gross profit | 68,659 | 29,054 | 17,056 | (3,043 | ) | 111,726 | ||||||||||||||
Engineering, selling, general and administrative expenses | 81,274 | 33,504 | 16,396 | — | 131,174 | |||||||||||||||
Income (Loss) from operations | (12,615 | ) | (4,450 | ) | 660 | (3,043 | ) | (19,448 | ) | |||||||||||
Interest expense | (22,171 | ) | (37 | ) | (133 | ) | 1,475 | (20,866 | ) | |||||||||||
Other income (expense), net | (674 | ) | 2,160 | (323 | ) | 3,215 | 4,378 | |||||||||||||
Income (Loss) before income taxes | (35,460 | ) | (2,327 | ) | 204 | 1,647 | (35,936 | ) | ||||||||||||
Provision (Credit) for income taxes | (11,844 | ) | (935 | ) | 459 | 332 | (11,988 | ) | ||||||||||||
Net income (loss) | $ | (23,616 | ) | $ | (1,392 | ) | $ | (255 | ) | $ | 1,315 | $ | (23,948 | ) | ||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
INCOME
For the Three Months Ended OctoberJanuary 1, 2006
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Corporation |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net Cash (Used in) Provided by |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Activities |
| $ | (163,547 | ) | $ | 48,656 |
| $ | (2,251 | ) | $ | 8,913 |
| $ | (108,229 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to plant and equipment |
| (7,075 | ) | (2,661 | ) | (4,108 | ) | — |
| (13,844 | ) | |||||
Proceeds received on sale of plant |
|
|
|
|
|
|
|
|
|
|
| |||||
and equipment |
| 223 |
| 31 |
| 8 |
| — |
| 262 |
| |||||
Capital contributions to subsidiary |
| (384 | ) | — |
| (147 | ) | 531 |
| — |
| |||||
Net Cash (Used in) Provided by |
|
|
|
|
|
|
|
|
|
|
| |||||
Investing Activities |
| (7,236 | ) | (2,630 | ) | (4,247 | ) | 531 |
| (13,582 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net borrowings (repayments) on loans and notes payable |
| 169,236 |
| (48,591 | ) | 6,165 |
| (8,432 | ) | 118,378 |
| |||||
Cash dividends paid |
| — |
| — |
| 481 |
| (481 | ) | — |
| |||||
Stock option proceeds and tax benefits |
| 750 |
| — |
| — | �� | — |
| 750 |
| |||||
Treasury stock purchases |
| (48,232 | ) | — |
| — |
| — |
| (48,232 | ) | |||||
Capital contributions received |
| — |
| 383 |
| 148 |
| (531 | ) | — |
| |||||
Net Cash Provided by (Used in) |
|
|
|
|
|
|
|
|
|
|
| |||||
Financing Activities |
| 121,754 |
| (48,208 | ) | 6,794 |
| (9,444 | ) | 70,896 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents |
| — |
| — |
| (6 | ) | — |
| (6 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net (Decrease) Increase in Cash and Cash Equivalents |
| (49,029 | ) | (2,182 | ) | 290 |
| — |
| (50,921 | ) | |||||
Cash and Cash Equivalents, Beginning |
| 57,623 |
| 6,812 |
| 30,656 |
| — |
| 95,091 |
| |||||
Cash and Cash Equivalents, Ending |
| $ | 8,594 |
| $ | 4,630 |
| $ | 30,946 |
| $ | — |
| $ | 44,170 |
|
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 372,267 | $ | 254,327 | $ | 48,315 | $ | (100,596 | ) | $ | 574,313 | |||||||||
Cost of goods sold | 283,960 | 227,466 | 40,457 | (94,922 | ) | 456,961 | ||||||||||||||
Gross profit | 88,307 | 26,861 | 7,858 | (5,674 | ) | 117,352 | ||||||||||||||
Engineering, selling, general and administrative expenses | 50,335 | 20,139 | 8,248 | — | 78,722 | |||||||||||||||
Income (Loss) from operations | 37,972 | 6,722 | (390 | ) | (5,674 | ) | 38,630 | |||||||||||||
Interest expense | (13,380 | ) | (17 | ) | (89 | ) | 2,181 | (11,305 | ) | |||||||||||
Other income (expense), net | 7,097 | 2,411 | (247 | ) | (3,038 | ) | 6,223 | |||||||||||||
Income (Loss) before income taxes | 31,689 | 9,116 | (726 | ) | (6,531 | ) | 33,548 | |||||||||||||
Provision (Credit) for income taxes | 11,091 | 2,503 | (644 | ) | (1,220 | ) | 11,730 | |||||||||||||
Net income (loss) | $ | 20,598 | $ | 6,613 | $ | (82 | ) | $ | (5,311 | ) | $ | 21,818 | ||||||||
STATEMENT OF INCOME
For The Six Months Ended January 1, 2006
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 639,308 | $ | 552,186 | $ | 98,620 | $ | (204,092 | ) | $ | 1,086,022 | |||||||||
Cost of goods sold | 498,489 | 507,929 | 81,997 | (201,053 | ) | 887,362 | ||||||||||||||
Gross profit | 140,819 | 44,257 | 16,623 | (3,039 | ) | 198,660 | ||||||||||||||
Engineering, selling, general and administrative expenses | 93,258 | 38,428 | 17,313 | — | 148,999 | |||||||||||||||
Income (Loss) from operations | 47,561 | 5,829 | (690 | ) | (3,039 | ) | 49,661 | |||||||||||||
Interest expense | (24,751 | ) | (31 | ) | (142 | ) | 3,591 | (21,333 | ) | |||||||||||
Other income (expense), net | 14,808 | 4,187 | (1,235 | ) | (5,273 | ) | 12,487 | |||||||||||||
Income (Loss) before income taxes | 37,618 | 9,985 | (2,067 | ) | (4,721 | ) | 40,815 | |||||||||||||
Provision (Credit) for income taxes | 13,166 | 3,201 | (4 | ) | (2,093 | ) | 14,270 | |||||||||||||
Net income (loss) | $ | 24,452 | $ | 6,784 | $ | (2,063 | ) | $ | (2,628 | ) | $ | 26,545 | ||||||||
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the ThreeSix Months Ended October 2, 2005
| Briggs & Stratton |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Corporation |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net Cash (Used in) Provided by Operating Activities |
| $ | (131,763 | ) | $ | 38,685 |
| $ | (1,598 | ) | $ | 9,542 |
| $ | (85,134 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to plant and equipment |
| (11,457 | ) | (4,094 | ) | (766 | ) | — |
| (16,317 | ) | |||||
Proceeds received on sale of plant and equipment |
| 10,455 |
| 19 |
| — |
| — |
| 10,474 |
| |||||
Refund of cash paid for acquistion |
| — |
| 6,347 |
| — |
| — |
| 6,347 |
| |||||
Capital contributions to subsidiary |
| (383 | ) | — |
| — |
| 383 |
| — |
| |||||
Net Cash (Used in) Provided by Investing Activities |
| (1,385 | ) | 2,272 |
| (766 | ) | 383 |
| 504 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net borrowings (repayments) on loans and notes payable |
| 39,636 |
| (39,547 | ) | 13,731 |
| (9,542 | ) | 4,278 |
| |||||
Stock option proceeds and tax benefits |
| 2,418 |
| — |
| — |
| — |
| 2,418 |
| |||||
Capital contributions received |
| — |
| 383 |
| — |
| (383 | ) | — |
| |||||
Net Cash Provided by (Used in) Financing Activities |
| 42,054 |
| (39,164 | ) | 13,731 |
| (9,925 | ) | 6,696 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents |
| — |
| — |
| 928 |
| — |
| 928 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net (Decrease) Increase in Cash and Cash Equivalents |
| (91,094 | ) | 1,793 |
| 12,295 |
| — |
| (77,006 | ) | |||||
Cash and Cash Equivalents, Beginning |
| 143,034 |
| 6,376 |
| 12,163 |
| — |
| 161,573 |
| |||||
Cash and Cash Equivalents, Ending |
| $ | 51,940 |
| $ | 8,169 |
| $ | 24,458 |
| $ | — |
| $ | 84,567 |
|
December 31, 2006
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net Cash (Used in) Provided by Operating Activities | $ | (284,741 | ) | $ | 44,440 | $ | (13,327 | ) | $ | 12,435 | $ | (241,193 | ) | |||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Additions to plant and equipment | (13,586 | ) | (5,237 | ) | (11,043 | ) | — | (29,866 | ) | |||||||||||
Proceeds received on sale of plant and equipment | 358 | 32 | 52 | — | 442 | |||||||||||||||
Cash investment in subsidiary | (383 | ) | — | (148 | ) | 531 | — | |||||||||||||
Net Cash (Used in) Provided by Investing Activities | (13,611 | ) | (5,205 | ) | (11,139 | ) | 531 | (29,424 | ) | |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Net borrowings (repayments) on loans and notes payable | 311,019 | (38,746 | ) | 9,721 | (11,954 | ) | 270,040 | |||||||||||||
Dividends | (11,267 | ) | — | 481 | (481 | ) | (11,267 | ) | ||||||||||||
Stock option proceeds and tax benefits | 750 | — | — | — | 750 | |||||||||||||||
Treasury stock purchases | (48,232 | ) | — | — | — | (48,232 | ) | |||||||||||||
Capital contributions received | — | 383 | 148 | (531 | ) | — | ||||||||||||||
Net Cash Provided by (Used in) Financing Activities | 252,270 | (38,363 | ) | 10,350 | (12,966 | ) | 211,291 | |||||||||||||
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents | — | — | 828 | — | 828 | |||||||||||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (46,082 | ) | 872 | (13,288 | ) | — | (58,498 | ) | ||||||||||||
Cash and Cash Equivalents, Beginning | 57,623 | 6,812 | 30,656 | — | 95,091 | |||||||||||||||
Cash and Cash Equivalents, Ending | $ | 11,541 | $ | 7,684 | $ | 17,368 | $ | — | $ | 36,593 | ||||||||||
17
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Six Months Ended January 1, 2006
Briggs & Stratton Corporation | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net Cash (Used in) Provided by Operating Activities | $ | (316,529 | ) | $ | 81,152 | $ | (3,264 | ) | $ | 10,713 | $ | (227,928 | ) | |||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Additions to plant and equipment | (23,427 | ) | (8,532 | ) | (2,395 | ) | — | (34,354 | ) | |||||||||||
Proceeds received on sale of plant and equipment | 10,641 | 46 | 9 | — | 10,696 | |||||||||||||||
Cash investment in subsidiary | (382 | ) | — | — | 382 | — | ||||||||||||||
Investment in joint venture | (900 | ) | — | — | — | (900 | ) | |||||||||||||
Refund of cash paid for acquisition | — | 6,347 | — | — | 6,347 | |||||||||||||||
Net Cash (Used in) Provided by Investing Activities | (14,068 | ) | (2,139 | ) | (2,386 | ) | 382 | (18,211 | ) | |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Net borrowings (repayments) on loans and notes payable | 211,655 | (81,771 | ) | 13,445 | (10,712 | ) | 132,617 | |||||||||||||
Dividends | (11,379 | ) | — | — | — | (11,379 | ) | |||||||||||||
Stock option proceeds and tax benefits | 2,418 | — | — | — | 2,418 | |||||||||||||||
Capital contributions received | — | 383 | — | (383 | ) | — | ||||||||||||||
Net Cash Provided by (Used in) Financing Activities | 202,694 | (81,388 | ) | 13,445 | (11,095 | ) | 123,656 | |||||||||||||
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents | — | — | 669 | — | 669 | |||||||||||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (127,903 | ) | (2,375 | ) | 8,464 | — | (121,814 | ) | ||||||||||||
Cash and Cash Equivalents, Beginning | 143,034 | 6,376 | 12,163 | — | 161,573 | |||||||||||||||
Cash and Cash Equivalents, Ending | $ | 15,131 | $ | 4,001 | $ | 20,627 | $ | — | $ | 39,759 | ||||||||||
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 Briggs & Stratton’s financial condition and results of operations for the periods included in the accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
SALES
Consolidated net sales for the firstsecond quarter of fiscal 2007 totaled $338$423 million, a decrease of $173$151 million or 34%26% when compared to the same period the preceding year.
The Engines Segment net sales decrease was $96 million or 34% between years. Lower engine unit shipments of 37% for the first quarter of fiscal 2007 as compared to fiscal 2006 are primarily the result of diminished original equipment manufacturer (“OEM”) demand. The absence of any significant weather related events in the first quarter of fiscal 2007 as compared to 2006 negatively impacted generator sales, which drives the demand for engines used in OEM production of generators. OEM demand for engines to be used in the production of lawn and garden equipment also declined in the fiscal 2007 first quarter as demand in the retail lawn and garden market remained soft as compared to fiscal 2006.
The Power Products SegmentSecond quarter net sales decreased $114for the Engines Segment were $279 million versus $381 million in fiscal 2006, a decrease of $102 million or 38%27%. The decrease in net sales primarily results from a 30% reduction in engine unit shipments in the first quarter of fiscal 2007. Generator sales were down approximately 50% in units or $56 million during the firstsecond quarter of fiscal 2007 as compared to the same period last year. The absence of significant landed hurricanes during fiscal 2007 resulted in lower engine unit shipments to original equipment manufacturers (“OEMs”) for the production of generators. In addition, OEMs of lawn and garden equipment adjusted production schedules to manufacture product closer to the spring selling season, and as a result, some engine shipments shifted to the second half of fiscal 2007.
Second quarter fiscal 2007 Power Products Segment net sales were $170 million, a decrease of $86 million or 34% from fiscal 2006. Demand for generators wasGenerator unit shipments were lower thanby over 60% during the first quarter of fiscal 2006 as there were no landed hurricanes in the current year, whereas fiscal 2006 first quarter results included the impact of two major landed hurricanes. Pressure washer sales decreased 45% in unit volume or $15 million in the firstsecond quarter of fiscal 2007 asdue to the absence of significant landed hurricane activity during fiscal 2007. The reduction in demand for generators accounts for about 20% of the 34% reduction in segment net sales were soft at retailers this season. Lawnduring the quarter. The remainder of the decrease in net sales for the Power Products Segment is attributed to lawn and garden equipment being sold under the Murray brand experiencedbrand. During fiscal 2006, the wind-down of Murray operations was completed, and as a $54result, fiscal 2007 second quarter sales for Murray branded product are lower.
Consolidated net sales for the first six-months of fiscal 2007 totaled $761 million, a decrease inof $325 million or 30%, compared to the first six months of last year.
Engines Segment net sales for the first six-months of fiscal 2007 were $469 million, a decrease of $198 million or 30% from fiscal 2006. Reduced sales during the first quartersix-months of fiscal 2007 as product placementresult from a decline in engine unit shipments of nearly 33%. The reduction in unit shipments was the result of two primary factors, which have led to lower OEM demand for engines. The first factor was the absence of significant landed hurricanes during fiscal 2007, and the second was a shift in OEM production schedules closer to the spring selling season. Consistent with second quarter fiscal 2007 results, these factors negatively impacted both unit volumes and segment net sales.
Power Products Segment net sales volumes at major retailersfor the first six months of fiscal 2007 were lower$357 million versus $557 million in the prior year, a decrease of $200 million or 36%. Unit shipments of generators declined over 50% during the first quartersix-months of fiscal 2007.2007, and the decline in segment net sales associated with generators was approximately 56%. The remaining decline in net sales resulted primarily from a reduction in sales of $82 million in Murray branded product due to the wind-down of operations.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
GROSS PROFIT MARGIN
The consolidated gross profit margin was 13.1% in the firstsecond quarter of fiscal 2007 anddecreased to 15.9% forfrom 20.4% in the same period of the precedinglast year.
Engines Segment margins decreased to 13.0%19.1% in the second quarter of fiscal 2007 from 24.6% in the second quarter of fiscal 2006. The decline in gross profit margins is attributed primarily to the combination of reduced fixed cost absorption associated with lower production levels and higher material costs experienced during the quarter. Decreased engine production was due primarily to diminished engine demand for the production of generators and a program to lower production in an effort to reduce on hand engine inventories. In addition, the increase in the costs of commodities such as aluminum and zinc and other components used to manufacture engines led to higher material costs.
The Power Products Segment gross profit margin decreased to 7.9% for the second quarter of fiscal 2007 from 10.3% in the second quarter of fiscal 2006. Increases in commodity and component costs in the segment coupled with reduced production levels and fixed cost absorption as a result of lower generator sales are the main causes for the gross profit margin decline during the second quarter of fiscal 2007. These negative factors more than offset improved gross profit contributions during the second quarter of fiscal 2007 of $4 million associated with Murray branded product.
The consolidated gross profit margin for the six-month period decreased to 14.7% in fiscal 2007 from 20.9%18.3% in fiscal 2006.
Engines Segment gross profit margin for the six-month period decreased to 16.7% in fiscal 2007 from 23.0% in fiscal 2006. The decrease in margin is attributable to the absence of a $6over $5 million gainin gains recorded on the disposition of operating assets in fiscal 2006 accounts for a portion of the decline in gross profit margin during the first quarterhalf of fiscal 2006 coupled with2007. The remaining decrease in gross profit margin is attributed to increased commodity costs and reduced production levels and fixed cost absorption, in the first quarter of fiscal 2007 as a result ofresulting from lower sales volumes.demand for engines from OEMs.
The Power Products Segment margins for the first quartersix-month period increased from 6.5%to 9.4% in fiscal 2006 to 10.8%2007 from 8.2% in fiscal 2007. Operating losses2006. Negative gross profit in the first quartersix-months of fiscal 2006 associated with the winding down of the Transition Supply Agreementa transition supply agreement with the estate of Murray, Inc. did not occur in the first six-months of fiscal 2007, resulting in favorable gross profit margin contributions of nearly $16 million during the first six-months of fiscal 2007 as compared to the prior year. Increases in gross profit margin associated with Murray branded products were partially offset by increased commodity and component costs along with decreased fixed cost absorption due to decreased generator production.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expenses were $65 million in the second quarter of fiscal 2007.2007, versus $79 million in fiscal 2006. The net change$14 million decrease is attributable largely to a reduction in gross profitlegal and professional services of $5 million and reduced employee costs associated with salaries and benefits expenses of approximately $6 million.
For the Murray branded product from the first quartersix-months of fiscal 20062007 as compared to fiscal 2007 was an increase2006, engineering, selling, general and administrative expenses were $131 million and $149 million, respectively. The $18 million decrease resulted primarily from lower legal and professional services of $7 million and a decline in employee costs associated with salaries and benefits expenses of approximately $12$7 million.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expensesINTEREST EXPENSE
Interest expense was $11.8 million in the firstsecond quarter of fiscal 2007, were $66versus $11.3 million a decrease of $4 million or 6% as compared toin fiscal 2006. The reduced expense in fiscal 2007 is attributed to reduced professional services of $2 million, reduced advertising expense of $1 million,increase resulted from higher variable interest rates between years and various other expense reductions.
INTEREST EXPENSE
higher average borrowings. Interest expense was $9$20.9 million in the first quartersix-months of fiscal 2007, compared to $10versus $21.3 million in the first quarter of fiscal 2006. The decrease is attributable toin interest expense resulted primarily from lower average borrowings during the first quartersix months of fiscal 2007. Average borrowings were lower due2007 as compared to the repayment of $90 million in term notes during the fourth quarter of fiscal 2006.
PROVISION FOR INCOME TAXES
The effective tax rate used infor the firstsecond quarter of fiscal 2007 and fiscal 2006 was 34.5%30% and 35%, respectively. The decrease in the rate in the second quarter of fiscal 2007 as compared to 35.0% forfiscal 2006 resulted from an adjustment in the firstexpected annual effective tax rate recorded in the second quarter of fiscal 2006.2007 due to changes in fiscal 2007 forecasted results. Management estimatesexpects that the effective tax rate will be between 33.0% and 35.0% for the entire fiscal year 2007, whereas the full year rate forwill be in the range of 32% to 34%. For the first six-months of fiscal 2007 and fiscal 2006, the effective tax rate was 32.8%.33.4% and 35.0%, respectively. The estimated rate in the current year is attributable to factors such as forecasted operating earnings expectations,by taxing jurisdiction, anticipated dividend income and foreign tax credit implications.considerations.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the first quartersix-month period of fiscal 2007 was $108$241 million an increase in cash used of $23as compared to $228 million from the first quarter offor fiscal 2006. The increase inlower fiscal 2007 cash used inflows from operating activities inare primarily the first quarter of fiscal 2007 is largely a result of lowerreduced operating results as compared to fiscal 2006 as net income duringearnings for both the first quarter of fiscal 2007 was $23 million lower than fiscal 2006. Decreased salesEngines and product demand in the first quarter of fiscal 2007 as compared to fiscal 2006 also had an impact onPower Products Segments. The reduced operating earnings were partially offset by favorable changes in working capital.capital accounts. During the first quartersix-months of fiscal 2007 changes to working capital accounts including inventory, accounts payable, and accounts receivable resulted in a $26$22 million increase in cash used inflows from operating activities as compared to the first quartersix-months of fiscal 2006. This increase in cash used was offset byThe changes in prepaid expensesinventory accounts and other current assets associated with normal business activity.accounts receivable are a result of the timing of production and shipments to OEMs. The change in accounts payable is due to the timing of payments.
In the first quartersix-month period of fiscal 2007, there was $29 million of cash used infor investing activities was $14as compared to $18 million higher than in fiscal 2006. The increase in the use of cash in the first quarterfor investing activities is primarily a result of fiscal 2007 is attributable primarily to the absence of proceeds on the sale offor a building sale and other operating assetsa refund of $10 million duringacquisition related funds received, both of which occurred in fiscal 2006.2006 but did not repeat in fiscal 2007.
Net cash provided by financing activities was $71$211 million in the first quarter of fiscal 2007 a $64versus $124 million increase from the $7 million net cash provided in fiscal 2006. Net borrowings during the first quarter2006, an increase of fiscal 2007 were $114 million higher as compared to the same period in fiscal 2006.$87 million. The increase in borrowings during fiscal 2007cash provided by financing activities is attributable to theincreased net borrowings of $137 million to fund working capital requirements and to repurchase of1.7 million treasury shares and working capital requirements. Treasury share repurchasesfor approximately $48 million. Dividends of 1.7 million shares or $48$11 million were madepaid during both the first quartersix-months of fiscal 2007 whereas no treasury share repurchases were made in the first quarter of2006 and fiscal 2006.2007.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
Briggs & Stratton has a $350 million revolving credit facility that expires in May 2009. The credit facility is used to fund seasonal working capital requirements and other financing needs. As of the end of the firstsecond quarter of fiscal 2007, $232 million was available underthe unused availability of the revolving credit facility.facility is approximately $80 million. This credit facility and Briggs and Stratton’s other indebtedness contain restrictive covenants as described in Note 8 of the Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K. As of the end of the second quarter of fiscal 2007, Briggs & Stratton was in compliance with these covenants.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
On August 10, 2006, Briggs & Stratton announced its intent to initiate repurchases of up to $120 million of its common stock through open market transactions during fiscal 2007 and fiscal 2008. The timing and amount of actual purchases will depend upon the market price of the stock and certain governing loan covenants. As of November 1, 2006January 31, 2007, approximately $48 million of common stock has been repurchased under this plan.
Management expects cash outflows for capital expenditures to be approximately $80 million in fiscal 2007. These anticipated expenditures provide for continued investment in equipment and new products. In fiscal 2007 and fiscal 2008, a manufacturing facility in Newbern, Tennessee will be established to produce end products for the Power Products Segment. Equipping the Newbern facility is expected to cost between $18 and $22 million of which $6 million is expected to be spent in fiscal 2007 with the remainder spent in the subsequent year. These expenditures will be funded using available cash.
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 our capital requirements for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes since the September 1, 2006, filing of the Company’s Annual Report on Form 10-K.
CONTRACTUAL OBLIGATIONS
There have been no material changes since the September 1, 2006, filing of the Company’s Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in Briggs & Stratton’s critical accounting policies since the September 1, 2006 filing of its Annual Report on Form 10-K. As discussed in our annual report, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S.United States. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the recovery of accounts receivable and inventory reserves, as well as thoseestimates used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, group health insurance and taxation. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and, in some instances, actuarial techniques. Briggs & Stratton re-evaluates these significant factors as facts and circumstances change.
NEW ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes —– an interpretation of FASB Statement No. 109”. Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109 and prescribes a standard methodology for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted. At this time, the impact if any, of adoption of Interpretation 48 on our consolidated financial position is being assessed.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
On September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
and expands disclosures about fair value measurements. SFAS No.157 is effective for fiscal years beginning after November 15, 2007. At this time, the impact of adoption of SFAS No.157 on our consolidated financial position is being assessed.
On September 29, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. Effective for fiscal years ending after December 15, 2006, SFAS No. 158 requires the recognition of a net liability or asset on the balance sheet to reportreflect the funded status of defined benefit pension and other postretirement benefit plans on the balance sheet.plans. Adoption of SFAS No. 158 will be on a prospective basis and is expected to occur during the fourth quarter of the current fiscal year. At this time, the impact of adoption of SFAS No. 158 on our consolidated financial position is being assessed.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This report contains certain 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’sthe Company’s current views and assumptions and involve risks and uncertainties that include, among other things, the 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 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; our customer’s ability to successfully obtain financing; the actions of customers of our OEM customers; actions by potential acquirers of certain OEMs; the impact ofability to bring new competitors in the market;productive capacity on line efficiently and with good quality; the ability to successfully realize the maximum market value of acquired assets;assets that may require disposal if products or production methods change; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; 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 CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 1, 2006, filing of the Company’s Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Briggs & Stratton’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Briggs & Stratton’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, Briggs & Stratton’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 Briggs & Stratton in the reports that it files or submits under the Exchange Act.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
There has not been any change in Briggs & Stratton’s internal control over financial reporting during the firstsecond fiscal quarter that has materially affected, or is reasonably likely to materially affect, Briggs & Stratton’s internal control over financial reporting.
22
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
A discussion of legal proceedings is included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q under the heading Commitments and Contingencies and incorporated herein by reference.
See “Risk Factors” in Item 1A of the Company’s annual report on Form 10-K for the year ended July 2, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
| Total Number of |
| Maximum |
| |||
|
| Total Number |
| Average Price |
| Shares Purchased |
| Dollars That May |
| ||
|
| of Shares |
| Paid per Share (2) |
| As Part of Publicly |
| Be Spent Under |
| ||
2007 Fiscal Month |
| Purchased (1) |
|
|
| Announced Plans (3) |
| the Plan (3) |
| ||
|
|
|
|
|
|
|
|
|
| ||
July 3, 2006 to July 30, 2006 |
| - |
| $ | - |
| - |
| $ | - |
|
July 31, 2006 to August 27, 2006 |
| 369,200 |
| 28.41 |
| 369,200 |
| 109,511,495 |
| ||
August 28, 2006 to October 1, 2006 |
| 1,364,000 |
| 27.67 |
| 1,364,000 |
| 71,768,003 |
| ||
Total First Quarter |
| 1,733,200 |
| $ | 27.83 |
| 1,733,200 |
|
|
| |
(1) All share repurchases were effected in accordance with the safe harbor provisions of Rule 10-b-18 of the Securities Exchange Act.
(2) Briggs & Stratton repurchased shares in open market transactions.
(3) On August 10, 2006, Briggs & Stratton announced its intent to initiate repurchases of up to $120 million of its common stock through open market transactions over the next 18 months. The timing and amount of purchases is dependent upon the market price of the stock and certain governing loan covenants. As of November 1, 2006, approximately $48 million of common stock has been repurchased under this plan.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At theThe Company held its Annual Meeting of Shareholders on October 18, 2006, director nominees named below were elected to a three-year term expiring in 2009 by2006. Information on the indicatedmatters voted upon and the votes cast for and withheld with respect to each nominee.matter was previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2006.
Name of Nominee |
| For |
| Withheld |
|
Robert J. O’Toole |
| 46,151,031 |
| 376,864 |
|
John S. Shiely |
| 46,041,628 |
| 486,268 |
|
Charles I. Story |
| 46,085,595 |
| 442,301 |
|
Directors whose terms of office continue past the Annual Meeting of Shareholders are:
William F. Achtmeyer, Michael E. Batten, David L. Burner, Mary K. Bush, and Brian C. Walker.
The Board of Directors of Briggs & Stratton Corporation has unanimously elected Keith R. McLoughlin a director of the company effective January 17, 2007. Mr. McLoughlin succeeds Jay H. Baker, who recently
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
retired from the Board, and will serve as a member of the class of directors whose terms of office expire in 2008.
Shareholders ratified the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm. The vote was 46,320,986 for the proposal, 84,821 against, with 122,088 abstentions.
Shareholders ratified the Rights Agreement as amended by the Board of Directors on August 9, 2006. The vote was 27,459,419 for the proposal, 11,471,262 against, with 604,395 abstentions.
Briggs & Stratton is in the process of investing up to $20 million to establish an engine assembly plant in Europe to better serve the European market. The plant is planned to be operational by the beginning of calendar year 2007, and Briggs & Stratton anticipates assembling up to 250,000 engines at the facility during fiscal 2007. The plant will ultimately have assembly capacity of up to one million engines.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Exhibit Number |
| ||||
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 | ||||
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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)
BRIGGS & STRATTON CORPORATION | |||
(Registrant) | |||
Date: | /s/ James E. Brenn | ||
James E. Brenn | |||
Senior Vice President and Chief Financial Officer and | |||
Duly Authorized Officer |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Exhibit Number |
| ||||
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 | ||||
|
27