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 March 31,September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1370
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BRIGGS & STRATTON CORPORATION
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(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
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(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(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
--- -------- -----
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 May 8,November 7, 1996
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COMMON STOCK, par value $0.01 per share 28,927,000 Shares
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31,September 29, 1996, July 2, 1995June 30, 1996 and
April 2,October 1, 1995 3
Consolidated Condensed Statements of IncomeEarnings -
Three Months and Nine Months Ended March 31,September 29, 1996
and April 2,October 1, 1995 4
Consolidated Condensed Statements of Cash FlowsFlow -
NineThree Months Ended March 31,September 29, 1996 and
April 2,October 1, 1995 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 910
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
ASSETS
March 31 July 2 April 2ASSETS
Sept. 29 June 30 Oct. 1
1996 1996 1995
1995--------- -------- ------ ----------------
CURRENT ASSETS: (Unaudited) (Unaudited)
Cash and cash equivalents $ 59,158 $170,648 $114,24759,520 $150,639 $ 37,019
Short-term investments 15,183 - -
Receivables, net 273,310 94,116 265,432105,179 119,346 118,098
Inventories -
Finished products and parts 94,840 96,540 87,881164,563 96,078 157,873
Work in process 31,206 40,107 34,77347,127 36,932 42,035
Raw materials 4,229 4,027 3,8635,240 4,393 5,257
-------- -------- --------
Total inventories 130,275 140,674 126,517216,930 137,403 205,165
Future income tax benefits 34,964 31,376 34,47929,339 29,589 30,599
Prepaid expenses 14,539 16,516 13,74617,938 19,410 15,182
-------- -------- --------
Total current assets 512,246 453,330 554,421444,089 456,387 406,063
PREPAID PENSION COST 1,8984,612 4,682 - 12,406
DEFERRED INCOME TAX ASSET 5,907 1,866 -3,595 2,883 4,076
PLANT AND EQUIPMENT -
Cost 769,731 726,331 670,867788,552 776,638 751,496
Less - Accumulated depreciation and
unamortized investment tax credit 395,212 383,034 376,472411,498 402,426 384,976
-------- -------- --------
Total plant and equipment, net 374,519 343,297 294,395377,054 374,212 366,520
-------- -------- --------
$894,570 $798,493 $861,222$829,350 $838,164 $776,659
======== ======== ========
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 72,99657,220 $ 63,91365,642 $ 80,24860,672
Domestic notes payable 5,000 5,000 10,000 6,750 1,750
Foreign loans 23,959 19,653 24,76414,294 14,922 17,513
Current maturities on long-term debt 15,000 15,000 -
Accrued liabilities 104,504 108,817 129,93090,887 82,932 90,729
Dividends payable 7,5217,810 - 7,2327,521
Federal and state income taxes 31,611 (1,878) 21,4873,619 6,683 (2,108)
-------- -------- --------
Total current liabilities 250,591 197,255 265,411
DEFERRED INCOME TAX LIABILITY - - 7,383193,830 190,179 184,327
ACCRUED EMPLOYEE BENEFITS 17,676 16,447 15,96618,944 18,431 16,851
ACCRUED PENSION COST - 1,606 - 2,021
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION 69,577 68,707 63,56669,185 69,049 69,615
LONG-TERM DEBT 75,000 75,00060,000 60,000 75,000
SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000,000 shares, $.01 par value
Issued and outstanding 28,927,000 shares 289 289 289
Additional paid-in capital 41,001 41,698 41,77540,818 40,898 41,672
Retained earnings 440,914 397,627 392,521446,594 459,666 386,806
Cumulative translation adjustments (478) (136) (689)(310) (348) 78
-------- -------- --------
Total shareholders' investment 481,726 439,478 433,896487,391 500,505 428,845
-------- -------- --------
$894,570 $798,493 $861,222$829,350 $838,164 $776,659
======== ======== ========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOMEEARNINGS
(In thousands of dollars except amounts per share)
(Unaudited)
Three MonthsFirst Quarter Ended
Nine Months Ended
------------------ ------------------
March 31 April 2 March 31 April 2
1996 1995-----------------------
Sept. 29 Oct. 1
1996 1995
-------- ------- --------
-------
NET SALES $460,201 $450,163 $979,035 $1,044,725$161,731 $189,477
COST OF GOODS SOLD 356,119 344,725 790,049 815,964143,762 170,336
-------- -------- -------- ----------
Gross profit on sales $104,082 $105,438 $188,986 $ 228,76117,969 $ 19,141
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 30,055 27,742 79,339 76,71526,061 24,483
-------- --------
-------- ----------
IncomeLoss from operations $ 74,027(8,092) $ 77,696 $109,647 $ 152,046(5,342)
INTEREST EXPENSE (2,879) (2,195) (7,855) (6,407)(1,952) (2,057)
OTHER INCOME, net 1,798 2,100 4,418 5,9591,562 2,079
-------- --------
-------- ----------
IncomeLoss before provisioncredit
for income taxes $ 72,946(8,482) $ 77,601 $106,210 $ 151,598
PROVISION(5,320)
CREDIT FOR INCOME TAXES 27,720 30,270 40,360 59,130(3,220) (2,020)
-------- --------
-------- ----------
Net incomeloss $ 45,226(5,262) $ 47,331 $ 65,850 $ 92,468(3,300)
======== ======== ======== ==========
PER SHARE DATA* -
Net incomeloss $ 1.57(.18) $ 1.64 $ 2.28 $ 3.20
====== ======(.11)
====== ======
Cash dividends $ .26.27 $ .25 $ .78 $ .73
====== ======.26
====== ======
* Based on 28,927,000 shares outstanding.
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSFLOW
Increase(Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
(Unaudited)
Nine MonthsFirst Quarter Ended
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: March 31,Sept. 29, 1996 April 2,Oct. 1, 1995
-------------- -------------------------
Net incomeloss $ 65,850(5,262) $ 92,468(3,300)
Adjustments to reconcile net incomeloss to
net cash provided by operating activities -
Depreciation 31,704 33,84810,698 9,882
Loss on disposition of plant and equipment 1,318 608515 353
(Increase)decrease in operating assets -
Accounts receivable (179,194) (160,191)14,167 (23,982)
Inventories 10,399 (48,596)(79,527) (64,491)
Other current assets (1,611) (5,053)1,722 2,111
Other assets (5,939) 1,252(642) (2,210)
Increase(decrease) in liabilities -
Accounts payable and accrued
liabilities 45,780 59,8254,279 (14,038)
Other liabilities 493 (2,004)649 1,727
--------- ---------
Net cash used byin
operating activities $ (31,200)(53,401) $ (27,843)(93,948)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment $ (65,341)(14,171) $ (70,709)(33,684)
Proceeds received on sale of plant and equipment 1,006 2,075
Decrease in cash due to spin-off129 188
Purchase of lock businessshort-term investments (15,183) - (174)
--------- ---------
Net cash used in investing activities $ (64,335)(29,225) $ (68,808)(33,496)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowingsborrowings(repayments) from domestic and
foreign loans $ 7,556(628) $ 12,1911,110
Dividends (22,563) (21,117)(7,810) (7,521)
Purchase of common stock for treasury (1,032) (784)(120) (40)
Proceeds from exercise of stock options 335 34540 14
--------- ---------
Net cash used byin financing activities $ (15,704)(8,518) $ (9,365)(6,437)
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS $ (251)25 $ (838)252
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS $(111,490) $(106,854)$ (91,119) $(133,629)
CASH AND CASH EQUIVALENTS, beginning 150,639 170,648 221,101
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 59,15859,520 $ 114,24737,019
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 7,9051,952 $ 6,3512,128
========= =========
Income taxes paid $ 15,795422 $ 53,271797
========= =========
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)
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, 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. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
DuringThe short-term investments caption represents money market mutual fund
investments that can be readily purchased or sold using established markets.
These investments are stated at cost plus accrued income which equals market
value.
The sale of the secondCompany's Menomonee Falls, Wisconsin facility for $16.3
million was completed just after the first fiscal quarter ended. The
provisions of fiscal 1996,the contract state that the Company recorded a change
in an accounting estimate originally made in the last quarter of fiscal 1995.
During the last quarter of fiscal 1995, a charge totaling $19,059,000 was added
to pension and postretirement health care expenses to reflect the costs of
early retirement windows that were offered and accepted at the end of fiscal
1995. In October 1995, when the retirements were to occur, a number of those
employees who had accepted the offer canceled their acceptance, and thus a
credit totaling $3,477,000 was recorded as a change in the original accounting
estimate.
The Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation" in October 1995, which establishes
financial accounting and reporting standards for stock-based employee
compensation. The Company plans to adopt only the pro forma disclosure
requirements of this statement, and will continue to applyown and
occupy the accountingwarehouse portion of the facility for a period of up to ten years
(the "Reservation Period"). The contract also contains a buyout clause, at the
buyer's option, of the remaining Reservation Period under certain
circumstances. Given the provisions of APB Opinion No. 25 to stock-based employee compensation
arrangements, as is allowed by the statement. This disclosurecontract, the Company will be
effectiverequired to account for this as a financing transaction and, therefore, any
cash received will be reflected as a liability and the financial statements ending in June 1997.net book value of the
facility will continue to be shown as an asset with depreciation expense
recorded each period. Imputed interest expense will be recorded and added to
the deferred liability. Offsetting this will be fair value imputed lease
income on the manufacturing portion of the facility. The pre-tax gain, which
will be recognized at the earlier of the exercise of the buyout option or the
expiration of the Reservation Period, is estimated to be $10 million to $12
million.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's results of operations and
financial condition during the periods included in the accompanying
consolidated condensed financial statements.
RESULTS OF OPERATIONS
SALES
Net salesSales for the thirdfirst fiscal quarter ending in September 1996 were 15% or
$27,746,000 lower than in the same period of fiscal 1996 increased 2% or
$10,038,000.the preceding year. The primary
reason for this decline in dollars was a 20% decrease in engine units shipped.
This was the net resultcaused by customers planning to schedule their production of lawn and
garden equipment later this year than last year. Partially offsetting this
decrease was a $26,420,000 increase in engine
sales, partially offset by the lack of lock salessmall improvement in the current quarter in the
amount of $16,382,000 included in last year's third quarter before that
business was spun off to shareholders at the end of February 1995. The
increase in engine sales was due to a 9% increase in engine unit shipments
which occurred in the Company's lower selling price small engine line. Larger
engine unit sales remained steady between years. The largest portion of this
increase was in the domestic market, although the export markets had small
improvements. Service sales showed a decline in the current year.
Net sales for the nine months ended March 1996 decreased 6% to
$979,035,000. This decrease is almost entirely attributable to the absence of
lock sales in the current year. Total engine units sold, however, showed a 3%
decrease. There was not a corresponding sales dollar decrease because there
were larger decreases in salesand mix ratio of the Company's lower selling price engines
than higher selling price engines. Decreases in the domestic market and in
service sales were offset by increases in export markets.sold.
GROSS PROFIT
Gross profit decreased 1% or $1,356,000 between comparable third
quarter periods.
The gross profit rate decreased less than 1%. Gross profit
was generated from the net increase in sales; small reductionsincreased to 11% in the costcurrent fiscal year from 10%
last year principally due to lower new plant start-up costs this year. The
amount of
aluminum, the major raw material used in the manufacture of engines; and lower
profit sharing accruals. The favorable effect of these items was offset by the
expected costs associated with the transition to new plants and the spreading
of fixed costs over fewer engines produced.
Nine-month gross profit decreased 17%,6% or $39,775,000. The gross
profit rate$1,172,000 between years because of
reduced sales.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased 6% or $1,578,000 between years. This was due to
increases in salaries and planned increases in manpower and other costs
relating to new venture activities. Partially offsetting this was a reduction
in marketing costs due to timing during the year.
INTEREST EXPENSE
Interest expense decreased from 22%$105,000 between years due to lower borrowings
offset, in the previous year to 19% in the current year.
The same factors described above were in effect except that lower sales had a
negative impact over the nine-month period. There was also the absence of
gross profit related to the spun-off lock business.part, by higher average interest rates.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased $2,313,000 or 8% between comparable quarters.
This was due to planned increases in manpower costs related to the Company's
service operations and increases in professional services, offset in part by
reduced profit sharing accruals and the lack of engineering and selling
expenses from the spun-off lock business.
The 3% increase in the nine-month comparison is also due to the factors
described above.
INTEREST EXPENSE
Interest expense for the third fiscal quarter increased 31% over the
comparable period in the preceding year. The nine- month amount increased 23%.
These increases were the result of the use of domestic short-term borrowing to
finance increases in accounts receivable and inventories. Substantially all of
the current year domestic borrowings were paid off by the end of the quarter.
The preceding year had a minimal amount of short-term borrowing.
OTHER INCOME
This category decreased between years$517,000 or 25% because of increases in bothlosses on
the quarterlydisposition of plant and nine-month comparisons. These decreases were caused by a reduction in
investable funds during the current year for the same reasons described in
Interest Expense.equipment and reduced equity income on joint
ventures.
PROVISION FOR INCOME TAXES
The effective tax rate used forin both the quarter and nine-month periodsyears was 38%38.0%. This rate is
management's estimate of what the rate will be for the entire fiscal year.
OUTLOOK
A late springThe sale of the Company's Menomonee Falls, Wisconsin plant was completed
just after the quarter ended. Because the Company retains an interest in the
eastern halfwarehouse portion of the United States has cloudedfacility, the gain on the sale will be postponed until
this interest ends. The majority of the expense of moving the Menomonee Falls
manufacturing operations to available space in the Company's Wauwatosa plant
will be recognized in the second quarter and should not significantly affect
the results of operations.
The outlook is little changed from that previously reported. Many
retailers have made their sourcing decisions for the fourth quarter. Incoming season; management
knows of no changes that will have a significant effect on the few placesbusiness.
Management is concerned that, have enjoyed warm, wet
weather,despite good late season retail sales,
inventories are somewhat higher than they were a year ago. Nevertheless, they
continue to believe that, if the weather cooperates, the Company should have a
good year.
The Company will offer a final early retirement window in late fiscal
1997, in accordance with the union contract with its Milwaukee hourly
employees. It is unknown how many employees will accept this offer. All
elections under this window must be completed in June 1997. If all eligible
employees elect to take this window, the charge to earnings could total a
maximum of outdoor power equipment have been good, which is
encouraging. Where winter has refused to make a timely departure, retail sales
have been poor, which is what would be expected. The question for which an
answer is awaited: Will warm weather return$53 million before consumers decide to
postpone purchases until next spring? Until this question is answered, no
predictiontaxes.
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments decreased $75,936,000
since the end of fourth quarter results can be made. Company management believes
that earnings for the full year will be lower than for lastprevious fiscal year. This normal seasonal use of
available funds and the amounts generated from depreciation and the decrease in
accounts receivable financed the $79,527,000 increase in inventories and
$14,171,000 in capital expenditures.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
FINANCIAL CONDITION
Cash and cash equivalents decreased $111,490,000 since the endThe increase in inventories is a result of the previous fiscal year. This reductionCompany's maintenance of a
stable rate of production in cash andanticipation of a strong demand which is expected
to occur in the increase in accounts
payable and accrued liabilities were used to finance the $179,194,000 seasonal
increase in accounts receivable, capital expenditures totaling $65,341,000, and
the payment of dividends totaling $22,563,000.
Inventories decreased $10,399,000 since the endsecond half of the fiscal year. The high levelCompany management believes
that the fiscal year-end inventory levels will be similar to the preceding
year. Accounts receivable decreased because of finished goods inventories carried during most of fiscal 1996
was reduced by shipments late in the third fiscal quarter.
A major part of the $65,341,000 in capital expenditures during the
first nine months oflower sales.
Additions to plant and equipment are $19,513,000 less than last fiscal
year 1996 was for previously announced projects
involvingat this time. This reduction is because the preceding year included the
completion of construction of three new engine plants, plant expansions and a
foundrynew foundry. Management expects capital expenditures for reinvestment in
equipment and plant expansions. These
projects were substantially completed duringnew products to total approximately $65,000,000 in the December quartercurrent
fiscal year--all to be financed from internal resources and manufacturing operations have begun at these locations.the Company's lines
of credit.
The Company plans to
spend approximatelywill make the first of five annual installments on its
long-term debt in June 1997. These payments will total $15,000,000 and are
shown as Current Maturities on additional capital expenditures duringLong-Term Debt in the final fiscal quarter.accompanying balance
sheet.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in thisthe Outlook section of Management's Discussion and
Analysis and the Notes to Consolidated Condensed Financial Statements may
contain forward-looking information (as defined in the Private Securities
Litigation Reform Act of 1995) that involveinvolves risk and uncertainty. The words
"anticipate", "believe", "estimate", "expect", "objective", and "think" or
similar expressions are intended to identify forward-looking statements.
Company results may differ materially from those projected in the
forward-looking statements. Any forward-looking statements are based on
management's current views and assumptions and involve risks and uncertainties
that could significantly affect final results. These uncertainties could
include, among other things, the effects of weather; actions of competitors;
changes in laws and regulations, including accounting standards; customer
demand; prices of purchased raw materials and parts; domestic economic
conditions;conditions, including housing starts;starts and changes in consumer disposable income;
and foreign economic conditions, including currency rate fluctuations. Some or
all of the factors are beyond the Company's control.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 16, 1996, the only item
of business was the election of directors.
(a) Election of three directors:
The following schedule indicates the votes cast for and withheld with
respect to each nominee for director.
Name of Nominee* For Withheld
---------------- --- --------
Michael E. Batten 25,199,586 438,987
Robert H. Eldridge 25,226,151 412,422
Peter A. Georgescu 25,225,842 412,731
*Nominees were elected to a three-year term expiring in 1999.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
Directors whose terms of office continue past the Annual Meeting of
Shareholders include: John L. Murray, Clarence B. Rogers, Jr., John S.
Shiely, Charles I. Story, Frederick P. Stratton, Jr. and Elwin J. Zarwell.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------- -----------
11 Computation of Earnings Per Share of Common Stock
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
(b) Reports on Form 8-K.
There were no reportsOn August 7, 1996, the Company filed a report on Form 8-K regarding (as
disclosed in Item 5. thereof) the declaration of a dividend of one common share
purchased right for each outstanding share of common stock and the third quarter ended March 31,
1996.entering into
of a Rights Agreement on August 7, 1996 with the Firstar Trust Company.
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: May 8,November 7, 1996 /s/ R. H. Eldridge
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R. H. Eldridge
Executive Vice President & Chief Financial
Officer, Secretary-Treasurer
Date: May 8,November 7, 1996 /s/ J. E. Brenn
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J. E. Brenn
Vice President and Controller
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