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
For the quarterly period ended April 2, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1370
BRIGGS & STRATTON CORPORATION | ||
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(Exact name of registrant as specified in its charter) | ||
| ||
Wisconsin |
| 39-0182330 |
------------------------------------------------------------------------------------------------------------------------------------------------ | ||
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
|
|
|
12301 West Wirth Street, Wauwatosa, Wisconsin 53222 | ||
------------------------------------------------------------------------------------------------------------------------------------------------ | ||
(Address of Principal Executive Offices) (Zip Code) | ||
|
|
|
414/259-5333 | ||
------------------------------------------------------------------------------------------------------------------------------------------------ | ||
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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):
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
|
| Outstanding at |
COMMON STOCK, par value $0.01 per share |
|
|
| 51,139,960 Shares |
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
|
| April 2, |
|
| July 3, |
|
| ||
|
| 2006 |
|
| 2005 |
|
| ||
|
| (Unaudited) |
|
|
|
|
| ||
CURRENT ASSETS: |
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 63,515 |
|
| $ | 161,573 |
|
|
Accounts receivable, net |
| 435,765 |
|
| 360,786 |
|
| ||
Inventories - |
|
|
|
|
|
|
| ||
Finished products and parts |
| 384,439 |
|
| 283,405 |
|
| ||
Work in process |
| 199,774 |
|
| 174,648 |
|
| ||
Raw materials |
| 9,586 |
|
| 11,612 |
|
| ||
Total inventories |
| 593,799 |
|
| 469,665 |
|
| ||
Deferred income tax asset |
| 96,181 |
|
| 92,251 |
|
| ||
Prepaid expenses and other current assets |
| 24,932 |
|
| 34,930 |
|
| ||
Total current assets |
| 1,214,192 |
|
| 1,119,205 |
|
| ||
|
|
|
|
|
|
|
| ||
OTHER ASSETS: |
|
|
|
|
|
|
| ||
Goodwill |
| 253,663 |
|
| 253,663 |
|
| ||
Investments |
| 48,554 |
|
| 49,783 |
|
| ||
Deferred loan costs, net |
| 4,860 |
|
| 6,016 |
|
| ||
Other intangible assets, net |
| 95,058 |
|
| 96,445 |
|
| ||
Other long-term assets, net |
| 29,195 |
|
| 26,601 |
|
| ||
Total other assets |
| 431,330 |
|
| 432,508 |
|
| ||
|
|
|
|
|
|
|
| ||
PLANT AND EQUIPMENT: |
|
|
|
|
|
|
| ||
Cost |
| 1,031,310 |
|
| 1,005,644 |
|
| ||
Less - accumulated depreciation |
| 593,922 |
|
| 558,389 |
|
| ||
Total plant and equipment, net |
| 437,388 |
|
| 447,255 |
|
| ||
|
| $ | 2,082,910 |
|
| $ | 1,998,968 |
|
|
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
|
| April 2, |
|
| July 3, |
|
| ||
|
| 2006 |
|
| 2005 |
|
| ||
|
| (Unaudited) |
|
|
|
|
| ||
CURRENT LIABILITIES: |
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 169,606 |
|
| $ | 155,973 |
|
|
Accrued liabilities |
| 212,144 |
|
| 196,252 |
|
| ||
Dividends payable |
| 11,310 |
|
| - |
|
| ||
Current maturity of long-term debt |
| 40,000 |
|
| - |
|
| ||
Short-term debt |
| 3,032 |
|
| 443 |
|
| ||
Total current liabilities |
| 436,092 |
|
| 352,668 |
|
| ||
|
|
|
|
|
|
|
| ||
OTHER LIABILITIES: |
|
|
|
|
|
|
| ||
Long-term debt |
| 441,940 |
|
| 486,321 |
|
| ||
Deferred income tax liability |
| 103,604 |
|
| 113,794 |
|
| ||
Accrued pension cost |
| 56,049 |
|
| 47,944 |
|
| ||
Accrued employee benefits |
| 16,034 |
|
| 15,125 |
|
| ||
Accrued postretirement health care obligation |
| 82,619 |
|
| 77,607 |
|
| ||
Other long-term liabilities |
| 15,608 |
|
| 16,323 |
|
| ||
Total other liabilities |
| 715,854 |
|
| 757,114 |
|
| ||
|
|
|
|
|
|
|
| ||
SHAREHOLDERS’ INVESTMENT: |
|
|
|
|
|
|
| ||
Common stock - |
|
|
|
|
|
|
| ||
Authorized 120,000 shares, $.01 par value, issued 57,854 shares |
| 579 |
|
| 579 |
|
| ||
Additional paid-in capital |
| 64,165 |
|
| 55,793 |
|
| ||
Retained earnings |
| 1,081,839 |
|
| 1,029,329 |
|
| ||
Accumulated other comprehensive loss |
| (49,102 | ) |
| (48,331 | ) |
| ||
Unearned compensation on restricted stock |
| (2,814 | ) |
| (1,985 | ) |
| ||
Treasury stock at cost, 6,493 and 6,114 shares, respectively |
| (163,703 | ) |
| (146,199 | ) |
| ||
Total shareholders’ investment |
| 930,964 |
|
| 889,186 |
|
| ||
|
| $ | 2,082,910 |
|
| $ | 1,998,968 |
|
|
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)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| ||||||||||
|
| April 2, |
|
| March 27, |
|
| April 2, |
|
| March 27, |
|
| ||||
|
| 2006 |
|
| 2005 |
|
| 2006 |
|
| 2005 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NET SALES |
| $ | 800,194 |
|
| $ | 840,463 |
|
| $ | 1,886,216 |
|
| $ | 1,783,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
COST OF GOODS SOLD |
| 619,261 |
|
| 674,735 |
|
| 1,506,623 |
|
| 1,440,470 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross profit on sales |
| 180,933 |
|
| 165,728 |
|
| 379,593 |
|
| 342,688 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
| 82,743 |
|
| 68,244 |
|
| 231,742 |
|
| 228,862 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
| 98,190 |
|
| 97,484 |
|
| 147,851 |
|
| 113,826 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
INTEREST EXPENSE |
| (10,893 | ) |
| (10,240 | ) |
| (32,226 | ) |
| (27,154 | ) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
OTHER INCOME, net |
| 1,508 |
|
| 4,930 |
|
| 13,995 |
|
| 13,944 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before provision for income taxes |
| 88,805 |
|
| 92,174 |
|
| 129,620 |
|
| 100,616 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
PROVISION FOR INCOME TAXES |
| 28,797 |
|
| 31,350 |
|
| 43,067 |
|
| 34,220 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before extraordinary item |
| 60,008 |
|
| 60,824 |
|
| 86,553 |
|
| 66,396 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
EXTRAORDINARY GAIN - NEGATIVE GOODWILL |
| - |
|
| 19,800 |
|
| - |
|
| 19,800 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME |
| $ | 60,008 |
|
| $ | 80,624 |
|
| $ | 86,553 |
|
| $ | 86,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
EARNINGS PER SHARE DATA - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average shares outstanding |
| 51,478 |
|
| 51,194 |
|
| 51,633 |
|
| 51,428 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before extraordinary item |
| $ | 1.17 |
|
| $ | 1.19 |
|
| $ | 1.68 |
|
| $ | 1.29 |
|
|
Extraordinary gain |
| - |
|
| 0.38 |
|
| - |
|
| 0.38 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
| $ | 1.17 |
|
| $ | 1.57 |
|
| $ | 1.68 |
|
| $ | 1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted average shares outstanding |
| 51,561 |
|
| 51,710 |
|
| 51,730 |
|
| 51,964 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before extraordinary item |
| $ | 1.16 |
|
| $ | 1.18 |
|
| $ | 1.67 |
|
| $ | 1.28 |
|
|
Extraordinary gain |
| - |
|
| 0.38 |
|
| - |
|
| 0.38 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per share |
| $ | 1.16 |
|
| $ | 1.56 |
|
| $ | 1.67 |
|
| $ | 1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
CASH DIVIDENDS PER SHARE |
| $ | 0.22 |
|
| $ | 0.17 |
|
| $ | 0.66 |
|
| $ | 0.51 |
|
|
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)
|
| Nine Months Ended |
|
| |||||
|
| April 2, |
|
| March 27, |
|
| ||
|
| 2006 |
|
| 2005 |
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
| ||
Net income |
| $ | 86,553 |
|
| $ | 86,196 |
|
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
| ||
Extraordinary gain |
| - |
|
| (19,800 | ) |
| ||
Depreciation and amortization |
| 57,389 |
|
| 53,578 |
|
| ||
Earnings of unconsolidated affiliates, net of dividends |
| 811 |
|
| 5,437 |
|
| ||
(Gain) Loss on disposition of plant and equipment |
| (5,267 | ) |
| 1,922 |
|
| ||
Provision for deferred income taxes |
| (14,120 | ) |
| (15,428 | ) |
| ||
Change in bad debt allowance |
| (320 | ) |
| 38,916 |
|
| ||
Stock compensation expense |
| 6,463 |
|
| 604 |
|
| ||
Change in operating assets and liabilities: |
|
|
|
|
|
|
| ||
Increase in receivables |
| (74,659 | ) |
| (176,766 | ) |
| ||
Increase in inventories |
| (124,134 | ) |
| (49,996 | ) |
| ||
(Increase) Decrease in prepaid expenses and other current assets |
| (673 | ) |
| 5,960 |
|
| ||
Increase in accounts payable, accrued liabilities, and income taxes |
| 40,756 |
|
| 37,615 |
|
| ||
Increase (Decrease) in accrued/prepaid pension |
| 8,105 |
|
| (810 | ) |
| ||
Other, net |
| (1,566 | ) |
| 2,718 |
|
| ||
Net cash used in operating activities |
| (20,662 | ) |
| (29,854 | ) |
| ||
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
| ||
Additions to plant and equipment |
| (49,409 | ) |
| (61,027 | ) |
| ||
Proceeds received on sale of assets |
| 10,836 |
|
| 4,808 |
|
| ||
Investment in joint venture |
| (900 | ) |
| (1,500 | ) |
| ||
Cash paid for acquisition, net of cash acquired |
| - |
|
| (350,044 | ) |
| ||
Refund of cash paid for acquisition |
| 6,347 |
|
| - |
|
| ||
Loan receivable |
| (2,500 | ) |
| - |
|
| ||
Net cash used in investing activities |
| (35,626 | ) |
| (407,763 | ) |
| ||
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
| ||
Net (repayments) borrowings on loans and notes payable |
| (2,411 | ) |
| 131,570 |
|
| ||
Dividends |
| (22,760 | ) |
| (17,502 | ) |
| ||
Proceeds from exercise of stock options |
| 9,160 |
|
| 19,037 |
|
| ||
Treasury stock purchases |
| (26,559 | ) |
| - |
|
| ||
Net cash (used in) provided by financing activities |
| (42,570 | ) |
| 133,105 |
|
| ||
|
|
|
|
|
|
|
| ||
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
| 800 |
|
| 2,873 |
|
| ||
|
|
|
|
|
|
|
| ||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
| (98,058 | ) |
| (301,639 | ) |
| ||
|
|
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, beginning |
| 161,573 |
|
| 342,394 |
|
| ||
|
|
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, ending |
| $ | 63,515 |
|
| $ | 40,755 |
|
|
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
| ||
Interest paid |
| $ | 38,374 |
|
| $ | 34,652 |
|
|
Income taxes paid |
| $ | 36,433 |
|
| $ | 11,498 |
|
|
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. 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
On August 4, 2004, Briggs & Stratton’s board approved a two-for-one stock split of its common stock, which became effective on October 29, 2004 upon shareholder approval of the amendment to the Briggs & Stratton Corporation Articles of Incorporation. The stock split was payable on November 9, 2004 to shareholders of record as of October 29, 2004. The split was in the form of a stock dividend, with shareholders receiving an additional share for each existing share held. All references in the Consolidated Condensed Financial Statements to the number of common shares and related per share amounts reflect the effect of the stock split.
Briggs & Stratton purchased 753,500 shares at a total cost of $26.6 million during the three months ended April 2, 2006. There were no share repurchases made during fiscal 2005. The timing and amount of future purchases will be dependent upon the market price of the stock and certain governing loan covenants.
Accounts Receivable
During fiscal 2005, accounts receivable of $39 million from Murray, Inc., a major original equipment manufacturer, were written-off. Murray Inc. filed for bankruptcy protection, and Briggs & Stratton determined that these amounts were not collectible.
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 nine month periods ended April 2, 2006 excluded outstanding options to purchase approximately 1,434,000 and 1,380,000 shares of common stock, respectively. In the prior fiscal year, no shares were excluded from the computation of diluted earnings per share for the third quarter and nine month periods.
7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Information on earnings per share is as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| ||||||||||
|
| April 2, |
|
| March 27, |
|
| April 2, |
|
| March 27, |
|
| ||||
|
| 2006 |
|
| 2005 |
|
| 2006 |
|
| 2005 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 60,008 |
|
| $ | 80,624 |
|
| $ | 86,553 |
|
| $ | 86,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average shares of common stock outstanding |
| 51,478 |
|
| 51,194 |
|
| 51,633 |
|
| 51,428 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Incremental common shares applicable to common stock options based on the common stock average market price during the period |
| 34 |
|
| 485 |
|
| 36 |
|
| 502 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Incremental common shares applicable to restricted and deferred common stock based on the common stock average market price during the period |
| 49 |
|
| 31 |
|
| 61 |
|
| 34 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted average shares of common stock outstanding |
| 51,561 |
|
| 51,710 |
|
| 51,730 |
|
| 51,964 |
|
| ||||
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 |
| Nine Months Ended |
|
| |||||||||||
|
| April 2, |
|
| March 27, |
|
| April 2, |
|
| March 27, |
|
| ||||
|
| 2006 |
|
| 2005 |
|
| 2006 |
|
| 2005 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 60,008 |
|
| $ | 80,624 |
|
| $ | 86,553 |
|
| $ | 86,196 |
|
|
Cumulative translation adjustments |
| (213 | ) |
| (46 | ) |
| (128 | ) |
| 3,473 |
|
| ||||
Unrealized (loss) gain on derivative instruments |
| (3,053 | ) |
| 1,050 |
|
| (643 | ) |
| (208 | ) |
| ||||
Total comprehensive income |
| $ | 56,742 |
|
| $ | 81,628 |
|
| $ | 85,782 |
|
| $ | 89,461 |
|
|
The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):
|
| April 2, |
|
| July 3, |
|
| ||
|
| 2006 |
|
| 2005 |
|
| ||
|
|
|
|
|
|
|
| ||
Cumulative translation adjustments |
| $ | 5,611 |
|
| $ | 5,739 |
|
|
Unrealized gain on derivative instruments |
| 276 |
|
| 919 |
|
| ||
Minimum pension liability adjustment |
| (54,989 | ) |
| (54,989 | ) |
| ||
Accumulated other comprehensive loss |
| $ | (49,102 | ) |
| $ | (48,331 | ) |
|
8
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 (Loss). The amounts included in Accumulated Other Comprehensive Income (Loss) will be reclassified into income when the forecasted transactions occur, generally within the next twelve months. These forecasted transactions represent the exporting of products for which Briggs & Stratton will receive foreign currency and the importing of products for which it will be required to pay in a foreign currency. Changes in the fair value of 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 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 (Loss), 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 $3.7 million associated with a worldwide employee reduction during the quarter ended April 2, 2006. The amount recorded represents expected expenditures for severance and other related employee separation costs associated with the reduction. As of the quarter ended April 2, 2006, a reserve of $2.3 million remained.
9
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 |
|
| Nine Months Ended |
|
| ||||||||||
|
| April 2, |
|
| March 27, |
|
| April 2, |
|
| March 27, |
|
| ||||
|
| 2006 |
|
| 2005 |
|
| 2006 |
|
| 2005 |
|
| ||||
NET SALES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Engines |
| $ | 597,608 |
|
| $ | 604,866 |
|
| $ | 1,263,938 |
|
| $ | 1,233,852 |
|
|
Power Products |
| 287,766 |
|
| 323,650 |
|
| 844,982 |
|
| 714,912 |
|
| ||||
Inter-Segment Eliminations |
| (85,180 | ) |
| (88,053 | ) |
| (222,704 | ) |
| (165,606 | ) |
| ||||
Total* |
| $ | 800,194 |
|
| $ | 840,463 |
|
| $ | 1,886,216 |
|
| $ | 1,783,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
* International Sales (included in above) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Engines |
| $ | 150,439 |
|
| $ | 144,846 |
|
| $ | 365,138 |
|
| $ | 301,650 |
|
|
Power Products |
| 19,268 |
|
| 29,259 |
|
| 70,173 |
|
| 44,418 |
|
| ||||
Total |
| $ | 169,707 |
|
| $ | 174,105 |
|
| $ | 435,311 |
|
| $ | 346,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
GROSS PROFIT ON SALES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Engines |
| $ | 148,598 |
|
| $ | 133,710 |
|
| $ | 301,785 |
|
| $ | 266,636 |
|
|
Power Products |
| 37,490 |
|
| 34,741 |
|
| 83,466 |
|
| 76,788 |
|
| ||||
Inter-Segment Eliminations |
| (5,155 | ) |
| (2,723 | ) |
| (5,658 | ) |
| (736 | ) |
| ||||
Total |
| $ | 180,933 |
|
| $ | 165,728 |
|
| $ | 379,593 |
|
| $ | 342,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
INCOME (LOSS) FROM OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Engines |
| $ | 88,794 |
|
| $ | 85,522 |
|
| $ | 133,260 |
|
| $ | 95,374 |
|
|
Power Products |
| 14,551 |
|
| 14,685 |
|
| 20,249 |
|
| 19,188 |
|
| ||||
Inter-Segment Eliminations |
| (5,155 | ) |
| (2,723 | ) |
| (5,658 | ) |
| (736 | ) |
| ||||
Total |
| $ | 98,190 |
|
| $ | 97,484 |
|
| $ | 147,851 |
|
| $ | 113,826 |
|
|
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 |
|
|
|
|
|
|
|
| |||||
|
| April 2, |
|
| March 27, |
|
|
|
|
|
|
|
| ||
|
| 2006 |
|
| 2005 |
|
|
|
|
|
|
|
| ||
Beginning balance |
| $ | 59,625 |
|
| $ | 43,148 |
|
|
|
|
|
|
|
|
Balance related to acquisition |
| - |
|
| 12,273 |
|
|
|
|
|
|
|
| ||
Payments |
| (29,371 | ) |
| (27,476 | ) |
|
|
|
|
|
|
| ||
Provision for current year warranties |
| 26,460 |
|
| 30,197 |
|
|
|
|
|
|
|
| ||
Adjustments to prior years’ warranties |
| (3,587 | ) |
| (238 | ) |
|
|
|
|
|
|
| ||
Ending balance |
| $ | 53,127 |
|
| $ | 57,904 |
|
|
|
|
|
|
|
|
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Stock Incentives
Effective October 20, 2004, Briggs & Stratton adopted an Incentive Compensation Plan under which 4,000,000 shares of common stock (8,000,000 shares as a result of the 2-for-1 stock split) were reserved for future issuance. Briggs & Stratton previously had a Stock Incentive Plan under which 5,361,935 shares of common stock were reserved for issuance. The adoption of the Incentive Compensation Plan reduced the number of shares available for future issuance under the Stock Incentive Plan to zero. However, as of April 2, 2006, and July 3, 2005, there were 2,751,556 and 3,092,168 outstanding option and restricted stock awards granted under the Stock Incentive Plan, respectively, that are or may become exercisable in the future. In accordance with both plans, Briggs & Stratton can issue eligible employees stock options, stock appreciation rights, restricted stock, deferred stock and cash bonus awards subject to certain annual limitations. The plans also allow Briggs & Stratton to issue Directors non-qualified stock options and directors’ fees in stock.
Effective July 4, 2005, Briggs & Stratton’s Incentive Compensation Plan and shares issued under the Stock Incentive Plan are accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment”. During the quarter and nine months ended April 2, 2006, Briggs & Stratton recognized stock option compensation expense of approximately $1.9 million and $5.7 million, respectively. Prior to July 4, 2005, the plans were accounted for according to Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. Thus, no compensation cost was recognized prior to fiscal 2006. Had compensation cost for the plans been determined consistent with SFAS No. 123R, Briggs & Stratton’s net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share data):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| ||
|
| March 27, |
|
| March 27, |
|
| ||
|
| 2005 |
|
| 2005 |
|
| ||
Net income as reported: |
| $ | 80,624 |
|
| $ | 86,196 |
|
|
Deduct employee compensation expense determined under a fair value based method, net of related tax effects |
| (1,321 | ) |
| (3,781 | ) |
| ||
Pro forma net income |
| $ | 79,303 |
|
| $ | 82,415 |
|
|
|
|
|
|
|
|
|
| ||
Basic earnings per share: |
|
|
|
|
|
|
| ||
As reported |
| $ | 1.57 |
|
| $ | 1.67 |
|
|
Pro forma |
| $ | 1.55 |
|
| $ | 1.60 |
|
|
|
|
|
|
|
|
|
| ||
Diluted earnings per share: |
|
|
|
|
|
|
| ||
As reported |
| $ | 1.56 |
|
| $ | 1.66 |
|
|
Pro forma |
| $ | 1.55 |
|
| $ | 1.59 |
|
|
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The exercise price of each stock option issued is in excess of the market value of the stock on the date of grant. The fair value of each option is estimated using the Black-Scholes option pricing model. The grant-date fair market value of the options and assumptions used to determine such value are:
Options Granted During Fiscal |
| 2006 |
| 2005 |
| ||
|
|
|
|
|
| ||
Grant Date Fair Value* |
| $ | 7.37 |
| $ | 12.12 |
|
Assumptions: |
|
|
|
|
| ||
Risk-free Interest Rate |
| 4.3 | % | 4.2 | % | ||
Expected Volatility |
| 25.1 | % | 28.4 | % | ||
Expected Dividend Yield |
| 1.9 | % | 1.9 | % | ||
Expected Term (In Years) |
| 5.0 |
| 10.0 |
| ||
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
Information on the options outstanding is as follows:
|
|
|
| Wtd. Avg. |
| |
|
| Shares* |
| Ex. Price |
| |
Balance, June 27, 2004 |
| 2,498,290 |
| $ | 28.27 |
|
|
|
|
|
|
| |
Granted During the Year |
| 1,149,340 |
| 36.68 |
| |
Exercised During the Year |
| (622,262 | ) | 32.67 |
| |
Expired During the Year |
| (18,200 | ) | 37.27 |
| |
Balance, July 3, 2005 |
| 3,007,168 |
| $ | 30.52 |
|
|
|
|
|
|
| |
Granted During the First Nine Months |
| 355,123 |
| 38.83 |
| |
Exercised During the First Nine Months |
| (330,612 | ) | 27.71 |
| |
Expired During the First Nine Months |
| - |
| - |
| |
Balance, April 2, 2006 |
| 3,031,679 |
| $ | 31.81 |
|
Grant Summary* |
| |||||||||||
Fiscal |
| Grant |
| Date |
| Expiration |
| Exercise |
| Options |
| |
Year |
| Date |
| Exercisable |
| Date |
| Price |
| Outstanding |
| |
2001 |
| 8-3-00 |
| 8-3-03 |
| 8-3-07 |
| $ | 23.11 |
| 178,034 |
|
2002 |
| 8-7-01 |
| 8-7-04 |
| 8-7-08 |
| 24.60 |
| 358,552 |
| |
2003 |
| 8-13-02 |
| 8-13-05 |
| 8-13-09 |
| 23.35 |
| 302,580 |
| |
2004 |
| 8-15-03 |
| 8-15-06 |
| 8-15-13 |
| 30.44 |
| 758,320 |
| |
2005 |
| 8-13-04 |
| 8-13-07 |
| 8-13-14 |
| 36.68 |
| 1,079,070 |
| |
2006 |
| 8-16-05 |
| 8-16-08 |
| 8-16-10 |
| 38.83 |
| 355,123 |
| |
* Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.
Under the plans, Briggs & Stratton has issued restricted stock to certain employees. During the nine months ended April 2, 2006, Briggs & Stratton issued 40,574 shares. During fiscal year 2005, Briggs & Stratton issued 26,000 shares. The restricted stock vests on the fifth anniversary date of issue provided that the recipient is still employed by Briggs & Stratton. The aggregate market value on the date of issue of $1.4 million during the nine months ended April 2, 2006 and $1.0 million in fiscal 2005 has been recorded as Unearned Compensation, a separate component of the Shareholders’ Investment section of the Consolidated Balance Sheets, and is being amortized over the five-year vesting period.
Under the plans, Briggs & Stratton may also issue stock to its directors in lieu of directors’ fees. Briggs & Stratton has issued 3,477 and 3,463 shares during the nine months ended April 2, 2006 and the twelve months ended July 3, 2005, respectively.
12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Under the Incentive Compensation Plan, Briggs & Stratton may also issue deferred stock to its officers and key employees. Under this provision, Briggs & Stratton issued 27,905 and 1,000 shares during the nine months ended April 2, 2006 and the twelve months ended July 3, 2005, respectively. The aggregate market value on the date of issue was $990,000 and $34,000 for the nine months ended April 2, 2006 and the twelve months ended July 3, 2005, respectively. Expense is recognized ratably over the five-year vesting period.
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 |
|
| ||||||||||
|
| April 2, |
|
| March 27, |
|
| April 2, |
|
| March 27, |
|
| ||||
|
| 2006 |
|
| 2005 |
|
| 2006 |
|
| 2005 |
|
| ||||
Components of net periodic expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service cost-benefits earned |
| $ | 3,858 |
|
| $ | 3,243 |
|
| $ | 758 |
|
| $ | 678 |
|
|
Interest cost on projected benefit obligation |
| 13,149 |
|
| 13,611 |
|
| 3,756 |
|
| 4,176 |
|
| ||||
Expected return on plan assets |
| (17,250 | ) |
| (17,700 | ) |
| - |
|
| - |
|
| ||||
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Transition obligation |
| 2 |
|
| - |
|
| 12 |
|
| 12 |
|
| ||||
Prior service cost |
| 823 |
|
| 785 |
|
| (157 | ) |
| 8 |
|
| ||||
Actuarial loss |
| 2,563 |
|
| 194 |
|
| 3,948 |
|
| 3,531 |
|
| ||||
Net periodic expense |
| $ | 3,145 |
|
| $ | 133 |
|
| $ | 8,317 |
|
| $ | 8,405 |
|
|
|
| Pension Benefits |
|
| Other Postretirement Benefits |
|
| ||||||||||
|
| Nine Months Ended |
|
| Nine Months Ended |
|
| ||||||||||
|
| April 2, |
|
| March 27, |
|
| April 2, |
|
| March 27, |
|
| ||||
|
| 2006 |
|
| 2005 |
|
| 2006 |
|
| 2005 |
|
| ||||
Components of net periodic expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service cost-benefits earned |
| $ | 11,572 |
|
| $ | 9,730 |
|
| $ | 2,273 |
|
| $ | 2,050 |
|
|
Interest cost on projected benefit obligation |
| 39,447 |
|
| 40,833 |
|
| 11,269 |
|
| 12,527 |
|
| ||||
Expected return on plan assets |
| (51,749 | ) |
| (53,100 | ) |
| - |
|
| - |
|
| ||||
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Transition obligation |
| 6 |
|
| - |
|
| 35 |
|
| 35 |
|
| ||||
Prior service cost |
| 2,469 |
|
| 2,355 |
|
| (472 | ) |
| 23 |
|
| ||||
Actuarial loss |
| 7,690 |
|
| 582 |
|
| 11,845 |
|
| 10,687 |
|
| ||||
Net periodic expense |
| $ | 9,435 |
|
| $ | 400 |
|
| $ | 24,950 |
|
| $ | 25,322 |
|
|
Employer Contributions:
There were no contributions made to the plan for the quarters ended April 2, 2006 and March 27, 2005. Briggs & Stratton is not required to make any contributions to the pension plans in fiscal 2006.
Estimated Benefit Payments:
Briggs & Stratton expects to make benefit payments of approximately $1.6 million for its non-qualified pension plan during fiscal 2006. As of April 2, 2006, Briggs & Stratton had made payments of approximately $1.3 million. Briggs & Stratton anticipates benefit payments of approximately $27.3 million for its other postretirement benefit plans during fiscal 2006. As of April 2, 2006, Briggs & Stratton had made payments of approximately $21.4 million.
13
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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.
On January 14, 2005, Briggs & Stratton filed a lawsuit against Kohler Co. (Briggs & Stratton Corporation v. Kohler Co., No 05-C-0025-C (U.S. District Court, Western District of Wisconsin)) alleging Kohler’s single-cylinder Courage engine infringes two of Briggs & Stratton’s U.S. patents. Kohler filed counterclaims against Briggs & Stratton on April 15, 2005, alleging that Briggs & Stratton’s pricing and contracting practices violate federal antitrust laws and related state laws. Briggs & Stratton’s infringement claims were tried before a jury in February 2006. The jury found that the Kohler engine infringes one of Briggs & Stratton’s patents but the patent is invalid, and Briggs & Stratton and Kohler have each filed motions to overturn the jury verdict. Kohler’s counterclaims are scheduled for trial in September 2006.
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 seek certification of a class of all persons in the United States who, beginning January 1, 1995 through the present, purchased a lawnmower containing a two stroke or four stroke gas combustion engine up to 20 horsepower that was manufactured by the defendants. The complaint seeks an injunction, compensatory and punitive damages, and attorneys’ fees. On April 20, 2005, the court issued a stay with respect to this case pending settlement negotiations.
Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, Briggs & Stratton believes these unresolved legal actions will not have a material effect on its financial position. Briggs & Stratton currently does not have enough information to estimate the impact that these matters may have on its future results of operations.
14
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Financial Information of Subsidiary Guarantor of Indebtedness
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):
|
| April 2, 2006 |
|
| Maximum |
|
| ||
|
| Carrying Amount |
|
| Guarantee |
|
| ||
|
|
|
|
|
|
|
| ||
8.875% Senior Notes, due March 15, 2011 |
| $ | 267,212 |
|
| $ | 270,000 |
|
|
|
|
|
|
|
|
|
| ||
7.25% Senior Notes, due September 15, 2007 |
| $ | 89,728 |
|
| $ | 90,000 |
|
|
|
|
|
|
|
|
|
| ||
Variable Rate Term Notes, due February 11, 2008 |
| $ | 125,000 |
|
| $ | 125,000 |
|
|
|
|
|
|
|
|
|
| ||
Revolving Credit Facility, expiring May 2009 |
| $ | - |
|
| $ | 350,000 |
|
|
The following condensed supplemental consolidating financial information reflects the summarized financial information of Briggs & Stratton, its Guarantor and Non-Guarantor Subsidiaries (in thousands):
15
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
BALANCE SHEET
As of April 2, 2006
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
| $ | 718,721 |
|
| $ | 762,154 |
|
| $ | 201,538 |
|
| $ | (468,221 | ) |
| $ | 1,214,192 |
|
Investment in subsidiaries |
| 788,653 |
|
| - |
|
| - |
|
| (788,653 | ) |
| - |
| |||||
Non-current assets |
| 404,709 |
|
| 446,741 |
|
| 17,268 |
|
| - |
|
| 868,718 |
| |||||
|
| $ | 1,912,083 |
|
| $ | 1,208,895 |
|
| $ | 218,806 |
|
| $ | (1,256,874 | ) |
| $ | 2,082,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
| $ | 346,747 |
|
| $ | 392,360 |
|
| $ | 147,688 |
|
| $ | (450,703 | ) |
| $ | 436,092 |
|
Long-term debt |
| 441,940 |
|
| - |
|
| - |
|
| - |
|
| 441,940 |
| |||||
Other long-term obligations |
| 174,914 |
|
| 98,719 |
|
| 281 |
|
| - |
|
| 273,914 |
| |||||
Shareholders’ investment |
| 948,482 |
|
| 717,816 |
|
| 70,837 |
|
| (806,171 | ) |
| 930,964 |
| |||||
|
| $ | 1,912,083 |
|
| $ | 1,208,895 |
|
| $ | 218,806 |
|
| $ | (1,256,874 | ) |
| $ | 2,082,910 |
|
BALANCE SHEET
As of July 3, 2005
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
| $ | 702,178 |
|
| $ | 424,473 |
|
| $ | 185,436 |
|
| $ | (192,882 | ) |
| $ | 1,119,205 |
|
Investment in subsidiaries |
| 770,539 |
|
| - |
|
| - |
|
| (770,539 | ) |
| - |
| |||||
Non-current assets |
| 416,503 |
|
| 447,986 |
|
| 15,274 |
|
| - |
|
| 879,763 |
| |||||
|
| $ | 1,889,220 |
|
| $ | 872,459 |
|
| $ | 200,710 |
|
| $ | (963,421 | ) |
| $ | 1,998,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
| $ | 328,914 |
|
| $ | 74,890 |
|
| $ | 130,483 |
|
| $ | (181,619 | ) |
| $ | 352,668 |
|
Long-term debt |
| 486,321 |
|
| - |
|
| - |
|
| - |
|
| 486,321 |
| |||||
Other long-term obligations |
| 173,536 |
|
| 96,974 |
|
| 283 |
|
| - |
|
| 270,793 |
| |||||
Shareholders’ investment |
| 900,449 |
|
| 700,595 |
|
| 69,944 |
|
| (781,802 | ) |
| 889,186 |
| |||||
|
| $ | 1,889,220 |
|
| $ | 872,459 |
|
| $ | 200,710 |
|
| $ | (963,421 | ) |
| $ | 1,998,968 |
|
16
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF INCOME
For the Three Months Ended April 2, 2006
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net sales |
| $ | 585,925 |
|
| $ | 280,504 |
|
| $ | 47,443 |
|
| $ | (113,678 | ) |
| $ | 800,194 |
|
Cost of goods sold |
| 445,238 |
|
| 245,779 |
|
| 37,187 |
|
| (108,943 | ) |
| 619,261 |
| |||||
Gross profit |
| 140,687 |
|
| 34,725 |
|
| 10,256 |
|
| (4,735 | ) |
| 180,933 |
| |||||
Engineering, selling, general an administrative expensesd |
| 53,126 |
|
| 21,895 |
|
| 7,722 |
|
| - |
|
| 82,743 |
| |||||
Income (Loss) from operations |
| 87,561 |
|
| 12,830 |
|
| 2,534 |
|
| (4,735 | ) |
| 98,190 |
| |||||
Interest expense |
| (10,764 | ) |
| (11 | ) |
| (43 | ) |
| (75 | ) |
| (10,893 | ) | |||||
Other income (expense), net |
| 8,844 |
|
| 295 |
|
| (150 | ) |
| (7,481 | ) |
| 1,508 |
| |||||
Income (Loss) before income taxes |
| 85,641 |
|
| 13,114 |
|
| 2,341 |
|
| (12,291 | ) |
| 88,805 |
| |||||
Provision (Credit) for income taxes |
| 27,756 |
|
| 3,061 |
|
| 103 |
|
| (2,123 | ) |
| 28,797 |
| |||||
Net income (loss) |
| $ | 57,885 |
|
| $ | 10,053 |
|
| $ | 2,238 |
|
| $ | (10,168 | ) |
| $ | 60,008 |
|
STATEMENT OF INCOME
For the Nine Months Ended April 2, 2006
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net sales |
| $ | 1,225,233 |
|
| $ | 832,690 |
|
| $ | 146,063 |
|
| $ | (317,770 | ) |
| $ | 1,886,216 |
|
Cost of goods sold |
| 943,727 |
|
| 753,708 |
|
| 119,184 |
|
| (309,996 | ) |
| 1,506,623 |
| |||||
Gross profit |
| 281,506 |
|
| 78,982 |
|
| 26,879 |
|
| (7,774 | ) |
| 379,593 |
| |||||
Engineering, selling, general and administrative expenses |
| 146,384 |
|
| 60,323 |
|
| 25,035 |
|
| - |
|
| 231,742 |
| |||||
Income (Loss) from operations |
| 135,122 |
|
| 18,659 |
|
| 1,844 |
|
| (7,774 | ) |
| 147,851 |
| |||||
Interest expense |
| (35,515 | ) |
| (42 | ) |
| (185 | ) |
| 3,516 |
|
| (32,226 | ) | |||||
Other income (expense), net |
| 23,652 |
|
| 4,482 |
|
| (1,385 | ) |
| (12,754 | ) |
| 13,995 |
| |||||
Income (Loss) before income taxes |
| 123,259 |
|
| 23,099 |
|
| 274 |
|
| (17,012 | ) |
| 129,620 |
| |||||
Provision (Credit) for income taxes |
| 40,922 |
|
| 6,262 |
|
| 99 |
|
| (4,216 | ) |
| 43,067 |
| |||||
Net income (loss) |
| $ | 82,337 |
|
| $ | 16,837 |
|
| $ | 175 |
|
| $ | (12,796 | ) |
| $ | 86,553 |
|
17
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF INCOME
For the Three Months Ended March 27, 2005
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 587,013 |
|
| $ | 332,930 |
|
| $ | 43,055 |
|
| $ | (122,535 | ) |
| $ | 840,463 |
|
Cost of goods sold |
| 458,363 |
|
| 299,889 |
|
| 37,416 |
|
| (120,933 | ) |
| 674,735 |
| |||||
Gross profit |
| 128,650 |
|
| 33,041 |
|
| 5,639 |
|
| (1,602 | ) |
| 165,728 |
| |||||
Engineering, selling, general and administrative expenses |
| 40,365 |
|
| 19,775 |
|
| 8,104 |
|
| - |
|
| 68,244 |
| |||||
Income (Loss) from operations |
| 88,285 |
|
| 13,266 |
|
| (2,465 | ) |
| (1,602 | ) |
| 97,484 |
| |||||
Interest expense |
| (10,175 | ) |
| (3 | ) |
| (18 | ) |
| (44 | ) |
| (10,240 | ) | |||||
Other income (expense), net |
| 28,653 |
|
| 304 |
|
| 159 |
|
| (24,186 | ) |
| 4,930 |
| |||||
Income (Loss) before income taxes |
| 106,763 |
|
| 13,567 |
|
| (2,324 | ) |
| (25,832 | ) |
| 92,174 |
| |||||
Provision (Credit) for income taxes |
| 36,299 |
|
| 5,177 |
|
| 34 |
|
| (10,160 | ) |
| 31,350 |
| |||||
Income Before Extraordinary Item |
| 70,464 |
|
| 8,390 |
|
| (2,358 | ) |
| (15,672 | ) |
| 60,824 |
| |||||
Extraordinary Gain |
| - |
|
| 19,800 |
|
| - |
|
| - |
|
| 19,800 |
| |||||
Net income (loss) |
| $ | 70,464 |
|
| $ | 28,190 |
|
| $ | (2,358 | ) |
| $ | (15,672 | ) |
| $ | 80,624 |
|
STATEMENT OF INCOME
For The Nine Months Ended March 27, 2005
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 1,191,345 |
|
| $ | 755,666 |
|
| $ | 120,287 |
|
| $ | (284,140 | ) |
| $ | 1,783,158 |
|
Cost of goods sold |
| 946,024 |
|
| 680,358 |
|
| 94,963 |
|
| (280,875 | ) |
| 1,440,470 |
| |||||
Gross profit |
| 245,321 |
|
| 75,308 |
|
| 25,324 |
|
| (3,265 | ) |
| 342,688 |
| |||||
Engineering, selling, general and administrative expenses |
| 149,609 |
|
| 56,985 |
|
| 22,268 |
|
| - |
|
| 228,862 |
| |||||
Income (Loss) from operations |
| 95,712 |
|
| 18,323 |
|
| 3,056 |
|
| (3,265 | ) |
| 113,826 |
| |||||
Interest expense |
| (26,440 | ) |
| (27 | ) |
| (90 | ) |
| (597 | ) |
| (27,154 | ) | |||||
Other income (expense), net |
| 43,161 |
|
| 260 |
|
| 170 |
|
| (29,647 | ) |
| 13,944 |
| |||||
Income (Loss) before income taxes |
| 112,433 |
|
| 18,556 |
|
| 3,136 |
|
| (33,509 | ) |
| 100,616 |
| |||||
Provision (Credit) for income taxes |
| 38,227 |
|
| 7,150 |
|
| 833 |
|
| (11,990 | ) |
| 34,220 |
| |||||
Income Before Extraordinary Item |
| 74,206 |
|
| 11,406 |
|
| 2,303 |
|
| (21,519 | ) |
| 66,396 |
| |||||
Extraordinary Gain |
| - |
|
| 19,800 |
|
| - |
|
| - |
|
| 19,800 |
| |||||
Net income (loss) |
| $ | 74,206 |
|
| $ | 31,206 |
|
| $ | 2,303 |
|
| $ | (21,519 | ) |
| $ | 86,196 |
|
18
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Nine Months Ended April 2, 2006
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net Cash Provided by (Used in) Operating Activities |
| $ | 16,201 |
|
| $ | (54,083 | ) |
| $ | 5,363 |
|
| $ | 11,857 |
|
| $ | (20,662 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to plant and equipment |
| (35,058 | ) |
| (11,529 | ) |
| (2,822 | ) |
| - |
|
| (49,409 | ) | |||||
Proceeds received on sale of assets |
| 10,761 |
|
| 46 |
|
| 29 |
|
| - |
|
| 10,836 |
| |||||
Cash investment in subsidiary |
| (391 | ) |
| - |
|
| 9 |
|
| 382 |
|
| - |
| |||||
Investment in joint venture |
| (900 | ) |
| - |
|
| - |
|
| - |
|
| (900 | ) | |||||
Refund of cash paid for acquisition |
| - |
|
| 6,347 |
|
|
|
|
|
|
|
| 6,347 |
| |||||
Loan receivable |
| (2,500 | ) |
| - |
|
| - |
|
| - |
|
| (2,500 | ) | |||||
Net Cash (Used in) Provided by Investing Activities |
| (28,088 | ) |
| (5,136 | ) |
| (2,784 | ) |
| 382 |
|
| (35,626 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net (repayments) borrowings on loans and notes payable |
| (62,422 | ) |
| 57,457 |
|
| 14,410 |
|
| (11,856 | ) |
| (2,411 | ) | |||||
Dividends |
| (22,760 | ) |
| - |
|
| - |
|
| - |
|
| (22,760 | ) | |||||
Proceeds from exercise of stock options |
| 9,160 |
|
| - |
|
| - |
|
| - |
|
| 9,160 |
| |||||
Treasury stock purchases |
| (26,559 | ) |
| - |
|
| - |
|
| - |
|
| (26,559 | ) | |||||
Capital contributions received |
| - |
|
| 383 |
|
| - |
|
| (383 | ) |
| - |
| |||||
Net Cash (Used in) Provided by Financing Activities |
| (102,581 | ) |
| 57,840 |
|
| 14,410 |
|
| (12,239 | ) |
| (42,570 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents |
| - |
|
| - |
|
| 800 |
|
| - |
|
| 800 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net (Decrease) Increase in Cash and Cash Equivalents |
| (114,468 | ) |
| (1,379 | ) |
| 17,789 |
|
| - |
|
| (98,058 | ) | |||||
Cash and Cash Equivalents, Beginning |
| 143,034 |
|
| 6,376 |
|
| 12,163 |
|
| - |
|
| 161,573 |
| |||||
Cash and Cash Equivalents, Ending |
| $ | 28,566 |
|
| $ | 4,997 |
|
| $ | 29,952 |
|
| $ | - |
|
| $ | 63,515 |
|
19
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Nine Months Ended March 27, 2005
|
| Briggs & Stratton |
|
| Guarantor |
|
| Non-Guarantor |
|
|
|
|
|
|
| |||||
|
| Corporation |
|
| Subsidiary |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net Cash (Used in) Provided by Operating Activities |
| $ | (71,857 | ) |
| $ | 39,120 |
|
| $ | (3,832 | ) |
| $ | 6,715 |
|
| $ | (29,854 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Additions to plant and equipment |
| (45,094 | ) |
| (9,222 | ) |
| (6,711 | ) |
| - |
|
| (61,027 | ) | |||||
Proceeds received on sale of plant assets |
| 557 |
|
| 10 |
|
| 4,241 |
|
| - |
|
| 4,808 |
| |||||
Capital contributions to subsidiary |
| (369,148 | ) |
| - |
|
| (12,469 | ) |
| 381,617 |
|
| - |
| |||||
Investment in Joint Venture |
| (1,500 | ) |
| - |
|
| - |
|
| - |
|
| (1,500 | ) | |||||
Cash paid for acquisition, net of cash acquired |
| (719 | ) |
| (332,662 | ) |
| (16,663 | ) |
| - |
|
| (350,044 | ) | |||||
Net Cash (Used in) Provided by Investing Activities |
| (415,904 | ) |
| (341,874 | ) |
| (31,602 | ) |
| 381,617 |
|
| (407,763 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net borrowings (repayments) on loans and notes payable |
| 177,691 |
|
| (44,969 | ) |
| 11,317 |
|
| (12,469 | ) |
| 131,570 |
| |||||
Dividends |
| (17,455 | ) |
| - |
|
| (5,801 | ) |
| 5,754 |
|
| (17,502 | ) | |||||
Proceeds from exercise of stock options |
| 19,037 |
|
| - |
|
| - |
|
| - |
|
| 19,037 |
| |||||
Capital contributions received |
| - |
|
| 349,542 |
|
| 32,075 |
|
| (381,617 | ) |
| - |
| |||||
Net Cash Provided by (Used in) Financing Activities |
| 179,273 |
|
| 304,573 |
|
| 37,591 |
|
| (388,332 | ) |
| 133,105 |
| |||||
Effect of Foreign Currency Exchange Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Changes on Cash and Cash Equivalents |
| - |
|
| - |
|
| 2,873 |
|
| - |
|
| 2,873 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net (Decrease) Increase in Cash and Cash Equivalents |
| (308,488 | ) |
| 1,819 |
|
| 5,030 |
|
| - |
|
| (301,639 | ) | |||||
Cash and Cash Equivalents, Beginning |
| 326,809 |
|
| 4,007 |
|
| 11,578 |
|
| - |
|
| 342,394 |
| |||||
Cash and Cash Equivalents, Ending |
| $ | 18,321 |
|
| $ | 5,826 |
|
| $ | 16,608 |
|
| $ | - |
|
| $ | 40,755 |
|
20
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 third quarter of fiscal 2006 totaled $800 million, a decrease of $40 million or 5% when compared to fiscal 2005. The decrease is attributable to a reduction in Murray related lawn and garden equipment in the current year.
Third quarter net sales for the Engine Segment were $598 million in fiscal 2006 and $605 million in fiscal 2005. The 1% or $7 million decline is primarily the result of a 6% engine unit shipment decline between years, reflecting a shift of engine unit demand from the third quarter to the second quarter in fiscal 2006. Partially offsetting the unit decline between years was the net impact of improved pricing of $4 million and a mix of engines that favored higher priced units.
Third quarter Power Products Segment net sales were $288 million in fiscal 2006 versus $324 million from the same period a year ago. The $36 million decrease is primarily attributable to a $44 million reduction in Murray related lawn and garden equipment, caused by Murray related product not having as much market placement as it did a year ago. Pressure washer sales were also down $21 million on a slow start to the spring retail season. These declines were partially offset by improved generator and premium lawn and garden sales. Generator sales increased $12 million as retailers began stocking for the upcoming hurricane season.
Consolidated net sales for the nine-months ended April 2, 2006 totaled $1,886 million, an increase of $103 million or 6% from the same period in fiscal 2005. The increase is primarily attributable to the inclusion of Murray related sales in the first half of fiscal 2006 since Murray assets were acquired in February of fiscal 2005.
Nine-month net sales for the Engine Segment totaled $1,264 million in fiscal 2006 versus $1,234 million in the prior year, a $30 million or 2% improvement. The main drivers for the improvement were a 1% engine unit shipment increase and a mix of shipments that favored higher priced product. The current year’s pricing initiatives went into effect late in the second quarter and, as a result, have less of an impact on the nine-month sales.
Power Products Segment net sales for the nine-months ended April 2, 2006 were $845 million compared to $715 million in the prior year, an increase of $130 million or 18%. As previously discussed, the increase reflects the increase in Murray related sales in fiscal 2006 totaling $99 million. The remaining improvement reflects a 25% increase in generator sales attributable to strong demand earlier in the year from the 2005 hurricane season and increased retailer stocking in anticipation of the 2006 hurricane season. The increase in generator sales more than offsets the 18% decline in pressure washer sales.
21
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
GROSS PROFIT MARGIN
The consolidated gross profit margin in the third quarter increased from 20% in fiscal 2005 to 23% in fiscal 2006. The Engine Segment gross profit margin increased from 22% to 25%. The margin improvement is primarily attributable to $12 million from ongoing cost reduction efforts and lower manufacturing spending between years as well as $4 million in favorable pricing between years and the impact of a favorable mix of larger higher margined engines in the quarter. The Power Products Segment margin was 13% in the third quarter of fiscal 2006, up from 11% in fiscal 2005. Sales of higher margined premium lawn and garden equipment were stronger in the current year, resulting in a larger contribution to the Segment’s margin. In addition, margins on generators improved on increased generator production between years, which more than offset the lower pressure washer production.
The consolidated gross profit margin for the nine-month period increased from 19% in fiscal 2005 to 20% in fiscal 2006. Engine Segment margins for the nine-month period increased from 22% in fiscal 2005 to 24% in fiscal 2006. The increase is attributable to the benefit of cost reduction programs as well as a $6 million gain on the sale of an operating asset in the first quarter of fiscal 2006. Power Products Segment margins for the nine-month period decreased from 11% to 10%. The decline is the result of the losses on the sale of Murray product that reduced the overall Segment margin from 11% to 10%.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expenses were $83 million in the third quarter of fiscal 2006 versus $68 million in fiscal 2005, an increase of $15 million or 22%. The main drivers for the increase were: $3 million from increased legal fees associated with litigation, $4 million charge resulting from a worldwide reduction in salaried headcount in the quarter, $2 million from the expensing of stock options in fiscal 2006, and $2 million in increased information technology consulting costs. The remainder of the increase is attributable to planned increases in salaries, fringe benefits, and advertising.
For the nine-month period ended April 2, 2006, the category increased $42 million compared to the prior year period, not considering the impact of $39 million in bad debt expense associated with Murray in the prior year. The increase is primarily attributable to the same factors identified for the third quarter including salaries and fringe benefit increases of $12 million, legal fees of $8 million, and information technology consulting of $5 million, stock option expense of $6 million, and $4 million of expense reflecting the impact of headcount reductions in the third quarter.
INTEREST EXPENSE
Interest expense was $11 million in the third quarter of fiscal 2006 versus $10 million in fiscal 2005. The increase is attributable to higher borrowings between years associated with the Term Notes used for the Murray asset acquisition in February 2005. Interest expense increased $5 million for the nine-month comparative periods for the same reason explained for the third quarter.
PROVISION FOR INCOME TAXES
The effective tax rate for the third quarter of fiscal 2006 was 32% versus 34% in fiscal 2005. The decrease reflects the completion of the audit for tax years 2000-2002 that resulted in the favorable resolution of certain tax contingencies in the third quarter of fiscal 2006. The effective tax rate was 33% for the nine month period in fiscal 2006 versus 34% in fiscal 2005. The decrease is due to the same item identified for the third quarter.
22
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXTRAORDINARY GAIN
The extraordinary gain in the third quarter of fiscal 2005 represents the difference between the estimated fair value of the assets acquired from Murray and the cash paid, after all tax considerations. There was no such extraordinary gain in fiscal 2006.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the nine-month period of fiscal 2006 was $21 million, an improvement of $9 million from fiscal 2005. Higher earnings excluding the impact of the non-cash extraordinary gain in the prior year more than offset the $10 million increase in working capital requirements between years. The increased working capital requirements attributable to higher inventory levels associated primarily with increased generators and premium lawn and garden equipment were partially offset by lower receivable levels between years due to lower sales of Murray related product in the current year.
In the nine-month period of fiscal 2006, $36 million was used for investing activities compared to $408 million in fiscal 2005. The $372 million decrease is attributable to the $350 million in cash used for acquisitions of Simplicity Manufacturing, Inc. and certain Murray assets in the prior year, as well as lower fixed asset additions in the current year.
Net cash used in financing activities was $43 million in fiscal 2006, versus the $133 million in cash provided by financing activities in fiscal 2005, a net change of $176 million. The change from financing activities providing cash to using cash is attributable primarily to the $125 million in Term Notes issued to finance the acquisition of the Murray assets in February 2005. In addition, in the current year, Briggs & Stratton repurchased approximately $27 million of its common shares.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
Briggs & Stratton has a $350 million revolving credit facility that expires in May 2009. There were no borrowings on this line of credit as of the end of the third quarter fiscal 2006. The credit facility is used to fund seasonal working capital requirements and other financing needs.
On February 2, 2006, Briggs & Stratton announced its intent to initiate repurchases of up to one million shares of its common stock through open market transactions to be completed by June 2006. As of the end of the third quarter, Briggs & Stratton had repurchased 753,500 shares on the open market at an average price $35 per share. There were no purchases made in fiscal 2006 prior to the February announcement and there were no shares repurchased in fiscal 2005. Subsequent to the quarter end, Briggs & Stratton purchased an additional 246,500 shares at an average price of $34 per share. Management does not anticipate any additional share repurchases in fiscal 2006.
Subsequent to the third quarter ended April 2, 2006, Briggs & Stratton repurchased approximately $ 9 million of 7.25% senior notes due September 15, 2007. Briggs & Stratton does not anticipate making additional repurchases in fiscal 2006.
Management expects cash outflows for capital expenditures to be approximately $70 million in fiscal 2006. The anticipated expenditures provide for continued investment in equipment and new products. 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.
23
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes since the September 16, 2005, filing of Briggs & Stratton’s Annual Report on
Form 10-K.
OTHER MATTERS
During the first quarter of fiscal 2006, Briggs & Stratton extended the term of its collective bargaining agreement governing certain Milwaukee area employees through July 31, 2010. Other agreements expire at various times ranging from 2006 through 2008.
CONTRACTUAL OBLIGATIONS
There have been no material changes since the September 16, 2005, filing of Briggs & Stratton’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 16, 2005 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. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the recovery of accounts receivable and inventory reserves, as well as those used in the determination of liabilities related to customer rebates, pension obligations, post-retirement 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.
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’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
24
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 ability to successfully realize the maximum market value of acquired assets; 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 16, 2005, filing of Briggs & Stratton’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.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There has not been any change in Briggs & Stratton’s internal control over financial reporting during the third fiscal quarter that has materially affected, or is reasonably likely to materially affect, Briggs & Stratton’s internal control over financial reporting.
25
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
|
|
|
|
|
|
| Maximum |
| |
|
|
|
|
|
|
|
| Total Number of |
|
| Number of Shares |
| |
|
| Total Number |
|
|
|
|
| Shares Purchased |
|
| that May Yet Be |
| |
|
| of Shares |
|
| Average Price |
|
| as Part of Publicly |
|
| Purchased Under |
| |
2006 Fiscal Month |
| Purchased (1) |
|
| Paid per Share (2) |
|
| Announced Plan (3) |
|
| the Plan (4) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2006 to January 29, 2006 |
| - |
|
| $ | - |
|
| - |
|
| 1,837,100 |
|
January 30, 2006 to February 26, 2006 |
| 703,500 |
|
| 35.31 |
|
| 703,500 |
|
| 1,133,600 |
| |
February 27, 2006 to April 2, 2006 |
| 50,000 |
|
| 34.32 |
|
| 50,000 |
|
| 1,083,600 |
| |
Total Third Quarter |
| 753,500 |
|
| $ | 35.25 |
|
| 753,500 |
|
|
|
|
(1) All share repurchases were effected in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act.
(2) Briggs & Stratton repurchased shares in open market transactions.
(3) On February 2, 2006, Briggs & Stratton publicly announced its plan to repurchase up to 1,000,000 shares of common stock through open market purchases by June 2006.
(4) In June 2000, the Board of Directors authorized the repurchase of 2,000,000 shares of Briggs & Stratton common stock in open market or private transactions.
26
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Exhibit |
|
|
Number |
| Description |
|
|
|
10.6(a) |
| Amended and Restated Form of Stock Option Agreement Under the Premium Option and Stock Award Program |
|
| (Filed herewith) |
|
|
|
10.12(a) |
| Amended and Restated Form of Director’s Stock Option Agreement Under the Director’s Premium Option and Stock Grant Program |
|
| (Filed herewith) |
|
|
|
31.1 |
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| (Filed herewith) |
|
|
|
31.2 |
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| (Filed herewith) |
|
|
|
32.1 |
| Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| (Furnished herewith) |
|
|
|
32.2 |
| Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| (Furnished herewith) |
27
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) |
| ||
|
| |||
|
| |||
Date: May 5, 2006 | /s/ James E. Brenn |
| ||
| James E. Brenn | |||
| Senior Vice President and Chief Financial Officer and | |||
| Duly Authorized Officer | |||
28
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Exhibit |
|
|
Number |
| Description |
|
|
|
10.6(a) |
| Amended and Restated Form of Stock Option Agreement Under the Premium Option and Stock Award Program |
|
| (Filed herewith) |
|
|
|
10.12(a) |
| Amended and Restated Form of Director’s Stock Option Agreement Under the Director’s Premium Option and Stock Grant Program |
|
| (Filed herewith) |
|
|
|
31.1 |
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| (Filed herewith) |
|
|
|
31.2 |
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| (Filed herewith) |
|
|
|
32.1 |
| Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| (Furnished herewith) |
|
|
|
32.2 |
| Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| (Furnished herewith) |
29