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 December 26, 1999
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
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BRIGGS & STRATTON CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 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
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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 January 28, 2000
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COMMON STOCK, par value $0.01 per share 22,981,270 Shares
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
December 26, 1999 and June 27, 1999 3
Consolidated Condensed Statements of Income -
Three Months and Six Months ended
December 26, 1999 and December 27, 1998 5
Consolidated Condensed Statements of Cash Flow -
Six Months ended December 26, 1999 and
December 27, 1998 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
December 26, June 27,
1999 1999
------------ --------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 10,282 $ 60,806
Accounts receivable, net 395,033 194,096
Inventories -
Finished products and parts 177,240 72,196
Work in process 71,455 59,665
Raw materials 5,473 5,587
----------- -----------
Total inventories 254,168 137,448
Future income tax benefits 37,951 34,383
Prepaid expenses 18,964 16,119
----------- -----------
Total current assets 716,398 442,852
----------- -----------
OTHER ASSETS:
Marketable securities and other investments 44,528 19,024
Deferred income tax assets 647 2,039
Capitalized software 6,873 7,516
----------- -----------
Total other assets 52,048 28,579
----------- -----------
PLANT AND EQUIPMENT:
Cost 812,392 859,848
Less accumulated depreciation 420,527 455,394
----------- -----------
Total plant and equipment, net 391,865 404,454
----------- -----------
$ 1,160,311 $ 875,885
=========== ===========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
December 26, June 27,
1999 1999
------------ ---------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 109,108 $ 117,757
Domestic notes payable 229,967 4,335
Foreign loans 17,445 13,824
Current maturities of long-term debt 15,000 15,000
Accrued liabilities 131,467 119,685
Dividends payable 6,926 -
Federal and state income taxes 21,610 11,901
----------- -----------
Total current liabilities 531,523 282,502
----------- -----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,742 15,798
Accrued pension cost 11,620 17,306
Accrued employee benefits 13,653 13,185
Accrued postretirement health care obligation 67,286 67,877
Long-term debt 113,410 113,307
----------- -----------
Total other liabilities 221,711 227,473
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SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000 shares, $.01 par value,
Issued 28,927 shares 289 289
Additional paid-in capital 36,946 37,657
Retained earnings 665,797 612,807
Accumulated other comprehensive income (1,211) (1,732)
Unearned compensation on restricted stock (261) (235)
Treasury stock at cost, 5,910 and 5,476 shares,
respectively (294,483) (282,876)
----------- -----------
Total shareholders' investment 407,077 365,910
----------- -----------
$ 1,160,311 $ 875,885
=========== ===========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
Dec. 26 Dec. 27 Dec. 26 Dec. 27
1999 1998 1999 1998
------- ------- ------- -------
NET SALES $ 422,238 $ 359,943 $ 721,171 $ 583,924
COST OF GOODS SOLD 322,515 288,472 566,066 474,841
--------- --------- --------- ---------
Gross profit on sales 99,723 71,471 155,105 109,083
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 33,196 29,107 62,836 58,355
--------- --------- --------- ---------
Income from operations 66,527 42,364 92,269 50,728
INTEREST EXPENSE (5,208) (4,748) (8,335) (8,158)
GAIN ON DISPOSITION OF FOUNDRY ASSETS - - 16,545 -
OTHER INCOME, net 3,985 1,801 5,618 3,948
--------- --------- --------- ---------
Income before provision
for income taxes 65,304 39,417 106,097 46,518
PROVISION FOR INCOME TAXES 24,160 14,780 39,250 17,440
--------- --------- --------- ---------
Net income $ 41,144 $ 24,637 $ 66,847 $ 29,078
========= ========= ========= =========
EARNINGS PER SHARE DATA -
Average shares outstanding 23,092 23,308 23,120 23,467
====== ====== ====== ======
Basic earnings per share $ 1.78 $ 1.06 $ 2.89 $ 1.24
====== ====== ====== ======
Diluted average shares outstanding 23,190 23,481 23,254 23,588
====== ====== ====== ======
Diluted earnings per share $ 1.77 $ 1.05 $ 2.87 $ 1.23
====== ====== ====== ======
CASH DIVIDENDS PER SHARE $ .30 $ .29 $ .60 $ .58
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six Months Ended
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Dec. 26, 1999 Dec. 27, 1998
------------- -------------
Net income $ 66,847 $ 29,078
Adjustments to reconcile net income to net
cash used for operating activities -
Depreciation and amortization 25,052 23,825
Equity in earnings of
unconsolidated affiliates (4,655) (1,687)
(Gain) loss on disposition of plant and
equipment (16,236) 195
Provision (credit) for deferred income taxes (2,913) 2,450
Change in operating assets and liabilities -
Increase in accounts receivable (200,916) (166,692)
Increase in inventories (118,079) (64,625)
Increase in prepaid expenses (3,356) (1,174)
Increase in accounts payable
and accrued liabilities 19,768 30,557
Other, net (5,131) (4,262)
----------- -----------
Net cash used in operating activities (239,619) (152,335)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (39,440) (29,881)
Proceeds received on disposition of plant
and equipment 23,509 1,382
Other, net 2,641 (391)
----------- -----------
Net cash used in investing activities (13,290) (28,890)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 229,253 138,714
Dividends (13,857) (13,618)
Purchase of common stock for treasury (17,661) (35,614)
Proceeds from exercise of stock options 5,248 8,897
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Net cash provided by financing activities 202,983 98,379
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EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (598) 562
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (50,524) (82,284)
CASH AND CASH EQUIVALENTS, beginning 60,806 84,527
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CASH AND CASH EQUIVALENTS, ending $ 10,282 $ 2,243
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 6,872 $ 7,559
=========== ===========
Income taxes paid $ 32,400 $ 2,937
=========== ===========
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. These
condensed financial statements should be read in conjunction with the financial
statements and the notes thereto which were included in the Company's latest
Annual Report on Form 10-K.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
The caption entitled Marketable Securities and Other Investments represents
equity securities of other entities that are held by the Company. Marketable
Securities are classified as available-for-sale and are reported at fair market
value with any changes in fair market value reported in Accumulated Other
Comprehensive Income. Other Investments represent investments in joint ventures
and affiliates and are accounted for using the equity method of accounting.
Financial Accounting Standard (FAS) No. 130, Reporting Comprehensive
Income, requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial reporting
method that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. Total
comprehensive income is as follows (in thousands):
Three Months Ended Six Months Ended
------------------------ ------------------------
Dec. 26 Dec. 27 Dec. 26 Dec. 27
1999 1998 1999 1998
------- ------- ------- -------
Net income $ 41,144 $ 24,637 $ 66,847 $ 29,078
Unrealized gain (loss) on marketable securities 257 (64) 1,153 (64)
Foreign currency translation adjustments (540) 243 (632) 769
-------- -------- -------- --------
Total comprehensive income $ 40,861 $ 24,816 $ 67,368 $ 29,783
======== ======== ======== ========
The components of Accumulated Other Comprehensive Income are as follows (in
thousands):
Dec. 26 June 27
1999 1999
------- -------
Cumulative translation adjustments $ (2,941) $ (2,309)
Unrealized gain on marketable securities 1,730 577
--------- --------
Accumulated other comprehensive income $ (1,211) $ (1,732)
========= ========
At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc. ("MTHC") in exchange for
$23.6 million in cash and $45.0 million aggregate par value convertible
preferred stock which was recorded at its estimated fair value of $21.6 million.
The transaction resulted in a $16.5 million gain, and is shown as such on the
income statement. The provisions of the preferred stock include a 15% cumulative
dividend and conversion rights into a minimum of 31% of the common stock of
MTHC. MTHC became the primary supplier to Briggs & Stratton Corporation of
ductile iron castings for crankshafts and cam gears.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the Company's
financial condition and results of operations for the periods included in the
accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
SALES
Net sales for the second fiscal quarter totaled $422 million, an increase
of $62 million or 17% compared to the same period of the preceding year. This
increase resulted from the following factors: a favorable mix change in engines
sold of $48 million, a $23 million increase in sales dollars due to a 6%
increase in engine unit shipments, and $6 million from increased prices. The $23
million increase from engine unit sales is offset by a $15 million decrease of
casting sales resulting from the disposition of the foundry assets in the first
quarter of fiscal 2000.
Net sales for the six months ended December 1999 totaled $721 million, an
increase of $137 million or 24% compared to the first six months of the prior
year. This increase resulted from the following factors: an $88 million increase
in sales dollars resulting from a 17% increase in engine unit shipments, a
favorable mix change to higher-priced units of $59 million, and $6 million from
increased prices. These increases were offset by a $16 million decrease in
casting sales for reasons discussed above.
GROSS PROFIT MARGIN
The gross profit rate increased to 24% in the current quarter from 20% in
the preceding year's second quarter. This resulted in additional gross profit
totaling $16 million. Significant reasons for this improvement were $12 million
attributed to the benefit of higher production, and $6 million of price
increases.
The gross profit rate for the six-month period increased to 22% in the
current year from 19% in the preceding year. This resulted in additional gross
profit totaling $20 million. This increase resulted primarily from the same
factors discussed above for the quarter. An increase in engine units produced
attributed a favorable $20 million, and $6 million of price increases.
Offsetting these improvements was a $2 million mix shift to the lower margin
engines.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased $4 million or 14% between the second fiscal
quarters of 2000 and 1999. This resulted primarily from a $2 million increase in
engineering costs related to development and testing of new products and a $1
million increase in profit sharing expense due to improved results.
The $4 million or 8% increase for the comparative six-month periods was due
primarily to the same factors discussed above for the quarter. Engineering costs
and profit sharing expenses both increased $3 million. These increases were
offset by a $2 million decrease in costs related to the Company's POWERCOM
software business that was sold in the first quarter of the preceding year.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INTEREST EXPENSE
Interest expense increased 10% or $.5 million in the three-month comparison
and increased 2% or $.2 million in the six-month comparison. These increases
were the result of the Company's higher level of short-term borrowings in the
latter part of the second quarter of fiscal 2000 to fund working capital needs.
GAIN ON DISPOSITION OF FOUNDRY ASSETS
At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc. ("MTHC") in exchange for
$23.6 million in cash and $45.0 million aggregate par value convertible
preferred stock which was recorded at its estimated fair value of $21.6 million.
The transaction resulted in a $16.5 million gain, and is shown as such on the
income statement. The provisions of the preferred stock include a 15% cumulative
dividend and conversion rights into a minimum of 31% of the common stock of
MTHC. MTHC became the primary supplier to Briggs & Stratton Corporation of
ductile iron castings for crankshafts and cam gears.
PROVISION FOR INCOME TAXES
The effective tax rate used in both the three-month and six-month periods
for the current year was 37.0%. This is management's estimate of what the rate
will be for the entire 2000 fiscal year. Last year's rate was 37.5% in both
periods.
EARNINGS PER SHARE
The six-month diluted earnings per share calculation included herein
reflects an immaterial change from the diluted earnings per share presented in
the Company's press release of second quarter financial results. The change
resulted from a correction in diluted shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six-month periods of fiscal
2000 and fiscal 1999 were $240 million and $152 million, respectively. The
significant increase was due to the following:
The fiscal 2000 cash flow from operating activities reflects improved net
income, excluding depreciation and gain on disposition of plant and equipment,
of $23 million. Offsetting this improvement is an increased requirement for
working capital of $110 million, caused primarily by three factors. First is a
$53 million increase in inventories in anticipation of third quarter in-season
demand for engine units. Second is a $34 million increase in accounts receivable
attributed to the increased sales volume when compared to the previous year.
Last are decreased accounts payable and accrued liabilities of $11 million.
Accounts payable and federal and state income taxes payable both decreased
between the comparable six months, $12 million and $3 million respectively,
caused by timing of payments. Accrued liabilities increased $4 million
attributed to an increase in the warranty reserve due to higher sales volume.
Net cash used in investing activities totaled $13 million and $29 million,
respectively. The $16 million decrease is attributed primarily to $23 million of
cash received from the foundry transaction, offset by a $9 million increase in
capital expenditures related to capacity increases and new products.
Net cash provided by financing activities amounted to $203 million and $98
million in fiscal 2000 and 1999, respectively. These financing activities
reflect higher levels of short-term borrowings in the latter part of the second
quarter of fiscal 2000 to fund working capital requirements, causing a $91
million increase in debt between the periods. Also, the Company did not
repurchase as many shares of its common stock in the open market during fiscal
2000.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
FUTURE LIQUIDITY AND CAPITAL RESOURCES
In January 1999, the Board of Directors approved a repurchase of up to 1.3
million shares of the Company's common stock in open market or private
transactions. As of the end of December 1999, stock repurchases totaling 1.0
million shares were made in open market transactions. This repurchase
authorization is intended to minimize dilution from shares issued for employee
benefit plans. Future purchases will be funded from available cash.
Management expects cash flows for capital expenditures to total $80 million
in fiscal 2000 and to be funded from available cash. These anticipated
expenditures include a significant amount for capacity increases, as well as
continuing reinvestment in equipment and new products.
The Company currently intends to increase future cash dividends per share
at a rate approximating the inflation rate, subject to the discretion of its
Board of Directors and requirements of applicable law.
OUTLOOK
Overall, the Company expects that engine unit sales will increase by
approximately 3% to 5% in fiscal 2000 compared to fiscal 1999. As discussed
earlier, the Company experienced a significant increase in engine unit shipments
in the first six months of fiscal 2000. It appears this represents a shift in
original equipment manufacturers' timing of purchases from later in the year to
earlier in the year. Lawn and garden equipment manufacturers are building
product, particularly lawn tractors, earlier this year, hoping to avoid the
engine shortages that developed in the peak selling season last year and the
year before.
The Company believes that demand from the lawn and garden segment will
remain strong through the third fiscal quarter but weaken in the fourth fiscal
quarter. Most of the market's requirements will have been built by the end of
the third fiscal quarter. The Company expects a modest improvement in third
quarter earnings and lower sales and earnings in the fourth quarter. Higher
sales and earnings are expected for the full fiscal year.
OTHER MATTERS
YEAR 2000
The Company has not experienced any significant year 2000 issues to date.
The Company continues to monitor its Year 2000 Program for unexpected issues
that could possibly still develop. The year 2000 problem has many aspects and
potential consequences, some of which are not reasonably foreseeable, and there
can be no assurance that unforeseen consequences will not arise.
The Company has spent to date $33 million on its enterprise-wide
information system. The Company does not expect any additional incremental costs
related to year 2000 matters.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. The words
"anticipate", "believe", "estimate", "expect", "objective", and "think" or
similar expressions are intended to identify forward-looking statements. The
forward-looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, among other
things, the effects of weather on the purchasing patterns of the Company's
customers and end use purchasers of the Company's engines; the seasonal nature
of the Company's business; actions of competitors; changes in laws and
regulations, including accounting standards; employee relations; customer
demand; prices of purchased raw materials and parts; domestic economic
conditions, including housing starts and changes in consumer disposable income;
foreign economic conditions, including currency rate fluctuations; the ability
of the Company's customers and suppliers to meet year 2000 compliance; and
unanticipated internal year 2000 issues. Some or all of the factors may be
beyond the Company's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 7, 1999 filing of
the Company's Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this item was previously reported in the
Company's Form 10-Q for the first quarter ended September 26, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
10.0 Amended and Restated Deferred Compensation Plan for Directors*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27 Financial Data Schedule, December 26, 1999*
[FN]
* Filed herewith
</FN>
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the second quarter ended December 26,
1999.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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: February 4, 2000 /s/ James E. Brenn
-------------------------------------------------
James E. Brenn
Senior Vice President and Chief Financial Officer
Date: February 4, 2000 /s/ Todd J. Teske
-------------------------------------------------
Todd J. Teske
Controller
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.0 Amended and Restated Deferred Compensation Plan for Directors
(Filed herewith)
11 Computation of Earnings Per Share of Common Stock
(Filed herewith)
12 Computation of Ratio of Earnings to Fixed Charges
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)
13