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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1370
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
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class May 1, 2000
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COMMON STOCK, par value $0.01 per share 22,301,079 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 -
March 26, 2000 and June 27, 1999 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months ended
March 26, 2000 and March 28, 1999 5
Consolidated Condensed Statements of Cash Flow -
Nine Months ended March 26, 2000 and
March 28, 1999 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 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
------
March 26, June 27,
2000 1999
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 13,805 $ 60,806
Accounts receivable, net 433,866 194,096
Inventories -
Finished products and parts 164,841 72,196
Work in process 69,683 59,665
Raw materials 5,417 5,587
----------- -----------
Total inventories 239,941 137,448
Future income tax benefits 41,289 34,383
Prepaid expenses 17,536 16,119
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Total current assets 746,437 442,852
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OTHER ASSETS:
Marketable securities and other investments 48,207 19,024
Deferred income tax assets - 2,039
Capitalized software 6,820 7,516
----------- -----------
Total other assets 55,027 28,579
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PLANT AND EQUIPMENT:
Cost 825,014 859,848
Less accumulated depreciation 432,198 455,394
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Total plant and equipment, net 392,816 404,454
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$ 1,194,280 $ 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
--------------------------------------
March 26, June 27,
2000 1999
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 134,957 $ 117,757
Domestic notes payable 216,469 4,335
Foreign loans 18,647 13,824
Current maturities of long-term debt 15,000 15,000
Accrued liabilities 143,287 119,685
Dividends payable 6,829 -
Federal and state income taxes 21,429 11,901
----------- -----------
Total current liabilities 556,618 282,502
----------- -----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,711 15,798
Deferred income tax liability 2,565 -
Accrued pension cost 8,640 17,306
Accrued employee benefits 13,892 13,185
Accrued postretirement health care obligation 65,706 67,877
Long-term debt 113,461 113,307
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Total other liabilities 219,975 227,473
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SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000 shares, $.01 par value,
Issued 28,927 shares 289 289
Additional paid-in capital 36,478 37,657
Retained earnings 701,027 612,807
Accumulated other comprehensive loss (633) (1,732)
Unearned compensation on restricted stock (244) (235)
Treasury stock at cost, 6,540 and 5,727 shares,
respectively (319,230) (282,876)
----------- -----------
Total shareholders' investment 417,687 365,910
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$ 1,194,280 $ 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 Nine Months Ended
--------------------- ---------------------
Mar. 26 Mar. 28 Mar. 26 Mar. 28
2000 1999 2000 1999
--------- --------- --------- ---------
NET SALES $ 468,678 $ 476,259 $1,189,849 $1,060,183
COST OF GOODS SOLD 366,838 373,428 932,904 848,269
--------- --------- ---------- ----------
Gross profit on sales 101,840 102,831 256,945 211,914
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 33,285 32,140 96,121 90,495
--------- --------- ---------- ----------
Income from operations 68,555 70,691 160,824 121,419
INTEREST EXPENSE (6,816) (5,025) (15,151) (13,183)
GAIN ON DISPOSITION OF FOUNDRY ASSETS - - 16,545 -
OTHER INCOME, net 5,027 1,250 10,645 5,198
--------- --------- ---------- ----------
Income before provision
for income taxes 66,766 66,916 172,863 113,434
PROVISION FOR INCOME TAXES 24,710 25,103 63,960 42,543
--------- --------- ---------- ----------
Net income $ 42,056 $ 41,813 $ 108,903 $ 70,891
========= ========= ========== ==========
EARNINGS PER SHARE DATA -
Average shares outstanding 22,842 23,271 23,021 23,399
====== ====== ====== ======
Basic earnings per share $ 1.84 $ 1.80 $ 4.73 $ 3.03
====== ====== ====== ======
Diluted average shares outstanding 22,866 23,357 23,104 23,480
====== ====== ====== ======
Diluted earnings per share $ 1.84 $ 1.79 $ 4.71 $ 3.02
====== ====== ====== ======
CASH DIVIDENDS PER SHARE $ .30 $ .29 $ .90 $ .87
====== ====== ====== ======
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)
Nine Months Ended
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Mar. 26, 2000 Mar. 28, 1999
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Net income $ 108,903 $ 70,891
Adjustments to reconcile net income to net
cash used in operating activities -
Depreciation and amortization 38,158 35,899
Equity in earnings of
unconsolidated affiliates (8,209) (4,549)
(Gain) loss on disposition of plant and
equipment (16,271) 391
Credit for deferred income taxes (4,062) (278)
Change in operating assets and liabilities -
Increase in accounts receivable (239,750) (207,600)
Increase in inventories (103,852) (20,048)
Increase in prepaid expenses (1,928) (3,503)
Increase in accounts payable
and accrued liabilities 57,160 87,009
Other, net (9,400) (7,087)
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Net cash used in operating activities (179,251) (48,875)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (53,861) (43,903)
Proceeds received on disposition of plant
and equipment 23,882 1,521
Other, net 5,141 1,205
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Net cash used in investing activities (24,838) (41,177)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 216,957 81,417
Dividends (20,683) (20,380)
Purchase of common stock for treasury (43,188) (58,006)
Proceeds from exercise of stock options 5,561 28,682
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Net cash provided by financing activities 158,647 31,713
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EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (1,559) (22)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (47,001) (58,361)
CASH AND CASH EQUIVALENTS, beginning 60,806 84,527
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CASH AND CASH EQUIVALENTS, ending $ 13,805 $ 26,166
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 16,217 $ 14,751
=========== ===========
Income taxes paid $ 58,657 $ 23,678
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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 Loss. 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 Nine Months Ended
----------------------- ---------------------
Mar. 26 Mar. 28 Mar. 26 Mar. 28
2000 1999 2000 1999
--------- -------- -------- -----------
Net income $ 42,056 $ 41,813 $108,903 $ 70,891
Unrealized gain on marketable securities 1,602 256 2,755 192
Foreign currency translation adjustments (1,024) (657) (1,656) 112
-------- -------- -------- --------
Total comprehensive income $ 42,634 $ 41,412 $110,002 $ 71,195
======== ======== ======== ========
The components of Accumulated Other Comprehensive Loss are as follows (in thousands):
Mar. 26 June 27
2000 1999
---- ----
Unrealized gain on marketable securities $ 3,332 $ 577
Cumulative translation adjustments (3,965) (2,309)
--------- ---------
Accumulated other comprehensive loss $ (633) $ (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 third fiscal quarter totaled $469 million, a decrease
of $8 million or 2% compared to the same period of the preceding year. The
primary factors were a $16 million decrease of casting sales resulting from the
disposition of the Company's ductile iron foundries in the first quarter of
fiscal 2000 and $3 million from an unfavorable mix of engines sold. Offsetting
these factors were an $8 million increase in sales dollars due primarily to a 4%
increase in engine unit shipments and $5 million from increased prices.
Net sales for the nine months ended March 2000 totaled $1,190 million,
an increase of $130 million or 12% compared to the first nine months of the
prior year. This increase resulted from the following factors: a $98 million
increase in sales dollars resulting primarily from an 11% increase in engine
unit shipments, a favorable mix change to higher-priced units of $53 million,
and $10 million from increased prices. Offsetting these factors was a $32
million decrease in casting sales for the reason discussed above.
GROSS PROFIT MARGIN
The gross profit rate remained constant at 22% between the comparable
quarters. Favorable factors to the gross profit were $5 million of price
increases, lower expenses of $6 million, and $3 million attributed to the
benefit of higher production in the third fiscal quarter of 2000. Offsetting
these improvements were $10 million of higher costs for purchased items
attributable to higher aluminum costs and higher costs for imported engines due
to currency exchange rates, and a $3 million mix shift to lower margin
engines.
The gross profit rate for the nine-month period increased to 22% in the
current year from 20% in the preceding year. This resulted in additional gross
profit totaling $19 million between years. This increase resulted primarily from
the same factors discussed above for the quarter. Favorable factors were $10
million of increased prices and $18 million attributed to spreading of costs
over more units produced. These were offset by $7 million of higher costs for
purchased items.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased $1 million or 4% between the third fiscal
quarters of 2000 and 1999, primarily from $1 million of higher salary costs due
to the planned increases in manpower.
Engineering, selling and general and administrative expenses increased
$6 million or 6% for the comparative nine-month periods. This increase was
primarily from the following: $2 million increase in salaries resulting from
increased manpower, a $4 million increase in profit sharing expenses due to
improved results, and a $1 million increase in engineering costs related to the
development and testing of new products. 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 $2 million or 36% in the three-month
comparison and increased $2 million or 15% in the nine-month comparison. These
increases were the result of the Company's higher level of short-term borrowings
during the third quarter and 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 nine-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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine-month periods of
fiscal 2000 and fiscal 1999 were $179 million and $49 million, respectively. The
significant increase between years 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 $24 million. Offsetting this improvement is an increased
requirement for working capital of $144 million, caused primarily by three
factors. First is a $84 million increase in inventories caused by a planned
increase in finished engines to meet future demand. Second is a $32 million
increase in accounts receivable attributed to the timing of customer payments.
Last are lower increases in accounts payable and accrued liabilities of $30
million caused by timing of payments.
Net cash used in investing activities totaled $25 million and $41
million, respectively. The $16 million decrease is attributed primarily to $23
million of cash received from the foundry transaction and dividends from equity
investments of $4 million, offset by a $10 million increase in capital
expenditures related to capacity increases and new products.
Net cash provided by financing activities amounted to $159 million and
$32 million in fiscal 2000 and 1999, respectively. These financing activities
reflect higher levels of short-term borrowings in fiscal 2000 to fund working
capital requirements, causing a $136 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
The share repurchase program authorized by the Board of Directors in
fiscal 1999 for 1.3 million shares was completed in the third quarter of fiscal
2000. In March 2000, the Board of Directors approved a repurchase of up to 1.0
million additional shares of the Company's common stock in open market or
private transactions. Stock repurchases under the most recent authorization
totaling .4 million shares were made in open market transactions as of the end
of March 2000. Future purchases will be funded from available cash.
The Company expects that working capital requirements through the end
of fiscal 2000 will continue to reflect higher inventories and should also
reflect a decrease in accounts receivable in line with seasonal cash collection.
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
The lawn and garden equipment selling season got off to a strong start,
and at this time the strength continues. However, the Company expects demand to
weaken late in the fourth quarter, which is the normal pattern. Even if engine
demand weakens, the Company plans to continue high production rates because of
the need to maintain finished engine inventory at a level that will allow the
Company to meet next year's demand. Thus the Company believes that the fourth
quarter will be a good one, although not as good as last year's unusually strong
fourth quarter. At this time, the Company expects record sales, with unit sales
increasing 5% to 7%, and record earnings 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.
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; and
unanticipated year 2000 issues. Some or all of the factors may be
beyond the Company's control.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
10.0 Executive Supplemental Retirement Plan*
10.1 Agreement with Executive Officer*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27(a) Financial Data Schedule, March 26, 2000*
27(b) Restated Financial Data Schedule, June 27, 1999*
27(c) Restated Financial Data Schedule, March 28, 1999*
27(d) Restated Financial Data Schedule, December 27, 1998*
27(e) Restated Financial Data Schedule, September 27, 1998*
27(f) Restated Financial Data Schedule, June 28, 1998*
27(g) Restated Financial Data Schedule, June 29, 1997*
*Filed herewith
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the third quarter ended March
26, 2000.
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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: May 5, 2000 /s/ James E. Brenn
-------------------------------------------------
James E. Brenn
Senior Vice President and Chief Financial Officer
Date: May 5, 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 Executive Supplemental Retirement Plan*
10.1 Agreement with Executive Officer*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27(a) Financial Data Schedule, March 26, 2000*
27(b) Restated Financial Data Schedule, June 27, 1999*
27(c) Restated Financial Data Schedule, March 28, 1999*
27(d) Restated Financial Data Schedule, December 27, 1998*
27(e) Restated Financial Data Schedule, September 27, 1998*
27(f) Restated Financial Data Schedule, June 28, 1998*
27(g) Restated Financial Data Schedule, June 29, 1997*
* Filed herewith
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