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 30, 2001
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
- --------------------------------------------------------------------------------
(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 February 4, 2002
- -------------------------------------------------------------------------------
COMMON STOCK, par value $0.01 per share 21,622,001 Shares
1
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
December 30, 2001 and July 1, 2001 3
Consolidated Condensed Statements of Income -
Three Months and Six Months ended December 30, 2001 and
December 31, 2000 5
Consolidated Condensed Statements of Cash Flow -
Six Months ended December 30, 2001 and
December 31, 2000 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
December 30, July 1,
2001 2001
---------- ----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 16,618 $ 88,743
Accounts receivable, net 327,510 145,138
Inventories -
Finished products and parts 245,109 218,671
Work in process 95,442 99,247
Raw materials 3,893 3,782
---------- ----------
Total inventories 344,444 321,700
Future income tax benefits 42,342 38,434
Prepaid expenses and other current assets 19,984 19,415
---------- ----------
Total current assets 750,898 613,430
---------- ----------
OTHER ASSETS:
Investments 44,742 46,071
Prepaid pension 47,011 36,275
Deferred loan costs 10,159 10,429
Capitalized software 6,292 6,552
Goodwill 152,062 166,659
Other 387 418
---------- ----------
Total other assets 260,653 266,404
---------- ----------
PLANT AND EQUIPMENT:
Cost 889,478 890,191
Less accumulated depreciation 476,665 473,830
---------- ----------
Total plant and equipment, net 412,813 416,361
---------- ----------
$1,424,364 $1,296,195
========== ==========
The accompanying notes are an integral part of these statements.
3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
December 30, July 1,
2001 2001
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 94,733 $ 102,559
Domestic notes payable 149,560 3,300
Foreign loans 18,157 16,291
Accrued liabilities 136,359 115,725
Dividends payable 6,697 --
Federal and state income taxes -- 4,307
----------- -----------
Total current liabilities 405,506 242,182
----------- -----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,454 15,536
Deferred income tax liability 9,591 18,351
Accrued pension cost 15,533 14,494
Accrued employee benefits 13,216 12,979
Accrued postretirement health care obligation 63,137 61,767
Long-term debt 508,426 508,134
----------- -----------
Total other liabilities 625,357 631,261
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock -
Authorized 60,000 shares, $.01 par value, issued
28,927 shares 289 289
Additional paid-in capital 35,942 36,043
Retained earnings 714,802 743,230
Accumulated other comprehensive loss (7,205) (6,182)
Unearned compensation on restricted stock (252) (305)
Treasury stock at cost, 7,323 and 7,329 shares, respectively (350,075) (350,323)
----------- -----------
Total shareholders' investment 393,501 422,752
----------- -----------
$ 1,424,364 $ 1,296,195
----------- -----------
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 Six Months Ended
------------------------- -------------------------
Dec. 30 Dec. 31 Dec. 30 Dec. 31
2001 2000 2001 2000
--------- --------- --------- ---------
NET SALES $ 335,315 $ 368,207 $ 556,644 $ 549,458
COST OF GOODS SOLD 278,695 298,601 478,502 454,054
--------- --------- --------- ---------
Gross profit on sales 56,620 69,606 78,142 95,404
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 42,286 32,756 80,510 66,368
--------- --------- --------- ---------
Income (loss) from operations 14,334 36,850 (2,368) 29,036
INTEREST EXPENSE (11,101) (8,317) (21,523) (12,885)
OTHER INCOME, net 427 3,100 742 5,473
--------- --------- --------- ---------
Income (loss) before provision for
income taxes 3,660 31,633 (23,149) 21,624
PROVISION (CREDIT) FOR INCOME TAXES 1,281 11,705 (8,104) 8,000
--------- --------- --------- ---------
Net income (loss) $ 2,379 $ 19,928 $ (15,045) $ 13,624
========= ========= ========= =========
EARNINGS PER SHARE DATA --
Average shares outstanding 21,603 21,598 21,602 21,602
========= ========= ========= =========
Basic earnings (loss) per share $ 0.11 $ 0.92 $ (0.70) $ 0.63
========= ========= ========= =========
Diluted average shares outstanding 21,616 21,609 21,615 21,617
========= ========= ========= =========
Diluted earnings (loss) per share $ 0.11 $ 0.92 $ (0.70) $ 0.63
========= ========= ========= =========
CASH DIVIDENDS PER SHARE $ 0.31 $ 0.31 $ 0.62 $ 0.62
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six Months Ended
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Dec. 30, 2001 Dec. 31, 2000
------------- -------------
Net income (loss) $ (15,045) $ 13,624
Adjustments to reconcile net income (loss) to net cash used in
operating activities -
Depreciation and amortization 30,245 27,368
Equity in earnings of unconsolidated affiliates (1,543) (3,565)
Loss on disposition of plant and equipment 1,141 279
Pension income, net (9,542) (12,834)
Provision for deferred income taxes 1,529 3,092
Change in operating assets and liabilities -
Increase in accounts receivable (182,211) (236,511)
Increase in inventories (22,745) (83,574)
(Increase) decrease in prepaid expenses and other
current assets (2,233) 119
Increase in accounts payable and accrued liabilities 15,729 17,118
Other, net 1,155 (1,493)
--------- ---------
Net cash used in operating activities (183,520) (276,377)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (26,657) (32,364)
Proceeds received on disposition of plant and equipment 547 2,349
Other, net 2,426 2,933
--------- ---------
Net cash used in investing activities (23,684) (27,082)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 148,126 327,450
Issuance cost of long-term debt (327) --
Dividends (13,384) (13,380)
Purchase of common stock for treasury -- (6,118)
Proceeds from exercise of stock options 95 275
--------- ---------
Net cash provided by financing activities 134,510 308,227
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS 569 (918)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (72,125) 3,850
--------- ---------
CASH AND CASH EQUIVALENTS, beginning 88,743 16,989
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 16,618 $ 20,839
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 17,075 $ 9,838
========= =========
Income taxes paid $ 642 $ 4,655
========= =========
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 generally accepted accounting
principles. 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 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.
Comprehensive Income
Financial Accounting Standard (SFAS) 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 (loss) is as follows (in thousands):
Three Months Ended Six Months Ended
------------------------- ------------------------
Dec. 30, Dec. 31, Dec.30, Dec. 31,
2001 2000 2001 2000
-------- -------- -------- ----------
Net income (loss) $ 2,379 $ 19,928 $(15,045) $ 13,624
Unrealized gain (loss) on marketable securities 15 (544) (175) (800)
Foreign currency translation adjustments (875) 519 639 (990)
Loss on derivative instruments (22) (1,768) (1,487) (1,756)
-------- -------- -------- ----------
Total comprehensive income (loss) $ 1,497 $ 18,135 $(16,068) $ 10,078
======== ======== ======== ==========
The components of Accumulated Other Comprehensive Loss are as follows (in
thousands):
Dec. 30, July 1,
2001 2001
-------- --------
Unrealized loss on marketable securities $ (928) $ (753)
Cumulative translation adjustments (6,016) (6,655)
Gain (loss) on derivative instruments (261) 1,226
-------- --------
Accumulated other comprehensive loss $ (7,205) $ (6,182)
======== ========
Derivatives
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Any changes in fair value of
these instruments are recorded in the income statement or other comprehensive
income. During the second quarter and six months of fiscal years 2002 and 2001,
derivative amounts reclassified to the income statement were immaterial.
7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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. During the first
six months of fiscal years 2002 and 2001, there were no derivative instruments
that were deemed to be ineffective. The amounts included in Accumulated Other
Comprehensive Loss will be reclassified into income when the forecasted
transaction occurs, 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.
Acquisition
On May 15, 2001, Briggs & Stratton acquired Generac Portable Products,
Inc. (GPP), a designer, manufacturer and marketer of portable generators,
pressure washers and related accessories for net cash of $267 million.
The provisions of the acquisition include a contingent purchase price
based on the operating results of GPP. We do not expect to pay any additional
purchase price pursuant to these provisions.
The acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated on a preliminary
basis to identifiable assets acquired and liabilities assumed based upon the
estimated fair values, with the excess purchase price recorded as goodwill.
Final adjustments to the purchase price allocation are not expected to be
material to the consolidated financial statements. A reclassification of
approximately $15 million was made in the first quarter of fiscal 2002 reducing
goodwill and increasing deferred income taxes to record differences in financial
reporting versus tax reporting at GPP.
Goodwill of approximately $167 million was initially recorded as a
result of the acquisition and was amortized on a straight-line basis over twenty
years, until July 2, 2001, at which time Briggs & Stratton adopted the
provisions of SFAS No. 142. Under the provisions of SFAS No. 142, goodwill is no
longer amortized, but is subject to annual impairment tests. The following table
sets forth the unaudited pro forma information for Briggs & Stratton as if the
acquisition of GPP had occurred on July 2, 2000 (in millions, except per share
data):
Three Months Ended Six Months Ended
----------------------- ----------------------
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
2001 2000 2001 2000
------- -------- -------- --------
Net Sales $ 335 $ 404 $ 557 $ 629
Net Income (Loss) $ 2 $ 14 $ (15) $ 3
Basic Earnings (Loss) Per Share $ 0.11 $ 0.66 $(0.70) $0.12
Diluted Earnings (Loss) Per Share $ 0.11 $ 0.66 $(0.70) $0.12
Segment and Geographic Information
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and subsequent to the May 15, 2001
acquisition of GPP, Briggs & Stratton has concluded that it operates two
reportable business segments which are managed separately based on fundamental
differences in their operations. Summarized segment data is as follows (in
thousands):
8
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
--------------------------- ---------------------------
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
2001 2000 2001 2000
--------- --------- --------- ---------
NET SALES
Engines $ 307,521 $ 368,207 $ 487,008 $ 549,458
Generac Portable Products 39,622 -- 94,750 --
Eliminations (11,828) -- (25,114) --
--------- --------- --------- ---------
Total* $ 335,315 $ 368,207 $ 556,644 $ 549,458
========= ========= ========= =========
*Includes sales to international customers $ 87,570 $ 88,561 $ 142,277 $ 136,331
========= ========= ========= =========
GROSS PROFIT ON SALES:
Engines $ 53,884 $ 69,606 $ 68,471 $ 95,404
Generac Portable Products 3,201 -- 10,861 --
Eliminations (465) -- (1,190) --
--------- --------- --------- ---------
Total $ 56,620 $ 69,606 $ 78,142 $ 95,404
========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Engines $ 16,723 $ 36,850 $ (897) $ 29,036
Generac Portable Products (1,924) -- (281) --
Eliminations (465) -- (1,190) --
--------- --------- --------- ---------
Total $ 14,334 $ 36,850 $ (2,368) $ 29,036
========= ========= ========= =========
Sales Incentives
The Emerging Issues Task Force (EITF) issued EITF Abstract No. 00-25,
"Vendor Income Statements Characterization of Consideration Paid to a Re-Seller
of a Vendor's Products." Briggs & Stratton will adopt EITF No. 00-25 in the
third quarter of fiscal 2002. We will be required to reclassify co-op
advertising expense from selling expense to sales as a reduction of gross sales.
The impact of adopting EITF No. 00-25 in the second quarter of fiscal 2002 would
have reduced net sales by $1.6 million and $0.5 million for the second quarter
of fiscal 2002 and 2001, respectively. The reclassification for the first six
months of fiscal 2002 and 2001 would have been $3.3 million and $1.0 million,
respectively.
Business Combinations
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets" having a required effective date for fiscal years beginning
after December 31, 2001. Under certain circumstances companies are permitted to
adopt these statements before the required date. Under the new rules, goodwill
and other intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.
Briggs & Stratton adopted the new rules on accounting for goodwill and
other intangible assets in the first quarter of fiscal 2002. Application of the
non-amortization provisions of the SFAS No. 142 is expected to result in an
increase in net income of approximately $.7 million in fiscal 2002.
We have performed the first of the required impairment tests of
goodwill and indefinite lived intangible assets and found no impairment of the
assets as of December 30, 2001.
9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
There was no proforma impact of adopting SFAS No. 142. No amortization
of goodwill was recorded in the first six months of fiscal years 2002 or 2001,
because the acquisition of GPP did not occur until May 15, 2001.
Long Lived Assets
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 144 also supersedes the accounting and reporting
provisions of APB Opinion No. 31, related to the disposal of a segment of a
business. SFAS No. 144 will be adopted on July 1, 2002. Management does not
expect SFAS No. 144 to have a material impact on the consolidated financial
statements.
Financial Information of Subsidiary Guarantors of Indebtedness
Under the terms of Briggs & Stratton's 7.25% senior notes, 8.875%
senior notes and 5.00% convertible senior notes and our revolving credit
agreement, (collectively, the Domestic Indebtedness), GPP and its subsidiaries
became joint and several guarantors of the Domestic Indebtedness. 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. Each guarantee of the Domestic
Indebtedness is the obligation of the guarantor and ranks equally and ratably
with the existing and future senior unsecured obligations of that guarantor;
accordingly, GPP has provided a full and unconditional guarantee of the Domestic
Indebtedness. The following condensed supplemental consolidating financial
information reflects the operations of GPP for the three months and six months
ended December 30, 2001 (in thousands of dollars):
BALANCE SHEET: Briggs & Stratton Guarantor Non-Guarantor
As of December 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ----------------------- ----------- ------------ ------------ ------------ ------------
Current Assets $ 620,549 $ 103,117 $ 57,984 $ (30,752) $ 750,898
Investment in Subsidiaries 292,195 -- -- (292,195) --
Non-current Assets 496,537 174,427 2,502 -- 673,466
----------- ----------- ----------- ----------- -----------
$ 1,409,281 $ 277,544 $ 60,486 $ (322,947) $ 1,424,364
=========== =========== =========== =========== ===========
Current Liabilities $ 372,177 $ 20,720 $ 35,853 $ (23,244) $ 405,506
Long--Term Debt 508,426 -- -- -- 508,426
Other Long--Term Obligations 127,752 (10,821) -- -- 116,931
Stockholders' Equity 400,926 267,645 24,633 (299,703) 393,501
----------- ----------- ----------- ----------- -----------
$ 1,409,281 $ 277,544 $ 60,486 $ (322,947) $ 1,424,364
=========== =========== =========== =========== ===========
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF EARNINGS:
For the Three Months Ended Briggs & Stratton Guarantor Non-Guarantor
December 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------- ----------- ------------ ------------ ------------ ------------
Net Sales $ 301,464 $ 39,622 $ 17,529 $ (23,300) $ 335,315
Cost of Goods Sold 250,885 36,421 13,646 (22,257) 278,695
--------- --------- --------- --------- ---------
Gross Profit 50,579 3,201 3,883 (1,043) 56,620
Engineering, Selling, General and
Administrative Expenses 33,730 5,124 3,432 -- 42,286
--------- --------- --------- --------- ---------
Income (Loss) from Operations 16,849 (1,923) 451 (1,043) 14,334
Interest Expense (10,934) (15) (186) 34 (11,101)
Other (Expense) Income, Net (1,881) 70 157 2,081 427
--------- --------- --------- --------- ---------
Income (Loss) Before Provision (Credit)
for Income Taxes 4,034 (1,868) 422 1,072 3,660
Provision (Credit) for Income Taxes 1,655 (641) 267 -- 1,281
--------- --------- --------- --------- ---------
Net Income (Loss) $ 2,379 $ (1,227) $ 155 $ 1,072 $ 2,379
========= ========= ========= ========= =========
STATEMENT OF EARNINGS:
For the Six Months Ended Briggs & Stratton Guarantor Non-Guarantor
December 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------ ----------- ------------ ------------ ------------ ------------
Net Sales $ 472,302 $ 94,750 $ 36,105 $ (46,513) $ 556,644
Cost of Goods Sold 411,145 83,889 28,283 (44,815) 478,502
--------- --------- --------- --------- ---------
Gross Profit 61,157 10,861 7,822 (1,698) 78,142
Engineering, Selling, General and
Administrative Expenses 62,766 11,142 6,602 -- 80,510
--------- --------- --------- --------- ---------
Income (Loss) from Operations (1,609) (281) 1,220 (1,698) (2,368)
Interest Expense (21,142) (39) (426) 84 (21,523)
Other (Expense) Income, Net (884) 57 465 1,104 742
--------- --------- --------- --------- ---------
Income (Loss) Before Provision (Credit)
for Income Taxes (23,635) (263) 1,259 (510) (23,149)
Provision (Credit) for Income Taxes (8,590) (84) 570 -- (8,104)
--------- --------- --------- --------- ---------
Net Income (Loss) $ (15,045) $ (179) $ 689 $ (510) $ (15,045)
========= ========= ========= ========= =========
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS:
For the Six Months Ended Briggs & Stratton Guarantor Non--Guarantor
December 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------ ----------- ------------ ------------ ------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (15,045) $ (179) $ 689 $ (510) $ (15,045)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in
Operating Activities-
Depreciation and Amortization 28,962 1,000 283 -- 30,245
Equity (Earnings) Loss of Affiliates and
Subsidiaries 1,637 -- (14) (3,166) (1,543)
(Gain) Loss on Disposition of Plant and
Equipment 1,161 (17) (3) -- 1,141
Pension Income, Net (9,542) -- -- -- (9,542)
Provision for Deferred Taxes (309) 1,838 -- -- 1,529
Change in Operating Assets and Liabilities-
(Increase) Decrease in Receivables (196,737) 5,365 (271) 9,432 (182,211)
(Increase) Decrease in Inventories (16,839) (4,753) (3,039) 1,886 (22,745)
(Increase) Decrease in Other Current Assets 1,605 (2,819) (1,019) -- (2,233)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 19,064 3,005 3,280 (9,620) 15,729
Other, Net 848 307 -- -- 1,155
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Operating Activities (185,195) 3,747 (94) (1,978) (183,520)
--------- --------- --------- --------- ---------
Cash Flows from Investing Activities:
Additions to Plant and Equipment (24,850) (1,484) (323) -- (26,657)
Proceeds Received on Disposition of
Plant and Equipment 536 -- 11 -- 547
Other, net 1,862 -- 564 -- 2,426
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Investing Activities (22,452) (1,484) 252 -- (23,684)
--------- --------- --------- --------- ---------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on
Loans and Notes Payable 146,773 (513) 1,866 -- 148,126
Issuance Costs of
Long--Term Debt (327) -- -- -- (327)
Dividends (13,384) -- (1,978) 1,978 (13,384)
Proceeds from Exercise of Stock
Options 95 -- -- -- 95
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Financing Activities 133,157 (513) (112) 1,978 134,510
--------- --------- --------- --------- ---------
Effect of Exchange Rate Changes -- 277 292 -- 569
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents (74,490) 2,027 338 -- (72,125)
Cash and Cash Equivalents, Beginning 85,282 683 2,778 -- 88,743
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, Ending $ 10,792 $ 2,710 $ 3,116 $ -- $ 16,618
========= ========= ========= ========= =========
12
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
GENERAL
Early Retirement Incentive Program
In the second quarter of fiscal 2002 Briggs & Stratton offered and
finalized an early retirement incentive program. The net reduction in the
global salaried workforce will be approximately 7%.
The second quarter and six month results for fiscal 2002 included
expenses of $5 million on an after tax basis representing the cost of the early
retirement incentive program. The majority of the impact on net income was the
result of recognizing the cost of the special termination benefits, which
reduced net periodic pension income.
The impact for the full fiscal year of 2002 is projected to reduce net
income on an after tax basis of approximately $2 million, after consideration of
$3 million in savings during the second half of fiscal 2002 for lower salary
related expenditures. The anticipated net income impact of salary related
savings for fiscal 2003 is projected to be approximately $6 million on an after
tax basis.
Acquisition
On May 15, 2001, Briggs & Stratton acquired Generac Portable Products,
Inc. (GPP) for net cash of $267 million. The results of GPP's operations are
included in fiscal 2002's first six months. The first six months of fiscal 2001
did not include results of GPP.
SALES
Net sales for the second quarter of fiscal 2002 totaled $335 million, a
decrease of $33 million or 9% when compared to the same period of the preceding
year. This decrease was the result of $61 million of lower Engine sales offset
by the inclusion of $40 million of GPP sales in our results. In addition, we
eliminated $12 million of inter-company engine sales to GPP.
Second quarter net sales for the Engine segment of the business were
$307 million versus $368 million in the prior year. This 16% decrease was
primarily the result of a 12% decrease in unit volume and a sales mix that was
weighted more heavily to small horsepower, lower priced engines. The decrease in
unit sales is the result of original equipment manufacturers effecting
production plans which result in their production starting later, closer to the
retail demand which starts in the spring of the year. This production delay,
along with carrying lower inventories of higher horsepower engines for riding
equipment, allows the equipment manufacturers to control working capital
requirements.
Net sales for the GPP segment of the business totaled $40 million,
a decrease of $1 million from GPP's performance a year ago when Briggs &
Stratton did not own them. Generator volume increased 33% over the prior year as
a higher level of non-storm restocking took place in fiscal 2002. Pressure
washer unit shipments were down 32% between years. Last year, a new major retail
customer took first time shipments in December. This year, the retail customer
is only receiving normal stocking shipments.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Net sales for the six months ended December 30, 2001 totaled $557
million, an increase of $7 million or 1% compared to the first six months of the
prior year. The increase was the result of $95 million of GPP sales included in
the results offset by lower Engine sales of $62 million and an inter-company
sales elimination of $25 million.
Six-month net sales for the Engine segment for fiscal 2002 were $487
million versus $549 million in the prior year. Causes of the decline in sales
between years were the same as for the second quarter. Year to date unit
shipments were off 7% from the prior year and reflect original equipment
manufacturers' efforts to move the assembly of lawn and garden equipment closer
to the spring retail selling season.
GPP's net sales for the first six months were $95 million compared to
$86 million a year ago when Briggs & Stratton did not own them. Increased
generator volume in the first six months of fiscal 2002 accounted for the
increased sales between years. While up, the entire generator market has not
recovered as much as we originally anticipated. In particular, we've experienced
another hurricane season that did not impact the United States.
GROSS PROFIT MARGIN
The gross profit rate decreased to 17% in the current quarter from 19%
in the preceding year's second quarter. This resulted in lower gross profit of
$7 million. This decline was due to $3 million of lower gross profit margins in
the Engine segment of the business and $4 million due to the impact of GPP
sales, whose 8% gross margins are significantly lower than the margins
experienced in the Engine segment.
Gross margins in the second quarter for the Engine segment were
adversely affected by the production of 6% fewer engines and a $5 million
pre-tax expense for the early retirement incentive program that was completed at
the end of December 2001. Offsetting the negatives were improved labor
productivity and expense reductions in the overhead spending.
GPP's gross profit rate decreased to 8% in the current quarter from 11%
in the second quarter of fiscal 2001. This resulted in lower gross profit of $1
million. This decline was a result of an unfavorable mix of generator sales,
which were weighted to product that had smaller gross margins.
The gross profit rate for the six-month period decreased to 14% in the
current year from 17% in the preceding year. This resulted in a $19 million
lower gross profit. The Engine segment had lower gross profit of $13 million and
the impact of the lower margined GPP segment had a $6 million impact.
The six-month decrease in the Engine segment resulted primarily from
the same factors discussed above for the quarter. Engine production volume, down
20%, impacted margins by approximately $6 million and the early retirement
incentive program had an impact of $5 million.
Sales of generators with lower margins created an unfavorable mix,
which negatively affected the gross profit margin of GPP for the comparable
six-month periods.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The engineering, selling and administrative expenses increased $10
million or 29% between the second fiscal quarters of 2002 and 2001. GPP's
expenses were $5 million of the increase. GPP's 2002 expenses in this category
were consistent with last year when we did not own them. In addition, there were
$3 million of additional pre-tax expenses associated with the early retirement
incentive program.
14
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
This category increased $14 million or 21% for the comparative
six-month periods. Expenses incurred by GPP amounted to $11 million, with the
remainder of the increase attributable to the $3 million of expenses related to
the early retirement incentive program.
INTEREST EXPENSE
Interest expense increased $3 million or 33% in the second quarter
comparison and increased $9 million or 67% in the six-month comparison. These
increases were the result of the long-term debt issued to make the acquisition
of GPP offset by lower borrowings for working capital in the current fiscal
year.
PROVISION FOR INCOME TAXES
The effective tax rate used in both the second quarter and six-month
periods for the current year was 35.0%. This is management's estimate of what
the rate will be for the entire 2002 fiscal year. Last year's rate was 37.0% in
both periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities for the six-month periods of
fiscal 2002 and fiscal 2001 were $184 million and $276 million, respectively, an
$82 million decrease in the cash used in operating activities between years.
This reflects reduced working capital requirements of $114 million, offset by
decreased net income of $29 million. The primary decrease in the working capital
requirements was the reduction in the levels of engine inventories. We executed
a plan of reduced production in the first six months to lower the finished
engine inventory to more historical levels. Also, reducing the working capital
requirements for fiscal 2002 was the change in accounts receivable attributable
to lower sales in the Engine segment of the business.
Net cash used in investing activities totaled $24 million and $27
million in fiscal 2002 and fiscal 2001, respectively. Additions to plant and
equipment were the major use of cash. The amount was lower between years because
capital expenditures are being deferred to later in the fiscal year to lower
borrowing requirements in the period where we have the greatest working capital
buildup.
Net cash provided by financing activities decreased $174 million
between years. The significant decrease was due to the lower level of short-term
domestic borrowings used to fund working capital needs and the greater cash
balances that were on hand at the start of fiscal 2002.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
As of November 15, 2001, we replaced our $250 million revolving credit
facility that would have expired in April 2002, with a three-year $300 million
revolving credit facility. See Item 2 in Part II of this report for a
description of the terms of the new credit facility.
At December 30, 2001, we had utilized $144 million of the revolver's
capacity. It is anticipated that by the fourth quarter of fiscal 2002 our cash
flows will have enabled us to pay back all borrowings related to the revolving
credit facility.
Management expects cash flows for capital expenditures to total
approximately $60 million in fiscal 2002. These anticipated expenditures provide
for continued investments in equipment and new products. These expenditures will
be funded using available cash and short-term borrowings.
Briggs & Stratton 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 the requirements of applicable law and debt
covenants.
15
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Briggs & Stratton has remaining authorization to buy up to 1.8 million
shares of its stock in open market or private transactions under the June 2000
Board of Directors' authorization to repurchase up to 2.0 million shares,
subject to limitations in our credit facility. We did not purchase any shares in
the first six months of fiscal 2002 and do not anticipate repurchasing
additional shares for the remainder of fiscal 2002.
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 its capital requirements for the foreseeable future.
OUTLOOK
We continue to believe that Engine segment shipments will be up 5%
between years; however, we have lowered our projected GPP sales for the year to
$220 million, down from the $260 million we had projected earlier. GPP's
business has continued to soften in the generator product line. This should
result in approximately a 15% consolidated revenue increase between years.
We believe gross margins for the full year will be approximately 18.5%.
This margin is an improvement from our last estimate because improved
productivity and expense controls experienced in the first half of the year are
now projected to continue into the second half of the year, and the mix impact
of lower margin GPP's sales has been reduced.
Engineering, selling and administrative expenses for the year are
currently estimated to be $156 million. The majority of the reduction from prior
estimates is associated with GPP's selling costs that are variable depending on
sales levels and the benefits of the completed integration program.
Interest expense is anticipated to be approximately $44 million and
depreciation and capital expenditures are each projected to be approximately $60
million for the year. The effective tax rate remains at 35%.
Net income is estimated to be in the $56 to $60 million range. Free
cash flow is expected to be in the $70 million range for the year and dividends
at a $27 million level. Earnings before income taxes, depreciation and
amortization are projected to be approximately $190 million.
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," "intend," "may," "objective,"
"plan," "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: our 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 and accounting standards; work stoppages or
other consequences of any deterioration in our employee relations; changes in
customer and OEM demand; changes in prices of purchased raw materials and parts
that we purchase; changes in domestic economic conditions, including housing
starts and changes in consumer disposable income; changes in foreign economic
conditions, including currency rate fluctuations; 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
16
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 12, 2001,
filing of the Company's Annual Report on Form 10-K.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
REPLACEMENT OF REVOLVING CREDIT FACILITY
We reported in our Annual Report on Form 10-K for the fiscal year ended
July 1, 2001 that we (Briggs & Stratton Corporation) were negotiating for the
replacement of our $250 million revolving credit facility that was scheduled to
expire in April 2002. We use our revolving credit facility to fund seasonal
working capital requirements and other financing needs (including, without
limitation, providing liquidity support for commercial paper that we issue). On
September 28, 2001, we entered into a replacement three-year revolving credit
facility in the amount of $175 million and agreed with the participating lenders
to seek additional commitments that would, if obtained, increase the total
facility to $300 million, which was accomplished by a first amendment to the
credit agreement dated as of November 15, 2001. The credit facility is
guaranteed by all of our material domestic subsidiaries.
Borrowings under the new credit facility bear interest at a rate per
annum equal to, at our option, either (1) an interest rate based on 1, 2, 3 or 6
month LIBOR plus a margin of from 0.50% per annum to 1.75% per annum, depending
upon the ratings of our long-term debt by Standard & Poor's Rating group, a
division of McGraw-Hill Companies ("S&P") and Moody's Investors Service, Inc.
("Moody's"), or (2) a base rate determined by reference to the higher of (a) the
federal funds rate plus 0.50% per annum and (b) the agent bank's prime rate
plus, with respect to such base rate, a margin of up to 0.25% per annum, also
depending upon our credit ratings. In either case (1) or (2) above, we also
agreed to pay a commitment fee of from 0.10% to 0.35% per annum and a fee for
letters of credit of from 0.50% to 1.75% per annum, depending upon our credit
ratings.
The new credit agreement includes a number of financial and operating
restrictions including, among other things, restrictions on our ability to:
- create or permit liens on our assets or those of our subsidiaries;
- dispose of assets;
- merge or consolidate with another company, or permit our subsidiaries
to do so;
- make loans to, or investments in, third parties;
- incur additional indebtedness or contingent obligations;
- engage in a material line of business substantially different from
those we and our subsidiaries currently carry on;
- pay dividends or redeem or repurchase stock in excess of $35 million
in any fiscal year; and
- redeem or prepay other indebtedness (other than commercial paper)
using proceeds from the credit
17
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
facility or when we are in default thereunder. The credit facility
contains financial covenants that, among other things, require us to:
- maintain an interest coverage ratio of not less than 2.75:1.0
until June 30, 2002 and not less than 3.0:1.0 thereafter;
- maintain a leverage ratio (as defined therein) of no more than
62.5%, with seasonal increases of up to 67.5%, generally
declining over time to not more than 55.0% after March 28, 2004;
- maintain a minimum net worth of at least $350 million, plus 50%
of our consolidated net income in each fiscal year ending after
the date of the agreement (with no deduction for a net loss in
any fiscal year) plus the net proceeds of any issuance of equity
securities;
- maintain a ratio of total funded debt to EBITDA of no more than
3.25:1.0 as of June 30, 2002, no more than 3.00:1.0 as of June
29, 2003 and no more than 2.75:1.0 as of June 27, 2004; and
- limit capital expenditures to $100 million during the fiscal year
ending June 30, 2002 and to $75 million plus any carry-over from
a prior year (but not more than $25 million) in each fiscal year
thereafter.
The credit facility also contains provisions that only apply if our
credit rating from S&P is BB or below or our credit rating from Moody's is Ba2
or below. If either of those circumstances occurs, (a) we must promptly provide
guarantees from each of our domestic subsidiaries (excluding those whose assets
comprise less than 2% of our consolidated assets and whose revenues constitute
less than 2% of our consolidated revenues during the most recent fiscal
quarter), and (b) we must provide a first priority perfected lien (the
"Springing Lien") on substantially all of our assets and those of our guarantor
subsidiaries and on all of the stock of our domestic subsidiaries and 65% of the
stock of our foreign subsidiaries. Under the indentures governing our
outstanding 7.25% notes due September 15, 2007 and our outstanding 8.875%
senior notes due March 15, 2011, those notes will share ratably in the Springing
Lien, should it be granted. Our outstanding 5.00% convertible senior notes due
May 15, 2006 have no comparable provision and would not share in the lien.
The credit agreement and first amendment are filed as exhibits to this
report. The above description of the credit agreement is qualified by reference
to the provisions of the credit agreement, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
4.1 (a) Multicurrency Credit Agreement, dated as of
September 28, 2001, by and among Briggs & Stratton
Corporation, Bank of America, N.A., as Administrative
Agent, and the other financial institutions party
thereto (the "Credit Agreement")*
4.1 (b) First Amendment for the Credit Agreement, dated as of
November 15, 2001*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
*Filed herewith
18
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
(b) Reports on Form 8-K.
On October 18, 2001, Briggs & Stratton filed a report on Form 8-K dated
October 18, 2001, to file as an exhibit the press release reporting its
first quarter financial results.
On November 15, 2001, Briggs & Stratton filed a report on Form 8-K
dated November 14, 2001, to report that an early retirement incentive
benefit package would be offered to eligible Milwaukee based salaried
employees and approximately twenty-five other salaried positions would
be eliminated.
On December 21, 2001, Briggs & Stratton filed a report on Form 8-K
dated December 21, 2001, to file as an exhibit the press release
reporting the finalization of the early retirement packages announced
on November 14, 2001.
On January 31, 2002, Briggs & Stratton filed a report on Form 8-K dated
January 17, 2002, to file as an exhibit the press release reporting its
second quarter financial results.
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 11, 2002 /s/ James E. Brenn
----------------------------
James E. Brenn
Senior Vice President and Chief Financial
Officer and Duly Authorized Officer
19
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
4.1 (a) Multicurrency Credit Agreement, dated as of September 28,
2001, by and among Briggs & Stratton Corporation, Bank of
America, N.A., as Administrative Agent, and the other
financial institutions party thereto (the "Credit
Agreement")
4.1 (b) First Amendment to the Credit Agreement, dated as of
November 15, 2001
11 Computation of Earnings Per Share of Common Stock
12 Computation of Ratio of Earnings to Fixed Charges
20