FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0182330
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class May 8, 2002
- --------------------------------------------------------------------------------
COMMON STOCK, par value $0.01 per share 21,638,984 Shares
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 2002 and July 1, 2001 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months ended March 31, 2002 and
April 1, 2001 5
Consolidated Condensed Statements of Cash Flow -
Nine Months ended March 31, 2002 and
April 1, 2001 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 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
Exhibit Index 18
2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
March 31, July 1,
2002 2001
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 65,434 $ 88,743
Accounts receivable, net 402,493 145,138
Inventories -
Finished products and parts 149,237 218,671
Work in process 81,034 99,247
Raw materials 3,219 3,782
---------- ----------
Total inventories 233,490 321,700
Future income tax benefits 46,270 38,434
Prepaid expenses and other current assets 17,979 19,415
---------- ----------
Total current assets 765,666 613,430
---------- ----------
OTHER ASSETS:
Investments 43,674 46,071
Prepaid pension 55,385 36,275
Deferred loan costs 9,881 10,429
Capitalized software 6,383 6,552
Goodwill 155,330 166,659
Intangible Assets 301 418
---------- ----------
Total other assets 270,954 266,404
---------- ----------
PLANT AND EQUIPMENT:
Cost 891,319 890,191
Less accumulated depreciation 485,606 473,830
---------- ----------
Total plant and equipment, net 405,713 416,361
---------- ----------
$1,442,333 $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
March 31, July 1,
2002 2001
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 101,785 $ 102,559
Domestic notes payable 112,778 3,300
Foreign loans 15,630 16,291
Accrued liabilities 132,230 115,725
Dividends payable 6,919 --
Federal and state income taxes 10,332 4,307
----------- -----------
Total current liabilities 379,674 242,182
----------- -----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,409 15,536
Deferred income tax liability 20,795 18,351
Accrued pension cost 15,920 14,494
Accrued employee benefits 13,281 12,979
Accrued postretirement health care obligation 63,300 61,767
Long-term debt 508,572 508,134
----------- -----------
Total other liabilities 637,277 631,261
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock -
Authorized 60,000 shares, $.01 par value, issued
28,927 shares 289 289
Additional paid-in capital 35,595 36,043
Retained earnings 745,500 743,230
Accumulated other comprehensive loss (7,048) (6,182)
Unearned compensation on restricted stock (225) (305)
Treasury stock at cost, 7,295 and 7,328 shares, respectively (348,729) (350,323)
----------- -----------
Total shareholders' investment 425,382 422,752
----------- -----------
$ 1,442,333 $ 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 Nine Months Ended
-------------------------- -------------------------
March 31, April 1, March 31, April 1,
2002 2001 2002 2001
----------- ----------- ----------- -----------
NET SALES $ 516,758 $ 430,188 $ 1,070,076 $ 978,670
COST OF GOODS SOLD 414,263 344,289 892,766 798,342
----------- ----------- ----------- -----------
Gross profit on sales 102,495 85,899 177,310 180,328
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 35,429 33,153 112,613 98,546
----------- ----------- ----------- -----------
Income from operations 67,066 52,746 64,697 81,782
INTEREST EXPENSE (12,400) (8,804) (33,923) (21,689)
OTHER INCOME, net 2,688 3,497 3,431 8,970
----------- ----------- ----------- -----------
Income before provision for
income taxes 57,354 47,439 34,205 69,063
PROVISION FOR INCOME TAXES 19,740 17,550 11,636 25,550
----------- ----------- ----------- -----------
Net income $ 37,614 $ 29,889 $ 22,569 $ 43,513
=========== =========== =========== ===========
EARNINGS PER SHARE DATA --
Average shares outstanding 21,620 21,599 21,608 21,600
=========== =========== =========== ===========
Basic earnings per share $ 1.74 $ 1.38 $ 1.04 $ 2.01
=========== =========== =========== ===========
Diluted average shares outstanding 24,456 21,612 21,620 21,614
=========== =========== =========== ===========
Diluted earnings per share $ 1.58 $ 1.38 $ 1.04 $ 2.01
=========== =========== =========== ===========
CASH DIVIDENDS PER SHARE $ 0.32 $ 0.31 $ 0.94 $ 0.93
=========== =========== =========== ===========
</Table>
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)
Nine Months Ended
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: March 31, 2002 April 1, 2001
-------------- -------------
Net income $ 22,569 $ 43,513
Adjustments to reconcile net income to net cash used in
operating activities -
Depreciation and amortization 42,417 41,685
Equity in earnings of unconsolidated affiliates (2,435) (5,092)
Loss on disposition of plant and equipment 1,903 371
Pension income, net (17,286) (21,512)
Provision for deferred income taxes 8,773 6,611
Change in operating assets and liabilities -
Increase in accounts receivable (257,137) (249,365)
Decrease (Increase) in inventories 88,210 (37,128)
(Increase) Decrease in prepaid expenses and other
current assets (90) 2,341
Increase in accounts payable and accrued liabilities 29,359 12,457
Other, net 399 1,571
--------- ---------
Net cash used in operating activities (83,318) (204,548)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (34,565) (48,645)
Proceeds received on disposition of plant and equipment 620 2,770
Other, net 4,412 2,933
--------- ---------
Net cash used in investing activities (29,533) (42,942)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 108,817 288,513
Issuance cost of long-term debt (346) --
Dividends (20,299) (20,072)
Purchase of common stock for treasury -- (6,118)
Proceeds from exercise of stock options 943 275
--------- ---------
Net cash provided by financing activities 89,115 262,598
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS 427 (1,971)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (23,309) 13,137
--------- ---------
CASH AND CASH EQUIVALENTS, beginning 88,743 16,989
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 65,434 $ 30,126
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 35,544 $ 21,362
========= =========
Income taxes paid $ 1,312 $ 6,574
========= =========
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
Statement of 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 is as follows (in thousands):
Three Months Ended Nine Months Ended
March 31, April 1, March 31, April 1,
2002 2001 2002 2001
-------- -------- -------- --------
Net income $ 37,614 $ 29,889 $ 22,569 $ 43,513
Unrealized gain (loss) on marketable securities 52 (66) (123) (866)
Gain (loss) on foreign currency translation
adjustments (178) (1,092) 461 (2,082)
Gain (loss) on derivative instruments 283 2,945 (1,204) 1,189
-------- -------- -------- --------
Total comprehensive income $ 37,771 $ 31,676 $ 21,703 $ 41,754
======== ======== ======== ========
The components of Accumulated Other Comprehensive Loss are as follows (in
thousands):
March 31, July 1,
2002 2001
------- -------
Unrealized loss on marketable securities $ (876) $ (753)
Cumulative translation adjustments (6,194) (6,655)
Gain on derivative instruments 22 1,226
------- -------
Accumulated other comprehensive loss $(7,048) $(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 third quarter and nine 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
nine 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
transactions occur, generally within the next twelve months. These forecasted
transactions represent the exporting of products for which Briggs & Stratton
will receive foreign currency and the importing of products for which it will be
required to pay in a foreign currency.
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. Year-to-date we have recorded
$11 million in net adjustments to our original GPP purchase price allocation.
The most significant adjustment relates to recognizing certain deferred tax
assets resulting from 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 thousands, except per share
data):
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, April 1, March 31, April 1,
2002 2001 2002 2001
------------ ---------- ----------- -----------
Net Sales $ 516,758 $ 478,230 $ 1,070,076 $ 1,136,734
Net Income $ 37,614 $ 24,293 $ 22,569 $ 26,879
Basic Earnings Per Share $ 1.74 $ 1.12 $ 1.04 $ 1.24
Diluted Earnings Per Share $ 1.58 $ 1.12 $ 1.04 $ 1.24
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 Nine Months Ended
-------------------------- --------------------------
March 31, April 1, March 31, April 1,
2002 2001 2002 2001
----------- ----------- ----------- -----------
NET SALES:
Engines $ 468,947 $ 430,188 $ 954,746 $ 978,670
Generac Portable Products 58,560 -- 151,195 --
Eliminations (10,749) -- (35,865) --
----------- ----------- ----------- -----------
Total* $ 516,758 $ 430,188 $ 1,070,076 $ 978,670
=========== =========== =========== ===========
*Includes sales to international customers $ 132,037 $ 122,405 $ 273,542 $ 258,664
=========== =========== =========== ===========
GROSS PROFIT ON SALES:
Engines $ 96,205 $ 85,899 $ 163,465 $ 180,328
Generac Portable Products 5,251 -- 13,997 --
Eliminations 1,039 -- (152) --
----------- ----------- ----------- -----------
Total $ 102,495 $ 85,899 $ 177,310 $ 180,328
=========== =========== =========== ===========
INCOME FROM OPERATIONS:
Engines $ 65,432 $ 52,746 $ 64,534 $ 81,782
Generac Portable Products 595 -- 315 --
Eliminations 1,039 -- (152) --
----------- ----------- ----------- -----------
Total $ 67,066 $ 52,746 $ 64,697 $ 81,782
=========== =========== =========== ===========
Sales Incentives
Briggs & Stratton adopted Emerging Issues Task Force (EITF) Abstract
No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer" in the
third quarter of fiscal 2002. Pursuant to the EITF, we were required to
reclassify certain advertising costs previously reported as selling expenses to
a reduction in net sales. The impact of adopting EITF 01-09 was to reduce net
sales by $2,348 and $495 in the third quarter of fiscal 2002 and 2001,
respectively. The reclassification for the nine months of fiscal 2002 and 2001
was $5,674 and $1,471, 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.
There was no proforma impact of adopting SFAS No. 142. No amortization
of goodwill was recorded in the first nine months of fiscal years 2002 or 2001,
because the acquisition of GPP did not occur until May 15, 2001.
9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 nine months
ended March 31, 2002 (in thousands):
BALANCE SHEET: Briggs & Stratton Guarantor Non--Guarantor
As of March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ----------- ----------- ----------- -----------
Current Assets $ 625,799 $ 100,601 $ 73,748 $ (34,482) $ 765,666
Investment in Subsidiaries 306,351 -- -- (306,351) --
Non-current Assets 496,914 177,342 2,411 -- 676,667
----------- ----------- ----------- ----------- -----------
$ 1,429,064 $ 277,943 $ 76,159 $ (340,833) $ 1,442,333
=========== =========== =========== =========== ===========
Current Liabilities $ 355,145 $ 14,475 $ 38,005 $ (27,951) $ 379,674
Deferred Income Tax Liability (Asset) 27,230 (6,435) -- -- 20,795
Long--Term Debt 508,572 -- -- -- 508,572
Other Long--Term Obligations 105,874 2,036 -- -- 107,910
Shareholders' Equity 432,243 267,867 38,154 (312,882) 425,382
----------- ----------- ----------- ----------- -----------
$ 1,429,064 $ 277,943 $ 76,159 $ (340,833) $ 1,442,333
=========== =========== =========== =========== ===========
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF EARNINGS:
For the Three Months Ended
- --------------------------- Briggs & Stratton Guarantor Non--Guarantor
March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ----------- ------------ ------------------ ------------ ------------
Net Sales $ 461,458 $ 58,560 $ 23,500 $ (26,760) $ 516,758
Cost of Goods Sold 370,550 53,309 18,143 (27,739) 414,263
--------- --------- --------- --------- ---------
Gross Profit 90,908 5,251 5,357 979 102,495
Engineering, Selling, General and
Administrative Expenses 27,625 4,656 3,148 -- 35,429
--------- --------- --------- --------- ---------
Income from Operations 63,283 595 2,209 979 67,066
Interest Expense (11,570) (10) (820) -- (12,400)
Other (Expense) Income, Net 4,220 42 12,611 (14,185) 2,688
--------- --------- --------- --------- ---------
Income Before Provision (Credit)
for Income Taxes 55,933 627 14,000 (13,206) 57,354
Provision (Credit) for Income Taxes 18,999 241 500 -- 19,740
--------- --------- --------- --------- ---------
Net Income $ 36,934 $ 386 $ 13,500 $ (13,206) $ 37,614
========= ========= ========= ========= =========
STATEMENT OF EARNINGS:
For the Nine Months Ended
- -------------------------- Briggs & Stratton Guarantor Non--Guarantor
March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ----------- ------------ ------------------ ------------ ------------
Net Sales $ 932,549 $ 151,195 $ 59,605 $ (73,273) $ 1,070,076
Cost of Goods Sold 781,695 137,198 46,426 (72,553) 892,766
----------- ----------- ----------- ----------- -----------
Gross Profit 150,854 13,997 13,179 (720) 177,310
Engineering, Selling, General and
Administrative Expenses 89,181 13,682 9,750 -- 112,613
----------- ----------- ----------- ----------- -----------
Income from Operations 61,673 315 3,429 (720) 64,697
Interest Expense (32,712) (49) (1,246) 84 (33,923)
Other (Expense) Income, Net 3,337 99 13,076 (13,081) 3,431
----------- ----------- ----------- ----------- -----------
Income Before Provision (Credit)
for Income Taxes 32,298 365 15,259 (13,717) 34,205
Provision (Credit) for Income Taxes 10,409 157 1,070 -- 11,636
----------- ----------- ----------- ----------- -----------
Net Income $ 21,889 $ 208 $ 14,189 $ (13,717) $ 22,569
=========== =========== =========== =========== ===========
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS:
For the Nine Months Ended
- ------------------------- Briggs & Stratton Guarantor Non--Guarantor
March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ----------- ------------ -------------- ------------ ------------
Cash Flows from Operating Activities:
Net Income $ 21,889 $ 208 $ 14,189 $ (13,717) $ 22,569
Adjustments to Reconcile Net Income
to Net Cash Used in
Operating Activities-
Depreciation and Amortization 43,458 (1,469) 428 -- 42,417
Equity Earnings of Affiliates and
Subsidiaries (13,303) -- (41) 10,909 (2,435)
(Gain) Loss on Disposition of Plant and
Equipment 1,935 (19) (13) -- 1,903
Pension Income, Net (17,286) -- -- -- (17,286)
Provision for Deferred Taxes 2,233 6,540 -- -- 8,773
Change in Operating Assets and Liabilities-
Increase in Receivables (249,424) (838) (21,014) 14,139 (257,137)
Decrease in Inventories 84,181 2,540 581 908 88,210
(Increase) Decrease in Other Current Assets 1,162 (730) (522) -- (90)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 39,324 (4,574) 8,936 (14,327) 29,359
Other, Net 590 (191) -- -- 399
--------- --------- --------- --------- ---------
Net Cash (Used in) Provided by
Operating Activities (85,241) 1,467 2,544 (2,088) (83,318)
--------- --------- --------- --------- ---------
Cash Flows from Investing Activities:
Additions to Plant and Equipment (32,745) (1,409) (411) -- (34,565)
Proceeds Received on Disposition of
Plant and Equipment 581 19 20 -- 620
Other, net 3,706 -- 706 -- 4,412
--------- --------- --------- --------- ---------
Net Cash (Used in) Provided by
Investing Activities (28,458) (1,390) 315 -- (29,533)
--------- --------- --------- --------- ---------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on
Loans and Notes Payable 108,657 821 (661) -- 108,817
Issuance Costs of
Long--Term Debt (346) -- -- -- (346)
Dividends (20,299) -- (2,088) 2,088 (20,299)
Proceeds from Exercise of Stock
Options 943 -- -- -- 943
--------- --------- --------- --------- ---------
Net Cash Provided by (Used in)
Financing Activities 88,955 821 (2,749) 2,088 89,115
--------- --------- --------- --------- ---------
Effect of Exchange Rate Changes -- 146 281 -- 427
--------- --------- --------- --------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents (24,744) 1,044 391 -- (23,309)
Cash and Cash Equivalents, Beginning 85,282 683 2,778 -- 88,743
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, Ending $ 60,538 $ 1,727 $ 3,169 $ -- $ 65,434
========= ========= ========= ========= =========
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 was approximately 7%.
The third quarter results for fiscal 2002 reflect $1 million in savings
from lower salary related expenditures. The nine month results for fiscal 2002
include net expenses of $4 million after taxes, representing the net 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
an additional $2 million in savings during the fourth quarter 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 nine months. The first nine months of fiscal
2001 did not include results of GPP.
SALES
Net sales for the third quarter of fiscal 2002 totaled $517 million, an
increase of $87 million or 20% when compared to the same period of the preceding
year. This increase was the result of a $28 million increase in Engine sales and
the inclusion of $59 million in GPP sales in the third quarter for the first
time. In addition, we eliminated $11 million in intercompany engine sales to
GPP.
Third quarter net sales for the Engine segment of the business were
$469 million versus $430 million in the prior year. This 9% increase was the
result of a 14% increase in unit volume, offset by a sales mix that was weighted
to lower priced engines.
Net sales for the GPP segment of the business totaled $59 million, an
increase of $8 million from their performance a year ago when Briggs & Stratton
did not own them. Generator volume increased 50% over the prior year, reflecting
ice storm activity in early February and new retailer shipments. Pressure washer
unit shipments were up 15% between years. The increase was the result of a shift
in unit shipments between the second and third quarter, and retailer new store
growth.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Net sales for the nine months ended March 31, 2002 totaled $1,070
million, an increase of $91 million or 9% compared to the first nine months of
the prior year. The increase was the result of $151 million of GPP sales, offset
by lower engine sales of $24 million and intercompany sales eliminations of $36
million.
Nine month net sales for the Engine segment for fiscal 2002 were $955
million versus $979 million in the prior year. This decrease is attributable to
a sales mix weighted more heavily to lower priced engines while volume increased
only 1% year to date.
GPP's net sales for the first nine months were $151 million compared to
$136 million a year ago when Briggs & Stratton did not own them. Increased
generator volume in first nine 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.
GROSS PROFIT MARGIN
The gross profit rate was 20% for the third quarters of fiscal years
2002 and 2001.
The Engine segment gross margins were 21% and 20% for the third
quarters of fiscal years 2002 and 2001, respectively. Engine margin was
favorably impacted by reductions of manufacturing costs, including reduced
salaries from the early retirement incentive program. GPP's gross profit rate
was 9% in fiscal 2002 and 2001.
The gross profit rate for the nine-month period decreased to 17% in the
current year from 18% in the prior year. The Engine segment margin is down 1%
for the nine-month period reflecting the impact of cost reductions discussed
above for the quarter, offset by a $5 million pre-tax expense for the early
retirement incentive program that was completed at the end of December 2001.
GPP's gross profit margin decreased from 10% to 9% for the nine-month
period in fiscal 2002 and 2001 respectively. Sales of generators with lower
margins created an unfavorable mix, which negatively affected gross profit
margin for GPP for the comparable nine-month period.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The engineering, selling, and administrative expenses increased $2
million or 7% between the third fiscal quarters of 2002 and 2001. GPP expenses
were $5 million offset by Engine segment reductions. GPP's expenses decreased $1
million from fiscal 2001 reflecting certain integration savings.
This category increased $14 million or 14% for the comparative
nine-month periods. The inclusion of GPP accounted for almost all of this
increase.
INTEREST EXPENSE
Interest expense increased $4 million or 41% in the third quarter
comparison and increased $12 million or 56% in the nine-month comparison. These
increases were the result of the long-term debt issued for the acquisition of
GPP, offset by lower borrowings for working capital in the current fiscal year.
14
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PROVISION FOR INCOME TAXES
The effective tax rate used in the third quarter of fiscal 2002 was
34%. Management estimates the effective tax rate for the entire fiscal year
2002 will remain at 34%. The effective tax rate for the third quarter and
nine-month periods for fiscal 2001 was 37%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities for the nine-month periods of
fiscal 2002 and fiscal 2001 were $83 million and $205 million, respectively, a
$122 million decrease in the cash used in operating activities between years.
This reflects reduced working capital requirements of $131 million, offset by
decreased net income of $21 million. The primary reason for the 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 nine months
to lower the finished engine inventory to more historical levels.
Net cash used in investing activities totaled $30 million and $43
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 $173 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
On 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. For a description of the terms of the new credit
facility see Item 2 in Part II of our Quarterly Report on Form 10-Q for the
fiscal quarter ended December 30, 2001.
As of March 31, 2002, we had utilized $110 million of the revolver. As
of April 30, 2002, we have paid back all borrowings under the revolving credit
facility. Management expects cash flows used to fund capital expenditures will
approximate $55 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.
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 nine 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.
Management projects that EBITA for fiscal 2002 will be in the range of $170
million to $175 million.
15
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
OUTLOOK
We continue to believe that Engine segment shipments will be up 5%
between years; however, we have lowered our fourth quarter revenue projections
to $390 million, stronger than last year but down from our earlier projection.
While we anticipate increased unit volume between years, we believe the
unfavorable sales mix to lower priced engine units will continue through the
fourth quarter. We believe gross margins for the full year will be approximately
18%.
Engineering, selling, and administrative expenses for the year are
currently estimated to be $149 million. The increase in this category is due to
the inclusion of GPP's costs.
Interest expense is anticipated to be approximately $44 million and
depreciation and capital expenditures are each projected to be approximately $55
million for the year. The effective tax rate is projected to be at 34%. As a
result, we project net income of approximately $45 million for fiscal year 2002.
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 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.
16
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
10 Notice of Election for Fixed Price Cash Pay-Out Under
Deferred Compensation Agreement by Frederick P.
Stratton, Jr. Dated January 3, 2002, and Approval of
Compensation Committee Dated January 15, 2002*
10.1 Amended and Restated Supplemental Executive
Retirement Plan*
10.2 Amended and Restated Economic Value Added Incentive
Compensation Plan*
10.3 Amended and Restated Director's Leveraged Stock
Option Program*
10.4 Amended and Restated Leveraged Stock Option Program*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
*Filed herewith
(b) Reports on Form 8-K.
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: May 13, 2002 /s/ James E. Brenn
------------------
James E. Brenn
Senior Vice President and Chief Financial Officer and
Duly Authorized Officer
17
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10 Notice of Election for Fixed Price Cash Pay-Out Under Deferred
Compensation Agreement by Frederick P. Stratton, Jr. Dated
January 3, 2002, and Approval of Compensation Committee Dated
January 15, 2002*
10.1 Amended and Restated Supplemental Executive Retirement Plan*
10.2 Amended and Restated Economic Value Added Incentive
Compensation Plan*
10.3 Amended and Restated Director's Leveraged Stock Option
Program*
10.4 Amended and Restated Leveraged Stock Option Program*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
*Filed herewith
18