1
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT NO. 13
ANNUAL REPORT TO SHAREHOLDERS FOR YEAR ENDED JULY 2, 1995
2
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JULY 2, 1995, JULY 3, 1994 AND JUNE 27, 1993
1995 1994 1993
---- ---- ----
NET SALES . . . . . . . . . . . . . . . . . . $1,339,677,000 $1,285,517,000 $1,139,462,000
COST OF GOODS SOLD . . . . . . . . . . . . . 1,068,059,000 1,018,977,000 926,861,000
-------------- -------------- --------------
Gross Profit on Sales . . . . . . . . . . . 271,618,000 266,540,000 212,601,000
ENGINEERING, SELLING,
GENERAL AND
ADMINISTRATIVE EXPENSES . . . . . . . . . . 101,852,000 94,795,000 83,176,000
-------------- -------------- --------------
Income from Operations . . . . . . . . . 169,766,000 171,745,000 129,425,000
INTEREST EXPENSE . . . . . . . . . . . . . . (8,580,000) (8,997,000) (11,283,000)
OTHER INCOME (EXPENSE), Net . . . . . . . . . 9,189,000 6,973,000 (3,737,000)
-------------- -------------- --------------
Income Before Provision for
Income Taxes . . . . . . . . . . . . . . 170,375,000 169,721,000 114,405,000
PROVISION FOR INCOME TAXES . . . . . . . . . 65,570,000 67,240,000 44,060,000
-------------- -------------- --------------
Net Income Before Cumulative Effect of
Accounting Changes . . . . . . . . . . . 104,805,000 102,481,000 70,345,000
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES FOR:
Postretirement Health Care, Net of
Income Taxes of $25,722,000 . . . . . . -- (40,232,000) --
Postemployment Benefits, Net of
Income Taxes of $430,000 . . . . . . . -- (672,000) --
Deferred Income Taxes . . . . . . . . . . -- 8,346,000 --
-------------- -------------- --------------
-- (32,558,000) --
-------------- -------------- --------------
NET INCOME . . . . . . . . . . . . . . . . . $ 104,805,000 $ 69,923,000 $ 70,345,000
============== ============== ==============
PER SHARE DATA:
Net Income Before Cumulative Effect of
Accounting Changes . . . . . . . . . . $ 3.62 $ 3.54 $ 2.43
Cumulative Effect of
Accounting Changes . . . . . . . . . . -- (1.12) --
-------------- -------------- --------------
NET INCOME . . . . . . . . . . . . . . . . . $ 3.62 $ 2.42 $ 2.43
============== ============== ==============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
12
3
CONSOLIDATED BALANCE SHEETS
AS OF JULY 2, 1995 AND JULY 3, 1994
ASSETS 1995 1994
---- ----
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,648,000 $221,101,000
Receivables, Less Reserves of $1,537,000 and $1,678,000, Respectively . . . . . 94,116,000 122,597,000
Inventories-
Finished Products and Parts . . . . . . . . . . . . . . . . . . . . . . . . . 96,540,000 55,847,000
Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,107,000 27,078,000
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,027,000 2,745,000
------------ ------------
Total Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,674,000 85,670,000
Future Income Tax Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 31,376,000 32,868,000
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,516,000 20,548,000
------------ ------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 453,330,000 482,784,000
PREPAID PENSION COST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 8,681,000
DEFERRED INCOME TAX ASSET . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,866,000 --
PLANT AND EQUIPMENT:
Land and Land Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 9,499,000 10,279,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,844,000 111,966,000
Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507,606,000 530,701,000
Construction in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,382,000 16,647,000
------------ ------------
726,331,000 669,593,000
Less - Accumulated Depreciation and Unamortized
Investment Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,034,000 383,703,000
------------ ------------
Total Plant and Equipment, Net . . . . . . . . . . . . . . . . . . . . . 343,297,000 285,890,000
------------ ------------
$798,493,000 $777,355,000
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,913,000 $ 56,364,000
Domestic Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750,000 --
Foreign Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,653,000 21,323,000
Accrued Liabilities -
Wages and Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,900,000 48,545,000
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,353,000 29,800,000
Taxes, Other Than Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 5,702,000 6,772,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,862,000 34,837,000
------------ ------------
Total Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 108,817,000 119,954,000
Federal and State Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,878,000) 9,103,000
------------ ------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 197,255,000 206,744,000
DEFERRED INCOME TAX LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . -- 12,317,000
ACCRUED PENSION COST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,606,000 --
ACCRUED EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,447,000 15,423,000
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION . . . . . . . . . . . . . . . . . . 68,707,000 64,079,000
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000,000 75,000,000
SHAREHOLDERS' INVESTMENT:
Common Stock -
Authorized 60,000,000 shares $.01 Par Value,
Issued and Outstanding 28,927,000 in 1995
and 14,463,500 Shares in 1994 . . . . . . . . . . . . . . . . . . . . . . . 289,000 145,000
Additional Paid-In Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 41,698,000 42,358,000
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,627,000 362,136,000
Cumulative Translation Adjustments . . . . . . . . . . . . . . . . . . . . . . (136,000) (847,000)
------------ ------------
Total Shareholders' Investment . . . . . . . . . . . . . . . . . . . . . 439,478,000 403,792,000
------------ ------------
$798,493,000 $777,355,000
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
13
4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED JULY 2, 1995, JULY 3, 1994 AND JUNE 27, 1993
Additional Cumulative
Common Paid-In Retained Translation
Stock Capital Earnings Adjustments
------------- ------------ ------------- -------------
BALANCES JUNE 30, 1992 . . . . . . . . . . $ 43,391,000 $ - $272,490,000 $(3,477,000)
Net Income . . . . . . . . . . . . . . . - - 70,345,000 -
Cash Dividends Paid ($.85 per share) . . - - (24,588,000) -
Reduction of Par Value . . . . . . . . . (43,246,000) 43,246,000 - -
Purchase of Common Stock
for Treasury . . . . . . . . . . . . . - (463,000) - -
Proceeds from Exercise of
Stock Options . . . . . . . . . . . . - 100,000 - -
Currency Translation Adjustments . . . . - - - (1,340,000)
Loss on Foreign Subsidiary . . . . . . . - - - 3,500,000
------------ ----------- ------------ ------------
BALANCES JUNE 27, 1993 . . . . . . . . . . 145,000 42,883,000 318,247,000 (1,317,000)
Net Income . . . . . . . . . . . . . . . - - 69,923,000 -
Cash Dividends Paid ($.90 per share) . . - - (26,034,000) -
Purchase of Common Stock
for Treasury . . . . . . . . . . . . . - (791,000) - -
Proceeds from Exercise of
Stock Options . . . . . . . . . . . . - 266,000 - -
Currency Translation Adjustments . . . . - - - 470,000
------------ ----------- ------------ -------------
BALANCES JULY 3, 1994 . . . . . . . . . . 145,000 42,358,000 362,136,000 (847,000)
Net Income . . . . . . . . . . . . . . . - - 104,805,000 -
Cash Dividends Paid ($.98 per share) . . - - (28,348,000) -
Distribution of Shares of STRATTEC
SECURITY CORPORATION . . . . . . . . . - - (40,966,000) 1,226,000
Two-for-One Stock Split . . . . . . . . 144,000 (144,000) - -
Purchase of Common Stock
for Treasury . . . . . . . . . . . . . - (915,000) - -
Proceeds from Exercise of
Stock Options . . . . . . . . . . . . - 399,000 - -
Currency Translation Adjustments . . . . - - - (515,000)
------------ ----------- ------------ ------------
BALANCES JULY 2, 1995 . . . . . . . . . . $ 289,000 $41,698,000 $397,627,000 $ (136,000)
============ =========== ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
14
5
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JULY 2, 1995, JULY 3, 1994 AND JUNE 27, 1993
Increase (Decrease) in Cash and Cash Equivalents
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 104,805,000 $ 69,923,000 $ 70,345,000
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Cumulative Effect of Accounting Changes,
Net of Income Taxes . . . . . . . . . . . . . . . - 32,558,000 -
Depreciation . . . . . . . . . . . . . . . . . . . . 44,445,000 42,950,000 47,222,000
(Gain) Loss on Disposition of Plant and
Equipment . . . . . . . . . . . . . . . . . . . . 1,452,000 (96,000) 4,027,000
Loss on Foreign Subsidiary . . . . . . . . . . . . . - - 3,500,000
Changes in Operating Assets and Liabilities -
(Increase) Decrease in Receivables . . . . . . . . 11,125,000 2,384,000 (21,366,000)
(Increase) in Inventories . . . . . . . . . . . . (62,753,000) (11,605,000) (1,576,000)
(Increase) in Other Current Assets . . . . . . . . (4,720,000) (10,593,000) (1,893,000)
Increase (Decrease) in Accounts Payable,
Accrued Liabilities and Income Taxes . . . . . . (8,220,000) 38,132,000 13,731,000
Ohter, Net . . . . . . . . . . . . . . . . . . . . 9,633,000 1,420,000 (3,699,000)
------------- ------------ -------------
Net Cash Provided by Operating Activities. . . . 95,767,000 165,073,000 110,291,000
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment . . . . . . . . . . . (131,034,000) (40,804,000) (38,110,000)
Proceeds Received on Sale of Plant and Equipment . . . 2,055,000 7,268,000 626,000
Sale (Purchase) of Short-Term Investments . . . . . . - 70,422,000 (70,422,000)
Decrease in Cash Due to Spin-Off of Lock Business . . (174,000) - -
------------- ------------ -------------
Net Cash Provided by (Used in)
Investing Activities . . . . . . . . . . . . . (129,153,000) 36,886,000 (107,906,000)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and
Notes Payable . . . . . . . . . . . . . . . . . . . 12,080,000 5,396,000 (15,926,000)
Cash Dividends Paid . . . . . . . . . . . . . . . . . (28,348,000) (26,034,000) (24,588,000)
Purchase of Common Stock for Treasury . . . . . . . . (915,000) (791,000) (463,000)
Proceeds from Exercise of Stock Options . . . . . . . 399,000 266,000 100,000
------------- ------------ -------------
Net Cash Used in Financing Activities . . . . . (16,784,000) (21,163,000) (40,877,000)
------------- ------------ -------------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS . . . . . . . . . (283,000) 804,000 (949,000)
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . (50,453,000) 181,600,000 (39,441,000)
CASH AND CASH EQUIVALENTS:
Beginning of Year. . . . . . . . . . . . . . . . . . . 221,101,000 39,501,000 78,942,000
------------- ------------ -------------
End of Year . . . . . . . . . . . . . . . . . . . . . $ 170,648,000 $221,101,000 $ 39,501,000
============= ============ =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Paid . . . . . . . . . . . . . . . . . . . . $ 8,501,000 $ 8,997,000 $ 11,286,000
============= ============ =============
Income Taxes Paid . . . . . . . . . . . . . . . . . . $ 88,935,000 $ 77,748,000 $ 54,228,000
============= ============ =============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 2, 1995, JULY 3, 1994 AND JUNE 27, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies followed by Briggs & Stratton Corporation
and subsidiaries (the Company) in the preparation of these financial statements,
as summarized below, are in conformity with generally accepted accounting
principles.
Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks, ending on
the Sunday nearest the last day of June in each year. Therefore, the 1995 and
1993 fiscal years were 52 weeks long and the 1994 fiscal year was 53 weeks
long. All references to years relate to fiscal years rather than calendar
years.
Principles of Consolidation: The consolidated financial statements include the
accounts of Briggs & Stratton Corporation and its wholly owned domestic and
foreign subsidiaries after elimination of intercompany accounts and
transactions.
Cash and Cash Equivalents: This caption includes cash and certificates of
deposit. The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at cost, which does not exceed market. The
last-in, first-out (LIFO) method was used for determining the cost of
approximately 93% of total inventories at July 2, 1995, 89% at July 3, 1994 and
June 27, 1993. The cost for the remaining portion of the inventories was
determined using the first-in, first-out (FIFO) method. If the FIFO inventory
valuation method had been used exclusively, inventories would have been
$43,582,000, $42,268,000 and $40,888,000 higher in the respective years. The
LIFO inventory adjustment was determined on an overall basis, and accordingly,
each class of inventory reflects an allocation based on the FIFO amounts.
Plant and Equipment and Depreciation:
Plant and equipment is stated at cost, and depreciation is computed using the
straight-line method at rates based upon the estimated useful lives of the
assets.
Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for major renewals and betterments, which significantly extend the
useful lives of existing plant and equipment, are capitalized and depreciated.
Upon retirement or disposition of plant and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in other income.
Investment Tax Credits: The Company follows the deferral method of accounting
for the Federal investment tax credit. The credit, which was eliminated in
1986, has been recorded as an addition to accumulated depreciation and is being
amortized over the estimated useful lives of the related assets via a reduction
of depreciation expense.
The amounts amortized into income in each of the three years were $759,000 in
1995, $830,000 in 1994 and $880,000 in 1993. During 1995, $217,000 was
eliminated in the spin-off, as described in subsequent footnotes. At the end of
fiscal years 1995 and 1994, unamortized deferred investment tax credits
aggregated $2,249,000 and $3,225,000, respectively.
Income Taxes: The Provision for Income Taxes includes Federal, state and
foreign income taxes currently payable and those deferred or prepaid
because of temporary differences between financial statement and tax bases of
assets and liabilities. The Future Income Tax Benefits represent temporary
differences relating to current assets and current liabilities and the Deferred
Income Taxes represent temporary differences relating to noncurrent assets and
liabilities.
Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements and refinements to
existing products, are expensed as incurred. The amounts charged against
income were $13,112,000 in 1995, $12,520,000 in 1994 and $10,411,000 in 1993.
16
7
NOTES...
Accrued Employee Benefits: The Company's life insurance program includes
payment of a death benefit to beneficiaries of retired employees. The Company
accrues for the estimated cost of these benefits over the estimated working
life of the employee. Past service costs for all retired employees have been
fully provided for. The Company also accrues for the estimated cost of
supplemental retirement and death benefit agreements with executive officers.
Accrued Postretirement Health Care Obligation: During the 1994 fiscal year, the
Company adopted the accounting prescribed in Financial Accounting Standard
(FAS) No. 106 (Postretirement Benefits Other Than Pensions). This change and
the amounts associated with it are more fully described in subsequent
footnotes.
Foreign Currency Translation: Foreign currency balance sheet accounts are
translated into United States dollars at the rates of exchange in effect at
fiscal year end. Income and expenses are translated at the average rates of
exchange in effect during the year. The related translation adjustments are
made directly to a separate component of shareholders' investment.
Derivatives: Potential losses on foreign currency hedges with controlled
subsidiaries are carried on the balance sheet. Gains and losses related to all
other hedges of anticipated transactions are deferred and recognized as
adjustments of carrying amounts when the hedged transaction occurs.
Start-Up Costs: It is the Company's policy to expense all start-up costs for
new manufacturing plants being constructed. Under this policy, the Company
expensed $5,300,000 in fiscal 1995 of start-up costs for plants being
constructed, as described in Note 6.
(2) INCOME TAXES:
The provision for income taxes consists of the following (in thousands of
dollars):
1995 1994 1993
---- ---- ----
Current
Federal.......... $ 67,255 $62,795 $43,403
State............ 10,644 10,482 7,464
Foreign.......... 873 2,059 818
-------- ------- -------
78,772 75,336 51,685
Deferred............ (13,202) (8,096) (7,625)
-------- ------- -------
Total............... $ 65,570 $67,240 $44,060
======== ======= =======
For 1993, the deferred tax provision was computed in accordance with Accounting
Principles Board Opinion No. 11. This provision consisted of the following
items (in thousands of dollars):
1993
----
Future income tax effect of tax depreciation
less than book depreciation.......................... $(3,007)
Tax effect resulting from maintenance and supply
inventories being capitalized for tax purposes, but
which continue to be expensed for book purposes...... 1,213
Other items............................................ (5,831)
-------
$(7,625)
=======
A reconciliation of the U.S. statutory tax rates to the effective tax rates
follows:
1995 1994 1993
---- ---- ----
U.S. statutory rate........... 35.0% 35.0% 34.0%
State taxes, net of
Federal tax benefit......... 3.5% 3.6% 3.8%
Foreign Sales Corporation
tax benefit................. (.6%) (.5%) (.9%)
Loss on foreign subsidiary
not deductible.............. -- -- 1.0%
Other......................... .6% 1.5% .6%
----- ----- -----
Effective tax rate............ 38.5% 39.6% 38.5%
===== ===== =====
17
8
NOTES...
At the beginning of fiscal year 1994, the Company adopted FAS No. 109
(Accounting For Income Taxes) which required a change in the recording of
deferred taxes. The former method emphasized provisions which were made in the
income statement. The emphasis in the new method is on the balance sheet and
requires that the amounts to be recorded are the amounts which will eventually
be paid out. The adoption of this standard resulted in a cumulative adjustment
which was recorded as income totaling $8,346,000 or $.29 per share.
The components of deferred tax assets and liabilities at the end of the fiscal
year were (in thousands of dollars):
1995 1994
---- ----
Future Income Tax Benefits:
Inventory...................................... $ 3,710 $ 3,675
Prepaid Expenses............................... 167 1,712
Payroll Related Accruals....................... 4,153 7,145
Warranty Reserves.............................. 11,838 11,622
Other Accrued Liabilities...................... 8,255 6,727
Miscellaneous.................................. 3,253 1,987
-------- --------
$ 31,376 $ 32,868
======== ========
Deferred Income Taxes:
Difference between book and tax methods applied
to maintenance and supply inventories........ $ (6,618) $ (4,037)
Pension Cost................................... (400) 3,487
Accumulated Depreciation....................... 39,176 43,866
Accrued Employee Benefits...................... (6,469) (6,047)
Postretirement Health Care Obligation.......... (26,796) (24,991)
Miscellaneous.................................. (759) 39
-------- --------
Net Deferred Income Tax (Asset) Liability.... $ (1,866) $ 12,317
======== ========
(3) INDUSTRY SEGMENTS:
Certain information concerning the Company's industry segments is presented
below (in thousands of dollars):
1995 1994 1993
---- ---- ----
SALES --
Engines & parts............. $1,276,264 $1,197,744 $1,066,053
Locks....................... 63,413 87,773 73,409
---------- ---------- ----------
$1,339,677 $1,285,517 $1,139,462
========== ========== ==========
INCOME FROM OPERATIONS --
Engines & parts............. $ 162,903 $ 158,900 $ 128,079
Locks....................... 6,863 12,845 1,346
---------- ---------- ----------
$ 169,766 $ 171,745 $ 129,425
========== ========== ==========
ASSETS --
Engines & parts............. $ 798,493 $ 467,561 $ 458,369
Locks....................... -- 46,832 49,557
Unallocated................. -- 262,962 148,181
---------- ---------- ----------
$ 798,493 $ 777,355 $ 656,107
========== ========== ==========
DEPRECIATION EXPENSE --
Engines & parts............. $ 42,746 $ 40,605 $ 44,895
Locks....................... 1,699 2,345 2,327
---------- ---------- ----------
$ 44,445 $ 42,950 $ 47,222
========== ========== ==========
EXPENDITURES FOR PLANT AND
EQUIPMENT --
Engines & parts............. $ 124,604 $ 37,398 $ 34,251
Locks....................... 6,430 3,406 3,859
---------- ---------- ----------
$ 131,034 $ 40,804 $ 38,110
========== ========== ==========
On February 27, 1995, the Company spun off its lock business to its shareholders
in a tax-free distribution. This spin-off was accomplished by distributing
shares in a newly created corporation on the basis of one share in the new
corporation for each five shares of Briggs & Stratton Corporation stock held on
February 16, 1995. The newly created corporation, STRATTEC SECURITY
CORPORATION, is publicly traded. This distribution resulted in a charge of
$40,966,000 against the retained earnings account and represented the total of
the net assets transferred to STRATTEC. The financial statements of Briggs &
Stratton Corporation have not been restated to deal with this distribution as a
discontinued operation because the amounts were not material.
18
9
NOTES...
The preceding Sales, Income From Operations, Depreciation Expense, and
Expenditures For Plant and Equipment reflect 1995 data for the lock business
from the beginning of the fiscal year to the date of spin-off.
Unallocated assets include cash and cash equivalents, short-term investments,
future income tax benefits, prepaid pension costs and other assets.
Export sales for fiscal 1995 were $312,234,000 (23% of total sales), for fiscal
1994 were $264,866,000 (21%) and for fiscal 1993 were $249,610,000 (22%). These
sales were principally to customers in European countries.
In the fiscal years 1995, 1994 and 1993, there were sales to three major engine
customers that exceeded 10% of total Company net sales. The sales to these
customers are summarized below (in thousands of dollars and percent of total
Company sales):
1995 1994 1993
---- ---- ----
Customer SALES % Sales % Sales %
----- --- ----- --- ----- ---
A $237,241 18% $234,363 18% $214,995 19%
B 189,916 14% 149,397 12% 139,662 12%
C 155,072 12% 148,091 12% 119,912 11%
-------- --- -------- --- -------- ---
$582,229 44% $531,851 42% $474,569 42%
======== === ======== === ======== ===
(4) INDEBTEDNESS:
The Company had access to domestic lines of credit totaling $47,000,000 during
fiscal year 1995, all of which were unused. These lines will remain available
until they expire at various dates, the latest of which is in December, 1995.
These lines are renewable annually with arrangements providing amounts for
short-term use at the then prevailing rate. There are no significant
compensating balance requirements.
The following data relates to domestic notes payable:
1995 1994
---- ----
Balance at Fiscal Year End..... $6,750,000 $ --
Weighted Average Interest
Rate at Fiscal Year End...... 5.00% --
The lines of credit available to the Company in foreign countries are in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. These amounts total $21,000,000, expire at various times
through September, 1995 and are renewable. None of these arrangements had
material commitment fees or compensating balance requirements.
The following information relates to the foreign loans:
1995 1994
---- ----
Balance at Fiscal Year End .... $19,653,000 $21,323,000
Weighted Average Interest
Rate at Fiscal Year End .... 5.80% 6.13%
The Company's long-term debt consists of 9.21% Senior Notes due June 15, 2001.
Payments on these notes are due in five equal annual installments beginning in
1997. The notes include covenants that limit total borrowings, require
maintenance of $200,000,000 minimum net worth and set certain restrictions on
the sale or collateralizing of the Company's assets.
19
10
NOTES...
(5) OTHER INCOME (EXPENSE):
The components of other income (expense) are (in thousands of dollars):
1995 1994 1993
---- ---- ----
Interest Income....................... $ 6,840 $ 3,527 $ 1,640
Gain on sale of German land
and buildings....................... -- 2,819 --
Loss on the disposition of plant
and equipment....................... (1,452) (2,723) (4,027)
Loss on foreign subsidiary............ -- -- (3,500)
Income from joint ventures............ 2,842 2,307 1,120
Other Items........................... 959 1,043 1,030
------- ------- -------
Total................................. $ 9,189 $ 6,973 $(3,737)
======= ======= =======
The $3,500,000 loss on foreign subsidiary in fiscal year 1993 is the
recognition of the cumulative translation adjustment relating to the Company's
German subsidiary, which changed business operations during the year from an
engine and parts distributor to a commissioned agent.
(6) GUARANTEES AND COMMITMENTS:
The Company is a 50% guarantor on bank loans of two unconsolidated joint
ventures. One is in Japan for the manufacture of engines and the second in the
United States for the manufacture of parts. These bank loans totaled
approximately $18,000,000 at the end of 1995.
The Company previously committed itself to the building of three new
engine plants in the United States. It was originally estimated that the
incremental capital expenditures for these new plants and plant expansions
would total $112,000,000. This amount was subsequently increased by
$12,000,000, primarily to reflect more current construction cost estimates at
two of the three plants. The Company was also committed to the purchase of a
foundry, totaling an additional $20,000,000. A total of $101,500,000 has been
spent on these projects through the 1995 fiscal year end and is contained in
the Construction In Progress account on the accompanying balance sheet.
The Company has no other material commitments for materials or capital
expenditures at July 2, 1995.
20
11
NOTES...
(7) STOCK OPTIONS:
In 1990, shareholders approved the Stock Incentive Plan under which
400,000 shares of the Company's common stock were reserved for issuance. In
fiscal 1994, shareholders approved an additional 1,250,000 shares for issuance
under the Plan, bringing the total shares reserved for issuance to 1,650,000.
In fiscal 1995, pursuant to the terms of the Plan, the number of shares
reserved for issuance was adjusted to 3,361,935 to reflect the two-for-one
stock split and the spin-off of its lock business.
Information on the options outstanding is as follows:
Options Outstanding in Number of
Common Stock Shares
--------------------------------
1995 1994 1993
---- ---- ----
Balance, beginning of year......... 606,864 390,184 415,000
Granted during the year --
1994 at $48.369................. -- 253,420 --
1995 at $45.854................. 552,000 -- --
Increase due to spin-off........... 83,843 -- --
Exercised during the year.......... (43,827) (19,000) (24,816)(a)
Terminated during the year......... (29,260) (17,740) --
--------- ------- -------
Balance, end of year............... 1,169,620 606,864 390,184
========= ======= =======
<Caption
Grant Summary
- -------------------------------------------------------------------------------
Fiscal Grant Exercise Date Options Expiration
Year Date Price(b) Exercisable Outstanding Date
- ------ ----- -------- ----------- ----------- ----------
1990 2-20-90 $13.014 50%, 1-1-94; 22,934 2-19-00
50%, 1-1-95
1991 2-19-91 14.524 50%, 1-1-95; 112,387 2-18-01
50%, 1-1-96
1992 5-18-92 21.525 50%, 1-1-96; 208,709 5-17-02
50%, 1-1-97
1994 8-16-93 48.369 8-16-96 258,085 8-16-98
1995 8-12-94 45.854 8-12-97 567,505 8-12-99
There were no options granted in fiscal 1993.
(a) Options exercised reflect an acceleration of exercise rights due to
employee retirements.
(b) Exercise prices have been adjusted to reflect two-for-one stock split and
the spin-off of the Company's lock business.
(8) SHAREHOLDER RIGHTS PLAN:
In 1989, the Board of Directors declared a dividend distribution of one
common stock purchase right (a ''right'') for each share of the Company's
common stock. Each right, as adjusted for the stock split and spin-off, would
entitle shareowners to buy .5409 of one share of the Company's common stock at
an exercise price of $39.29 per full common share, subject to adjustment. The
rights are not currently exercisable, but would become exercisable if certain
events occurred relating to a person or group acquiring or attempting to
acquire 20 percent or more of the outstanding shares of common stock. In fiscal
1995, the Board of Directors amended the Rights Plan accelerating the
expiration date from January 5, 2000 to July 1, 1996, unless the rights are
redeemed or exchanged by the Company earlier.
21
12
NOTES...
(9) RETIREMENT PLANS AND POSTRETIREMENT COSTS:
The Company has noncontributory, defined benefit retirement plans covering most
employees. The following tables summarize the plans' income and expense,
actuarial assumptions, and funded status for the three years indicated (dollars
in thousands):
Qualified Plans Supplemental Plans
-------------------------------------- ---------------------------------------
1995 1994 1993 1995 1994 1993
--------- --------- --------- ---------- ---------- ---------
Income and Expense:
Service Cost-Benefits Earned
During the Year . . . . . . . . . . . . $ 15,098 $ 13,079 $ 12,222 $ 453 $ 296 $ 150
Interest Cost on Projected
Benefit Obligation . . . . . . . . . . 39,877 36,408 35,448 904 706 542
Actual Return on Plan Assets . . . . . . . (89,941) (7,152) (56,232) (3) (3) (2)
Net Amortization, Deferral
and Windows . . . . . . . . . . . . . . 37,078 (42,978) 8,577 333 380 198
-------- -------- -------- -------- ------- -------
Net Periodic Pension
Expense (Income) . . . . . . . . . . . . $ 2,112 $ (643) $ 15 $ 1,687 $ 1,379 $ 888
======== ======== ======== ======== ======= =======
Actuarial Assumptions:
Discount Rate Used to Determine
Present Value of Projected
Benefit Obligation . . . . . . . . . . . 7.75% 7.75% 8.25% 7.75% 7.75% 8.25%
Expected Rate of Future
Compensation Level Increases . . . . . . 5.5% 5.5% 5.5% 5.5% 5.5% 6.5%
Expected Long-Term Rate of
Return on Plan Assets . . . . . . . . . 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Funded Status:
Actuarial Present Value of
Benefit Obligations:
Vested . . . . . . . . . . . . . . . . $389,117 $359,383 $326,062 $ 7,991 $ 6,560 $ 5,592
Non-Vested . . . . . . . . . . . . . . 36,144 34,382 37,623 6 23 4
-------- -------- -------- -------- ------- -------
Accumulated Benefit
Obligation . . . . . . . . . . . . . 425,261 393,765 363,685 7,997 6,583 5,596
Effect of Projected Future
Wage and Salary Increases . . . . . . . 124,651 112,771 101,471 4,679 3,267 1,410
-------- -------- -------- -------- ------- -------
Projected Benefit Obligation . . . . . . 549,912 506,536 465,156 12,676 9,850 7,006
Plan Assets at Fair Market Value . . . . . 609,385 560,585 578,780 100 103 58
-------- -------- -------- -------- ------- -------
Plan Assets in Excess of (Less Than)
Projected Benefit Obligation . . . . . . 59,473 54,049 113,624 (12,576) (9,747) (6,948)
Remaining Unrecognized Net
Obligation (Asset) Arising
from the Initial Application of
SFAS No. 87 . . . . . . . . . . . . . . (36,902) (43,776) (49,256) 258 336 414
Unrecognized Net Loss (Gain) . . . . . . . (21,992) (502) (55,560) 5,277 3,416 2,486
Unrecognized Prior Service Cost . . . . . (2,185) (1,090) (1,206) 1,102 1,176 -
-------- -------- -------- -------- ------- -------
Prepaid (Accrued) Pension Cost . . . . . . $ (1,606) $ 8,681 $ 7,602 $ (5,939) $(4,819) $(4,048)
======== ======== ======== ======== ======== =======
As part of the spin-off of the lock business as described in Note 3, the
Company's pension trust transferred $15,872,000 in plan assets to STRATTEC
SECURITY CORPORATION. This transfer also resulted in an increase of $5,000,000
in the prepaid pension cost account.
22
13
NOTES . . .
The Company offered early retirement windows to certain of its Milwaukee union
members during the 1995 fiscal year. As a result, $13,806,000 was added to
pension expense and $5,253,000 was added to postretirement health care expense
in the fourth quarter of the 1995 fiscal year.
The defined benefit pension plan which covers most U.S. non-Wisconsin hourly
employees will be liquidated and replaced by a defined contribution retirement
plan at the beginning of the 1996 calendar year. The plan to be replaced
contains $2,381,000 of plan assets and $1,976,000 of accumulated benefit
obligation.
Salaried employees of the Company may participate in a salary reduction
deferred compensation plan. The Company makes matching contributions of $.50
for every $1.00 deferred by a participant to a maximum of 3% of each
participant's salary. Company contributions totaled $1,756,000 in 1995,
$1,630,000 in 1994 and $1,461,000 in 1993.
At the beginning of fiscal year 1994, the Company adopted two Statements of
Financial Accounting Standards (FAS) as follows:
FAS 106 - Postretirement Benefits Other Than Pensions -
This standard requires that the Company record the expected cost of health
care and life insurance benefits during the years that the employees
render service - a significant change from the preceding method which
recognized health care benefits on a cash basis. Postretirement life
insurance benefits were previously being accounted for in a manner
substantially emulating the new standards, so no adjustment was necessary.
The cumulative effect of this change in accounting for postretirement
health care benefits was a charge totaling $65,954,000 on a before tax
basis or $40,232,000 on an after tax basis ($1.39 per share). The
additional annual cost of accruing this cost over the former method was
approximately $2,000,000.
For measurement purposes, a 10.5% annual rate of increase in the per
capita cost of covered health care claims was assumed for the years 1995
through 1997, decreasing gradually to 6% for the year 2007. The health
care cost trend rate assumption has a significant effect on the amounts
reported. The rates, if increased by 1%, would add $7,428,000 to the
accumulated postretirement benefit and $902,000 to the service and interest
cost for the year.
The discount rate used in determining the accumulated postretirement
benefit obligations was 7.75% compounded annually. Both the health
care and life insurance plans are unfunded.
The components of the accumulated postretirement benefit obligations were
(in thousands of dollars):
Health Care
-----------
1995 1994
---- ----
Retirees . . . . . . . . . . . . $33,801 $20,063
Fully Eligible
Plan Participants . . . . . . 4,990 12,110
Other Active Participants. . . . 34,616 36,155
------- -------
$73,407 $68,328
Unrecognized net obligation . . -- --
Unrecognized gain . . . . . . . -- 151
------- -------
$73,407 $68,479
Less current portion . . . . . . 4,700 4,400
------- -------
$68,707 $64,079
======= =======
Life Insurance
--------------
1995 1994
---- ----
Retirees . . . . . . . . . . . . $ 8,553 $ 7,988
Fully Eligible
Plan Participants. . . . . . . 1,453 1,299
Other Active Participants. . . . 1,588 1,402
------- -------
$11,594 $10,689
Unrecognized net obligation. . . (600) (658)
Unrecognized loss . . . . . . . (1,096) (41)
------- -------
$ 9,898 $ 9,990
Less current portion . . . . . . -- --
------- -------
$ 9,898 $ 9,990
======= =======
The current portion of the health care component above represents the
benefits expected to be paid within the next twelve months and is
included in the caption Accrued Liabilities in the accompanying balance
sheet. The net health care balance has its own caption in this balance
sheet. The life insurance component is included in the caption Accrued
Employee Benefits.
23
14
NOTES ...
The net periodic postretirement costs recorded were (in thousands of
dollars):
Health Care
--------------------
1995 1994
---- ----
Service Cost-Benefits attributed to service during the year......... $1,680 $1,768
Interest cost on accumulated benefit obligation .................... 5,150 4,951
------ ------
$6,830 $6,719
====== ======
Life Insurance
---------------------
1995 1994
---- ----
Service Cost-Benefits attributed to service during the year......... $ 73 $ 75
Interest cost on accumulated benefit obligation .................... 801 786
Other .............................................................. 47 47
------ ------
$ 921 $ 908
====== ======
The cost of retiree health care benefits which were expensed when claims
were paid under the previous accounting method in fiscal 1993 totaled
$4,522,000.
FAS 112 - Postemployment Benefits -
This standard was also adopted in fiscal 1994 and required that the Company
record the expected cost of postemployment benefits (not to be confused with
the postretirement benefits described in the preceding paragraphs), also over
the years that employees render service. These benefits are substantially
smaller amounts because they apply only to employees who permanently
terminate employment prior to retirement. The cumulative effect of this
change was a charge totaling $1,102,000 or $672,000 after taxes ($.02 per
share). There will be no significant increase in the annual costs of these
plans.
The items included in this amount are disability payments, life insurance and
medical benefits, and these amounts are also discounted using a 7.75%
interest rate.
The balance in this reserve at the end of fiscal 1995 was $1,106,000 and
at the end of fiscal 1994 was $1,119,000. Both were included in the caption
Accrued Employee Benefits in the accompanying balance sheets.
(10) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents: The carrying amount approximates fair value because
of the short maturity of those instruments.
Long-Term Debt: The fair value of the Company's long-term debt is estimated
based on quotations made on similar issues.
The estimated fair values of the Company's financial instruments are as follows
(in thousands of dollars):
1995
----------------------
Carrying Fair
Amount Value
-------- --------
Cash and Cash Equivalents ............................ $170,648 $170,648
Long-Term Debt ...................................... $ 75,000 $ 81,500
1994
----------------------
Carrying Fair
Amount Value
-------- --------
Cash and Cash Equivalents ........................... $221,101 $221,101
Long-Term Debt ...................................... $ 75,000 $ 77,889
24
15
NOTES...
(11) STOCK SPLIT:
On October 19, 1994, shareholders approved a doubling of the authorized common
stock shares to 60,000,000. This allowed the Company to effect a 2-for-1 stock
split previously authorized by the Board of Directors. The distribution on
November 14, 1994 increased the number of shares outstanding from 14,463,500 to
28,927,000. The amount of $144,000 was transferred from the additional paid-in
capital account to the common stock account to record this distribution. All per
share amounts in this report have been restated to reflect this stock split.
(12) FOREIGN EXCHANGE RISK MANAGEMENT:
The Company enters into forward exchange contracts to hedge purchase and sale
commitments denominated in foreign currencies. The term of these currency
derivatives never exceeds one year and the purpose is to protect the Company
from the risk that the eventual dollars being transferred will be adversely
affected by changes in exchange rates.
The Company has forward foreign currency exchange contracts to purchase 5.2
billion Japanese yen for $63 million through June, 1996. These contracts are
used to hedge the commitments to purchase engines from the Company's Japanese
joint venture and accordingly any gain or loss has been deferred at the end of
the 1995 fiscal year. The amount deferred was a loss of approximately
$2,000,000.
The Company's foreign subsidiaries have the following forward currency
contracts outstanding at the end of fiscal 1995:
In Millions
---------------------
Local U.S. Latest
Currency Currency Dollars Expiration Date
- -------- -------- ------- ---------------
German Deutschemarks...... 10.4 7.0 November, 1995
Australian Dollars........ 1.5 1.1 October, 1995
Canadian Dollars.......... 4.4 3.2 June, 1996
The estimated losses on these contracts has been fully provided for by the
Company.
25
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Briggs & Stratton Corporation:
We have audited the accompanying consolidated balance sheets of Briggs &
Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of July 2,
1995 and July 3, 1994, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended July 2, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Briggs & Stratton Corporation
and subsidiaries as of July 2, 1995 and July 3, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
July 2, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 9 to the consolidated financial statements,
effective at the beginning of the 1994 fiscal year, the Company changed its
methods of accounting for postretirement benefits other than pensions,
postemployment benefits and income taxes.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
July 28, 1995.