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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
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
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(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
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(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class February 8, 1996
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COMMON STOCK, par value $0.01 per share 28,927,000 Shares
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
December 31, 1995, July 2, 1995 and
January 1, 1995 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
December 31, 1995 and January 1, 1995 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended December 31, 1995 and
January 1, 1995 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
ASSETS
Dec.31 July 2 Jan. 1
1995 1995 1995
--------- ------- --------
CURRENT ASSETS: (Unaudited) (Unaudited)
Cash and cash equivalents $ 6,323 $170,648 $ 10,956
Receivables, net 270,142 94,116 288,973
Inventories -
Finished products and parts 156,117 96,540 109,970
Work in process 44,087 40,107 35,004
Raw materials 4,560 4,027 5,469
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Total inventories $204,764 $140,674 $150,443
Future income tax benefits 31,744 31,376 32,349
Prepaid expenses 14,796 16,516 20,001
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Total current assets $527,769 $453,330 $502,722
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PREPAID PENSION COST $ 727 $ - $ 7,873
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DEFERRED INCOME TAX ASSET $ 4,157 $ 1,866 -
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PLANT AND EQUIPMENT, at cost: $759,178 $726,331 $692,563
Less - Accumulated depreciation and
unamortized investment tax credit 387,056 383,034 390,223
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Total plant and equipment, net $372,122 $343,297 $302,340
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$904,775 $798,493 $812,935
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LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 62,251 $ 63,913 $ 58,798
Domestic notes payable 101,558 6,750 1,750
Foreign loans 20,066 19,653 21,595
Accrued liabilities 94,602 108,817 109,506
Dividends payable 7,521 - 7,232
Federal and state income taxes 12,815 (1,878) 13,571
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Total current liabilities $298,813 $197,255 $212,452
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DEFERRED INCOME TAX LIABILITY $ - $ - $ 9,660
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ACCRUED EMPLOYEE BENEFITS $ 17,260 $ 16,447 $ 15,918
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ACCRUED PENSION COST $ - $ 1,606 -
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ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION $ 69,143 $ 68,707 $ 65,341
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LONG-TERM DEBT $ 75,000 $ 75,000 $ 75,000
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SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000,000 shares, $.01 par value
Issued and outstanding 28,927,000 shares $ 289 $ 289 $ 289
Additional paid-in capital 41,327 41,698 42,059
Retained earnings 403,209 397,627 393,388
Cumulative translation adjustments (266) (136) (1,172)
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Total shareholders' investment $444,559 $439,478 $434,564
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$904,775 $798,493 $812,935
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The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands of dollars except amounts per share)
(Unaudited)
Three Months Ended Six Months Ended
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Dec. 31 Jan. 1 Dec. 31 Jan. 1
1995 1995 1995 1995
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NET SALES $329,357 $366,717 $518,834 $594,562
COST OF GOODS SOLD 263,594 283,193 433,930 471,239
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Gross profit on sales $ 65,763 $ 83,524 $ 84,904 $123,323
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 24,801 26,697 49,284 48,973
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Income from operations $ 40,962 $ 56,827 $ 35,620 $ 74,350
INTEREST EXPENSE (2,919) (2,121) (4,976) (4,212)
OTHER INCOME, net 541 557 2,620 3,859
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Income before provision
for income taxes $ 38,584 $ 55,263 $ 33,264 $ 73,997
PROVISION FOR INCOME TAXES 14,660 21,550 12,640 28,860
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Net income $ 23,924 $ 33,713 $ 20,624 $ 45,137
======== ======== ======== ========
PER SHARE DATA* -
Net income $ .82 $ 1.17 $ .71 $ 1.56
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Cash dividends $ .26 $ .25 $ .52 $ .48
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* Based on 28,927,000 shares outstanding.
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase(Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
(Unaudited)
Six Months Ended
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CASH FLOWS FROM OPERATING ACTIVITIES: Dec. 31, 1995 Jan. 1, 1995
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Net income $ 20,624 $ 45,137
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation 20,938 22,662
(Gain)Loss on disposition of plant and
equipment 680 (7)
(Increase)decrease in operating assets -
Accounts receivable (176,026) (166,376)
Inventories (64,090) (64,773)
Other current assets 1,352 1,066
Other assets (3,018) 808
Increase(decrease) in liabilities -
Accounts payable and accrued
liabilities 6,337 3,686
Other liabilities (357) (900)
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Net cash used by
operating activities $(193,560) $(158,697)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment $ (51,423) $ (41,416)
Proceeds received on sale of plant and equipment 928 2,032
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Net cash used in investing activities $ (50,495) $ (39,384)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on domestic and
foreign loans $ 95,221 $ 2,022
Dividends (15,042) (13,885)
Purchase of common stock for treasury (547) (295)
Proceeds from exercise of stock options 176 140
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Net cash provided(used) by financing
activities $ 79,808 $ (12,018)
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EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS $ (78) $ (46)
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NET DECREASE IN CASH AND CASH EQUIVALENTS $(164,325) $(210,145)
CASH AND CASH EQUIVALENTS, beginning 170,648 221,101
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CASH AND CASH EQUIVALENTS, ending $ 6,323 $ 10,956
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,596 $ 4,180
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Income taxes paid $ 2,576 $ 26,748
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The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and therefore do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of the Company, adequate disclosures have
been presented to make the information not misleading, and all adjustments
necessary to present fair statements of the results of operations and financial
position have been included. All of these adjustments are of a normal recurring
nature. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
During the current quarter, the Company recorded a change in an
accounting estimate originally made in the last quarter of fiscal 1995. During
that period, a charge totaling $19,059,000 was added to pension and
postretirement health care expenses to reflect the costs of early retirement
windows that were offered and accepted at the end of fiscal 1995. In October
1995, when the retirements were to occur, a number of those employees who had
accepted the offer canceled their acceptance, and thus a credit totaling
$3,477,000 was recorded as a change in the original accounting estimate during
the second quarter of fiscal 1996.
The Financial Accounting Standards Board issued SFAS No. 123 "Accounting
for Stock-Based Compensation" in October 1995, which establishes financial
accounting and reporting standards for stock-based employee compensation. The
Company plans to adopt only the pro forma disclosure requirements of this
statement, and will continue to apply the accounting provisions of APB Opinion
No. 25 to stock-based employee compensation arrangements, as is allowed by the
statement. This disclosure will be effective for the financial statements
ending in June 1997.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's results of operations and
financial condition during the periods included in the accompanying consolidated
condensed financial statements.
RESULTS OF OPERATIONS
SALES
Net sales for the second fiscal quarter of 1996 decreased 10% or
$37,360,000 compared to the same period in the preceding year. Approximately
two-thirds of this decrease is attributable to the absence of lock sales. This
business was spun off to the shareholders at the end of February 1995. The
remaining portion of the change is due to a 7% decrease in engine units sold
between years. This occurred because domestic manufacturers of lawn and garden
equipment continued their reduced production rates from the first fiscal
quarter. As was the case in the first quarter, the decrease in unit sales was
larger than the decrease in sales dollars because it occurred primarily in the
Company's lower selling price small engine line. There were small improvements
in export sales for the quarter which were offset by reductions in service
sales.
Net sales for the six months ended December 1995 decreased 13% to
$518,834,000. Over half of this decrease was attributable to the spun-off lock
business. Engine unit shipments were down 13%. All other comments made above
are applicable to this period.
GROSS PROFIT
Gross profit decreased 21%, reflecting a decrease in rate from 23% last
year to 20% in the current year. This decrease was the result of the absence of
gross profit from the spun-off lock business, lower unit sales, the spreading of
fixed costs over fewer engine units and the expected lower manufacturing
efficiency associated with the four new plants. Partially offsetting this was
lower profit sharing accruals, the credit resulting from a change in an
accounting estimate (described in the notes on page 6), and a small reduction in
aluminum costs, the major raw material used in the manufacture of engines.
The same factors caused the decrease in gross profits of $38,419,000 or
31% when comparing the first six months of fiscal 1996 to the same period in
fiscal 1995. Added to these factors was the first quarter start-up cost of the
new plants which totaled $9,800,000.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category of expenses decreased $1,896,000 or 7% between the second
quarter of fiscal 1996 and 1995. This decrease resulted primarily from the lack
of engineering and selling expenses that were part of the spun-off lock business
and lower profit sharing accruals.
Six-month comparison in this category reflects a 1% increase between
years. Larger advertising and marketing expenses in the first quarter were
almost offset by the reductions described in the preceding paragraph.
INTEREST EXPENSE
Interest expense for the second fiscal quarter of 1996 increased 38%
over the same period in the preceding year. This increase reflects the use of
domestic short-term borrowing to finance increases in accounts receivable and
inventories and capital expenditures associated with plant projects described
later. There was no domestic short-term borrowing in the second quarter of the
preceding year. The same factors effected the six-month interest experience
comparisons.
OTHER INCOME
Other income was comparable between quarters. However, the six-month
comparison reflects a 32% reduction due to lower investment income because of
the lack of investable funds.
PROVISION FOR INCOME TAXES
The effective tax rate used for the first six months of operations was
38%. This rate reflects management's estimate of what the rate will be for the
entire fiscal year.
OUTLOOK
The outlook for retail sales of outdoor power equipment this spring
seems to be good. The econometric forecasting services the Company uses
predicts retail sales will be somewhat stronger than last spring, assuming
normal weather. Retailers are optimistic, and their indications to their
equipment suppliers reflect their optimism. Equipment manufacturers are
optimistic, too, and their indications reflect their optimism. However, the
rate at which they are taking engines does not validate their optimism. Unless
this rate changes soon, prudence will dictate that the Company should reduce
assembly rates so as to keep the end of season inventory within a reasonable
range. It now appears that earnings for the third quarter are unlikely to reach
last year's record level and that a return to favorable comparisons will be
postponed to the fourth quarter. It is now certain that earnings for the full
year will be lower than for last year.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
FINANCIAL CONDITION
Cash and cash equivalents decreased $164,325,000 since the end of the
previous fiscal year. Cash was used to finance the $176,026,000 increase in
accounts receivable, the $64,090,000 increase in inventories, capital
expenditures totaling $51,423,000, and payment of dividends totaling
$15,042,000. Additional funds were obtained from net profits and depreciation
and new short-term debt.
The increase in accounts receivable is a normal seasonal increase at
this time of the year. Inventory increases are mostly in the finished goods
category which reflects the Company's continued maintenance of a stable rate of
production. The continuance of this production rate was discussed previously in
the Outlook section.
Additions to plant and equipment during the first six months of fiscal
1996 totaled $51,423,000. Capital projects involving three new engine plants, a
foundry and plant expansions were substantially completed during the December
quarter. These new plants are now in operation. The Company plans to spend
approximately $30,000,000 of additional capital expenditures on other projects
during the remainder of the fiscal year.
CALIFORNIA EMISSION STANDARDS
Recently the California Air Resources Board has granted the Company's request
that the California standard for carbon monoxide be relaxed to harmonize it
with that adopted by the U.S. Environmental Protection Agency (EPA). As a
result of this change, a wider range of the Company's engines will meet
California's current emission standards.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
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10.3(c) Amendment to Economic Value Added Incentive Compensation Plan.
(Filed herewith.)
10.11 Officer Employment Agreement.
(Filed herewith.)
10.12 Deferred Compensation Plan for Directors.
(Filed herewith.)
27 Financial Data Schedule.
(Filed herewith.)
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the second quarter ended December
31, 1995.
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
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(Registrant)
Date: February 8, 1996 /s/ R. H. Eldridge
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R. H. Eldridge
Executive Vice President & Chief Financial Officer,
Secretary-Treasurer
Date: February 8, 1996 /s/ J. E. Brenn
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J. E. Brenn
Vice President and Controller
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BRIGGS & STRATTON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description
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10.3(c) Amendment to Economic Value Added Incentive Compensation Plan
(Filed herewith)
10.11 Officer Employment Agreement
(Filed herewith)
10.12 Deferred Compensation Plan for Directors
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)