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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 28, 1997
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)
Wisconsin 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
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(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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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 December 31, 1997
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COMMON STOCK, par value $0.01 per share 24,751,486 Shares
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
December 28, 1997 and June 29, 1997 3
Consolidated Condensed Statements of Income -
Three Months and Six Months ended
December 28, 1997 and December 29, 1996 5
Consolidated Condensed Statements of Cash Flow -
Six Months ended December 28, 1997 and
December 29, 1996 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
Dec. 28 June 29
1997 1997
----------- --------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 6,383 $112,859
Receivables, net 245,271 129,877
Inventories -
Finished products and parts 164,851 83,361
Work in process 44,360 37,922
Raw materials 4,028 4,674
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Total inventories 213,239 125,957
Future income tax benefits 32,559 31,602
Prepaid expenses 16,194 18,121
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Total current assets 513,646 418,416
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OTHER ASSETS:
Deferred income tax assets 16,334 16,975
Capitalized software 11,053 10,532
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Total other assets 27,387 27,507
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PLANT AND EQUIPMENT -
Cost 811,895 796,714
Less - Accumulated depreciation 413,256 400,448
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Total plant and equipment, net 398,639 396,266
-------- --------
$939,672 $842,189
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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 BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
Dec. 28 June 29
1997 1997
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(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 58,733 $ 82,166
Domestic notes payable 142,660 5,000
Foreign loans 18,604 13,359
Current maturities of long-term debt 15,000 15,000
Accrued liabilities 99,286 87,553
Dividends payable 6,961 -
Federal and state income taxes 12,522 10,916
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Total current liabilities 353,766 213,994
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OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,932 15,966
Accrued pension cost 30,424 31,891
Accrued employee benefits 12,678 12,324
Accrued postretirement health care obligation 75,197 74,020
Long-term debt 143,000 142,897
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Total other liabilities 277,231 277,098
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SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000 shares, $.01 par value,
Issued 28,927 shares 289 289
Additional paid-in capital 37,616 40,533
Retained earnings 484,381 490,682
Cumulative translation adjustments (1,698) (1,033)
Treasury stock at cost, 4,167 and 3,513 shares,
respectively (211,913) (179,374)
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Total shareholders' investment 308,675 351,097
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$939,672 $842,189
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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 except per share data)
(Unaudited)
Three Months Ended Six Months Ended
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Dec. 28 Dec. 29 Dec. 28 Dec. 29
1997 1996 1997 1996
------- -------- ------- ------
NET SALES $308,481 $299,664 $479,038 $461,395
COST OF GOODS SOLD 257,584 242,807 401,730 386,569
-------- -------- -------- --------
Gross profit on sales $ 50,897 $ 56,857 $ 77,308 $ 74,826
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 30,065 28,071 59,239 54,132
--------- ------- -------- --------
Income from operations $ 20,832 $ 28,786 $ 18,069 $ 20,694
INTEREST EXPENSE (5,248) (2,408) (9,042) (4,360)
OTHER INCOME, net 1,020 536 3,335 2,098
-------- -------- -------- --------
Income before provision
for income taxes $ 16,604 $ 26,914 $ 12,362 $ 18,432
PROVISION FOR INCOME TAXES 6,310 10,220 4,700 7,000
-------- -------- -------- --------
Net income $ 10,294 $ 16,694 $ 7,662 $ 11,432
======== ======== ======== ========
EARNINGS PER SHARE DATA -
Average shares outstanding 24,903 28,927 25,034 28,927
======== ======== ======== ========
Basic earnings per share $ .41 $ .58 $ .31 $ .40
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Diluted average shares outstanding 25,054 29,054 25,189 29,054
======== ======== ======== ========
Diluted earnings per share $ .41 $ .57 $ .30 $ .39
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CASH DIVIDENDS PER SHARE $ .28 $ .27 $ .56 $ .54
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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 CASH FLOW
(In thousands)
(Unaudited)
Six Months Ended
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CASH FLOWS FROM OPERATING ACTIVITIES: Dec. 28, 1997 Dec. 29, 1996
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Net income $ 7,662 $ 11,432
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation 22,567 21,578
Amortization of discount on long-term debt 103 -
Loss on disposition of plant and equipment 736 1,537
(Increase)decrease in operating assets -
Accounts receivable (115,394) (115,024)
Inventories (87,282) (93,021)
Other current assets 970 (2,338)
Other assets 120 (10,616)
Increase(decrease) in liabilities -
Accounts payable and accrued
liabilities (3,133) 30,887
Other liabilities 64 1,019
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Net cash used in operating activities (173,587) (154,546)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (26,124) (33,687)
Proceeds received on sale of plant and equipment 336 112
Proceeds received on sale of
Menomonee Falls, Wisconsin facility - 15,996
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Net cash used in investing activities (25,788) (17,579)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on domestic and foreign loans 142,905 40,488
Dividends (13,963) (15,621)
Purchase of common stock for treasury (43,501) (301)
Proceeds from exercise of stock options 8,045 108
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Net cash provided by financing activities 93,486 24,674
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EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (587) 66
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NET DECREASE IN CASH AND CASH EQUIVALENTS (106,476) (147,385)
CASH AND CASH EQUIVALENTS, beginning 112,859 150,639
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CASH AND CASH EQUIVALENTS, ending $ 6,383 $ 3,254
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,807 $ 4,217
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Income taxes paid $ 3,713 $ 2,075
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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.
The Company adopted Financial Accounting Standard No. 128, effective
for periods ending after December 15, 1997, during the second quarter of the
current fiscal year. The Company's earnings per share were computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share, for each period presented, were
computed on the assumption that stock options were exercised at the beginning of
the periods reported.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is management's discussion and analysis of the Company's
results of operations and financial condition for the periods included in the
accompanying consolidated condensed financial statements.
RESULTS OF OPERATIONS
SALES
Net sales for the second quarter of fiscal 1998 increased 3% or $8.8
million compared to the same period of the previous year. Engine unit shipments
were up 10% for the quarter. However, the sales dollar increase was smaller than
the unit increase because the mix was more heavily weighted toward lower
horsepower, lower selling price engines. Also, the increasing strength of the
dollar reduced revenue between periods by $2.8 million from sales to European
customers, with whom the Company shares currency risk.
Net sales for the six months ended December 1997 increased 4% or $17.6
million compared to the first half of the prior year. Engine unit shipments were
up 10% for the first half. The sales dollar increase was smaller than the unit
increase because the mix was more heavily weighted toward lower horsepower,
lower selling price engines. Also, the increasing strength of the dollar reduced
revenue between periods by $3.7 million from sales to European customers.
GROSS PROFIT
The gross profit percentage declined to 16% from 19% between comparable
quarters because the mix was more heavily weighted to engines with lower gross
profit margins and because of the impact of reduced revenues from European
customers.
The gross profit percentage between six-month periods remained constant
at 16%. The described negative effects of the mix shift and strong dollar on
European revenues were offset by better absorption of fixed expenses amounting
to $1.4 million and higher margins of $4.8 million on service sales.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased 7% or $2.0 million between the second fiscal
quarters of 1998 and 1997 due to increased costs related to the implementation
of a new company-wide information system.
The 9% or $5.1 million increase for the comparative six-month period
was due to the reason described above amounting to $4.3 million and increased
manpower costs of $1.6 million, offset by reduced advertising expenses due to
timing in the fiscal year.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INTEREST EXPENSE
Interest expense increased $2.8 million in the three-month comparison
and $4.7 million in the six-month comparison. These increases were the result of
the Company's higher level of short-term and long-term borrowings.
OTHER INCOME
This category increased $0.5 million in the three-month period and $1.2
million in the six-month period. In each period, the change is due equally to
reductions in the loss on the disposition of plant and equipment and increases
in the equity income of joint ventures.
PROVISION FOR INCOME TAXES
The effective tax rate used in both years was 38.0%. This rate is
management's estimate of what the rate will be for the entire fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the six-month period was $173.6
million in 1997 and $154.5 million in 1996. These funds were used in 1997 and
1996 for seasonal increases in accounts receivable of $115.4 million and $115.0
million, respectively, and inventories of $87.3 million and $93.0 million,
respectively, offset, in part, by earnings before depreciation. The difference
in accounts payable and accrued liabilities is primarily due to timing within
the periods.
Cash used in investing activities totaled $25.8 million in the
six-month period and $17.6 million in the same period of the preceding year.
Additions to plant and equipment totaled $26.1 million and $33.7 million in the
respective years. Partially offsetting additions to plant and equipment in the
prior year was $16.0 million received in the sale of the Company's Menomonee
Falls, Wisconsin facility.
Cash provided by financing activities was $93.5 million in 1997
compared to $24.7 million in 1996. Net borrowings were $142.9 million and $40.5
million, respectively. The significant increase in the amount of borrowings
between years was caused by the Company using available cash in its share
repurchase program. The Company used $43.5 million in the period ended December
1997 for its stock repurchase program which commenced in May 1997. Dividends
totaled $14.0 million and $15.6 million, respectively. The decrease in dividends
paid was caused by the decrease in outstanding shares. Proceeds from the
exercise of stock options amounted to $8.0 million in 1997 compared to $0.1
million in 1996; this increase was caused by more options being exercised in
1997.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
In the previous fiscal year, the Company's Board of Directors
authorized the purchase of up to $300 million of common stock of the Company. As
of December 28, 1997, the Company has made purchases totaling $222.0 million.
Any future purchases will depend on many factors, including the market price of
the shares, the Company's business and financial position, and general economic
and market conditions. The Company intends to fund future purchases of its
common stock through a combination of available cash, cash generated from
operations and additional borrowings.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Management expects capital expenditures for reinvestment in equipment
and new products to total $60 million in fiscal 1998. The Company is also
implementing a new company-wide information system, the future expenditures for
which are expected to total $21.0 million through fiscal 2002. This system,
along with related projects, will address the issues related to the year 2000.
These projects include working with the Company's customers and suppliers
regarding year 2000 issues to ensure continuity of business. Management does not
expect any additional material expenses for the related projects.
Management believes that available cash, the credit facility, cash
generated from operations, existing lines of credit and access to public debt
markets will be adequate to fund the Company's capital requirements for the
foreseeable future.
OUTLOOK
The dollar continues to strengthen and appears likely to remain strong
during the Company's peak shipping months to Europe. Thus the Company believes
that the strong dollar's adverse effects on revenue and gross profit will
continue through the second half of the fiscal year. On the other hand, the
Company expects a more favorable mix of products sold in the second half, as it
believes the mix for the whole year will be similar to that for last year.
Based on customer expectations, orders actually placed, and favorable
econometric forecasts, and assuming normal spring weather, the Company expects
unit shipments for the full fiscal year to be slightly higher than for last
year.
The 1998 fiscal year will not contain the $37.1 million charge related
to the early retirement window which was contained in the final quarter of the
1997 fiscal year. Therefore, the gross profit rate is anticipated to increase
year to year. Interest expense is expected to continue to increase because of
the new long-term debt and less available cash.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis, pages 8
through 10, may contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. The words "anticipate", "believe", "estimate",
"expect", "objective", and "think" or similar expressions are intended to
identify forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and uncertainties
that include, among other things, the effects of weather on the purchasing
patterns of the Company's customers and end use purchasers of the Company's
engines; the seasonal nature of the Company's business; actions of competitors;
changes in laws and regulations, including accounting standards; employee
relations; customer demand; prices of purchased raw materials and parts;
domestic economic conditions, including housing starts and changes in consumer
disposable income; and foreign economic conditions, including currency rate
fluctuations. Some or all of the factors may be beyond the Company's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this item was previously reported in the
Company's Form 10-Q for the first quarter ended September 28, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
11 Computation of Earnings Per Share of Common Stock
(Filed herewith)
12 Computation of Ratio of Earnings to Fixed Charges
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the second quarter ended December
28, 1997.
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 2, 1998 /s/ R. H. Eldridge
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R. H. Eldridge
Executive Vice President &
Chief Financial Officer,
Secretary-Treasurer
(Prinicpal Financial Officer and duly authorized
to sign on behalf of the registrant)
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Earnings Per Share of Common Stock
(Filed herewith)
12 Computation of Ratio of Earnings to Fixed Charges
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)
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