1
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 September 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1370
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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 November 2, 1999
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COMMON STOCK, par value $0.01 per share 23,134,402 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 -
September 26, 1999 and June 27, 1999 3
Consolidated Condensed Statements of Income -
Three Months ended September 26, 1999 and
September 27, 1998 5
Consolidated Condensed Statements of Cash Flow -
Three Months ended September 26, 1999 and
September 27, 1998 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
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 12
Signatures 12
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
------
Sept. 26 June 27
1999 1999
---------- -------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 12,970 $ 60,806
Accounts receivable, net 222,478 194,096
Inventories -
Finished products and parts 134,715 72,196
Work in process 68,693 59,665
Raw materials 6,090 5,587
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Total inventories 209,498 137,448
Future income tax benefits 36,228 34,383
Prepaid expenses 16,492 16,119
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Total current assets 497,666 442,852
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OTHER ASSETS:
Marketable securities and other investments 43,339 19,024
Deferred income tax assets 1,534 2,039
Capitalized software 7,156 7,516
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Total other assets 52,029 28,579
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PLANT AND EQUIPMENT:
Cost 805,301 859,848
Less - Accumulated depreciation 418,222 455,394
-------- --------
Total plant and equipment, net 387,079 404,454
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$936,774 $875,885
======== ========
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
Sept. 26 June 27
1999 1999
--------- -------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $110,531 $117,757
Domestic notes payable 43,746 4,335
Foreign loans 12,225 13,824
Current maturities of long-term debt 15,000 15,000
Accrued liabilities 116,401 119,685
Dividends payable 6,937 -
Federal and state income taxes 27,469 11,901
-------- --------
Total current liabilities 332,309 282,502
-------- --------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,773 15,798
Accrued pension cost 15,456 17,306
Accrued employee benefits 13,421 13,185
Accrued postretirement health care obligation 66,281 67,877
Long-term debt 113,359 113,307
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Total other liabilities 224,290 227,473
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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 37,729 37,657
Retained earnings 631,576 612,807
Accumulated other comprehensive income (928) (1,732)
Unearned compensation on restricted stock (279) (235)
Treasury stock at cost, 5,800 and 5,476 shares,
respectively (288,212) (282,876)
-------- --------
Total shareholders' investment 380,175 365,910
-------- --------
$936,774 $875,885
======== ========
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
----------------------------
Sept. 26 Sept. 27
1999 1998
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NET SALES $298,933 $223,981
COST OF GOODS SOLD 243,551 186,369
-------- --------
Gross profit on sales 55,382 37,612
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 29,640 29,248
-------- --------
Income from operations 25,742 8,364
INTEREST EXPENSE (3,127) (3,410)
GAIN ON DISPOSITION OF FOUNDRY ASSETS 16,545 -
OTHER INCOME, net 1,633 2,147
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Income before provision
for income taxes 40,793 7,101
PROVISION FOR INCOME TAXES 15,090 2,660
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Net income $ 25,703 $ 4,441
======== ========
EARNINGS PER SHARE DATA -
Average shares outstanding 23,132 23,635
Basic earnings per share $ 1.11 $ .19
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Diluted average shares outstanding 23,281 23,701
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Diluted earnings per share $ 1.10 $ .19
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CASH DIVIDENDS PER SHARE $ .30 $ .29
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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)
Three Months Ended
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Sept. 26, 1999 Sept. 27, 1998
-------------- ---------------
Net income $ 25,703 $ 4,441
Adjustments to reconcile net income to net
cash used for operating activities -
Depreciation and amortization 12,398 12,394
Equity in earnings of
unconsolidated affiliates (1,245) (886)
(Gain) loss on disposition of plant and
equipment (16,453) 147
Provision (credit) for deferred income taxes (1,914) 3,174
Change in operating assets and liabilities -
Increase in accounts receivable (28,361) (13,714)
Increase in inventories (73,409) (48,805)
Increase in prepaid expenses (884) (1,773)
Increase (decrease) in accounts payable
and accrued liabilities 11,995 (8,136)
Other, net (2,850) (1,790)
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Net cash used for operating activities (75,020) (54,948)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (21,661) (13,609)
Proceeds received on disposition of plant
and equipment 23,389 771
Other, net - (1,596)
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Net cash provided from (used for) investing
activities 1,728 (14,434)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 37,812 12,960
Dividends (6,934) (6,853)
Purchase of common stock for treasury (9,138) (14,556)
Proceeds from exercise of stock options 3,814 82
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Net cash provided from (used for)
financing activities 25,554 (8,367)
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EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (98) 330
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NET DECREASE IN CASH AND CASH EQUIVALENTS (47,836) (77,419)
CASH AND CASH EQUIVALENTS, beginning 60,806 84,527
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CASH AND CASH EQUIVALENTS, ending $ 12,970 $ 7,108
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,963 $ 5,214
=========== ===========
Income taxes paid $ 1,389 $ 1,176
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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. These condensed financial statements should be read in conjunction with
the financial statements and the notes thereto which were included in the
Company's latest Annual Report on Form 10-K.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
The caption entitled Marketable Securities and Other Investments
represents equity securities of other entities that are held by the Company.
Marketable Securities are classified as available-for-sale and are reported at
fair market value with any changes in fair market value reported in Other
Comprehensive Income. Other Investments represent investments in joint ventures
and affiliates and are accounted for using the equity method of accounting.
Financial Accounting Standard (FAS) 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 September
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1999 1998
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Net income $25,703 $4,441
Unrealized gain on marketable securities 896 -
Foreign currency translation adjustments (92) 526
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Total comprehensive income $26,507 $4,967
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The components of Accumulated Other Comprehensive Income is as follows
(in thousands):
Sept. 26 June 27
1999 1999
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Cumulative translation adjustments $(2,401) $(2,309)
Unrealized gain on marketable securities 1,473 577
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Accumulated other comprehensive income $ (928) $(1,732)
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At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc. in exchange for $23.6
million in cash and $45 million aggregate par value convertible preferred stock
which was recorded at its estimated fair value of $21.6 million. The transaction
resulted in a $16.5 million gain, and is shown as such on the income statement.
The provisions of the preferred stock include a 15% cumulative dividend and
conversion rights into a minimum of 31% of the common stock of Metal
Technologies Holding Company, Inc. Metal Technologies Holding Company, Inc.
becomes the primary supplier to Briggs & Stratton Corporation of ductile iron
castings for crankshafts and cam gears.
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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 the Company's
financial condition and results of operations for the periods included in the
accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
SALES
Net sales for the three months ended September 1999 totaled $299
million, an increase of $75 million or 33% when compared to the same period of
the preceding year. The reason for this change was a 36% increase in engine unit
shipments. This was the result of both domestic and international lawn and
garden equipment manufacturers taking delivery earlier this year than last year.
GROSS PROFIT MARGIN
The gross profit rate increased to 19% in the current year from 17% in
the preceding year. This 2% increase was primarily from a $9 million benefit
caused by greater production during the quarter, offset by a mix shift to lower
margin engines of $2 million.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling and general and administrative expenses increased
$2.5 million from higher profit sharing expenses due to improved results, offset
by a $2 million decrease in costs related to the Company's POWERCOM software
business that was sold in the first quarter of the preceding year.
INTEREST EXPENSE
Interest expense decreased $.3 million. The repayment of $15 million of
higher interest rate debt at the end of fiscal year 1999 caused this change.
GAIN ON DISPOSITION OF FOUNDRY ASSETS
At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc. in exchange for $23.6
million in cash and $45 million aggregate par value convertible preferred stock
which was recorded at its estimated fair value of $21.6 million. The transaction
resulted in a $16.5 million gain, and is shown as such on the income statement.
The provisions of the preferred stock include a 15% cumulative dividend and
conversion rights into a minimum of 31% of the common stock of Metal
Technologies Holding Company, Inc. Metal Technologies Holding Company, Inc.
becomes the primary supplier to Briggs & Stratton Corporation of ductile iron
castings for crankshafts and cam gears.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PROVISION FOR INCOME TAXES
The effective tax rate used in the current fiscal quarter was 37.0%.
This is management's estimate of what the rate will be for the entire 2000
fiscal year. Last year's rate was 37.5% for the entire 1999 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operating activities was $75 million in fiscal 2000
and $55 million in fiscal 1999. The primary use of cash was increases in
accounts receivable and inventories. Accounts receivable increased $28 million
and $14 million, respectively, caused by increased sales volume in first quarter
of the fiscal years. Inventory increased by $73 million in fiscal 2000 compared
to $49 million in fiscal 1999. The higher increase in fiscal 2000 is attributed
to increased production levels in this fiscal year.
These uses of cash were offset by net income excluding depreciation,
amortization, and gain on disposition of assets of $22 million and $17 million
in the respective years. In addition, an increase in accounts payable and
accrued liabilities provided $20 million between years, reflecting a $17 million
change in federal and state income taxes payable resulting from the higher level
of earnings.
In fiscal 2000, $2 million of cash was provided from investing
activities versus a $14 million use of cash in fiscal 1999. The $16 million
increase is attributed to $23 million in cash received on the disposition of the
Company's foundry assets offset by an $8 million increase of capital
expenditures related to capacity increases and new products.
Net cash provided from financing activities amounted to $26 million in
fiscal 2000, a $34 million change between fiscal years. This change resulted
from $25 million in additional borrowings, a reduction of $5 million in
purchases of common stock for the Company's stock repurchase program, and $4
million in additional proceeds from stock options exercised in fiscal 2000.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
In January 1999, the Board of Directors approved a repurchase of up to
1.3 million shares of the Company's common stock in open market or private
transactions. As of the end of September 1999, stock repurchases totaling .9
million shares were made in open market transactions. This repurchase
authorization is intended to minimize dilution from shares issued for employee
benefit plans. Future purchases will be funded from available cash.
Management expects cash flows for capital expenditures to total $80
million in fiscal 2000 and to be funded from available cash. These anticipated
expenditures include a significant amount for capacity increases, as well as
continuing reinvestment in equipment and new products.
The Company 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 requirements of applicable law.
OUTLOOK
Overall, the Company expects that engine unit sales will reflect a
modest increase in fiscal 2000 compared to fiscal 1999. As discussed earlier,
the Company experienced a significant increase in engine unit shipments in the
first quarter of fiscal 2000. It appears this represents a shift in original
equipment manufacturers' timing of purchases from later in the year to earlier
in the year. The Company expects the shift to continue in the second quarter of
fiscal 2000. The Company's recently completed retail inventory survey indicates
that year over year, end of season retail inventories have not increased
significantly. The Company continues to believe that the fiscal year will be a
good one if weather conditions are normal.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
OTHER MATTERS
YEAR 2000
The Company is addressing the final tasks related to its overall
comprehensive Year 2000 Readiness Program implemented to address year 2000
issues. This program was based on the Automotive Industry Action Group's model
system consisting of five steps: Awareness; Inventory and Assessment;
Remediation; Testing; and Readiness Certification. Progress has been reported to
the Company's Board of Directors regularly.
The Company completed implementation of its new company-wide
information system in January of 1999. All business transactions are being
processed on the new system, which addresses all significant information
technology year 2000 computer issues. The Company established an on-site stand
alone system for complete testing of the new company-wide information system.
Testing was completed in October; the results were satisfactory. This stand
alone system will continue to be made available for testing of unique and/or
specialized software programs if needed. The Company has made arrangements for a
business recovery program at an off-site location. Other internal year 2000
issues not directly related to the previously described project have been
addressed.
Project expenditures to date total $33 million. The Company expects any
additional incremental costs to be immaterial.
The Company completed the assessment phase of its non-information
technology systems during the first quarter of the 1999 calendar year. An
outside consultant was retained to audit these systems and to recommend remedial
actions for any non-compliant systems. All remedial activities have been
completed without material incremental costs. Based on the assessment, audit and
remedial actions, the Company will not develop an extensive contingency plan for
non-information systems.
Random testing of both information and non-information systems has been
conducted and will continue to be conducted until the end of the calendar year
in order to ensure year 2000 readiness.
The Company's largest customers have certified that they will be year
2000 compliant before the end of calendar year 1999 as to their relationships
with the Company. The Company's vendors and financial institutions have also
been surveyed for year 2000 readiness. The Company followed up with suppliers
who had not yet responded to the Company's survey and contacted companies who
did respond to the survey but received a low readiness ranking from the Company.
Audits of suppliers are being conducted to verify their readiness. At this time,
the Company believes that virtually all of their mission critical suppliers are
year 2000 compliant. Contingency plans have been developed to ensure that each
manufacturing facility will have materials on hand to operate for three to five
days without deliveries. The Company will not be open for operations from
December 31, 1999 to January 3, 2000. All major financial institutions with whom
the Company regularly conducts business have provided the Company with year 2000
preparedness statements.
The Company will utilize its December 31, 1999 to January 3, 2000
shutdown period to back up its systems, re-start those systems, resolve any open
issues and cycle representative plant equipment prior to the start of the 2000
calendar year manufacturing activities.
The Company's foreign exposure is not substantial. The Company's
foreign subsidiaries and distribution facilities have been internally audited to
confirm that they are prepared for year 2000. The Company does not plan to
develop a separate contingency plan for its foreign subsidiaries.
The last payroll for calendar year 1999 will be issued on December 29,
1999 and all arrangements for the January 3, 2000 dividend payment will be made
prior to December 31, 1999.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The Company believes its Year 2000 Program is adequate to detect in
advance year 2000 compliance issues, and that it has the necessary resources to
remedy them. However, the year 2000 problem has many aspects and potential
consequences, some of which are not reasonably foreseeable, and there can be no
assurance that unforeseen consequences will not arise.
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", "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;
foreign economic conditions, including currency rate fluctuations; the ability
of the Company's customers and suppliers to meet year 2000 compliance; and
unanticipated internal year 2000 issues. Some or all of the factors may be
beyond the Company's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 7, 1999 filing
of the Company's Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 20, 1999, director
nominees named below were elected to a three-year term expiring in 2002, by the
indicated votes cast for and withheld with respect to each nominee.
Name of Nominee For Withheld
--------------- --- --------
Jay H. Baker 20,707,705 442,535
Michael E. Batten 20,694,781 455,459
Peter A. Georgescu 20,695,423 454,817
Directors whose terms of office continue past the Annual Meeting of
Shareholders are: Eunice M. Filter; Robert J. O'Toole; Clarence B. Rogers, Jr.;
John S. Shiely; Charles I. Story and Frederick P. Stratton, Jr.
At the Annual Meeting, shareholders voted to approve an amended and
restated Briggs & Stratton Corporation Stock Incentive Plan to reserve an
additional 2,000,000 shares for use under the Plan. Out of a total of 19,549,995
votes represented on the proposal, votes were cast as follows: 16,198,873 - For;
3,013,478 - Against and 337,644 - Abstain. There were 1,600,245 broker
non-votes.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
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10.0(a) Amended and Restated Stock Incentive Plan. (Filed as
Exhibit A to the Company's 1999 Annual Meeting Proxy
Statement and incorporated by reference herein.)
10.0(b) Amendment to Amended and Restated Stock Incentive Plan*
10.1 Release and Settlement Agreement*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27 Financial Data Schedule, September 26, 1999*
*Filed herewith
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the first quarter ended September
26, 1999.
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)
/s/ J. E. Brenn
Date: November 8, 1999 --------------------------------------
J. E. Brenn
Senior Vice President, Chief Financial
Officer & Treasurer
/s/ T. J. Teske
Date: November 8, 1999 --------------------------------------
T. J. Teske
Controller
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
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10.0(a) Amended and Restated Stock Incentive Plan. (Filed as
Exhibit A to the Company's 1999 Annual Meeting Proxy
Statement and incorporated by reference herein.)
10.0(b) Amendment to Amended and Restated Stock Incentive Plan
(Filed herewith)
10.1 Release and Settlement Agreement
(Filed herewith)
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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