BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
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 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________ to _______________
Commission file number 1-1370
------
BRIGGS & STRATTON CORPORATION
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
414/259-5333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No____
-------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class November 4, 2002
- --------------------------------------------------------------------------------
COMMON STOCK, par value $0.01 per share 21,646,984 Shares
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 29, 2002 and June 30, 2002 3
Consolidated Condensed Statements of Income -
Three Months ended September 29, 2002 and
September 30, 2001 5
Consolidated Condensed Statements of Cash Flows -
Three Months ended September 29, 2002 and
September 30, 2001 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Certifications 18
Exhibit Index 22
2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
September 29, June 30,
2002 2002
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 137,759 $ 215,945
Accounts receivable, net 164,342 201,910
Inventories -
Finished products and parts 190,981 126,152
Work in process 71,007 61,748
Raw materials 3,396 3,059
---------- ----------
Total inventories 265,384 190,959
Future income tax benefits 40,637 41,383
Prepaid expenses and other current assets 18,179 19,747
---------- ----------
Total current assets 626,301 669,944
---------- ----------
OTHER ASSETS:
Goodwill 161,030 161,030
Investments 47,582 46,889
Prepaid pension 63,838 60,343
Deferred loan costs, net 8,815 9,304
Other long-term assets, net 6,076 6,308
---------- ----------
Total other assets 287,341 283,874
---------- ----------
PLANT AND EQUIPMENT:
Cost 874,767 879,635
Less, accumulated depreciation 487,724 484,420
---------- ----------
Total plant and equipment, net 387,043 395,215
---------- ----------
$1,300,685 $1,349,033
========== ==========
The accompanying notes are an integral part of these statements.
3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands, except per share data)
LIABILITIES & SHAREHOLDERS' INVESTMENT
September 29, June 30,
2002 2002
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 79,702 $ 103,648
Domestic notes payable 2,625 2,625
Foreign loans 13,114 15,270
Accrued liabilities 122,934 131,582
Dividends payable 6,927 -
Federal and state income taxes payable 1,697 12,898
----------- -----------
Total current liabilities 226,999 266,023
----------- -----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,320 15,364
Deferred income tax liability 30,856 27,405
Accrued pension liability 16,157 15,750
Accrued employee benefits liability 13,060 13,070
Accrued postretirement health care obligation 61,871 62,753
Long-term debt 499,235 499,022
----------- -----------
Total other liabilities 636,499 633,364
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock -
Authorized 60,000 shares, $.01 par value, issued
28,927 shares 289 289
Additional paid-in capital 35,459 35,459
Retained earnings 755,184 769,131
Accumulated other comprehensive loss (5,164) (6,626)
Unearned compensation on restricted stock (173) (199)
Treasury stock at cost, 7,288 shares (348,408) (348,408)
----------- -----------
Total shareholders' investment 437,187 449,646
----------- -----------
$ 1,300,685 $ 1,349,033
=========== ===========
The accompanying notes are an integral part of these statements.
4
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 29, September 30,
2002 2001
------------- -------------
NET SALES $ 238,218 $ 219,629
COST OF GOODS SOLD 198,804 199,807
--------- ---------
Gross profit on sales 39,414 19,822
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 38,376 36,524
--------- ---------
Income (Loss) from operations 1,038 (16,702)
INTEREST EXPENSE (10,089) (10,422)
OTHER INCOME (EXPENSE), net (1,596) 315
--------- ---------
Loss before credit for income taxes (10,647) (26,809)
CREDIT FOR INCOME TAXES (3,620) (9,385)
--------- ---------
NET LOSS $ (7,027) $ (17,424)
========= =========
LOSS PER SHARE DATA -
Average shares outstanding 21,643 21,600
========= =========
Basic loss per share $ (0.32) $ (0.81)
========= =========
Diluted average shares outstanding 21,643 21,600
========= =========
Diluted loss per share $ (0.32) $ (0.81)
========= =========
CASH DIVIDENDS PER SHARE $ 0.32 $ 0.31
========= =========
The accompanying notes are an integral part of these statements
5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 29, September 30,
2002 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,027) $ (17,424)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 16,051 15,023
Equity earnings of unconsolidated affiliates (760) (645)
Loss on disposition of plant and equipment 2,174 702
Provision for deferred income taxes 4,223 3,534
Change in operating assets and liabilities -
(Increase) decrease in accounts receivable 37,568 (11,101)
Increase in inventories (74,425) (24,205)
(Increase) decrease in prepaid expenses and other current assets 1,568 (734)
Decrease in accounts payable and accrued liabilities (42,235) (5,127)
Increase in prepaid pension, net (3,088) (6,986)
Other, net (1,224) (637)
--------- ---------
Net cash used in operating activities (67,175) (47,600)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (8,812) (18,155)
Proceeds received on disposition of plant and equipment 90 287
--------- ---------
Net cash used in investing activities (8,722) (17,868)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on loans and notes payable (2,156) 136
Issuance cost of long-term debt - (240)
Proceeds from exercise of stock options - 52
--------- ---------
Net cash used in financing activities (2,156) (52)
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (133) 1,377
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (78,186) (64,143)
CASH AND CASH EQUIVALENTS, beginning 215,945 88,743
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 137,759 $ 24,600
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 15,985 $ 12,443
========= =========
Income taxes paid $ 4,188 $ 186
========= =========
The accompanying notes are an integral part of these statements.
6
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
General Information
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and therefore do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with accounting principles generally
accepted in the U.S. However, in the opinion of Briggs & Stratton Corporation,
adequate disclosures have been presented to make the information not misleading,
and all adjustments necessary to present fair statements of the results of
operations and financial position have been included. All of these adjustments
are of a normal recurring nature. These condensed financial statements should be
read in conjunction with the financial statements and the notes thereto which
were included in our latest Annual Report on Form 10-K.
Comprehensive Loss
Financial Accounting Standard 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 loss is as follows (in thousands):
Three Months Ended
September 29, September 30,
2002 2001
------------- --------------
Net loss $ (7,027) $(17,424)
Unrealized loss on marketable securities (42) (190)
Foreign currency translation adjustments (49) 1,514
Unrealized gain (loss) on derivative instruments 1,553 (1,465)
-------- --------
Total comprehensive loss $ (5,565) $(17,565)
======== ========
The components of Accumulated Other Comprehensive Loss are as follows (in
thousands):
September 29, June 30,
2002 2002
------------- -----------
Unrealized loss on marketable securities $ (943) $ (901)
Foreign currency translation adjustments (2,687) (2,638)
Unrealized loss on derivative instruments (1,534) (3,087)
------- -------
Accumulated other comprehensive loss $(5,164) $(6,626)
======= =======
Derivatives
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities", requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair value. Any changes
in fair value of these instruments are recorded in the income statement or other
comprehensive loss.
7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Briggs & Stratton enters into derivative contracts designated as cash
flow hedges to manage its foreign currency exposures. These instruments
generally do not have a maturity of more than twelve months. During the quarter,
there were no derivative instruments that were deemed to be ineffective. The
amounts included in Accumulated Other Comprehensive Loss will be reclassified
into income when the forecasted transactions occur, generally within the next
twelve months. These forecasted transactions represent the exporting of products
for which Briggs & Stratton will receive foreign currency and the importing of
products for which it will be required to pay in a foreign currency.
Segment and Geographic Information
In accordance with Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information", Briggs & Stratton has
concluded that it operates in two reportable business segments, engines and
power products which are managed separately based on fundamental differences in
their operations. Summarized segment data is as follows (in thousands):
Three Months Ended
September 29, September 30,
2002 2001
-------------- ---------------
NET SALES:
Engines $ 197,098 $ 177,992
Power Products 53,190 53,796
Inter-Segment Eliminations (12,070) (12,159)
--------- ---------
Total* $ 238,218 $ 219,629
========= =========
* International Sales (included in above)
Engines $ 57,349 $ 51,802
Power Products 3,944 2,649
--------- ---------
Total $ 61,293 $ 54,451
========= =========
GROSS PROFIT ON SALES:
Engines $ 33,457 $ 13,621
Power Products 6,245 6,718
Inter-Segment Eliminations (288) (517)
--------- ---------
Total $ 39,414 $ 19,822
========= =========
INCOME (LOSS) FROM OPERATIONS
Engines $ (455) $ (17,985)
Power Products 1,781 1,800
Inter-Segment Eliminations (288) (517)
--------- ---------
Total $ 1,038 $ (16,702)
========= =========
Long-Lived Assets
On July 1, 2002, Briggs & Stratton adopted Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." The adoption of Financial Accounting Standard No. 144 did not have any
impact on Briggs & Stratton's consolidated financial statements.
8
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Future Accounting Pronouncement
In June 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities". Financial Accounting Standard No. 146 nullifies Emerging
Issues Task Force Issue No. 94.3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" and requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Financial Accounting Standard No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. Briggs &
Stratton does not expect that the adoption of this statement will have a
material impact on its results of operations or financial position.
Critical Accounting Policies
There have been no material changes in Briggs & Stratton's critical
accounting policies since the September 17, 2002 filing of its Annual Report on
Form 10-K. As discussed in our annual report, the preparation of financial
statements in conformity with accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and accompanying
notes. Future events and their effects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation
of our financial statements include estimates as to the recovery of accounts
receivable, as well as those used in the determination of liabilities related to
customer rebates, pension obligations, warranty, product liability, group health
insurance and taxation. Various assumptions and other factors underlie the
determination of these significant estimates. The process of determining
significant estimates is fact specific and takes into account factors such as
historical experience, current and expected economic conditions, product mix,
and in some instances actuarial techniques. Briggs & Stratton reevaluates these
significant factors as facts and circumstances change. Historically, actual
results have not differed significantly from our estimates.
9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Financial Information of Subsidiary Guarantor of Indebtedness
Under the terms of Briggs & Stratton's 7.25% senior notes, 8.875%
senior notes and 5.00% convertible senior notes and our revolving credit
agreement, (collectively, the Domestic Indebtedness), Generac Portable Products,
LLC, (GPP) became a joint and several guarantor of the Domestic Indebtedness.
Additionally, if at any time a domestic subsidiary of Briggs & Stratton
constitutes a significant domestic subsidiary, then such domestic subsidiary
will also become a guarantor of the Domestic Indebtedness. Each guarantee of the
Domestic Indebtedness is the obligation of the guarantor and ranks equally and
ratably with the existing and future senior unsecured obligations of that
guarantor; accordingly, GPP has provided a full and unconditional guarantee of
the Domestic Indebtedness. The following condensed supplemental consolidating
financial information reflects the operations of GPP for the three months ended,
September 29, 2002 and September 30, 2001 (in thousands of dollars):
BALANCE SHEET
As of September 29, 2002
Briggs & Stratton Guarantor Non-Guarantor
Corporation Subsidiary Subsidiaries Eliminations Consolidated
----------------- ----------- ------------- ------------ ------------
Current Assets $ 491,764 $ 98,243 $ 77,931 $ (41,637) $ 626,301
Investment in Subsidiaries 316,525 - - (316,525) -
Non Current Assets 489,341 182,752 2,291 - 674,384
----------- ----------- ----------- ----------- -----------
$ 1,297,630 $ 280,995 $ 80,222 $ (358,162) $ 1,300,685
=========== =========== =========== =========== ===========
Current Liabilities $ 217,727 $ 8,853 $ 36,152 $ (35,733) $ 226,999
Long-Term Debt 499,235 - - - 499,235
Other Long-Term Obligations 136,476 788 - - 137,264
Shareholders' Investment 444,192 271,354 44,070 (322,429) 437,187
----------- ----------- ----------- ----------- -----------
$ 1,297,630 $ 280,995 $ 80,222 $ (358,162) $ 1,300,685
=========== =========== =========== =========== ===========
STATEMENT OF INCOME
For the Three Months Ended September 29, 2002
Briggs & Stratton Guarantor Non-Guarantor
Corporation Subsidiary Subsidiaries Eliminations Consolidated
----------------- ---------- ------------- ------------ ------------
Net Sales $ 187,611 $ 52,605 $ 23,676 $ (25,674) $ 238,218
Cost of Goods Sold 159,548 46,671 17,509 (24,924) 198,804
--------- --------- --------- --------- ---------
Gross Profit 28,063 5,934 6,167 (750) 39,414
Engineering, Selling, General and
Administrative Expenses 30,172 4,464 3,740 - 38,376
--------- --------- --------- --------- ---------
Income (Loss) from Operations (2,109) 1,470 2,427 (750) 1,038
Interest Expense (9,882) (4) (203) - (10,089)
Other (Expense) Income, Net 378 109 93 (2,176) (1,596)
--------- --------- --------- --------- ---------
Income (Loss) Before Provision
(Credit) for Income Taxes (11,613) 1,575 2,317 (2,926) (10,647)
Provision (Credit) for Income
Taxes (4,586) 555 411 - (3,620)
--------- --------- --------- --------- ---------
Net Income (Loss) $ (7,027) $ 1,020 $ 1,906 $ (2,926) $ (7,027)
========= ========= ========= ========= =========
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Three Months Ended September 29, 2002
Briggs & Stratton Guarantor Non-Guarantor
Corporation Subsidiary Subsidiaries Eliminations Consolidated
----------------- ------------ ------------- ------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (7,027) $ 1,020 $ 1,906 $ (2,926) $ (7,027)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Used in Operating Activities:
Depreciation and Amortization 15,326 595 130 - 16,051
Equity Earnings of Unconsolidated
Affiliates (2,936) - - 2,176 (760)
(Gain) Loss on Disposition of Plant
and Equipment 2,191 - (17) - 2,174
Provision for Deferred Taxes 1,653 2,570 - - 4,223
Change in Operating Assets and
Liabilities:
(Increase) Decrease in Receivables 28,187 7,696 (2,182) 3,867 37,568
(Increase) Decrease in Inventories (77,817) 3,386 (744) 750 (74,425)
(Increase) Decrease in Other
Current Assets 1,962 (366) (28) - 1,568
Increase (Decrease) in Accounts
Payable and Accrued Liabilities (38,228) (8,121) 7,981 (3,867) (42,235)
(Increase) Decrease in Prepaid
Pension, Net (3,226) 138 - - (3,088)
Other, Net (1,224) - - - (1,224)
--------- --------- --------- --------- ---------
Net Cash (Used in) Provided by
Operating Activities (81,139) 6,918 7,046 - (67,175)
--------- --------- --------- --------- ---------
Cash Flows from Investing Activities:
Additions to Plant and Equipment (8,154) (580) (78) - (8,812)
Proceeds Received on Disposition
of Plant and Equipment 64 - 26 - 90
Other, Net (200) - 200 - -
--------- --------- --------- --------- ---------
Net Cash (Used in) Provided by
Investing Activities (8,290) (580) 148 - (8,722)
--------- --------- --------- --------- ---------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on
Loans and Notes Payable 6,093 (6,093) (2,156) - (2,156)
Issuance Cost of Long-Term Debt - - - - -
Proceeds from Exercise of
Stock Options - - - - -
--------- --------- --------- --------- ---------
Net Cash (Used in) Provided by in
Financing Activities 6,093 (6,093) (2,156) - (2,156)
--------- --------- --------- --------- ---------
Effect of Exchange Rate Changes - 317 (450) - (133)
--------- --------- --------- --------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents (83,336) 562 4,588 - (78,186)
Cash and Cash Equivalents, Beginning 211,610 953 3,382 - 215,945
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, Ending $ 128,274 $ 1,515 $ 7,970 $ - $ 137,759
========= ========= ========= ========= =========
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
BALANCE SHEET
As of June 30, 2002
Briggs & Stratton Guarantor Non-Guarantor
Corporation Subsidiary Subsidiaries Eliminations Consolidated
----------------- --------------- ------------- ------------ ------------
Current Assets $ 527,111 $ 96,534 $ 70,387 $ (24,088) $ 669,944
Investment in Subsidiaries 312,679 - - (312,679) -
Non Current Assets 494,052 182,665 2,372 - 679,089
----------- ----------- ----------- ----------- -----------
$ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033
=========== =========== =========== =========== ===========
Current Liabilities $ 244,497 $ 10,133 $ 30,327 $ (18,934) $ 266,023
Long-Term Debt 499,022 - - - 499,022
Other Long-Term Obligations 135,192 (850) - - 134,342
Shareholders' Investment 455,131 269,916 42,432 (317,833) 449,646
----------- ----------- ----------- ----------- -----------
$ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033
=========== =========== =========== =========== ===========
STATEMENT OF INCOME
For the Three Months Ended September 30, 2001
Briggs & Stratton Guarantor Non-Guarantor
Corporation Subsidiary Subsidiaries Eliminations Consolidated
----------------- ------------ ------------- ------------ ------------
Net Sales $ 170,238 $ 54,028 $ 18,576 $ (23,213) $ 219,629
Cost of Goods Sold 160,260 47,468 14,637 (22,558) 199,807
--------- --------- --------- --------- ---------
Gross Profit 9,978 6,560 3,939 (655) 19,822
Engineering, Selling, General and
Administrative Expenses 28,436 4,918 3,170 - 36,524
--------- --------- --------- --------- ---------
Income (Loss) from Operations (18,458) 1,642 769 (655) (16,702)
Interest Expense (10,208) (24) (240) 50 (10,422)
Other (Expense) Income, Net 997 (13) 308 (977) 315
--------- --------- --------- --------- ---------
Income (Loss) Before Provision
(Credit) for Income Taxes (27,669) 1,605 837 (1,582) (26,809)
Provision (Credit) for Income
Taxes (10,245) 557 303 - (9,385)
--------- --------- --------- --------- ---------
Net Income (Loss) $ (17,424) $ 1,048 $ 534 $ (1,582) $ (17,424)
========= ========= ========= ========= =========
12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 2001
Briggs & Stratton Guarantor Non-Guarantor
Corporation Subsidiary Subsidiaries Eliminations Consolidated
----------------- ------------ ------------- ------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $(18,352) $ 1,048 $ 534 $ (654) $(17,424)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Used in Operating Activities:
Depreciation and Amortization 14,251 610 162 - 15,023
Equity (Earnings) Loss of
Unconsolidated Affiliates (945) - 300 - (645)
(Gain) Loss on Disposition of Plant
and Equipment 709 - (7) - 702
Provision for Deferred Taxes 2,734 800 - - 3,534
Change in Operating Assets and
Liabilities:
(Increase) Decrease in Receivables (13,174) 2,231 (1,539) 1,381 (11,101)
Increase in Inventories (22,430) (2,182) (435) 842 (24,205)
(Increase) Decrease in Other
Current Assets 408 (742) (400) - (734)
Increase (Decrease) in Accounts
Payable and Accrued Liabilities (941) (3,060) 443 (1,569) (5,127)
Increase in Prepaid Pension, Net (6,986) - - - (6,986)
Other, Net (810) 173 - - (637)
Net Cash Used in Operating
Activities (45,536) (1,122) (942) - (47,600)
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Additions to Plant and Equipment (17,615) (396) (144) - (18,155)
Proceeds Received on Disposition
of Plant and Equipment 279 - 8 - 287
-------- -------- -------- -------- --------
Net Cash Used in Investing Activities (17,336) (396) (136) - (17,868)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on
Loans and Notes Payable (1,751) 1,751 136 - 136
Issuance Cost of Long-Term Debt (240) - - - (240)
Proceeds from Exercise of Stock
Options 52 - - - 52
-------- -------- -------- -------- --------
Net Cash (Used in) Provided
by Financing Activities (1,939) 1,751 136 - (52)
-------- -------- -------- -------- --------
Effect of Exchange Rate Changes - 492 885 - 1,377
-------- -------- -------- -------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents (64,811) 725 (57) - (64,143)
Cash and Cash Equivalents, Beginning 85,282 683 2,778 - 88,743
-------- -------- -------- -------- --------
Cash and Cash Equivalents, Ending $ 20,471 $ 1,408 $ 2,721 $ - $ 24,600
======== ======== ======== ======== ========
13
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of Briggs &
Stratton's financial condition and results of operations for the periods
included in the accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
SALES
Net sales for the first quarter of fiscal 2003 totaled $238 million, an
increase of $19 million or 8% when compared to the same period of the preceding
year. This increase is primarily attributable to an 8% increase in engine unit
sales in the Engine Segment of the business. The increased engine shipments
resulted from a combination of summer retail demand for powered product and
lower inventories at retailers this year versus a year ago. Net sales in our
Power Products Segment were approximately $53 million in the first quarter of
fiscal 2003 and 2002. The impact of tropical storm activity in late September
did not significantly affect the sales of generator power product in the current
quarter.
GROSS PROFIT MARGIN
The gross profit margin increased to 17% in the current first quarter
from 9% in the preceding year attributable to a 56% increase in production in
the Engine Segment of the business. The increased production significantly
improved absorption of fixed costs at our engine production facilities. Engine
production levels in the first quarter of this year were more in line with our
historical experience. We lowered production levels last year to bring down
engine inventories. The gross profit margin on power products was approximately
12% in the first quarter of 2002 and 2003.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expenses increased
approximately $2 million between years. This increase is attributable to a
reduction in pension income of approximately $1 million and planned advertising
expense increases of approximately $1 million.
INTEREST EXPENSE
Interest expense was $10 million in the first quarter of fiscal 2003
and 2002. There have been no significant changes in our level of debt between
years.
PROVISION FOR INCOME TAXES
The effective tax rate used in the current fiscal quarter was 34%. This
is management's estimate of what the rate will be for the entire 2003 fiscal
year. The rate for the first quarter of fiscal 2002 was 35%, and 34% for the
full 2002 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities for the first quarter of fiscal
2003 were $60 million, an increase of $19 million from fiscal 2002. This
reflects a reduced net loss of $10 million offset by increased working capital
requirements. The increase in working capital requirements was driven by
increased inventory levels and a reduction in accounts payable and accrued
liabilities. The increase was partially offset by lower receivable balances
between fiscal years, attributable to timing.
14
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
In the first quarter of fiscal 2003, we used $9 million in investing
activities, compared to $18 million in fiscal 2002. Additions to plant and
equipment comprise substantially all of the investing activity in both years.
Lower spending in the first quarter of the current year is attributable to the
timing of capital projects.
Net cash used in financing activities was $9 million in fiscal 2003 and
$7 million in fiscal 2002. The increase is attributable entirely to a reduction
in short-term working capital borrowings of $2 million at our foreign
subsidiaries.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
We have remaining authorization to buy up to 1.8 million shares of our
stock in open market or private transactions under the June 2000 Board of
Directors' authorization to repurchase up to 2.0 million shares. We did not
purchase any shares in the first quarter of fiscal 2003 and do not anticipate
repurchasing any shares in fiscal 2003.
Management expects cash outflows for capital expenditures to total
approximately $55-$60 million in fiscal 2003. These anticipated expenditures
provide for continued investments in equipment and new products. These
expenditures will be funded using available cash and short-term borrowings.
We currently intend to increase future cash dividends per share at a
rate approximating the inflation rate, subject to the discretion of our Board of
Directors and the requirements of applicable law and debt covenants.
In October 2002, we began managing our debt portfolio using interest
rate swaps to achieve a desired mix of fixed and floating rates. We currently
have interest rate swaps relating to our 8.875% senior notes (approximately $270
million) due in 2011. The swaps convert $50 million of notional amounts from a
fixed rate to a floating rate, (libor-set-in-arrears) and mature in 2011.
Management believes that available cash, the credit facility, cash
generated from operations, existing lines of credit and access to debt markets
will be adequate to fund our capital requirements for the foreseeable future.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those projected in the forward-looking statements. The words "anticipate",
"believe", "estimate", "expect", "intend", "may", "objective", "plan", "seek",
"think", "will", and similar expressions are intended to identify
forward-looking statements. The forward-looking statements are based on the
Company's current views and assumptions and involve risks and uncertainties that
include, among other things, our ability to successfully forecast demand for our
products and appropriately adjust our manufacturing and inventory levels;
changes in our operating expenses; changes in interest rates; the effects of
weather on the purchasing patterns of consumers and original equipment
manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we
compete; the seasonal nature of our business; changes in laws and regulations,
including environmental and accounting standards; work stoppages or other
consequences of any deterioration in our employee relations; work stoppages by
other unions that affect the ability of suppliers or customers to manufacture;
changes in customer and OEM demand; changes in prices of purchased raw materials
and parts that we purchase; changes in domestic economic conditions, including
housing starts and changes in consumer disposable income; changes in foreign
economic conditions, including currency rate fluctuations; new facts that come
to light in the future course of litigation proceedings which could affect our
assessment of those matters; and other factors that may be disclosed from time
to time in our SEC filings or otherwise. Some or all of the factors may be
beyond our control. We caution you that any forward-looking statement reflects
only our belief at the time the statement is made. We undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made.
15
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 17, 2002,
filing of the Company's Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of our published financial
statements and other disclosures included in this report. Based on their
evaluation, as of a date within 90 days of the filing date of the Form 10-Q, our
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended) are effective. There have
been no significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 16, 2002, director
nominees named below were elected to a three-year term expiring in 2005 by the
indicated votes cast for and withheld with respect to each nominee.
Name of Nominee For Withheld
- --------------- --- --------
Jay H. Baker 19,935,942 115,950
Michael E. Batten 19,930,138 121,754
Brian C. Walker 19,938,224 113,668
Directors whose terms of office continue past the Annual Meeting of Shareholders
are: Robert J. O'Toole; John S. Shiely; Charles I. Story; David L. Burner;
Eunice M. Filter and Frederick P. Stratton, Jr.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
11 Computation of Loss Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
99.1 Certification of Principal Executive Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002*
99.2 Certification of Principal Financial Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002*
*Filed herewith
16
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
(b) Reports on Form 8-K.
On September 17, 2002, Briggs & Stratton filed a report on Form 8-K,
dated September 17, 2002, to file as exhibits the statements under oath of the
Principal Executive Officer and Principal Financial Officer regarding facts and
circumstances relating to exchange act filings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRIGGS & STRATTON CORPORATION
-----------------------------
(Registrant)
Date: November 12, 2002 /s/ James E. Brenn
------------------
James E. Brenn
Senior Vice President and Chief Financial
Officer and Duly Authorized Officer
17
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CEO/CFO CERTIFICATIONS PURSUANT TO
SECTION 302 OF SARBANES-OXLEY ACT OF 2002
Certification of Principal Executive Officer
I, John S. Shiely, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Briggs & Stratton
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
its board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
18
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 /s/ John S. Shiely
---------------------------------------------
John S. Shiely, President and Chief Executive
Officer - Principal Executive Officer
19
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CEO/CFO CERTIFICATIONS PURSUANT TO
SECTION 302 OF SARBANES-OXLEY ACT OF 2002
Certification of Principal Financial Officer
I, James E. Brenn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Briggs & Stratton
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
its board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
20
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 /s/ James E. Brenn
-----------------------------------------------
James E. Brenn, Senior Vice President and Chief
Financial Officer - Principal Financial Officer
and Chief Accounting Officer
21
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
99.1 Certification of Principal Executive Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002*
99.2 Certification of Principal Financial Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002*
*Filed herewith
22