<PAGE> 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 December 26, 1993
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)
A Wisconsin Corporation 39-0182330
(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.
<TABLE>
<CAPTION>
Outstanding at
Class February 2, 1994
- ----------------------------------------------------------------------------------
<S> <C>
COMMON STOCK, par value $0.01 per share 14,463,500 Shares
</TABLE>
-1-
<PAGE> 2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Statements:
Consolidated Condensed Balance Sheets -
December 26, 1993, June 27, 1993 and
December 27, 1992 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
December 26, 1993 and December 27, 1992 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended December 26, 1993 and
December 27, 1992 5
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II - OTHER INFORMATION 12
</TABLE>
-2-
<PAGE> 3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
ASSETS
------
<TABLE>
<CAPTION>
December 26 June 27 December 27
1993 1993 1992
----------- ------- -----------
CURRENT ASSETS: (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents $ 7,765 $ 39,501 $ 17,613
Short-term investments - 70,422 -
Receivables, net 261,617 124,981 221,810
Inventories -
Finished products and parts 72,213 46,061 75,923
Work in process 25,154 25,320 28,762
Raw materials 3,988 2,684 4,103
----------------------------------
Total inventories $101,355 $ 74,065 $108,788
Future income tax benefits 28,732 27,457 24,196
Prepaid expenses 15,535 16,537 19,461
----------------------------------
Total current assets $415,004 $352,963 $391,868
----------------------------------
PREPAID PENSION COST $ 8,069 $ 7,602 $ 7,376
----------------------------------
PLANT AND EQUIPMENT, at cost: $663,563 $658,120 $654,967
Less - Accumulated depreciation and
unamortized investment tax credit 372,669 362,578 349,889
----------------------------------
Total plant and equipment, net $290,894 $295,542 $305,078
----------------------------------
$713,967 $656,107 $704,322
----------------------------------
----------------------------------
<CAPTION>
LIABILITIES & SHAREHOLDERS' INVESTMENT
--------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 54,539 $ 39,357 $ 42,170
Domestic notes payable - - 70,831
Foreign loans 20,043 15,927 25,413
Accrued liabilities 103,655 92,068 87,647
Dividends payable 6,364 - 6,076
Federal and state income taxes 12,190 10,592 11,006
----------------------------------
Total current liabilities $196,791 $157,944 $243,143
----------------------------------
DEFERRED INCOME TAXES $ 14,834 $ 49,900 $ 51,850
----------------------------------
ACCRUED EMPLOYEE BENEFITS $ 14,625 $ 13,305 $ 13,280
----------------------------------
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION $ 63,008 $ - $ -
----------------------------------
LONG-TERM DEBT $ 75,000 $ 75,000 $ 75,000
----------------------------------
SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 30,000,000 shares, $.01 par value
Issued and outstanding 14,463,500 shares $ 145 $ 145 $ 145
Additional paid-in capital 42,883 42,883 43,246
Retained earnings 308,019 318,247 281,772
Cumulative translation adjustments (1,338) (1,317) (4,114)
----------------------------------
Total shareholders' investment $349,709 $359,958 $321,049
----------------------------------
$713,967 $656,107 $704,322
----------------------------------
----------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 4
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands of dollars except amounts per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
Dec.26 Dec.27 Dec.26 Dec.27
1993 1992 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $328,937 $305,174 $527,509 $476,947
COST OF GOODS SOLD 256,556 243,840 426,932 397,890
-------- -------- -------- --------
Gross profit on sales $ 72,381 $ 61,334 $100,577 $ 79,057
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 23,792 20,825 43,639 39,925
-------- -------- -------- --------
Income from operations $ 48,589 $ 40,509 $ 56,938 $ 39,132
INTEREST EXPENSE (2,161) (3,040) (4,187) (5,571)
OTHER INCOME(EXPENSE), net 539 (317) 4,737 460
-------- -------- -------- --------
Income before provision
for income taxes $ 46,967 $ 37,152 $ 57,488 $ 34,021
PROVISION FOR INCOME TAXES 18,330 13,750 22,430 12,590
-------- -------- -------- --------
Net income before cumulative
effect of accounting changes $ 28,637 $ 23,402 $ 35,058 $ 21,431
-------- -------- -------- --------
-------- -------- -------- --------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR:
Postretirement health care, net of
income taxes $ - $ - $(40,232) $ -
Postemployment benefits, net of
income taxes - - (672) -
Deferred income taxes - - 8,346 -
-------- -------- -------- --------
$ - $ - $(32,558) $ -
-------- -------- -------- --------
Net income $ 28,637 $ 23,402 2,500 $ 21,431
-------- -------- -------- --------
-------- -------- -------- --------
PER SHARE DATA*
Net income before cumulative
effect of accounting changes $ 1.98 $ 1.62 $ 2.42 $ 1.48
Cumulative effect of accounting changes - - (2.25) -
------ ------ ------ ------
Net income $ 1.98 $ 1.62 $ .17 $ 1.48
------ ------ ------ ------
------ ------ ------ ------
Cash dividends $ .44 $ .42 $ .88 $ .84
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
*Based on 14,463,500 shares outstanding.
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase(Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Dec. 26, 1993 Dec. 27, 1992
------------- -------------
<S> <C> <C>
Net income $ 2,500 $ 21,431
Adjustments to reconcile net income to net
cash provided by operating activities -
Cumulative effect of accounting changes,
net of taxes 32,558 -
Depreciation 20,132 19,455
(Gain)Loss on disposition of plant and
equipment (2,493) 1,088
(Increase) in operating assets -
Accounts receivable (136,636) (118,195)
Inventories (27,290) (36,299)
Other current assets (1,444) (1,556)
Other assets (467) (368)
Increase(decrease) in liabilities -
Accounts payable and accrued
liabilities 29,459 18,613
Other liabilities 3,147 (1,180)
-------- --------
Net cash used in operating
activities $(80,534) $(97,011)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment $(20,351) $(16,350)
Proceeds received on sale of plant and
equipment 7,075 199
Sale of short-term investments 70,422 -
-------- --------
Net cash provided by (used in)
investing activities $ 57,146 $(16,151)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on domestic
and foreign loans $ 4,116 $ 64,391
Dividends (12,728) (12,149)
-------- --------
Net cash provided by (used in)
financing activities $ (8,612) $ 52,242
-------- --------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS $ 264 $ (409)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS $(31,736) $(61,329)
CASH AND CASH EQUIVALENTS, beginning 39,501 78,942
-------- --------
CASH AND CASH EQUIVALENTS, ending $ 7,765 $ 17,613
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,187 $ 5,403
-------- --------
-------- --------
Income taxes paid $ 22,704 $ 17,054
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE> 6
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. 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.
At the beginning of fiscal year 1994, the Company adopted three
Statements of Financial Accounting Standards (FAS) as follows:
FAS 106 - Postretirement Benefits Other Than Pensions -
This new standard requires that the Company record
the expected cost of health care and life insurance
benefits during the years that the employees render
service--a significant change from the preceding
method which recognized health care benefits on a
cash basis. Postretirement life insurance benefits
were previously being accounted for in a manner
substantially emulating the new standards, so no
adjustment was necessary. The cumulative effect of
this change in accounting for postretirement health
care benefits was a charge totaling $65,954,000 on a
before tax basis or $40,232,000 on an after tax basis
($2.78 per share). The additional annual cost of
accruing this cost over the former method will be
approximately $2,000,000.
For measurement purposes, a 10.5% annual rate of
increase in the per capita cost of covered health
care claims was assumed for the years 1995 through
1997, decreasing gradually to 6% for the year 2007.
The health care cost trend rate assumption has a
significant effect on the amounts reported. The
rates, if increased by 1%, would add $6,806,000 to
the accumulated post retirement benefit at the
beginning of the 1994 fiscal year. The discount rate
used in determining the accumulated postretirement
benefit obligation is 7.75% compounded annually. Both
the health care and life insurance plans are
unfunded.
The components of the postretirement health care
benefit obligation at the beginning of the 1994
fiscal year are:
<TABLE>
<S> <C>
Retirees $21,778,000
Fully Eligible Plan Participants 34,742,000
Other Active Participants 9,434,000
-----------
$65,954,000
-----------
-----------
</TABLE>
-6-
<PAGE> 7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited - Continued)
The actual health insurance benefit payments which
are expected to be paid within the next twelve months
are included in the caption Accrued Liabilities in
the accompanying balance sheet. All amounts expected
to be paid beyond one year are included in the
caption Accrued Postretirement Health Care
Obligation.
FAS 112 - Postemployment Benefits -
This new standard requires that the Company record
the expected cost of postemployment benefits (not to
be confused with the postretirement benefits
described in the preceding paragraphs), also over the
years that employees render service. These benefits
are substantially smaller amounts because they apply
only to employees who permanently terminate
employment prior to retirement. The cumulative
effect of this change was a charge totaling
$1,102,000 or $672,000 after taxes ($.05 per share).
There will be no significant increase in the annual
costs of these plans.
The items included in this amount are disability
payments, life insurance and medical benefits. These
amounts are also discounted using a 7.75% interest
rate.
FAS 109 - Accounting for Income Taxes -
The implementation of this standard results in the
change in the recording of deferred income taxes from
the former method which emphasized the provisions
made in the income statement to a method which
emphasizes the amounts to be paid out being recorded
on the balance sheet. The adoption of this standard
resulted in a cumulative adjustment which was
recorded as income totaling $8,346,000 or $.58 per
share.
The components of deferred tax assets (future income
tax benefits) and liabilities (deferred income taxes)
at the date of adoption at the beginning of the first
quarter of fiscal 1994 were:
Future Income Tax Benefits:
<TABLE>
<S> <C>
Inventory $ 2,425,000
Prepaid Expenses 2,032,000
Payroll Related Accruals 4,685,000
Warranty Reserves 10,761,000
Other Accrued Liabilities 4,291,000
Miscellaneous 2,092,000
-----------
$26,286,000
-----------
-----------
</TABLE>
-7-
<PAGE> 8
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited - Continued)
Deferred Income Taxes:
<TABLE>
<S> <C>
Difference between book
and tax methods applied
to maintenance and supply
inventories $(3,220,000)
Prepaid Pension Cost 2,901,000
Accumulated Depreciation 44,931,000
Accrued Employee Benefits (3,704,000)
Miscellaneous (1,275,000)
-----------
$39,633,000
-----------
-----------
</TABLE>
The above amounts do not include the income tax
effects arising from the adoption of FAS 106 and FAS
112 described in the preceding paragraphs.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's results of operations and
financial condition during the periods included in the accompanying
consolidated condensed financial statements.
RESULTS OF OPERATIONS
SALES
Net sales for the second quarter of the current fiscal year increased
8% or $23,763,000 when compared to the same period last year. Nearly one-half
of the Engine Division increase is the result of a change in sales mix to
higher selling price engines. The remaining amount is equally divided between
a 3% unit volume increase and a small price increase in the engines being sold.
Lock dollar sales were up 26%, whereas lock unit sales were up 22%,
reflecting the trend to higher unit price lock sets. The increase in unit
sales reflects the upswing in the sales of the U.S. car and truck industry.
-8-
<PAGE> 9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
Engine service sales went against the overall sales increase trend for
this quarter, reflecting an 8% decrease between years. Management believes
this reduction to be a result of a timing change only and will be made up in
the second half of the fiscal year.
Sales for the six months ended December 1993 showed an 11% increase of
$50,562,000 between years. Engine unit shipments were up 5%, lock unit
shipments were up 16%. The same factors described in the preceding paragraphs
affected the six-month figures.
Inventories of lawn and garden equipment in the industry distribution
channels at the end of the previous summer selling season were as low as they
were the year before. Economic forecasts are more favorable now than they were
a year ago. Equipment manufacturers and retailers are optimistic that retail
sales will be higher in the last half of the fiscal year than they were during
the same period last year. Company management believes engine orders reflect
that optimism. Therefore, if the weather cooperates, the third and fourth
fiscal quarters should be somewhat better than last year.
GROSS PROFIT
Gross profit for the second fiscal quarter increased $11,047,000 or
18% when compared to the same quarter last year. The gross profit rate (when
taken as a ratio to net sales) improved from 20% in the preceding year to 22%
in the current year. This is accounted for by two of the three factors
mentioned previously, namely the change in sales mix to higher selling price
engines which also have higher margins, and the small selling price increases.
The change in unit volume also contributed to the improvement in gross profit
by spreading fixed overhead over a larger number of engine units.
The gross profit increase of $21,520,000 or 27% for the six-month
comparative periods resulted from the same factors as described in the
preceding paragraph.
The Company expects continued improvement from all three factors to
carry into the remaining two quarters of the fiscal year.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Expenses in this category increased $2,967,000 or 14% when comparing
the two second fiscal quarters. This was primarily due to increased costs
related to the Company's projected Profit Sharing Plan payout and increases in
professional services.
These same factors contributed to the increase in the six-month
comparison.
-9-
<PAGE> 10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
INTEREST EXPENSE
This category decreased in both the December quarter comparison and
the year-to-date comparison. They were both due to a reduction in debt used by
the Company to finance its working capital needs in the second quarter of the
current fiscal year versus that used in the same period the previous fiscal
year. There were also reductions in the foreign debt used between years for
the entire first six months of the current fiscal year.
Company management expects the conditions described above will exist
in the third quarter, and the fourth quarter should be similar to the prior
year.
OTHER INCOME(EXPENSE)
This category had a substantial change between years, both in the
three-month comparison and the six-month comparison. The three-month
comparison reflected an improvement in investment income in the current fiscal
year due to having more funds available for short-term investment. The
six-month comparison had this same benefit plus a $2,800,000 gain on the sale
of the Company's German subsidiary facility in the first quarter of the year.
Management also believes investment income should continue favorable to last
year in both the third and fourth quarters due to greater funds being available
for investment.
PROVISION FOR INCOME TAXES
The effective tax rate of 39% is management's estimate of what this
rate will be for the full fiscal year and includes a 1% increase in the federal
statutory rate resulting from the Revenue Reconciliation Act of 1993.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES
At the beginning of this first quarter of the fiscal year, the Company
adopted the provisions of three accounting standards as prescribed by the
Financial Accounting Standards Board. When adopting these standards, a
cumulative catch-up adjustment must be made and must be reflected on the
statement of income in the period of change. These provisions are referred to
as Financial Accounting Standards (FAS) and are as follows:
FAS 106 - Employers' Accounting For Postretirement Benefits
Other Than Pensions and
FAS 112 - Employers' Accounting For Postemployment Benefits:
The amounts recorded and a description of these items
is in the accompanying notes. See that section.
-10-
<PAGE> 11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
FAS 109 - Accounting For Income Taxes:
The amount recorded and a description of this item is
in the accompanying notes. This new method will have
no significant effect on the Company's ongoing annual
income tax provision unless there are changes in the
statutory tax rates.
FINANCIAL CONDITION
The following comments apply to the change in the financial condition
of the Company since the preceding fiscal year-end in June 1993.
Short-term investments were not in existence on the Company's balance
sheet at the end of December in either of the years being compared here. The
previous year's balance sheet contained $70,831,000 of short-term domestic
notes payable, which were not in existence on the current balance sheet. This
improvement in the Company's liquidity is a result of the working capital
generated by profitable operations in the last twelve months.
The Company's investment in accounts receivable increased
$136,636,000. This is a normal seasonal change in this asset. However, this
increase is larger than that of the preceding year because of increased sales
volume late in the current year quarter.
Inventories increased $27,290,000 since the end of the previous fiscal
year. This increase is a normal seasonal change but is less than the increase
experienced the preceding fiscal year. This reflects an increase in sales
activity between years. The Company expects both the accounts receivable and
inventory levels to return to levels comparable to last year by the end of the
fiscal year.
Accounts payable and accrued liabilities increased $29,459,000 since
the end of the fiscal year. This increase was larger than last year due to
higher production activity in the current year causing an increase in accounts
payable, and a larger accrual of unpaid profit sharing. The changes for six
months also include a dividend payable at the end of December not present at
the end of the fiscal year.
Additions to plant and equipment are running ahead of the previous
year. The Company expects to make additions at a level somewhat higher than in
the preceding year.
The deferred income taxes were substantially reduced in the quarter
ended December 1993 due to the tax effects of the cumulative changes in
accounting.
The quarterly dividend rate was increased from $.42 per share to $.44
per share in the fourth quarter of the preceding year.
-11-
<PAGE> 12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the second quarter ended
December 26, 1993.
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: February 2, 1994 /s/ F. P. Stratton, Jr.
F. P. Stratton, Jr.
Chairman and Chief Executive
Officer
Date: February 2, 1994 /s/ R. H. Eldridge
R. H. Eldridge
Secretary-Treasurer
-12-
