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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 29, 1997
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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
BRIGGS & STRATTON CORPORATION
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(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 WEST WIRTH STREET
WAUWATOSA, WISCONSIN 53222
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-259-5333
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Common Stock (par value $0.01 per share) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $1,208,042,000 based on the reported last sale
price of such securities as of August 28, 1997.
Number of Shares of Common Stock Outstanding at August 28, 1997: 25,004,762.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K Into Which Portions
Document of Document are Incorporated
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Annual Report to Shareholders
for year ended June 29, 1997 Parts I (Item 1) and II
Proxy Statement for Annual Meeting
on October 15, 1997 Part III
The Exhibit Index is located on page 9.
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TABLE OF CONTENTS
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Item Page
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PART I
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1. Business 1
2. Properties 3
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security Holders 3
Executive Officers of the Registrant 4
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters 6
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6
7A. Quantitative and Qualitative Disclosure About Market Risk 6
8. Financial Statements and Supplementary Data 6
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6
PART III
10. Directors and Executive Officers of the Registrant 6
11. Executive Compensation 6
12. Security Ownership of Certain Beneficial Owners and Management 6
13. Certain Relationships and Related Transactions 6
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 7
Signatures 8
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PART I
Item 1. Business
General
Briggs & Stratton Corporation is the world's largest producer of air cooled
gasoline engines for outdoor power equipment. The Company designs,
manufactures, markets and services these products for original equipment
manufacturers (OEMs) worldwide. These engines are aluminum alloy gasoline
engines ranging from 3 through 22 horsepower.
The Company's engines are used primarily by the lawn and garden equipment
industry, which accounted for 81% of fiscal 1997 OEM engine sales. The major
lawn and garden equipment applications include walk-behind lawn mowers, riding
lawn mowers and garden tillers. The remaining 19% of OEM sales in fiscal 1997
were for use on many products for industrial, agricultural and consumer
applications, including generators, pumps and pressure washers. Many retailers
specify the Company's engines on the powered equipment they sell, and the
Briggs & Stratton name is often featured prominently on a product despite the
fact that its engine is just a component. Briggs & Stratton engines are
marketed under various brand names including Classic(TM), Sprint(TM),
Quattro(TM), Quantum(R), INTEK(TM), I/C(R), Diamond I/C(R), Industrial Plus(TM)
and Vanguard(TM).
In fiscal 1997, approximately 23% of the Company's net sales were derived from
sales in international markets, primarily to customers in Europe. Briggs &
Stratton serves its international markets through its European regional office
in Switzerland, its distribution center in the Netherlands and sales and
service subsidiaries in Australia, Canada, France, Germany, New Zealand,
Sweden, the United Kingdom and Mexico. The Company is a leading supplier of
gasoline engines in developed countries where there is an established lawn and
garden equipment market. The Company also exports to developing nations where
its engines are used in agricultural, marine and other applications.
Briggs & Stratton engines are sold primarily by its worldwide sales force
through direct calls on customers. The Company's marketing staff and engineers
provide support and technical assistance to its sales force.
Briggs & Stratton also manufactures replacement engines and service parts and
sells them to sales and service distributors. The Company owns its principal
international distributors. In the United States the distributors are
independently owned and operated. These distributors supply service parts and
replacement engines directly to approximately 30,000 independently owned
authorized service dealers throughout the world. These distributors and service
dealers implement Briggs & Stratton's commitment to reliability and service.
Customers
The Company's sales are primarily made directly to original equipment
manufacturers. The Company's three largest customers accounted for 46%, 48% and
44% of net sales in fiscal 1997, 1996 and 1995, respectively. Sales to the
Company's largest engine customer, MTD Products Inc., were 21%, 21% and 18% of
net sales in fiscal 1997, 1996 and 1995, respectively. Sales to its second
largest customer, AB Electrolux (including its Frigidaire Home Products group),
were 14%, 14% and 12% of net sales in fiscal 1997, 1996 and 1995, respectively,
and sales to its third largest customer, Tomkins PLC (including its Murray
product line), were 11%, 13% and 14% of net sales in fiscal 1997, 1996 and
1995, respectively. Under purchasing plans available to all of its gasoline
engine customers, the Company typically enters into annual engine supply
arrangements with these customers. The Company has no reason to anticipate a
change in this practice or in its historical business relationships with these
equipment manufacturers.
Over the past several years, sales in the United States of lawn and garden
equipment by mass merchandisers have increased significantly, while sales by
independent distributors and dealers have declined. The Company believes that
in 1997 more than 75% of all lawn and garden equipment sold in the United
States was sold through mass merchandisers such as Sears, Wal-Mart, Kmart, Home
Depot and Lowe's. Given the buying power of the mass merchandisers, the
Company, through its customers, has experienced pricing pressure. The
Company expects that this trend will continue in the foreseeable future. The
Company believes that a similar trend is developing for commercial products for
industrial and consumer applications.
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Competition
The small gasoline engine industry is highly competitive. The Company's major
domestic competitors in engine manufacturing are Tecumseh Products Company,
Honda Motor Co., Ltd., Kohler Co. and Kawasaki Heavy Industries, Ltd. Also, two
domestic lawn mower manufacturers, Toro Co. under its Lawn-Boy brand, and
Honda, manufacture their own engines. Eight Japanese small engine
manufacturers, of which Honda and Kawasaki are the largest, compete directly
with the Company in world markets in the sale of engines and indirectly through
their sale of end products that compete with the end products produced by the
Company's customers. Tecumseh Europa S.p.A., located in Italy, is a major
competitor in Europe.
The Company believes the major areas of competition from all engine
manufacturers include product quality, brand strength, price, timely delivery
and service. Other factors affecting competition are short-term market share
objectives, short-term profit objectives, exchange rate fluctuations,
technology and product support and distribution strength. Briggs & Stratton
believes its product quality and service reputation have given it strong brand
name recognition and enhance its competitive position.
Seasonality of Demand
Sales of engines to lawn and garden equipment manufacturers are highly seasonal
because of the buying patterns of retail customers. The majority of lawn and
garden equipment is sold during the spring and summer months when most lawn
care and gardening activities are performed. Sales of lawn and garden equipment
are also influenced by weather conditions. Sales in the Company's fiscal third
quarter have historically been the highest, while sales in the first fiscal
quarter have historically been the lowest.
The sale of lawn and garden equipment has shifted from smaller dealers to
larger mass merchandisers, who do not wish to carry large inventories of lawn
and garden equipment. In order to efficiently use its capital investments and
meet seasonal demand for engines, the Company pursues a balanced production
schedule throughout the year, subject to ongoing adjustment to reflect changes
in estimated demand, customer inventory levels and other matters outside the
control of the Company. Accordingly, inventory levels are generally higher
during the first and second fiscal quarters in anticipation of increased
customer demand in the third fiscal quarter, at which time inventory levels
begin to decrease as sales increase.
In recent years, lawn and garden equipment manufacturers have tended to place
orders with engine manufacturers and to take deliveries later in the selling
season, specifically later in the Company's third fiscal quarter and in the
Company's fourth fiscal quarter. This seasonal pattern results in high
inventories and receivables and low cash for the Company in the second and the
beginning of the third fiscal quarters, with a rapid shift to lower inventories
and receivables and ultimately higher cash in the latter portion of the third
fiscal quarter and in the fourth fiscal quarter.
Manufacturing
Briggs & Stratton manufactures engines and parts at the following locations in
the United States: Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and
Rolla, Missouri; Auburn, Alabama; and Statesboro, Georgia. The Company has a
parts distribution center in Menomonee Falls, Wisconsin. Parts and components
are manufactured at foundries located in West Allis, Wisconsin and Ravenna,
Michigan. The Company believes that it has adequate capacity to meet its
currently anticipated production needs.
Briggs & Stratton manufactures a majority of the structural components used
in its engines, including ductile iron castings, aluminum die castings and
a high percentage of other major components, such as carburetors and ignition
systems. The Company purchases certain finished standard commercial parts such
as piston rings, spark plugs, valves, grey iron castings, zinc die
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castings and plastic components, some stampings and screw machine parts and
smaller quantities of other components. Raw material purchases are principally
for aluminum and steel. The Company believes its sources of supply are
adequate.
The Company has joint ventures with Daihatsu Motor Company for the manufacture
of engines in a plant near Osaka, Japan; with Puling Machinery Works and Yimin
Machinery Plant for the production of engines in a plant in Chongqing, China;
and with Starting Industrial of Japan for the production of rewind starters in
a plant located in Poplar Bluff, Missouri. The Company also has a strategic
relationship with Mitsubishi Heavy Industries (MHI) for the international
distribution of engines for outdoor power equipment manufactured by MHI in
Japan.
Other General Information
The Company holds certain patents on features incorporated in its products;
however, the success of the Company's business is not considered to be
primarily dependent upon patent protection. Licenses, franchises and
concessions are not a material factor in the Company's business.
For the years ending June 29, 1997, June 30, 1996 and July 2, 1995, the Company
spent approximately $19,525,000, $15,019,000 and $13,112,000, respectively,
on Company sponsored research activities relating to the development of new
products or the improvement of existing products.
The average number of persons employed by the Company during the fiscal year
was 7,560. Employment ranged from a low of 7,126 in August 1996 to a high of
7,858 in February 1997.
Financial Information About Industry Segments
Financial information about industry segments prior to the spin-off of the
automotive lock division in February 1995 appears in Note 4 of the Notes to
Consolidated Financial Statements in the 1997 Annual Report to Shareholders
and is incorporated herein by reference.
Export Sales
Export sales for fiscal 1997 were $304,230,000 (23% of total sales), for fiscal
1996 were $323,747,000 (25% of total sales) and for fiscal 1995 were
$312,234,000 (23% of total sales). These sales were principally to customers in
European countries.
Cautionary Statement on Forward-Looking Statements
Certain statements in Item 1. Business may contain forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. The words
"anticipate", "believe", "estimate", "expect", "objective", and "think" or
similar expressions are intended to identify forward-looking statements. The
forward-looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, among other
things, the effects of weather on the purchasing patterns of the Company's
customers and end use purchasers of the Company's engines; the seasonal nature
of the Company's business; actions of competitors; changes in laws and
regulations, including accounting standards; employee relations; customer
demand; prices of purchased raw materials and parts; domestic economic
conditions, including housing starts and changes in consumer disposable income;
and foreign economic conditions, including currency rate fluctuations. Some or
all of the factors are beyond the Company's control.
Item 2. Properties
The corporate offices and two of the Company's manufacturing facilities are
located in suburbs of Milwaukee, Wisconsin. The Company also has manufacturing
facilities in Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn,
Alabama; Statesboro, Georgia; and Ravenna, Michigan. These are owned facilities
containing over 3.9 million square feet of office and production area. The
Company also leases warehouse space totalling 400,000 square feet in a suburb
of Milwaukee, Wisconsin.
The engine business is seasonal, with demand for engines at its height in the
winter and early spring. Engine manufacturing operations run at capacity levels
during the peak season, with many operations running three shifts. Engine
operations generally run one shift in the summer, when demand is weakest and
production is considerably under capacity. During the winter, when finished
goods inventories reach their highest levels, owned warehouse space may be
insufficient and capacity may be expanded through rented space. Excess
warehouse space exists in the spring and summer seasons. The Company's owned
properties are well maintained.
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The Company leases 174,000 square feet of space to house its European warehouse
in the Netherlands and its foreign sales and service operations in Australia,
Canada, the Czech Republic, France, Germany, Ireland, Mexico, New Zealand,
Sweden, Switzerland and the United Kingdom.
Item 3. Legal Proceedings
There are no pending legal proceedings that are required to be reported under
this item.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended June 29,
1997.
Executive Officers of the Registrant
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Name, Age, Position Business Experience for Past Five Years
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FREDERICK P. STRATTON, JR., 58 Mr. Stratton was elected to the position of Chief Executive
Chairman and Chief Executive Officer Officer in May 1977 and Chairman in November 1986. He also
(1) (2) (3) served in the position of President from January 1992 to
August 1994.
JOHN S. SHIELY, 45 Mr. Shiely was elected to his current position in
President and Chief Operating Officer August 1994 after serving as Executive Vice President -
(1) (2) Administration since November 1991.
ROBERT H. ELDRIDGE, 59 Mr. Eldridge was elected to his current position effective
Executive Vice President and April 1995. He has served as Secretary-Treasurer since
Chief Financial Officer, January 1984.
Secretary-Treasurer (1)
MICHAEL D. HAMILTON, 55 Mr. Hamilton was elected to his present position effective
Executive Vice President - June 1989.
Sales and Service
JAMES A. WIER, 54 Mr. Wier was elected to his current position in April 1989.
Executive Vice President - Operations
JAMES E. BRENN, 49 Mr. Brenn was elected to his current position in
Vice President and Controller November 1988.
RICHARD J. FOTSCH, 42 Mr. Fotsch was elected to his current position effective
Senior Vice President - July 1997. He was elected to the executive officer position
Engine Group of Vice President; General Manager - Small Engine Division
in May 1993, after serving the Small Engine Division
as Vice President and General Manager from July 1990 to
May 1993.
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HUGO A. KELTZ, 49 Mr. Keltz was elected to his present position in May 1992.
Vice President - International
CURTIS E. LARSON, JR., 49 Mr. Larson was elected to this executive officer position
Vice President - Distribution in October 1995 after serving as Vice President -
Sales and Service Industrial Engine Division since January 1993. He held
the position of Vice President - Sales and Marketing of
the Company's automotive lock division from December 1988
to January 1993.
PAUL M. NEYLON, 50 Mr. Neylon was elected an executive officer in May 1993,
Vice President; General Manager - Spectrum Division after serving the Vanguard Division as Vice President and
General Manager since November 1991. This division has
since been renamed the Spectrum Division.
STEPHEN H. RUGG, 50 Mr. Rugg was elected to his current position in
Vice President - Sales November 1995, after serving as Vice President - Sales and
Marketing since November 1988.
THOMAS R. SAVAGE, 49 Mr. Savage was elected to his current position effective
Senior Vice President - Administration July 1997 after serving as Vice President - Administration
and General Counsel and General Counsel since November 1994. He joined the
firm in April 1992 as General Counsel.
GREGORY D. SOCKS, 48
Vice President; General Manager - Mr. Socks was elected to his current position effective
Castings Division July 1997. He was elected to the executive officer position
of Vice President; General Manager - Large Engine Division
in May 1993, after serving the Large Engine Division as Vice
President and General Manager from July 1990 to May 1993.
GERALD E. ZITZER, 50 Mr. Zitzer was elected to his current position in
Vice President - Human Resources November 1988.
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(1) Officer is also a Director of the Company.
(2) Member of Executive Committee.
(3) Member of Planning Committee.
Officers are elected annually and serve until they resign, die, are removed,
or a different person is appointed to the office.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information required by this Item is incorporated by reference to "Quarterly
Financial Data, Dividend and Market Information" on page 32 of the 1997 Annual
Report to Shareholders.
Item 6. Selected Financial Data
Information required by this Item appears under the heading "Five Year
Comparisons" on page 33 of the 1997 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of results of operations and financial
condition of the Company appears on pages 28 through 31 of the 1997 Annual
Report to Shareholders and is incorporated by reference in this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 7A does not apply to the Company until fiscal 1998.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is incorporated by reference from the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
appearing on pages 12 through 25 and page 32 of the 1997 Annual Report to
Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has not changed independent accountants in the last two years.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information pertaining to directors is incorporated herein by reference from
pages 1, 2 and 3 of the Company's 1997 Annual Meeting Proxy Statement dated
September 8, 1997. Information regarding executive officers required by Item
401 of Regulation S-K is furnished in Part I of this Form 10-K. There is no
information required by Item 405 of Regulation S-K to be reported.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the
section entitled Election of Directors, specifically paragraphs one and two on
page 2, the final two paragraphs of the Nominating and Salaried Personnel
Committee Report on Executive Compensation found on page 11 and the Executive
Compensation section found on pages 12-16 of the Company's 1997 Annual Meeting
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from pages
5 and 6 of the Company's 1997 Annual Meeting Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The company has no relationships or related transactions to report pursuant
to Item 13.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
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Page Reference
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1997
Annual Report
1997 to
Form 10-K Shareholders
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1. Financial Statements
Consolidated Balance Sheets,
June 29, 1997 and June 30, 1996 12*, 13*
For the Years Ended June 29, 1997,
June 30, 1996 and July 2, 1995:
Consolidated Statements of Earnings and
Shareholders' Investment 14*, 15*
Consolidated Statements of Cash Flow 16*
Notes to Consolidated Financial Statements 17-25*
Report of Independent Public Accountants 27*
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* Incorporated herein by reference to the Registrant's
1997 Annual Report to Shareholders for the fiscal year
ended June 29, 1997.
2. Financial Statement Schedules
All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions.
3. Exhibits
See Exhibit Index starting on page 9 of this report, which is
incorporated herein by reference. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit to
this report is identified in the Exhibit Index by an asterisk
following the Exhibit Number.
(b) Reports on Form 8-K
On April 17, 1997, the Company filed a report on Form 8-K dated
April 16, 1997 regarding (as disclosed in Item 5. thereof) a self tender
offer for up to 5.875 million shares of common stock, the declaration of a
dividend and the unaudited operating results for the third quarter of fiscal
1997.
On June 16, 1997, the Company filed a report on Form 8-K dated May 30, 1997
regarding (as disclosed in Item 5. thereof) the sale on June 4, 1997 of
$100,000,000 aggregate principal amount of its 7-1/4% unsecured and
unsubordinated notes due September 15, 2007 pursuant to a Registration
Statement, as amended, that had previously been filed and declared effective
by the SEC on May 29, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ R. H. Eldridge
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R. H. Eldridge
September 18, 1997 Executive Vice President
and Chief Financial Officer,
Secretary-Treasurer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Frederick P. Stratton, Jr. and Robert H. Eldridge, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue thereof.
-----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
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/s/ F. P. Stratton, Jr. /s/ John L. Murray
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F. P. Stratton, Jr. September 18, 1997 John L. Murray September 18, 1997
Chairman and Chief Executive Officer and Director
Director (Principal Executive Officer)
/s/ R. H. Eldridge /s/ C. B. Rogers, Jr.
- --------------------------------------------- --------------------------------------------------
Robert H. Eldridge September 18, 1997 C. B. Rogers, Jr. September 18, 1997
Executive Vice President and Director
Chief Financial Officer, Secretary-Treasurer
and Director (Principal Financial Officer)
/s/ James E. Brenn /s/ John S. Shiely
- --------------------------------------------- ---------------------------------------------------
James E. Brenn September 18, 1997 John S. Shiely September 18, 1997
Vice President and Controller President and Chief Operating Officer and Director
(Principal Accounting Officer)
/s/ Michael E. Batten /s/ Charles I. Story
- --------------------------------------------- ---------------------------------------------------
Michael E. Batten September 18, 1997 Charles I. Story September 18, 1997
Director Director
/s/ Peter A. Georgescu /s/ Elwin J. Zarwell
- --------------------------------------------- ---------------------------------------------------
Peter A. Georgescu September 18, 1997 Elwin J. Zarwell September 18, 1997
Director Director
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BRIGGS & STRATTON CORPORATION
(Commission File No. 1-1370)
EXHIBIT INDEX
1997 ANNUAL REPORT ON FORM 10-K
Exhibit
Number Document Description
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3.1 Articles of Incorporation.
(Filed as Exhibit 3.2 to the Company's Report on Form 10-Q
for the quarter ended October 2, 1994, and incorporated by
reference herein.)
3.2 Bylaws.
(Filed as Exhibit 3.2 to the Company's Registration
Statement on Form 8-B dated October 12, 1992 and
incorporated by reference herein.)
4.0 Rights Agreement dated as of August 7, 1996, between Briggs
& Stratton Corporation and Firstar Trust Company which
includes the form of Right Certificate as Exhibit A and the
Summary of Rights to Purchase Common Shares as Exhibit B.
(Filed as Exhibit 4.1 to the Company's Registration
Statement on Form 8-A, dated as of August 7, 1996 and
incorporated by reference herein.)
4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton
Corporation and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.1 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs &
Stratton Corporation issued pursuant to the Indenture dated
as of June 4, 1997 between Briggs & Stratton Corporation and
Bank One, N.A., as Trustee.
(Filed as Exhibit 4.2 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.3 Resolutions of the Board of Directors of Briggs & Stratton
Corporation authorizing the public offering of debt
securities of Briggs & Stratton Corporation in an aggregate
principal amount of up to $175,000,000.
(Filed as Exhibit 4.3 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.4 Actions of the Authorized Officers of Briggs & Stratton
Corporation authorizing the issuance of $100,000,000
aggregate principal amount of 7-1/4% Notes due
September 15, 2007.
(Filed as Exhibit 4.4 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.5 Officers' Certificate and Company Order of Briggs & Stratton
Corporation executed in conjunction with the issuance of
$100,000,000 aggregate principal amount of 7-1/4% Notes due
September 15, 2007.
(Filed as Exhibit 4.5 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
10.0* Forms of Officer Employment Agreements.
(Filed as Exhibit 10.0 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)
10.1* Survivor Annuity Plan.
(Filed as Exhibit 10.1 to the Company's Annual Report on
Form 10-K for fiscal year ended June 30, 1986 and
incorporated by reference herein.)
10.2* Supplemental Retirement Program.
(Filed as Exhibit 10.3 to the Company's Annual Report on
Form 10-K for fiscal year ended June 30, 1990 and
incorporated by reference herein.)
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Exhibit
Number Description
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10.3 (a)* Economic Value Added Incentive Compensation Plan, as
amended and restated effective April 18, 1995.
(Filed as Exhibit 10.3 (b) to the Company's Annual
Report on Form 10-K for fiscal year ended July 2, 1995
and incorporated by reference herein.)
10.3 (b)* Amendment to Economic Value Added Incentive Compensation
Plan.
(Filed as Exhibit 10.3 (c) to the Company's Report on
Form 10-Q for the quarter ended December 31, 1995 and
incorporated by reference herein.)
10.3 (c)* Amendment to Economic Value Added Incentive Compensation
Plan.
(Filed herewith.)
10.4* Form of Change of Control Employment Agreements.
(Filed as Exhibit 10.4 to the Company's Annual Report
on Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)
10.5 (a)* Trust Agreement with an independent trustee to provide
payments under various compensation agreements with
company employees upon the occurrence of a change in
control.
(Filed as Exhibit 10.5 (a) to the Company's Annual
Report on Form 10-K for fiscal year ended July 2, 1995
and incorporated by reference herein.)
10.5 (b)* Amendment to Trust Agreement with an independent trustee
to provide payments under various compensation agreements
with company employees.
(Filed as Exhibit 10.5 (b) to the Company's Annual
Report on Form 10-K for fiscal year ended July 2, 1995
and incorporated by reference herein.)
10.6* Stock Incentive Plan.
(Filed as Exhibit A to the Company's 1993 Annual
Meeting Proxy Statement, which was filed as Exhibit 100
A to the Company's Annual Report on Form 10-K for fiscal
year ended June 27, 1993 and incorporated by reference
herein.)
10.7 (a)* Leveraged Stock Option Program.
(Filed as Exhibit 10.7 to the Company's Annual Report
on Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)
10.7 (b)* Amendment to Leveraged Stock Option Program.
(Filed as Exhibit 10.7 (b) to the Company's Annual
Report on Form 10-K for fiscal year ended July 2, 1995
and incorporated by reference herein.)
10.8* Amended and Restated Deferred Compensation Agreement for
Fiscal 1995.
(Filed as Exhibit 10.9 to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.9* Deferred Compensation Agreement for Fiscal 1996.
(Filed as Exhibit 10.10 to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.10* Deferred Compensation Agreement for Fiscal 1997.
(Filed as Exhibit 10.10 to the Company's Annual Report
on Form 10-K for fiscal year ended June 30, 1996 and
incorporated by reference herein.)
10.11* Deferred Compensation Agreement for Fiscal 1998.
(Filed herewith.)
10.12* Officer Employment Agreement.
(Filed as Exhibit 10.11 to the Company's Report on
Form 10-Q for the quarter ended December 31, 1995 and
incorporated by reference herein.)
10.13* Deferred Compensation Plan for Directors.
(Filed as Exhibit 10.12 to the Company's Report on
Form 10-Q for the quarter ended December 31, 1995 and
incorporated by reference herein.)
10
<PAGE> 13
Exhibit
Number Description
------- -----------
10.14* Director's Leveraged Stock Option Plan.
(Filed herewith.)
11 Computation of Earnings Per Share of Common Stock.
(Filed herewith.)
12 Computation of Ratio of Earnings to Fixed Charges.
(Filed herewith.)
13 Annual Report to Shareholders for Year Ended
June 29, 1997.
(Filed herewith solely to the extent specific
portions thereof are incorporated herein by
reference.)
21 Subsidiaries of the Registrant.
(Filed as Exhibit 21 to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
23 Consent of Independent Public Accountants.
(Filed herewith.)
24 Power of Attorney
(Included in the Signatures Page of this report.)
27 Financial Data Schedule
(Filed herewith.)
- --------------------------------------------------------------------------------
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K.
11
<PAGE> 1
BRIGGS & STRATTON CORPORATION
1997 Annual Report on Form 10-K
EXHIBIT NO. 10.3 (c)
AMENDMENT TO BRIGGS & STRATTON CORPORATION
ECONOMIC VALUE ADDED INCENTIVE COMPENSATION PLAN
RESOLVED, that Section V.B. Target Incentive Awards, of the Briggs &
Stratton Corporation Economic Value Added Incentive Compensation Plan for
management employees be amended to set the Target Incentive Award for the
Executive Position of Chairman and CEO at 90%, effective for fiscal 1998.
<PAGE> 1
BRIGGS & STRATTON CORPORATION
1997 Annual Report on Form 10-K
EXHIBIT NO. 10.11
DEFERRED COMPENSATION AGREEMENT FOR FISCAL 1998
AGREEMENT made this 24th day of June, 1997, between Briggs & Stratton
Corporation (the "Company") and Frederick P. Stratton, Jr. (the "Executive").
1. Deferral of Compensation. This Agreement shall operate to defer, on
an unfunded basis, compensation earned by the Executive as an employee of
the Company for the Company's fiscal year ending in 1998, to the extent
that such compensation would otherwise be non-deductible under
Section 162(m) of the Internal Revenue Code, as amended from time to time.
The amount deferred hereunder shall be paid to the Executive as soon as
practicable following the Company fiscal year in which the Executive
terminates employment with the Company, such payment to be made in one lump
sum, or in such other manner as may be agreed upon between the Executive
and the Company's Nominating and Salaried Personnel Committee of the Board.
Such agreement, if any, must occur before the termination of employment by
the Executive, or such payment shall be in a lump sum.
2. Death of Executive. If the Executive dies prior to receiving all funds
payable hereunder, the entire unpaid balance shall be paid in the same
manner as provided for the Executive under the Company's Economic Value
Added Incentive Compensation Plan.
3. Binding Effect. This Agreement has been approved by the Company's Board
of Directors and its Nominating and Salaried Personnel Committee, and shall
be binding and inure to the benefit of the Company, its successors and
assigns and the Executive and his heirs, executors, administrators, and
legal representatives.
4. Earnings on Deferrals. On or before June 28, 1998, the Executive shall
elect to have any deferrals hereunder credited with earnings in accordance
with (a) or (b) below:
(a) Earnings on a book (unfunded) basis beginning on the date the deferred
amount would otherwise have been paid, and continuing thereafter at a
rate equal to 80% of the prime rate made available to the best
customers of Firstar Bank Milwaukee, N.A., and adjusted and compounded
annually as of the last day of each subsequent Company fiscal year
until paid;
(b) Earnings at a rate designed to reflect the performance of Company stock.
Under this alternative, the amount deferred shall be converted into
shares of phantom Company stock as soon as practicable following the
determination of the amount deferred under this Agreement. Each year,
the Committee shall determine the amount of dividends that would have
been paid on the phantom stock and convert such dividends into
additional shares of phantom stock. Following the conversions
described above, the Company shall promptly advise Executive of the
number of phantom shares acquired. If Executive chooses this investment
alternative, Executive may elect to receive distributions in cash or
stock; provided that any stock distributions shall be subject to any
necessary approvals under securities laws or exchange requirements.
<PAGE> 2
5. Section 16 Consequences. Executive acknowledges that an election under
Section 4(b) above will have implications under Section 16 of the Securities
Exchange Act of 1934, including potential Section 16(b) liability if
Executive or an affiliate has a matching transaction. Executive acknowledges
that he will be responsible for reporting transactions under this Agreement
on the applicable Form 4 or Form 5.
6. Unfunded Status of Agreement. It is intended that this Agreement constitute
an "unfunded" arrangement for deferred compensation. The Committee may
authorize the creation of a trust or other arrangement to meet the
obligations created under this Agreement provided, however, that unless the
Committee otherwise determines, the existence of such trust or other
arrangement is consistent with the "unfunded" status of the Agreement.
7. Miscellaneous. Payment of deferrals hereunder shall be subject to tax
or other withholding requirements as may be required by law. The Company's
Board, or its Nominating and Salaried Personnel Committee, shall have the
power to modify or terminate this Agreement, but only with consent of the
Executive.
IN WITNESS WHEREOF, Briggs & Stratton Corporation has caused this Deferred
Compensation Agreement to be executed by its duly authorized Director and
Frederick P. Stratton, Jr., together with his spouse, Anne Y. Stratton,
hereunto have set their hands as of the date first above written.
BRIGGS & STRATTON CORPORATION
By: /s/ John L. Murray
------------------------------
John L. Murray
Chairman, Nominating and
Salaried Personnel Committee
/s/ F. P. Stratton, Jr.
------------------------------
Frederick P. Stratton, Jr.
/s/ Anne Y. Stratton
------------------------------
Anne Y. Stratton
2
<PAGE> 1
BRIGGS & STRATTON CORPORATION
1997 Annual Report on Form 10-K
EXHIBIT NO. 10.14
DIRECTOR'S LEVERAGED STOCK OPTION PLAN
1.0 Objectives
The Director's Leveraged Stock Option Plan ("Director's LSO Plan" or
"Plan") is designed to build upon the Company's Economic Value Added
Incentive Compensation Plan ("EVA Plan") for key employees and Leveraged
Stock Option Program ("LSO Program") for Senior Executives by tying the
interests of the Company's directors to the long term market value added
performance of the Company. In this way, the objectives of directors will
be more closely aligned with those of the Company's Shareholders. The
Director's LSO Plan will allow nonemployee directors to participate in the
long-term appreciation in the equity value of the Company. In general, the
Plan is structured such that each nonemployee director may receive options
on the Company's Stock ("LSOs"), the number of such LSOs to be determined
by reference to the Company Performance Factor achieved under the EVA
Plan. These LSOs become exercisable after they have been held for three
years, and they expire at the end of five years. The Director's LSO Plan
is structured so that a fair return must be provided to the Company's
Shareholders before the options become valuable.
2.0 Administration
The Plan shall be administered by the Board of Directors ("Board").
3.0 Stock Subject to Plan
The total number of shares reserved and available for distribution
pursuant to LSOs under the Plan shall be 100,000 shares of the Company's
common stock, par value $0.01 per share ("Stock"). Such shares may
consist, in whole or in part, of treasury or market purchase shares.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Stock, such substitution or adjustments shall be
made in the aggregate number of shares reserved for issuance under the
Plan, and in the number and option price of shares subject to outstanding
LSOs, as may be determined to be appropriate by the Board, in its sole
discretion; provided, however, that the number of shares subject to any
award shall always be a whole number.
4.0 Eligibility
Each nonemployee director of the Company shall be eligible to participate
in the Plan.
5.0 Leveraged Stock Option Grant
For fiscal 1998 and subsequent fiscal years, each nonemployee director of
the Company who serves as a director through the end of the fiscal year
shall receive a number of LSOs determined as follows, based on the Company
Performance Factor achieved under the EVA Plan for that fiscal year:
<PAGE> 2
Company Performance Factor Number of LSOs
-------------------------- --------------
Under .5 0
.5 1,000
1.0 2,000
1.5 3,000
2.0 4,000
Over 2.0 An additional 1,000
LSOs for each .5
increase in the Company
Performance Factor
LSO grants shall be evidenced by option agreements, the terms and
provisions of which shall be determined by this Director's LSO Plan or the
Board. These grants will be awarded at the same time the Company awards
grants to Senior Executives under the LSO Program. The LSOs shall
constitute non-qualified stock options.
No LSO shall be transferable by the optionee other than by will or by the
laws of descent and distribution, and all LSOs shall be exercisable, during
the optionee's lifetime, only by the optionee or by the guardian or legal
representative of the optionee, it being understood that the terms "holder"
and "optionee" include the guardian and legal representative of the
optionee named in the option agreement and any person to whom an option is
transferred by will or the laws of descent and distribution.
If an optionee's service as a director terminates by reason of death, any
LSO held by such optionee may thereafter be exercised, to the extent then
exercisable or on such accelerated basis as the Board may determine, for a
period of one year (or such other period as the Board may specify at grant)
from the date of such death or until the expiration of the stated term of
such LSO, whichever period is shorter.
When an optionee's service as a director terminates due to reaching the
mandatory retirement age or due to retirement upon reaching the end of the
term for which elected, an LSO held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of
such retirement or on such accelerated basis as the Board may determine,
for a period of three years (or such shorter period as the Board may
specify at grant) from the date of such retirement or until the expiration
of the stated term of such LSO, whichever period is shorter; provided,
however, that if the optionee dies within such three-year (or such shorter)
period, any unexercised LSO held by such optionee shall, notwithstanding
the expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death
for a period of one year from the date of such death or until the
expiration of the stated term of such LSO, whichever period is shorter.
When an optionee's service as a director terminates for any reason other
than death or retirement as described above, unless otherwise determined by
the Board at grant, the LSO shall thereupon terminate, except that such
LSO, to the extent then exercisable, may be exercised for the lesser of
three months or the balance of the term. Notwithstanding the foregoing, if
an optionee's service as a director terminates at or after a Change in
Control (as defined in the Company's Stock Incentive Plan), other than by
death or retirement (as described above), any LSO held by such optionee
shall be exercisable for the lesser of (x) six months and one day, and (y)
the balance of such LSO's term.
6.0 Term
All LSOs shall be exercisable beginning on the third anniversary of the
date of grant, and shall terminate on the fifth anniversary of the date of
grant, unless sooner exercised or the Board determines other dates at
grant.
2
<PAGE> 3
7.0 Exercise Price
The exercise price for LSOs granted hereunder shall be the exercise price
for LSOs granted under the LSO Program for Senior Executives for that
fiscal year.
8.0 Definitions
All capitalized terms used herein that are not otherwise defined shall
have the same meaning given to them in the EVA Plan, LSO Program or Stock
Incentive Plan.
9.0 Amendments and Termination
The Board may amend, alter, or discontinue the Plan but no amendment,
alteration or discontinuation shall be made which would impair the rights
of an optionee under an LSO granted without the optionee's or recipient's
consent.
The Board may amend the terms of any LSO theretofore granted,
prospectively or retroactively, but no such amendment shall impair the
rights of any holder without the holder's consent.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting
rules, as well as other developments.
10.0 Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Board may authorize the creation
of trusts or other arrangements to meet the obligations created under the
Plan to deliver Stock; provided, however, that, unless the Board
otherwise determines, the existence of such trusts or other arrangements
is consistent with the "unfunded" status of the Plan.
11.0 General Provisions
(a) The Board may require each person purchasing shares pursuant to an
LSO grant to represent to and agree with the Company in writing that
the optionee or participant is acquiring the shares without a view to
the distribution thereof.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock transfer orders and
other restrictions as the Board may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed
and any applicable Federal or state securities law, and the Board may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Company, a subsidiary
or affiliate from adopting other or additional compensation
arrangements for its nonemployee directors.
(c) The adoption of the Plan shall not confer upon any director any right
to continue to serve as a director.
(d) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Wisconsin.
3
<PAGE> 1
BRIGGS & STRATTON CORPORATION AND CONSOLIDATED SUBSIDIARIES
EXHIBIT NO. 11
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
June 29, 1997 June 30, 1996 July 2, 1995
------------- ------------- ------------
<S> <C> <C> <C>
COMPUTATIONS FOR STATEMENTS OF INCOME
Primary earnings per share of common stock:
Net income $ 61,565 $ 92,412 $ 104,805
======== ======== =========
Average shares of common stock outstanding 28,551 28,927 28,927
Incremental common shares applicable to common
stock options based on the average market price
during the period 127 132 145
-------- -------- ---------
Average common shares, as adjusted 28,678 29,059 29,072
======== ======== =========
Net earnings per share of common stock $ 2.15 $ 3.18 $ 3.61
======== ======== =========
Fully diluted earnings per share of common stock:
Average shares of common stock outstanding 28,551 28,927 28,927
Incremental common shares applicable to common
stock options based on the more dilutive of the
common stock ending or average market price
during the period 194 132 145
-------- -------- ---------
Average common shares assuming full dilution 28,745 29,059 29,072
======== ======== =========
Fully diluted earnings per average share of common
stock, assuming conversion of all applicable securities: $ 2.14 $ 3.18 $ 3.61
======== ======== =========
</TABLE>
Note 1: The dilutive effect of stock options is less than 3% and, accordingly,
presentation is not required under Accounting Principles Board Opinion No.
15. The above is presented to comply with Securities and Exchange Commission
regulations.
Note 2: The calculations for fiscal 1995 has been adjusted to reflect a
two-for-one stock split.
1
<PAGE> 1
BRIGGS & STRATTON CORPORATION
EXHIBIT NO. 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
June 29, 1997 June 30, 1996 July 2, 1995
------------- ------------- ------------
<S> <C> <C> <C>
Net income $ 61,565 $ 92,412 $ 104,805
Add:
Interest 9,880 10,069 8,580
Income tax expense and other taxes on income 37,740 56,640 65,570
Fixed charges of unconsolidated subsidiaries 668 574 641
------------- ------------- ------------
Earnings as defined $ 109,853 $ 159,695 $ 179,596
============= ============= ============
Interest $ 9,880 $ 10,069 $ 8,580
Fixed charges of unconsolidated subsidiaries 668 574 641
------------- ------------- ------------
Fixed Charges as defined $ 10,548 $10,643 $ 9,221
============= ============= ============
Ratio of earnings to fixed charges 10.4x 15.0x 19.5x
============= ============= ============
</TABLE>
1
<PAGE> 1
BRIGGS & STRATTON CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
EXHIBIT NO. 13
EXCERPTS FROM ANNUAL REPORT TO SHAREHOLDERS FOR YEAR ENDED JUNE 29, 1997
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
================================================================================
- --------------------------------------------------------------------------------
AS OF JUNE 29, 1997 AND JUNE 30, 1996
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ...................... $112,859 $150,639
Receivables, Less Reserves of $1,522 and
$1,544, Respectively ......................... 129,877 119,346
Inventories -
Finished Products and Parts .................. 83,361 96,078
Work in Process .............................. 37,922 36,932
Raw Materials ................................ 4,674 4,393
-------- --------
Total Inventories ........................... 125,957 137,403
Future Income Tax Benefits ..................... 31,602 29,589
Prepaid Expenses ............................... 18,121 15,725
-------- --------
Total Current Assets ........................ 418,416 452,702
PREPAID PENSION COST ............................. -- 4,682
DEFERRED INCOME TAX ASSETS ....................... 16,975 2,883
CAPITALIZED SOFTWARE ............................. 10,532 3,685
PLANT AND EQUIPMENT:
Land and Land Improvements ..................... 15,548 15,603
Buildings ...................................... 146,769 147,670
Machinery and Equipment ........................ 584,834 594,608
Construction in Progress ....................... 49,563 18,757
-------- --------
796,714 776,638
Less - Accumulated Depreciation ................ 400,448 402,426
-------- --------
Total Plant and Equipment, Net .............. 396,266 374,212
-------- --------
$842,189 $838,164
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
12
<PAGE> 3
================================================================================
- --------------------------------------------------------------------------------
AS OF JUNE 29, 1997 AND JUNE 30, 1996
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1997 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable ................................. $ 82,166 $ 65,642
Domestic Notes Payable ........................... 5,000 5,000
Foreign Loans .................................... 13,359 14,922
Current Maturities on Long-Term Debt ............. 15,000 15,000
Accrued Liabilities -
Wages and Salaries ............................. 25,767 25,488
Warranty ....................................... 27,017 26,257
Other .......................................... 34,769 31,187
-------- --------
Total Accrued Liabilities .................... 87,553 82,932
Federal and State Income Taxes ................... 10,916 6,683
-------- --------
Total Current Liabilities .................... 213,994 190,179
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT .... 15,966 --
ACCRUED PENSION COST ............................... 31,891 6,734
ACCRUED EMPLOYEE BENEFITS .......................... 12,324 11,697
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION ...... 74,020 69,049
LONG-TERM DEBT ..................................... 142,897 60,000
COMMITMENTS AND CONTINGENCIES.......................
SHAREHOLDERS' INVESTMENT:
Common Stock -
Authorized 60,000 shares $.01 Par Value,
Issued 28,927 in 1997 and 1996 ................ 289 289
Additional Paid-In Capital ....................... 40,533 40,898
Retained Earnings ................................ 490,682 459,666
Cumulative Translation Adjustments ............... (1,033) (348)
Treasury Stock at cost,
3,513 shares in 1997 and none in 1996 .......... (179,374) --
-------- --------
Total Shareholders' Investment ............... 351,097 500,505
-------- --------
$842,189 $838,164
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
13
<PAGE> 4
CONSOLIDATED STATEMENTS OF EARNINGS
================================================================================
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 29, 1997, JUNE 30, 1996 AND JULY 2, 1995
- --------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES .................................................... $ 1,316,413 $ 1,287,029 $ 1,339,677
COST OF GOODS SOLD ........................................... 1,095,197 1,025,281 1,068,059
----------- ----------- -----------
Gross Profit on Sales ................................... 221,216 261,748 271,618
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ..................................... 117,497 108,339 101,852
----------- ----------- -----------
Income from Operations .................................. 103,719 153,409 169,766
INTEREST EXPENSE ............................................. (9,880) (10,069) (8,580)
OTHER INCOME, Net ............................................ 5,466 5,712 9,189
----------- ----------- -----------
Income Before Provision for Income Taxes ................ 99,305 149,052 170,375
PROVISION FOR INCOME TAXES ................................... 37,740 56,640 65,570
----------- ----------- -----------
NET INCOME ................................................... $ 61,565 $ 92,412 $ 104,805
=========== =========== ===========
NET INCOME PER SHARE ......................................... $ 2.16 $ 3.19 $ 3.62
=========== =========== ===========
Weighted Average Number of Shares Outstanding ............... 28,551 28,927 28,927
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
14
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
================================================================================
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 29, 1997, JUNE 30, 1996 AND JULY 2, 1995
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
----- ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, JULY 3, 1994 .................. $ 145 $ 42,358 $ 362,136 $ (847) $ -
Net Income ............................ - - 104,805 - -
Cash Dividends Paid ($.98 per share)... - - (28,348) - -
Distribution of Shares of STRATTEC
SECURITY CORPORATION ................ - - (40,966) 1,226 -
Two-for-One Stock Split ............... 144 (144) - - -
Purchase of Common Stock
for Treasury ....................... - - - - (915)
Exercise of Stock Options ............. - (516) - - 915
Currency Translation Adjustments ...... - - - (515) -
--------- --------- --------- --------- ---------
BALANCES, JULY 2, 1995 .................. 289 41,698 397,627 (136) -
Net Income ............................ - - 92,412 - -
Cash Dividends Paid ($1.05 per share).. - - (30,373) - -
Purchase of Common Stock
for Treasury ....................... - - - - (1,185)
Exercise of Stock Options ............. - (800) - - 1,185
Currency Translation Adjustments ...... - - - (212) -
--------- --------- --------- --------- ---------
BALANCES, JUNE 30, 1996 ................. 289 40,898 459,666 (348) -
Net Income ............................ - - 61,565 - -
Cash Dividends Paid ($1.09 per share).. - - (30,549) - -
Purchase of Common Stock
for Treasury ........................ - - - - (179,924)
Exercise of Stock Options ............. - (365) - - 550
Currency Translation Adjustments ...... - - - (685) -
--------- --------- --------- --------- ---------
BALANCES, JUNE 29, 1997 ................. $ 289 $ 40,533 $ 490,682 $ (1,033) $(179,374)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOW
================================================================================
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 29, 1997, JUNE 30, 1996 AND JULY 2, 1995
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ..................................................... $ 61,565 $ 92,412 $ 104,805
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation ................................................. 43,345 43,032 44,445
Amortization of Discount on 7.25% Notes Due 2007 ............. 17 - -
Loss on Disposition of Plant and Equipment ................... 1,608 2,692 1,452
Change in Operating Assets and Liabilities -
(Increase) Decrease in Receivables ......................... (10,531) (25,230) 11,125
(Increase) Decrease in Inventories ......................... 11,446 3,271 (62,753)
(Increase) in Other Current Assets ......................... (4,409) (1,107) (4,720)
Increase (Decrease) in Accounts Payable,
Accrued Liabilities and Income Taxes ..................... 25,378 (15,595) (8,220)
Other, Net ................................................. 14,498 (4,979) 9,633
--------- -------- --------
Net Cash Provided by Operating Activities ................ 142,917 94,496 95,767
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment ............................... (71,262) (77,746) (131,034)
Proceeds Received on Sale of Plant and Equipment ............... 4,133 1,069 2,055
Proceeds Received on Sale of Menomonee Falls,
Wisconsin Facility ........................................... 15,966 - -
Decrease in Cash Due to Spin-Off of Lock Business .............. - - (174)
--------- -------- --------
Net Cash Used in Investing Activities ..................... (51,163) (76,677) (129,153)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes Payable.......... (1,563) (6,481) 12,080
Net Borrowings on 7.25% Notes Due 2007 ......................... 97,880 - -
Repayment on 9.21% Senior Notes Due 2001 ....................... (15,000) - -
Cash Dividends Paid ............................................ (30,549) (30,373) (28,348)
Purchase of Common Stock for Treasury .......................... (179,924) (1,185) (915)
Proceeds from Exercise of Stock Options ........................ 185 385 399
--------- -------- --------
Net Cash Used in Financing Activities ....................... (128,971) (37,654) (16,784)
--------- -------- --------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS ........................... (563) (174) (283)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................................... (37,780) (20,009) (50,453)
CASH AND CASH EQUIVALENTS:
Beginning of Year .............................................. 150,639 170,648 221,101
--------- -------- --------
End of Year .................................................... $ 112,859 $150,639 $170,648
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Paid .................................................. $ 9,298 $ 10,137 $ 8,501
========= ======== ========
Income Taxes Paid .............................................. $ 49,707 $ 48,865 $ 88,935
========= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 29, 1997, JUNE 30, 1996 AND JULY 2, 1995
(1) NATURE OF OPERATIONS:
Briggs & Stratton Corporation (the Company) is a U.S. based producer of air
cooled gasoline engines. These engines are sold primarily to original equipment
manufacturers of lawn and garden equipment and other gasoline engine powered
equipment worldwide.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks, ending on
the Sunday nearest the last day of June in each year. Therefore, the 1997, 1996
and 1995 fiscal years were 52 weeks long. All references to years relate to
fiscal years rather than calendar years.
Principles of Consolidation: The consolidated financial statements include the
accounts of Briggs & Stratton Corporation and its wholly owned domestic and
foreign subsidiaries after elimination of intercompany accounts and
transactions.
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: This caption includes cash, commercial paper and
certificates of deposit. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at cost, which does not exceed market. The
last-in, first-out (LIFO) method was used for determining the cost of
approximately 93% of total inventories at June 29, 1997, June 30, 1996 and July
2, 1995. The cost for the remaining portion of the inventories was determined
using the first-in, first-out (FIFO) method. If the FIFO inventory valuation
method had been used exclusively, inventories would have been $48,894,000,
$48,125,000 and $43,582,000 higher in the respective years. The LIFO inventory
adjustment was determined on an overall basis, and accordingly, each class of
inventory reflects an allocation based on the FIFO amounts.
Plant and Equipment and Depreciation: Plant and equipment is stated at cost,
and depreciation is computed using the straight-line method at rates based
upon the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for major renewals and betterments, which significantly extend the
useful lives of existing plant and equipment, are capitalized and depreciated.
Upon retirement or disposition of plant and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in other income.
Income Taxes: The Provision for Income Taxes includes Federal, state and
foreign income taxes currently payable and those deferred or prepaid because of
temporary differences between financial statement and tax basis of assets and
liabilities. The Future Income Tax Benefits represent temporary differences
relating to current assets and current liabilities and the Deferred Income Tax
Assets represent temporary differences relating to noncurrent assets and
liabilities.
Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements and refinements to
existing products, are expensed as incurred. The amounts charged against income
were $19,525,000 in 1997, $15,019,000 in 1996 and $13,112,000 in 1995.
Accrued Employee Benefits: The Company's life insurance program includes
payment of a death benefit to beneficiaries of retired employees. The Company
accrues for the estimated cost of these benefits over the estimated working
life of the employee. Past service costs for all retired employees have been
fully provided for. The Company also accrues for the estimated cost of
supplemental retirement and death benefit agreements with executive officers.
17
<PAGE> 8
NOTES . . .
Advertising Costs: Advertising costs, included in Engineering, Selling, General
and Administrative Expenses on the accompanying Consolidated Statement of
Earnings, are expensed as incurred. These expenses totaled $7,989,000 in 1997,
$7,066,000 in 1996 and $6,357,000 in 1995.
Foreign Currency Translation: Foreign currency balance sheet accounts are
translated into United States dollars at the rates of exchange in effect at
fiscal year end. Income and expenses are translated at the average rates of
exchange in effect during the year. The related translation adjustments are
made directly to a separate component of Shareholders' Investment.
Start-Up Costs: It is the Company's policy to expense all start-up costs for
new manufacturing plants. Under this policy, the Company expensed $11,660,000
in fiscal 1996 and $5,300,000 in fiscal 1995.
Capitalized Software: This new balance sheet caption represents costs of
software used in the Company's business. Amortization of Capitalized Software
is computed on an item-by-item basis over a period of three to ten years,
depending on the estimated useful life of the software. Accumulated
amortization amounted to $4,442,000 and $3,367,000 as of June 29, 1997 and June
30, 1996, respectively. Capitalized Software on prior period balance sheets
was reclassified from Prepaid Expense to the current caption.
Deferred Revenue on Sale of Plant & Equipment: The sale of the Company's
Menomonee Falls, Wisconsin facility for approximately $16.0 million was
completed at the beginning of the fiscal quarter ended December 29, 1996. The
provisions of the contract state that the Company will continue to own and
occupy the warehouse portion of the facility for a period of up to ten years
(the "Reservation Period"). The contract also contains a buyout clause, at the
buyer's option and under certain circumstances, of the remaining Reservation
Period. Under the provisions of Statement of Financial Accounting Standards
(FAS) No. 66, "Accounting for Sales of Real Estate," the Company is required to
account for this as a financing transaction as the Company continues to have
substantial involvement with the facility during the Reservation Period or
until the buyout option is exercised. Under this method, the cash received is
reflected as a deferred revenue, and the assets and the accumulated
depreciation remain on the Company's books. Depreciation expense continues to
be recorded each period, and imputed interest expense is also recorded and
added to deferred revenue. Offsetting this is the imputed fair value lease
income on the non-Company occupied portion of the building. A pretax gain,
which will be recognized at the earlier of the exercise of the buyout option or
the expiration of the Reservation Period, is estimated to be $10 million to $12
million. The annual cost of operating the warehouse portion of the facility is
not material.
Derivatives: The Company uses derivative financial instruments to manage its
foreign currency and interest rate exposures. Gains and losses relating to
hedges of probable transactions with noncontrolled subsidiaries and third
parties are deferred and recognized as adjustments of carrying amounts when the
transaction occurs. Gains and losses on hedges of transactions that are not
probable of occurring and hedges of transactions with controlled subsidiaries
are recognized in the Company's results of operations.
Earnings Per Share: In February 1997, the Financial Accounting Standards Board
issued FAS No. 128, "Earnings per Share." This statement establishes a new
standard for computing and presenting earnings per share in financial
statements. The Company will adopt the new standard in its fiscal 1998 second
quarter financial statements. The impact of adoption of this standard will not
be material to the Company's results of operations.
18
<PAGE> 9
NOTES . . .
Earnings per share of common stock are computed based on the weighted average
number of shares outstanding during each period. The shares repurchased on May
20, 1997 pursuant to the dutch auction tender, which totaled 3,506,190 shares
at $51.00 per share, and the Company's ongoing share repurchase program, affect
the year-to-date comparisons. Weighted average common shares outstanding for
the quarter and year ended June 29, 1997 were 27,424,105 and 28,551,277,
respectively, compared to 28,927,000 for each of the same periods in fiscal
1996.
(3) INCOME TAXES:
The provision for income taxes consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
Current 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal................................... $ 45,474 $ 46,448 $ 67,255
State..................................... 6,723 7,768 10,644
Foreign................................... 1,648 1,654 873
--------- --------- ---------
53,845 55,870 78,772
Deferred.................................... (16,105) 770 (13,202)
--------- --------- ---------
Total....................................... $37,740 $56,640 $65,570
========= ========= =========
</TABLE>
A reconciliation of the U.S. statutory tax rates to the effective tax rates
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate......................... 35.0% 35.0% 35.0%
State taxes, net of
Federal tax benefit....................... 3.1% 3.4% 3.5%
Foreign Sales Corporation
tax benefit............................... (.9%) (.7%) (.6%)
Other....................................... .8% .3% .6%
---- ---- ----
Effective tax rate.......................... 38.0% 38.0% 38.5%
==== ==== ====
</TABLE>
The components of deferred tax assets and liabilities at the end of the fiscal
year were (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Future Income Tax Benefits:
Inventory................................ $ 2,916 $ 2,518
Payroll related accruals................. 4,244 4,658
Warranty reserves........................ 10,537 10,240
Other accrued liabilities................ 8,926 8,453
Miscellaneous............................ 4,979 3,720
-------- ---------
$ 31,602 $ 29,589
======== =========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred Income Taxes:
Difference between book and
tax methods applied to
maintenance and supply
inventories............................ $ 12,464 $ 9,982
Pension cost............................ 9,688 (1,679)
Accumulated depreciation................ (50,207) (41,768)
Accrued employee benefits............... 7,904 7,232
Postretirement
health care obligation................. 28,868 26,929
Deferred revenue on sale
of plant & equipment................... 6,226 -
Miscellaneous........................... 2,032 2,187
---------- ---------
$ 16,975 $ 2,883
========== =========
</TABLE>
The Company has not recorded deferred income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations. These undistributed earnings amounted to approximately $5,500,000
at June 29, 1997. If these earnings were remitted to the U.S., they would be
subject to U.S. income tax. However, this tax would be substantially less than
the U.S. statutory income tax because of available foreign tax credits.
(4) INDUSTRY SEGMENTS:
Certain information concerning the Company's industry segments is presented
below (in thousands of dollars):
<TABLE>
<CAPTION>
SALES- 1995
<S> <C>
Engines & parts.......................... $ 1,276,264
Locks.................................... 63,413
-------------
$1,339,677
=============
INCOME FROM OPERATIONS -
Engines & parts.......................... $162,903
Locks.................................... 6,863
-------------
$169,766
=============
DEPRECIATION EXPENSE -
Engines & parts.......................... $ 42,746
Locks.................................... 1,699
-------------
$ 44,445
=============
EXPENDITURES FOR PLANT
AND EQUIPMENT -
Engines & parts.......................... $ 124,604
Locks.................................... 6,430
-------------
$ 131,034
=============
</TABLE>
19
<PAGE> 10
NOTES . . .
On February 27, 1995, the Company spun off its lock business to its
shareholders in a tax-free distribution. This spin-off was accomplished by
distributing shares in a newly created corporation on the basis of one share in
the new corporation for each five shares of Briggs & Stratton Corporation stock
held on February 16, 1995. The newly created corporation, STRATTEC SECURITY
CORPORATION, is publicly traded. This distribution resulted in a charge of
$40,966,000 against the retained earnings account and represented the total of
the net assets transferred to STRATTEC. The financial statements of Briggs &
Stratton Corporation have not been restated to deal with this distribution as a
discontinued operation because the amounts were not material. Because of the
spin-off, no industry segment data is being presented for fiscal 1997 or 1996.
Export sales for fiscal 1997 were $304,230,000 (23% of total sales), for fiscal
1996 were $323,747,000 (25%) and for fiscal 1995 were $312,234,000 (23%). These
sales were principally to customers in European countries.
In the fiscal years 1997, 1996 and 1995, there were sales to three major engine
customers that exceeded 10% of total Company net sales. The sales to these
customers are summarized below (in thousands of dollars and percent of total
Company sales):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Customer Sales % Sales % Sales %
<S> <C> <C> <C> <C> <C> <C>
A $282,428 21% $267,257 21% $237,241 18%
B 180,770 14% 177,314 14% 155,072 12%
C 142,840 11% 163,065 13% 189,916 14%
-------- --- -------- --- -------- ---
$606,038 46% $607,636 48% $582,229 44%
======== === ======== === ======== ===
</TABLE>
(5) INDEBTEDNESS:
The Company has access to a $250,000,000 revolving credit facility (the Credit
Facility) which expires in April 2002. The Company also has access to
additional domestic lines of credit totaling $13,000,000 which remain in effect
until canceled by either party. They provide amounts for short-term use at the
then prevailing rate. There are no significant compensating balance
requirements for any of these lines, and there were no borrowings at June 29,
1997 using these lines or the Credit Facility.
Borrowings under the Credit Facility by the Company bear interest at a rate per
annum equal to, at its option, either:
(1) the higher of (a) the bank's reference rate or (b) 0.5% per annum above the
Federal Funds rate; or
(2) LIBOR plus a margin that may be adjusted up or down based on the Company's
debt ratings.
The Credit Facility contains certain restrictive covenants that require the
Company to maintain certain financial conditions including a maximum limit on
the ratio of debt to capital and a minimum fixed charge coverage ratio. The
Credit Facility imposes limitations on liens, certain indebtedness, the sales
of assets and certain investments.
The following data relates to domestic notes payable:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at
Fiscal Year End...... $ 5,000,000 $ 5,000,000
Weighted Average
Interest Rate at
Fiscal Year End...... 5.98% 6.10%
</TABLE>
The lines of credit available to the Company in foreign countries are in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. These amounts total $17,200,000, expire at various times
through June, 1998 and are renewable. None of these arrangements had material
commitment fees or compensating balance requirements.
The following information relates to foreign loans:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at
Fiscal Year End....... $ 13,359,000 $ 14,922,000
Weighted Average
Interest Rate at
Fiscal Year End....... 4.49% 4.60%
</TABLE>
20
<PAGE> 11
NOTES . . .
The Long-Term Debt caption consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
9.21% Senior Notes Due 2001
at Face Amount........................... $ 60,000 $ 75,000
7.25% Notes Due 2007, Net of
Unamortized Discount of
$2,103 in 1997........................... 97,897 -
-------- --------
$157,897 $ 75,000
Less Current Maturities................... $ 15,000 $ 15,000
-------- --------
Total Long-Term Debt.................... $142,897 $ 60,000
======== ========
</TABLE>
The 9.21% Senior Notes are due June 15, 2001. Payments on these notes are due
in five equal annual installments beginning in 1997. The notes include
covenants that limit total borrowings, require maintenance of a minimum net
worth and set certain restrictions on the sale or collateralizing of the
Company's assets.
The 7.25% notes are due September 15, 2007. No principal payments are due
before that date. These notes have covenants that limit secured funded debt and
certain sale-leaseback transactions.
(6) OTHER INCOME:
The components of other income (expense) are
(in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income....................... $ 3,981 $ 4,477 $ 6,840
Loss on the
disposition of
plant and equipment................. (1,608) (2,692) (1,452)
Income from joint
ventures............................ 3,026 2,957 2,842
Other items........................... 67 970 959
-------- --------- ---------
Total................................. $5,466 $5,712 $9,189
======== ========= =========
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES:
The Company is a 50% guarantor on bank loans of two unconsolidated joint
ventures. One is in Japan for the manufacture of engines and the second in the
United States for the manufacture of parts. These bank loans totaled
approximately $8,000,000 at the end of 1997.
Product and general liability claims arise against the Company from time to
time in the ordinary course of business. The Company is self-insured for future
claims up to $1 million per claim. Accordingly, a reserve is maintained for the
estimated costs of such claims. At June 29, 1997 and June 30, 1996, the reserve
for product and general liability claims was $4.6 million and $6.5 million,
respectively, based on available information. There is inherent uncertainty as
to the eventual resolution of unsettled claims. Management, however, believes
that any losses in excess of established reserves will not have a material
effect on the Company's financial position or results of operations.
The Company has no material commitments for materials or capital expenditures
at June 29, 1997.
(8) STOCK OPTIONS:
The Company has a Stock Incentive Plan under which 3,361,935 shares of common
stock have been reserved for issuance. The Company accounts for the plan under
Accounting Principles Board No. 25, under which no compensation cost has been
recognized. Had compensation cost for these plans been determined consistent
with FAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income (in thousands):
As Reported............... $61,565 $92,412
Pro Forma................. $60,777 $91,690
Earnings Per Share:
As Reported............... $2.16 $3.19
Pro Forma................. $2.13 $3.17
</TABLE>
Because the FAS No. 123 method of accounting has not been applied to options
granted prior to July 2, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
21
<PAGE> 12
NOTES . . .
Information on the options outstanding is as follows:
<TABLE>
<CAPTION>
1997
----------------------
Wtd. Avg.
Shares Ex. Price
------ ---------
<S> <C> <C>
Balance, beginning of year................................ 1,704,531 $ 42.98
Granted during the year................................... 106,550 53.30
Exercised during the year................................. (24,369) 17.26
---------
Balance, end of year...................................... 1,786,712 $ 43.95
=========
1996
----------------------
Wtd. Avg.
Shares Ex. Price
------ ---------
Balance, beginning of year................................ 1,169,620 $ 38.41
Granted during the year................................... 600,000 49.08
Exercised during the year................................. (65,089) 17.07
---------
Balance, end of year...................................... 1,704,531 $ 42.98
=========
1995
----------------------
Wtd. Avg.
Shares Ex. Price
------ ---------
Balance, beginning of year................................ 606,864 $ 32.76
Granted during the year................................... 552,000 45.85
Increase due to spin-off.................................. 83,843 38.08
Exercised during the year................................. (43,827) 15.91
Terminated during the year................................ (29,260) 49.77
---------
Balance, end of year...................................... 1,169,620 $ 38.41
=========
</TABLE>
<TABLE>
<CAPTION>
Grant Summary
---------------------------------------------------------------------------------------------
Fiscal Grant Exercise Date Options Expiration
Year Date Price (a) Exercisable Outstanding Date
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1990 2-20-90 $13.014 50%, 1-1-94; 3,782 2-19-00
50%, 1-1-95
1991 2-19-91 14.524 50%, 1-1-95; 79,405 2-18-01
50%, 1-1-96
1992 5-18-92 21.525 50%, 1-1-96; 171,385 5-17-02
50%, 1-1-97
1994 8-16-93 48.369 8-16-96 258,085 8-16-98
1995 8-12-94 45.854 8-12-97 567,505 8-12-99
1996 8-07-95 49.080 8-07-98 600,000 8-07-00
1997 8-06-96 53.300 8-06-99 106,550 8-06-01
</TABLE>
There were no options granted in fiscal 1993.
(a) Exercise prices have been adjusted as appropriate to reflect a two-for-one
stock split and the spin-off of the Company's lock business.
The grant-date fair market value of the options granted in fiscal 1997 and 1996
was $5.42 and $5.39, respectively. The fair value of each option is estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions used for the 1997 and 1996 option grants, respectively:
risk free interest rates of 6.25% and 6.36%; expected volatility of 20.6% and
24.6%; expected dividend yields of 2.5% and 2.7%; and expected lives of the
options of 5 years.
(9) SHAREHOLDER RIGHTS PLAN:
On August 6, 1996, the Board of Directors declared a dividend distribution of
one common stock purchase right (a "right") for each share of the Company's
common stock outstanding on August 19, 1996. Each right would entitle
shareowners to buy one-half of one share of the Company's common stock at an
exercise price of $160.00 per full common share, subject to adjustment. The
rights are not currently exercisable, but would become exercisable if certain
events occurred relating to a person or group acquiring or attempting to
acquire 15 percent or more of the outstanding shares of common stock. The
rights expire on August 19, 2006, unless redeemed or exchanged by the Company
earlier. Rights granted under a previous plan expired July 1, 1996.
(10) FOREIGN EXCHANGE RISK MANAGEMENT:
The Company enters into forward exchange contracts to hedge purchase
commitments denominated in foreign currencies. The term of these currency
derivatives never exceeds one year and the purpose is to protect the Company
from the risk that the eventual dollars being transferred will be adversely
affected by changes in exchange rates.
The Company has forward foreign currency exchange contracts to purchase 5.5
billion Japanese yen for $46 million through June, 1998. These contracts are
used to hedge the commitments to purchase engines from the Company's Japanese
joint venture and accordingly any gain or loss has been deferred at the end of
the 1997 fiscal year. The amount deferred was a gain of approximately $2.5
million.
The Company's foreign subsidiaries have the following forward currency
contracts outstanding at the end of fiscal 1997:
<TABLE>
<CAPTION>
In Millions
-----------
Local U.S. Latest
Currency Currency Dollars Expiration Date
- -------- -------- ------- ---------------
<S> <C> <C> <C>
German Deutschemarks................................... .6 .2 July, 1997
Canadian Dollars....................................... .7 .5 July, 1997
Australian Dollars..................................... 1.3 1.0 September, 1997
</TABLE>
There are no significant gains or losses included in the above amounts.
22
<PAGE> 13
NOTES . . .
(11) EMPLOYEE BENEFIT COSTS:
Retirement Plan
The Company has noncontributory, defined benefit retirement plans covering most
Wisconsin employees. The following tables summarize the plans' income and
expense, actuarial assumptions, and funded status for the three years indicated
(dollars in thousands):
<TABLE>
<CAPTION>
Qualified Plans Supplemental Plans
------------------------------- ---------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income and Expense:
- -------------------
Service Cost-Benefits Earned
During the Year....................................... $ 11,309 $ 13,143 $ 15,098 $ 378 $ 456 $ 453
Interest Cost on Projected
Benefit Obligation.................................... 40,990 41,722 39,877 860 926 904
Actual Return on Plan Assets........................... (114,303) (104,872) (89,941) (11) (9) (3)
Net Amortization, Deferral
and Windows........................................... 58,525 51,830 37,078 395 462 333
--------- --------- -------- --------- -------- --------
Net Periodic Pension
Expense (Income)....................................... $ (3,479) $ 1,823 $ 2,112 $ 1,622 $ 1,835 $ 1,687
========= ========= ======== ======== ======== ========
Actuarial Assumptions:
- ----------------------
Discount Rate Used to Determine
Present Value of Projected
Benefit Obligation.................................... 7.75% 7.75% 7.75% 7.75% 7.75% 7.75%
Expected Rate of Future
Compensation Level Increases.......................... 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Expected Long-Term Rate of
Return on Plan Assets................................. 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Funded Status:
- --------------
Actuarial Present Value of
Benefit Obligations:
Vested............................................... $ 482,712 $ 413,035 $389,117 $ 8,869 $ 8,286 $ 7,991
Non-Vested........................................... 32,735 34,268 36,144 - 21 6
--------- --------- -------- --------- -------- --------
Accumulated Benefit
Obligation........................................... 515,447 447,303 425,261 8,869 8,307 7,997
Effect of Projected Future
Wage and Salary Increases............................. 82,941 120,083 124,651 3,228 4,766 4,679
--------- --------- -------- --------- -------- --------
Projected Benefit Obligation......................... 598,388 567,386 549,912 12,097 13,073 12,676
Plan Assets at Fair Market Value....................... 767,108 681,819 609,385 127 126 100
--------- --------- -------- --------- -------- --------
Plan Assets in Excess of (Less Than)
Projected Benefit Obligation.......................... 168,720 114,433 59,473 (11,970) (12,947) (12,576)
Remaining Unrecognized Net
Obligation (Asset) Arising
from the Initial Application of
SFAS No. 87........................................... (26,006) (31,321) (36,902) 132 179 258
Unrecognized Net Loss (Gain)........................... (164,779) (75,983) (21,992) 2,531 4,494 5,277
Unrecognized Prior Service Cost........................ (2,002) (2,447) (2,185) 953 1,029 1,102
--------- --------- -------- --------- -------- --------
Prepaid (Accrued) Pension Cost......................... $ (24,067) $ 4,682 $ (1,606) $ (8,354) $ (7,245) $ (5,939)
Less Current Portion................................... - - - 530 511 511
--------- --------- -------- --------- -------- --------
$ (24,067) $ 4,682 $ (1,606) $ (7,824) $ (6,734) $ (5,428)
========= ========= ======== ======== ======== ========
</TABLE>
23
<PAGE> 14
Notes . . .
The Company offered early retirement windows to certain of its Milwaukee union
members during the 1995 fiscal year. As a result, $13,806,000 was added to
pension expense and $5,253,000 was added to postretirement health care expense
in the fourth quarter of the 1995 fiscal year. When the retirements were
scheduled to occur in the first fiscal quarter of 1996, a number of these union
members canceled their acceptance, and thus credits totaling $3,477,000 were
recorded as a change in the original accounting estimate. A second retirement
window was offered in fiscal 1997. The cost of this window was additional
pension expense of $33,457,000 and additional postretirement health care
expense of $3,644,000 in the fourth quarter of the 1997 fiscal year.
During fiscal 1996, the defined benefit pension plan which covered employees at
two of the Company's plants was terminated and replaced by a defined
contribution retirement plan that includes most U.S. non-Wisconsin employees.
The impact of the termination was not material. Under the new plan, the Company
will make a contribution on behalf of covered employees equal to 2% of each
participant's gross income, as defined. For fiscal 1997 and 1996, the cost to
the Company was $1,352,000 and $757,000, respectively.
Most U.S. employees of the Company may participate in a salary reduction
deferred compensation retirement plan. The Company makes matching contributions
of $.50 for every $1.00 deferred by a participant to a maximum of 1-1/2% or 3%
of each participant's salary, depending upon the participant's group. Company
contributions totaled $3,944,000 in 1997, $2,825,000 in 1996 and $1,756,000 in
1995.
Postretirement Benefits
The Company records the expected health care and life insurance benefits for
employees during the years that the employees render service.
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
changed by one percentage point, would change the accumulated postretirement
benefit by $5,472,000 and would change the service and interest cost by
$641,000 for the year.
The discount rate used in determining the accumulated postretirement benefit
obligations was 7.75% compounded annually. Both the health care and life
insurance plans are unfunded.
The components of the accumulated postretirement benefit obligations were (in
thousands of dollars):
<TABLE>
<Caption
Health Care
-----------
1997 1996
---- ----
<S> <C> <C>
Retirees.............................. $51,553 $33,044
Fully eligible plan participants...... 467 4,077
Other active participants............. 26,961 32,628
------- -------
$78,981 $69,749
Unrecognized gain (loss).............. (161) 4,000
------- -------
$78,820 $73,749
Less current portion.................. 4,800 4,700
------- -------
$74,020 $69,049
======= =======
<CAPTION>
Life Insurance
--------------
1997 1996
---- ----
<S> <C> <C>
Retirees.............................. $ 9,048 $ 8,840
Fully eligible plan participants...... 1,720 2,226
Other active participants............. 1,453 1,736
------- -------
$12,221 $12,802
Unrecognized net obligation........... (507) (553)
Unrecognized prior service cost....... (827) (898)
Unrecognized loss..................... (35) (908)
------- -------
$10,852 $10,443
Less current portion.................. - -
------- -------
$10,852 $10,443
======= =======
</TABLE>
The current portion of the health care component above represents the benefits
expected to be paid within the next twelve months and is included in the
caption Accrued Liabilities in the accompanying balance sheet. The net health
care balance has its own caption in this balance sheet. The life insurance
component is included in the caption Accrued Employee Benefits.
24
<PAGE> 15
NOTES . . .
The net periodic postretirement costs recorded were (in thousands of dollars):
<TABLE>
<CAPTION>
Health Care
-----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits
attributed to service
during the year............... $1,272 $1,596 $1,680
Interest cost on accumulated
benefit obligation............ 5,226 5,480 5,150
Other.......................... - (91) -
------ ------ ------
$6,498 $6,985 $6,830
====== ====== ======
<CAPTION>
Life Insurance
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits
attributed to service
during the year............... $ 87 $ 90 $ 73
Interest cost on accumulated
benefit obligation............ 964 947 801
Other.......................... 118 118 47
------ ------ ------
$1,169 $1,155 $ 921
====== ====== ======
</TABLE>
Postemployment Benefits
The Company also accrues the expected cost of postemployment benefits over the
years that the employees render service. These benefits are substantially
smaller amounts because they apply only to employees who permanently terminate
employment prior to retirement. The items included in this amount are
disability payments, life insurance and medical benefits, and these amounts are
also discounted using a 7.75% interest rate.
The balance in this reserve at the end of fiscal 1997 was $1,468,000 and at the
end of fiscal 1996 was $1,245,000. Both were included in the caption Accrued
Employee Benefits in the accompanying balance sheets.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents, Domestic Notes Payable and Foreign Loans: The
carrying amount approximates fair value because of the short maturity of those
instruments.
Long-Term Debt: The fair value of the Company's long-term debt is estimated
based on quotations made on similar issues.
The estimated fair values of the Company's financial instruments are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
1997
--------------------------
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Cash and cash equivalents........ $ 112,859 $ 112,859
Domestic notes payable........... $ 5,000 $ 5,000
Foreign loans.................... $ 13,359 $ 13,359
Long-term debt -
9.21% Senior Notes due 2001,
including current maturities... $ 60,000 $ 62,885
7.25% Notes due 2007............ $ 97,897 $ 100,531
1996
--------------------------
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Cash and cash equivalents........ $ 150,639 $ 150,639
Domestic notes payable........... $ 5,000 $ 5,000
Foreign loans.................... $ 14,922 $ 14,922
Long-term debt -
9.21% Senior Notes due 2001,
including current maturities... $ 75,000 $ 77,365
</TABLE>
25
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Briggs & Stratton Corporation:
We have audited the accompanying consolidated balance sheets of Briggs &
Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of June 29,
1997 and June 30, 1996, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended June 29, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Briggs & Stratton Corporation
and subsidiaries as of June 29, 1997 and June 30, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 29, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
July 31, 1997.
27
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Sales
Net sales for fiscal 1997 increased 2% or $29.4 million compared to the prior
year. The primary reason for this was a 1% increase in engine unit shipments.
The remaining 1% increase in net sales was a result of modest price increases
and a mix improvement.
Gross Profit
Gross profit for fiscal 1997 decreased 15% or $40.5 million compared to the
same period in the prior year. The primary reason for this decrease was a
charge of $37.1 million related to an early retirement window accepted by
certain Milwaukee hourly employees in accordance with the current union
contract.
The gross profit rate was 17% in fiscal 1997 compared to 20% in fiscal 1996.
In addition to the early retirement window, the gross profit rate was also
negatively impacted by increases in warranty expenses totaling $9.3 million
due to claims experience, increases in the unit price of aluminum totaling
$3.7 million, and the absence in fiscal 1997 of the $3.5 million credit for
employees who had accepted early retirement in fiscal 1995 and canceled their
acceptance in fiscal 1996. Savings from lower labor costs at the Company's
new engine plants partially offset the preceding factors impacting the gross
profit rate.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses for fiscal 1997
increased 8% or $9.2 million compared to fiscal 1996. This increase was
primarily due to increased employee compensation of $4.0 million, planned
increases in manpower and other costs of $2.7 million relating to new venture
activities, and increased professional services of $1.5 million primarily
resulting from the start of the implementation of a new enterprise-wide
information system.
Provision for Income Taxes
The effective income tax rate used in both periods was 38.0%.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales
Sales for fiscal 1996 totaled $1,287 million, down 4% or $52.6 million from
the preceding year. The reason for this decrease was the absence of sales from
the automotive lock business, which was spun off after eight months in the
preceding fiscal year. These sales amounted to $63.4 million in fiscal 1995.
Excluding the lock business sales, engine business sales increased $10.8 million
between years. This change was caused by an approximate 1.8% improvement in
selling prices to the original equipment manufacturing customers, offset by
a 1% decrease in engine unit sales that was almost entirely in the service
sales area.
Gross Profit
The gross profit percentage remained consistent between years. This was the
result of several factors: increased startup costs of $6.4 million and
inefficiencies related to the new plants, and less absorption of fixed costs due
to fewer engines produced were offset by lower profit sharing provisions of
$18.0 million and the impact of a decrease in the unit price of aluminum
totaling $3.4 million. In addition, the 1995 gross profit included a $19.1
million charge for the retirement window, of which $3.5 million was reversed in
1996 due to a change of an accounting estimate for employees who had accepted
an early retirement window in fiscal 1995 and subsequently canceled their
acceptance in the second quarter of fiscal 1996.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses increased $6.5 million
or 6% between years. This was due to increases in salaries amounting to $3.4
million, planned increases in manpower costs relating to new venture activities
of $6.4 million, increased professional services of $2.1 million and higher
advertising expenses of $.7 million. Offsetting these, in part, was a reduction
28
<PAGE> 18
MANAGEMENT'S DISCUSSION . . .
in profit sharing accruals amounting to $4.6 million and the lack of engineering
and selling expenses of $5.7 million from the spun off lock business.
Interest Expense
Interest expense for the 1996 fiscal year was 17% higher than in 1995. This
was the result of using domestic short-term borrowing to finance increases
in accounts receivable and inventories in mid-year. Seasonal borrowings were
paid off by the end of the fiscal year. The preceding year had minimal seasonal
short-term borrowings.
Other Income
Other income decreased $3.5 million between years, primarily because of a
reduction in interest income due to lower available investable funds. Funds
were used for seasonal working capital and the construction of the new
manufacturing plants. There also was an increase in the loss on disposition of
plant and equipment between years.
Provision for Income Taxes
The effective income tax rate decreased to 38.0% in 1996 from 38.5% in the
previous year due to lower state income taxes, increased Foreign Sales
Corporation tax benefits, and reductions in other tax related items.
FINANCIAL STRATEGY
Management of the Company subscribes to the premise that the value of the
Company is enhanced if the capital invested in the Company's operations yields
a cash return that is greater than the Company's cost of capital. Given this
belief, the Company continued to implement its financial strategy by means of a
"dutch auction" tender offer and a public debt offering in fiscal 1997 which it
believes will provide a capital structure that makes greater use of financial
leverage without imposing excessive risk on either the Company's shareholders
or creditors. The Company believes that the substitution of lower (after-tax)
cost debt for equity in its permanent capital structure will reduce its overall
cost of capital. The Company believes that its profitability and strong
cash flows will accommodate the increased use of debt without impairing its
ability to finance growth or increase cash dividends per share on its common
stock.
In connection with its financial strategy, the Company repurchased 3,506,190
shares of its common stock at a price of $51.00 per share or approximately
$179 million in the aggregate, entered into a new credit facility allowing
borrowings of up to $250 million and completed a $100 million ten-year note
offering. The Company funded the tender offer with $169 million of available
cash and $10 million of short-term borrowings under the new credit facility.
A portion of the net proceeds of the ten-year debt offering was used to repay
short-term borrowings. The new credit facility also provides a source of
financing for the seasonal working capital needs of the Company.
The Company's Board of Directors authorized the purchase of up to $300 million
of shares of common stock by means of the tender offer and open market or
private transactions. The Company has from time to time purchased additional
shares of common stock pursuant to an open market repurchase program. As of
August 22, 1997, the Company has repurchased 457,900 shares at a total cost of
$22.7 million pursuant to its open market repurchase program. Any future
purchases by the Company will depend on many factors, including the market
price of the shares, the Company's business and financial position and general
economic and market conditions. The Company intends to fund future repurchases
of its common stock through a combination of available cash and additional
borrowings.
Also as a part of its financial strategy, subject to the discretion of the
Company's Board of Directors and the requirements of applicable law, the
Company currently intends to increase future cash dividends per share at a
rate no more than the inflation rate.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEARS 1997, 1996 AND 1995
Cash flow from operating activities was $142.9 million, $94.5 million and $95.8
million, in fiscal 1997, 1996 and 1995, respectively. The primary source of
funds was from net income excluding depreciation. The significant change between
fiscal 1997 and fiscal 1996 amounts was due to changes in working capital as
explained below.
The fiscal 1997 cash flow from operating activities reflects an increase in
accounts receivable of $10.5 million and lower inventories of $11.4 million
resulting from increased sales at the end of the fiscal year. Also, increased
accounts payable of
29
<PAGE> 19
MANAGEMENT'S DISCUSSION . . .
$16.6 million caused by the timing of payments, increased accrued liabilities
of $4.6 million resulting primarily from increased profit sharing provisions,
and increased federal and state income taxes payable of $4.2 million caused
by the timing of payments contributed to the cash flows of the Company.
The fiscal 1996 cash flow from operating activities reflects an increase in
receivables of $25.2 million resulting from increased sales at the end of the
fiscal year and also reflects a decrease in accrued liabilities of $25.9 million
primarily due to decreased profit sharing provisions.
The fiscal 1995 cash flow from operating activities reflects a decrease in
accounts receivable of $11.1 million due to lower sales late in the fourth
quarter of fiscal 1995 and an increase in inventories of $62.8 million. This
increase in inventories was primarily due to two factors. The Company maintained
a stable rate of production while experiencing a reduction in orders from
equipment manufacturers due to less favorable spring weather. In addition, the
Company planned an increase in inventories to provide a cushion for the
transfer of engine assembly to the three new plants under construction.
Cash used in investing activities amounted to $51.2 million, $76.7 million
and $129.2 million in fiscal 1997, 1996 and 1995, respectively. The 1997 cash
flows from investing activities included additions to plant and equipment of
$71.3 million, $77.7 million and $131.0 million in fiscal 1997, 1996 and 1995,
respectively. The fiscal 1997 capital expenditures related primarily to
reinvestment in equipment and new products, while the fiscal 1996 and fiscal
1995 expenditures principally related to the construction of three new engine
manufacturing plants and a foundry and plant expansions at existing facilities.
The 1997 cash flows from investing activities also included $16.0 million
related to the sale of the Menomonee Falls, Wisconsin facility. The sale of
this facility is described under "Other Matters."
Cash flows used in financing activities amounted to $129.0 million, $37.6
million and $16.8 million in fiscal 1997, fiscal 1996 and fiscal 1995,
respectively. The fiscal 1997 cash used in financing activities includes the
repurchase of the Company's common stock totaling $179 million pursuant to the
dutch auction tender offer and open market repurchase program previously
discussed. Also in fiscal 1997, the Company issued ten-year notes which resulted
in $97.9 million of net proceeds from the offering. The Company also paid $15
million as its first installment on its 9.21% Senior Notes in fiscal 1997.
Cash dividends totaled $30.5 million, $30.4 million and $28.3 million, in
fiscal 1997, 1996 and 1995, respectively. Fiscal 1997 and 1996 cash used in
financing activities also reflects the repayment of foreign loans of $1.6
million and $6.5 million, respectively. Fiscal 1995 reflects increased borrowing
by the Company's foreign subsidiaries of $12.1 million to fund working capital
requirements.
Future Liquidity and Capital Resources
In connection with the debt offering and tender offer, the Company entered
into a new credit facility allowing borrowings of up to $250 million to
primarily fund seasonal working capital requirements and other financing needs
of the Company. The term of the new credit facility is five years and such
facility contains certain restrictive covenants. Because the Company used $169
million of available cash to fund a portion of the tender offer, the Company
anticipates placing more reliance on borrowings to fund working capital
requirements than it has in recent years. The Company will incur additional
interest expense in the future as a result of the issuance of ten-year notes
and increased reliance on the new revolving credit facility.
In May 1997, the Company filed a shelf registration for $175 million of debt
securities to be issued periodically. Of this, $75 million has not yet been
issued on the registration statement. The Company may decide to offer all or
part of the remaining securities depending on many factors, including general
economic conditions, cash required for operations and the timing of the
remaining open market repurchases of its common stock.
Management expects capital expenditures to total $56 million in fiscal 1998
for reinvestment in equipment and new products. As previously mentioned, the
Company is also implementing a new enterprise-wide information system, the
expenditures for which are expected to total $25 million over the next five
years.
Management believes that available cash, the new credit facility, cash
generated from operations, existing lines of credit and access to public debt
markets will be adequate to fund the Company's capital requirements for
the foreseeable future.
30
<PAGE> 20
MANAGEMENT'S DISCUSSION . . .
OTHER MATTERS
Sale of the Menomonee Falls, Wisconsin Facility
The sale of the Company's Menomonee Falls, Wisconsin facility for approximately
$16.0 million was completed during fiscal 1997. The provisions of the contract
state that the Company will continue to own and occupy the warehouse portion
of the facility for a period of up to ten years (the "Reservation Period").
The contract also contains a buyout clause, at the buyer's option and under
certain circumstances, of the remaining Reservation Period. Under the provisions
of Statement of Financial Accounting Standards No. 66, "Accounting for Sales
of Real Estate," the Company is required to account for this as a financing
transaction as the Company continues to have substantial involvement with the
facility during the Reservation Period or until the buyout option is exercised.
Under this method, the cash received is reflected as a deferred revenue, and
the assets and the accumulated depreciation remain on the Company's books.
Depreciation expense continues to be recorded each period, and imputed interest
expense is also recorded and added to deferred revenue. Offsetting this is
the fair value lease income on the non-Company occupied portion of the building.
A pretax gain, which will be recognized at the earlier of the exercise of the
buyout option or the expiration of the Reservation Period, is estimated to
be $10 million to $12 million. The annual cost of operating the warehouse
portion of the facility is not material.
Emissions
The U.S. Environment Protection Agency (EPA) is developing national emission
standards under a two phase process for equipment powered by small air cooled
engines. In 1995, the EPA promulgated its Phase I emission standards, which
will be reflected in the Company's 1998 model year engines. The EPA and several
engine manufacturers, including the Company, recently announced an agreement
in principle to further cut pollution emitted by gasoline engines. These
reductions are expected to be incorporated into the EPA's Phase II emission
standards to be issued in 1998 and to be phased in from 2001 to 2005. While it
is impossible to precisely quantify the cost of compliance until the standards
are issued, the Company believes compliance with the new standards will not
have a material adverse effect on its financial position or results of
operations.
The California Air Resources Board (CARB) has also adopted emission standards
to be effective in two tiers. Tier I was effective as of August 1995.
Tier II of the CARB engine emission standards will not be effective until 1999
or later. CARB has directed its staff to review its Tier II standards in light
of technological and economic issues raised by the industry. The Company
expects this review to be completed in late 1997 or early 1998. In the event
the Company is unable to comply with the Tier II standards and they remain
unchanged, the Company believes that any resulting downturn in sales will not
have a material adverse effect on the Company's financial position or
results of operations.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
establishes a new standard for computing and presenting earnings per share
in financial statements. The Company will adopt the new standard in its 1998
second quarter financial statements. The impact of adoption of this standard
will not be material to the Company's results of operations.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis, in the Letter to
Shareholders on pages 2 through 5 and in About Briggs & Stratton on pages 6
through 11 may contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. The words "anticipate", "believe",
"estimate", "expect", "objective", and "think" or similar expressions are
intended to identify forward-looking statements. The forward-looking statements
are based on the Company's current views and assumptions and involve risks and
uncertainties that include, among other things, the effects of weather on the
purchasing patterns of the Company's customers and end use purchasers of the
Company's engines; the seasonal nature of the Company's business; actions of
competitors; changes in laws and regulations, including accounting standards;
employee relations; customer demand; prices of purchased raw materials and
parts; domestic economic conditions, including housing starts and changes in
consumer disposable income; and foreign economic conditions, including currency
rate fluctuations. Some or all of the factors are beyond the Company's control.
31
<PAGE> 21
QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
In Thousands Per Share of Common Stock
------------------------------------- -----------------------------------------------
Market Price Range
on New York
Net Net Stock Exchange
Quarter Net Gross Income Income Dividends --------------
Ended Sales Profit (Loss) (Loss) Declared High Low
----- ----- ------ ------ ------ -------- ---- ---
Fiscal 1997
- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER $ 161,731 $ 17,969 $ (5,262) $ (.18) $ .27 45-7/8 36-1/2
DECEMBER 299,664 56,857 16,694 .58 .27 44-5/8 39-1/4
MARCH 475,955 107,119 46,514 1.60 .27 46-3/8 43
JUNE 379,063 39,271 3,619 .13 .28 53-5/8 42-5/8
---------- -------- -------- ------- -------
TOTAL $1,316,413 $221,216 $ 61,565 $ 2.16* $ 1.09
========== ======== ======== ======= =======
Fiscal 1996
- -----------
September $ 189,477 $ 19,141 $ (3,300) $ (.11) $ .26 41 32-3/4
December 329,357 65,763 23,924 .82 .26 44-1/8 39
March 460,201 104,082 45,226 1.57 .26 44-3/4 39-3/4
June 307,994 72,762 26,562 .91 .27 46-7/8 40-1/2
---------- -------- -------- ------- -------
Total $1,287,029 $261,748 $ 92,412 $ 3.19 $ 1.05
========== ======== ======== ======= =======
</TABLE>
The number of record holders of Briggs & Stratton Corporation Common Stock on
August 20, 1997 was 5,272.
* See Footnote No. 2 "Summary of Accounting Policies - Earnings per Share" to
the Consolidated Financial Statements.
32
<PAGE> 22
FIVE YEAR COMPARISONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
NET SALES............................... 1,316,413 1,287,029 1,339,677 1,285,517 1,139,462
GROSS PROFIT ON SALES................... 221,216 261,748 271,618 266,540 212,601
PROVISION FOR INCOME TAXES.............. 37,740 56,640 65,570 67,240 44,060
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES........... 61,565 92,412 104,805 102,481 70,345
NET INCOME.............................. 61,565 92,412 104,805 69,923 70,345
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING (000)...... 28,551 28,927 28,927 28,927 28,927
PER SHARE OF COMMON STOCK:
Net Income before cumulative effect
of accounting changes ................. 2.16 3.19 3.62 3.54 2.43
Net Income.............................. 2.16 3.19 3.62 2.42 2.43
Cash Dividends.......................... 1.09 1.05 .98 .90 .85
Shareholders' Investment................ 13.82 17.30 15.19 13.96 12.45
OTHER DATA
SHAREHOLDERS' INVESTMENT................ 351,097 500,505 439,478 403,792 359,958
LONG-TERM DEBT.......................... 142,897 60,000 75,000 75,000 75,000
TOTAL ASSETS............................ 842,189 838,164 798,493 777,355 656,107
PLANT AND EQUIPMENT..................... 796,714 776,638 726,331 669,593 658,120
PLANT AND EQUIPMENT NET OF RESERVES..... 396,266 374,212 343,297 285,890 295,542
PROVISION FOR DEPRECIATION.............. 43,345 43,032 44,445 42,950 47,222
EXPENDITURES FOR PLANT AND EQUIPMENT.... 71,262 77,746 131,034 40,804 38,110
WORKING CAPITAL......................... 204,422 266,208 256,075 276,040 195,019
Current Ratio ......................... 2.0 to 1 2.4 to 1 2.3 to 1 2.3 to 1 2.2 to 1
NUMBER OF EMPLOYEES AT YEAR END......... 7,661 7,199 6,958 8,628 7,950
NUMBER OF SHAREHOLDERS AT YEAR END...... 5,336 5,879 6,792 6,228 6,651
QUOTED MARKET PRICE:
High................................... 53-5/8 46-7/8 39-1/4 45-1/8 34-1/4
Low.................................... 36-1/2 32-3/4 30-1/2 32-1/2 21
</TABLE>
NOTES:
(1) The number of shares of common stock and per share data have been
adjusted for a 2-for-1 stock split in fiscal 1995.
(2) The cumulative effects of accounting changes in 1994 were for
postretirement health care, postemployment benefits and deferred
income taxes.
<PAGE> 1
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT NO. 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statements, File No. 33-39113, File No.
333-25271 and File No. 33-54357.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
September 18, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF BRIGGS & STRATTON CORPORATION FOR THE FISCAL YEAR ENDED
JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-29-1997
<CASH> 112,859
<SECURITIES> 0
<RECEIVABLES> 129,877
<ALLOWANCES> 0
<INVENTORY> 125,957
<CURRENT-ASSETS> 418,416
<PP&E> 796,714
<DEPRECIATION> 400,448
<TOTAL-ASSETS> 842,189
<CURRENT-LIABILITIES> 213,994
<BONDS> 0
0
0
<COMMON> 289
<OTHER-SE> 350,808
<TOTAL-LIABILITY-AND-EQUITY> 842,189
<SALES> 1,316,413
<TOTAL-REVENUES> 1,316,413
<CGS> 1,095,197
<TOTAL-COSTS> 1,095,197
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<INCOME-TAX> 37,740
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<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
</TABLE>
