<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration Statement No. 333-25271
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY 30, 1997.
$100,000,000
[BRIGGS & STRATTON LOGO]
BRIGGS & STRATTON CORPORATION
7 1/4% Notes Due 2007
Interest payable March 15 and September 15 Due September 15, 2007
-------------------------
The Notes are redeemable in whole or in part at any time at the option of the
Company at a redemption price equal to the greater of (i) 100% of the principal
amount of such Notes and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the date of
redemption on a semi-annual basis assuming a 360-day year consisting of twelve
30-day months at the Treasury Rate plus 15 basis points, plus in each case
accrued but unpaid interest thereon to the date of redemption. The Notes will
not be subject to any sinking fund.
The Notes will be represented by one or more Global Securities (as defined
herein) registered in the name of the nominee of The Depository Trust Company
("DTC"), which will act as Depository. Interests in Global Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as provided herein and in the
accompanying Prospectus, Notes in definitive form will not be issued. See
"Description of Notes" herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS COMPANY(1)(2)
--------- ------------- -------------
<S> <C> <C> <C>
Per Note..................................... 99.303% 0.650% 98.653%
Total........................................ $99,303,000 $650,000 $98,653,000
</TABLE>
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(1) Plus accrued interest, if any, from June 4, 1997.
(2) Before deduction of expenses payable by the Company estimated at $315,000.
The Notes are offered by the several Underwriters when, as and if issued by
the Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Notes, in book-entry form, will be made through the facilities of DTC on or
about June 4, 1997, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON BANCAMERICA SECURITIES, INC.
Prospectus Supplement dated May 30, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
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PROSPECTUS SUPPLEMENT SUMMARY
This Prospectus Supplement Summary is qualified in its entirety by the more
detailed information and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus Supplement and the Prospectus and the
documents incorporated by reference herein and therein. Prospective purchasers
of the Notes should read carefully the entire Prospectus Supplement and the
Prospectus. As used in this Prospectus Supplement, the term "the Company" refers
to Briggs & Stratton Corporation and its subsidiaries, unless otherwise stated
or indicated by the context. As used in the section of this Prospectus
Supplement entitled "Description of Notes," or in any description of the
Indenture (as defined herein), the term "the Company" refers to Briggs &
Stratton Corporation.
This Prospectus Supplement and the Prospectus contain certain
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. When used in this Prospectus Supplement, the Prospectus or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect" and similar expressions are intended to
identify such 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.
Further information concerning factors that could significantly impact expected
results is included in "The Company."
THE OFFERING
SECURITIES OFFERED............ $100,000,000 aggregate principal amount of
7 1/4% Notes due September 15, 2007 (the
"Notes").
INTEREST PAYMENT DATES........ March 15 and September 15 of each year,
commencing March 15, 1998.
REDEMPTION.................... The Notes are redeemable in whole or in part at
any time at the option of the Company at a
redemption price equal to the greater of (i)
100% of the principal amount of such Notes and
(ii) the sum of the present values of the
remaining scheduled payments of principal and
interest thereon discounted to the date of
redemption on a semi-annual basis assuming a
360-day year consisting of twelve 30-day months
at the Treasury Rate (as defined herein) plus
15 basis points, plus in each case accrued but
unpaid interest thereon to the date of
redemption. See "Description of Notes."
SINKING FUND.................. None.
RANKING....................... The Notes will be unsecured obligations of the
Company and will rank equally and ratably with
all other unsecured and unsubordinated
indebtedness of the Company. At March 30, 1997,
the Company had outstanding approximately $98
million of indebtedness on a consolidated
basis. At March 30, 1997, after giving effect
to the offering of the Notes hereby (the
"Offering"), the intended application of the
anticipated net proceeds thereof as described
under "Use of Proceeds" and increased
short-term borrowings to fund a portion of the
repurchase of approximately $179 million of the
Company's common stock pursuant to the "dutch
auction" tender offer described below, the
Company would
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have had outstanding approximately $215 million
of indebtedness on a consolidated basis. On May
28, 1997, the Company used $169 million of
available cash and $10 million of short-term
borrowings to fund such repurchase.
RESTRICTIVE COVENANTS......... The indenture governing the Notes requires that
upon (i) the issuance of certain secured funded
debt by the Company or specified subsidiaries
of the Company or (ii) the entrance into
certain sale and leaseback transactions by the
Company or such subsidiaries, the Notes be
equally and ratably secured therewith. The
indenture governing the Notes also limits the
incurrence of certain funded debt by specified
subsidiaries of the Company. These
restrictions, however, are subject to a number
of qualifications. See "Description of Notes."
USE OF PROCEEDS............... The net proceeds of the Offering, estimated to
be approximately $99 million, will be used to
repay borrowings incurred under the Company's
credit facility in connection with the
repurchase of the Company's common stock
pursuant to the "dutch auction" tender offer
described below and for general corporate
purposes, which may include the repurchase of
shares of the Company's common stock pursuant
to open market or private transactions. See
"Use of Proceeds."
THE COMPANY
The Company 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 worldwide. These
engines are aluminum alloy gasoline engines ranging from 3 through 25
horsepower. The Company's engines are primarily used in a variety of lawn and
garden applications, including walk-behind lawn mowers, riding lawn mowers and
tillers. The Company's engines are also used in many commercial products for
both industrial and consumer applications, including generators, pumps and
compressors.
The Company also manufactures replacement engines and service parts, and
sells them to central sales and service distributors. 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 the Company's commitment to
reliability and service.
The United States lawn and garden market, which comprises the majority of
the worldwide shipments for 3 through 25 horsepower gasoline engines, was
approximately 10 million units in 1996. Over 70% of the products in this market
are for grass cutting, namely walk-behind and riding lawn mowers. These product
categories have grown at a 2% rate, on average, over the past five years. The
Company's unit sales in the United States to equipment manufacturers of these
products have grown at a rate consistent with the overall market growth. The
United States commercial power products market has grown to be in excess of 2
million units in 1996. The Company enjoys a leadership position in units sold to
equipment manufacturers who compete in this market. In the Company's 1996 fiscal
year, approximately 25% of the Company's net sales were derived from sales in
international markets, primarily to customers in Europe. In each of the
Company's last five fiscal years, the Company's three largest customers have
accounted for over 40% of net sales. The Company has no reason to anticipate a
change in its historical business relationships with these equipment
manufacturers.
The Company manufactures engines and parts at six facilities and
manufactures parts and components at three foundries, all located in the United
States. The Company recently completed several significant capital projects
intended to reduce manufacturing costs. In the Company's 1995 and 1996 fiscal
years, the Company constructed three new plants in Alabama, Georgia and Missouri
and expanded its existing facilities in Kentucky and Missouri, which has
resulted in a reduction in the scope of the Company's manufacturing in the
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Milwaukee area. Also in the Company's 1995 and 1996 fiscal years, the Company
constructed a new foundry to increase production capacity.
The Company has two joint ventures that manufacture and sell air cooled
gasoline engines for outdoor power equipment and a third joint venture that
manufactures components for use in the Company's engines. The Company also has a
strategic relationship for the distribution of gasoline engines for outdoor
power equipment manufactured by another company.
The Company is a successor to a business organized in 1909. The principal
executive offices of the Company are located at 12301 West Wirth Street,
Wauwatosa, Wisconsin 53222, and its telephone number is (414) 259-5333.
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 is continuing to implement its financial strategy by means
of the Offering and the "dutch auction" tender offer described below, 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 announced on April
16, 1997 its intention to repurchase up to approximately $300 million of its
common stock pursuant to a "dutch auction" tender offer (the "Tender Offer"),
entered into a new credit facility allowing borrowings of up to $250 million
(which replaces the Company's prior credit facilities) and is pursuing the
Offering. On May 28, 1997, the Company repurchased 3,506,190 shares of its
common stock pursuant to the Tender Offer at a price of $51.00 per share or
approximately $179 million in the aggregate. The Company funded the Tender Offer
with $169 million of available cash and $10 million of short-term borrowings
under the Company's new credit facility. A portion of the net proceeds of the
Offering will be used to repay such short-term borrowings. The new credit
facility also provides a source of financing for the seasonal working capital
needs of the Company.
The Company recently announced that it may from time to time purchase
additional shares of common stock pursuant to an open market repurchase program.
The Company's board of directors previously 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. 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.
The Company believes that its financial condition, access to capital and
outlook for continued favorable cash generation will allow it to continue to
reinvest in its core business, including through research and development,
capital expenditures and global expansion. Also as 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 that approximates the inflation rate.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected historical financial information as of and for each
of the five fiscal years ended June 30, 1996, was derived from the audited
consolidated financial statements of the Company. The selected historical
financial information as of and for the nine months ended March 30, 1997 and
March 31, 1996, is unaudited and was derived from the accounting records of the
Company. In the opinion of management, the historical financial statements as of
and for the nine months ended March 30, 1997 and March 31, 1996, include all
adjusting entries (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. Results for an interim period
may not be indicative of the results of operation for any future period. This
information should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Financial
Statements and the notes thereto included elsewhere herein.
The summary pro forma income statement information for the fiscal year
ended June 30, 1996 and for the nine months ended March 30, 1997, reflects the
effects on historical results of (i) the repurchase of $179 million of the
Company's common stock pursuant to the Tender Offer, initially funded by $169
million of available cash and borrowings of $10 million under the Company's
credit facility, (ii) the Offering and the application of a portion of the
anticipated net proceeds thereof to repay short-term borrowings under the
Company's credit facility, and (iii) additional short-term borrowings to fund
seasonal working capital needs as a result of the Company's use of available
cash to finance a portion of the Tender Offer, as if such transactions occurred
July 3, 1995.
The summary pro forma balance sheet information as of March 30, 1997,
reflects: (i) the repurchase of $179 million of common stock of the Company
pursuant to the Tender Offer, initially funded by $63 million of available cash
and borrowings of $116 million under the Company's credit facility and (ii) the
Offering and the application of the anticipated net proceeds thereof to repay
short-term borrowings under the Company's credit facility. The Company funded
the repurchase of common stock pursuant to the Tender Offer through a
combination of $169 million of available cash and $10 million of borrowings
under the credit facility. The Company will use a portion of the net proceeds
from the Offering to repay the borrowings under the credit facility incurred in
connection with the Tender Offer.
The summary pro forma financial information should be read in conjunction
with "Unaudited Pro Forma Financial Information." The summary pro forma
financial information is not necessarily indicative of the results of operations
of the Company had the transactions reflected therein actually been consummated
on the dates assumed and are not necessarily indicative of the results of
operations for any future period.
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<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------------------------------ ---------------------------------
PRO FORMA
PRO FORMA MARCH 30, MARCH 30, MARCH 31,
1996 1996 1995 1994 1993 1992 1997 1997 1996
--------- ------ ------ ------ ------ ------ --------- --------- ---------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales.......................... $1,287 $1,287 $1,340 $1,286 $1,139 $1,042 $ 937 $ 937 $ 979
Cost of goods sold................. 1,025 1,025 1,068 1,019 927 868 755 755 790
------ ------ ------ ------ ------ ------ ----- ----- -----
Gross profit on sales.............. 262 262 272 267 212 174 182 182 189
Engineering, selling, general and
administrative expenses.......... 108 108 102 95 83 79 85 85 79
Interest expense................... 19 10 9 9 11 11 14 7 8
Other income (expense), net........ 2 5 9 7 (4) (4) 2 4 4
------ ------ ------ ------ ------ ------ ----- ----- -----
Income before taxes and cumulative
effect of changes in accounting
principles....................... 137 149 170 170 114 80 85 94 106
Income tax provision............... 52 57 66 67 44 29 32 36 40
------ ------ ------ ------ ------ ------ ----- ----- -----
Net income before cumulative effect
of changes in accounting
principles....................... 85 92 104 103 70 51 53 58 66
Cumulative effect of changes in
accounting principles(a)......... -- -- -- (33) -- -- -- -- --
------ ------ ------ ------ ------ ------ ----- ----- -----
Net income......................... $ 85 $ 92 $ 104 $ 70 $ 70 $ 51 $ 53 $ 58 $ 66
====== ====== ====== ====== ====== ====== ===== ===== =====
Earnings per share after cumulative
effect of changes in accounting
principles(b).................... $ 3.34 $ 3.19 $ 3.62 $ 2.42 $ 2.43 $ 1.78 $2.08 $2.00 $2.28
BALANCE SHEET INFORMATION (at end of
period):
Working capital.................... N/A $ 266 $ 256 $ 276 $ 195 $ 137 $ 204 $ 284 $ 258
Total assets....................... N/A 838 798 777 656 614 898 960 895
Long-term debt..................... N/A 60 75 75 75 75 160 60 75
Total debt......................... N/A 95 101 96 91 107 215 98 109
Other long-term liabilities........ N/A 87 87 92 63 66 106 106 87
Shareholders' investment........... N/A 501 439 404 360 312 355 534 482
OTHER INFORMATION:
EBITDA(c).......................... $ 199 $ 202 $ 223 $ 222 $ 172 $ 132 $ 131 $ 133 $ 146
Ratio of EBITDA to interest
expense.......................... 10.5x 20.2x 24.8x 24.7x 15.6x 12.0x 9.4x 19.0x 18.3x
Depreciation....................... $ 43 $ 43 $ 44 $ 43 $ 47 $ 41 $ 32 $ 32 $ 32
Capital expenditures............... $ 78 $ 78 $ 131 $ 41 $ 38 $ 40 $ 52 $ 52 $ 65
</TABLE>
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(a) Effective June 28, 1993, the Company adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and FAS No.
112, "Employers' Accounting for Postemployment Benefits," which resulted in
after tax charges of $40 million and $1 million, respectively, to reflect
the cumulative effect of the accounting change. Also effective June 28,
1993, the Company adopted FAS No. 109, "Accounting for Income Taxes," which
resulted in a benefit of $8 million to reflect the cumulative effect of the
accounting change.
(b) Earnings per share after cumulative effect of changes in accounting
principles have been adjusted, as appropriate, for a 2-for-1 stock split in
fiscal 1995.
(c) Represents earnings before interest, taxes, accounting changes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of the Notes as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
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THE COMPANY
GENERAL
The Company 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 worldwide. These
engines are aluminum alloy gasoline engines ranging from 3 through 25
horsepower. The Company's engines are primarily used in a variety of lawn and
garden applications, including walk-behind lawn mowers, riding lawn mowers and
tillers. The Company's engines are also used in many commercial products for
both industrial and consumer applications, including generators, pumps and
compressors. Many retailers specify the Company's engines on the powered
equipment they sell, and the Company's name is often featured prominently on a
product despite the fact that its engine is just a component.
The Company also manufactures replacement engines and service parts and
sells them to central 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 the Company's commitment to reliability and service.
SALES
The United States lawn and garden market, which comprises the majority of
the worldwide shipments for 3 through 25 horsepower gasoline engines, was
approximately 10 million units in 1996. Over 70% of the products in this market
are for grass cutting, namely walk-behind and riding lawn mowers. These product
categories have grown at a 2% rate, on average, over the past five years. The
Company's unit sales in the United States to equipment manufacturers of these
products have grown at a rate consistent with the overall market growth.
The United States commercial power products market has grown to be in
excess of 2 million units in 1996. The Company enjoys a leadership position in
units sold to equipment manufacturers who compete in this market.
In the Company's 1996 fiscal year, approximately 25% of the Company's net
sales were derived from sales in international markets, primarily to customers
in Europe. The Company serves its international markets through its European
regional office and distribution center in the Netherlands and sales and service
offices in Australia, Canada, France, Germany, New Zealand, Sweden and the
United Kingdom. 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.
The Company's engines are sold primarily by the Company's worldwide sales
force through direct calls on customers. The Company's marketing staff and
engineers provide support and technical assistance to its sales force.
CUSTOMERS; CONCENTRATION OF SALES
The Company's sales are primarily made directly to original equipment
manufacturers. The Company's three largest customers accounted for 48%, 44% and
42% of net sales in fiscal 1996, 1995 and 1994, respectively. Sales to the
Company's largest engine customer, MTD Products Inc., were 21%, 18% and 18% of
net sales in fiscal 1996, 1995 and 1994, respectively. Sales to its second
largest customer, AB Electrolux (including its Frigidaire Home Products group),
were 14%, 12% and 12% of net sales in fiscal 1996, 1995 and 1994, respectively,
and sales to its third largest customer, Tomkins PLC (including its Murray
product line), were 13%, 14% and 12% of net sales in fiscal 1996, 1995 and 1994,
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.
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The Company believes that in 1996 approximately 75% of all lawn and garden
equipment sold in the United States was sold through mass merchandisers such as
Sears, WalwMart, Kmart, Home Depot, Lowe's and Montgomery Ward. 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.
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., Kawasaki Heavy Industries, Ltd. and
Onan Corporation. 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 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, 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. Currently, product substitution does not have a
significant impact on competition; however, certain manufacturers, including the
Company, are marketing battery operated power units that could have a more
significant impact on competition in the future. The Company believes its
product quality and service reputation have given it strong brand name
recognition and enhance its competitive position.
SEASONALITY OF DEMAND; IMPACT ON PRODUCTION SCHEDULES
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, averaging 33% of net
sales over the last three fiscal years. Sales in the first fiscal quarter have
historically been the lowest, averaging 16% of net sales over the last three
fiscal years.
As discussed above in "Customers; Concentration of Sales," 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 most 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, including 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
The Company recently completed several significant capital projects
intended to reduce manufacturing costs. In the Company's 1995 and 1996 fiscal
years, the Company constructed three new plants in Alabama, Georgia and Missouri
and expanded its existing facilities in Kentucky and Missouri, which resulted in
a reduction in the scope of the Company's manufacturing in the Milwaukee area.
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The capital expenditures for the Company's new facilities are substantially
complete, and the Company believes that it has adequate capacity to meet its
currently anticipated production needs. The Company manufactures engines and
parts at the following locations in the United States: Wauwatosa, Wisconsin;
Murray, Kentucky; Poplar Bluff, Missouri; Rolla, Missouri; Auburn, Alabama; and
Statesboro, Georgia. The Company has a parts distribution center in Menomonee
Falls, Wisconsin.
The Company also manufactures parts and components at three foundries
located in West Allis, Wisconsin (two locations) and Ravenna, Michigan. The
Ravenna foundry was constructed during the Company's 1995 and 1996 fiscal years
in order to increase production capacity. The foundries also sell castings to
other manufacturers.
The Company manufactures a majority of the components used in its engines,
including ductile and grey 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, zinc die 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.
For the years ending June 30, 1996, July 2, 1995 and July 3, 1994, the
Company spent approximately $12.7 million, $13.1 million and $12.5 million,
respectively, on Company sponsored research activities relating to the
development of new products and the improvement of existing products.
EMPLOYEES
As of March 30, 1997, the Company had 7,804 employees, of whom 2,932 were
covered by collective bargaining agreements. The Company has experienced labor
relations issues related to its cost containment measures, primarily the
relocation of certain of its manufacturing operations. In February 1997, the
Company renegotiated and extended the contract with its major employee union
covering 2,812 employees until July 2002. While no assurances can be made with
respect to the Company's relationship with its major employee union, the Company
presently anticipates that union relations will be stable and mutually
cooperative.
EMISSIONS REGULATION OF AIR COOLED GASOLINE ENGINES
The Company is subject to a variety of federal, state, local and foreign
regulations typically applicable to manufacturers similar to the Company,
including regulations relating to emissions of its engines. The United States
Environmental Protection Agency (the "EPA") is developing national emission
standards under a two phase process for equipment powered by small gasoline
engines. In 1995, the EPA promulgated its Phase One emission standards, which
will be reflected in the Company's 1998 model year engines. The Company expects
Phase Two of the emission standards to be issued later in 1997 and to be phased
in from 2001 to 2005. Recently, the EPA and several engine manufacturers,
including the Company, 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 Two emission standards. While it is impossible
to precisely quantify the cost of compliance until the standards are issued and
no assurance can be given in this regard, 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 One was effective as of August
1995. Changes to the Company's engine models that were necessary to comply with
Tier One have been made. CARB has granted the Company's request that the
S-10
<PAGE> 11
California standard for carbon monoxide be modified to harmonize it with that
adopted by the EPA. As a result of this change, a wider range of the Company's
engines will meet California's current emission standards. The costs to comply
with the Tier One California standards did not have a material adverse effect on
the financial position or results of operations of the Company. Tier Two of
California engine emission standards will not be effective until 1999 or later.
CARB has directed its staff to review its Tier Two standards in light of
technological and economic issues raised by the industry.
USE OF PROCEEDS
The Company intends to use $10 million of the net proceeds to be received
by the Company from the sale of the Notes to repay borrowings incurred under the
Company's credit facility in connection with the Tender Offer. The remainder of
the net proceeds of the Offering will be used for general corporate purposes,
which may include the repurchase of shares of the Company's common stock
pursuant to open market or private transactions, repayment of indebtedness,
expansion of existing businesses and investments in related business
opportunities as they may arise. Pending such uses, the net proceeds may be
temporarily invested in short-term instruments. As of May 28, 1997, the Company
had $10 million of borrowings under its credit facility in connection with the
repurchase of common stock pursuant to the Tender Offer. These borrowings
currently bear interest at a rate of 5.825% per annum and are required to be
repaid no later than April 18, 2002. See "Description of Credit Facility."
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Company is set forth below
for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR
NINE MONTHS ENDED ------------------------------------
MARCH 30, 1997 1996 1995 1994 1993 1992
- ----------------- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
14.4x 14.5x 18.0x 19.9x 10.5x 7.7x
</TABLE>
For the computation of the ratio of earnings to fixed charges, "earnings"
has been calculated by adding income before taxes and cumulative effect of
changes in accounting principles, interest expense and fixed charges of
unconsolidated subsidiaries. "Fixed charges" consist of interest expense and
fixed charges of unconsolidated subsidiaries.
S-11
<PAGE> 12
CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of the Company at March 30, 1997, and as adjusted to give effect
to (i) the repurchase of $179 million of common stock of the Company pursuant to
the Tender Offer initially funded by $63 million of available cash and
borrowings of $116 million under the Company's credit facility and (ii) the
Offering and the application of the anticipated net proceeds thereof to repay
short-term debt. The Company funded the repurchase of common stock pursuant to
the Tender Offer through a combination of $169 million of available cash and $10
million of borrowings under the Company's credit facility.
<TABLE>
<CAPTION>
MARCH 30, 1997
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN MILLIONS)
<S> <C> <C>
Short-term debt............................................. $ 23 $ 40
Current maturities of long-term debt........................ 15 15
---- ----
Total short-term debt................................ 38 55
Long-term debt:
9.21% Notes due 2001...................................... 60 60
7.25% Notes due 2007...................................... -- 100
---- ----
Total long-term debt................................. 60 160
Shareholders' investment:
Common stock (a).......................................... -- --
Additional paid-in capital................................ 41 41
Retained earnings......................................... 494 494
Treasury stock............................................ -- (179)
Cumulative translation adjustments........................ (1) (1)
---- ----
Total shareholders' investment....................... 534 355
---- ----
Total short-term debt and capitalization.................... $632 $570
==== ====
</TABLE>
- ---------------
(a) There are 60,000,000 shares authorized, $.01 par value, of which 28,927,000
were issued and outstanding. After consummation of the Tender Offer,
25,420,810 shares are assumed to be outstanding.
S-12
<PAGE> 13
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Balance Sheet as of March 30, 1997, has
been prepared to reflect the issuance of the Notes and the repurchase of $179
million of common stock of the Company pursuant to the Tender Offer. The Pro
Forma Balance Sheet also reflects additional borrowings under the Company's new
credit facility to fund a portion of the repurchase of common stock pursuant to
the Tender Offer. The Company funded the repurchase of common stock pursuant to
the Tender Offer through a combination of $169 million of available cash and $10
million of borrowings under the Company's credit facility.
The Unaudited Pro Forma Statements of Income for the year ended June 30,
1996, and the nine months ended March 30, 1997, have been prepared to reflect
the issuance of the Notes and the repurchase of $179 million of common stock of
the Company pursuant to the Tender Offer. These statements also reflect interest
expense on assumed additional borrowings under the new credit facility to fund
working capital needs during the year.
The Unaudited Pro Forma Balance Sheet has been prepared as if such
transactions occurred on March 30, 1997. The Unaudited Pro Forma Statements of
Income have been prepared as if such transactions occurred on July 3, 1995. The
pro forma financial information set forth below is unaudited and not necessarily
indicative of the results that would have actually occurred if the transactions
had been consummated as of March 30, 1997, or July 3, 1995, or results which may
be attained in the future.
The pro forma adjustments, as described in the notes to the Unaudited Pro
Forma Balance Sheet and notes to the Unaudited Pro Forma Statements of Income,
are based upon available information and upon certain assumptions that
management of the Company believes are reasonable. The Unaudited Pro Forma
Financial Information should be read in conjunction with the Financial
Statements and the notes thereto included elsewhere herein.
S-13
<PAGE> 14
BRIGGS & STRATTON CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 30, 1997
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 63 $ (63)(a) $ --
Receivables, net.......................................... 276 -- 276
Inventories............................................... 157 -- 157
Prepayments and other..................................... 48 -- 48
---- ----- -----
Total current assets................................... 544 (63) 481
Other assets................................................ 24 1 (b) 25
Net property, plant and equipment........................... 392 -- 392
---- ----- -----
Total assets........................................... $960 $ (62) $ 898
==== ===== =====
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt........................................... $ 23 $ 116 (c) $ 40
(99)(d)
Current maturities of long-term debt...................... 15 -- 15
Accounts payable and accrued liabilities.................. 222 -- 222
---- ----- -----
Total current liabilities.............................. 260 17 277
Long-term debt.............................................. 60 100 (d) 160
Other liabilities........................................... 106 -- 106
Shareholders' investment:
Common stock.............................................. -- -- --
Additional paid-in capital................................ 41 -- 41
Retained earnings......................................... 494 -- 494
Treasury stock............................................ -- (179)(e) (179)
Cumulative translation adjustments........................ (1) -- (1)
---- ----- -----
Total shareholders' investment......................... 534 (179) 355
---- ----- -----
Total liabilities and shareholders' investment......... $960 $ (62) $ 898
==== ===== =====
</TABLE>
- ---------------
(a) Reflects the use of available cash to fund a portion of the repurchase of
common stock pursuant to the Tender Offer. The Company funded the repurchase
of common stock pursuant to the Tender Offer with a combination of $169
million of available cash and $10 million of borrowings under its credit
facility.
(b) Reflects the capitalization of debt offering fees.
(c) Reflects borrowings under the Company's credit facility to fund a portion of
the repurchase of common stock pursuant to the Tender Offer.
(d) Reflects the issuance of the Notes and the use of proceeds to repay
borrowings under the Company's credit facility.
(e) Reflects the repurchase of common stock pursuant to the Tender Offer.
S-14
<PAGE> 15
BRIGGS & STRATTON CORPORATION
UNAUDITED PRO FORMA STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1996 MARCH 30, 1997
------------------------------------ ------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $1,287 $ -- $1,287 $ 937 $-- $ 937
Cost of goods sold.............. 1,025 -- 1,025 755 -- 755
------ ---- ------ ----- --- -----
Gross profit on sales........... 262 -- 262 182 -- 182
Engineering, selling, general
and administrative expenses... 108 -- 108 85 -- 85
------ ---- ------ ----- --- -----
Income from operations.......... 154 -- 154 97 -- 97
Interest expense................ (10) (7)(a) (19) (7) (5)(a) (14)
(2)(b) (2)(b)
Other income (expense), net..... 5 (3)(c) 2 4 (2)(c) 2
------ ---- ------ ----- --- -----
Income before provision for
income taxes.................. 149 (12) 137 94 (9) 85
Provision for income taxes...... 57 (5)(d) 52 36 (4)(d) 32
------ ---- ------ ----- --- -----
Net income...................... $ 92 $ (7) $ 85 $ 58 $(5) $ 53
====== ==== ====== ===== === =====
Earnings per share(e)........... $ 3.19 $ 3.34 $2.00 $2.08
EBITDA.......................... $ 202 $ 199 $ 133 $ 131
Ratio of EBITDA to interest
expense....................... 20.2x 10.5x 19.0x 9.4x
</TABLE>
- ---------------
(a) Represents additional interest expense resulting from the Offering.
(b) Represents increased interest expense resulting from assumed borrowings
under the Company's credit facility to fund seasonal working capital
requirements. The Company's credit facility bears interest on a floating
rate basis. A one-eighth percent change in the prevailing rate would have
the effect of increasing or decreasing annual interest expense by $.05
million on the pro forma borrowings under the credit facility.
(c) Represents decreased interest income resulting from the use of cash to
repurchase common stock.
(d) Represents the tax impact of the pro forma adjustments assuming a 39.0%
income tax rate.
(e) Pro forma earnings per share assume 25,420,810 shares outstanding.
S-15
<PAGE> 16
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information as of and for each
of the five fiscal years ended June 30, 1996, was derived from the audited
consolidated financial statements of the Company. The selected historical
financial information as of and for the nine months ended March 30, 1997 and
March 31, 1996, is unaudited and was derived from the accounting records of the
Company. In the opinion of management, the historical financial statements as of
and for the nine months ended March 30, 1997 and March 31, 1996, include all
adjusting entries (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. Results for an interim period
may not be indicative of the results of operations for any future period. This
information should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Financial
Statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ----------------------
---------------------------------------------- MARCH 30, MARCH 31,
1996 1995 1994 1993 1992 1997 1996
------ ------ ------ ------ ------ --------- ---------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Information:
Net sales............................. $1,287 $1,340 $1,286 $1,139 $1,042 $ 937 $ 979
Cost of goods sold.................... 1,025 1,068 1,019 927 868 755 790
------ ------ ------ ------ ------ ----- -----
Gross profit on sales................. 262 272 267 212 174 182 189
Engineering, selling, general and
administrative expenses............. 108 102 95 83 79 85 79
Interest expense...................... 10 9 9 11 11 7 8
Other income (expense), net........... 5 9 7 (4) (4) 4 4
------ ------ ------ ------ ------ ----- -----
Income before taxes and cumulative
effect of changes in accounting
principles.......................... 149 170 170 114 80 94 106
Income tax provision.................. 57 66 67 44 29 36 40
------ ------ ------ ------ ------ ----- -----
Net income before cumulative effect of
changes in accounting principles.... 92 104 103 70 51 58 66
Cumulative effect of changes in
accounting principles (a)........... -- -- (33) -- -- -- --
------ ------ ------ ------ ------ ----- -----
Net income............................ $ 92 $ 104 $ 70 $ 70 $ 51 $ 58 $ 66
====== ====== ====== ====== ====== ===== =====
Earnings per share after cumulative
effect of changes in accounting
principles (b)...................... $ 3.19 $ 3.62 $ 2.42 $ 2.43 $ 1.78 $2.00 $2.28
Balance Sheet Information (at end of
period):
Working capital....................... $ 266 $ 256 $ 276 $ 195 $ 137 $ 284 $ 258
Total assets.......................... 838 798 777 656 614 960 895
Long-term debt........................ 60 75 75 75 75 60 75
Total debt............................ 95 101 96 91 107 98 109
Other long-term liabilities........... 87 87 92 63 66 106 87
Shareholders' investment.............. 501 439 404 360 312 534 482
Other Information:
EBITDA (c)............................ $ 202 $ 223 $ 222 $ 172 $ 132 $ 133 $ 146
Ratio of EBITDA to interest expense... 20.2x 24.8x 24.7x 15.6x 12.0x 19.0x 18.3x
Depreciation.......................... $ 43 $ 44 $ 43 $ 47 $ 41 $ 32 $ 32
Capital expenditures.................. $ 78 $ 131 $ 41 $ 38 $ 40 $ 52 $ 65
</TABLE>
- ---------------
(a) Effective June 28, 1993, the Company adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and FAS No.
112, "Employers' Accounting for Postemployment Benefits," which resulted in
after tax charges of $40 million and $1 million, respectively, to reflect
the cumulative effect of the accounting change. Also effective June 28,
1993, the Company adopted FAS No. 109, "Accounting for Income Taxes," which
resulted in a benefit of $8 million to reflect the cumulative effect of the
accounting change.
(b) Earnings per share after cumulative effect of changes in accounting
principles have been adjusted, as appropriate, for a 2-for-1 stock split in
fiscal 1995.
(c) Represents earnings before interest, taxes, accounting changes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of the Notes as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
S-16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
IMPACT OF THE OFFERING, THE TENDER OFFER AND THE NEW CREDIT FACILITY
The Company's results of operations and financial position will be
significantly impacted by the Offering, repurchases of common stock pursuant to
the Tender Offer and pursuant to the Company's stock repurchase program and the
Company's new credit facility. The Company will experience increased interest
expense as a result of the Offering and from increased borrowings under the
Company's new credit facility to fund seasonal working capital requirements as
the Company used $169 million of available cash to fund a portion of the Tender
Offer. The foregoing transactions will result in a more leveraged financial
position for the Company relative to its historical position. The repurchases of
common stock are expected to result in the Company paying less total cash
dividends in relation to historical aggregate cash dividend amounts.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 30, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Sales
Net sales for the nine months ended March 30, 1997 decreased 4% or $41.7
million compared to the same period in the prior year. The primary reason for
this decline was a 7% decrease in engine unit shipments. This unit decrease is
the result of lawn and garden equipment manufacturers building products later
and as close as possible to the time they are needed by retailers. The Company's
largest customers have increased their peak production capacities which allows
them to concentrate more of their production in winter and early spring. This
resulted in reduced demand for engines for the nine months ended March 30, 1997
as compared to the same period in the prior year. Most of the volume decrease
was in the Company's small engines which have a lower selling price, and thus
there was a favorable price and mix impact of 3% which offset part of the unit
volume decline.
Gross Profit
Gross profit for the nine months ended March 30, 1997 decreased 4% or $7.0
million compared to the same period in the prior year due to the reduction in
sales. The gross profit rate was 19% in each nine-month period. For the nine
months ended March 30, 1997, the gross profit rate was negatively impacted by
increases in the unit price of aluminum totaling $1.8 million, increases in
warranty expenses totaling $4.8 million due to claims experience, and the
absence in the current nine-month period of the $3.5 million credit for
employees who had accepted early retirement and canceled their acceptance in the
second quarter of fiscal 1996. Savings from lower labor costs at the Company's
new engine plants fully offset the preceding factors impacting the gross profit
rate.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses for the nine
months ended March 30, 1997 increased 7% or $5.6 million compared to the same
period in the prior year. This increase was primarily due to increased salaries
of $1.2 million, and planned increases in manpower and other costs of $2.0
million relating to new venture activities.
Interest Expense
Interest expense decreased 10% or $.8 million for the nine months ended
March 30, 1997 compared to the same period in the prior year. This decrease was
due primarily to the impact of lower borrowings.
S-17
<PAGE> 18
Provision For Income Taxes
The effective income tax rate used in both periods was 38.0%, which
reflects management's estimate of the rate for the entire year.
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 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.
S-18
<PAGE> 19
FISCAL 1995 COMPARED TO FISCAL 1994
Sales
Sales increased 4% or $54.2 million in the 1995 fiscal year. Total sales in
1995 reached $1,340 million, a new record for the Company. The number of engines
sold increased 3% in this fiscal year. The unit sales increase was the primary
reason for the sales dollar change. The vast majority of the sales increase was
in export markets due to improving economies in Europe and better product
availability. There was a very small increase in domestic engine sales.
Service sales increased 17% between years. Lock sales declined between
years, as expected, because of the spin-off of the lock business after eight
months of the fiscal year.
Product mix changed in fiscal 1995. Sales moved from higher priced to lower
priced engines in the Company's small engine line. Increases in the Company's
large engine line which carries higher selling prices more than offset the
activity in the small engine line. A modest price increase also contributed to
improved sales revenues between years.
Gross Profit
Gross profit increased $5.1 million or 2% between years. The gross profit
rate declined from 21% in 1994 to 20% in 1995 primarily because of an early
retirement window offered to and elected by some members of the United
Paperworkers International Union Local 7232 as part of the contract agreement
reached in December 1994. The $19.1 million charge was reflected in the fourth
quarter of 1995 for a June or October 1995 window. Without this charge, the
Company's gross profit rate would have been higher in 1995.
The improvement in the gross profit rate, excluding the cost of the
retirement window, was the net result of several factors. The improvements in
sales discussed above, increased labor productivity amounting to $5.8 million,
the spreading of fixed costs over a larger number of engine units totaling $4.6
million, and lower profit sharing provisions of $4.0 million caused improvements
in the gross profit rate. These improvements were partially offset by the impact
of a significant increase in the unit price of aluminum totaling $14.9 million,
start-up costs at new plants amounting to $5.3 million, and accelerated
depreciation of $5.6 million on fixed assets not being moved to the new plants.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses increased $7.1
million or 7% between years. This was primarily due to increased marketing and
advertising expenses of $1.7 million, increased expenses in the Company's
foreign subsidiaries of $1.2 million resulting from the consolidation of certain
operations, increased engineering expenses of $1.1 million, spin-off related
expenses of $.8 million, and increased salaries of $.9 million.
Other Income
Other income increased $2.2 million primarily because of increased interest
income resulting from higher average cash balances between years. The decline in
cash balances occurred late in the fiscal year.
Provision For Income Taxes
The effective rate for the income tax provision was reduced from 39.6% in
1994 to 38.5% in 1995. This reduction was due to various miscellaneous
differences.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED MARCH 30, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Cash used in operating activities was $30.0 million during the nine months
ended March 30, 1997 and $31.2 million for the same period in the preceding
year. Seasonal increases in accounts receivable were $157.1 million in the nine
months ended March 30, 1997 and $179.2 million in the nine months ended March
31, 1996. This increase in accounts receivable was offset by funds generated by
net income before
S-19
<PAGE> 20
depreciation ($90.2 million in the nine months ended March 30, 1997 and $97.6
million in the nine months ended March 31, 1996) and an increase in accounts
payable and accrued liabilities ($67.0 million in the nine months ended March
30, 1997 and $45.8 million in the nine months ended March 31, 1996). The larger
increase in accrued liabilities in the nine months ended March 30, 1997 is
primarily attributable to lower payments of profit sharing accruals in that
period as compared to the same period in 1996.
Cash used in investing activities was $36.3 million in the nine months
ended March 30, 1997 and $64.3 million in the same period in 1996. This decrease
was caused by $12.9 million less of additions to plant and equipment in the nine
months ended March 30, 1997 as compared to the nine months ended March 31, 1996.
The first nine months of fiscal 1996 contained expenditures for four new plants
which were completed in that year. Proceeds received on the sale of plant and
equipment totaled $16.1 million in the nine months ended March 30, 1997 and $1.0
million in the nine months ended March 31, 1996. The nine-month 1997 amount
contains the proceeds received on the disposition of the Company's Menomonee
Falls facility, as described below. Management expects capital expenditures for
reinvestment in equipment and new products to total approximately $65 million in
the full 1997 fiscal year -- all expected to be financed from internal resources
and the Company's credit facility.
Cash used in financing activities totaled $21.2 million in the nine months
ended March 30, 1997 and $15.7 million in the nine months ended March 31, 1996.
The Company increased its short-term borrowings by $2.6 million in the nine
months ended March 30, 1997 and $7.6 million in the nine months ended March 31,
1996 to finance its seasonal working capital needs. Dividends were $23.4 million
and $22.6 million in the nine months ended March 30, 1997 and March 31, 1996,
respectively.
The Company will make the first of five annual installments on its 9.21%
notes in June 1997. The first installment of these payments will total $15.0
million and is shown as Current Maturities of Long-Term Debt in the financial
statements included elsewhere herein.
FISCAL YEARS 1996, 1995 AND 1994
Cash flow from operating activities was $94.5 million, $95.8 million and
$165.1 million, in fiscal 1996, 1995 and 1994, respectively. The primary source
of funds was from net income before the cumulative effect of accounting changes
and depreciation. The significant change between fiscal 1995 and fiscal 1994
amounts was due to an increase in inventories during fiscal 1995 as explained
below.
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. The fiscal 1994 cash flow from operating
activities reflects an increase in accounts payable, accrued liabilities and
income taxes of $38.1 million primarily due to the timing of payments.
Cash used in investing activities amounted to $76.7 million and $129.2
million in fiscal 1996 and 1995, respectively, and cash provided by investing
activities amounted to $36.9 million in fiscal 1994. Substantially all of the
fiscal 1996 and fiscal 1995 use of cash related to additions to plant and
equipment for the construction of three new engine manufacturing plants, a
foundry and plant expansions at existing facilities. The cash provided from
investing activities in fiscal 1994 reflects the sale of short-term investments
to fund the new plant expenditures previously discussed, offset by additions to
plant and equipment, primarily to maintain existing facilities.
Cash flows used in financing activities amounted to $37.6 million, $16.8
million and $21.2 million in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. The significant items were cash dividends of $30.4 million, $28.3
million, and $26.0 million, respectively. Fiscal 1996 cash used in financing
activities also reflects the
S-20
<PAGE> 21
repayment of foreign loans of $6.5 million. Fiscal 1995 and fiscal 1994 reflect
increased borrowings by the Company's foreign subsidiaries of $12.1 million and
$5.4 million, respectively, to fund working capital requirements.
Future Sources of Capital
In connection with the Offering and the 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. See "Description of Credit
Facility." 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.
Management believes that the new credit facility and cash generated from
operations will be adequate to fund the Company's working capital requirements
for the foreseeable future.
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 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 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 liability, 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 the deferred liability. 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 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 One 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 Two emission standards to be issued later in 1997 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 CARB has also adopted emission standards to be effective in two tiers.
Tier One was effective as of August 1995. Changes to engine models that were
necessary to comply with Tier One have been made. Recently CARB has granted the
Company's request that the California standard for carbon monoxide be modified
to harmonize it with that adopted by the EPA. As a result of this change, a
wider range of the Company's engines will meet California's current emission
standards. The costs to comply with the Tier One California standards did not
have a material adverse effect on the Company's financial position or results of
operations.
Tier Two of the CARB engine emission standards will not be effective until
1999 or later. CARB has directed its staff to review its Tier Two standards in
light of technological and economic issues raised by the industry. In the event
the Company is unable to comply with future standards and they remain unchanged,
the
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<PAGE> 22
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 October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This standard establishes financial accounting and reporting
standards for stock-based employee compensation. The Company adopted the pro
forma disclosure requirements of the statement, which will be presented in the
1997 financial statements and will continue to apply the accounting provisions
of Accounting Principles Board Opinion No. 25, as allowed by the new standard.
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 1997
financial statements. The impact of adoption of this standard will not be
material to the Company's results of operations.
OUTLOOK
Operations
The 1997 lawn and garden equipment selling season is off to a strong start
because of an early spring in the Southeast. Retailers are reporting significant
sales increases. Equipment manufacturers did not reach full production levels
until the second half of the Company's fiscal 1997 third quarter and will have
to maintain peak levels well into May to meet strong demand from retailers. If
favorable weather continues in the Southeast and spreads to the Midwest and
Northeast, the Company believes that it should have a good fiscal 1997 fourth
quarter. Management believes that unit shipments for the full fiscal year will
be up modestly from the 1996 fiscal year despite being down 7% for the nine
months ended March 30, 1997.
Early Retirement Window
The Company will offer an early retirement window in late fiscal 1997 in
accordance with the present union contract with its Milwaukee hourly employees.
It is unknown how many employees will accept this offer. All elections under
this window must be completed in June 1997. The Company has made preliminary
estimates of the cost of this window. Those estimates total approximately $40
million to $45 million before taxes which will be charged to earnings during the
last quarter of fiscal 1997.
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<PAGE> 23
DESCRIPTION OF CREDIT FACILITY
On April 18, 1997, the Company entered into a five-year, $250 million
revolving credit facility (the "Credit Facility") for purposes of partially
funding the Tender Offer and for general corporate purposes, including
commercial paper back-up.
On May 28, 1997, initial borrowings of $10 million by the Company were made
under the Credit Facility to fund a portion of the Tender Offer.
Borrowings under the Credit Facility by the Company bear interest at a rate
per annum equal to, at its option, either:
(i) the higher of (a) the rate of interest publicly announced from
time to time by the agent bank as its reference rate and (b) 0.5% per annum
above the federal funds rate; or
(ii) the interbank reserve adjusted rate for one, two, three or six
month eurocurrency deposits as quoted by the agent bank for deposits with
major international banks plus a margin that may be adjusted up or down
based on the Company's debt ratings.
The Credit Facility requires the Company to maintain minimum levels for the
following financial ratios: (i) total consolidated indebtedness to total capital
and (ii) consolidated net income plus interest expense plus income tax expense
to interest expense. The Credit Facility imposes limitations on (i) liens,
subsidiary indebtedness for money borrowed and sales of assets, (ii) mergers and
consolidations, (iii) loans, advances and contingent obligations, (iv) use of
proceeds, (v) transactions with affiliates and (vi) investments.
The Credit Facility contains certain default provisions, including, among
other things, (i) nonpayment of any amount due to the lenders under the Credit
Facility, (ii) material breach of representations and warranties, (iii) default
in the performance of covenants, (iv) bankruptcy or insolvency, (v) a change in
control or ownership of the Company and (vi) cross-default to other material
debt of the Company and its subsidiaries.
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<PAGE> 24
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Securities set forth in
the accompanying Prospectus, to which description reference is hereby made. The
statements herein concerning the Notes and the Indenture do not purport to be
complete. All such statements are qualified in their entirety by reference to
the accompanying Prospectus and the provisions of the Indenture, the form of
which has been filed with the Securities and Exchange Commission.
The Notes offered hereby constitute a single series of Securities to be
issued under an Indenture, dated as of June 4, 1997, between the Company and
Bank One, N.A. as Trustee (the "Trustee"). The Trustee will initially be the
Securities Registrar and Paying Agent (the "Paying Agent"). The Notes will be
issued only in registered form without coupons in denominations of $1,000 and
integral multiples thereof.
The Notes will be represented by one or more Global Securities (as defined
in the accompanying Prospectus) registered in the name of a nominee of DTC. The
ownership interests ("Book-Entry Interests") in such Global Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC or its nominee for such Global Securities and on the records
of DTC participants. Except as described below and in the accompanying
Prospectus, owners of Book-Entry Interests will not be considered the holders
thereof and will not be entitled to receive physical delivery of Notes in
definitive form. If the book-entry system is discontinued, including if DTC is
at any time unwilling or unable to continue as Depository, the Company will
issue individual Notes to owners of Book-Entry Interests in exchange for the
Global Securities. See "Description of Securities -- Book-Entry Securities" in
the accompanying Prospectus.
Settlement for the Notes will be made by the Underwriters in immediately
available funds, and all payments of principal, premium, if any, and interest on
the Notes will be made by the Company in immediately available funds.
The Notes will mature on September 15, 2007 and will be limited to $100
million aggregate principal amount. Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months and will be payable
semi-annually on each March 15 and September 15 (each, an "Interest Payment
Date"), commencing March 15, 1998. Interest payable on each Interest Payment
Date will include interest accrued from June 4, 1997 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
Interest payable on any Interest Payment Date will be payable to the person in
whose name a Note (or any predecessor Note) is registered at the close of
business on the March 1 or September 1, as the case may be, next preceding such
Interest Payment Date. Payments of principal, premium, if any, and interest to
owners of Book-Entry Interests are expected to be made in accordance with the
Depository's and its participants' procedures in effect from time to time.
Principal of, premium, if any, and interest on Notes in definitive form will be
payable at the office or agency of the Company maintained for such purpose in
New York, New York, which initially will be the office of an affiliate of the
Paying Agent.
The provisions of Sections 13.2 and 13.3 of the Indenture relating to
defeasance and covenant defeasance, described in the accompanying Prospectus
under "Description of Securities -- Defeasance and Covenant Defeasance," are
applicable to the Notes.
The Indenture does not contain covenants or other provisions designed to
afford holders of the Notes protection in the event of a highly leveraged
transaction, change in credit rating or other similar occurrence.
OPTIONAL REDEMPTION
The Notes are redeemable in whole or in part at any time at the option of
the Company at a redemption price (the "Redemption Price") equal to the greater
of (i) 100% of the principal amount of such Notes and (ii) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semi-annual basis assuming a
360-day year consisting of twelve 30-day months at the Treasury Rate plus 15
basis points, plus in each case accrued but unpaid interest thereon to the date
of redemption (the "Redemption Date"). The Notes will not be subject to any
sinking fund.
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<PAGE> 25
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the
Company.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (a) the average
of the Reference Treasury Dealer Quotations for such Redemption Date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(b) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Reference Treasury Dealer Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation and BancAmerica Securities, Inc. and their respective successors;
provided, however, that if any of the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"), the
Company will substitute another Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Notes to be redeemed.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date interest will cease to accrue on the Notes or portions
thereof called for redemption.
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<PAGE> 26
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated May 30, 1997 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation and BancAmerica Securities, Inc. are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Company the following respective principal amounts of the Notes.
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation...................... $ 50,000,000
BancAmerica Securities, Inc. ............................... 50,000,000
------------
Total.................................................. $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased. The Underwriting Agreement provides that, in the event of a default
by an Underwriter, in certain circumstances the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Notes to the public initially at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain dealers
at such price less a concession of 0.40% of the principal amount per Note and
the Underwriters and such dealers may allow a discount of 0.25% of the principal
amount per Note on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
The Notes are new issues of securities with no established trading market.
The Underwriters have advised the Company that one or both of them intends to
act as a market maker for the Notes. However, the Underwriters are not obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the Notes.
Certain of the Underwriters and their affiliates engage in transactions
with, and perform services for, the Company in the ordinary course of business,
including various investment banking and commercial banking services.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or contribute to payments which the Underwriters may be required to
make in respect thereof.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Notes in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the Representatives to
reclaim a selling concession from a syndicate member when the Notes originally
sold by such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Notes to be
higher than it would otherwise be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
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<PAGE> 27
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the Notes are effected. Accordingly, any resale of Notes in Canada
must be made in accordance with applicable securities laws, which will vary
depending on the relevant jurisdiction and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Notes in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Notes without the benefit
of a prospectus qualified under such securities laws, (ii) where required by
law, such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Notes to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any Notes
acquired by such purchaser pursuant to this offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from the Company. Only one such report
must be filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Notes in
their particular circumstances and with respect to the eligibility of the Notes
for investment by the purchaser under relevant Canadian legislation.
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<PAGE> 28
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the Notes
by the holders thereof. This summary does not purport to be a complete analysis
of all the potential federal income tax effects relating to the purchase,
ownership and disposition of the Notes. There can be no assurance that the
Internal Revenue Service (the "IRS") will take a similar view of such
consequences. Further, the discussion does not address all aspects of taxation
that may be relevant to particular purchasers in light of their individual
circumstances (including dealers in securities, insurance companies, financial
institutions, tax-exempt entities and other taxpayers who are subject to special
treatment under U.S. federal income tax laws). The discussion below assumes that
the Notes are held as capital assets and only addresses holders who are initial
purchasers of the Notes.
The discussion of the U.S. federal income tax consequences set forth below
is based upon currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations promulgated thereunder and
judicial and administrative interpretations, all of which are subject to change,
possibly with retroactive effect. Because individual circumstances may differ,
each prospective purchaser of the Notes is strongly urged to consult its own tax
advisor with respect to its particular tax situation and the particular tax
effects of any state, local, non-U.S., or other tax laws and possible changes in
the tax law.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
who or which is for U.S. federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or (iv) a "U.S. Trust." A U.S.
Trust is (a) for taxable years beginning after December 31, 1996, or if the
trustee of a trust elects to apply the following definition to an earlier
taxable year ending after August 20, 1996, any trust if, and only if, (i) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more U.S. trustees have the
authority to control all substantial decisions of the trust and (b) for all
other taxable years, any trust the income of which is subject to U.S. federal
income taxation regardless of its source. The term U.S. Holder also includes
certain former U.S. citizens whose income and gain on the Notes will be subject
to U.S. taxation. As used herein, the term "Non-U.S. Holder" means a beneficial
owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Interest paid on a Note will generally be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with the U.S. Holder's method of accounting for federal income tax purposes.
Upon the sale, exchange or retirement of a Note, a U.S. Holder will recognize
taxable gain or loss equal to the difference between the amount realized on the
sale, exchange or retirement (not including any amount attributable to accrued
but unpaid interest) and such holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will equal the cost of the Note to such
holder. Gain or loss realized on the sale, exchange or retirement of a Note by a
U.S. Holder will be capital gain or loss, and will be long-term capital gain or
loss if at the time of the sale, exchange or retirement the Note has been held
for more than one year. Net capital gain is taxed at a lower rate than ordinary
income for certain non-corporate taxpayers, but not for corporate taxpayers. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
NON-U.S. HOLDERS
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the U.S.
taxation of Non-U.S. Holders. The 1996 Proposed Regulations are generally
proposed to be effective for payments after December 31, 1997, regardless of the
issue date of the Note with respect to which such payments are made, subject to
certain transition rules. It cannot be predicted at this time whether the 1996
Proposed Regulations will become effective as proposed or what, if any,
modifications may be made to them. The discussion under this heading and under
"-- Backup Withholding" below, is not intended to be a complete discussion of
the provisions of the 1996 Proposed
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<PAGE> 29
Regulations, and prospective investors are urged to consult their tax advisors
with respect to the effect the 1996 Proposed Regulations may have if adopted.
Payments of interest on the Notes by the Company or any paying agent to a
beneficial owner of a Note that is a Non-U.S. Holder will not be subject to U.S.
federal withholding tax, provided that, (i) such holder does not own, actually
or constructively, 10 percent or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) such holder is not, for
U.S. federal income tax purposes, a controlled foreign corporation related,
directly or indirectly, to the Company through stock ownership, (iii) such
holder is not a bank receiving interest described in Section 881(c)(3)(A) of the
Code, and (iv) certain certification requirements (summarized below) are met. If
a Non-U.S. Holder of a Note is engaged in a trade or business in the United
States, and if interest on the Note is effectively connected with the conduct of
such trade or business (and, if certain tax treaties apply, is attributable to a
U.S. permanent establishment maintained by the Non-U.S. Holder) the Non-U.S.
Holder, although exempt from U.S. withholding tax, will generally be subject to
regular U.S. income tax on such interest in the same manner as if it were a U.S.
Holder. In addition, if such Non-U.S. Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments. For purposes of the branch profits
tax, interest on a Note will be included in the earnings and profits of such
Non-U.S. Holder if such interest is effectively connected with the conduct by
the Non-U.S. Holder of a trade or business in the United States.
Under current Treasury Regulations, in order to obtain the exemption from
withholding tax described in the first sentence of the preceding paragraph,
either (i) the beneficial owner of a Note must certify on IRS Form W-8 or a
substitute form that is substantially similar to Form W-8, under penalties of
perjury, to the Company or paying agent, as the case may be, that such owner is
a Non-U.S. Holder and must provide such owner's name and address or (ii) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the Note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to the Company or paying
agent, as the case may be, that such certificate has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and must furnish the payor with a copy thereof. A certificate
described in this paragraph is effective only with respect to payments of
interest made to the certifying Non-U.S. Holder after delivery of the
certificate in the calendar year of its delivery and the two immediately
succeeding calendar years. In lieu of the certificate described in this
paragraph, a Non-U.S. Holder engaged in a trade or business in the United States
(with which interest payments on the Note are effectively connected) must
provide to the Company a properly executed IRS Form 4224 in order to claim an
exemption from withholding tax.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations also add "intermediary certification" options for certain qualifying
withholding agents. Under one such option, a withholding agent would be allowed
to rely on IRS Form W-8 furnished by a financial institution or other
intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and thus is a
"qualified intermediary." Under another option, an authorized foreign agent of a
U.S. withholding agent would be permitted to act on behalf of the U.S.
withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8 and IRS Form 4224) with a single,
restated form (IRS Form W-8) and standardize the period of time for which
withholding agents could rely on such certifications.
Under current law, a Non-U.S. Holder of a Note generally will not be
subject to U.S. federal income tax on any gain recognized on the sale, exchange
or other disposition of such Note, unless (i) the gain is
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<PAGE> 30
effectively connected with the conduct of a trade or business in the United
States of the non-U.S. Holder (and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the Non-U.S.
Holder), or (ii) the Non-U.S. Holder is an individual who holds the Note as a
capital asset, is present in the United States for 183 days or more in the
taxable year of the disposition and either (a) such individual has a U.S. "tax
home" (as defined for U.S. federal income tax purposes) or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual. In the case of a Non-U.S. Holder that is
described under clause (i) above, its gain will be subject to the U.S. federal
income tax on net income that applies to U.S. persons and, in addition, if such
Non-U.S. Holder is a foreign corporation, it may be subject to the branch
profits tax. An individual Non-U.S. Holder that is described under clause (ii)
above will be subject to a flat 30% tax on any gain derived from the sale, which
may be offset by U.S. capital losses (notwithstanding the fact that he or she is
not considered a U.S. resident). Thus, individual Non-U.S. Holders who have
spent 183 days or more in the United States in the taxable year in which they
contemplate a sale of a Note are urged to consult their tax advisers as to the
tax consequences of such sale.
A Note held by an individual who is not a U.S. citizen or resident at the
time of his death will not be subject to U.S. federal estate tax as a result of
such individual's death, provided that, at the time of such individual's death,
the individual does not own, actually or constructively, 10 percent or more of
the total combined voting power of all classes of stock of the Company entitled
to vote and payments with respect to such Note would not have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current U.S. federal income tax law, information reporting
requirements apply to interest and principal payments made to, and to the
proceeds of sales before maturity by, certain non-corporate U.S. Holders. In
addition, a 31% backup withholding tax requirement applies to certain payments
of interest on, and the proceeds of a sale, exchange or redemption of, the
Notes.
Backup withholding will generally not apply with respect to payments made
to certain exempt recipients such as corporations or other tax-exempt entities.
In the case of a non-corporate U.S. Holder, backup withholding will apply only
if such holder (i) fails to furnish its taxpayer identification number ("TIN")
which for an individual would be his or her Social Security number, (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalties of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments.
In the case of a Non-U.S. Holder, under current Treasury Regulations,
backup withholding and information reporting will not apply to payments made by
the Company or any paying agent thereof on a Note if such holder has provided
the required certification under penalties of perjury that it is not a U.S.
Holder or has otherwise established an exemption, provided in each case that the
Company or such paying agent, as the case may be, does not have actual knowledge
that the payee is a U.S. Holder.
Under current Treasury Regulations, if payments on a Note are made to or
through a foreign office of a custodian, nominee or other agent acting on behalf
of a beneficial owner of a Note, such custodian, nominee or other agent will not
be required to apply backup withholding to such payments made to such beneficial
owner. In the case of payments made to or through the foreign office of a
custodian, nominee or other agent that is (i) a U.S. Person, (ii) a controlled
foreign corporation for U.S. tax purposes or (iii) a foreign person 50% or more
of the gross income of which for the three-year period ending with the close of
its taxable year preceding the year of payment is effectively connected with the
conduct of a trade or business within the United States, information reporting
(but not backup withholding) is required unless the custodian, nominee or other
agent has documentary evidence in its files that the payee is not a U.S. person
and certain other conditions are met, or the payee otherwise establishes an
exemption.
S-30
<PAGE> 31
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. In the case of proceeds from a sale
of a Note by a Non-U.S. Holder paid to or through the foreign office of a U.S.
broker or a foreign office of a foreign broker that is (i) a controlled foreign
corporation for U.S. tax purposes or (ii) a person 50% or more of the gross
income of which for the three-year period ending with the close of the taxable
year preceding the year of payment (or for the part of that period that the
broker has been in existence) is effectively connected with the conduct of a
trade or business within the United States, information reporting (but not
backup withholding) is required unless the broker has documentary evidence in
its files that the payee is not a U.S. person and certain other conditions are
met, or the payee otherwise establishes an exemption. Payments to or through the
U.S. office of a broker will be subject to backup withholding and information
reporting unless the holder certifies, under penalties of perjury, that it is
not a U.S. Holder and that certain other conditions are met or otherwise
establishes an exemption.
The 1996 Proposed Regulations would, if adopted, alter the foregoing rules
in certain respects. In particular, the 1996 Proposed Regulations would provide
certain presumptions under which Non-U.S. Holders may be subject to backup
withholding in the absence of required certifications.
Holders of Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against a holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-U.S. INCOME
TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will be
passed upon for the Company by Thomas R. Savage, General Counsel of the Company,
and by Mayer, Brown & Platt, Chicago, Illinois. Certain legal matters in
connection with the Notes offered hereby will be passed upon for the
Underwriters by Sidley & Austin, Chicago, Illinois. Mayer, Brown & Platt and
Sidley & Austin may rely upon the opinion of Mr. Savage as to Wisconsin law
matters.
S-31
<PAGE> 32
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Income for the years ended June
30, 1996, July 2, 1995 and July 3, 1994 and for the nine
months ended March 30, 1997 and March 31, 1996............ F-2
Consolidated Balance Sheets as of June 30, 1996, July 2,
1995 and March 30, 1997................................... F-3
Consolidated Statements of Shareholders' Investment for the
years ended June 30, 1996, July 2, 1995 and July 3, 1994
and for the nine months ended March 30, 1997.............. F-4
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, July 2, 1995 and July 3, 1994 and for the
nine months ended March 30, 1997 and March 31, 1996....... F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Public Accountants.................... F-19
</TABLE>
F-1
<PAGE> 33
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT AMOUNTS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------------ ---------------------------
JUNE 30, JULY 2, JULY 3, MARCH 30, MARCH 31,
1996 1995 1994 1997 1996
---------- ---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................ $1,287,029 $1,339,677 $1,285,517 $937,350 $979,035
COST OF GOODS SOLD................... 1,025,281 1,068,059 1,018,977 755,405 790,049
---------- ---------- ---------- -------- --------
Gross Profit on Sales......... 261,748 271,618 266,540 181,945 188,986
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............ 108,339 101,852 94,795 84,979 79,339
---------- ---------- ---------- -------- --------
Income from Operations........ 153,409 169,766 171,745 96,966 109,647
INTEREST EXPENSE..................... (10,069) (8,580) (8,997) (7,051) (7,855)
OTHER INCOME, Net.................... 5,712 9,189 6,973 3,551 4,418
---------- ---------- ---------- -------- --------
Income Before Provision for Income
Taxes........................... 149,052 170,375 169,721 93,466 106,210
PROVISION FOR INCOME TAXES........... 56,640 65,570 67,240 35,520 40,360
---------- ---------- ---------- -------- --------
Net Income Before Cumulative Effect
of Accounting Changes........... 92,412 104,805 102,481 57,946 65,850
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES FOR:
Postretirement Health Care, Net of
Income Taxes of $25,722......... -- -- (40,232) -- --
Postemployment Benefits, Net of
Income Taxes of $430............ -- -- (672) -- --
Deferred Income Taxes.............. -- -- 8,346 -- --
---------- ---------- ---------- -------- --------
-- -- (32,558) -- --
---------- ---------- ---------- -------- --------
NET INCOME........................... $ 92,412 $ 104,805 $ 69,923 $ 57,946 $ 65,850
========== ========== ========== ======== ========
PER SHARE DATA:
Net Income Before Cumulative Effect
of Accounting Changes........... $ 3.19 $ 3.62 $ 3.54 $ 2.00 $ 2.28
Cumulative Effect of Accounting
Changes......................... -- -- (1.12) -- --
---------- ---------- ---------- -------- --------
Net Income......................... $ 3.19 $ 3.62 $ 2.42 $ 2.00 $ 2.28
========== ========== ========== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-2
<PAGE> 34
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT AMOUNTS PER SHARE)
<TABLE>
<CAPTION>
JUNE 30, JULY 2, MARCH 30,
1996 1995 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................................. $150,639 $170,648 $ 62,871
Receivables, Less Reserves of $1,544, $1,537, and $1,508,
Respectively............................................ 119,346 94,116 276,405
Inventories --
Finished Products and Parts............................. 96,078 96,540 114,699
Work in Process......................................... 36,932 40,107 37,830
Raw Materials........................................... 4,393 4,027 4,866
-------- -------- --------
Total Inventories..................................... 137,403 140,674 157,395
Future Income Tax Benefits................................ 29,589 31,376 33,607
Prepaid Expenses.......................................... 19,410 16,516 13,571
-------- -------- --------
Total Current Assets.................................. 456,387 453,330 543,849
PREPAID PENSION COST........................................ 4,682 -- 8,471
DEFERRED INCOME TAX ASSET................................... 2,883 1,866 5,403
PURCHASED SOFTWARE.......................................... -- -- 10,217
PLANT AND EQUIPMENT:
Land and Land Improvements................................ 15,603 9,499 15,883
Buildings................................................. 147,670 105,844 149,466
Machinery and Equipment................................... 594,608 507,606 592,731
Construction in Progress.................................. 18,757 103,382 44,684
-------- -------- --------
776,638 726,331 802,764
Less -- Accumulated Depreciation and Unamortized
Investment Tax Credit................................... 402,426 383,034 410,871
-------- -------- --------
Total Plant and Equipment, Net........................ 374,212 343,297 391,893
-------- -------- --------
$838,164 $798,493 959,833
======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts Payable.......................................... $ 65,642 $ 63,913 $ 77,680
Domestic Notes Payable.................................... 5,000 6,750 5,000
Foreign Loans............................................. 14,922 19,653 17,533
Current Maturities of Long-Term Debt...................... 15,000 -- 15,000
Accrued Liabilities --
Wages and Salaries...................................... 25,488 44,900 37,403
Warranty................................................ 26,257 30,353 24,153
Other................................................... 31,187 33,564 52,789
-------- -------- --------
Total Accrued Liabilities............................. 82,932 108,817 114,345
Federal and State Income Taxes.......................... 6,683 (1,878) 30,231
-------- -------- --------
Total Current Liabilities............................. 190,179 197,255 259,789
ACCRUED PENSION COST........................................ -- 1,606 --
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT............. -- -- 15,981
ACCRUED EMPLOYEE BENEFITS................................... 18,431 16,447 19,982
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION............... 69,049 68,707 69,853
LONG-TERM DEBT.............................................. 60,000 75,000 60,000
COMMITMENTS AND CONTINGENCIES...............................
SHAREHOLDERS' INVESTMENT:
Common Stock --
Authorized 60,000 shares $.01 Par Value, Issued and
Outstanding 28,927...................................... 289 289 289
Additional Paid-In Capital................................ 40,898 41,698 40,533
Retained Earnings......................................... 459,666 397,627 494,181
Cumulative Translation Adjustments........................ (348) (136) (775)
-------- -------- --------
Total Shareholders' Investment........................ 500,505 439,478 534,228
-------- -------- --------
$838,164 $798,493 $959,833
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 35
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS OF DOLLARS EXCEPT AMOUNTS PER SHARE)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENTS
------ ---------- -------- -----------
<S> <C> <C> <C> <C>
BALANCES, JUNE 27, 1993.............................. $145 $42,883 $318,247 $(1,317)
Net Income......................................... -- -- 69,923 --
Cash Dividends Paid ($.90 per share)............... -- -- (26,034) --
Purchase of Common Stock for Treasury.............. -- (791) -- --
Proceeds from Exercise of Stock Options............ -- 266 -- --
Currency Translation Adjustments................... -- -- -- 470
---- ------- -------- -------
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) -- --
Proceeds from Exercise of Stock Options............ -- 399 -- --
Currency Translation Adjustments................... -- -- -- (515)
---- ------- -------- -------
BALANCES, JULY 2, 1995............................... 289 41,698 397,627 (136)
Net Income......................................... -- -- 92,412 --
Cash Dividends Paid ($1.05 per share).............. -- -- (30,373) --
Purchase of Common Stock for Treasury.............. -- (1,185) -- --
Proceeds from Exercise of Stock Options............ -- 385 -- --
Currency Translation Adjustments................... -- -- -- (212)
---- ------- -------- -------
BALANCES, JUNE 30, 1996.............................. 289 40,898 459,666 (348)
Net Income (Unaudited)............................. -- -- 57,946 --
Cash Dividends Paid ($.81 per share) (Unaudited)... -- -- (23,431) --
Purchase of Common Stock for Treasury
(Unaudited)..................................... -- (550) -- --
Proceeds from Exercise of Stock Options
(Unaudited)..................................... -- 185 -- --
Currency Translation Adjustments (Unaudited)....... -- -- -- (427)
---- ------- -------- -------
BALANCES, MARCH 30, 1997 (Unaudited)................. $289 $40,533 $494,181 $ (775)
==== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 36
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------ -------------------------
JUNE 30, JULY 2, JULY 3, MARCH 30, MARCH 31,
1996 1995 1994 1997 1996
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................... $ 92,412 $104,805 $ 69,923 $ 57,946 $ 65,850
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities --
Cumulative Effect of Accounting Changes, Net of
Income Taxes..................................... -- -- 32,558 -- --
Depreciation....................................... 43,032 44,445 42,950 32,278 31,704
(Gain) Loss on Disposition of Plant and
Equipment........................................ 2,692 1,452 (96) 2,201 1,318
Change in Operating Assets and Liabilities --
(Increase) Decrease in Receivables............... (25,230) 11,125 2,384 (157,059) (179,194)
(Increase) Decrease in Inventories............... 3,271 (62,753) (11,605) (19,992) 10,399
(Increase) in Other Current Assets............... (1,107) (4,720) (10,593) (1,864) (1,589)
Increase (Decrease) in Accounts Payable, Accrued
Liabilities and Income Taxes................... (15,595) (8,220) 38,132 66,999 45,780
Other, Net......................................... (4,979) 9,633 1,420 (10,486) (5,468)
-------- -------- -------- --------- ---------
Net Cash Provided By (Used in) Operating
Activities................................ 94,496 95,767 165,073 (29,977) (31,200)
-------- -------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment................... (77,746) (131,034) (40,804) (52,423) (65,341)
Proceeds Received on Sale of Plant and Equipment... 1,069 2,055 7,268 163 1,006
Sale of Short-Term Investments..................... -- -- 70,422 -- --
Proceeds Received on Sale of Menomonee Falls,
Wisconsin Facility............................... -- -- -- 15,981 --
Decrease in Cash Due to Spin-Off of Lock
Business......................................... -- (174) -- -- --
-------- -------- -------- --------- ---------
Net Cash Provided By (Used in) Investing
Activities................................ (76,677) (129,153) 36,886 (36,279) (64,335)
-------- -------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes
Payable.......................................... (6,481) 12,080 5,396 2,611 7,556
Cash Dividends Paid................................ (30,373) (28,348) (26,034) (23,431) (22,563)
Purchase of Common Stock for Treasury.............. (1,185) (915) (791) (550) (1,032)
Proceeds from Exercise of Stock Options............ 385 399 266 185 335
-------- -------- -------- --------- ---------
Net Cash (Used in) Financing Activities..... (37,654) (16,784) (21,163) (21,185) (15,704)
-------- -------- -------- --------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......................... (174) (283) 804 (327) (251)
-------- -------- -------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ (20,009) (50,453) 181,600 (87,768) (111,490)
CASH AND CASH EQUIVALENTS:
Beginning of Period................................ 170,648 221,101 39,501 150,639 170,648
-------- -------- -------- --------- ---------
End of Period...................................... $150,639 $170,648 $221,101 $ 62,871 $ 59,158
======== ======== ======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid...................................... $ 10,137 $ 8,501 $ 8,997 $ 7,051 $ 7,905
======== ======== ======== ========= =========
Income Taxes Paid.................................. $ 48,865 $ 88,935 $ 77,748 $ 17,766 $ 15,795
======== ======== ======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 37
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 1996 and
1995 fiscal years were 52 weeks long and the 1994 fiscal year was 53 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 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 30, 1996 and at July 2, 1995 and
89% at July 3, 1994. 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
$48,125,000, $43,582,000 and $42,268,000 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.
Investment Tax Credits: The Company follows the deferral method of
accounting for the Federal investment tax credit. The credit, which was
eliminated in 1986, has been recorded as an addition to accumulated depreciation
and is being amortized over the estimated useful lives of the related assets via
a reduction of depreciation expense.
The amounts amortized into income in each of the three years were $672,000
in 1996, $759,000 in 1995 and $830,000 in 1994. During 1995, $217,000 was
eliminated in the spin-off, as described in subsequent footnotes. At the end of
fiscal years 1996 and 1995, unamortized deferred investment tax credits
aggregated $1,577,000 and $2,249,000, respectively.
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
F-6
<PAGE> 38
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and tax bases of assets and liabilities. The Future Income Tax Benefits
represent temporary differences relating to current assets and current
liabilities and the Deferred Income Taxes 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 $12,737,000 in 1996, $13,112,000 in 1995 and $12,520,000 in 1994.
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.
Accrued Postretirement Health Care Obligation: During the 1994 fiscal year,
the Company adopted Financial Accounting Standard (FAS) No. 106 (Postretirement
Benefits Other Than Pensions). This change and the amounts associated with it
are more fully described in subsequent footnotes.
Advertising Costs: Advertising costs, included in Engineering, Selling,
General and Administrative Expenses on the accompanying Consolidated Statement
of Income, are expensed as incurred. These expenses totaled $7,066,000 in 1996,
$6,357,000 in 1995 and $5,411,000 in 1994.
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.
Derivatives: Potential gains and losses on foreign currency hedges with
controlled subsidiaries are carried on the balance sheet. Gains and losses
related to all other hedges of anticipated transactions are deferred and
recognized as adjustments of carrying amounts when the hedged transaction
occurs.
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.
Impairment of Assets: In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This new standard requires companies to assess the need for adjustment to
carrying values of assets when an indicator of impairment is present. The
Company adopted this standard during the 1996 fiscal year and determined that it
has no impaired assets.
Interim Period Financial Statements: In the opinion of management, the
unaudited consolidated financial statements contain all adjustments, all of
which are of a normal recurring nature, necessary to present fairly the
financial position as of March 30, 1997, and the results of operations and cash
flows for the nine months ended March 30, 1997 and March 31, 1996. Interim
financial results are not necessarily indicative of operating results for the
entire year.
F-7
<PAGE> 39
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INCOME TAXES:
The provision for income taxes consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current
Federal.......................................... $46,448 $67,255 $62,795
State............................................ 7,768 10,644 10,482
Foreign.......................................... 1,654 873 2,059
------- ------- -------
55,870 78,772 75,336
Deferred........................................... 770 (13,202) (8,096)
------- ------- -------
Total....................................... $56,640 $65,570 $67,240
======= ======= =======
</TABLE>
A reconciliation of the U.S. statutory tax rates to the effective tax rates
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Statutory Rate.................................... 35.0% 35.0% 35.0%
State Taxes, Net of Federal Tax Benefit................ 3.4% 3.5% 3.6%
Foreign Sales Corporation Tax Benefit.................. (.7)% (.6)% (.5)%
Other.................................................. .3% .6% 1.5%
---- ---- ----
Effective Tax Rate..................................... 38.0% 38.5% 39.6%
==== ==== ====
</TABLE>
At the beginning of fiscal year 1994, the Company adopted FAS No. 109
(Accounting For Income Taxes) which required a change in the recording of
deferred taxes. The former method emphasized provisions which were made in the
income statement. The emphasis in the new method is on the balance sheet and
requires that the amounts to be recorded are the amounts which will eventually
be paid out. The adoption of this standard resulted in a cumulative adjustment
which was recorded as income totaling $8,346,000 or $.29 per share.
The components of deferred tax assets and liabilities at the end of the
fiscal year were (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Future Income Tax Benefits:
Inventory.............................................. $ 2,518 $ 3,710
Prepaid Expenses....................................... (158) 167
Payroll Related Accruals............................... 4,658 4,153
Warranty Reserves...................................... 10,240 11,838
Other Accrued Liabilities.............................. 8,453 8,255
Miscellaneous.......................................... 3,878 3,253
-------- --------
$ 29,589 $ 31,376
======== ========
</TABLE>
F-8
<PAGE> 40
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred Income Taxes:
Difference Between Book and Tax Methods Applied to
Maintenance and Supply Inventories.................. $ 9,982 $ 6,618
Pension Cost........................................... (1,679) 400
Accumulated Depreciation............................... (41,768) (39,176)
Accrued Employee Benefits.............................. 7,232 6,469
Postretirement Health Care Obligation.................. 26,929 26,796
Miscellaneous.......................................... 2,187 759
-------- --------
$ 2,883 $ 1,866
======== ========
</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
$5,200,000 at June 30, 1996. 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>
1995 1994
---------- ----------
<S> <C> <C>
SALES --
Engines & Parts..................................... $1,276,264 $1,197,744
Locks............................................... 63,413 87,773
---------- ----------
$1,339,677 $1,285,517
========== ==========
INCOME FROM OPERATIONS --
Engines & Parts..................................... $ 162,903 $ 158,900
Locks............................................... 6,863 12,845
---------- ----------
$ 169,766 $ 171,745
========== ==========
ASSETS --
Engines & Parts..................................... $ 798,493 $ 467,561
Locks............................................... -- 46,832
Unallocated......................................... -- 262,962
---------- ----------
$ 798,493 $ 777,355
========== ==========
DEPRECIATION EXPENSE --
Engines & Parts..................................... $ 42,746 $ 40,605
Locks............................................... 1,699 2,345
---------- ----------
$ 44,445 $ 42,950
========== ==========
EXPENDITURES FOR PLANT AND EQUIPMENT --
Engines & Parts..................................... $ 124,604 $ 37,398
Locks............................................... 6,430 3,406
---------- ----------
$ 131,034 $ 40,804
========== ==========
</TABLE>
F-9
<PAGE> 41
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1996.
The preceding Sales, Income From Operations, Depreciation Expense and
Expenditures For Plant and Equipment reflect 1995 data for the lock business
from the beginning of the fiscal year to the date of spin-off.
Unallocated assets include cash and cash equivalents, short-term
investments, future income tax benefits, prepaid pension costs and other assets.
Export sales for fiscal 1996 were $323,747,000 (25% of total sales), for
fiscal 1995 were $312,234,000 (23%) and for fiscal 1994 were $264,866,000 (21%).
These sales were principally to customers in European countries.
In the fiscal years 1996, 1995 and 1994, 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>
1996 1995 1994
--------------- --------------- ---------------
CUSTOMER SALES % SALES % SALES %
- -------- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
A.......................... $267,257 21% $237,241 18% $234,363 18%
B.......................... 177,314 14% 155,072 12% 148,091 12%
C.......................... 163,065 13% 189,916 14% 149,397 12%
-------- --- -------- --- -------- ---
$607,636 48% $582,229 44% $531,851 42%
======== === ======== === ======== ===
</TABLE>
(5) INDEBTEDNESS:
The Company had access to domestic lines of credit totaling $47,000,000 at
June 30, 1996. These lines will remain available until cancelled by either
party. They provide amounts for short-term use at the then prevailing rate.
There are no significant compensating balance requirements and no borrowings at
June 30, 1996 using these lines of credit.
The following data relates to domestic notes payable:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance at Fiscal Year End............................ $5,000,000 $6,750,000
Weighted Average Interest Rate at Fiscal Year End..... 6.10% 5.00%
</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 $18,500,000, expire at various times
through November, 1997 and are renewable. None of these arrangements had
material commitment fees or compensating balance requirements.
The following information relates to the foreign loans:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at Fiscal Year End.......................... $14,922,000 $19,653,000
Weighted Average Interest Rate at Fiscal Year End... 4.60% 5.80%
</TABLE>
F-10
<PAGE> 42
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's long-term debt consists of 9.21% Senior Notes 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 $200,000,000 minimum net worth and set certain
restrictions on the sale or collateralizing of the Company's assets.
(6) OTHER INCOME (EXPENSE):
The components of other income (expense) are (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest Income.................................... $ 4,477 $ 6,840 $ 3,527
Gain on Sale of German Land and Buildings.......... -- -- 2,819
Loss on the Disposition of Plant and Equipment..... (2,692) (1,452) (2,723)
Income From Joint Ventures......................... 2,957 2,842 2,307
Other Items........................................ 970 959 1,043
------- ------- -------
Total......................................... $ 5,712 $ 9,189 $ 6,973
======= ======= =======
</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 $13,000,000 at the end of fiscal 1996.
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 30, 1996, the reserve for product and
general liability claims was $6.5 million based on available information. There
is inherent uncertainty as to the eventual resolution of unsettled claims. The
Company, however, believes that any losses in excess of established reserves
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company has no material commitments for materials or capital
expenditures at June 30, 1996.
(8) STOCK OPTIONS:
In 1990, shareholders approved the Stock Incentive Plan under which 400,000
shares of the Company's common stock were reserved for issuance. In fiscal 1994,
shareholders approved an additional 1,250,000 shares for issuance under the
Plan, bringing the total shares reserved for issuance to 1,650,000. In fiscal
1995, pursuant to the terms of the Plan, the number of shares reserved for
issuance was adjusted to 3,361,935 to reflect the two-for-one stock split and
the spin-off of its lock business.
F-11
<PAGE> 43
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information on the options outstanding is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING IN NUMBER OF
COMMON STOCK SHARES
---------------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Balance, Beginning of Year...................... 1,169,620 606,864 390,184
Granted During the Year --
1994 at $48.369............................... -- -- 253,420
1995 at $45.854............................... -- 552,000 --
1996 at $49.080............................... 600,000 -- --
Increase Due to Spin-off........................ -- 83,843 --
Exercised During the Year....................... (65,089) (43,827) (19,000)
Terminated During the Year...................... -- (29,260) (17,740)
--------- --------- -------
Balance, End of Year............................ 1,704,531 1,169,620 606,864
========= ========= =======
</TABLE>
GRANT SUMMARY
<TABLE>
<CAPTION>
OPTIONS EXPIRATION
FISCAL YEAR GRANT DATE EXERCISE PRICE(A) DATE EXERCISABLE OUTSTANDING DATE
----------- ---------- ----------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1990 2-20-90 $13.014 50%, 1-1-94; 6,782 2-19-00
50%, 1-1-95
1991 2-19-91 14.524 50%, 1-1-95; 90,613 2-18-01
50%, 1-1-96
1992 5-18-92 21.525 50%, 1-1-96; 181,546 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 8-7-95 49.080 8-7-98 600,000 8-7-00
</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.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This standard establishes
financial accounting and reporting standards for stock-based employee
compensation. The Company plans to adopt the pro forma disclosure requirements
of the statement, and will continue to apply the accounting provisions of
Accounting Principles Board Opinion No. 25, as allowed by the new standard. This
disclosure will be effective for the fiscal 1997 financial statements.
(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.
F-12
<PAGE> 44
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS AND POSTRETIREMENT COSTS:
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
--------------------------------- -----------------------------
1996 1995 1994 1996 1995 1994
--------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Service Cost-Benefits Earned
During the Year................. $ 13,143 $ 15,098 $ 13,079 $ 456 $ 453 $ 296
Interest Cost on Projected Benefit
Obligation...................... 41,722 39,877 36,408 926 904 706
Actual Return on Plan Assets...... (104,872) (89,941) (7,152) (9) (3) (3)
Net Amortization, Deferral and
Windows......................... 51,830 37,078 (42,978) 462 333 380
--------- -------- -------- ------- ------- -------
Net Periodic Pension Expense
(Income)........................ $ 1,823 $ 2,112 $ (643) $ 1,835 $ 1,687 $ 1,379
========= ======== ======== ======= ======= =======
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.......................... $ 413,035 $389,117 $359,383 $ 8,286 $ 7,991 $ 6,560
Non-Vested...................... 34,268 36,144 34,382 21 6 23
--------- -------- -------- ------- ------- -------
Accumulated Benefit Obligation.... 447,303 425,261 393,765 8,307 7,997 6,583
Effect of Projected Future Wage
and Salary Increases............ 120,083 124,651 112,771 4,766 4,679 3,267
--------- -------- -------- ------- ------- -------
Projected Benefit Obligation...... 567,386 549,912 506,536 13,073 12,676 9,850
Plan Assets at Fair Market
Value........................... 681,819 609,385 560,585 126 100 103
--------- -------- -------- ------- ------- -------
Plan Assets in Excess of (Less
Than) Projected Benefit
Obligation...................... 114,433 59,473 54,049 (12,947) (12,576) (9,747)
Remaining Unrecognized Net
Obligation (Asset) Arising from
the Initial Application of SFAS
No. 87.......................... (31,321) (36,902) (43,776) 179 258 336
Unrecognized Net Loss (Gain)...... (75,983) (21,992) (502) 4,494 5,277 3,416
Unrecognized Prior Service Cost... (2,447) (2,185) (1,090) 1,029 1,102 1,176
--------- -------- -------- ------- ------- -------
Prepaid (Accrued) Pension Cost.... $ 4,682 $ (1,606) $ 8,681 $(7,245) $(5,939) $(4,819)
========= ======== ======== ======= ======= =======
</TABLE>
As part of the spin-off of the lock business as described in Note 4, the
Company's pension trust transferred $15,872,000 in plan assets to STRATTEC
SECURITY CORPORATION in 1995. This resulted in an increase of $5,000,000 in the
prepaid pension cost account due to the Company transferring certain benefit
obligations and unrecognized amounts.
F-13
<PAGE> 45
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 the portion of fiscal 1996
in which the plan was in effect, the cost to the Company was $757,000.
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 $2,825,000 in 1996, $1,756,000 in 1995 and $1,630,000 in
1994.
At the beginning of fiscal year 1994, the Company adopted two Financial
Accounting Standards as follows:
FAS 106 -- Postretirement Benefits Other Than Pensions --
This standard requires that the Company record the expected cost of health
care and life insurance benefits during the years that the employees render
service -- a significant change from the preceding method which recognized
health care benefits on a cash basis. Postretirement life insurance benefits
were previously being accounted for in a manner substantially emulating the new
standards, so no adjustment was necessary. The cumulative effect of this change
in accounting for postretirement health care benefits was a charge totaling
$65,954,000 on a before tax basis or $40,232,000 on an after tax basis ($1.39
per share).
For measurement purposes, a 10.5% annual rate of increase in the per capita
cost of covered health care claims was assumed for the years 1995 through 1997,
decreasing gradually to 6% for the year 2007. The health care cost trend rate
assumption has a significant effect on the amounts reported. The rates, if
increased by one percentage point, would add $7,172,000 to the accumulated
postretirement benefit and $846,000 to the service and interest cost 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.
F-14
<PAGE> 46
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the accumulated postretirement benefit obligations were
(in thousands of dollars):
<TABLE>
<CAPTION>
HEALTH CARE
------------------
1996 1995
------- -------
<S> <C> <C>
Retirees................................................... $33,044 $33,801
Fully Eligible Plan Participants........................... 4,077 4,990
Other Active Participants.................................. 32,628 34,616
------- -------
$69,749 $73,407
Unrecognized Net Obligation................................ -- --
Unrecognized Gain.......................................... 4,000 --
------- -------
$73,749 $73,407
Less Current Portion....................................... 4,700 4,700
------- -------
$69,049 $68,707
======= =======
</TABLE>
<TABLE>
<CAPTION>
LIFE INSURANCE
------------------
1996 1995
------- -------
<S> <C> <C>
Retirees................................................... $ 8,840 $ 8,553
Fully Eligible Plan Participants........................... 2,226 1,453
Other Active Participants.................................. 1,736 1,588
------- -------
$12,802 $11,594
Unrecognized Net Obligation................................ (553) (600)
Unrecognized Prior Service Cost............................ (898) --
Unrecognized Loss.......................................... (908) (1,096)
------- -------
$10,443 $ 9,898
Less Current Portion....................................... -- --
------- -------
$10,443 $ 9,898
======= =======
</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.
F-15
<PAGE> 47
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic postretirement costs recorded were (in thousands of
dollars):
<TABLE>
<CAPTION>
HEALTH CARE
----------------
1996 1995
------ ------
<S> <C> <C>
Service Cost-Benefits Attributed to Service During the
Year...................................................... $1,596 $1,680
Interest Cost on Accumulated Benefit Obligation............. 5,480 5,150
Other....................................................... (91) --
------ ------
$6,985 $6,830
====== ======
</TABLE>
<TABLE>
<CAPTION>
LIFE INSURANCE
----------------
1996 1995
------ ------
<S> <C> <C>
Service Cost-Benefits Attributed to Service During the
Year...................................................... $ 90 $ 73
Interest Cost on Accumulated Benefit Obligation............. 947 801
Other....................................................... 118 47
------ ------
$1,155 $ 921
====== ======
</TABLE>
FAS 112 -- Postemployment Benefits --
This standard was also adopted in fiscal 1994 and required that the Company
record the expected cost of postemployment benefits (not to be confused with the
postretirement benefits described in the preceding paragraphs), also over the
years that employees render service. These benefits are substantially smaller
amounts because they apply only to employees who permanently terminate
employment prior to retirement. The cumulative effect of this change was a
charge totaling $1,102,000 or $672,000 after taxes ($.02 per share). There will
be no significant increase in the annual costs of these plans.
The items included in this amount are disability payments, life insurance
and medical benefits, and these amounts are also discounted using a 7.75%
interest rate.
The balance in this reserve at the end of fiscal 1996 was $1,245,000 and at
the end of fiscal 1995 was $1,106,000. Both were included in the caption Accrued
Employee Benefits in the accompanying balance sheets.
(11) 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.
F-16
<PAGE> 48
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
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, Including Current Maturities............. $ 75,000 $ 77,365
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Cash and Cash Equivalents................................ $170,648 $170,648
Domestic Notes Payable................................... 6,750 6,750
Foreign Loans............................................ 19,653 19,653
Long-Term Debt........................................... $ 75,000 $ 81,500
</TABLE>
(12) STOCK SPLIT:
On October 19, 1994, shareholders approved a doubling of the authorized
shares of common stock to 60,000,000. This allowed the Company to effect a
2-for-1 stock split previously authorized by the Board of Directors. The
distribution on November 14, 1994 increased the number of shares outstanding
from 14,463,500 to 28,927,000. The amount of $144,000 was transferred from the
additional paid-in capital account to the common stock account to record this
distribution. All per share amounts in this report have been restated to reflect
this stock split.
(13) FOREIGN EXCHANGE RISK MANAGEMENT:
The Company enters into forward exchange contracts to hedge purchase and
sale 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 4.8
billion Japanese yen for $46 million through June, 1997. 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 1996 fiscal year. The amount deferred was a loss of approximately $2.3
million.
The Company's foreign subsidiaries have the following forward currency
contracts outstanding at the end of fiscal 1996:
<TABLE>
<CAPTION>
LATEST
LOCAL U.S. EXPIRATION
CURRENCY CURRENCY DOLLARS DATE
-------- -------- ------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
German Deutschemarks........................... 1.9 1.3 July, 1996
Canadian Dollars............................... 4.8 3.5 June, 1997
</TABLE>
There are no significant gains or losses included in the above amounts.
F-17
<PAGE> 49
BRIGGS & STRATTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
NET
QUARTER NET GROSS INCOME
ENDED SALES PROFIT (LOSS)
- ------- ----- ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
FISCAL 1997
September..................................... $ 161,731 $ 17,969 $ (5,262)
December...................................... 299,664 56,857 16,694
March......................................... 475,955 107,119 46,514
---------- -------- --------
Nine Month Total......................... $ 937,350 $181,945 $ 57,946
========== ======== ========
FISCAL 1996
September..................................... $ 189,477 $ 19,141 $ (3,300)
December...................................... 329,357 65,763 23,924
March......................................... 460,201 104,082 45,226
June.......................................... 307,994 72,762 26,562
---------- -------- --------
Total.................................... $1,287,029 $261,748 $ 92,412
========== ======== ========
FISCAL 1995
September..................................... $ 227,845 $ 39,799 $ 11,424
December...................................... 366,717 83,524 33,713
March......................................... 450,163 105,438 47,331
June.......................................... 294,952 42,857 12,337
---------- -------- --------
Total.................................... $1,339,677 $271,618 $104,805
========== ======== ========
</TABLE>
(15) SUBSEQUENT EVENT (UNAUDITED):
The sale of the Company's Menomonee Falls, Wisconsin facility for
approximately $16.0 million was completed on September 30, 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 Standard 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 liability, 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 the deferred
liability. 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.
F-18
<PAGE> 50
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 30,
1996 and July 2, 1995, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended June 30, 1996. 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 30, 1996 and July 2, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Notes 3 and 10 to the consolidated financial statements,
effective at the beginning of the 1994 fiscal year, the Company changed its
methods of accounting for postretirement benefits other than pensions,
postemployment benefits and income taxes.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
August 7, 1996.
F-19
<PAGE> 51
PROSPECTUS
BRIGGS & STRATTON CORPORATION
$175,000,000
DEBT SECURITIES
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Briggs & Stratton Corporation, a Wisconsin corporation (the "Company"),
intends from time to time to issue its unsecured and unsubordinated debt
securities (the "Securities") from which the Company will receive up to an
aggregate amount of $175,000,000 in proceeds (or its equivalent in foreign
currencies or currency units). The Securities will be offered for sale in
amounts, at prices and on terms to be determined when an agreement to sell is
made or at the time of sale, as the case may be. The Securities may be sold for
U.S. dollars, foreign denominated currency or European Currency Units ("ECUs"),
and principal of and any interest on the Securities may likewise be payable in
U.S. dollars, foreign denominated currency or ECUs. For each issue of Securities
in respect of which this Prospectus is being delivered (the "Offered
Securities"), there is an accompanying Prospectus Supplement (the "Prospectus
Supplement") that sets forth the title, designation, aggregate principal amount,
designated currency or currency units, rate (which may be fixed or variable) or
method of calculation of interest and dates for payment thereof, maturity,
priority, premium, if any, authorized denominations, initial price, any
redemption or prepayment rights at the option of the Company or the holder, any
terms for sinking fund payments, any listing on a securities exchange and the
initial public offering price, the form of the Securities (which may be in
registered or permanent global form) and other special terms of the Offered
Securities, together with the terms of the offering of the Offered Securities
and the net proceeds to the Company from the sale thereof.
The Securities will be sold directly, through agents designated from time
to time, through underwriters or dealers, or through a combination of those
methods of sale. If any agents of the Company or any underwriters are involved
in the sale of the Offered Securities in respect of which this Prospectus is
being delivered, the names of such agents or underwriters and any applicable
commissions and discounts are set forth in the Prospectus Supplement.
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THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is May 30, 1997
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS
SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES TO ANY PERSON IN
ANY JURISDICTION TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such information can be obtained by mail from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The common stock of
the Company is listed on the New York Stock Exchange and reports, proxy
statements and other information concerning the Company can also be inspected at
the office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. Such information may also be accessed electronically by means of the
Commission's home page on the World Wide Web located at http://www.sec.gov.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the Securities.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company under the Exchange Act with
the Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996;
(2) The Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended September 29, 1996, December 29, 1996 and March 30, 1997; and
(3) The Company's Current Reports on Form 8-K dated August 7, 1996 and
April 16, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered hereby shall be deemed to
be incorporated in this Prospectus by reference and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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The Company will provide, without charge, upon the written or oral request
by any person to whom this Prospectus is delivered, a copy of any or all of the
documents incorporated by reference in this Prospectus, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into such documents). Such requests should be directed to: Robert H. Eldridge,
Executive Vice President and Chief Financial Officer, Secretary -- Treasurer,
Briggs & Stratton Corporation, P.O. Box 702, Milwaukee, Wisconsin 53201-0702
(telephone (414) 259-5333).
THE COMPANY
The Company 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 worldwide. These
engines are aluminum alloy gasoline engines ranging from 3 through 25
horsepower. The Company's engines are primarily used in a variety of lawn and
garden applications, including walk-behind lawn mowers, riding lawn mowers and
tillers. The Company's engines are also used in many commercial products for
both industrial and consumer applications, including generators, pumps and
compressors.
The Company also manufactures replacement engines and service parts, and
sells them to central sales and service distributors. 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 the Company's commitment to
reliability and service.
USE OF PROCEEDS
Except as otherwise set forth in the Prospectus Supplement relating to the
Offered Securities, the net proceeds to be received by the Company from the sale
of the Securities will be used for general corporate purposes, including
repayment of indebtedness, expansion of existing businesses and investments in
related business opportunities as they may arise. Pending such use, the net
proceeds may be temporarily invested in short-term instruments.
DESCRIPTION OF SECURITIES
The Securities are to be issued under an Indenture (the "Indenture")
between the Company and Bank One, N.A., as Trustee (the "Trustee"), a copy of
which is filed as an exhibit to the Registration Statement. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain terms.
Wherever particular Sections or defined terms of the Indenture are referred to,
such Sections or defined terms are incorporated herein by reference.
The following sets forth certain general terms and provisions of the
Securities offered hereby. The particular terms of the Securities offered by any
Prospectus Supplement (the "Offered Securities") will be described in the
Prospectus Supplement relating to such Offered Securities (the "Applicable
Prospectus Supplement").
GENERAL
The Indenture does not limit the amount of Securities that may be issued
thereunder, and Securities may be issued thereunder from time to time in one or
more series. The Securities will be unsecured and unsubordinated obligations of
the Company and will rank equally and ratably with other unsecured and
unsubordinated obligations of the Company.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of, premium, if any, and interest on the Securities will be payable,
and the transfer of Securities will be registrable, at the office or agency to
be maintained by the Company in New York, New York, and at any other office or
agency maintained by the Company for such purpose. The Securities will be issued
only in fully registered form without coupons and, unless otherwise indicated in
the Applicable Prospectus Supplement, in denominations
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of $1,000 and integral multiples thereof. No service charge will be made for any
registration of transfer or exchange of the Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
The Applicable Prospectus Supplement will describe the following terms of
the Offered Securities: (1) the title of the Offered Securities; (2) any limit
on the aggregate principal amount of the Offered Securities; (3) the Person to
whom any interest on the Offered Securities shall be payable, if other than the
person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest; (4) the date or dates on which the principal of the Offered Securities
is payable; (5) the rate or rates (which may be fixed or variable) at which the
Offered Securities will bear interest, if any, or the method by which such rate
or rates will be determined, the date or dates from which any such interest will
accrue, the Interest Payment Dates on which any such interest will be payable
and the Regular Record Date for the interest payable on any Interest Payment
Date; (6) the place or places where the principal of and any premium and
interest on the Offered Securities will be payable; (7) the period or periods
within which, the price or prices at which and the terms and conditions upon
which the Offered Securities may be redeemed, in whole or in part, at the option
of the Company; (8) the obligation, if any, of the Company to redeem, purchase
or repay the Offered Securities pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods within
which, the price or prices at which and the terms and conditions upon which the
Offered Securities will be redeemed, purchased or repaid, in whole or in part,
pursuant to such obligation; (9) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which the Offered Securities
will be issuable; (10) the currency, currencies or currency units in which
payment of the principal of and any premium and interest on any Offered
Securities will be payable if other than the currency of the United States of
America; (11) if the amount of payments of principal of or any premium or
interest on any Offered Securities may be determined with reference to an index
or formula, the manner in which such amounts will be determined; (12) if the
principal of or any premium or interest on any Offered Securities is to be
payable, at the election of the Company or a Holder thereof, in one or more
currencies or currency units other than that or those in which the Offered
Securities are stated to be payable, the currency, currencies or currency units
in which payment of the principal of and any premium and interest on the Offered
Securities as to which such election is made will be payable, and the periods
within which and the terms and conditions upon which such election is to be
made; (13) the applicability, if any, of the provisions described under
"Defeasance and Covenant Defeasance;" (14) whether the Offered Securities will
be issuable, in whole or in part, in the form of one or more Book-Entry
Securities as described under "Book-Entry Securities," and, in such case, the
depository appointed by the Company or its nominee with respect to the Offered
Securities and the circumstances under which the Book-Entry Security may be
registered for transfer or exchange or authenticated and delivered in the name
of a Person other than the Depository or its nominee; (15) if other than the
principal amount thereof, the portion of the principal amount of the Offered
Securities which will be payable upon declaration of acceleration of the
Maturity thereof; and (16) any other terms of the Offered Securities.
The Securities may be issued as Original Issue Discount Securities to be
offered and sold at a substantial discount below their stated principal amount.
Federal income tax consequences and other special considerations applicable to
Original Issue Discount Securities and any Securities treated as having been
issued with original issue discount for federal income tax purposes will be
described in the Applicable Prospectus Supplement. "Original Issue Discount
Securities" means any Security which provides for an amount less than the
principal amount thereof to be due and payable upon the declaration of
acceleration of the Maturity thereof upon the occurrence of an Event of Default
and the continuation thereof.
The Indenture does not contain covenants or other provisions designed to
afford holders of the Securities protection in the event of a highly leveraged
transaction, change in credit rating or other similar occurrence.
BOOK-ENTRY SECURITIES
Unless otherwise provided in the Prospectus Supplement, the Securities will
be represented by one or more certificates (the "Global Securities"). The Global
Security representing Securities will be deposited with, or on behalf of, The
Depository Trust Company ("DTC"), or other successor depository appointed by
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the Company (DTC or such other depository being the "Depository") and registered
in the name of the Depository or its nominee. Unless otherwise provided in the
Prospectus Supplement, Securities will not be issued in definitive form. If the
aggregate principal amount of any issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The Rules applicable to DTC and its Participants are on file
with the Commission.
Upon the issuance by the Company of Securities represented by a Global
Security, purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
the Global Security.
So long as the Depository for the Global Security, or its nominee, is the
registered owner of the Global Security, the Depository or its nominee, as the
case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes under the Indenture. Except
as provided below, owners of beneficial interests in Securities represented by
the Global Security will not be entitled to have Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Securities in definitive form and will not be
considered the owners or holders thereof under the applicable Indenture.
To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Securities.
Under its usual procedures, DTC mails an Omnibus Proxy to the Company as soon as
possible after the record date. The Omnibus Proxy
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assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Payments of principal of, premium, if any, and interest on the Securities
represented by the Global Security registered in the name of DTC or its nominee
will be made by the Company through the Trustee under the Indenture or a paying
agent (the "Paying Agent"), which may also be the Trustee under the Indenture,
to DTC or its nominee, as the case may be, as the registered owner of the Global
Security. Neither the Company, the Trustee, nor the Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company has been advised that DTC, upon receipt of any payment of
principal, premium, if any, and interest in respect of a Global Security, will
credit Direct Participants' accounts on the payable date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on the payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Paying Agent or the
Company, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and interest to DTC is
the responsibility of the Company or the Paying Agent, disbursement of such
payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
If the Depository with respect to a Global Security is at any time
unwilling or unable to continue as Depository and a successor Depository is not
appointed by the Company within 90 days, the Company will issue certificated
notes in exchange for the Securities represented by such Global Security.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTAIN COVENANTS OF THE COMPANY
Restrictions on Secured Funded Debt. The Indenture provides that the
Company will not, nor will it permit any Restricted Subsidiary to, incur, issue,
assume, guarantee or create any Secured Funded Debt, without effectively
providing concurrently with the incurrence, issuance, assumption, guaranty or
creation of any such Secured Funded Debt that the Outstanding Securities
(together with, if the Company shall so determine, any other Indebtedness of the
Company or such Restricted Subsidiary then existing or thereafter created which
is not subordinated to the Outstanding Securities) will be secured equally and
ratably with (or prior to) such Secured Funded Debt, so long as such Secured
Funded Debt will be secured by a Lien, unless, after giving effect thereto, the
sum of the aggregate amount of all outstanding Secured Funded Debt of the
Company and its Restricted Subsidiaries together with all Attributable Debt in
respect of sale and leaseback transactions relating to a Principal Property
(with the exception of Attributable Debt which is excluded pursuant to clauses
(1) to (6) described under "Limitations on Sales and Leasebacks" below), would
not exceed 15% of Consolidated Net Tangible Assets; provided, however, that this
restriction will not apply to, and there will be excluded from Secured Funded
Debt in any computation under this restriction, Funded Debt secured by: (1)
Liens on property, shares of capital stock or indebtedness of any corporation
existing at the time such corporation becomes a Subsidiary; (2) Liens on
property, shares of capital stock or indebtedness existing at the time of
acquisition thereof or incurred within 180 days of the time of acquisition
thereof (including, without limitation, acquisition through merger or
consolidation) by the Company or any Restricted Subsidiary; (3) Liens on
property, shares of capital stock or indebtedness thereafter acquired (or
constructed) by the Company or any Restricted Subsidiary and created prior to,
at the time of, or within 270 days after such acquisition (including, without
limitation, acquisition through merger or consolidation) (or the completion of
such construction or commencement of commercial operation of such property,
whichever is later) to secure or provide for the payment of all or any part of
the purchase price (or the construction price)
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thereof; (4) Liens in favor of the Company or any Restricted Subsidiary; (5)
Liens in favor of the United States of America, any State thereof or the
District of Columbia, or any agency, department or other instrumentality
thereof, to secure partial, progress, advance or other payments pursuant to any
contract or provisions of any statute; (6) Liens incurred or assumed in
connection with the issuance of revenue bonds the interest on which is exempt
from Federal income taxation pursuant to Section 103(b) of the Internal Revenue
Code; (7) Liens securing the performance of any contract or undertaking not
directly or indirectly in connection with the borrowing of money, the obtaining
of advances or credit or the securing of Funded Debt, if made and continuing in
the ordinary course of business; (8) Liens incurred (no matter when created) in
connection with the Company's or a Restricted Subsidiary's engaging in leveraged
or single-investor lease transactions; provided, however, that the instrument
creating or evidencing any borrowings secured by such Lien will provide that
such borrowings are payable solely out of the income and proceeds of the
property subject to such Lien and are not a general obligation of the Company or
such Restricted Subsidiary; (9) Liens under workers' compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts or deposits to secure public or
statutory obligations of the Company or any Restricted Subsidiary, or deposits
of cash or obligations of the United States of America to secure surety and
appeal bonds to which the Company or any Restricted Subsidiary is a party or in
lieu of such bonds, or pledges or deposits for similar purposes in the ordinary
course of business, or Liens imposed by law, such as laborers' or other
employees', carriers', warehousemen's, mechanics', materialmen's and vendors'
Liens, and Liens arising out of judgments or awards against the Company or any
Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary at the time shall be prosecuting an appeal or proceedings for review
and with respect to which it shall have secured a stay of execution pending such
appeal or proceedings for review, or Liens for taxes not yet subject to
penalties for nonpayment or the amount or validity of which is being in good
faith contested by appropriate proceedings by the Company or any Restricted
Subsidiary, as the case may be, or minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions or Liens as to the use of real properties, which
Liens, exceptions, encumbrances, easements, reservations, rights and
restrictions do not, in the opinion of the Company, in the aggregate materially
detract from the value of said properties or materially impair their use in the
operation of the business of the Company and its Restricted Subsidiaries; (10)
Liens incurred to finance all or any portion of the cost of construction,
alteration or repair of any Principal Property and improvements thereto created
prior to or within 270 days after completion of such construction, alteration or
repair; (11) Liens outstanding on the date of the Indenture; or (12) any
extension, renewal, refunding or replacement of the foregoing.
"Attributable Debt" means, as to any particular lease under which either
the Company or any Restricted Subsidiary is at the time liable as lessee for a
term of more than 12 months and at any date as of which the amount thereof is to
be determined, the total net obligations of the lessee for rental payments
during the remaining term of the lease (including any period for which such
lease has been extended or may, at the option of the lessor, be extended)
discounted from the respective due dates thereof to such determination date at a
rate per annum equivalent to the greater of (a) the weighted-average Yield to
Maturity (as defined in the Indenture) of the Outstanding Securities, such
average being weighted by the principal amount of the Outstanding Securities of
each series or, in the case of Original Issue Discount Securities (as defined in
the Indenture), such amount to be the principal amount of such outstanding
Original Issue Discount Securities that would be due and payable as of the date
of such determination upon a declaration of acceleration of the maturity thereof
pursuant to the Indenture and (b) the interest rate inherent in such lease (as
determined in good faith by the Company), both to be compounded semi-annually.
"Consolidated Net Tangible Assets" means, at any date, the total assets
appearing on the most recent consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of the fiscal quarter of the Company
ending not more than 135 days prior to such date, prepared in accordance with
generally accepted accounting principles, less (a) all current liabilities (due
within one year) as shown on such balance sheet, (b) applicable reserves, (c)
investments in and advances to Unrestricted Subsidiaries that are consolidated
on the consolidated balance sheet of the Company and its Subsidiaries, and (d)
Intangible Assets and liabilities relating thereto.
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"Funded Debt" means (i) any indebtedness of the Company or a Restricted
Subsidiary maturing more than 12 months after the time of computation thereof,
(ii) guarantees of Funded Debt or of dividends of others (except guarantees in
connection with the sale or discount of accounts receivable, trade acceptances
and other paper arising in the ordinary course of business), (iii) in the case
of any Restricted Subsidiary, all preferred stock having mandatory redemption
provisions of such Restricted Subsidiary as reflected on such Restricted
Subsidiary's balance sheet prepared in accordance with U.S. generally accepted
accounting principles, and (iv) all Capital Lease Obligations (as defined in the
Indenture).
"Indebtedness" means, at any date, without duplication, (i) all obligations
for borrowed money of the Company or a Restricted Subsidiary or any other
indebtedness of the Company or a Restricted Subsidiary, evidenced by bonds,
debentures, notes or other similar instruments, and (ii) Funded Debt.
"Intangible Assets" means, at any date, the value (net of any applicable
reserves), as shown on or reflected in the most recent consolidated balance
sheet of the Company and its Restricted Subsidiaries as at the end of the fiscal
quarter of the Company ending not more than 135 days prior to such date,
prepared in accordance with generally accepted accounting principles, of: (i)
all trade names, trademarks, licenses, patents, copyrights, service marks,
goodwill and other like intangibles; (ii) organizational and development costs;
(iii) deferred charges (other than prepaid items, such as insurance, taxes,
interest, commissions, rents, pensions, compensation and similar items and
tangible assets being amortized); and (iv) unamortized debt discount and
expense, less unamortized premium.
"Liens" means such pledges, mortgages, security interests and other liens
on any Principal Property of the Company or a Restricted Subsidiary which secure
Secured Funded Debt.
"Principal Property" means any manufacturing plant or foundry located in
the United States of America and owned and operated by the Company or any
Restricted Subsidiary on or after the date hereof, and any manufacturing
equipment (as defined in the Indenture) owned by the Company or any Restricted
Subsidiary on or after the date hereof in such manufacturing plant.
"Restricted Subsidiary" means each Subsidiary other than Unrestricted
Subsidiaries.
"Secured Funded Debt" means Funded Debt which is secured by any pledge of,
or mortgage, security interest or other lien on any (i) Principal Property
(whether owned on the date of the Indenture or thereafter acquired or created),
(ii) shares of stock owned by the Company or a Subsidiary in a Restricted
Subsidiary or (iii) indebtedness of a Restricted Subsidiary.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock, which under ordinary circumstances (not dependent upon the
happening of a contingency) has voting power to elect a majority of the board of
directors of such corporation (or similar management body), is owned directly or
indirectly by the Company or by one or more Subsidiaries of the Company, or by
the Company and one or more Subsidiaries.
"Unrestricted Subsidiary" means Subsidiaries designated as Unrestricted
Subsidiaries from time to time by the Board of Directors of the Company;
provided, however, that the Board of Directors of the Company (i) will not
designate as an Unrestricted Subsidiary any Subsidiary of the Company that owns
any Principal Property or any stock of a Restricted Subsidiary, (ii) will not
continue the designation of any Subsidiary of the Company as an Unrestricted
Subsidiary at any time that such Subsidiary owns any Principal Property, and
(iii) will not, nor will it cause or permit any Restricted Subsidiary to,
transfer or otherwise dispose of any Principal Property to any Unrestricted
Subsidiary (unless such Unrestricted Subsidiary will in connection therewith be
redesignated as a Restricted Subsidiary and any pledge, mortgage, security
interest or other lien arising in connection with any Indebtedness of such
Unrestricted Subsidiary so redesignated does not extend to such Principal
Property (unless the existence of such pledge, mortgage, security interest or
other lien would otherwise be permitted under the Indenture)).
Limitation on Sales and Leasebacks. The Indenture provides that the Company
will not, nor will it permit any Restricted Subsidiary to, enter into any
arrangement with any Person providing for the leasing by the Company or any
Restricted Subsidiary of any Principal Property of the Company or any Restricted
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<PAGE> 59
Subsidiary, which Principal Property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such Person (a "sale and leaseback
transaction") unless, after giving effect thereto, the aggregate amount of all
Attributable Debt with respect to all such sale and leaseback transactions plus
all Secured Funded Debt (with the exception of Funded Debt secured by liens
which is excluded pursuant to clauses (1) to (12) described under "Restrictions
on Secured Funded Debt" above) would not exceed 15% of Consolidated Net Tangible
Assets. This covenant will not apply to, and there will be excluded from
Attributable Debt in any computation under this restriction or under
"Limitations on Secured Funded Debt" above, Attributable Debt with respect to
any sale and leaseback transaction if: (1) the Company or a Restricted
Subsidiary is permitted to create Funded Debt secured by a Lien pursuant to
clauses (1) to (12) inclusive described under "Limitations on Secured Funded
Debt" above on the Principal Property to be leased, in an amount equal to the
Attributable Debt with respect to such sale and leaseback transaction, without
equally and ratably securing the Outstanding Securities; (2) the Company or a
Restricted Subsidiary, within 270 days after the sale or transfer shall have
been made by the Company or a Restricted Subsidiary, shall apply an amount in
cash equal to the greater of (i) the net proceeds of the sale or transfer of the
Principal Property leased pursuant to such arrangement or (ii) the fair market
value of the Principal Property so leased at the time of entering into such
arrangement (as determined by the Chief Executive Officer, the President, the
Chief Financial Officer, the Treasurer or the Controller of the Company) to the
retirement of Secured Funded Debt of the Company or any Restricted Subsidiary
(other than Secured Funded Debt owned by the Company or any Restricted
Subsidiary); provided, however, that no retirement referred to in this clause
(2) may be effected by payment at maturity or pursuant to any mandatory sinking
fund payment or any mandatory prepayment provision of Secured Funded Debt; (3)
the Company or a Restricted Subsidiary applies the net proceeds of the sale or
transfer of the Principal Property leased pursuant to such transaction to
investment in another Principal Property within 270 days prior or subsequent to
such sale or transfer; provided, however, that this exception shall apply only
if such proceeds invested in such other Principal Property shall not exceed the
total acquisition, repair, alteration and construction cost of the Company or
any Restricted Subsidiary in such other Principal Property less amounts secured
by any purchase money or construction mortgages on such Principal Property; (4)
the effective date of any such arrangement is within 270 days of the acquisition
of the Principal Property (including, without limitation, acquisition by merger
or consolidation) or the completion of construction and commencement of
operation thereof, whichever is later; (5) the lease in such sale and leaseback
transaction is for a term, including renewals, of not more than three years; or
(6) the sale and leaseback transaction is entered into between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries.
Restrictions on Funded Debt of Restricted Subsidiaries. The Indenture
provides that the Company will not permit any Restricted Subsidiary to incur,
issue, assume, guarantee or create any Funded Debt, unless after giving effect
thereto, the sum of the aggregate amount of all outstanding Funded Debt of the
Restricted Subsidiaries would not exceed 15% of Consolidated Net Tangible
Assets; provided, however, that this restriction will not apply to, and there
will be excluded from, Funded Debt in any computation under this restriction,
(i) Funded Debt of any corporation existing at the time such corporation becomes
a Restricted Subsidiary and (ii) Indebtedness among the Company and its
Subsidiaries and Indebtedness between Subsidiaries; provided, further, that this
restriction will not prohibit the incurrence of Indebtedness in connection with
any extension, renewal, refinancing, replacement or refunding (including
successive extensions, renewals, refinancings, replacements and refundings), in
whole or in part, of any Indebtedness of the Restricted Subsidiaries (provided
that the principal amount of such Indebtedness being extended, renewed,
refinanced, replaced or refunded is not increased) but any such Indebtedness
shall be included in the computation of Funded Debt under this restriction.
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to Securities of any series: (a) failure to pay any
interest on any Security of that series when due, continued for 30 days; (b)
failure to pay principal of or any premium on any Security of that series when
due; (c) failure to deposit any sinking fund or other payment, when due, in
respect of any Security of that series; (d) failure to perform, or breach of,
any other covenant or warranty of the Company in the Indenture (other than a
covenant
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<PAGE> 60
included in the Indenture solely for the benefit of a series of Securities
thereunder other than that series) continued for 90 days after written notice as
provided in the Indenture; (e) certain events in bankruptcy, insolvency or
reorganization of the Company; (f) a default or defaults under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or a
Restricted Subsidiary (including the Indenture), whether such Indebtedness
exists at the date of the Indenture or shall thereafter be created, which
default or defaults shall have resulted in such Indebtedness, in an aggregate
principal amount exceeding $25 million, individually or in the aggregate, having
been declared due and payable prior to the date on which it would otherwise have
become due and payable, without such Indebtedness having been discharged, or
such acceleration having been rescinded or annulled, or there having been
deposited in trust a sum of money sufficient to discharge in full such
Indebtedness, within a period of 30 days after there shall have been given, by
registered mail, to the Company by the Trustee or to the Company and the Trustee
by the Holder or Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of such series a written notice specifying such default
and requiring the Company to cause such Indebtedness to be discharged, cause to
be deposited in trust a sum sufficient to discharge in full such Indebtedness or
cause such acceleration to be rescinded or annulled; or (g) any other Event of
Default provided with respect to Securities of that series.
If any Event of Default with respect to the Securities of any series at the
time Outstanding occurs and is continuing, either the Trustee or the Holder or
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms thereof) of all the
Securities of that series to be due and payable immediately. At any time after a
declaration of acceleration with respect to Securities of any series has been
made, but before a judgment or decree based on acceleration has been obtained,
the Holders of a majority in aggregate principal amount of Outstanding
Securities of that series may, under certain circumstances, rescind and annul
such acceleration.
Reference is made to the Applicable Prospectus Supplement relating to any
series of Offered Securities that are Original Issue Discount Securities for the
particular provisions relating to acceleration of the Stated Maturity of a
portion of the principal amount of such series of Original Issue Discount
Securities upon the occurrence of an Event of Default and the continuation
thereof.
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee and to certain other conditions, the Holders of a
majority in aggregate principal amount of the Outstanding Securities of any
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee, with respect to the Securities of that
series.
No Holder of any series of Securities will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless the Holders of at least 25% in principal
amount of the Outstanding Securities of that series shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the Outstanding Securities of
that series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not apply
to a suit instituted by a Holder of a Security for enforcement of payment of the
principal of and premium, if any, or interest on such Security on or after the
respective due dates expressed in such Security.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holder or Holders of not less than the
majority in aggregate principal amount of the Outstanding Securities of each
series issued under the Indenture and affected by the modification or amendment;
provided, however, that no such modification or amendment may, without the
consent of the Holder or Holders of all Securities affected thereby, (i) change
the Stated Maturity of the principal of, or any installment of principal of or
interest on, any Security; (ii) reduce the principal amount of, or the premium,
if any, or (except as otherwise provided in the Applicable Prospectus
Supplement) interest on, any Security (including in the case of an Original
Issue Discount Security the amount payable upon acceleration of the maturity
thereof); (iii) change the place or currency of payment of principal of,
premium, if any, or interest on any Security; (iv) impair the right to institute
suit for the enforcement of any payment on any Security on or at the Stated
Maturity thereof (or in the case of redemption, on or after the Redemption
Date); or (v) reduce the percentage in principal amount of Outstanding
Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults.
The Holder or Holders of at least a majority in aggregate principal amount
of the Outstanding Securities of any series may, on behalf of all Holders of
that series, waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holder or Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities of any series may, on behalf of
all Holders of that series, waive any past default under the Indenture, except a
default in the payment of principal, premium or interest and in respect of a
covenant or provision of the Indenture that cannot be modified or amended
without the consent of the Holder of each Outstanding Security of such series
affected thereby.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into any other corporation
(as defined) or transfer or lease its assets substantially as an entirety to any
corporation and may not permit any corporation to merge into or consolidate with
the Company or transfer or lease its assets substantially as an entirety to the
Company, unless (i) any successor or purchaser is a corporation organized under
the laws of the United States of America, any State or the District of Columbia,
and any such successor or purchaser expressly assumes the Company's obligations
on the Securities under a supplemental Indenture, (ii) immediately after giving
effect to the transaction no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have occurred
and be continuing, (iii) if properties or assets of the Company or a Restricted
Subsidiary, or any share of capital stock or indebtedness of any Restricted
Subsidiary, become subject to a mortgage not permitted by the Indenture, the
Company or such successor corporation, as the case may be, takes such steps as
shall be necessary effectively to secure the Securities equally and ratably with
(or prior to) all indebtedness secured thereby, and (iv) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
stating compliance with these provisions.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that, if such provision is made applicable to the
Securities of any series pursuant to Section 3.1 of the Indenture, the Company,
at the Company's option, (a) will be discharged from any and all obligations in
respect of the Securities of any series (except for certain obligations to
register the transfer of or exchange of Securities of such series, replace
stolen, lost or mutilated Securities of such series, maintain paying agencies
and hold moneys for payment in trust) or (b) need not comply with certain
restrictive covenants of the Indenture, including those described under "Certain
Covenants of the Company," and the occurrence of an event described in clause
(d) under "Events of Default" shall no longer be an Event of Default, in each
case, if the Company deposits, in trust, with the Trustee money or U.S.
Government Obligations, which, through the payment of interest thereon and
principal thereof in accordance with their terms, will provide money in an
amount sufficient to pay all the principal of, premium, if any, and interest on
the Securities of such series on the dates such payments are due (which may
include one or more redemption dates designated by the Company) in accordance
with the terms of the Securities of such series. Such a trust
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<PAGE> 62
may be established only if, among other things, (i) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the Indenture shall have occurred and be continuing on the date
of such deposit or on such later date specified in the Indenture in the case of
certain events in bankruptcy, insolvency or reorganization of the Company, (ii)
such deposit will not cause the Trustee to have any conflicting interest with
respect to other securities of the Company, (iii) such defeasance will not
result in a breach or violation of, or constitute a default under, the Indenture
or any other agreement or instrument to which the Company is a party or by which
it is bound and (iv) the Company shall have delivered an Opinion of Counsel to
the effect that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit or defeasance and will be
subject to federal income tax in the same manner as if such defeasance had not
occurred, which Opinion of Counsel, in the case of clause (a) above, must refer
to and be based upon a published ruling of the Internal Revenue Service, a
private ruling of the Internal Revenue Service addressed to the Company, or
otherwise a change in applicable federal income tax law occurring after the date
of the Indenture. In the event the Company omits to comply with its remaining
obligations under the Indenture after a defeasance of the Indenture with respect
to the Securities of any series as described under clause (b) above and the
Securities of such series are declared due and payable because of the occurrence
of any Event of Default, the amount of money and U.S. Government Obligations on
deposit with the Trustee may be insufficient to pay amounts due on the
Securities of such series at the time of the acceleration resulting from such
Event of Default. However, the Company will remain liable in respect of such
payments.
CONCERNING THE TRUSTEE
Bank One, N.A. is Trustee under the Indenture. Affiliates of the Trustee
perform services for the Company in the ordinary course of business and an
affiliate of the Trustee is a lender bank under the Company's credit facility.
Frederick P. Stratton, Jr., Chairman and Chief Executive Officer of the Company,
is a director of Banc One Corporation, the corporate parent of both the Trustee
and the affiliate of the Trustee that is a lender bank under the Company's
credit facility.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby through agents,
through underwriters and through dealers, and Securities may be sold to other
purchasers directly or through agents or through a combination of any such
methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent who may be deemed to be an
underwriter, as that term is defined in the Securities Act, involved in the
offer or sale of the Securities in respect of which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent set
forth, in the Applicable Prospectus Supplement. Agents may be entitled under
agreements that may be entered into with the Company to indemnification by the
Company against certain liabilities, including liabilities under the Securities
Act, and such agents or their affiliates may be customers of, extend credit to
or engage in transactions with or perform services for the Company in the
ordinary course of business. Unless otherwise indicated in the Applicable
Prospectus Supplement, any such agent will be acting on a reasonable efforts
basis for the period of its appointment.
If any underwriters are utilized in the sale, the Company will enter into
an underwriting agreement with such underwriters at the time of sale to them,
and the names of the underwriters and the terms of the transaction will be set
forth in the Applicable Prospectus Supplement that will be used by the
underwriters to make resales of the Securities in respect of which this
Prospectus is delivered to the public. The underwriters may be entitled under
the relevant underwriting agreement to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and such
underwriters or their affiliates may be
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<PAGE> 63
customers of, extend credit to or engage in transactions with or perform
services for the Company in the ordinary course of business.
If dealers are utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to such
dealers as principal. The dealers may then resell such Securities to the public
at varying prices to be determined by such dealers at the time of resale.
Dealers may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and such dealers or
their affiliates may be customers of, extend credit to or engage in transactions
with or perform services for the Company in the ordinary course of business.
Unless otherwise indicated in the Applicable Prospectus Supplement,
Securities are not proposed to be listed on a securities exchange, and any
underwriters or dealers will not be obligated to make a market in Securities.
The Company cannot predict the activity or liquidity of any trading in the
Securities.
If so indicated in an Applicable Prospectus Supplement, the Company will
authorize underwriters or agents to solicit offers by certain institutions to
purchase Offered Securities from the Company pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Offered Securities sold
pursuant to Contracts shall be not less nor more than, the respective amounts
stated in such Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Offered Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Offered Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Offered Securities
less the principal amount thereof covered by Contracts. Agents and underwriters
will have no responsibility in respect of the delivery or performance of
Contracts.
LEGAL MATTERS
Unless otherwise indicated in a supplement to this Prospectus, certain
legal matters in connection with the Securities offered hereby will be passed
upon for the Company by Thomas R. Savage, General Counsel of the Company, and by
Mayer, Brown & Platt, Chicago, Illinois. The legality of the Securities offered
hereby will be passed upon for the underwriters, dealers and agents, if any, as
set forth in the Prospectus Supplement.
EXPERTS
The audited financial statements and schedules included or incorporated by
reference in this Prospectus and the Prospectus Supplement and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included or incorporated herein in reliance upon the authority of said firm as
experts in giving said reports.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........ S-3
The Company.......................... S-8
Use of Proceeds...................... S-11
Ratio of Earnings to Fixed Charges... S-11
Capitalization....................... S-12
Unaudited Pro Forma Financial
Information........................ S-13
Selected Historical Financial
Information........................ S-16
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................ S-17
Description of Credit Facility....... S-23
Description of Notes................. S-24
Underwriting......................... S-26
Notice to Canadian Residents......... S-27
Certain U.S. Federal Income Tax
Considerations..................... S-28
Legal Matters........................ S-31
Index to Financial Statements........ F-1
PROSPECTUS
Available Information................ 2
Documents Incorporated by Reference.. 2
The Company.......................... 3
Use of Proceeds...................... 3
Description of Securities............ 3
Plan of Distribution................. 12
Legal Matters........................ 13
Experts.............................. 13
</TABLE>
======================================================
[BRIGGS & STRATTON LOGO]
BRIGGS & STRATTON CORPORATION
$100,000,000
7 1/4% NOTES DUE 2007
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
BANCAMERICA SECURITIES, INC.
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