<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1370
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BRIGGS & STRATTON CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
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(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class November 2, 2000
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COMMON STOCK, par value $0.01 per share 21,597,183 Shares
<PAGE> 2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
October 1, 2000 and July 2, 2000 3
Consolidated Condensed Statements of Income -
Three Months ended October 1, 2000 and
September 26, 1999 5
Consolidated Condensed Statements of Cash Flow -
Three Months ended October 1, 2000 and
September 26, 1999 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
2
<PAGE> 3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
October 1, July 2,
2000 2000
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,939 $ 16,989
Accounts receivable, net 140,370 140,097
Inventories -
Finished products and parts 274,362 181,800
Work in process 77,345 70,908
Raw materials 5,167 5,066
----------- -----------
Total inventories 356,874 257,774
Future income tax benefits 40,325 39,138
Prepaid expenses and other current assets 17,052 17,999
----------- -----------
Total current assets 566,560 471,997
----------- -----------
OTHER ASSETS:
Investments 51,308 50,228
Prepaid pension 8,398 5,506
Capitalized software 6,673 6,934
----------- -----------
Total other assets 66,379 62,668
----------- -----------
PLANT AND EQUIPMENT:
Cost 851,135 838,655
Less accumulated depreciation 454,457 443,075
----------- -----------
Total plant and equipment, net 396,678 395,580
----------- -----------
$ 1,029,617 $ 930,245
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
October 1, July 2,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 92,348 $ 117,556
Domestic notes payable 198,126 48,809
Foreign loans 16,015 13,356
Accrued liabilities 118,840 128,438
Dividends payable 6,694 --
Federal and state income taxes -- 4,619
----------- -----------
Total current liabilities 432,023 312,778
----------- -----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,649 15,679
Deferred income tax liability 5,031 4,011
Accrued pension cost 11,671 11,428
Accrued employee benefits 12,831 12,607
Accrued postretirement health care obligation 64,971 65,765
Long-term debt 98,564 98,512
----------- -----------
Total other liabilities 208,717 208,002
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000 shares, $.01 par value,
Issued 28,927 shares 289 289
Additional paid-in capital 36,078 36,478
Retained earnings 708,987 721,980
Accumulated other comprehensive loss (5,684) (3,931)
Unearned compensation on restricted stock (384) (226)
Treasury stock at cost, 7,330 and 7,181 shares,
respectively (350,409) (345,125)
----------- -----------
Total shareholders' investment 388,877 409,465
----------- -----------
$ 1,029,617 $ 930,245
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
October 1, September 26,
2000 1999
--------- ---------
<S> <C> <C>
NET SALES $ 180,833 $ 298,933
COST OF GOODS SOLD 155,035 243,551
--------- ---------
Gross profit on sales 25,798 55,382
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 33,612 29,640
--------- ---------
Income (Loss) from operations (7,814) 25,742
INTEREST EXPENSE (4,568) (3,127)
GAIN ON DISPOSITION OF FOUNDRY ASSETS -- 16,545
OTHER INCOME, net 2,373 1,633
--------- ---------
Income (Loss) before provision
for income taxes (10,009) 40,793
PROVISION (CREDIT) FOR INCOME TAXES (3,705) 15,090
--------- ---------
Net income (loss) $ (6,304) $ 25,703
========= =========
EARNINGS PER SHARE DATA -
Average shares outstanding 21,612 23,132
========= =========
Basic earnings (loss) per share $ (0.29) $ 1.11
========= =========
Diluted average shares outstanding 21,629 23,281
========= =========
Diluted earnings (loss) per share $ (0.29) $ 1.10
========= =========
CASH DIVIDENDS PER SHARE $ 0.31 $ .30
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
October 1, September 26,
CASH FLOW FROM OPERATING ACTIVITIES: 2000 1999
----------- --------------
<S> <C> <C>
Net income(loss) $ (6,304) $ 25,703
Adjustments to reconcile net income (loss) to net
cash used in operating activities -
Depreciation and amortization 13,318 12,398
Equity in earnings of
unconsolidated affiliates (1,636) (1,245)
(Gain)loss on disposition of plant and
equipment 54 (16,453)
Credit for deferred income taxes (3) (1,914)
Change in operating assets and liabilities -
Increase in accounts receivable (137) (28,361)
Increase in inventories (99,100) (73,409)
Decrease (increase) in other current assets 816 (884)
Increase (decrease) in accounts payable
and accrued liabilities (32,731) 11,995
Other, net (2,815) (2,850)
----------- -----------
Net cash used in operating activities (128,538) (75,020)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to plant and equipment (15,326) (21,661)
Proceeds received on disposition of plant
and equipment 814 23,389
----------- -----------
Net cash provided by (used in) investing
activities (14,512) 1,728
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 151,976 37,812
Dividends (6,689) (6,934)
Purchase of common stock for treasury (6,118) (9,138)
Proceeds from exercise of stock options 253 3,814
----------- -----------
Net cash provided by financing activities 139,422 25,554
----------- -----------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (1,422) (98)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,050) (47,836)
CASH AND CASH EQUIVALENTS, beginning 16,989 60,806
----------- -----------
CASH AND CASH EQUIVALENTS, ending $ 11,939 $ 12,970
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,788 $ 4,963
=========== ===========
Income taxes paid $ 1,637 $ 1,389
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and therefore do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of the Company, adequate disclosures have
been presented to make the information not misleading, and all adjustments
necessary to present fair statements of the results of operations and financial
position have been included. All of these adjustments are of a normal recurring
nature. These condensed financial statements should be read in conjunction with
the financial statements and the notes thereto which were included in the
Company's latest Annual Report on Form 10-K.
Financial Accounting Standard No. 130, "Reporting Comprehensive
Income", requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting method that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. Total
comprehensive income (loss) is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
October 1, September 26,
2000 1999
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<S> <C> <C>
Net income (loss) $(6,304) $25,703
Unrealized gain (loss) on marketable securities (256) 896
Foreign currency translation adjustments (1,509) (92)
Gain on derivative instruments 12 --
------- -------
Total comprehensive income (loss) $(8,081) $26,507
======= =======
</TABLE>
The components of Accumulated Other Comprehensive Loss are as follows (in
thousands):
<TABLE>
<CAPTION>
October 1, July 2,
2000 2000
------- -------
<S> <C> <C>
Unrealized gain (loss) on marketable securities $ (62) $ 194
Cumulative translation adjustments (5,634) (4,125)
Gain on derivative instruments 12 --
------- -------
Accumulated other comprehensive loss $(5,684) $(3,931)
======= =======
</TABLE>
At the beginning of the fiscal first quarter, the Company adopted
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Any changes in fair value of these instruments are recorded in the income
statement or other comprehensive income. The impact of adopting FAS 133 on
accumulated other comprehensive loss resulted in a loss of $15,000. During the
quarter, the Company reclassified derivative losses of $27,000 to the income
statement. The cumulative effect of adopting FAS 133 on the results of
operations was immaterial.
7
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The Company enters into derivative contracts designated as cash flow
hedges to manage its foreign currency exposures. These instruments generally do
not have a maturity of more than thirteen months. During the quarter, there were
no derivative instruments that were deemed to be ineffective. The amounts
included in Accumulated Other Comprehensive Income (Loss) will be reclassified
into income when the forecasted transaction occurs, generally within the next
twelve months. These forecasted transactions represent the exporting of products
for which the Company will receive foreign currency and the importing of
products for which the Company will be required to pay in a foreign currency.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the Company's
financial condition and results of operations for the periods included in the
accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
SALES
Net sales for the three months ended September 2000 totaled $181
million, a decrease of $118 million or 40% when compared to the same period of
the preceding year. The reason for this change was a 39% decrease in engine unit
shipments. Fiscal 2001 has reverted to the historical seasonal pattern of low
engine unit shipments in the first quarter. The engine shortage concerns of a
year ago have disappeared providing little incentive for equipment manufacturers
to purchase engines in the summer and early fall.
In fiscal 2001, for the first time, a portion of sales into Europe was
denominated in Euros. The negative impact of the exchange rates on the first
quarter was $5 million. However, price increases experienced on a worldwide
basis partially offset the Euro impact.
GROSS PROFIT MARGIN
The gross profit rate decreased to 14% in the current year from 19% in
the preceding year. This rate decrease resulted in a lower gross profit between
years of $8 million. Lower pricing, which includes the Euro impact, was a major
piece of the decrease. In addition, 5% fewer engines were produced, principally
at plants that make engines for non-lawn and garden applications. This reduced
manufacturing volume resulted in a smaller portion of fixed costs being assigned
to product causing $1 million more costs to be expensed in the quarter. Higher
spending of $3 million in certain manufacturing categories partially offset by
$1 million of labor productivity accounts for the remainder of the decrease.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased $4 million or 13% between years. This increase
was due to planned expansions of staff and expenditures for business development
and introduction of new products.
8
<PAGE> 9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INTEREST EXPENSE
Interest expense increased $1 million or 46% between years. This was
the result of higher first quarter working capital financing requirements in
fiscal 2001. Inventories of finished engine units at the start of this fiscal
year were higher than at the start of the last fiscal year so the average
investment in inventory financed by borrowings is greater this year. Interest
rates on the short-term credit lines are also slightly higher in fiscal 2001.
GAIN ON DISPOSITION OF FOUNDRY ASSETS
At the end of August 1999, the Company contributed its two ductile iron
foundries to Metal Technologies Holding Company, Inc. ("MTHC") in exchange for
$24 million in cash and $45 million aggregate par value convertible preferred
stock, which was recorded at $22 million. The transaction resulted in a $17
million gain in fiscal 2000, and is shown as such on the income statement. The
provisions of the preferred stock include a 15% cumulative dividend and
conversion rights into a minimum of 31% of the common stock of MTHC. MTHC became
the primary supplier to Briggs & Stratton Corporation of iron castings.
PROVISION FOR INCOME TAXES
The effective tax rate used in the current fiscal quarter was 37.0%.
This is management's estimate of what the rate will be for the entire 2001
fiscal year. The rate for the entire 2000 fiscal year was 37.0%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operating activities was $129 million in fiscal 2001
and $75 million in fiscal 2000, a $54 million increase in requirements between
years. This reflects decreased net income of $32 million, offset by lower gains
on the disposition of plant and equipment of $17 million, and an increased
requirement for operating capital of $39 million. This increase in working
capital requirements was caused by higher inventories, lower accounts
receivable, and lower accounts payable and accrued liabilities at the end of
fiscal 2001's first quarter compared to the first quarter of fiscal 2000.
Inventories of finished units are higher than last year due to planned
increases in inventory levels and a later shipping cycle in fiscal 2001.
Inventories are projected to peak late in the second quarter of fiscal 2001.
These inventories are planned in order to satisfy anticipated equipment
manufacturers' demand for engines in the peak season. Lower sales in the current
comparable period caused accounts receivable to be lower. Lower accounts payable
and accrued liabilities were caused by a $21 million change in federal and state
income taxes due to lower earnings and an $18 million decrease due to timing of
payments to suppliers.
In fiscal 2001, $15 million of cash was used in investing activities
versus $2 million provided by activities in fiscal 2000. The fiscal 2000 cash
provided includes the $24 million of proceeds received on the disposition of
foundry assets.
Net cash provided by financing activities amounted to $139 million and
$26 million in fiscal 2001 and 2000, respectively. The uses of cash resulted in
higher borrowings at the end of first quarter fiscal 2001 of $152 million.
9
<PAGE> 10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
FUTURE LIQUIDITY AND CAPITAL RESOURCES
In June 2000, the Board of Directors approved a repurchase of up to 2.0
million additional shares of the Company's common stock in open market or
private transactions. Stock repurchases totaling .2 million shares were made in
open market transactions as of the end of fiscal 2001's first quarter. The
Company does not anticipate repurchasing any additional shares in the second or
third quarters of fiscal 2001.
Due to expected higher working capital requirements and lower available
cash, the Company's current lines of credit were not sufficient to meet
projected needs. Accordingly, the Company has arranged for additional lines of
credit amounting to $140 million during the second fiscal quarter of 2001.
Management expects cash flows for capital expenditures to total
approximately $76 million in fiscal 2001. This capital expenditure level
provides for base replacement, new product, and capacity and cost reduction
requirements. This will be funded using available cash and short-term
borrowings.
The Company currently intends to increase future cash dividends per
share at a rate approximating the inflation rate, subject to the discretion of
its Board of Directors and requirements of applicable law.
OUTLOOK
Revenues for the full year are expected to be about 3% lower than
fiscal 2000, in spite of comparable unit shipments. The primary drivers of the
decrease are the mix of engine units being shipped and the projected impact of
the Euro if the exchange rate remains similar to its current level.
The planned mix of engines to be sold now appears to be weighted
towards lower horsepower, lower priced units, which will decrease the sales
dollars. The negative Euro currency exchange impact for fiscal 2001 is projected
to be approximately $15-20 million.
Mix impact should be particularly evident in the second fiscal quarter
when the Company expects engine unit volume to be down 7% compared to fiscal
2000 and lower sales dollars of approximately 15%. Large engine shipments for
lawn and garden applications were high in fiscal 2000's second quarter but this
year the Company anticipates those units returning to a third quarter shipping
pattern.
Gross profit as a percent of sales is projected to decline to 20.9%
from the 21.3% in fiscal 2000. Major factors causing the decrease are the
unfavorable Euro exchange rate and the probable decrease in production levels
from fiscal 2000 by approximately 9%. Even though unit shipment levels are
expected to be similar between years, fiscal 2000 benefited from a restoration
of depleted inventory levels which caused production to be up 14%. Fewer fixed
cost dollars will be assigned to product causing more costs to be expensed in
the fiscal year. Offsetting the negative Euro and production volume impacts are
projected productively gains and some improvement in margin due to the mix of
units sold.
Engineering, selling and general and administrative expenses for fiscal
2001 are projected to be greater than last year by approximately 8%. The reasons
for this planned increase are the same as those given for the first quarter
increase.
Interest expense for fiscal 2001 is projected to be greater than last
year by approximately 7%. A higher investment in inventory for the entire fiscal
2001 period along with a compression of the shipping cycle into the late second
and third quarters, which delays conversion to cash until later in the year, are
expected to cause greater borrowings for working capital in fiscal 2001.
10
<PAGE> 11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
The projections above could result in an earnings level for fiscal 2001
that is 20% to 25% below the operating results experienced in fiscal 2000,
excluding the gain on disposition of the foundry assets. This updated earnings
projection for fiscal 2001 is significantly different than the earnings
direction given in the previous press release because recent reassessments of
demand have resulted in lower projected sales and production volumes and a less
favorable sales mix.
OTHER MATTERS
On October 5, 2000, it was announced that one of the Company's largest
customers, the Murray Group, was acquired by Summersong Investments, Inc. The
Company does not expect this acquisition to adversely impact its annual supply
arrangement with the Murray Group for the upcoming outdoor power
equipment-selling season.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. The words
"anticipate", "believe", "estimate", "expect", "objective", and "think" or
similar expressions are intended to identify forward-looking statements. The
forward-looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, among other
things, the effects of weather on the purchasing patterns of the Company's
customers and end use purchasers of the Company's engines; the seasonal nature
of the Company's business; actions of competitors; changes in laws and
regulations, including accounting standards; employee relations; customer
demand; prices of purchased raw materials and parts; domestic economic
conditions, including housing starts and changes in consumer disposable income;
foreign economic conditions, including currency rate fluctuations; and other
factors that may be disclosed from time to time in SEC filings or otherwise.
Some or all of the factors may be beyond the Company's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 7, 2000 filing
of the Company's Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 18, 2000, director
nominees named below were elected to a three-year term expiring in 2003, by the
indicated votes cast for and withheld with respect to each nominee.
Name of Nominee For Withheld
--------------- --- --------
Robert J. O'Toole 18,523,524 205,762
John S. Shiely 18,546,163 183,123
Charles I. Story 18,488,637 240,649
Directors whose terms of office continue past the Annual Meeting of
Shareholders are:
Jay H. Baker; Michael E. Batten; David L. Burner; Eunice M. Filter;
Peter A. Georgescu and Frederick P. Stratton, Jr.
11
<PAGE> 12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27 Financial Data Schedule, October 1, 2000*
*Filed herewith
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the first quarter ended
October 1, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRIGGS & STRATTON CORPORATION
-----------------------------
(Registrant)
Date: November 13, 2000 /s/ James E. Brenn
-------------------------------------------------
James E. Brenn
Senior Vice President and Chief Financial Officer
Date: November 13, 2000 /s/ Todd J. Teske
-------------------------------------------------
Todd J. Teske
Controller
12
<PAGE> 13
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27 Financial Data Schedule, October 1, 2000*
*Filed herewith
13
