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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF
For the fiscal year ended JULY 2, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
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(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 WEST WIRTH STREET
WAUWATOSA, WISCONSIN 53222
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-259-5333
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Common Stock (par value $0.01 per share) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $867,993,000 based on the reported last sale price
of such securities as of August 24, 2000.
Number of Shares of Common Stock Outstanding at August 24, 2000: 21,592,570.
DOCUMENTS INCORPORATED BY REFERENCE
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Part of Form 10-K Into Which Portions
Document of Document are Incorporated
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Proxy Statement for Annual Meeting
on October 18, 2000 Part III
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The Exhibit Index is located on page 29.
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BRIGGS & STRATTON CORPORATION
2000 FORM 10-K - TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
Executive Officers of the Registrant 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 10
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 27
Signatures 28
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Item 1. Business and Item 7. 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 our SEC filings or otherwise.
Some or all of the factors may be beyond the Company's control.
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PART I
ITEM 1. BUSINESS
GENERAL
Briggs & Stratton Corporation is the world's largest producer of air cooled
gasoline engines for outdoor power equipment. The Company designs, manufactures,
markets and services these products for original equipment manufacturers (OEMs)
worldwide. These engines are primarily aluminum alloy gasoline engines ranging
from 3 through 25 horsepower.
The Company's engines are used primarily by the lawn and garden equipment
industry, which accounted for 79% of fiscal 2000 OEM engine sales. Major lawn
and garden equipment applications include walk-behind lawn mowers, riding lawn
mowers and garden tillers. The remaining 21% of OEM sales in fiscal 2000 were
for use on many products for industrial, construction, agricultural and consumer
applications, including generators, pumps and pressure washers. Many retailers
specify the Company's engines on the powered equipment they sell, and the Briggs
& Stratton name is often featured prominently on a product despite the fact that
the engine is just a component. Briggs & Stratton engines are marketed under
various brand names including Classic(TM), Sprint(TM), Quattro(TM), Quantum(R),
INTEK(TM), I/C(R), Industrial Plus(TM) and Vanguard(TM).
In fiscal 2000, approximately 21% of the Company's net sales were derived from
sales in international markets, primarily to customers in Europe. Briggs &
Stratton serves its key international markets through its European regional
office in Switzerland, its distribution center in the Netherlands and sales and
service subsidiaries in Australia, Austria, Canada, the Czech Republic, France,
Germany, Mexico, New Zealand, South Africa, 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, construction and other applications.
Briggs & Stratton engines are sold primarily by its worldwide sales force
through direct calls on customers. The Company's marketing staff and engineers
in the United States provide support and technical assistance to its sales
force.
Briggs & Stratton also manufactures replacement engines and service parts and
sells them to sales and service distributors. The Company owns its principal
international distributors. In the United States the distributors are
independently owned and operated. These distributors supply service parts and
replacement engines directly to approximately 33,000 independently owned,
authorized service dealers throughout the world. These distributors and service
dealers implement Briggs & Stratton's commitment to reliability and service.
CUSTOMERS
The Company's sales are made primarily to original equipment manufacturers. The
Company's three largest customers in each of the last three fiscal years were AB
Electrolux (principally its Electrolux Home Products group), MTD Products Inc.,
and Tomkins PLC (principally its Murray subsidiary). Sales to each of these
customers were more than 10% of net sales in fiscal 2000, 1999, and 1998. Sales
to all three combined were 45% of net sales in fiscal 2000, 42% of net sales in
fiscal 1999 and 46% in 1998. Under purchasing plans available to all of its
gasoline engine customers, the Company typically enters into annual engine
supply arrangements with these large customers. The Company has no reason to
anticipate a change in this practice.
Over the past several years, sales in the United States of lawn and garden
equipment by mass merchandisers have increased significantly, while sales by
independent distributors and dealers have declined. The Company believes that in
fiscal 2000 more than 75% of all lawn and garden equipment sold in the United
States was sold through mass merchandisers such as Sears, Home Depot, Wal-Mart,
and Lowe's. Given the buying power of the mass merchandisers, the Company,
through its customers, has continued to experience pricing pressure. The Company
expects that this trend will continue in the foreseeable future. The Company
believes that a similar trend has developed for engine products for industrial
and consumer applications.
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COMPETITION
The small gasoline engine industry is highly competitive. The Company's major
domestic competitors in engine manufacturing are Tecumseh Products Company,
Honda Motor Co., Ltd., Kohler Co. and Kawasaki Heavy Industries, Ltd. Also, a
domestic lawn mower manufacturer, Toro Co. under its Lawn-Boy brand,
manufactures its own engines. Eight Japanese small engine manufacturers, of
which Honda and Kawasaki are the largest, compete directly with the Company in
world markets in the sale of engines and indirectly through their sale of end
products that compete with the end products produced by the Company's customers.
Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe.
The Company believes the major areas of competition from all engine
manufacturers include product quality, brand strength, price, timely delivery
and service. Other factors affecting competition are short-term market share
objectives, short-term profit objectives, exchange rate fluctuations, technology
and product support and distribution strength. Briggs & Stratton believes its
product value and service reputation have given it strong brand name recognition
and enhance its competitive position.
SEASONALITY OF DEMAND
Sales of engines to lawn and garden equipment manufacturers are highly seasonal
because of the buying patterns of retail customers. The majority of lawn and
garden equipment is sold during the spring and summer months when most lawn care
and gardening activities are performed. Sales of lawn and garden equipment are
also influenced by weather conditions. Sales in the Company's fiscal third
quarter have historically been the highest, while sales in the first fiscal
quarter have historically been the lowest.
The sale of lawn and garden equipment has shifted from smaller dealers to larger
mass merchandisers, who do not wish to carry large inventories of lawn and
garden equipment. In order to efficiently use its capital investments and meet
seasonal demand for engines, the Company pursues a balanced production schedule
throughout the year, subject to ongoing adjustment to reflect changes in
estimated demand, customer inventory levels and other matters outside the
control of the Company. Accordingly, inventory levels are generally higher
during the first and second fiscal quarters in anticipation of increased
customer demand in the third fiscal quarter, at which time inventory levels
begin to decrease as sales increase. This seasonal pattern, which results in
high inventories and low cash flow for the Company in the second and the
beginning of the third fiscal quarters, shifts ultimately to higher cash flow in
the latter portion of the third fiscal quarter and in the fourth fiscal quarter
as inventories are liquidated and receivables are collected.
MANUFACTURING
Briggs & Stratton manufactures engines and parts at the following locations in
the United States: Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and
Rolla, Missouri; Auburn, Alabama; and Statesboro, Georgia. The Company has a
parts distribution center in Menomonee Falls, Wisconsin.
Briggs & Stratton manufactures a majority of the structural components used in
its engines, including aluminum die castings and a high percentage of other
major components, such as carburetors and ignition systems. The Company
purchases certain parts such as piston rings, spark plugs, valves, ductile and
grey iron castings, zinc die castings and plastic components, some stampings and
screw machine parts and smaller quantities of other components. Raw material
purchases are principally 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 Japan, with Puling Machinery Works and Yimin Machinery Plant for
the production of engines in China, and with Starting Industrial of Japan for
the production of rewind starters in the U.S. The Company also has two joint
ventures in India. Kirloskar Briggs & Stratton, a joint venture with Kirloskar
Oil Engines Ltd., is responsible for sales and distribution of Briggs & Stratton
engines and
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parts in India and assembles and distributes generators and pumps powered by
Briggs & Stratton engines. Hero Briggs & Stratton is a joint venture with Hero
Motors, part of the Hero Group, for the manufacture of engines and transmissions
to be used in two wheel transportation vehicles.
The Company has a strategic relationship with Mitsubishi Heavy Industries (MHI)
for the global distribution of air cooled gasoline engines manufactured by MHI
in Japan under the Company's Vanguard(TM) brand.
OTHER GENERAL INFORMATION
The Company holds certain patents on features incorporated in its products;
however, the success of the Company's business is not considered to be primarily
dependent upon patent protection. Licenses, franchises and concessions are not a
material factor in the Company's business.
For the years ending July 2, 2000, June 27, 1999, and June 28, 1998, the Company
spent approximately $24,305,000, $17,920,000, and $19,950,000, respectively, on
Company sponsored research activities relating to the development of new
products or the improvement of existing products. Included in fiscal 1998 were
costs related to the Company's software business of $3,136,000. This business
was sold in the first quarter of the 1999 fiscal year.
The average number of persons employed by the Company during the fiscal year was
7,814. Employment ranged from a low of 7,186 in June 2000 to a high of 8,098 in
August 1999.
EXPORT SALES
Export sales for fiscal 2000 were $339,363,000 (21% of total sales), for fiscal
1999 were $316,115,000 (21% of total sales) and for fiscal 1998 were
$288,510,000 (22% of total sales). These sales were principally to customers in
European countries. See Note 4 of Notes to Consolidated Financial Statements for
financial information about geographic areas. Also, see Item 7A and Note 10 of
Notes to Consolidated Financial Statements for information about the Company's
foreign exchange risk management.
ITEM 2. PROPERTIES
The corporate offices and one of the Company's manufacturing facilities are
located in a suburb of Milwaukee, Wisconsin. The Company also has manufacturing
facilities in Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn,
Alabama and Statesboro, Georgia. These are owned facilities containing 3.6
million square feet of office and production area. The Company occupies
warehouse space totalling 400,000 square feet in a suburb of Milwaukee,
Wisconsin under a reservation of interest agreement. The Company also leases
80,000 square feet of manufacturing space in the Milwaukee area.
The engine business with the OEMs is seasonal, with demand for engines at its
height in the winter and early spring. Engine manufacturing operations run at
capacity levels during the peak season, with many operations running three
shifts. Engine operations generally run fewer shifts in the summer, when demand
is weakest and production is considerably under capacity. During the winter,
when finished goods inventories reach their highest levels, owned warehouse
space may be insufficient and capacity may be expanded through rented space.
Excess warehouse space exists in the spring and summer seasons. The Company's
owned properties are well maintained.
The Company leases 200,000 square feet of space to house its European warehouse
in the Netherlands and its foreign sales and service operations in Australia,
Austria, Canada, China, the Czech Republic, France, Germany, Mexico, New
Zealand, Russia, South Africa, Sweden, Switzerland, United Arab Emirates and the
United Kingdom.
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ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings that are required to be reported under
this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended July 2,
2000.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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Name, Age, Position Business Experience for Past Five Years
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FREDERICK P. STRATTON, JR., 61 Mr. Stratton was elected to the position of Chief
Chairman and Chief Executive Officer Executive Officer in May 1977 and Chairman in November
(1) (2) (3) 1986.
JOHN S. SHIELY, 48 Mr. Shiely was elected to his current position in
President and Chief Operating Officer August 1994.
(1) (2)
MICHAEL D. HAMILTON, 58 Mr. Hamilton was elected to his current position
Executive Vice President - effective June 1989.
Sales and Service
JAMES E. BRENN, 52 Mr. Brenn was elected to his current position in
Senior Vice President and October 1998, after serving as Vice President and
Chief Financial Officer Controller since November 1988. He also served as
Treasurer from November 1999 until January 2000.
RICHARD J. FOTSCH, 45 Mr. Fotsch was elected to his current position in May
Senior Vice President and 1999 after serving as Senior Vice President -
General Manager Operations since January 1999. He had previously held
the position Senior Vice President - Engine Group since
July 1997 and prior to that Vice President; General
Manager - Small Engine Division.
HUGO A. KELTZ, 52 Mr. Keltz was elected to his current position in May
Vice President - International 1992.
CURTIS E. LARSON, JR., 52 Mr. Larson was elected to this executive officer
Vice President - Distribution position in October 1995 after serving as Vice
Sales and Service President - Industrial Engine Division since January
1993.
PAUL M. NEYLON, 53 Mr. Neylon was elected to his current position in
Senior Vice President - Production August 2000, after serving as Vice President -
Production since May 1999. He previously served as Vice
President - Operations Support since January 1999 and prior
to that held the position of Vice President; General
Manager - Spectrum Division.
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KASANDRA K. PRESTON, 56 Ms. Preston was elected to her current position in July
Vice President and Secretary 2000, after serving as Director of Corporate Compliance
and Shareholder Relations since June 1995.
WILLIAM H. REITMAN, 44 Mr. Reitman was elected an executive officer effective
Vice President - Marketing April 1998. He had served as Vice President - Marketing
since November 1995, after serving as Marketing Director
- New Ventures since March 1993.
STEPHEN H. RUGG, 53 Mr. Rugg was elected to his current position in May
Senior Vice President - Sales and Service 1999, after serving as Vice President - Sales since
November 1995. His prior position was Vice President -
Sales and Marketing.
MICHAEL D. SCHOEN, 40 Mr. Schoen was elected an executive officer in August
Vice President - Operations Support 2000, after serving as Vice President - Operations
Support since July 1999. He previously held the position
of Vice President - International Operations since
July 1996 after previously serving as International
Marketing Director.
THOMAS R. SAVAGE, 52 Mr. Savage was elected to his current position
Senior Vice President - Administration effective July 1997, after serving as Vice President -
Administration and General Counsel since November 1994.
He also served as Secretary from November 1999 to June
2000.
TODD J. TESKE, 35 Mr. Teske was elected to his current position in
Controller October 1998, after serving as Assistant Controller since
joining the Company in June 1996. He held the position of
Audit Manager at Arthur Andersen LLP, a public
accounting firm, from 1992 to 1996.
CARITA R. TWINEM, 45 Ms. Twinem was elected to her current position in
Treasurer February 2000, after serving as Tax Director since
July 1994.
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(1) Officer is also a Director of the Company.
(2) Member of Executive Committee.
(3) Member of Planning Committee.
Officers are elected annually and serve until they resign, die, are removed, or
a different person is appointed to the office.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this Item is incorporated by reference to "Quarterly
Financial Data, Dividend and Market Information" on page 26.
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ITEM 6. SELECTED FINANCIAL DATA
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Fiscal Year 2000 1999 1998 1997 1996
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(dollars in thousands, except per share data)
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SUMMARY OF OPERATIONS
NET SALES ............................ $1,590,557 $1,501,726 $1,327,610 $1,316,413 $1,287,029
GROSS PROFIT ON SALES ................ 339,454 305,355 254,674 221,216 261,748
PROVISION FOR INCOME TAXES ........... 80,150 63,670 42,500 37,740 56,640
NET INCOME ........................... 136,473 106,101 70,645 61,565 92,412
PER SHARE OF COMMON STOCK:
Basic Earnings ..................... 5.99 4.55 2.86 2.16 3.19
Diluted Earnings ................... 5.97 4.52 2.85 2.15 3.18
Cash Dividends ..................... 1.20 1.16 1.12 1.09 1.05
Shareholders' Investment ........... $ 18.83 $ 15.77 $ 13.28 $ 13.82 $ 17.30
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in 000's).. 22,788 23,344 24,666 28,551 28,927
DILUTED NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in 000's).. 22,842 23,459 24,775 28,678 29,059
OTHER DATA
SHAREHOLDERS' INVESTMENT ............. $ 409,465 $ 365,910 $ 316,488 $ 351,097 $ 500,505
LONG-TERM DEBT ....................... 98,512 113,307 128,102 142,897 60,000
TOTAL ASSETS ......................... 930,245 875,885 793,409 842,189 838,164
PLANT AND EQUIPMENT .................. 838,655 859,848 812,428 796,714 776,638
PLANT AND EQUIPMENT, NET OF RESERVES.. 395,580 404,454 391,927 396,266 374,212
PROVISION FOR DEPRECIATION ........... 51,097 49,346 47,511 43,345 43,032
EXPENDITURES FOR PLANT AND EQUIPMENT.. 71,441 65,998 45,893 71,262 77,746
WORKING CAPITAL ...................... $ 159,219 $ 160,350 $ 149,846 $ 199,039 $ 258,834
Current Ratio ...................... 1.5 TO 1 1.6 to 1 1.7 to 1 1.9 to 1 2.4 to 1
NUMBER OF EMPLOYEES AT YEAR END ...... 7,233 7,994 7,265 7,661 7,199
NUMBER OF SHAREHOLDERS AT YEAR END ... 4,385 4,628 4,911 5,336 5,879
QUOTED MARKET PRICE:
High ............................... $ 63.63 $ 70.94 $ 53.38 $ 53.63 $ 46.88
Low ................................ $ 31.00 $ 33.69 $ 36.88 $ 36.50 $ 32.75
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Sales
Net sales for fiscal 2000 totaled $1,591 million, an increase of $89 million or
6% compared to the preceding year. The primary factors were a $104 million
increase in sales dollars related to a 6% increase in engine unit shipments, a
favorable mix of engines sold amounting to $24 million, and $9 million from
increased prices. Offsetting these factors was a $48 million decrease of
castings sales resulting from the disposition of the Company's ductile iron
foundries in the first quarter of fiscal 2000.
Gross Profit
The gross profit rate increased to 21% in fiscal 2000 from 20% in fiscal 1999.
Favorable factors to the gross profit were $18 million attributed to the benefit
of higher production during the year and $9 million of price increases.
Offsetting these improvements were $6 million of higher costs for purchased
items including increased costs for imported engines due to currency exchange
rates.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses increased $9 million
or 7% compared to fiscal 1999. This increase was primarily from a $6 million
increase in research and development costs and a $3 million increase in profit
sharing expenses due to improved results. These increases were offset by a $2
million decrease in costs related to the Company's POWERCOM software business
that was sold in the first quarter of the preceding year.
Interest Expense
Interest expense increased $4 million or 25% in fiscal 2000 compared to fiscal
1999. These increases were the result of the Company's higher level of
short-term borrowings during the year to fund working capital needs.
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, 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.
Other Income
Other income increased $9 million in fiscal 2000 compared to fiscal 1999. This
increase is primarily attributed to increased equity income from joint ventures.
Provision for Income Taxes
The effective tax rate used in fiscal 2000 was 37.0% compared with 37.5% in
fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
Sales
Net sales for fiscal 1999 totaled $1,502 million, an increase of $174 million or
13% when compared to the prior year. This was due to a $120 million increase in
sales dollars resulting from an 8% increase in unit shipments, a favorable mix
change in engines sold of $38 million and $16 million from increased prices.
Gross Profit
The gross profit margin increased to 20% in the 1999 fiscal year from 19% in the
preceding year. This increase resulted primarily from the following factors: $16
million of price increases, $15 million attributed to the benefit of higher
production during the year and $14 million in lower costs for purchased parts
and engines and raw material. Lower aluminum costs, the major raw material used
in engines, accounted for $8 million of the lower raw material costs. Offsetting
these improvements were a mix shift to lower margin engines of $22 million and
inefficiencies of $3 million caused by operating plants at full capacity.
Engineering, Selling, General and Administrative Expenses
Engineering, selling, general and administrative expenses for fiscal 1999
decreased 4% or $5 million compared to fiscal 1998. This decrease was primarily
due to a $10 million decrease in costs related to the Company's POWERCOM
software business that was sold in the first quarter of this fiscal year. Costs
related
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to implementing the Company's new enterprise-wide information system decreased
$2 million between the fiscal years. Offsetting these reductions in costs was a
$4 million increase in profit sharing expenses due to improved results and a $1
million increase in research and development expenses.
Interest Expense
Interest expense decreased 12% or $2 million for the 1999 fiscal year compared
to the 1998 fiscal year. This decrease was the result of a $15 million repayment
of long-term debt at the end of the 1998 fiscal year and lower average interest
rates on working capital borrowings throughout the year.
Provision for Income Taxes
The effective tax rate decreased to 37.5% in 1999 from 37.6% in the previous
year due to lower state income taxes and reductions in other related items.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEARS 2000, 1999 AND 1998
Cash flow from operating activities was $77 million, $116 million and $136
million, in fiscal 2000, 1999 and 1998, respectively.
The fiscal 2000 cash flow from operating activities decreased $39 million. This
reflects increased net income of $30 million offset by the gain on disposition
of foundry assets of $17 million and an increased requirement for operating
capital of $43 million caused by increases in inventories at the end of fiscal
2000 offset by lower accounts receivable. The increase in inventories was
planned as inventories at the end of fiscal 1999 were unusually low. Lower
accounts receivable was caused by lower sales in June 2000 compared to June
1999.
The fiscal 1999 cash flow from operating activities declined $20 million. This
reflects improved net income of $35 million, offset by an increased requirement
for operating capital of $53 million, caused primarily by strong fourth quarter
business which increased year-end receivables and a restoration of inventories
to higher year-end levels.
The fiscal 1998 cash flow from operating activities reflects a $7 million
increase in accounts receivable and an $18 million decrease in inventories
resulting from increased sales late in the last fiscal quarter.
Net cash used in investing activities amounted to $43 million, $67 million and
$45 million in fiscal 2000, 1999 and 1998, respectively. These cash flows
included additions to plant and equipment of $71 million, $66 million and $46
million in fiscal 2000, 1999 and 1998, respectively. The fiscal 2000 capital
expenditures related primarily to reinvestment in equipment, capacity additions
and new products. The fiscal 1999 capital expenditures related primarily to
reinvestment in equipment and new products. The fiscal 1998 capital expenditures
principally related to reinvestment in equipment. The fiscal 2000 cash used in
investing activities is net of $24 million of proceeds received on the
disposition of plant and equipment.
Net cash used in financing activities amounted to $77 million, $73 million and
$119 million in fiscal 2000, 1999 and 1998, respectively. These financing
activities included the repurchase of the Company's common stock, totaling $69
million in 2000, $75 million in 1999 and $86 million in 1998. During fiscal
2000, the Company repaid the remaining $30 million on the 9.21% Senior Notes due
2001. There was no gain or loss associated with this repayment. In fiscal 1999
and 1998, the Company paid $15 million on these notes. These uses of cash
resulted in higher borrowings at July 2, 2000 of $44 million. Proceeds from the
exercise of stock options amounted to $45 million in 1999, substantially higher
than in fiscal 2000 and 1998 due to increased option activities.
Future Liquidity and Capital Resources
The Company has in place a $250 million revolving credit facility to be used to
fund seasonal working capital requirements and other financing needs. This
credit facility expires in April 2002 and contains certain restrictive
covenants.
In April 2000, the Company's Board of Directors approved capital expenditures of
$76 million for fiscal 2001. These anticipated expenditures include capacity
increases, continuing investment in equipment and new products.
In May 1997, the Company filed a shelf registration for $175 million of debt
securities to be issued periodically. Of this, $75 million has not yet been
issued on the registration statement. The Company may decide to offer all or
part of the remaining securities depending on many factors, including general
economic conditions or cash required for operations.
Management believes that available cash, the credit facility, cash generated
from operations, existing lines of credit and access to debt markets will be
adequate to fund the Company's capital requirements for the foreseeable future.
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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 implemented this financial strategy by means of a "dutch
auction" tender offer and a public debt offering in fiscal 1997. The Company
also continued the repurchase of its outstanding common stock in the open market
in fiscal 2000, 1999 and 1998. The Company believes this 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
also believes that the substitution of lower (after-tax) cost debt for equity in
its permanent capital structure will reduce its overall cost of capital and 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.
The share repurchase program authorized by the Board of Directors in fiscal 1997
for $300 million of its common stock was completed in the second quarter of
fiscal 1999. Subsequent to this, the Company has repurchased an additional 2.3
million shares. In June 2000, the Board of Directors authorized additional
purchases of up to 2 million shares.
Also as a part of its financial strategy, subject to the discretion of its Board
of Directors and the requirements of applicable law, the Company currently
intends to increase future cash dividends per share at a rate approximating the
inflation rate.
OTHER MATTERS
Emissions
The U.S. Environmental Protection Agency (EPA) has developed national emission
standards under a two phase process for small air cooled engines. The Company
currently has a complete product offering which complies with EPA's Phase I
engine emission standards. The EPA finalized its Phase II emission standards in
March of 1999. The Phase II program will impose more stringent standards over
the useful life of the engine and will be phased in from 2001 to 2005 for Class
II (225 or greater cubic centimeter displacement) engines and from 2003 to 2008
for Class I (under 225 cubic centimeter displacement) engines. The Company does
not believe compliance with the new standards will have a material adverse
effect on its financial position or results of operations.
The Company implemented a supplemental compliance plan for model year 2000 with
the California Air Resources Board (CARB), as required of companies which sell
more than a threshold number of Class I engines into California. A second plan
for model year 2001 has been submitted to CARB. The objective of the plans is to
achieve additional reductions in extreme non-attainment areas. While CARB's
aggressive program will result in a reduced product offering by the Company in
California, the Company does not believe the California program will have a
material effect on the financial condition or results of operations of the
Company.
New Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Financial
Accounting Standard (FAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities". This new standard as amended will be effective for the
Company in fiscal 2001, and requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Any fair value
changes will be recorded in net income or comprehensive income. The adoption of
this standard will not have a material effect on the Company's financial
statements.
9
<PAGE> 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange and
interest rates. To reduce the risk from changes in foreign exchange rates, the
Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
FOREIGN CURRENCY
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar against foreign currencies primarily as a result of purchasing engines
from its Japanese joint venture. The Company's foreign subsidiaries' earnings
are also influenced by fluctuations of the local currency against the U.S.
dollar as these subsidiaries purchase inventory from the parent in U.S. dollars.
Forward foreign exchange contracts are used to partially hedge against the
earnings effects of such fluctuations. At July 2, 2000, the Company had the
following forward foreign exchange contracts outstanding with the Fair Value
Gains and (Losses) ("FV") shown (in thousands):
<TABLE>
<CAPTION>
CURRENCY
NOTIONAL ----------------
CURRENCY VALUE AMOUNT TYPE FV
-------- --------- ------ ---- --
<S> <C> <C> <C> <C>
Japanese Yen 1,952,789 18,732 U.S. $(404)
U.S. Dollars 3,721 5,760 Australian $ 283
British Pounds 739 1,052 U.S. $ 69
</TABLE>
All of the above contracts expire within thirteen months.
Although the Company sells its domestically produced engines to foreign
customers in U.S. dollars, the Company has shared some of the currency risk with
customers for certain sales transactions. Accordingly, the Company is exposed to
fluctuations in foreign exchange rates, primarily related to the U.S.
dollar/Euro rate. Historically, the Company has managed these risks through
limitations on the amount of sharing provided to customers. These programs were
terminated in fiscal 2000.
Beginning in fiscal 2001, the Company began selling certain products to European
customers for which the Company will receive Euro currency. The Company plans to
manage this exposure to foreign currency fluctuations using foreign exchange
contracts.
Fluctuations in currency exchange rates may also impact the shareholders'
investment in the Company. Amounts invested in the Company's non-U.S.
subsidiaries are translated into U.S. dollars at the exchange rates in effect at
year end. The resulting translation adjustments are recorded in shareholders'
investment as cumulative translation adjustments. The cumulative translation
adjustments component of shareholders' investment decreased $1.8 million during
the year. Using the year-end exchange rates, the total amount invested in
subsidiaries at July 2, 2000 was approximately $21.5 million.
INTEREST RATES
The Company is exposed to interest rate fluctuations on its borrowings. The
Company manages its interest rate exposure through a combination of fixed and
variable rate debt. Depending on general economic conditions, the Company has
typically used variable rate debt for short-term borrowings and fixed rate debt
for longer-term borrowings.
At July 2, 2000, the Company had the following short-term loans outstanding
(amount in thousands):
<TABLE>
<CAPTION>
Average Annual
Currency Amount Interest Rate
-------- ------ -------------
<S> <C> <C>
German Mark 22,684 5.25%
Dutch Guilder 1,399 5.00%
Canadian Dollars 2,480 6.50%
U.S. Dollars 48,809 6.16%
</TABLE>
All of the above loans carry variable interest rates.
Long-term loans consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
Description Amount Maturity
----------- ------ --------
<S> <C> <C>
7.25% Notes $98,512 2007
</TABLE>
The above loan carries a fixed rate of interest.
10
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 2, 2000, JUNE 27, 1999, AND JUNE 28, 1998 (in
thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES .............................. $ 1,590,557 $ 1,501,726 $ 1,327,610
COST OF GOODS SOLD ..................... 1,251,103 1,196,371 1,072,936
----------- ----------- -----------
Gross Profit on Sales ............... 339,454 305,355 254,674
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............... 134,225 125,219 129,986
----------- ----------- -----------
Income from Operations .............. 205,229 180,136 124,688
INTEREST EXPENSE ....................... (21,267) (17,024) (19,352)
GAIN ON DISPOSITION OF FOUNDRY ASSETS .. 16,545 -- --
OTHER INCOME, Net ...................... 16,116 6,659 7,809
----------- ----------- -----------
Income Before Provision
for Income Taxes .................... 216,623 169,771 113,145
PROVISION FOR INCOME TAXES ............. 80,150 63,670 42,500
----------- ----------- -----------
NET INCOME ............................. $ 136,473 $ 106,101 $ 70,645
=========== =========== ===========
Average Shares Outstanding .......... 22,788 23,344 24,666
BASIC EARNINGS PER SHARE ............... $ 5.99 $ 4.55 $ 2.86
=========== =========== ===========
Diluted Average Shares Outstanding .. 22,842 23,459 24,775
DILUTED EARNINGS PER SHARE ............. $ 5.97 $ 4.52 $ 2.85
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
11
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
AS OF JULY 2, 2000 AND JUNE 27, 1999
(in thousands)
<TABLE>
<CAPTION>
ASSETS 2000 1999
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents ................................... $ 16,989 $ 60,806
Receivables, Less Reserves of $1,544 and $1,516, Respectively 140,097 194,096
Inventories -
Finished Products and Parts ................................ 181,800 72,196
Work in Process ............................................ 70,908 59,665
Raw Materials .............................................. 5,066 5,587
-------- --------
Total Inventories ........................................ 257,774 137,448
Future Income Tax Benefits .................................. 39,138 34,383
Prepaid Expenses ............................................ 17,999 16,119
-------- --------
Total Current Assets ..................................... 471,997 442,852
INVESTMENTS ................................................... 50,228 19,024
PREPAID PENSION ............................................... 5,506 --
DEFERRED INCOME TAX ASSETS .................................... -- 2,039
CAPITALIZED SOFTWARE .......................................... 6,934 7,516
PLANT AND EQUIPMENT:
Land and Land Improvements .................................. 15,087 16,024
Buildings ................................................... 139,588 151,035
Machinery and Equipment ..................................... 651,740 651,129
Construction in Progress .................................... 32,240 41,660
-------- --------
838,655 859,848
Less - Accumulated Depreciation ............................. 443,075 455,394
-------- --------
Total Plant and Equipment, Net ........................... 395,580 404,454
-------- --------
$930,245 $875,885
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
12
<PAGE> 15
AS OF JULY 2, 2000 AND JUNE 27, 1999
(in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2000 1999
---- ----
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable ............................ $ 117,556 $ 117,757
Domestic Notes Payable ...................... 48,809 4,335
Foreign Loans ............................... 13,356 13,824
Current Maturities on Long-Term Debt ........ -- 15,000
Accrued Liabilities -
Wages and Salaries ........................ 39,464 38,744
Warranty .................................. 46,352 36,978
Other ..................................... 42,622 43,963
--------- ---------
Total Accrued Liabilities ............... 128,438 119,685
Federal and State Income Taxes .............. 4,619 11,901
--------- ---------
Total Current Liabilities ............... 312,778 282,502
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT 15,679 15,798
DEFERRED INCOME TAX LIABILITY ................. 4,011 --
ACCRUED PENSION COST .......................... 11,428 17,306
ACCRUED EMPLOYEE BENEFITS ..................... 12,607 13,185
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION . 65,765 67,877
LONG-TERM DEBT ................................ 98,512 113,307
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT:
Common Stock -
Authorized 60,000 Shares $.01 Par Value,
Issued 28,927 in 2000 and 1999 .......... 289 289
Additional Paid-In Capital .................. 36,478 37,657
Retained Earnings ........................... 721,980 612,807
Accumulated Other Comprehensive Loss ........ (3,931) (1,732)
Unearned Compensation on Restricted Stock ... (226) (235)
Treasury Stock at cost,
7,181 Shares in 2000 and 5,727 in 1999 .... (345,125) (282,876)
--------- ---------
Total Shareholders' Investment .......... 409,465 365,910
--------- ---------
$ 930,245 $ 875,885
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
13
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED JULY 2, 2000, JUNE 27, 1999, AND JUNE 28, 1998 (in
thousands)
<TABLE>
<CAPTION>
Accumulated Unearned
Additional Other Com- Compensation
Common Paid-In Retained prehensive on Restricted Treasury Comprehensive
Stock Capital Earnings Income (Loss) Stock Stock Income
----- ------- -------- ------------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 29, 1997 ....... $ 289 $ 40,533 $ 490,682 $ (1,033) $ -- $(179,374)
Comprehensive Income -
Net Income .................. -- -- 70,645 -- -- -- $ 70,645
Foreign Currency Translation
Adjustments ................ -- -- -- (1,077) -- -- (1,077)
---------
Total Comprehensive Income .. -- -- -- -- -- -- $ 69,568
=========
Cash Dividends Paid
($1.12 per share) ........... -- -- (27,522) -- -- --
Purchase of Common Stock
for Treasury ................ -- -- -- -- -- (85,943)
Exercise of Stock Options ..... -- (2,757) -- -- -- 12,045
-------------------------------------------------------------------------------
BALANCES, JUNE 28, 1998 ....... $ 289 $ 37,776 $ 533,805 $ (2,110) $ -- $(253,272)
Comprehensive Income -
Net Income .................. -- -- 106,101 -- -- -- $ 106,101
Foreign Currency Translation
Adjustments ................ -- -- -- (199) -- -- (199)
Unrealized Gain on Marketable
Securities, net of
tax of $368 ................ -- -- -- 577 -- -- 577
---------
Total Comprehensive Income .. -- -- -- -- -- -- $ 106,479
=========
Cash Dividends Paid
($1.16 per share) ........... -- -- (27,099) -- -- --
Purchase of Common Stock
for Treasury ................ -- -- -- -- -- (75,141)
Exercise of Stock Options ..... -- (13) -- -- -- 45,143
Restricted Stock Issued ....... -- (106) -- -- (288) 394
Amortization of Unearned
Compensation ................ -- -- -- -- 53 --
-------------------------------------------------------------------------------
BALANCES, JUNE 27, 1999 ....... $ 289 $ 37,657 $ 612,807 $ (1,732) $ (235) $(282,876)
Comprehensive Income -
Net Income .................. -- -- 136,473 -- -- -- $ 136,473
Foreign Currency Translation
Adjustments ................ -- -- -- (1,816) -- -- (1,816)
Unrealized Loss on Marketable
Securities, net of
tax of $241 ................ -- -- -- (383) -- -- (383)
---------
Total Comprehensive Income .. -- -- -- -- -- -- $ 134,274
=========
Cash Dividends Paid
($1.20 per share) ........... -- -- (27,300) -- -- --
Purchase of Common Stock
for Treasury ................ -- -- -- -- -- (69,083)
Exercise of Stock Options ..... -- (1,189) -- -- -- 6,784
Restricted Stock Issued ....... -- 10 -- -- (60) 50
Amortization of Unearned
Compensation ................ -- -- -- -- 69 --
-------------------------------------------------------------------------------
BALANCES, JULY 2, 2000 ........ $ 289 $ 36,478 $ 721,980 $ (3,931) $ (226) $(345,125)
===============================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
14
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JULY 2, 2000, JUNE 27, 1999, AND JUNE 28, 1998 (in
thousands)
<TABLE>
<CAPTION>
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income ............................................... $ 136,473 $ 106,101 $ 70,645
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and Amortization ........................... 51,370 49,604 47,716
Equity in Earnings of Unconsolidated Affiliates ......... (13,333) (5,275) (4,446)
(Gain) Loss on Disposition of Plant and Equipment ....... (14,167) 2,355 1,973
Provision for Deferred Income Taxes ..................... 1,542 4,052 7,735
Change in Operating Assets and Liabilities -
(Increase) Decrease in Receivables ..................... 51,837 (58,738) (6,752)
(Increase) Decrease in Inventories ..................... (121,685) (29,570) 18,081
(Increase) Decrease in Prepaid Expenses ................ (2,391) (3,766) 272
Increase in Accounts Payable,
Accrued Liabilities and Income Taxes .................. 1,413 61,697 8,274
Other, Net ............................................. (13,577) (10,748) (7,676)
---------- --------- ---------
Net Cash Provided by Operating Activities ............. 77,482 115,712 135,822
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment ......................... (71,441) (65,998) (45,893)
Proceeds Received on Disposition of Plant and Equipment .. 23,511 1,142 620
Other, Net ............................................... 5,142 (1,764) 568
---------- --------- ---------
Net Cash Used in Investing Activities ................. (42,788) (66,620) (44,705)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes Payable ... 44,005 (401) 677
Repayment on 9.21% Senior Notes Due 2001 ................. (30,000) (15,000) (15,000)
Cash Dividends Paid ...................................... (27,300) (27,099) (27,522)
Purchase of Common Stock for Treasury .................... (69,083) (75,141) (85,943)
Proceeds from Exercise of Stock Options .................. 5,561 45,130 9,288
---------- --------- ---------
Net Cash Used in Financing Activities .................. (76,817) (72,511) (118,500)
---------- --------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS ..................... (1,694) (302) (949)
---------- --------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS ......................................... (43,817) (23,721) (28,332)
CASH AND CASH EQUIVALENTS:
Beginning of Year ........................................ 60,806 84,527 112,859
---------- --------- ---------
End of Year .............................................. $ 16,989 $ 60,806 $ 84,527
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Paid ............................................ $ 21,407 $ 17,025 $ 17,989
========== ========= =========
Income Taxes Paid ........................................ $ 84,535 $ 54,491 $ 33,352
========== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 2, 2000, JUNE 27, 1999, AND JUNE 28, 1998
(1) NATURE OF OPERATIONS:
Briggs & Stratton Corporation (the Company) is a U.S. based producer of air
cooled gasoline engines. These engines are sold worldwide, primarily to original
equipment manufacturers of lawn and garden equipment and other gasoline engine
powered equipment.
(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 2000 fiscal
year was 53 weeks long and the 1999 and 1998 fiscal years were 52 weeks long.
All references to years relate to fiscal years rather than calendar years.
Principles of Consolidation: The consolidated financial statements include the
accounts of Briggs & Stratton Corporation and its wholly owned domestic and
foreign subsidiaries after elimination of intercompany accounts and
transactions.
Accounting Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: This caption includes cash, commercial paper and
certificates of deposit. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at cost, which does not exceed market. The
last-in, first-out (LIFO) method was used for determining the cost of
approximately 91% of total inventories at July 2, 2000, 89% at June 27, 1999 and
88% at June 28, 1998. 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
$45,200,000, $43,900,000 and $48,100,000 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.
Investments: This caption represents the Company's investments in five 50%-owned
foreign joint ventures, preferred stock in a privately-held iron castings
business and common stock in a publicly traded software company. The common
stock in the publicly traded company is being classified as available-for-sale
and is reported at a fair market value of $2,100,000 as of July 2, 2000 and
$2,730,000 as of June 27, 1999. The unrealized gain incurred on this stock is
recorded as Unrealized Gain on Marketable Securities in the Shareholders'
Investment section of the balance sheet. The investments in the five joint
ventures and the privately held business are accounted for under the equity
method.
Capitalized Software: This caption represents costs of software used in the
Company's business. Amortization of Capitalized Software is computed on an
item-by-item basis over a period of three to ten years, depending on the
estimated useful life of the software. Accumulated amortization amounted to
$6,173,000 as of July 2, 2000 and $5,655,000 as of June 27, 1999.
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.
16
<PAGE> 19
NOTES...
Deferred Revenue on Sale of Plant & Equipment: In fiscal 1997, the Company sold
its Menomonee Falls, Wisconsin facility for approximately $16.0 million. The
provisions of the contract state that the Company will continue to own and
occupy the warehouse portion of the facility for a period of up to ten years
(the "Reservation Period"). The contract also contains a buyout clause, at the
buyer's option and under certain circumstances, of the remaining Reservation
Period. Under the provisions of Statement of Financial Accounting Standards
(FAS) No. 66, "Accounting for Sales of Real Estate," the Company is required to
account for this as a financing transaction as the Company continues to have
substantial involvement with the facility during the Reservation Period or until
the buyout option is exercised. Under this method, the cash received is
reflected as a deferred revenue, and the assets and the accumulated depreciation
remain on the Company's books. Depreciation expense continues to be recorded
each period, and imputed interest expense is also recorded and added to deferred
revenue. Offsetting this is the imputed fair value lease income on the
non-Company occupied portion of the building. A pretax gain, which will be
recognized at the earlier of the exercise of the buyout option or the expiration
of the Reservation Period, is estimated to be $10 million to $12 million. The
annual cost of operating the warehouse portion of the facility is not material.
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 the financial statement and tax basis of assets
and liabilities. The Future Income Tax Benefits represent temporary differences
relating to current assets and current liabilities and the Deferred Income Tax
Assets/Liabilities 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 $24,305,000 in 2000, $17,920,000 in 1999, and $19,950,000 in 1998. Included
in the fiscal 1998 amounts were software development costs related to the
Company's software business of $3,136,000.
Advertising Costs: Advertising costs, included in Engineering, Selling, General
and Administrative Expenses on the accompanying Consolidated Statements of
Earnings, are expensed as incurred. These expenses totaled $8,078,000 in 2000
$7,724,000 in 1999, and $7,325,000 in 1998.
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.
Earnings Per Share: The Company's earnings per share were computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share, for each period presented, were
computed on the assumption that stock options were exercised at the beginning of
the periods reported. The difference between weighted average shares outstanding
and diluted average shares outstanding reflects the dilutive effects of stock
options.
Earnings per share of common stock are computed based on the weighted average
number of shares outstanding during each period. The Company's ongoing share
repurchase program may affect the year-to-date comparisons.
Comprehensive Income: During fiscal 1999 the Company adopted Statement of
Financial Accounting Standard (FAS) No. 130, "Reporting Comprehensive Income".
This statement 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. The
Company has chosen to report Comprehensive
17
<PAGE> 20
NOTES....
Income and Accumulated Other Comprehensive Income (Loss) which encompasses net
income, unrealized gain (loss) on marketable securities and foreign currency
translation in the Consolidated Statements of Shareholders' Investment.
Information on accumulated other comprehensive income (loss) is as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Unrealized Accumulated
Gain (Loss) Other Com-
on Cumulative prehensive
Marketable Translation Income
Securities Adjustments (Loss)
---------- ----------- -----------
<S> <C> <C> <C>
Balance at June 29, 1997 . $ -- $(1,033) $(1,033)
Current year change ...... -- (1,077) (1,077)
------- ------- -------
Balance at June 28, 1998 . -- (2,110) (2,110)
Current year change ...... 577 (199) 378
------- ------- -------
Balance at June 27, 1999 . 577 (2,309) (1,732)
Current year change ...... (383) (1,816) (2,199)
------- ------- -------
Balance at July 2, 2000 .. $ 194 $(4,125) $(3,931)
======= ======= =======
</TABLE>
Derivatives: The Company uses derivative financial instruments to manage its
foreign currency exposures. Gains and losses relating to hedges of probable
transactions with noncontrolled subsidiaries and third parties are deferred and
recognized as adjustments of carrying amounts when the transaction occurs. Gains
and losses on hedges of transactions that are not probable of occurring and
hedges of transactions with controlled subsidiaries are recognized in the
Company's results of operations.
In June 1998 the Financial Accounting Standards Board issued Financial
Accounting Standard (FAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities". This new standard as amended will be effective for the
Company in fiscal 2001, and requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Any fair value
changes will be recorded in net income or comprehensive income. The adoption of
this standard will not have a material effect on the Company's financial
statements.
Reclassification: Certain amounts in prior year financial statements have been
reclassified to conform to current year presentation.
(3) INCOME TAXES:
The provision for income taxes consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current
Federal ................ $66,169 $51,344 $29,295
State .................. 10,425 7,014 4,442
Foreign ................ 2,014 1,260 1,028
------- ------- -------
78,608 59,618 34,765
Deferred ................ 1,542 4,052 7,735
------- ------- -------
Total ................... $80,150 $63,670 $42,500
======= ======= =======
</TABLE>
A reconciliation of the U.S. statutory tax rates to the effective tax rates
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate ..... 35.0% 35.0% 35.0%
State taxes, net of
Federal tax benefit .... 3.2% 2.9% 3.1%
Foreign Sales Corporation
tax benefit ............ (.5%) (.5%) (.8%)
Other ................... (.7%) .1% .3%
---- ---- ----
Effective tax rate ...... 37.0% 37.5% 37.6%
==== ==== ====
</TABLE>
The components of deferred income taxes at the end of the fiscal year were (in
thousands of dollars):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Future Income Tax Benefits:
Inventory ........................... $ 4,152 $ 3,402
Payroll related accruals ............ 4,539 4,363
Warranty reserves ................... 18,077 14,421
Other accrued liabilities ........... 11,011 12,026
Miscellaneous ....................... 1,359 171
------- --------
$39,138 $34,383
======= =======
</TABLE>
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred Income Taxes:
Difference between book and
tax methods applied to
maintenance and supply
inventories ..................... $ 11,429 $ 11,463
Pension cost ..................... (1,338) 3,345
Accumulated depreciation ......... (53,719) (56,131)
Accrued employee benefits ........ 9,405 9,142
Postretirement
health care obligation ......... 25,649 26,472
Deferred revenue on sale
of plant & equipment ........... 6,115 6,161
Miscellaneous .................... (1,552) 1,587
-------- --------
$ (4,011) $ 2,039
======== ========
</TABLE>
18
<PAGE> 21
NOTES...
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 $7,120,000 at
July 2, 2000. 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) GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS:
The Company reviewed the criteria for determining operating segments in
accordance with FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" and concluded that it operates as one segment. Geographic
sales by the location in which the sale originated is as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
United States ....... $1,501,723 $1,422,988 $1,258,609
All Other Countries.. 88,834 78,738 69,001
---------- ---------- ----------
Total ............... $1,590,557 $1,501,726 $1,327,610
========== ========== ==========
</TABLE>
The Company has no material long lived assets in an individual foreign country.
In the fiscal years 2000, 1999 and 1998, there were sales to three major engine
customers that individually 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>
2000 1999 1998
---- ---- ----
Customer Sales % Sales % Sales %
-------- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
A $287,769 18% $250,755 17% $235,552 18%
B 229,873 15% 219,209 14% 203,931 15%
C 190,659 12% 161,857 11% 165,937 13%
-------- --- -------- --- -------- ---
$708,301 45% $631,821 42% $605,420 46%
======== === ======== === ======== ===
</TABLE>
(5) INDEBTEDNESS:
The Company has access to a $250,000,000 revolving credit facility (the Credit
Facility) which expires in April 2002. The Company also has access to additional
domestic lines of credit totaling $18,000,000 which remain in effect until
canceled by either party. They provide amounts for short-term use at the then
prevailing rate. There are no significant compensating balance requirements for
any of these lines. There were borrowings of $45 million at July 2, 2000 using
these lines or the Credit Facility and are included in domestic notes payable.
Borrowings under the Credit Facility by the Company bear interest at a rate per
annum equal to, at its option, either:
(1) the higher of (a) the bank's reference rate or (b) 0.5% per annum above the
Federal Funds rate; or
(2) LIBOR plus a margin that may be adjusted up or down based on the Company's
debt ratings.
The Credit Facility contains restrictive covenants that require the Company to
maintain certain financial conditions including a maximum limit on the ratio of
debt to capital and a minimum fixed charge coverage ratio. The Credit Facility
imposes limitations on liens, indebtedness, the sales of assets and certain
investments.
The following data relates to domestic notes payable (in thousands of dollars):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Balance at
Fiscal Year End ........... $ 48,809 $ 4,335
Weighted Average
Interest Rate at
Fiscal Year End ........... 6.91% 5.31%
</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 $3,380,000, expire at various times
through April, 2001 and are renewable. There were borrowings of $2 million at
July 2, 2000 using these lines of credit and are included in foreign loans. None
of these arrangements had material commitment fees or compensating balance
requirements.
The following information relates to foreign loans (in thousands of dollars):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Balance at
Fiscal Year End ............ $ 13,356 $ 13,824
Weighted Average
Interest Rate at
Fiscal Year End ............ 5.40% 5.30%
</TABLE>
19
<PAGE> 22
NOTES...
The Long-Term Debt caption consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
9.21% Senior Notes
at Face Amount ............... $ -- $ 30,000
7.25% Notes Due 2007, Net of
Unamortized Discount of
$1,488 in 2000 and
$1,693 in 1999 ............... 98,512 98,307
-------- --------
$ 98,512 $128,307
Less Current Maturities ....... -- 15,000
-------- --------
Total Long-Term Debt ......... $ 98,512 $113,307
======== ========
</TABLE>
During fiscal 2000, the Company repaid the remaining $30 million on the 9.21%
Senior Notes due 2001. There was no gain or loss associated with this repayment.
In fiscal 1999 the Company paid $15 million on these notes.
The 7.25% notes are due September 15, 2007. No principal payments are due before
that date. These notes have covenants that limit secured funded debt and certain
sale-leaseback transactions.
(6) OTHER INCOME:
The components of other income (expense) are (in thousands of dollars):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Interest income ........ $ 1,589 $ 1,993 $ 2,720
Loss on the
disposition of
plant and equipment.... (2,378) (2,355) (1,973)
Income from joint
ventures .............. 14,364 5,442 5,232
Other items ............ 2,541 1,579 1,830
-------- -------- --------
Total .................. $ 16,116 $ 6,659 $ 7,809
======== ======== ========
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES:
The Company is a 50% guarantor on bank loans of two unconsolidated joint
ventures. They are in the United States for the manufacture of parts and in
India for the manufacture of engines and parts. These bank loans totaled
approximately $3,100,000 at July 2, 2000.
Product and general liability claims arise against the Company from time to time
in the ordinary course of business. The Company is generally self-insured for
future claims up to $1 million per claim. Accordingly, a reserve is maintained
for the estimated costs of such claims. At July 2, 2000 and June 27, 1999 the
reserve for product and general liability claims was $4.0 million and $6.8
million, respectively, based on available information. There is inherent
uncertainty as to the eventual resolution of unsettled claims. Management,
however, believes that any losses in excess of established reserves will not
have a material effect on the Company's financial condition or results of
operations.
The Company has no material commitments for materials or capital expenditures at
July 2, 2000.
(8) STOCK OPTIONS:
The Company has a Stock Incentive Plan under which 5,361,935 shares of common
stock have been reserved for issuance. The Company accounts for the plan under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these plans been determined
consistent with FAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net Income (in thousands):
As Reported .................... $ 136,473 $ 106,101 $ 70,645
Pro Forma ...................... $ 134,600 $ 105,283 $ 69,574
Basic Earnings Per Share:
As Reported .................... $ 5.99 $ 4.55 $ 2.86
Pro Forma ...................... $ 5.91 $ 4.51 $ 2.82
Diluted Earnings Per Share:
As Reported .................... $ 5.97 $ 4.52 $ 2.85
Pro Forma ...................... $ 5.89 $ 4.49 $ 2.81
</TABLE>
Because the FAS No. 123 method of accounting has not been applied to options
granted prior to July 2, 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
20
<PAGE> 23
NOTES...
Information on the options outstanding is as follows:
<TABLE>
<CAPTION>
Wtd. Avg.
Shares Ex. Price
------ ---------
<S> <C> <C>
Balance, June 29, 1997...... 1,786,712 $ 43.95
Granted during the year..... 241,980 65.69
Exercised during the year... (236,873) 35.65
----------
Balance, June 28, 1998...... 1,791,819 $ 47.98
Granted during the year..... 354,020 44.98
Exercised during the year... (926,000) 45.30
Expired during the year..... (177,828) 48.37
----------
Balance, June 27, 1999...... 1,042,011 $ 49.28
Granted during the year..... 471,020 $ 74.53
Exercised during the year... (151,033) 38.49
Expired during the year .... (58,970) 67.55
----------
Balance, July 2, 2000....... 1,303,028 $ 58.83
==========
</TABLE>
<TABLE>
<CAPTION>
Grant Summary
------------------------------------------------------------------
Fiscal Grant Exercise Date Options Expiration
Year Date Price (a) Exercisable Outstanding Date
---- ---- --------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
1991 2-19-91 14.524 50%, 1-1-95; 2,072 2-18-01
50%, 1-1-96
1992 5-18-92 21.525 50%, 1-1-96; 40,654 5-17-02
50%, 1-1-97
1996 8-7-95 49.080 8-7-98 180,738 8-7-00
1997 8-6-96 53.300 8-6-99 86,584 8-6-01
1998 8-5-97 65.690 8-5-00 233,480 8-5-02
1999 8-5-98 44.980 8-5-01 327,560 8-5-03
2000 8-4-99 74.530 8-4-02 431,940 8-4-04
</TABLE>
There were no options granted in fiscal 1993. Options granted in fiscal years
1990 and 1995 expired in fiscal 2000, and options granted in fiscal 1994 expired
in fiscal 1999.
(a) Exercise prices of earlier grants have been adjusted as appropriate to
reflect a two-for-one stock split in October 1994 and the spin-off of the
Company's lock business in February 1995.
The fair value of each option is estimated using the Black-Scholes option
pricing model. The grant-date fair market value of the options and assumptions
used to determine such value are as follows:
<TABLE>
<CAPTION>
Options granted during 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Grant date fair value......... $13.07 $5.04 $5.98
Assumptions:
Risk-free interest rates..... 6.0% 5.4% 6.1%
Expected volatility.......... 30.1% 22.3% 20.4%
Expected dividend yield...... 2.5% 2.5% 2.6%
Expected term (in years)..... 5.0 5.0 5.0
</TABLE>
(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.
(10) FOREIGN EXCHANGE RISK MANAGEMENT:
The Company enters into forward exchange contracts to hedge purchase commitments
denominated in foreign currencies. The term of these currency derivatives does
not exceed thirteen months 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 1.8
billion Japanese yen for $17 million through September, 2000. 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 2000 fiscal year.
At July 2, 2000 the loss on these contracts at fair value totaled $300,000.
The Company's foreign subsidiaries have the following forward currency contracts
outstanding at the end of fiscal 2000:
<TABLE>
<CAPTION>
In Millions
---------------
Local Latest
Currency Currency Amount Dollars Expiration Date
-------- -------- ------ ------- ---------------
<S> <C> <C> <C> <C>
Japanese Yen 172.6 1.7 U.S. July 2001
U.S. Dollars 3.7 5.8 Australian December 2000
British Pounds .7 1.1 U.S. March 2001
</TABLE>
At July 2, 2000 the gain on these contracts at fair value totaled $248,000.
21
<PAGE> 24
NOTES...
(11) EMPLOYEE BENEFIT COSTS:
Retirement Plan and Postretirement Benefits
The Company has noncontributory, defined benefit retirement plans and
postretirement benefit plans covering most Wisconsin employees. Effective the
last quarter of fiscal 1999, the Company adopted FAS 132 "Disclosures about
Pensions and Other Postretirement Benefits". The following provides a
reconcilation of obligations, plan assets and funded status of the plans for the
two years indicated, (dollars in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial Assumptions:
----------------------
Discounted Rate Used to Determine Present
Value of Projected Benefit Obligation.......... 7.5% 7.0% 7.5% 7.0%
Expected Rate of Future Compensation
Level Increases................................ 5.0% 5.0% n/a n/a
Expected Long-Term Rate of Return on
Plan Assets ................................... 9.0% 9.0% n/a n/a
Change in Benefit Obligations:
------------------------------
Actuarial Present Value of Benefit Obligations
at Beginning of Year .......................... $ 689,397 $ 649,083 $ 109,485 $ 96,580
Service Cost.................................... 10,622 10,073 1,307 1,437
Interest Cost................................... 47,475 44,911 7,343 6,466
Acturial (Gain) Loss............................ (37,124) 27,865 (6,657) 15,924
Benefits Paid................................... (43,978) (42,535) (11,685) (10,922)
--------- --------- --------- ---------
Acturial Present Value of Benefit Obligation
at End of Year................................. $ 666,392 $ 689,397 $ 99,793 $ 109,485
--------- --------- --------- ---------
Change in Plan Assets:
----------------------
Plan Assets at Fair Value at Beginning of Year.. $ 886,422 $ 845,955 $ -- $ --
Actual Return on Plan Assets.................... 108,544 82,474 -- --
Employer Contributions.......................... 769 528 11,685 10,922
Benefits Paid................................... (43,978) (42,535) (11,685) (10,922)
--------- --------- --------- ---------
Plan Assets at Fair Value at End of Year $ 951,757 $ 886,422 $ -- $ --
--------- --------- --------- ---------
Plan Assets in Excess of (Less Than) Projected
Benefit Obligation............................. $ 285,365 $ 197,025 $ (99,793) $(109,485)
Remaining Unrecognized Net Obligation (Asset)... (9,995) (15,301) 368 414
Unrecognized Net Loss (Gain).................... (285,144) (201,227) 17,221 24,989
Unrecognized Prior Service Cost................. 3,024 1,475 134 165
--------- --------- --------- ---------
Net Amount Recognized at End of Year............ $ (6,750) $ (18,028) $ (82,070) $ (83,917)
========= ========= ========= =========
Amounts Recognized on the Balance Sheets:
-----------------------------------------
Prepaid Pension................................. $ 5,506 $ -- $ -- $ --
Accrued Pension Cost............................ (11,428) (17,306) -- --
Accrued Wages and Salaries...................... (828) (722) -- --
Accrued Post Retirement Health Care Obligation.. -- -- (65,765) (67,877)
Other Accruals.................................. -- -- (4,800) (4,800)
Accrued Employee Benefits....................... -- -- (11,505) (11,240)
--------- --------- --------- ---------
Net Amount Recognized at End of Year............ $ (6,750) $ (18,028) $ (82,070) $ (83,917)
========= ========= ========= =========
</TABLE>
22
<PAGE> 25
NOTES...
The following table summarizes the plans' income and expense for the three years
indicated (dollars in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost:
----------------------------------------
Service Cost-Benefits Earned During the Year.... $ 10,622 $ 10,073 $ 9,491 $ 1,307 $ 1,437 $ 1,206
Interest Cost on Projected Benefit Obligation... 47,475 44,911 44,531 7,343 6,466 6,773
Expected Return on Plan Assets.................. (63,845) (58,252) (53,881) -- -- --
Amoritization of:
Transition Obligation (Asset)................ (5,306) (5,306) (5,236) 46 47 47
Prior Service Cost........................... 186 (106) (106) 31 71 71
Actuarial (Gain) Loss........................ 359 291 273 1,111 41 --
-------- -------- -------- -------- -------- --------
Net Periodic Benefit Expense (Income).......... $(10,509) $ (8,389) $ (4,928) $ 9,838 $ 8,062 $ 8,097
======== ======== ======== ======== ======== ========
</TABLE>
As described in Note 13, the Company contributed its two ductile iron foundries
to Metal Technologies Holding Company, Inc. (MTHC). In connection with the
contribution, MTHC agreed to assume pension and postretirement benefit
obligations related to employees working at the foundries at the time of the
transaction. The Company agreed to transfer to MTHC pension assets amounting to
$11.3 million plus accrued interest from the date of the contribution to the
date of the transfer. A condition of the pension asset transfer requires MTHC to
establish a qualified pension plan and to obtain a favorable tax determination
letter from the Internal Revenue Service. MTHC expects to receive the
determination letter in early fiscal 2001. As the conditions to the transfer
have not been fulfilled as of July 2, 2000, the foregoing benefit obligations
and asset information has not been adjusted to reflect the assumption of
obligations by MTHC or the transfer of pension assets. The assumption of
obligations by MTHC and transfer of pension assets will not result in a gain or
loss to the Company.
The Company's supplemental pension plan has benefit obligations in excess of
plan assets. The benefit obligation, accumulated benefit obligation and fair
value of plan assets were $17,740,000, $14,941,000 and $0 respectively for the
2000 fiscal year, and $16,555,000, $13,975,000 and $0, respectively for the 1999
fiscal year. The postretirement benefit plans are unfunded.
For the other postretirement benefit plans, the assumed early retirement rates
were adjusted for participants with over 30 years of service in fiscal 1999. In
addition, the postretirement medical coverage was limited to 10 years for
coverage prior to age 65. The impact of these changes was not material.
For measurement purposes a 9% annual rate of increase in the per capita cost of
covered health care claims was assumed for the years 2001 through 2002,
decreasing gradually to 6% for the year 2009. The health care cost trend rate
assumption has a significant effect on the amounts reported. An increase of one
percentage point, would increase the accumulated postretirement benefit by
$6,155,000, and would increase the service and interest cost by $757,000 for the
year. A corresponding decrease of one percentage point, would decrease the
accumulated postretirement benefit by $5,792,000 and decrease the service and
interest cost by $713,000 for the year.
Defined Contribution Plans
The Company has a defined contribution retirement plan that includes most U.S.
non-Wisconsin employees. Under the plan the Company makes a contribution on
behalf of covered employees equal to 2% of each participant's gross income, as
defined. For the fiscal years 2000, 1999 and 1998, the cost to the Company was
$2,095,000, $1,919,000 and $1,641,000, respectively.
Wisconsin 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
23
<PAGE> 26
NOTES...
totaled $4,559,000 in 2000, $4,213,000 in 1999 and $3,918,000 in 1998.
Postemployment Benefits
The Company accrues the expected cost of postemployment benefits over the years
that the employees render service. These benefits are substantially smaller
amounts because they apply only to employees who permanently terminate
employment prior to retirement. The items include disability payments, life
insurance and medical benefits. These amounts are also discounted using a 7.5%
interest rate. Amounts are included in Accrued Employee Benefits in the balance
sheet.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents, Domestic Notes Payable and Foreign Loans: The
carrying amounts approximate fair value because of the short maturity of those
instruments.
Long-Term Debt: The fair value of the Company's long-term debt is estimated
based on quotations made on similar issues.
The estimated fair values of the Company's financial instruments are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
2000
----------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents.......$16,989 $16,989
Domestic notes payable..........$48,809 $48,809
Foreign loans ..................$13,356 $13,356
Long-term debt -
7.25% Notes due 2007..........$98,512 $98,633
<CAPTION>
1999
----------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents.......$60,806 $60,806
Domestic notes payable..........$ 4,335 $ 4,335
Foreign loans...................$13,824 $13,824
Long-term debt -
9.21% Senior Notes due 2001,
including current maturities..$30,000 $30,678
7.25% Notes due 2007..........$98,307 $97,545
</TABLE>
(13) DISPOSITION OF BUSINESSES:
At the end of August 1999, the Company contributed its two ductile iron
foundries to 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. 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 is the primary supplier to Briggs &
Stratton Corporation of iron castings.
In September 1998, the Company completed the sale of its POWERCOM software
business. The proceeds on the sale were in the form of marketable securities,
and are included in investments on the balance sheet. This sale did not result
in any material gains or losses.
24
<PAGE> 27
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 July 2,
2000 and June 27, 1999, and the related consolidated statements of earnings,
shareholders' investment and cash flow for each of the three years in the period
ended July 2, 2000. 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 auditing standards generally accepted
in the United States. 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 July 2, 2000 and June 27, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
July 2, 2000, in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
July 27, 2000.
25
<PAGE> 28
QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
In Thousands Per Share of Common Stock
------------------------------------ ----------------------------------------
Market Price Range
on New York
Stock Exchange
Quarter Net Gross Net Net Dividends --------------
Ended Sales Profit Income Income Declared High Low
----- ----- ------ ------ ------ -------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 2000
-----------
September $ 298,933 $ 55,382 $ 25,703 $ 1.10 $ .30 $63.63 $55.88
December 422,238 99,723 41,144 1.77 .30 59.63 49.75
March 468,678 101,840 42,056 1.84 .30 53.88 31.00
June 400,708 82,509 27,570 1.24 .30 44.63 34.25
---------- ---------- ---------- -------- -------
Total $1,590,557 $ 339,454 $ 136,473 $ 5.97 * $ 1.20
========== ========== ========== ======== =======
Fiscal 1999
-----------
September $ 223,981 $ 37,612 $ 4,441 $ .19 $ .29 $43.50 $33.69
December 359,943 71,471 24,637 1.05 .29 52.44 38.44
March 476,259 102,831 41,813 1.79 .29 56.38 46.69
June 441,543 93,441 35,210 1.51 .29 70.94 49.25
---------- ---------- ---------- -------- ------
Total $1,501,726 $ 305,355 $ 106,101 $ 4.52 * $ 1.16
========== ========== ========== ======== ======
</TABLE>
The number of record holders of Briggs & Stratton Corporation Common Stock on
August 24, 2000 was 4,345.
Net Income per share of Common Stock represents Diluted Earnings per
Share.
* See Note 2 to Consolidated Financial Statements, for information
about earnings per share. Amounts do not total because of differing numbers of
shares outstanding at the end of each quarter.
26
<PAGE> 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed independent accountants in the last two years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the Corporation's definitive Proxy Statement, prepared for
the 2000 Annual Meeting of Shareholders, concerning directors of the Corporation
under the caption "Election of Directors", is incorporated herein by reference.
The information concerning "Executive Officers of the Registrant" as a separate
item, appears in Part I of this Form 10-K. There is no information required by
Item 405 of Regulation S-K to be reported.
ITEM 11. EXECUTIVE COMPENSATION
The information in the Corporation's definitive Proxy Statement, prepared for
the 2000 Annual Meeting of Shareholders, concerning this item, in paragraphs two
and three under the caption "Election of Directors", in the final two paragraphs
of the "Nominating, Compensation and Governance Committee Report on Executive
Compensation" and the "Executive Compensation" section, is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the Corporation's definitive Proxy Statement, prepared for
the 2000 Annual Meeting of Shareholders, concerning this item, under the
captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management", is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has no relationships or related transactions to report pursuant to
Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are included under the caption
"Financial Statements and Supplementary Data" in Part II, Item 8 hereof
and are incorporated herein by reference:
Consolidated Balance Sheets, July 2, 2000 and June 27, 1999
For the Years Ended July 2, 2000, June 27, 1999, and June 28, 1998:
Consolidated Statements of Earnings
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions.
3. Exhibits See
Exhibit Index following the Signature Page, which is incorporated
herein by reference. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report is
identified in the Exhibit Index by an asterisk following the Exhibit
Number.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
27
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BRIGGS & STRATTON CORPORATION
By /s/ James E. Brenn
------------------------------
James E. Brenn
September 7 , 2000 Senior Vice President and
--------------------- Chief Financial Officer
------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Frederick P. Stratton, Jr. and John S. Shiely, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue thereof.
------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.*
<TABLE>
<S> <C>
/s/ F. P. Stratton, Jr. /s/ Peter A. Georgescu
------------------------------- -------------------------------
F. P. Stratton, Jr. Peter A. Georgescu
Chairman and Chief Executive Director
Officer and Director (Principal
Executive Officer)
/s/ James E. Brenn /s/ Robert J. O'Toole
------------------------------- -------------------------------
James E. Brenn Robert J. O'Toole
Senior Vice President and Director
Chief Financial Officer (Principal
Financial Officer)
/s/ Todd J. Teske /s/ C. B. Rogers, Jr.
------------------------------- -------------------------------
Todd J. Teske C. B. Rogers, Jr.
Controller (Principal Accounting Director
Officer)
/s/ Jay H. Baker /s/ John S. Shiely
------------------------------- -------------------------------
Jay H. Baker John S. Shiely
Director President and Chief Operating
Officer and Director
/s/ Michael E. Batten /s/ Charles I. Story
------------------------------- -------------------------------
Michael E. Batten Charles I. Story
Director Director
/s/ E. Margie Filter
-------------------------------
E. Margie Filter *Each signature affixed as of
Director September 7 , 2000.
------------------------
</TABLE>
28
<PAGE> 31
BRIGGS & STRATTON CORPORATION
(Commission File No. 1-1370)
EXHIBIT INDEX
2000 ANNUAL REPORT ON FORM 10-K
Exhibit
Number Document Description
------ --------------------
3.1 Articles of Incorporation.
(Filed as Exhibit 3.2 to the Company's Report on Form 10-Q
for the quarter ended October 2, 1994, and incorporated by
reference herein.)
3.2 Bylaws, as amended August 2, 2000 (reflecting amendments to
Sections 1.03, 2.04, 2.09 and 3.06.) (Filed herewith.)
4.0 Rights Agreement dated as of August 7, 1996, between Briggs &
Stratton Corporation and Firstar Trust Company which includes
the form of Right Certificate as Exhibit A and the Summary of
Rights to Purchase Common Shares as Exhibit B.
(Filed as Exhibit 4.1 to the Company's Registration
Statement on Form 8-A, dated as of August 7, 1996 and
incorporated by reference herein.)
4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton
Corporation and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.1 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs &
Stratton Corporation issued pursuant to the Indenture dated as
of June 4, 1997 between Briggs & Stratton Corporation and Bank
One, N.A., as Trustee.
(Filed as Exhibit 4.2 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.3 Resolutions of the Board of Directors of Briggs & Stratton
Corporation authorizing the public offering of debt securities
of Briggs & Stratton Corporation in an aggregate principal
amount of up to $175,000,000.
(Filed as Exhibit 4.3 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.4 Actions of the Authorized Officers of Briggs & Stratton
Corporation authorizing the issuance of $100,000,000 aggregate
principal amount of 7-1/4% Notes due September 15, 2007.
(Filed as Exhibit 4.4 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.5 Officers' Certificate and Company Order of Briggs & Stratton
Corporation executed in conjunction with the issuance of
$100,000,000 aggregate principal amount of 7-1/4% Notes due
September 15, 2007.
(Filed as Exhibit 4.5 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
10.0* Form of Officer Employment Agreement.
(Filed as Exhibit 10.0 to the Company's Report on Form 10-Q
for the quarter ended March 29, 1998 and incorporated by
reference herein.)
10.1* Executive Supplemental Retirement Plan.
(Filed as Exhibit 10.0 to the Company's Report on Form 10-Q
for the quarter ended March 26, 2000 and incorporated by
reference herein.)
10.2* Economic Value Added Incentive Compensation Plan, as amended
and restated.
(Filed as Exhibit 10.3 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
29
<PAGE> 32
Exhibit
Number Document Description
------ --------------------
10.3* Form of Change of Control Employment Agreements.
(Filed as Exhibit 10.4 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)
10.4 (a)* Trust Agreement with an independent trustee to provide
payments under various compensation agreements with company
employees upon the occurrence of a change in control.
(Filed as Exhibit 10.5 (a) to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.4 (b)* Amendment to Trust Agreement with an independent trustee
to provide payments under various compensation agreements with
company employees.
(Filed as Exhibit 10.5 (b) to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.5 (a)* 1999 Amended and Restated Stock Incentive Plan.
(Filed as Exhibit A to the Company's 1999 Annual Meeting
Proxy Statement and incorporated by reference herein.)
10.5 (b)* Amendment to Amended and Restated Stock Incentive Plan.
(Filed as Exhibit 10.0 (b) to the Company's Report on Form
10-Q for the quarter ended September 26, 1999 and
incorporated by reference herein.)
10.6* Amended and Restated Leveraged Stock Option Program.
(Filed as Exhibit 10.7(c) to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.7* Amended and Restated Deferred Compensation Agreement for
Fiscal 1995.
(Filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.8* Deferred Compensation Agreement for Fiscal 1998.
(Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for fiscal year ended June 29, 1997 and
incorporated by reference herein.)
10.9* Deferred Compensation Agreement for Fiscal 1999.
(Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for fiscal year ended June 28, 1998 and
incorporated by reference herein.)
10.10* Deferred Compensation Agreement for Fiscal 2000.
(Filed as Exhibit 10.12 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.11* Amended and Restated Deferred Compensation Plan for Directors.
(Filed as Exhibit 10.00 to the Company's Report on Form
10-Q for the quarter ended December 26, 1999 and
incorporated by reference herein.)
10.12 (a)* Director's Leveraged Stock Option Plan.
(Filed as Exhibit 10.14 to the Company's Annual Report on
Form 10-K for fiscal year ended June 29, 1997 and
incorporated by reference herein.)
10.12 (b)* Amendment to Director's Leveraged Stock Option Plan.
(Filed as Exhibit 10.14(b) to the Company's Annual Report
on Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.13* Release and Settlement Agreement.
(Filed as Exhibit 10.1 to the Company's Report on Form 10-Q
for the quarter ended September 26, 1999 and incorporated
by reference herein.)
10.14* Agreement with Executive Officer.
(Filed as Exhibit 10.1 to the Company's Report on Form 10-Q
for the quarter ended March 26, 2000 and incorporated by
reference herein.)
30
<PAGE> 33
Exhibit
Number Document Description
------ --------------------
10.15* Agreement with Executive Officer.
(Filed as Exhibit 10.2 to the Company's Report on Form 10-Q
for the quarter ended December 27, 1998 and incorporated by
reference herein.)
10.16* Executive Life Insurance Plan.
(Filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.17* Key Employees Savings and Investment Plan.
(Filed as Exhibit 10.18 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.18* Consultant Reimbursement Arrangement.
(Filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
11 Computation of Earnings Per Share of Common Stock.
(Filed herewith.)
12 Computation of Ratio of Earnings to Fixed Charges.
(Filed herewith.)
21 Subsidiaries of the Registrant.
(Filed herewith.)
23 Consent of Independent Public Accountants.
(Filed herewith.)
24 Power of Attorney.
(Included in the Signatures Page of this report.)
27 Financial Data Schedule
--------------------------------------------------------------------------
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K.
31
