10-Q 1 c69461e10-q.txt FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 1-1370 ------ BRIGGS & STRATTON CORPORATION -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0182330 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12301 West Wirth Street, Wauwatosa, Wisconsin 53222 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) 414/259-5333 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class May 8, 2002 -------------------------------------------------------------------------------- COMMON STOCK, par value $0.01 per share 21,638,984 Shares BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Condensed Balance Sheets - March 31, 2002 and July 1, 2001 3 Consolidated Condensed Statements of Income - Three Months and Nine Months ended March 31, 2002 and April 1, 2001 5 Consolidated Condensed Statements of Cash Flow - Nine Months ended March 31, 2002 and April 1, 2001 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 Signatures 17 Exhibit Index 18 2 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) ASSETS
March 31, July 1, 2002 2001 ----------- ----------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 65,434 $ 88,743 Accounts receivable, net 402,493 145,138 Inventories - Finished products and parts 149,237 218,671 Work in process 81,034 99,247 Raw materials 3,219 3,782 ---------- ---------- Total inventories 233,490 321,700 Future income tax benefits 46,270 38,434 Prepaid expenses and other current assets 17,979 19,415 ---------- ---------- Total current assets 765,666 613,430 ---------- ---------- OTHER ASSETS: Investments 43,674 46,071 Prepaid pension 55,385 36,275 Deferred loan costs 9,881 10,429 Capitalized software 6,383 6,552 Goodwill 155,330 166,659 Intangible Assets 301 418 ---------- ---------- Total other assets 270,954 266,404 ---------- ---------- PLANT AND EQUIPMENT: Cost 891,319 890,191 Less accumulated depreciation 485,606 473,830 ---------- ---------- Total plant and equipment, net 405,713 416,361 ---------- ---------- $1,442,333 $1,296,195 ========== ==========
The accompanying notes are an integral part of these statements. 3 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Continued) (In thousands) LIABILITIES & SHAREHOLDERS' INVESTMENT
March 31, July 1, 2002 2001 ----------- ----------- (Unaudited) CURRENT LIABILITIES: Accounts payable $ 101,785 $ 102,559 Domestic notes payable 112,778 3,300 Foreign loans 15,630 16,291 Accrued liabilities 132,230 115,725 Dividends payable 6,919 -- Federal and state income taxes 10,332 4,307 ----------- ----------- Total current liabilities 379,674 242,182 ----------- ----------- OTHER LIABILITIES: Deferred revenue on sale of plant and equipment 15,409 15,536 Deferred income tax liability 20,795 18,351 Accrued pension cost 15,920 14,494 Accrued employee benefits 13,281 12,979 Accrued postretirement health care obligation 63,300 61,767 Long-term debt 508,572 508,134 ----------- ----------- Total other liabilities 637,277 631,261 ----------- ----------- SHAREHOLDERS' INVESTMENT: Common stock - Authorized 60,000 shares, $.01 par value, issued 28,927 shares 289 289 Additional paid-in capital 35,595 36,043 Retained earnings 745,500 743,230 Accumulated other comprehensive loss (7,048) (6,182) Unearned compensation on restricted stock (225) (305) Treasury stock at cost, 7,295 and 7,328 shares, respectively (348,729) (350,323) ----------- ----------- Total shareholders' investment 425,382 422,752 ----------- ----------- $ 1,442,333 $ 1,296,195 =========== ===========
The accompanying notes are an integral part of these statements. 4 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited)
Three Months Ended Nine Months Ended -------------------------- ------------------------- March 31, April 1, March 31, April 1, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- NET SALES $ 516,758 $ 430,188 $ 1,070,076 $ 978,670 COST OF GOODS SOLD 414,263 344,289 892,766 798,342 ----------- ----------- ----------- ----------- Gross profit on sales 102,495 85,899 177,310 180,328 ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 35,429 33,153 112,613 98,546 ----------- ----------- ----------- ----------- Income from operations 67,066 52,746 64,697 81,782 INTEREST EXPENSE (12,400) (8,804) (33,923) (21,689) OTHER INCOME, net 2,688 3,497 3,431 8,970 ----------- ----------- ----------- ----------- Income before provision for income taxes 57,354 47,439 34,205 69,063 PROVISION FOR INCOME TAXES 19,740 17,550 11,636 25,550 ----------- ----------- ----------- ----------- Net income $ 37,614 $ 29,889 $ 22,569 $ 43,513 =========== =========== =========== =========== EARNINGS PER SHARE DATA -- Average shares outstanding 21,620 21,599 21,608 21,600 =========== =========== =========== =========== Basic earnings per share $ 1.74 $ 1.38 $ 1.04 $ 2.01 =========== =========== =========== =========== Diluted average shares outstanding 24,456 21,612 21,620 21,614 =========== =========== =========== =========== Diluted earnings per share $ 1.58 $ 1.38 $ 1.04 $ 2.01 =========== =========== =========== =========== CASH DIVIDENDS PER SHARE $ 0.32 $ 0.31 $ 0.94 $ 0.93 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 5 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (In thousands) (Unaudited)
Nine Months Ended ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: March 31, 2002 April 1, 2001 -------------- ------------- Net income $ 22,569 $ 43,513 Adjustments to reconcile net income to net cash used in operating activities - Depreciation and amortization 42,417 41,685 Equity in earnings of unconsolidated affiliates (2,435) (5,092) Loss on disposition of plant and equipment 1,903 371 Pension income, net (17,286) (21,512) Provision for deferred income taxes 8,773 6,611 Change in operating assets and liabilities - Increase in accounts receivable (257,137) (249,365) Decrease (Increase) in inventories 88,210 (37,128) (Increase) Decrease in prepaid expenses and other current assets (90) 2,341 Increase in accounts payable and accrued liabilities 29,359 12,457 Other, net 399 1,571 --------- --------- Net cash used in operating activities (83,318) (204,548) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (34,565) (48,645) Proceeds received on disposition of plant and equipment 620 2,770 Other, net 4,412 2,933 --------- --------- Net cash used in investing activities (29,533) (42,942) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on loans and notes payable 108,817 288,513 Issuance cost of long-term debt (346) -- Dividends (20,299) (20,072) Purchase of common stock for treasury -- (6,118) Proceeds from exercise of stock options 943 275 --------- --------- Net cash provided by financing activities 89,115 262,598 --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 427 (1,971) --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,309) 13,137 --------- --------- CASH AND CASH EQUIVALENTS, beginning 88,743 16,989 --------- --------- CASH AND CASH EQUIVALENTS, ending $ 65,434 $ 30,126 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 35,544 $ 21,362 ========= ========= Income taxes paid $ 1,312 $ 6,574 ========= =========
The accompanying notes are an integral part of these statements. 6 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) General Information The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, in the opinion of Briggs & Stratton Corporation, adequate disclosures have been presented to make the information not misleading, and all adjustments necessary to present fair statements of the results of operations and financial position have been included. All of these adjustments are of a normal recurring nature. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto which were included in our latest Annual Report on Form 10-K. Comprehensive Income Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income," requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting method that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Total comprehensive income is as follows (in thousands):
Three Months Ended Nine Months Ended March 31, April 1, March 31, April 1, 2002 2001 2002 2001 -------- -------- -------- -------- Net income $ 37,614 $ 29,889 $ 22,569 $ 43,513 Unrealized gain (loss) on marketable securities 52 (66) (123) (866) Gain (loss) on foreign currency translation adjustments (178) (1,092) 461 (2,082) Gain (loss) on derivative instruments 283 2,945 (1,204) 1,189 -------- -------- -------- -------- Total comprehensive income $ 37,771 $ 31,676 $ 21,703 $ 41,754 ======== ======== ======== ========
The components of Accumulated Other Comprehensive Loss are as follows (in thousands):
March 31, July 1, 2002 2001 ------- ------- Unrealized loss on marketable securities $ (876) $ (753) Cumulative translation adjustments (6,194) (6,655) Gain on derivative instruments 22 1,226 ------- ------- Accumulated other comprehensive loss $(7,048) $(6,182) ======= =======
Derivatives SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Any changes in fair value of these instruments are recorded in the income statement or other comprehensive income. During the third quarter and nine months of fiscal years 2002 and 2001, derivative amounts reclassified to the income statement were immaterial. 7 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES Briggs & Stratton enters into derivative contracts designated as cash flow hedges to manage its foreign currency exposures. These instruments generally do not have a maturity of more than twelve months. During the first nine months of fiscal years 2002 and 2001, there were no derivative instruments that were deemed to be ineffective. The amounts included in Accumulated Other Comprehensive Loss will be reclassified into income when the forecasted transactions occur, generally within the next twelve months. These forecasted transactions represent the exporting of products for which Briggs & Stratton will receive foreign currency and the importing of products for which it will be required to pay in a foreign currency. Acquisition On May 15, 2001, Briggs & Stratton acquired Generac Portable Products, Inc. (GPP), a designer, manufacturer and marketer of portable generators, pressure washers and related accessories for net cash of $267 million. The provisions of the acquisition include a contingent purchase price based on the operating results of GPP. We do not expect to pay any additional purchase price pursuant to these provisions. The acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price was allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon the estimated fair values, with the excess purchase price recorded as goodwill. Final adjustments to the purchase price allocation are not expected to be material to the consolidated financial statements. Year-to-date we have recorded $11 million in net adjustments to our original GPP purchase price allocation. The most significant adjustment relates to recognizing certain deferred tax assets resulting from differences in financial reporting versus tax reporting at GPP. Goodwill of approximately $167 million was initially recorded as a result of the acquisition and was amortized on a straight-line basis over twenty years, until July 2, 2001, at which time Briggs & Stratton adopted the provisions of SFAS No. 142. Under the provisions of SFAS No. 142, goodwill is no longer amortized, but is subject to annual impairment tests. The following table sets forth the unaudited pro forma information for Briggs & Stratton as if the acquisition of GPP had occurred on July 2, 2000 (in thousands, except per share data):
Three Months Ended Nine Months Ended ------------------ ----------------- March 31, April 1, March 31, April 1, 2002 2001 2002 2001 ------------ ---------- ----------- ----------- Net Sales $ 516,758 $ 478,230 $ 1,070,076 $ 1,136,734 Net Income $ 37,614 $ 24,293 $ 22,569 $ 26,879 Basic Earnings Per Share $ 1.74 $ 1.12 $ 1.04 $ 1.24 Diluted Earnings Per Share $ 1.58 $ 1.12 $ 1.04 $ 1.24
Segment and Geographic Information In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and subsequent to the May 15, 2001 acquisition of GPP, Briggs & Stratton has concluded that it operates two reportable business segments which are managed separately based on fundamental differences in their operations. Summarized segment data is as follows (in thousands): 8 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Three Months Ended Nine Months Ended -------------------------- -------------------------- March 31, April 1, March 31, April 1, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- NET SALES: Engines $ 468,947 $ 430,188 $ 954,746 $ 978,670 Generac Portable Products 58,560 -- 151,195 -- Eliminations (10,749) -- (35,865) -- ----------- ----------- ----------- ----------- Total* $ 516,758 $ 430,188 $ 1,070,076 $ 978,670 =========== =========== =========== =========== *Includes sales to international customers $ 132,037 $ 122,405 $ 273,542 $ 258,664 =========== =========== =========== =========== GROSS PROFIT ON SALES: Engines $ 96,205 $ 85,899 $ 163,465 $ 180,328 Generac Portable Products 5,251 -- 13,997 -- Eliminations 1,039 -- (152) -- ----------- ----------- ----------- ----------- Total $ 102,495 $ 85,899 $ 177,310 $ 180,328 =========== =========== =========== =========== INCOME FROM OPERATIONS: Engines $ 65,432 $ 52,746 $ 64,534 $ 81,782 Generac Portable Products 595 -- 315 -- Eliminations 1,039 -- (152) -- ----------- ----------- ----------- ----------- Total $ 67,066 $ 52,746 $ 64,697 $ 81,782 =========== =========== =========== ===========
Sales Incentives Briggs & Stratton adopted Emerging Issues Task Force (EITF) Abstract No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer" in the third quarter of fiscal 2002. Pursuant to the EITF, we were required to reclassify certain advertising costs previously reported as selling expenses to a reduction in net sales. The impact of adopting EITF 01-09 was to reduce net sales by $2,348 and $495 in the third quarter of fiscal 2002 and 2001, respectively. The reclassification for the nine months of fiscal 2002 and 2001 was $5,674 and $1,471, respectively. Business Combinations In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" having a required effective date for fiscal years beginning after December 31, 2001. Under certain circumstances companies are permitted to adopt these statements before the required date. Under the new rules, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Briggs & Stratton adopted the new rules on accounting for goodwill and other intangible assets in the first quarter of fiscal 2002. Application of the non-amortization provisions of the SFAS No. 142 is expected to result in an increase in net income of approximately $.7 million in fiscal 2002. We have performed the first of the required impairment tests of goodwill and indefinite lived intangible assets and found no impairment of the assets as of December 30, 2001. There was no proforma impact of adopting SFAS No. 142. No amortization of goodwill was recorded in the first nine months of fiscal years 2002 or 2001, because the acquisition of GPP did not occur until May 15, 2001. 9 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES Long-Lived Assets In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 31, related to the disposal of a segment of a business. SFAS No. 144 will be adopted on July 1, 2002. Management does not expect SFAS No. 144 to have a material impact on the consolidated financial statements. Financial Information of Subsidiary Guarantors of Indebtedness Under the terms of Briggs & Stratton's 7.25% senior notes, 8.875% senior notes and 5.00% convertible senior notes and our revolving credit agreement, (collectively, the Domestic Indebtedness), GPP and its subsidiaries became joint and several guarantors of the Domestic Indebtedness. Additionally, if at any time a domestic subsidiary of Briggs & Stratton constitutes a significant domestic subsidiary, then such domestic subsidiary will also become a guarantor of the Domestic Indebtedness. Each guarantee of the Domestic Indebtedness is the obligation of the guarantor and ranks equally and ratably with the existing and future senior unsecured obligations of that guarantor; accordingly, GPP has provided a full and unconditional guarantee of the Domestic Indebtedness. The following condensed supplemental consolidating financial information reflects the operations of GPP for the three months and nine months ended March 31, 2002 (in thousands):
BALANCE SHEET: Briggs & Stratton Guarantor Non--Guarantor As of March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ----------- ----------- ----------- ----------- Current Assets $ 625,799 $ 100,601 $ 73,748 $ (34,482) $ 765,666 Investment in Subsidiaries 306,351 -- -- (306,351) -- Non-current Assets 496,914 177,342 2,411 -- 676,667 ----------- ----------- ----------- ----------- ----------- $ 1,429,064 $ 277,943 $ 76,159 $ (340,833) $ 1,442,333 =========== =========== =========== =========== =========== Current Liabilities $ 355,145 $ 14,475 $ 38,005 $ (27,951) $ 379,674 Deferred Income Tax Liability (Asset) 27,230 (6,435) -- -- 20,795 Long--Term Debt 508,572 -- -- -- 508,572 Other Long--Term Obligations 105,874 2,036 -- -- 107,910 Shareholders' Equity 432,243 267,867 38,154 (312,882) 425,382 ----------- ----------- ----------- ----------- ----------- $ 1,429,064 $ 277,943 $ 76,159 $ (340,833) $ 1,442,333 =========== =========== =========== =========== ===========
10 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF EARNINGS: For the Three Months Ended --------------------------- Briggs & Stratton Guarantor Non--Guarantor March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated --------------- ----------- ------------ ------------------ ------------ ------------ Net Sales $ 461,458 $ 58,560 $ 23,500 $ (26,760) $ 516,758 Cost of Goods Sold 370,550 53,309 18,143 (27,739) 414,263 --------- --------- --------- --------- --------- Gross Profit 90,908 5,251 5,357 979 102,495 Engineering, Selling, General and Administrative Expenses 27,625 4,656 3,148 -- 35,429 --------- --------- --------- --------- --------- Income from Operations 63,283 595 2,209 979 67,066 Interest Expense (11,570) (10) (820) -- (12,400) Other (Expense) Income, Net 4,220 42 12,611 (14,185) 2,688 --------- --------- --------- --------- --------- Income Before Provision (Credit) for Income Taxes 55,933 627 14,000 (13,206) 57,354 Provision (Credit) for Income Taxes 18,999 241 500 -- 19,740 --------- --------- --------- --------- --------- Net Income $ 36,934 $ 386 $ 13,500 $ (13,206) $ 37,614 ========= ========= ========= ========= =========
STATEMENT OF EARNINGS: For the Nine Months Ended -------------------------- Briggs & Stratton Guarantor Non--Guarantor March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated --------------- ----------- ------------ ------------------ ------------ ------------ Net Sales $ 932,549 $ 151,195 $ 59,605 $ (73,273) $ 1,070,076 Cost of Goods Sold 781,695 137,198 46,426 (72,553) 892,766 ----------- ----------- ----------- ----------- ----------- Gross Profit 150,854 13,997 13,179 (720) 177,310 Engineering, Selling, General and Administrative Expenses 89,181 13,682 9,750 -- 112,613 ----------- ----------- ----------- ----------- ----------- Income from Operations 61,673 315 3,429 (720) 64,697 Interest Expense (32,712) (49) (1,246) 84 (33,923) Other (Expense) Income, Net 3,337 99 13,076 (13,081) 3,431 ----------- ----------- ----------- ----------- ----------- Income Before Provision (Credit) for Income Taxes 32,298 365 15,259 (13,717) 34,205 Provision (Credit) for Income Taxes 10,409 157 1,070 -- 11,636 ----------- ----------- ----------- ----------- ----------- Net Income $ 21,889 $ 208 $ 14,189 $ (13,717) $ 22,569 =========== =========== =========== =========== ===========
11 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS: For the Nine Months Ended ------------------------- Briggs & Stratton Guarantor Non--Guarantor March 31, 2002 Corporation Subsidiaries Subsidiaries Eliminations Consolidated --------------- ----------- ------------ -------------- ------------ ------------ Cash Flows from Operating Activities: Net Income $ 21,889 $ 208 $ 14,189 $ (13,717) $ 22,569 Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities- Depreciation and Amortization 43,458 (1,469) 428 -- 42,417 Equity Earnings of Affiliates and Subsidiaries (13,303) -- (41) 10,909 (2,435) (Gain) Loss on Disposition of Plant and Equipment 1,935 (19) (13) -- 1,903 Pension Income, Net (17,286) -- -- -- (17,286) Provision for Deferred Taxes 2,233 6,540 -- -- 8,773 Change in Operating Assets and Liabilities- Increase in Receivables (249,424) (838) (21,014) 14,139 (257,137) Decrease in Inventories 84,181 2,540 581 908 88,210 (Increase) Decrease in Other Current Assets 1,162 (730) (522) -- (90) Increase (Decrease) in Accounts Payable and Accrued Liabilities 39,324 (4,574) 8,936 (14,327) 29,359 Other, Net 590 (191) -- -- 399 --------- --------- --------- --------- --------- Net Cash (Used in) Provided by Operating Activities (85,241) 1,467 2,544 (2,088) (83,318) --------- --------- --------- --------- --------- Cash Flows from Investing Activities: Additions to Plant and Equipment (32,745) (1,409) (411) -- (34,565) Proceeds Received on Disposition of Plant and Equipment 581 19 20 -- 620 Other, net 3,706 -- 706 -- 4,412 --------- --------- --------- --------- --------- Net Cash (Used in) Provided by Investing Activities (28,458) (1,390) 315 -- (29,533) --------- --------- --------- --------- --------- Cash Flows from Financing Activities: Net Borrowings (Repayments) on Loans and Notes Payable 108,657 821 (661) -- 108,817 Issuance Costs of Long--Term Debt (346) -- -- -- (346) Dividends (20,299) -- (2,088) 2,088 (20,299) Proceeds from Exercise of Stock Options 943 -- -- -- 943 --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Financing Activities 88,955 821 (2,749) 2,088 89,115 --------- --------- --------- --------- --------- Effect of Exchange Rate Changes -- 146 281 -- 427 --------- --------- --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents (24,744) 1,044 391 -- (23,309) Cash and Cash Equivalents, Beginning 85,282 683 2,778 -- 88,743 --------- --------- --------- --------- --------- Cash and Cash Equivalents, Ending $ 60,538 $ 1,727 $ 3,169 $ -- $ 65,434 ========= ========= ========= ========= =========
12 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of Briggs & Stratton's financial condition and results of operations for the periods included in the accompanying consolidated condensed financial statements: RESULTS OF OPERATIONS GENERAL Early Retirement Incentive Program In the second quarter of fiscal 2002 Briggs & Stratton offered and finalized an early retirement incentive program. The net reduction in the global salaried workforce was approximately 7%. The third quarter results for fiscal 2002 reflect $1 million in savings from lower salary related expenditures. The nine month results for fiscal 2002 include net expenses of $4 million after taxes, representing the net cost of the early retirement incentive program. The majority of the impact on net income was the result of recognizing the cost of the special termination benefits, which reduced net periodic pension income. The impact for the full fiscal year of 2002 is projected to reduce net income on an after tax basis of approximately $2 million, after consideration of an additional $2 million in savings during the fourth quarter of fiscal 2002 for lower salary related expenditures. The anticipated net income impact of salary related savings for fiscal 2003 is projected to be approximately $6 million on an after tax basis. Acquisition On May 15, 2001, Briggs & Stratton acquired Generac Portable Products, Inc. (GPP) for net cash of $267 million. The results of GPP's operations are included in fiscal 2002's first nine months. The first nine months of fiscal 2001 did not include results of GPP. SALES Net sales for the third quarter of fiscal 2002 totaled $517 million, an increase of $87 million or 20% when compared to the same period of the preceding year. This increase was the result of a $28 million increase in Engine sales and the inclusion of $59 million in GPP sales in the third quarter for the first time. In addition, we eliminated $11 million in intercompany engine sales to GPP. Third quarter net sales for the Engine segment of the business were $469 million versus $430 million in the prior year. This 9% increase was the result of a 14% increase in unit volume, offset by a sales mix that was weighted to lower priced engines. Net sales for the GPP segment of the business totaled $59 million, an increase of $8 million from their performance a year ago when Briggs & Stratton did not own them. Generator volume increased 50% over the prior year, reflecting ice storm activity in early February and new retailer shipments. Pressure washer unit shipments were up 15% between years. The increase was the result of a shift in unit shipments between the second and third quarter, and retailer new store growth. 13 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES Net sales for the nine months ended March 31, 2002 totaled $1,070 million, an increase of $91 million or 9% compared to the first nine months of the prior year. The increase was the result of $151 million of GPP sales, offset by lower engine sales of $24 million and intercompany sales eliminations of $36 million. Nine month net sales for the Engine segment for fiscal 2002 were $955 million versus $979 million in the prior year. This decrease is attributable to a sales mix weighted more heavily to lower priced engines while volume increased only 1% year to date. GPP's net sales for the first nine months were $151 million compared to $136 million a year ago when Briggs & Stratton did not own them. Increased generator volume in first nine months of fiscal 2002 accounted for the increased sales between years. While up, the entire generator market has not recovered as much as we originally anticipated. GROSS PROFIT MARGIN The gross profit rate was 20% for the third quarters of fiscal years 2002 and 2001. The Engine segment gross margins were 21% and 20% for the third quarters of fiscal years 2002 and 2001, respectively. Engine margin was favorably impacted by reductions of manufacturing costs, including reduced salaries from the early retirement incentive program. GPP's gross profit rate was 9% in fiscal 2002 and 2001. The gross profit rate for the nine-month period decreased to 17% in the current year from 18% in the prior year. The Engine segment margin is down 1% for the nine-month period reflecting the impact of cost reductions discussed above for the quarter, offset by a $5 million pre-tax expense for the early retirement incentive program that was completed at the end of December 2001. GPP's gross profit margin decreased from 10% to 9% for the nine-month period in fiscal 2002 and 2001 respectively. Sales of generators with lower margins created an unfavorable mix, which negatively affected gross profit margin for GPP for the comparable nine-month period. ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The engineering, selling, and administrative expenses increased $2 million or 7% between the third fiscal quarters of 2002 and 2001. GPP expenses were $5 million offset by Engine segment reductions. GPP's expenses decreased $1 million from fiscal 2001 reflecting certain integration savings. This category increased $14 million or 14% for the comparative nine-month periods. The inclusion of GPP accounted for almost all of this increase. INTEREST EXPENSE Interest expense increased $4 million or 41% in the third quarter comparison and increased $12 million or 56% in the nine-month comparison. These increases were the result of the long-term debt issued for the acquisition of GPP, offset by lower borrowings for working capital in the current fiscal year. 14 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES PROVISION FOR INCOME TAXES The effective tax rate used in the third quarter of fiscal 2002 was 34%. Management estimates the effective tax rate for the entire fiscal year 2002 will remain at 34%. The effective tax rate for the third quarter and nine-month periods for fiscal 2001 was 37%. LIQUIDITY AND CAPITAL RESOURCES Cash flows used in operating activities for the nine-month periods of fiscal 2002 and fiscal 2001 were $83 million and $205 million, respectively, a $122 million decrease in the cash used in operating activities between years. This reflects reduced working capital requirements of $131 million, offset by decreased net income of $21 million. The primary reason for the decrease in the working capital requirements was the reduction in the levels of engine inventories. We executed a plan of reduced production in the first nine months to lower the finished engine inventory to more historical levels. Net cash used in investing activities totaled $30 million and $43 million in fiscal 2002 and fiscal 2001, respectively. Additions to plant and equipment were the major use of cash. The amount was lower between years because capital expenditures are being deferred to later in the fiscal year to lower borrowing requirements in the period where we have the greatest working capital buildup. Net cash provided by financing activities decreased $173 million between years. The significant decrease was due to the lower level of short-term domestic borrowings used to fund working capital needs and the greater cash balances that were on hand at the start of fiscal 2002. FUTURE LIQUIDITY AND CAPITAL RESOURCES On November 15, 2001, we replaced our $250 million revolving credit facility that would have expired in April 2002, with a three-year $300 million revolving credit facility. For a description of the terms of the new credit facility see Item 2 in Part II of our Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2001. As of March 31, 2002, we had utilized $110 million of the revolver. As of April 30, 2002, we have paid back all borrowings under the revolving credit facility. Management expects cash flows used to fund capital expenditures will approximate $55 million in fiscal 2002. These anticipated expenditures provide for continued investments in equipment and new products. These expenditures will be funded using available cash and short-term borrowings. Briggs & Stratton currently intends to increase future cash dividends per share at a rate approximating the inflation rate, subject to the discretion of its Board of Directors and the requirements of applicable law and debt covenants. Briggs & Stratton has remaining authorization to buy up to 1.8 million shares of its stock in open market or private transactions under the June 2000 Board of Directors' authorization to repurchase up to 2.0 million shares, subject to limitations in our credit facility. We did not purchase any shares in the first nine months of fiscal 2002 and do not anticipate repurchasing additional shares for the remainder of fiscal 2002. 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 its capital requirements for the foreseeable future. Management projects that EBITA for fiscal 2002 will be in the range of $170 million to $175 million. 15 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES OUTLOOK We continue to believe that Engine segment shipments will be up 5% between years; however, we have lowered our fourth quarter revenue projections to $390 million, stronger than last year but down from our earlier projection. While we anticipate increased unit volume between years, we believe the unfavorable sales mix to lower priced engine units will continue through the fourth quarter. We believe gross margins for the full year will be approximately 18%. Engineering, selling, and administrative expenses for the year are currently estimated to be $149 million. The increase in this category is due to the inclusion of GPP's costs. Interest expense is anticipated to be approximately $44 million and depreciation and capital expenditures are each projected to be approximately $55 million for the year. The effective tax rate is projected to be at 34%. As a result, we project net income of approximately $45 million for fiscal year 2002. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "objective," "plan," "seek," "think," "will" and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on Briggs & Stratton's current views and assumptions and involve risks and uncertainties that include, among other things: our ability to successfully forecast demand for our products and appropriately adjust our manufacturing and inventory levels; changes in our operating expenses; changes in interest rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; the seasonal nature of our business; changes in laws and regulations, including environmental and accounting standards; work stoppages or other consequences of any deterioration in our employee relations; changes in customer and OEM demand; changes in prices of purchased raw materials and parts that we purchase; changes in domestic economic conditions, including housing starts and changes in consumer disposable income; changes in 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 our control. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes since the September 12, 2001, filing of the Company's Annual Report on Form 10-K. 16 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit Number Description 10 Notice of Election for Fixed Price Cash Pay-Out Under Deferred Compensation Agreement by Frederick P. Stratton, Jr. Dated January 3, 2002, and Approval of Compensation Committee Dated January 15, 2002* 10.1 Amended and Restated Supplemental Executive Retirement Plan* 10.2 Amended and Restated Economic Value Added Incentive Compensation Plan* 10.3 Amended and Restated Director's Leveraged Stock Option Program* 10.4 Amended and Restated Leveraged Stock Option Program* 11 Computation of Earnings Per Share of Common Stock* 12 Computation of Ratio of Earnings to Fixed Charges* *Filed herewith (b) Reports on Form 8-K. On January 31, 2002, Briggs & Stratton filed a report on Form 8-K dated January 17, 2002, to file as an exhibit the press release reporting its second quarter financial results. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRIGGS & STRATTON CORPORATION ----------------------------- (Registrant) Date: May 13, 2002 /s/ James E. Brenn ------------------ James E. Brenn Senior Vice President and Chief Financial Officer and Duly Authorized Officer 17 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description ------ ----------- 10 Notice of Election for Fixed Price Cash Pay-Out Under Deferred Compensation Agreement by Frederick P. Stratton, Jr. Dated January 3, 2002, and Approval of Compensation Committee Dated January 15, 2002* 10.1 Amended and Restated Supplemental Executive Retirement Plan* 10.2 Amended and Restated Economic Value Added Incentive Compensation Plan* 10.3 Amended and Restated Director's Leveraged Stock Option Program* 10.4 Amended and Restated Leveraged Stock Option Program* 11 Computation of Earnings Per Share of Common Stock* 12 Computation of Ratio of Earnings to Fixed Charges* *Filed herewith 18