-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JzRjcApXFW/AJ9zfVQCJdtEp/QuoOwWJhvIM+svlCrTsmecXJuOJ6nHnUK9WxYba Kot1rlDgozIpQbgHAKpTiw== 0000950124-96-004173.txt : 19960930 0000950124-96-004173.hdr.sgml : 19960930 ACCESSION NUMBER: 0000950124-96-004173 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIGGS & STRATTON CORP CENTRAL INDEX KEY: 0000014195 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 390182330 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01370 FILM NUMBER: 96635473 BUSINESS ADDRESS: STREET 1: 12301 W WIRTH ST CITY: WAUWATOSA STATE: WI ZIP: 53222 BUSINESS PHONE: 4142595333 MAIL ADDRESS: STREET 1: P O BOX 702 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-K 1 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - ------------------------------------------------------------------------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended JUNE 30, 1996 --------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------- ------------ - ------------------------------------------------------------------------------- Commission file number 1-1370 BRIGGS & STRATTON CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) A Wisconsin Corporation 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) Registrant's telephone number, including area code: 414-259-5333 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock (par value $0.01 per share) New York Stock Exchange Common Share Purchase Rights New York Stock Exchange 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 ---- ------ 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. [ ] The aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $1,135,295,000 based on the reported last sale price of such securities as of September 9, 1996. Number of Shares of Common Stock Outstanding at September 9, 1996: 28,927,000. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Part of Form 10-K Into Which Portions Document of Document are Incorporated -------- ------------------------------------- Annual Report to Shareholders for year ended June 30, 1996 Parts I (Item 1) and II Proxy Statement for Annual Meeting on October 16, 1996 Part III The Exhibit Index is located on page 9. 2 TABLE OF CONTENTS PART I Item Page ---- ---- 1. Business 1 2. Properties 3 3. Legal Proceedings 3 4. Submission of Matters to a Vote of Security Holders 3 Executive Officers of the Registrant 4 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 6 6. Selected Financial Data 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 8. Financial Statements and Supplementary Data 6 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6 PART III 10. Directors and Executive Officers of the Registrant 6 11. Executive Compensation 6 12. Security Ownership of Certain Beneficial Owners and Management 6 13. Certain Relationships and Related Transactions 6 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 7 Signatures 8 3 PART I Item 1. Business Basic Business 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 worldwide. These engines are air cooled aluminum alloy gasoline engines ranging from 3 through 20 horsepower. Engines In fiscal 1996, approximately 83% of original equipment gasoline engine sales were to manufacturers of lawn and garden equipment; approximately 17% were to manufacturers of other powered equipment, primarily for commercial applications in the construction industry and for agriculture. In the United States and Canada, where the majority of the Company's engines are sold, engine sales are primarily made directly to original equipment manufacturers. Sales to the Company's largest engine customer, MTD Products Inc., were 21% of total sales in fiscal 1996. Sales to its second largest customer, A B Electrolux, were 14% of sales and sales to its third largest customer, Tomkins PLC, were 13% of sales. Under purchasing plans available to all gasoline engine customers, the Company normally enters into annual engine supply agreements with these producers of end products powered by the Company's gasoline engines. Company management has no reason to anticipate a change from the continuation of this practice or in its historical business relationships with these companies. The major domestic competitors of the Company in engine manufacturing are Tecumseh Products Company, Kohler Co., Kawasaki Heavy Industries, Ltd., Honda Motor Co., Ltd. and Onan Corporation. Also, two domestic lawn mower manufacturers, Toro Co. under its Lawn-Boy brand and Honda, manufacture their own engines. Eight Japanese small engine manufacturers, of which Honda and Kawasaki are the largest, are worldwide competitors not only in the sale of engines, but end products as well. Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe. Major areas of competition from all engine manufacturers are product quality, price, timely delivery and service. The Company believes its product quality and service reputation have given it the strong brand name identification it enjoys. Servicing of all the Company's gasoline engine products is done primarily by a network of over 30,000 independent service parts distribution and repair outlets in the United States and Canada and most foreign countries. Manufacturing activity in the lawn and garden industry is driven by the need to deliver new lawn mowers, garden tractors and tillers for retail sales in the spring and early summer. Thus, demand from customers is at its peak in their winter and spring manufacturing season. Most engines are manufactured to individual customer specifications. The Company's production capacities are not sufficient to meet customer peak season needs. Therefore, many engines manufactured during the first half of the fiscal year are for shipments in the second half of the year. Thus, sales generally are highest in the March quarter and weakest in the September quarter. Customer orders in the last three months of the fiscal year depend on spring retail sales, so the June quarter is the least predictable. 1 4 General The Company manufactures a majority of the components used in its products and purchases the balance of its requirements. The Company manufactures its own ductile and grey iron castings, aluminum die castings and a high percentage of other major components, such as carburetors and ignition systems. The Company also purchases certain finished standard commercial parts such as piston rings, spark plugs, valves, zinc die castings and plastic components, some stampings and screw machine parts and smaller quantities of other components. Raw material purchases are for aluminum, steel, and brass. The Company believes its sources of supply are adequate. The Company holds certain patents on features incorporated in its products; however, the success of the Company's business is not considered to be primarily dependent upon patent protection. Licenses, franchises and concessions are not a material factor in the Company's business. For the years ending June 30, 1996, July 2, 1995 and July 3, 1994, the Company spent approximately $12,737,000, $13,112,000 and $12,520,000, respectively, on Company sponsored research activities relating to the development of new products or the improvement of existing products. The average number of persons employed by the Company during the fiscal year was 7,507. Employment ranged from a low of 7,011 in July 1995 to a high of 7,823 in December 1995. Financial Information About Industry Segments Financial information about industry segments prior to the spin-off of the automotive lock division in February 1995 appears in Note 4 of the Notes to Consolidated Financial Statements in the 1996 Annual Report to Shareholders and is incorporated herein by reference. Export Sales Export sales for fiscal 1996 were $323,747,000 (25% of total sales), for fiscal 1995 were $312,234,000 (23% of total sales) and for fiscal 1994 were $264,866,000 (21% of total sales). These sales were principally to customers in European countries. 2 5 Item 2. Properties The corporate offices and four of the Company's manufacturing facilities are located in suburbs of Milwaukee, Wisconsin. Subsequent to year-end, the Company entered into a contract to sell one of these facilities. The Company will vacate the manufacturing portion of the facility (approximately 444,000 square feet) by December 31, 1996 but will have the right to occupy the warehouse portion (approximately 414,000 square feet) for up to 10 years. The Company also has facilities in Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, Alabama; Statesboro, Georgia; and Ravenna, Michigan. These are owned facilities containing over 4.9 million square feet of office, warehouse and production area, including the facility under contract. The engine business is seasonal, with demand for engines at its height in the winter and early spring. Engine manufacturing operations run at capacity levels during the peak season, with many operations running three shifts. Engine operations generally run one shift in the summer, when demand is weakest and production is considerably under capacity. During the winter, when finished goods inventories reach their highest levels, owned warehouse space may be insufficient and capacity may be expanded through rented space. Excess warehouse space exists in the spring and summer seasons. The Company's owned properties are well maintained. The Company leases 177,000 square feet of space to house its European warehouse in the Netherlands and its foreign sales and service operations in Australia, Canada, France, Germany, Ireland, New Zealand, Sweden, Switzerland and the United Kingdom. Item 3. Legal Proceedings There are no pending legal proceedings that are required to be reported under this item. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended June 30, 1996. 3 6 Executive Officers of the Registrant Name, Age, Position Business Experience for Past Five Years ------------------- --------------------------------------- FREDERICK P. STRATTON, JR., 57 Mr. Stratton was elected to the Chairman and Chief Executive Officer position of Chief Executive Officer in (1) (2) (3) May 1977 and Chairman in November 1986. He also served in the position of President from January 1992 to August 1994. JOHN S. SHIELY, 44 Mr. Shiely was elected to his current President and Chief Operating Officer position in August 1994 after serving (1) (2) as Executive Vice President - Administration since November 1991. He served as Vice President and General Counsel from November 1990 to November 1991. ROBERT H. ELDRIDGE, 58 Mr. Eldridge was elected to his current Executive Vice President and position effective April 1995. He has Chief Financial Officer, served as Secretary-Treasurer since Secretary-Treasurer (1) January 1984. MICHAEL D. HAMILTON, 54 Mr. Hamilton was elected to his present Executive Vice President - position effective June 1989. Sales and Service JAMES A. WIER, 53 Mr. Wier was elected to his current Executive Vice President - Operations position in April 1989. ERIK ASPELIN, 55 Mr. Aspelin assumed his current Vice President - POWERCOM-2000 position in October 1995, after serving as Vice President - Distribution Sales and Service since July 1989. JAMES E. BRENN, 48 Mr. Brenn was elected to his current Vice President and Controller position in November 1988. RICHARD J. FOTSCH, 41 Mr. Fotsch was elected an executive Vice President; General Manager - officer in May 1993 after serving the Small Engine Division Small Engine Division as Vice President and General Manager from July 1990 to May 1993. 4 7 HUGO A. KELTZ, 48 Mr. Keltz was elected an executive Vice President - International officer in May 1992 after serving as Vice President - International since June 1991. CURTIS E. LARSON, JR., 48 Mr. Larson was elected to this Vice President - Distribution executive officer position in October Sales and Service 1995 after serving as Vice President - Industrial Engine Division since January 1993. He held the position of Vice President - Sales and Marketing of the Company's automotive lock division from December 1988 to January 1993. PAUL M. NEYLON, 49 Mr. Neylon was elected an executive Vice President; General Manager - officer in May 1993, after serving the Specialty Products Division Vanguard Division as Vice President and General Manager since November 1991. This division has since been renamed the Specialty Products Division. He previously served the Castings Division as Vice President and General Manager from July 1989 to November 1991. STEPHEN H. RUGG, 49 Mr. Rugg was elected to his current Vice President - Sales position in November 1995, after serving as Vice President - Sales and Marketing since November 1988. THOMAS R. SAVAGE, 48 Mr. Savage was elected to this Vice President - Administration executive officer position in November and General Counsel 1994 after serving as General Counsel since joining the Company in April 1992. He held the position of Vice President, Secretary and General Counsel at Sta-Rite Industries, Inc., a manufacturer of pumps and other fluids-handling equipment and controls, from 1984 to 1992. GREGORY D. SOCKS, 47 Mr. Socks was elected an executive Vice President; General Manager - officer in May 1993 after serving the Large Engine Division Large Engine Division as Vice President and General Manager from July 1990 to May 1993. GERALD E. ZITZER, 49 Mr. Zitzer was elected to his current Vice President - Human Resources position in November 1988. (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 their successors are elected and qualify. 5 8 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 31 of the 1996 Annual Report to Shareholders. Item 6. Selected Financial Data Information required by this Item appears under the heading "Ten Year Comparisons" on pages 32 and 33 of the 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of results of operations and financial condition of the Company appears on pages 27 through 30 of the 1996 Annual Report to Shareholders and is incorporated by reference in this Form 10-K. Item 8. Financial Statements and Supplementary Data The information required by Item 8 is incorporated by reference from the Consolidated Financial Statements and Notes to Consolidated Financial Statements appearing on pages 12 through 24 and page 31 of the 1996 Annual Report to Shareholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company has not changed independent accountants in the last two years. PART III Item 10. Directors and Executive Officers of the Registrant Information pertaining to directors is incorporated herein by reference from pages 2 and 3 of the Company's 1996 Annual Meeting Proxy Statement dated September 9, 1996. Information regarding executive officers required by Item 401 of Regulation S-K is furnished in Part I of this Form 10-K. Information required by Item 405 of Regulation S-K is incorporated by reference from page 6 of the Company's 1996 Annual Meeting Proxy Statement. Item 11. Executive Compensation The information required by Item 11 is incorporated by reference from the section entitled Election of Directors on page 2, the final two paragraphs of the Nominating and Salaried Personnel Committee Report on Executive Compensation found on page 11 and the Executive Compensation section found on pages 12-16 of the Company's 1996 Annual Meeting Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by Item 12 is incorporated by reference from pages 5 and 6 of the Company's 1996 Annual Meeting Proxy Statement. Item 13. Certain Relationships and Related Transactions The information required by Item 13 is incorporated by reference from page 4 of the Company's 1996 Annual Meeting Proxy Statement. 6 9 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report:
Page Reference ------------------------------- 1996 Annual Report 1996 to Form 10-K Shareholders ------------------------------- 1. Financial Statements Consolidated Balance Sheets, June 30, 1996 and July 2, 1995 13* For the Years Ended June 30, 1996, July 2, 1995 and July 3, 1994: Consolidated Statements of Income and Shareholders' Investment 12*, 14* Consolidated Statements of Cash Flow 15* Notes to Consolidated Financial Statements 16-24* Report of Independent Public Accountants 26*
*Incorporated herein by reference to the Registrant's 1996 Annual Report to Shareholders for the fiscal year ended June 30, 1996. 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 on page 9 of this report, which is incorporated herein by reference. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is identififed 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. 7 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRIGGS & STRATTON CORPORATION By /s/ R. H. Eldridge ----------------------------- R. H. Eldridge September 19, 1996 Executive Vice President and Chief Financial Officer, Secretary-Treasurer - -------------------------------------------------------------------------------- POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Frederick P. Stratton, Jr. and Robert H. Eldridge, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof. - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ F. P. Stratton, Jr. /s/ John L. Murray - ------------------------------------------ -------------------------------------- F. P. Stratton, Jr. September 19, 1996 John L. Murray September 19, 1996 Chairman and Chief Executive Officer and Director Director (Principal Executive Officer) /s/ R. H. Eldridge /s/ C. B. Rogers, Jr. - ------------------------------------------ -------------------------------------- Robert H. Eldridge September 19, 1996 C. B. Rogers, Jr. September 19, 1996 Executive Vice President and Director Chief Financial Officer, Secretary-Treasurer and Director (Principal Financial Officer) /s/ James E. Brenn /s/ John S. Shiely - ------------------------------------------ -------------------------------------- James E. Brenn September 19, 1996 John S. Shiely September 19, 1996 Vice President and Controller President and Chief Operating Officer (Principal Accounting Officer) and Director /s/ Michael E. Batten /s/ Charles I. Story - ------------------------------------------ -------------------------------------- Michael E. Batten September 19, 1996 Charles I. Story September 19, 1996 Director Director /s/ Peter A. Georgescu /s/ Elwin J. Zarwell - ------------------------------------------ -------------------------------------- Peter A. Georgescu September 19, 1996 Elwin J. Zarwell September 19, 1996 Director Director
8 11 BRIGGS & STRATTON CORPORATION (Commission File No. 1-1370) EXHIBIT INDEX 1996 ANNUAL REPORT ON FORM 10-K Exhibit Number 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. (Filed as Exhibit 3.2 to the Company's Registration Statement on Form 8-B dated October 12, 1992 and incorporated by reference herein.) 4.0 Rights Agreement dated as of August 7, 1996, between Briggs & Stratton Corporation and Firstar Trust Company which includes the form of Right Certificate as Exhibit A and the Summary of Rights to Purchase Common shares as Exhibit B. (Filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A, dated as of August 7, 1996 and incorporated by reference herein.) 10.0* Forms of Officer Employment Agreements. (Filed as Exhibit 10.0 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.1* Survivor Annuity Plan. (Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for fiscal year ended June 30, 1986 and incorporated by reference herein.) 10.2* Supplemental Retirement Program. (Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for fiscal year ended June 30, 1990 and incorporated by reference herein.) 10.3(a)* Economic Value Added Incentive Compensation Plan, as amended and restated effective April 18, 1995. (Filed as Exhibit 10.3 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.3(b)* Amendment to Economic Value Added Incentive Compensation Plan. (Filed as Exhibit 10.3 (c) to the Company's Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated by reference herein.) 10.4* Form of Change of Control Employment Agreements. (Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.5(a)* Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees upon the occurrence of a change in control. (Filed as Exhibit 10.5 (a) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.5(b)* Amendment to Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees. (Filed as Exhibit 10.5 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.6* Stock Incentive Plan. (Filed as Exhibit A to the Company's 1993 Annual Meeting Proxy Statement, which was filed as Exhibit 100A to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 9 12 Exhibit Number Description ------- ----------- 10.7(a)* Leveraged Stock Option Program. (Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.7(b)* Amendment to Leveraged Stock Option Program. (Filed as Exhibit 10.7 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.8* Amended and Restated Deferred Compensation Agreement for Fiscal 1995. (Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.9* Deferred Compensation Agreement for Fiscal 1996. (Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.10* Deferred Compensation Agreement for Fiscal 1997. (Filed herewith.) 10.11* Officer Employment Agreement. (Filed as Exhibit 10.11 to the Company's Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated by reference herein.) 10.12* Deferred Compensation Plan for Directors. (Filed as Exhibit 10.12 to the Company's Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated by reference herein.) 11 Computation of Earnings Per Share of Common Stock. (Filed herewith.) 13 Annual Report to Shareholders for Year Ended June 30, 1996. (Filed herewith solely to the extent specific portions thereof are incorporated herein by reference.) 21 Subsidiaries of the Registrant. (Filed as Exhibit 21 to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 23 Consent of Independent Public Accountants. (Filed herewith.) 24 Power of Attorney (Included in the Signatures Page of this report.) 27 Financial Data Schedule (Filed herewith.) - -------------------------------------------------------------------------------- * Management contracts and executive compensation plans and arrangements required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K. 10 EX-10.10 2 DEFERRED COMPENSATION AGREEMENT FOR FISCAL 1997 1 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES EXHIBIT NO. 10.10 DEFERRED COMPENSATION AGREEMENT FOR FISCAL 1997 AGREEMENT made this 19th day of June, 1996, between Briggs & Stratton Corporation (the "Company") and Frederick P. Stratton, Jr. (the "Executive"). 1. Deferral of Compensation. This Agreement shall operate to defer, on an unfunded basis, compensation earned by the Executive as an employee of the Company for the Company's fiscal year ending in 1997, to the extent that such compensation would otherwise be non-deductible under Section 162(m) of the Internal Revenue Code, as amended from time to time. The amount deferred hereunder shall be paid to the Executive as soon as practicable following the Company fiscal year in which the Executive terminates employment with the Company, such payment to be made in one lump sum, or in such other manner as may be agreed upon between the Executive and the Company's Nominating and Salary Personnel Committee of the Board. Such agreement, if any, must occur before the termination of employment by the Executive, or such payment shall be in a lump sum. 2. Death of Executive. If the Executive dies prior to receiving all funds payable hereunder, the entire unpaid balance shall be paid in the same manner as provided for the Executive under the Company's Economic Value Added Incentive Compensation Plan. 3. Binding Effect. This Agreement has been approved by the Company's Board of Directors and its Nominating and Salaried Personnel Committee, and shall be binding and inure to the benefit of the Company, its successors and assigns and the Executive and his heirs, executors, administrators, and legal representatives. 4. Earnings on Deferrals. On or before June 29, 1997, the Executive shall elect to have any deferrals hereunder credited with earnings in accordance with (a) or (b) below: (a) Earnings on a book (unfunded) basis beginning on the date the deferred amount would otherwise have been paid, and continuing thereafter at a rate equal to 80% of the prime rate made available to the best customers of Firstar Bank Milwaukee, N.A., and adjusted and compounded annually as of the last day of each subsequent Company fiscal year until paid; (b) Earnings at a rate designed to reflect the performance of Company stock. Under this alternative, the amount deferred shall be converted into shares of phantom Company stock as soon as practicable following the determination of the amount deferred under this Agreement. Each year, the Committee shall determine the amount of dividends that would have been paid on the phantom stock and convert such dividends into additional shares of phantom stock. Following the conversions described above, the Company shall promptly advise Executive of the number of phantom shares acquired. If Executive chooses this investment alternative, Executive may elect to receive distributions in cash or stock; provided that any stock distributions shall be subject to any necessary approvals under securities laws or exchange requirements. 5. Section 16 Consequences. Executive acknowledges that an election under Section 4(b) above will have implications under Section 16 of the Securities Exchange Act of 1934, including potential Section 16(b) liability if Executive or an affiliate has a matching transaction. Executive 1 2 acknowledges that he will be responsible for reporting transactions under this Agreement on the applicable Form 4 or Form 5. 6. Unfunded Status of Agreement. It is intended that this Agreement constitute an "unfunded" arrangement for deferred compensation. The Committee may authorize the creation of a trust or other arrangement to meet the obligations created under this Agreement provided, however, that unless the Committee otherwise determines, the existence of such trust or other arrangement is consistent with the "unfunded" status of the Agreement. 7. Miscellaneous. Payment of deferrals hereunder shall be subject to tax or other withholding requirements as may be required by law. The Company's Board, or its Nominating and Salaried Personnel Committee, shall have the power to modify or terminate this Agreement, but only with consent of the Executive. IN WITNESS WHEREOF, Briggs & Stratton Corporation has caused this Deferred Compensation Agreement to be executed by its duly authorized Director and Frederick P. Stratton, Jr., together with his spouse, Anne Y. Stratton, hereunto have set their hands as of the date first above written. BRIGGS & STRATTON CORPORATION By: /s/ John L. Murray -------------------------------------- John L. Murray Chairman, Nominating and Salaried Personnel Committee /s/ Frederick P. Stratton, Jr. -------------------------------------- Frederick P. Stratton, Jr. /s/ Anne Y. Stratton -------------------------------------- Anne Y. Stratton 2 EX-11 3 COMPUTATION OF EARNINGS 1 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES EXHIBIT NO. 11 COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Fiscal Year Ended ------------------------------------------------------ June 30, 1996 July 2, 1995 July 3, 1994 ------------- ------------ ------------ Computations for Statements of Income Primary earnings per share of common stock: Income before cumulative effect of changes in accounting principles $ 92,412,000 $ 104,805,000 $ 102,481,000 Cumulative effect of changes in accounting principles - - (32,558,000) ------------- -------------- -------------- Net income $ 92,412,000 $ 104,805,000 $ 69,923,000 ============= ============== ============== Average shares of common stock outstanding 28,927,000 28,927,000 28,927,000 Incremental common shares applicable to common stock options based on the average market price during the period 131,567 144,550 192,596 ------------- -------------- -------------- Average common shares, as adjusted 29,058,567 29,071,550 29,119,596 ============= ============== ============== Earnings per share of common stock: Net income before cumulative effect of changes in accounting principles $ 3.18 $ 3.61 $ 3.52 Cumulative effect of changes in accounting principles - - (1.12) ------------- -------------- -------------- Net earnings per share of common stock $ 3.18 $ 3.61 $ 2.40 ============= ============== ============== Fully diluted earnings per share of common stock: Average shares of common stock outstanding 28,927,000 28,927,000 28,927,000 Incremental common shares applicable to common stock options based on the more dilutive of the common stock ending or average market price during the period 131,567 144,550 192,596 ------------- -------------- -------------- Average common shares assuming full dilution 29,058,567 29,071,550 29,119,596 ============= ============== ============== Fully diluted earnings per average share of common stock, assuming conversion of all applicable securities: Net income before cumulative effect of changes in accounting principles $ 3.18 $ 3.61 $ 3.52 Cumulative effect of changes in accounting principles - - (1.12) ------------- -------------- -------------- Net earnings per share of common stock $ 3.18 $ 3.61 $ 2.40 ============= ============== ==============
Note 1: The dilutive effect of stock options is less than 3% and, accordingly, presentation is not required under Accounting Principles Board Opinion No. 15. The above is presented to comply with Securities and Exchange Commission regulations. Note 2: The calculations for fiscal 1995 and 1994 have been adjusted to reflect a two-for-one stock split. 1 EX-13 4 ANNUAL REPORT TO SHAREHOLDERS 1 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES EXHIBIT NO. 13 ANNUAL REPORT TO SHAREHOLDERS FOR YEAR ENDED JUNE 30, 1996 2 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994 1996 1995 1994 ---- ---- ---- NET SALES ............................. $ 1,287,029,000 $ 1,339,677,000 $ 1,285,517,000 COST OF GOODS SOLD .................... 1,025,281,000 1,068,059,000 1,018,977,000 -------------- -------------- ------------- Gross Profit on Sales ............. 261,748,000 271,618,000 266,540,000 ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ............. 108,339,000 101,852,000 94,795,000 -------------- -------------- ------------- Income from Operations ............ 153,409,000 169,766,000 171,745,000 INTEREST EXPENSE ...................... (10,069,000) (8,580,000) (8,997,000) OTHER INCOME, Net ..................... 5,712,000 9,189,000 6,973,000 -------------- -------------- ------------- Income Before Provision for Income Taxes ...................... 149,052,000 170,375,000 169,721,000 PROVISION FOR INCOME TAXES ............ 56,640,000 65,570,000 67,240,000 -------------- -------------- ------------- Net Income Before Cumulative Effect of Accounting Changes ................ 92,412,000 104,805,000 102,481,000 CUMULATIVE EFFECT OF ACCOUNTING CHANGES FOR: Postretirement Health Care, Net of Income Taxes of $25,722,000 ...... - - (40,232,000) Postemployment Benefits, Net of Income Taxes of $430,000 ......... - - (672,000) Deferred Income Taxes ............. - - 8,346,000 -------------- -------------- ------------- - - (32,558,000) -------------- -------------- ------------- NET INCOME ............................ $ 92,412,000 $ 104,805,000 $ 69,923,000 ============== ============== ============= PER SHARE DATA: Net Income Before Cumulative Effect of Accounting Changes ............... $ 3.19 $ 3.62 $ 3.54 Cumulative Effect of Accounting Changes ............... - - (1.12) -------------- -------------- ------------- Net Income ........................ $ 3.19 $ 3.62 $ 2.42 ============== ============== =============
The accompanying notes to consolidated financial statements are an integral part of these statements. 12 3 CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND JULY 2, 1995 ASSETS 1996 1995 -------------- ------------- CURRENT ASSETS: Cash and Cash Equivalents .............................................. $ 150,639,000 $ 170,648,000 Receivables, Less Reserves of $1,544,000 and $1,537,000, Respectively... 119,346,000 94,116,000 Inventories - Finished Products and Parts .......................................... 96,078,000 96,540,000 Work in Process ...................................................... 36,932,000 40,107,000 Raw Materials ........................................................ 4,393,000 4,027,000 -------------- ------------- Total Inventories .................................................. 137,403,000 140,674,000 Future Income Tax Benefits ............................................. 29,589,000 31,376,000 Prepaid Expenses ....................................................... 19,410,000 16,516,000 -------------- ------------- Total Current Assets ............................................... 456,387,000 453,330,000 PREPAID PENSION COST ..................................................... 4,682,000 - DEFERRED INCOME TAX ASSET ................................................ 2,883,000 1,866,000 PLANT AND EQUIPMENT: Land and Land Improvements ............................................. 15,603,000 9,499,000 Buildings .............................................................. 147,670,000 105,844,000 Machinery and Equipment ................................................ 594,608,000 507,606,000 Construction in Progress ............................................... 18,757,000 103,382,000 -------------- ------------- 776,638,000 726,331,000 Less - Accumulated Depreciation and Unamortized Investment Tax Credit ................................................ 402,426,000 383,034,000 -------------- ------------- Total Plant and Equipment, Net ................................... 374,212,000 343,297,000 -------------- ------------- $ 838,164,000 $ 798,493,000 ============== ============= LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts Payable ....................................................... $ 65,642,000 $ 63,913,000 Domestic Notes Payable ................................................. 5,000,000 6,750,000 Foreign Loans .......................................................... 14,922,000 19,653,000 Current Maturities on Long-Term Debt ................................... 15,000,000 - Accrued Liabilities - Wages and Salaries ................................................... 25,488,000 44,900,000 Warranty ............................................................. 26,257,000 30,353,000 Other ................................................................ 31,187,000 33,564,000 -------------- ------------- Total Accrued Liabilities .......................................... 82,932,000 108,817,000 Federal and State Income Taxes ......................................... 6,683,000 (1,878,000) -------------- ------------- Total Current Liabilities .......................................... 190,179,000 197,255,000 ACCRUED PENSION COST ..................................................... - 1,606,000 ACCRUED EMPLOYEE BENEFITS ................................................ 18,431,000 16,447,000 ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION ............................ 69,049,000 68,707,000 LONG-TERM DEBT ........................................................... 60,000,000 75,000,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT: Common Stock - Authorized 60,000,000 shares $.01 Par Value, Issued and Outstanding 28,927,000 in 1996 and 1995 ................. 289,000 289,000 Additional Paid-In Capital ............................................. 40,898,000 41,698,000 Retained Earnings ...................................................... 459,666,000 397,627,000 Cumulative Translation Adjustments ..................................... (348,000) (136,000) ------------- ------------- Total Shareholders' Investment ..................................... 500,505,000 439,478,000 ------------- ------------- $ 838,164,000 $ 798,493,000 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 13 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994
Additional Cumulative Common Paid-In Retained Translation Stock Capital Earnings Adjustments ----- ---------- -------- ----------- BALANCES, JUNE 27, 1993 ....................... $ 145,000 $ 42,883,000 $ 318,247,000 $ (1,317,000) Net Income ................................. - - 69,923,000 - Cash Dividends Paid ($.90 per share) ....... - - (26,034,000) - Purchase of Common Stock for Treasury ............................. - (791,000) - - Proceeds from Exercise of Stock Options ............................ - 266,000 - - Currency Translation Adjustments ........... - - - 470,000 --------- ------------ ------------- ------------ BALANCES, JULY 3, 1994 145,000 42,358,000 362,136,000 (847,000) Net Income................................. - - 104,805,000 - Cash Dividends Paid ($.98 per share)....... - - (28,348,000) - Distribution of Shares of STRATTEC SECURITY CORPORATION .................. - - (40,966,000) 1,226,000 Two-for-One Stock Split ................... 144,000 (144,000) - - Purchase of Common Stock for Treasury ............................ - (915,000) - - Proceeds from Exercise of Stock Options ........................... - 399,000 - - Currency Translation Adjustments .......... - - - (515,000) --------- ------------ ------------- ------------ BALANCES, JULY 2, 1995 ....................... 289,000 41,698,000 397,627,000 (136,000) Net Income ................................ - - 92,412,000 - Cash Dividends Paid ($1.05 per share)...... - - (30,373,000) - Purchase of Common Stock for Treasury ............................ - (1,185,000) - - Proceeds from Exercise of Stock Options ........................... - 385,000 - - Currency Translation Adjustments .......... - - - (212,000) --------- ------------ ------------- ------------ BALANCES, JUNE 30, 1996 ...................... $ 289,000 $ 40,898,000 $ 459,666,000 $ (348,000) ========= ============ ============= ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 14 5 CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994 Increase (Decrease) in Cash and Cash Equivalents
1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ................................................ $ 92,412,000 $ 104,805,000 $ 69,923,000 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities - Cumulative Effect of Accounting Changes, Net of Income Taxes ................................... - - 32,558,000 Depreciation ............................................ 43,032,000 44,445,000 42,950,000 (Gain) Loss on Disposition of Plant and Equipment ....... 2,692,000 1,452,000 (96,000) Change in Operating Assets and Liabilities - (Increase) Decrease in Receivables ..................... (25,230,000) 11,125,000 2,384,000 (Increase) Decrease in Inventories ..................... 3,271,000 (62,753,000) (11,605,000) (Increase) in Other Current Assets ..................... (1,107,000) (4,720,000) (10,593,000) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes ................. (15,595,000) (8,220,000) 38,132,000 Other, Net ............................................. (4,979,000) 9,633,000 1,420,000 ------------- ------------- ------------ Net Cash Provided by Operating Activities ............ 94,496,000 95,767,000 165,073,000 ------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment .......................... (77,746,000) (131,034,000) (40,804,000) Proceeds Received on Sale of Plant and Equipment .......... 1,069,000 2,055,000 7,268,000 Sale of Short-Term Investments ............................ - - 70,422,000 Decrease in Cash Due to Spin-Off of Lock Business ......... - (174,000) - ------------- ------------- ------------ Net Cash Provided by (Used in) Investing Activities (76,677,000) (129,153,000) 36,886,000 ------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable .... (6,481,000) 12,080,000 5,396,000 Cash Dividends Paid ....................................... (30,373,000) (28,348,000) (26,034,000) Purchase of Common Stock for Treasury ..................... (1,185,000) (915,000) (791,000) Proceeds from Exercise of Stock Options ................... 385,000 399,000 266,000 ------------- ------------- ------------ Net Cash Used in Financing Activities ................ (37,654,000) (16,784,000) (21,163,000) ------------- ------------- ------------ EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ...................... (174,000) (283,000) 804,000 ------------- ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................................... (20,009,000) (50,453,000) 181,600,000 CASH AND CASH EQUIVALENTS: Beginning of Year ......................................... 170,648,000 221,101,000 39,501,000 ------------- ------------- ------------ End of Year ............................................... $ 150,639,000 $ 170,648,000 $221,101,000 ============= ============= ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid ............................................. $ 10,137,000 $ 8,501,000 $ 8,997,000 ============= ============= ============ Income Taxes Paid ......................................... $ 48,865,000 $ 88,935,000 $ 77,748,000 ============= ============= ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 15 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994 (1) NATURE OF OPERATIONS: Briggs & Stratton Corporation (the Company) is a U.S. based producer of air cooled gasoline engines. These engines are sold primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment worldwide. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day of June in each year. Therefore, the 1996 and 1995 fiscal years were 52 weeks long and the 1994 fiscal year was 53 weeks long. All references to years relate to fiscal years rather than calendar years. Principles of Consolidation: The consolidated financial statements include the accounts of Briggs & Stratton Corporation and its wholly owned domestic and foreign subsidiaries after elimination of intercompany accounts and transactions. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: This caption includes cash and certificates of deposit. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at cost, which does not exceed market. The last-in, first-out (LIFO) method was used for determining the cost of approximately 93% of total inventories at June 30, 1996 and at July 2, 1995 and 89% at July 3, 1994. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. If the FIFO inventory valuation method had been used exclusively, inventories would have been $48,125,000, $43,582,000 and $42,268,000 higher in the respective years. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts. Plant and Equipment and Depreciation: Plant and equipment is stated at cost, and depreciation is computed using the straight-line method at rates based upon the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in other income. Investment Tax Credits: The Company follows the deferral method of accounting for the Federal investment tax credit. The credit, which was eliminated in 1986, has been recorded as an addition to accumulated depreciation and is being amortized over the estimated useful lives of the related assets via a reduction of depreciation expense. The amounts amortized into income in each of the three years were $672,000 in 1996, $759,000 in 1995 and $830,000 in 1994. During 1995, $217,000 was eliminated in the spin-off, as described in subsequent footnotes. At the end of fiscal years 1996 and 1995, unamortized deferred investment tax credits aggregated $1,577,000 and $2,249,000, respectively. 16 7 NOTES . . . Income Taxes: The Provision for Income Taxes includes Federal, state and foreign income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities. The Future Income Tax Benefits represent temporary differences relating to current assets and current liabilities and the Deferred Income Taxes represent temporary differences relating to noncurrent assets and liabilities. Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $12,737,000 in 1996, $13,112,000 in 1995 and $12,520,000 in 1994. Accrued Employee Benefits: The Company's life insurance program includes payment of a death benefit to beneficiaries of retired employees. The Company accrues for the estimated cost of these benefits over the estimated working life of the employee. Past service costs for all retired employees have been fully provided for. The Company also accrues for the estimated cost of supplemental retirement and death benefit agreements with executive officers. Accrued Postretirement Health Care Obligation: During the 1994 fiscal year, the Company adopted Financial Accounting Standard (FAS) No. 106 (Postretirement Benefits Other Than Pensions). This change and the amounts associated with it are more fully described in subsequent footnotes. Advertising Costs: Advertising costs, included in Engineering, Selling, General and Administrative Expenses on the accompanying Consolidated Statement of Income, are expensed as incurred. These expenses totaled $7,066,000 in 1996, $6,357,000 in 1995 and $5,411,000 in 1994. Foreign Currency Translation: Foreign currency balance sheet accounts are translated into United States dollars at the rates of exchange in effect at fiscal year end. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component of shareholders' investment. Derivatives: Potential gains and losses on foreign currency hedges with controlled subsidiaries are carried on the balance sheet. Gains and losses related to all other hedges of anticipated transactions are deferred and recognized as adjustments of carrying amounts when the hedged transaction occurs. Start-Up Costs: It is the Company's policy to expense all start-up costs for new manufacturing plants. Under this policy, the Company expensed $11,660,000 in fiscal 1996 and $5,300,000 in fiscal 1995. Impairment of Assets: In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ". This new standard requires companies to assess the need for adjustment to carrying values of assets when an indicator of impairment is present. The Company adopted this standard during the 1996 fiscal year and determined that it has no impaired assets. (3) INCOME TAXES: The provision for income taxes consists of the following (in thousands of dollars):
1996 1995 1994 Current ---- ---- ---- Federal ............ $ 46,448 $ 67,255 $ 62,795 State .............. 7,768 10,644 10,482 Foreign ............ 1,654 873 2,059 --------- --------- --------- 55,870 78,772 75,336 Deferred ............. 770 (13,202) (8,096) --------- --------- --------- Total $ 56,640 $ 65,570 $ 67,240 ========= ========= =========
A reconciliation of the U.S. statutory tax rates to the effective tax rates follows:
1996 1995 1994 ---- ---- ---- U.S. statutory rate ......... 35.0% 35.0% 35.0% State taxes, net of Federal tax benefit ....... 3.4% 3.5% 3.6% Foreign Sales Corporation tax benefit ............... (.7%) (.6%) (.5%) Other ....................... .3% .6% 1.5% ---- ---- ---- Effective tax rate .......... 38.0% 38.5% 39.6% ==== ==== ====
17 8 NOTES . . . At the beginning of fiscal year 1994, the Company adopted FAS No. 109 (Accounting For Income Taxes) which required a change in the recording of deferred taxes. The former method emphasized provisions which were made in the income statement. The emphasis in the new method is on the balance sheet and requires that the amounts to be recorded are the amounts which will eventually be paid out. The adoption of this standard resulted in a cumulative adjustment which was recorded as income totaling $8,346,000 or $ .29 per share. The components of deferred tax assets and liabilities at the end of the fiscal year were (in thousands of dollars):
1996 1995 ---- ---- Future Income Tax Benefits: Inventory .............................. $ 2,518 $ 3,710 Prepaid Expenses ....................... (158) 167 Payroll Related Accruals ............... 4,658 4,153 Warranty Reserves ...................... 10,240 11,838 Other Accrued Liabilities .............. 8,453 8,255 Miscellaneous .......................... 3,878 3,253 ---------- ---------- $ 29,589 $ 31,376 ========== ========== Deferred Income Taxes: Difference between book and tax methods applied to maintenance and supply inventories .......................... $ 9,982 $ 6,618 Pension Cost ........................... (1,679) 400 Accumulated Depreciation ............... (41,768) (39,176) Accrued Employee Benefits .............. 7,232 6,469 Postretirement ......................... Health Care Obligation ............... 26,929 26,796 Miscellaneous .......................... 2,187 759 ---------- ---------- $ 2,883 $ 1,866 ========== ==========
The Company has not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. These undistributed earnings amounted to approximately $5,200,000 at June 30, 1996. If these earnings were remitted to the U.S., they would be subject to U.S. income tax. However, this tax would be substantially less than the U.S. statutory income tax because of available foreign tax credits. (4) INDUSTRY SEGMENTS: Certain information concerning the Company's industry segments is presented below (in thousands of dollars):
1995 1994 ---- ---- SALES - Engines & parts ................ $ 1,276,264 $ 1,197,744 Locks .......................... 63,413 87,773 ------------- ------------- $ 1,339,677 $ 1,285,517 ============= ============= INCOME FROM OPERATIONS - Engines & parts ................ $ 162,903 $ 158,900 Locks .......................... 6,863 12,845 ------------- ------------- $ 169,766 $ 171,745 ============= ============= ASSETS - Engines & parts ................ $ 798,493 $ 467,561 Locks .......................... - 46,832 Unallocated .................... - 262,962 ------------- ------------- $ 798,493 $ 777,355 ============= ============= DEPRECIATION EXPENSE - Engines & parts ................ $ 42,746 $ 40,605 Locks .......................... 1,699 2,345 ------------- ------------- $ 44,445 $ 42,950 ============= ============= EXPENDITURES FOR PLANT AND EQUIPMENT - Engines & parts ................ $ 124,604 $ 37,398 Locks .......................... 6,430 3,406 ------------- ------------- $ 131,034 $ 40,804 ============= =============
On February 27, 1995, the Company spun off its lock business to its shareholders in a tax-free distribution. This spin-off was accomplished by distributing shares in a newly created corporation on the basis of one share in the new corporation for each five shares of Briggs & Stratton Corporation stock held on February 16, 1995. The newly created corporation, STRATTEC SECURITY CORPORATION, is publicly traded. This distribution resulted in a charge of $40,966,000 against the retained earnings account and represented the total of the net assets transferred to STRATTEC. The financial statements of Briggs & Stratton Corporation have not been restated to deal with this distribution as a discontinued operation because the amounts were not material. Because of the spin-off, no industry segment data is being presented for 1996. 18 9 NOTES . . . The preceding Sales, Income From Operations, Depreciation Expense, and Expenditures For Plant and Equipment reflect 1995 data for the lock business from the beginning of the fiscal year to the date of spin-off. Unallocated assets include cash and cash equivalents, short-term investments, future income tax benefits, prepaid pension costs and other assets. Export sales for fiscal 1996 were $323,747,000 (25% of total sales), for fiscal 1995 were $312,234,000 (23%) and for fiscal 1994 were $264,866,000 (21%). These sales were principally to customers in European countries. In the fiscal years 1996, 1995 and 1994, there were sales to three major engine customers that exceeded 10% of total Company net sales. The sales to these customers are summarized below (in thousands of dollars and percent of total Company sales):
1996 1995 1994 ---- ---- ---- Customer Sales % Sales % Sales % ----- - ----- - ----- - A $267,257 21% $237,241 18% $234,363 18% B $177,314 14% $155,072 12% $148,091 12% C $163,065 13% $189,916 14% $149,397 12% -------- -- -------- -- -------- -- $607,636 48% $582,229 44% $531,851 42% ======== == ======== == ======== ==
(5) INDEBTEDNESS: The Company had access to domestic lines of credit totaling $47,000,000 at June 30, 1996. These lines will remain available until cancelled by either party. They provide amounts for short-term use at the then prevailing rate. There are no significant compensating balance requirements and no borrowings at June 30, 1996 using these lines of credit. The following data relates to domestic notes payable:
1996 1995 ---- ---- Balance at Fiscal Year End ........ $ 5,000,000 $ 6,750,000 Weighted Average Interest Rate at Fiscal Year End ........ 6.10% 5.00%
The lines of credit available to the Company in foreign countries are in connection with short-term borrowings and bank overdrafts used in the normal course of business. These amounts total $18,500,000, expire at various times through November, 1997 and are renewable. None of these arrangements had material commitment fees or compensating balance requirements. The following information relates to the foreign loans:
1996 1995 ---- ---- Balance at Fiscal Year End ........ $ 14,922,000 $ 19,653,000 Weighted Average Interest Rate at Fiscal Year End ........ 4.60% 5.80%
The Company's long-term debt consists of 9.21% Senior Notes due June 15, 2001. Payments on these notes are due in five equal annual installments beginning in 1997. The notes include covenants that limit total borrowings, require maintenance of $200,000,000 minimum net worth and set certain restrictions on the sale or collateralizing of the Company's assets. (6) OTHER INCOME (EXPENSE): The components of other income (expense) are (in thousands of dollars):
1996 1995 1994 ---- ---- ---- Interest income .......... $ 4,477 $ 6,840 $ 3,527 Gain on sale of German land and buildings ..... - - 2,819 Loss on the disposition of plant and equipment .... (2,692) (1,452) (2,723) Income from joint ventures .............. 2,957 2,842 2,307 Other items .............. 970 959 1,043 ------- ------- ------- Total $ 5,712 $ 9,189 $ 6,973 ======= ======= =======
(7) COMMITMENTS AND CONTINGENCIES: The Company is a 50% guarantor on bank loans of two unconsolidated joint ventures. One is in Japan for the manufacture of engines and the second in the United States for the manufacture of parts. These bank loans totaled approximately $13,000,000 at the end of 1996. 19 10 NOTES . . . Product and general liability claims arise against the Company from time to time in the ordinary course of business. The Company is self-insured for future claims up to $1 million per claim. Accordingly, a reserve is maintained for the estimated costs of such claims. At June 30, 1996, the reserve for product and general liability claims was $6.5 million based on available information. There is inherent uncertainty as to the eventual resolution of unsettled claims. Management, however, believes that any losses in excess of established reserves will not have a material effect on the Company's financial position or results of operations. The Company has no material commitments for materials or capital expenditures at June 30, 1996. (8) STOCK OPTIONS: In 1990, shareholders approved the Stock Incentive Plan under which 400,000 shares of the Company's common stock were reserved for issuance. In fiscal 1994, shareholders approved an additional 1,250,000 shares for issuance under the Plan, bringing the total shares reserved for issuance to 1,650,000. In fiscal 1995, pursuant to the terms of the Plan, the number of shares reserved for issuance was adjusted to 3,361,935 to reflect the two-for-one stock split and the spin-off of its lock business. Information on the options outstanding is as follows:
Options Outstanding in Number of Common Stock Shares -------------- 1996 1995 1994 ---- ---- ---- Balance, beginning of year...... 1,169,620 606,864 390,184 Granted during the year - 1994 at $48.369............... - - 253,420 1995 at $45.854............... - 552,000 - 1996 at $49.080............... 600,000 - - Increase due to spin-off........ - 83,843 - Exercised during the year....... (65,089) (43,827) (19,000) Terminated during the year...... - (29,260) (17,740) --------- --------- ------- Balance, end of year............ 1,704,531 1,169,620 606,864 ========= ========= =======
Grant Summary - ------------------------------------------------------------------------- Fiscal Grant Exercise Date Options Expiration Year Date Price (a) Exercisable Outstanding Date - ------ ----- --------- ----------- ----------- ---------- 1990 2-20-90 $13.014 50%, 1-1-94; 6,782 2-19-00 50%, 1-1-95 1991 2-19-91 14.524 50%, 1-1-95; 90,613 2-18-01 50%, 1-1-96 1992 5-18-92 21.525 50%, 1-1-96; 181,546 5-17-02 50%, 1-1-97 1994 8-16-93 48.369 8-16-96 258,085 8-16-98 1995 8-12-94 45.854 8-12-97 567,505 8-12-99 1996 8-7-95 49.080 8-7-98 600,000 8-7-00
There were no options granted in fiscal 1993. (a) Exercise prices have been adjusted as appropriate to reflect a two-for-one stock split and the spin-off of the Company's lock business. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock-Based Compensation." This standard establishes financial accounting and reporting standards for stock-based employee compensation. The Company plans to adopt the pro forma disclosure requirements of the statement, and will continue to apply the accounting provisions of Accounting Principles Board Opinion No. 25, as allowed by the new standard. This disclosure will be effective for the fiscal 1997 financial statements. (9) SHAREHOLDER RIGHTS PLAN: On August 6, 1996, the Board of Directors declared a dividend distribution of one common stock purchase right (a "right") for each share of the Company's common stock outstanding on August 19, 1996. Each right would entitle shareowners to buy one-half of one share of the Company's common stock at an exercise price of $160.00 per full common share, subject to adjustment. The rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15 percent or more of the outstanding shares of common stock. The rights expire on August 19, 2006, unless redeemed or exchanged by the Company earlier. Rights granted under a previous plan expired July 1, 1996. 20 11 NOTES . . . (10) RETIREMENT PLANS AND POSTRETIREMENT COSTS: The Company has noncontributory, defined benefit retirement plans covering most Wisconsin employees. The following tables summarize the plans' income and expense, actuarial assumptions, and funded status for the three years indicated (dollars in thousands):
Qualified Plans Supplemental Plans ------------------------------ ------------------------------ 1996 1995 1994 1996 1995 1994 ---- ---- ---- ---- ---- ---- Income and Expense: - ------------------- Service Cost-Benefits Earned During the Year................... $ 13,143 $ 15,098 $ 13,079 $ 456 $ 453 $ 296 Interest Cost on Projected Benefit Obligation................ 41,722 39,877 36,408 926 904 706 Actual Return on Plan Assets........ (104,872) (89,941) (7,152) (9) (3) (3) Net Amortization, Deferral and Windows....................... 51,830 37,078 (42,978) 462 333 380 --------- -------- -------- -------- -------- ------- Net Periodic Pension Expense (Income).................. $ 1,823 $ 2,112 $ (643) $ 1,835 $ 1,687 $ 1,379 ========= ======== ======== ======== ======== ======= Actuarial Assumptions: - ---------------------- Discount Rate Used to Determine Present Value of Projected Benefit Obligation................ 7.75% 7.75% 7.75% 7.75% 7.75% 7.75% Expected Rate of Future Compensation Level Increases...... 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% Expected Long-Term Rate of Return on Plan Assets............. 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Funded Status: - -------------- Actuarial Present Value of Benefit Obligations: Vested........................... $ 413,035 $389,117 $359,383 $ 8,286 $ 7,991 $ 6,560 Non-Vested....................... 34,268 36,144 34,382 21 6 23 --------- -------- -------- -------- -------- ------- Accumulated Benefit Obligation..................... 447,303 425,261 393,765 8,307 7,997 6,583 Effect of Projected Future Wage and Salary Increases......... 120,083 124,651 112,771 4,766 4,679 3,267 --------- -------- -------- -------- -------- ------- Projected Benefit Obligation...... 567,386 549,912 506,536 13,073 12,676 9,850 Plan Assets at Fair Market Value.... 681,819 609,385 560,585 126 100 103 --------- -------- -------- -------- -------- ------- Plan Assets in Excess of (Less Than) Projected Benefit Obligation...... 114,433 59,473 54,049 (12,947) (12,576) (9,747) Remaining Unrecognized Net Obligation (Asset) Arising from the Initial Application of SFAS No. 87....................... (31,321) (36,902) (43,776) 179 258 336 Unrecognized Net Loss (Gain)........ (75,983) (21,992) (502) 4,494 5,277 3,416 Unrecognized Prior Service Cost..... (2,447) (2,185) (1,090) 1,029 1,102 1,176 --------- -------- -------- -------- -------- ------- Prepaid (Accrued) Pension Cost...... $ 4,682 $ (1,606) $ 8,681 $ (7,245) $ (5,939) $(4,819) ========= ======== ======== ======== ======== =======
As part of the spin-off of the lock business as described in Note 4, the Company's pension trust transferred $15,872,000 in plan assets to STRATTEC SECURITY CORPORATION in 1995. This resulted in an increase of $5,000,000 in the prepaid pension cost account due to the Company transferring certain benefit obligations and unrecognized amounts. 21 12 NOTES . . . The Company offered early retirement windows to certain of its Milwaukee union members during the 1995 fiscal year. As a result, $13,806,000 was added to pension expense and $5,253,000 was added to postretirement health care expense in the fourth quarter of the 1995 fiscal year. When the retirements were scheduled to occur in the first fiscal quarter of 1996, a number of these union members canceled their acceptance, and thus credits totaling $3,477,000 were recorded as a change in the original accounting estimate. During fiscal 1996, the defined benefit pension plan which covered employees at two of the Company's plants was terminated and replaced by a defined contribution retirement plan that includes most U.S. non-Wisconsin employees. The impact of the termination was not material. Under the new plan, the Company will make a contribution on behalf of covered employees equal to 2% of each participant's gross income, as defined. For the portion of fiscal 1996 in which the plan was in effect, the cost to the Company was $757,000. Most U.S. employees of the Company may participate in a salary reduction deferred compensation retirement plan. The Company makes matching contributions of $.50 for every $1.00 deferred by a participant to a maximum of 1-1/2% or 3% of each participant's salary, depending upon the participant's group. Company contributions totaled $2,825,000 in 1996, $1,756,000 in 1995 and $1,630,000 in 1994. At the beginning of fiscal year 1994, the Company adopted two Financial Accounting Standards as follows: FAS 106 - Postretirement Benefits Other Than Pensions - This standard requires that the Company record the expected cost of health care and life insurance benefits during the years that the employees render service - a significant change from the preceding method which recognized health care benefits on a cash basis. Postretirement life insurance benefits were previously being accounted for in a manner substantially emulating the new standards, so no adjustment was necessary. The cumulative effect of this change in accounting for postretirement health care benefits was a charge totaling $65,954,000 on a before tax basis or $40,232,000 on an after tax basis ($1.39 per share). For measurement purposes, a 10.5% annual rate of increase in the per capita cost of covered health care claims was assumed for the years 1995 through 1997, decreasing gradually to 6% for the year 2007. The health care cost trend rate assumption has a significant effect on the amounts reported. The rates, if increased by one percentage point, would add $7,172,000 to the accumulated postretirement benefit and $846,000 to the service and interest cost for the year. The discount rate used in determining the accumulated postretirement benefit obligations was 7.75% compounded annually. Both the health care and life insurance plans are unfunded. The components of the accumulated postretirement benefit obligations were (in thousands of dollars):
Health Care ----------- 1996 1995 ---- ---- Retirees ...................... $33,044 $33,801 Fully Eligible Plan Participants ........... 4,077 4,990 Other Active Participants ..... 32,628 34,616 ------- ------- $69,749 $73,407 Unrecognized net obligation ... - - Unrecognized gain ............. 4,000 - ------- ------- $73,749 $73,407 Less current portion .......... 4,700 4,700 ------- ------- $69,049 $68,707 ======= ======= Life Insurance -------------- 1996 1995 ---- ---- Retirees ...................... $ 8,840 $ 8,553 Fully Eligible Plan Participants ........... 2,226 1,453 Other Active Participants ..... 1,736 1,588 ------- ------- $12,802 $11,594 Unrecognized net obligation ... (553) (600) Unrecognized prior service cost ................ (898) - Unrecognized loss ............. (908) (1,096) ------- ------- $10,443 $ 9,898 Less current portion .......... - - ------- ------- $10,443 $ 9,898 ======= =======
22 13 NOTES . . . The current portion of the health care component above represents the benefits expected to be paid within the next twelve months and is included in the caption Accrued Liabilities in the accompanying balance sheet. The net health care balance has its own caption in this balance sheet. The life insurance component is included in the caption Accrued Employee Benefits. The net periodic postretirement costs recorded were (in thousands of dollars):
Health Care ------------ 1996 1995 ---- ---- Service Cost-Benefits attributed to service during the year ................ $1,596 $1,680 Interest cost on accumulated benefit obligation ............. 5,480 5,150 Other ........................... (91) - ------ ------ $6,985 $6,830 ====== ====== Life Insurance -------------- 1996 1995 ---- ---- Service Cost-Benefits attributed to service during the year ................ $ 90 $ 73 Interest cost on accumulated benefit obligation ............. 947 801 Other ........................... 118 47 ------ ------ $1,155 $ 921 ====== ======
FAS 112 - Postemployment Benefits - This standard was also adopted in fiscal 1994 and required that the Company record the expected cost of postemployment benefits (not to be confused with the postretirement benefits described in the preceding paragraphs), also over the years that employees render service. These benefits are substantially smaller amounts because they apply only to employees who permanently terminate employment prior to retirement. The cumulative effect of this change was a charge totaling $1,102,000 or $672,000 after taxes ($ .02 per share). There will be no significant increase in the annual costs of these plans. The items included in this amount are disability payments, life insurance and medical benefits, and these amounts are also discounted using a 7.75% interest rate. The balance in this reserve at the end of fiscal 1996 was $1,245,000 and at the end of fiscal 1995 was $1,106,000. Both were included in the caption Accrued Employee Benefits in the accompanying balance sheets. (11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents, Domestic Notes Payable and Foreign Loans: The carrying amount approximates fair value because of the short maturity of those instruments. Long-Term Debt: The fair value of the Company's long-term debt is estimated based on quotations made on similar issues. The estimated fair values of the Company's financial instruments are as follows (in thousands of dollars):
1996 ----------------------------------- Carrying Fair Amount Value -------- ----- Cash and Cash Equivalents .. $ 150,639 $ 150,639 Domestic Notes Payable ..... $ 5,000 $ 5,000 Foreign Loans .............. $ 14,922 $ 14,922 Long-Term Debt, including current maturities ........ $ 75,000 $ 77,365 1995 ----------------------------------- Carrying Fair Amount Value -------- ----- Cash and Cash Equivalents .. $ 170,648 $ 170,648 Domestic Notes Payable ..... $ 6,750 $ 6,750 Foreign Loans .............. $ 19,653 $ 19,653 Long-Term Debt ............. $ 75,000 $ 81,500
23 14 NOTES . . . (12) STOCK SPLIT: On October 19, 1994, shareholders approved a doubling of the authorized common stock shares to 60,000,000. This allowed the Company to effect a 2-for-1 stock split previously authorized by the Board of Directors. The distribution on November 14, 1994 increased the number of shares outstanding from 14,463,500 to 28,927,000. The amount of $144,000 was transferred from the additional paid-in capital account to the common stock account to record this distribution. All per share amounts in this report have been restated to reflect this stock split. (13) FOREIGN EXCHANGE RISK MANAGEMENT: The Company enters into forward exchange contracts to hedge purchase and sale commitments denominated in foreign currencies. The term of these currency derivatives never exceeds one year and the purpose is to protect the Company from the risk that the eventual dollars being transferred will be adversely affected by changes in exchange rates. The Company has forward foreign currency exchange contracts to purchase 4.8 billion Japanese yen for $46 million through June, 1997. These contracts are used to hedge the commitments to purchase engines from the Company's Japanese joint venture and accordingly any gain or loss has been deferred at the end of the 1996 fiscal year. The amount deferred was a loss of approximately $2.3 million. The Company's foreign subsidiaries have the following forward currency contracts outstanding at the end of fiscal 1996:
In Millions ----------- Local U.S. Latest Currency Currency Dollars Expiration Date - -------- -------- ------- --------------- German Deutschemarks... 1.9 1.3 July, 1996 Canadian Dollars....... 4.8 3.5 June, 1997
There are no significant gains or losses included in the above amounts. (14) SUBSEQUENT EVENT: On July 1, 1996, the Company entered into a contract to sell its Menomonee Falls, Wisconsin warehouse and manufacturing facility for $16.3 million. The closing on this property is scheduled to occur on September 30, 1996. The provisions of the contract state that the Company will continue to own and occupy the warehouse portion of the facility for a period of up to ten years (the "Reservation Period"). The contract also contains a buyout clause, at the buyer's option, of the remaining Reservation Period under certain circumstances. Given the provisions of the contract, the Company will be required to account for this as a financing transaction and, therefore, any cash received will be reflected as a liability and the net book value of the facility will continue to be shown as an asset with depreciation expense recorded each period. The pre-tax 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. 24 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Briggs & Stratton Corporation: We have audited the accompanying consolidated balance sheets of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of June 30, 1996 and July 2, 1995, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries as of June 30, 1996 and July 2, 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. As discussed in Notes 3 and 10 to the consolidated financial statements, effective at the beginning of the 1994 fiscal year, the Company changed its methods of accounting for postretirement benefits other than pensions, postemployment benefits and income taxes. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, August 7, 1996. 26 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FISCAL 1996 COMPARED TO FISCAL 1995 Sales for fiscal 1996 totaled $1,287,029,000, down 4% or $52,648,000 from the preceding year. The reason for this decrease was the absence of sales from the automotive lock business, which was spun off after eight months in the preceding fiscal year. These sales amounted to $63,413,000 in fiscal 1995. Excluding the lock business sales, engine business sales increased $10,765,000 between years. This change was caused by an approximate 1.8% improvement in selling prices to the original equipment manufacturing customers, offset by a 1% decrease in engine unit sales that was almost entirely in the service sales area. The gross profit percentage remained consistent between years. This was the result of several factors: increased startup costs of $6,360,000 and inefficiencies related to the new plants, and less absorption of fixed costs due to fewer engines produced were offset by lower profit sharing provisions and a decrease of 5% in the unit price of aluminum, the major raw material used in the manufacture of engines. In addition, the 1995 gross profit included a $19,059,000 charge for the retirement window, of which $3,477,000 was reversed in 1996 due to a change in circumstances (see Note 10). Engineering, selling, general and administrative expenses increased $6,487,000 or 6% between years. This was due to increases in salaries, planned increases in manpower costs relating to new venture activities, and higher advertising expenses. Offsetting these, in part, was a reduction in profit sharing accruals and the lack of engineering and selling expenses from the spun off lock business. Interest expense for the 1996 fiscal year was 17% higher than in 1995. This was the result of using domestic short-term borrowing to finance increases in accounts receivable and inventories in mid-year. Seasonal borrowings were paid off by the end of the fiscal year. The preceding year had minimal seasonal short-term borrowings. The Company has available $47,000,000 in non-seasonal lines of credit and $76,000,000 in seasonal lines, most of which were used in mid-year as described above. The Company also makes extensive use of its foreign lines of credit through its foreign subsidiaries. Management believes its lines of credit will be adequate to fund its operations. Throughout the year, the Company was in compliance with the covenants of its long-term loan agreement. Other income decreased $3,477,000 between years, primarily because of a reduction in interest income due to lower available investable funds. Funds were used for seasonal working capital and the construction of the new manufacturing plants. There also was an increase in the loss on disposition of plant and equipment between years. The effective income tax rate decreased to 38% in 1996 from 38.5% in the previous year due to lower state income taxes, increased Foreign Sales Corporation tax benefits, and reductions in other tax related items. Cash and equivalents declined $20,009,000 between years because cash provided by operating activities was more than offset by cash used in investing activities and in financing activities. Cash flow from operating activities of $94,496,000 was generated from net income and depreciation, and an increase in federal and state income taxes payable as a result of the timing of payments, offset in part by an increase in accounts receivable of $25,230,000 related to higher sales late in the fiscal year and a decrease in accrued liabilities of $25,885,000 primarily due to decreased profit sharing provisions. Inventories were relatively consistent between years. Cash used in investing activities amounted to $76,677,000, substantially all of which related to additions to plant and equipment. The major additions to plant and equipment were for the construction of three new engine manufacturing plants, a foundry, and plant expansions. Estimated capital expenditures of $65,000,000 in fiscal 1997 are expected to be financed from cash balances, operating cash flow and available lines of credit. Cash flows used in financing activities amounted to $37,654,000. The significant items were cash dividends of $30,373,000 and repayment of loans and notes payable of $6,481,000. During the fourth fiscal quarter, $15,000,000 was reclassified from long-term debt to current liabilities. This represents the first payment of principal on $75,000,000 of long-term debt to be repaid in equal annual amounts beginning in June 1997 through the year 2001. 27 17 MANAGEMENT'S DISCUSSION . . . FISCAL 1995 COMPARED TO FISCAL 1994 Sales increased 4% or $54,160,000 in the 1995 fiscal year. Total sales in 1995 reached $1,339,677,000, a new record for the Company. The number of engines sold increased 3% in this fiscal year. The unit sales increase was the primary reason for the sales dollar change. The vast majority of the sales increase was in export markets due to improving economies in Europe and better product availability. There was a very small increase in domestic engine sales. Service sales increased 17% between years. Lock sales declined between years, as expected, because of the spin-off of the lock business after eight months of the fiscal year. Product mix changed in fiscal 1995. Sales moved from higher priced to lower priced engines in the Company's small engine line. Increases in the Company's large engine line which carries higher selling prices more than offset the activity in the small engine line. A modest price increase also contributed to improved sales revenues between years. Gross profit increased $5,078,000 or 2% between years. The gross profit rate declined from 21% in 1994 to 20% in 1995 primarily because of an early retirement window offered to and elected by some members of the United Paperworkers International Union Local 7232 as part of the contract agreement reached in December 1994. The $19,059,000 charge was reflected in the fourth quarter of 1995 for a June or October 1995 window. Without this charge, the Company's gross profit rate would have been higher in 1995. The improvement in the gross profit rate, after adjusting for the cost of the window, was the net result of several factors. The spreading of fixed costs over a larger number of engine units was partially offset by a significant increase in aluminum costs. The 1995 fiscal year also contained start-up costs at new plants (discussed later in this comparison) totaling $5,300,000, and accelerated depreciation of $5,600,000 on fixed assets not being moved to the new plants. Engineering, selling, general and administrative expenses increased $7,057,000 or 7% between years. This was a result of increased marketing and advertising expenses and costs connected with the spin-off. Interest expense declined modestly. Other income increased $2,216,000 primarily because of increased interest income resulting from higher average cash balances between years. The decline in cash balances occurred late in the fiscal year. The effective rate for the income tax provision was reduced from 39.6% in 1994 to 38.5% in 1995. This reduction was due to various miscellaneous differences. Cash and cash equivalents decreased $50,453,000 between years. This was due primarily to additional investment in finished goods inventories at fiscal year end and capital expenditures for the new plants under construction. This cash decrease was partially offset by funds generated from profitable operations in 1995. Accounts receivable decreased between years due to the accounts spun off with the lock business and lower sales late in the fourth quarter of fiscal 1995. Inventories increased $62,753,000 between years. This was primarily due to two factors. The Company maintained a stable rate of production while experiencing a reduction in orders from equipment manufacturers due to less favorable spring weather. In addition, the Company planned an increase in inventories to provide a cushion for the transfer of engine assembly to the three new plants under construction. Additions to plant and equipment were significantly higher in 1995 than in 1994 or 1993. This was primarily due to the $101,500,000 that was spent on the construction of the new plants. 28 18 MANAGEMENT'S DISCUSSION . . . OTHER MATTERS The Company will offer a final early retirement window in late fiscal 1997, in accordance with the union contract with its Milwaukee hourly employees. It is unknown how many employees will accept this offer. All elections under this window must be completed in June 1997. If all eligible employees elect to take this window, the charge to earnings could total a maximum of $53 million before taxes. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation." This standard establishes financial accounting and reporting standards for stock-based employee compensation. The Company plans to adopt the pro forma disclosure requirements of the statement, and will continue to apply the accounting provisions of Accounting Principles Board Opinion No. 25, as allowed by the new standard. This disclosure will be effective for the fiscal 1997 financial statements. On July 1, 1996, the Company entered into a contract to sell its Menomonee Falls, Wisconsin warehouse and manufacturing facility for $16.3 million. The closing on this property is scheduled to occur on September 30, 1996. The provisions of the contract state that the Company will continue to own and occupy the warehouse portion of the facility for a period of up to ten years (the "Reservation Period"). The contract also contains a buyout clause, at the buyer's option, of the remaining Reservation Period under certain circumstances. Given the provisions of the contract, the Company will be required to account for this as a financing transaction and, therefore, any cash received will be reflected as a liability and the net book value of the facility will continue to be shown as an asset with depreciation expense recorded each period. The pre-tax 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 U.S. Environmental Protection Agency (EPA) is developing national emission standards under a two phase process for equipment powered by small air cooled engines. In 1995, the EPA promulgated its Phase One emission standards, which will be reflected in the Company's 1997 model year engines. The industry expects Phase Two of the emission standards to be proposed within the next year. It is expected that they will be phased in over several years. While it is impossible to precisely quantify the cost of compliance until the standards are issued, the Company believes compliance with the new standards will not have a material effect on its financial position or results of operations. The California Air Resources Board (CARB) has also adopted emission standards to be effective in two tiers. Tier One was effective as of August 1995. Changes to engine models that were necessary to comply with Tier One have been made. Recently CARB has granted the Company's request that the California standard for carbon monoxide be modified to harmonize it with that adopted by the EPA. As a result of this change, a wider range of the Company's engines will meet California's current emission standards. The costs to comply with the Tier One California standards did not have a material effect on the financial position or results of operations of the Company. Tier Two of California engine emission standards will not be effective until 1999 or later. CARB has directed its staff to review its Tier Two standards in light of technological and economic issues raised by the industry. In the event the Company is unable to comply with future standards and they remain unchanged, any resulting downturn in sales will not be material to the Company. 29 19 MANAGEMENT'S DISCUSSION . . . CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS Certain statements in Management's Discussion and Analysis, in the Letter to Shareholders on pages 2 through 4 and in About Briggs & Stratton on pages 5 through 11 may contain forward-looking information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty. The words "anticipate", "believe", "estimate", "expect", "objective", and "think" or similar expressions are intended to identify forward-looking statements. Company results may differ materially from those projected in the forward-looking statements. Any forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could significantly affect final results. These uncertainties could include, among other things, the effects of weather; actions of competitors; changes in laws and regulations, including accounting standards; customer demand; prices of purchased raw materials and parts; domestic economic conditions, including housing starts and changes in consumer disposable income; and foreign economic conditions, including currency rate fluctuations. 30 20 QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED)
In Thousands Per Share of Common Stock ------------------------------ --------------------------------------------- (1) Market Price Range Net Net (1) on New York Quater Net Gross Income Income Dividends Stock Exchange(1) Ended Sales Profit (Loss) (Loss) Declared High Low ----- ------ ------ ------ ------ --------- ---- --- Fiscal 1996 - ----------- September $ 189,477 $ 19,141 $ (3,300) $ (.11) $ .26 41 32-3/4 December 329,357 65,763 23,924 .82 .26 44-1/8 39 March 460,201 104,082 45,226 1.57 .26 44-3/4 39-3/4 June 307,994 72,762 26,562 .91 .27 46-7/8 40-1/2 ---------- --------- -------- ------ ----- Total $1,287,029 $ 261,748 $ 92,412 $ 3.19 $1.05 ========== ========= ======== ====== ===== Fiscal 1995 - ----------- September $ 227,845 $ 39,799 $ 11,424 $ .39 $ .23 39-1/4 33-1/8 December 366,717 83,524 33,713 1.17 .25 36-1/2 30-1/2 March 450,163 105,438 47,331 1.64 .25 37-3/4 32-1/4 June 294,952 42,857 12,337 .42 .25 38 34 ---------- --------- -------- ------ ----- Total $1,339,677 $ 271,618 $104,805 $ 3.62 $ .98 ========== ========= ======== ====== =====
The number of record holders of Briggs & Stratton Corporation Common Stock on August 15, 1996 was 6,471. (1) Adjusted for 2-for-1 stock split effective November 14, 1994. 31 21 TEN YEAR COMPARISONS
- ------------------------------------------------------------------------------------------------ Fiscal Year 1996 1995 - ------------------------------------------------------------------------------------------------ (All dollar amounts other than per share data are stated in thousands) SUMMARY OF OPERATIONS NET SALES........................................................... 1,287,029 1,339,677 GROSS PROFIT ON SALES............................................... 261,748 271,618 PROVISION (CREDIT) FOR INCOME TAXES................................. 56,640 65,570 NET INCOME (LOSS) before cumulative effect of accounting changes.... 92,412 104,805 NET INCOME (LOSS)................................................... 92,412 104,805 AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING.......................................... 28,927 28,927 PER SHARE OF COMMON STOCK: Net Income (Loss) before cumulative effect of accounting changes.. 3.19 3.62 Net Income (Loss)................................................. 3.19 3.62 Cash Dividends.................................................... 1.05 .98 Shareholders' Investment.......................................... 17.30 15.19 OTHER DATA SHAREHOLDERS' INVESTMENT............................................ 500,505 439,478 LONG-TERM DEBT...................................................... 60,000 75,000 TOTAL ASSETS........................................................ 838,164 798,493 PLANT AND EQUIPMENT................................................. 776,638 726,331 PLANT AND EQUIPMENT NET OF RESERVES................................. 374,212 343,297 PROVISION FOR DEPRECIATION.......................................... 43,032 44,445 EXPENDITURES FOR PLANT AND EQUIPMENT................................ 77,746 131,034 WORKING CAPITAL..................................................... 266,208 256,075 Current Ratio..................................................... 2.4 to 1 2.3 to 1 NUMBER OF EMPLOYEES AT YEAR END..................................... 7,199 6,958 NUMBER OF SHAREHOLDERS AT YEAR END.................................. 5,879 6,792 QUOTED MARKET PRICE: High.............................................................. 46-7/8 39-1/4 Low............................................................... 32-3/4 30-1/2
NOTES: (1) The number of shares of common stock and per share data have been adjusted for a 2-for-1 stock split in 1995. (2) The cumulative effects of accounting changes in 1994 were for postretirement health care, postemployment benefits and deferred income taxes. 32 22
- --------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 - --------------------------------------------------------------------------------------------------- 1,285,517 1,139,462 1,041,828 950,747 1,002,857 876,379 914,057 784,665 266,540 212,601 174,048 132,431 132,438 59,629 115,113 111,618 67,240 44,060 28,700 16,500 18,290 (13,980) 12,950 18,950 102,481 70,345 51,503 36,453 35,375 (20,032) 30,211 26,614 69,923 70,345 51,503 36,453 35,375 (20,032) 30,211 26,614 28,927 28,927 28,927 28,927 28,927 28,927 28,927 28,927 3.54 2.43 1.78 1.26 1.23 (.70) 1.05 .92 2.42 2.43 1.78 1.26 1.23 (.70) 1.05 .92 .90 .85 .80 .80 .80 .80 .80 .80 13.96 12.45 10.80 9.85 9.38 8.96 10.49 10.24 403,792 359,958 312,404 284,715 271,383 259,226 303,305 296,260 75,000 75,000 75,000 75,000 75,000 75,000 - - 777,355 656,107 613,853 556,791 535,040 560,816 510,600 451,879 669,593 658,120 643,433 632,488 606,863 580,184 513,700 470,586 285,890 295,542 309,698 320,364 326,288 330,198 295,573 273,903 42,950 47,222 41,113 36,447 39,889 38,995 29,955 24,502 40,804 38,110 40,224 32,036 37,797 79,513 57,001 52,235 276,040 195,019 137,008 105,298 84,082 63,757 63,372 77,281 2.3 to 1 2.2 to 1 1.9 to 1 1.8 to 1 1.7 to 1 1.4 to 1 1.4 to 1 1.8 to 1 8,628 7,950 7,799 7,242 7,994 7,316 9,827 8,611 6,228 6,651 7,118 7,943 8,466 9,222 6,923 7,206 45-1/8 34-1/4 27-3/8 16-7/8 17 17-3/8 21 21 32-1/2 21 16-3/8 10-1/4 12 12-3/8 10-1/8 15-3/4
33 EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES EXHIBIT NO. 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statements, File No. 33-39113 and File No. 33-54357. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, September 23, 1996. EX-27 6 FDS
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF BRIGGS & STRATTON CORPORATION FOR THE FISCAL YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1996 JUL-03-1995 JUN-30-1996 150,639,000 0 119,346,000 0 137,403,000 456,387,000 776,638,000 402,426,000 838,164,000 190,179,000 0 0 0 289,000 500,216,000 838,164,000 1,287,029,000 1,287,029,000 1,025,281,000 1,025,281,000 102,627,000 0 10,069,000 149,052,000 56,640,000 92,412,000 0 0 0 92,412,000 3.19 3.19
-----END PRIVACY-ENHANCED MESSAGE-----