10-K/A 1 c72719ae10vkza.txt AMENDMENT TO FORM 10-K FORM 10-K/A AMENDMENT NO. 1 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 For the fiscal year ended JUNE 30, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- --------- Commission file number 1-1370 BRIGGS & STRATTON CORPORATION ----------------------------- (Exact name of registrant as specified in its charter) 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 $794,324,000 based on the reported last sale price of such securities as of August 22, 2002. Number of Shares of Common Stock Outstanding at August 22, 2002: 21,645,984. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Part of Form 10-K Into Which Portions Document of Document are Incorporated -------- ------------------------------------- Proxy Statement for Annual Meeting on October 16, 2002 Part III The Exhibit Index is located on page 42. BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES 2002 Annual Report on Form 10-K/A Amendment No. 1 This amendment is being filed to correct certain typographical errors found in the edgarized version of the original 10-K. The Company does not believe that these typographical errors caused our original disclosures to be misleading or materially incorrect. More specifically, this amendment corrects the following typographical errors.
As Previously Correct Reported Amount ----------- ----------- ITEM 6. Selected Financial Data - Fiscal Year 1998, "Gross Profit on Sales" 254,356 254,358 ITEM 8. Consolidated Balance Sheets - Fiscal 2002, "Plant & Equipment-Buildings" 153,049 153,043 Consolidated Statements of Earnings - Fiscal 2002, "Income from Operations" 116,358 118,358 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Fiscal 1999 - Fiscal year change, "Accumulated Other Comprehensive Loss" (2,189) (2,199) Note 4 - Fiscal 2000, "Current" total 76,608 78,608 Note 4 - Fiscal 2002, "Future Income Tax Benefits - Payroll Related 4,890 4,880 Accruals" Note 5 - Fiscal 2002, "Income from Operations" total 118,356 118,358 Note 5 - Fiscal 2001, "Income from Operations" total 99,108 99,106 Note 5 - Fiscal 2001, geographic sales table - "United States" 1,226,035 1,226,034 Note 5 - Fiscal 2001, geographic sales table - "Total" 1,310,179 1,310,173 Note 5 - Fiscal 2002, - major customer sales table "Customer A - Sales" 229,785 299,785 Note 5 - Fiscal 2002, - major customer sales table "Total - Sales" 720,754 720,574 Note 7 - Fiscal 2002, "Income from Investments" 70,071 7,071
While these corrections have no impact on the reported earnings and per-share information, the Company wishes to correct the information for future reference. 1 ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year 2002 2001 2000 1999 1998 ----------- ---- ---- ---- ---- ---- (dollars in thousands, except per share data) SUMMARY OF OPERATIONS(1) NET SALES(2) ............................ $1,529,372 $1,310,173 $1,591,236 $1,502,522 $1,329,141 GROSS PROFIT ON SALES(2) ................ 272,033 236,790 338,126 303,913 254,358 PROVISION FOR INCOME TAXES .............. 27,390 23,860 80,150 63,670 42,500 NET INCOME(3) ........................... 53,120 48,013 136,473 106,101 70,645 PER SHARE OF COMMON STOCK: Basic Earnings ........................ 2.46 2.22 5.99 4.55 2.86 Diluted Earnings ...................... 2.36 2.21 5.97 4.52 2.85 Cash Dividends ........................ 1.26 1.24 1.20 1.16 1.12 Shareholders' Investment .............. $ 20.78 $ 19.57 $ 18.83 $ 15.77 $ 13.28 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000's) .... 21,615 21,598 22,788 23,344 24,666 DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000's) .... 24,452 21,966 22,842 23,459 24,775 OTHER DATA(1) SHAREHOLDERS' INVESTMENT ................ $ 449,646 $ 422,752 $ 409,465 $ 365,910 $ 316,488 LONG-TERM DEBT .......................... 499,022 508,134 98,512 113,307 128,102 TOTAL ASSETS ............................ 1,349,033 1,296,195 930,245 875,885 793,409 PLANT AND EQUIPMENT ..................... 879,635 890,191 838,655 859,848 812,428 PLANT AND EQUIPMENT, NET OF RESERVES..... 395,215 416,361 395,580 404,454 391,927 PROVISION FOR DEPRECIATION .............. 61,091 56,117 51,097 49,346 47,511 EXPENDITURES FOR PLANT AND EQUIPMENT..... 43,928 61,322 71,441 65,998 45,893 WORKING CAPITAL ......................... $ 403,921 $ 371,248 $ 158,516 $ 160,350 $ 149,846 Current Ratio ......................... 2.5 to 1 2.5 to 1 1.5 to 1 1.6 to 1 1.7 to 1 NUMBER OF EMPLOYEES AT YEAR END ......... 6,971 6,974 7,233 7,994 7,265 NUMBER OF SHAREHOLDERS AT YEAR END ...... 4,686 4,129 4,385 4,628 4,911 QUOTED MARKET PRICE: High .................................. $ 48.39 $ 48.38 $ 63.63 $ 70.94 $ 53.38 Low ................................... $ 29.65 $ 30.38 $ 31.00 $ 33.69 $ 36.88
(1) The amounts include the acquisition of GPP since May 15, 2001. Refer to the Notes to Consolidated Financial Statements. (2) Reflects the adoption of EITF No. 01-09 for all fiscal years presented. Refer to the Notes to Consolidated Financial Statements. (3) Fiscal year 2000 includes a $10.4 million gain on the disposition of foundry assets. Refer to the Notes to Consolidated Financial Statements. 2 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- AS OF JUNE 30, 2002 AND JULY 1, 2001 (in thousands)
ASSETS 2002 2001 --------- --------- CURRENT ASSETS: Cash and Cash Equivalents ............................................... $ 215,945 $ 88,743 Receivables, Less Reserves of $1,703 and $1,599, Respectively ........... 201,910 145,138 Inventories- Finished Products and Parts ................................. 126,152 218,671 Work in Process ............................................. 61,748 99,247 Raw Materials ............................................... 3,059 3,782 ---------- ---------- Total Inventories ............................... 190,959 321,700 Future Income Tax Benefits .............................................. 41,383 38,434 Prepaid Expenses and Other Current Assets ............................... 19,747 19,415 ---------- ---------- Total Current Assets ............................ 669,944 613,430 GOODWILL, Net ......................................................................... 161,030 166,659 INVESTMENTS ........................................................................... 46,889 46,071 PREPAID PENSION ....................................................................... 60,343 36,275 DEFERRED LOAN COSTS, Net .............................................................. 9,304 10,429 OTHER LONG-TERM ASSETS, Net ........................................................... 6,308 6,970 PLANT AND EQUIPMENT: Land and Land Improvements............................................... 16,356 16,308 Buildings ............................................................... 153,043 150,396 Machinery and Equipment ................................................. 691,334 694,416 Construction in Progress ................................................ 18,902 29,071 ---------- ---------- 879,635 890,191 Less- Accumulated Depreciation .......................................... 484,420 473,830 ---------- ---------- Total Plant and Equipment, Net .................. 395,215 416,361 ---------- ---------- $1,349,033 $1,296,195 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. 3 -------------------------------------------------------------------------------- AS OF JUNE 30, 2002 AND JULY 1, 2001 (in thousands, except per share data)
2002 2001 ---- ---- LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts Payable ........................................................ $ 103,648 $ 102,559 Domestic Notes Payable .................................................. 2,625 3,300 Foreign Loans ........................................................... 15,270 16,291 Accrued Liabilities- Wages and Salaries .......................................... 28,408 21,084 Warranty .................................................... 46,346 47,480 Other ....................................................... 56,828 47,161 ---------- ---------- Total Accrued Liabilities ....................... 131,582 115,725 Federal and State Income Taxes .......................................... 12,898 4,307 ---------- ---------- Total Current Liabilities ....................... 266,023 242,182 DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT ....................................... 15,364 15,536 DEFERRED INCOME TAX LIABILITY ......................................................... 27,405 18,351 ACCRUED PENSION COST .................................................................. 15,750 14,494 ACCRUED EMPLOYEE BENEFITS ............................................................. 13,070 12,979 ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION ......................................... 62,753 61,767 LONG-TERM DEBT ........................................................................ 499,022 508,134 COMMITMENTS AND CONTINGENCIES.......................................................... SHAREHOLDERS' INVESTMENT: Common Stock- Authorized 60,000 Shares $.01 Par Value, Issued 28,927 in 2002 and 2001 .................. 289 289 Additional Paid-In Capital .............................................. 35,459 36,043 Retained Earnings ....................................................... 769,131 743,230 Accumulated Other Comprehensive Loss .................................... (6,626) (6,182) Unearned Compensation on Restricted Stock ............................... (199) (305) Treasury Stock at cost, 7,288 Shares in 2002 and 7,328 Shares in 2001 ............... (348,408) (350,323) ---------- ---------- Total Shareholders' Investment .................. 449,646 422,752 ---------- ---------- $1,349,033 $1,296,195 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 CONSOLIDATED STATEMENTS OF EARNINGS -------------------------------------------------------------------------------- FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 (in thousands, except per share data)
2002 2001 2000 ---- ---- ---- NET SALES .................................................. $ 1,529,372 $ 1,310,173 $ 1,591,236 COST OF GOODS SOLD ......................................... 1,257,339 1,073,383 1,253,110 ----------- ----------- ----------- Gross Profit on Sales ................................ 272,033 236,790 338,126 ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .................................. 153,675 137,684 132,897 ----------- ----------- ----------- Income from Operations ............................... 118,358 99,106 205,229 INTEREST EXPENSE ........................................... (44,433) (30,665) (21,267) GAIN ON DISPOSITION OF FOUNDRY ASSETS ...................... -- -- 16,545 OTHER INCOME, Net .......................................... 6,585 3,432 16,116 ----------- ----------- ----------- Income Before Provision for Income Taxes ............. 80,510 71,873 216,623 PROVISION FOR INCOME TAXES ................................. 27,390 23,860 80,150 ----------- ----------- ----------- NET INCOME ................................................. $ 53,120 $ 48,013 $ 136,473 =========== =========== =========== Weighted Average Shares Outstanding .................. 21,615 21,598 22,788 BASIC EARNINGS PER SHARE ................................... $ 2.46 $ 2.22 $ 5.99 =========== =========== =========== Diluted Average Shares Outstanding ................... 24,452 21,966 22,842 DILUTED EARNINGS PER SHARE ................................. $ 2.36 $ 2.21 $ 5.97 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT -------------------------------------------------------------------------------- FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 (in thousands, except per share data)
Accumulated Unearned Additional Other Com- Compensation Common Paid-In Retained prehensive on Restricted Treasury Comprehensive Stock Capital Earnings Loss Stock Stock Income -------- -------- --------- ----------- -------- ------- -------- BALANCES, JUNE 27, 1999 .................. $ 289 $ 37,657 $ 612,807 $ (1,732) $ (235) $(282,876) Comprehensive Income - Net Income .............................. -- -- 136,473 -- -- -- $ 136,473 Foreign Currency Translation Adjustments ........................... -- -- -- (1,816) -- -- (1,816) Unrealized Loss on Marketable Securities, net of tax of $(247) ...... -- -- -- (383) -- -- (383) --------- Total Comprehensive Income .............. -- -- -- -- -- -- $ 134,274 ========= Cash Dividends Paid ($1.20 per share) ....................... -- -- (27,300) -- -- -- Purchase of Common Stock for Treasury ............................ -- -- -- -- -- (69,083) Exercise of Stock Options ................ -- (1,194) -- -- -- 6,755 Restricted Stock Issued .................. -- 10 -- -- (60) 50 Amortization of Unearned Compensation ............................ -- -- -- -- 69 -- Shares Issued to Directors ............... -- 5 -- -- -- 29 -------------------------------------------------------------------------- BALANCES, JULY 2, 2000 ................... $ 289 $ 36,478 $ 721,980 $ (3,931) $ (226) $ (345,125) Comprehensive Income - Net Income .............................. -- -- 48,013 -- -- -- $ 48,013 Foreign Currency Translation Adjustments ............................ -- -- -- (2,530) -- -- (2,530) Unrealized Loss on Marketable Securities, net of tax of $(607) ....... -- -- -- (947) -- -- (947) Unrealized Gain on Derivatives .......... -- -- -- 1,226 -- -- 1,226 --------- Total Comprehensive Income .............. -- -- -- -- -- -- $ 45,762 ========= Cash Dividends Paid ($1.24 per share) ....................... -- -- (26,763) -- -- -- Purchase of Common Stock for Treasury ............................ -- -- -- -- -- (6,118) Exercise of Stock Options ................ -- (368) -- -- -- 643 Restricted Stock Issued .................. -- (58) -- -- (181) 239 Amortization of Unearned Compensation ............................ -- -- -- -- 102 -- Shares Issued to Directors ............... -- (9) -- -- -- 38 -------------------------------------------------------------------------- BALANCES, JULY 1, 2001 ................... $ 289 $ 36,043 $ 743,230 $ (6,182) $ (305) $(350,323) COMPREHENSIVE INCOME - NET INCOME .............................. -- -- 53,120 -- -- -- $ 53,120 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ............................ -- -- -- 4,017 -- -- 4,017 UNREALIZED LOSS ON MARKETABLE SECURITIES, NET OF TAX OF $(95) ........ -- -- -- (148) -- -- (148) UNREALIZED LOSS ON DERIVATIVES .......... -- -- -- (4,313) -- -- (4,313) --------- TOTAL COMPREHENSIVE INCOME .............. -- -- -- -- -- -- $ 52,676 ========= CASH DIVIDENDS PAID ($1.26 PER SHARE) ....................... -- -- (27,219) -- -- -- EXERCISE OF STOCK OPTIONS ................ -- (576) -- -- -- 1,877 AMORTIZATION OF UNEARNED COMPENSATION ............................ -- -- -- -- 106 -- SHARES ISSUED TO DIRECTORS ............... -- (8) -- -- -- 38 -------------------------------------------------------------------------- BALANCES, JUNE 30, 2002 .................. $ 289 $ 35,459 $ 769,131 $ (6,626) $ (199) $(348,408) ==========================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------------------------------------- FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 (in thousands)
2002 2001 2000 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................................... $ 53,120 $ 48,013 $ 136,473 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities - Depreciation and Amortization .......................... 65,968 59,711 53,277 Equity in Earnings of Unconsolidated Affiliates ........ (6,181) (5,041) (13,333) (Gain) Loss on Disposition of Plant and Equipment ...... 3,192 1,493 (14,167) Provision for Deferred Income Taxes .................... 20,286 17,973 1,542 Change in Operating Assets and Liabilities, Net of Effects of Acquisition - (Increase) Decrease in Receivables ..................... (56,772) 34,686 51,837 (Increase) Decrease in Inventories ..................... 120,719 (7,307) (121,685) Increase in Prepaid Expenses and Other Current Assets .................................. (2,996) (50) (2,488) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes .................. 26,061 (46,740) 1,519 Increase in Prepaid Pension ............................ (22,812) (28,378) (10,509) Other, Net ............................................. (768) (6,392) (4,984) --------- --------- --------- Net Cash Provided by Operating Activities ............ 199,817 67,968 77,482 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment ......................... (43,928) (61,322) (71,441) Proceeds Received on Disposition of Plant and Equipment .. 406 4,152 23,511 Cash Paid for Acquisition, Net of Cash Acquired .......... - (267,174) - Other, Net ............................................... 5,120 6,296 5,142 --------- --------- --------- Net Cash Used by Investing Activities ................ (38,402) (318,048) (42,788) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable ... (1,696) (42,574) 44,005 Borrowings (Repayments) on Long-Term Debt ................ (10,393) 399,415 (30,000) Cash Dividends Paid ...................................... (27,219) (26,763) (27,300) Purchase of Common Stock for Treasury .................... - (6,118) (69,083) Proceeds from Exercise of Stock Options .................. 1,078 275 5,561 --------- --------- --------- Net Cash Provided by (Used by) Financing Activities... (38,230) 324,235 (76,817) --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ..................... 4,017 (2,401) (1,694) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................................... 127,202 71,754 (43,817) CASH AND CASH EQUIVALENTS: Beginning of Year ........................................ 88,743 16,989 60,806 --------- --------- --------- End of Year .............................................. $ 215,945 $ 88,743 $ 16,989 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid ............................................ $ 39,669 $ 26,339 $ 21,202 ========= ========= ========= Income Taxes Paid ........................................ $ 2,904 $ 7,831 $ 84,535 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FOR THE FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000 (1) NATURE OF OPERATIONS: Briggs & Stratton ("the Company") is a U.S. based producer of air cooled gasoline engines. These engines are sold worldwide, primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment. Additionally, through the Company's wholly owned subsidiary, Generac Portable Products, LLC (GPP), the company is a designer, manufacturer and marketer of portable and standby generators, pressure washers and related accessories. GPP's products are sold throughout the United States, Canada and Europe. (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 2002 and 2001 fiscal years were 52 weeks long, and the 2000 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 the Company 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 accounting principles generally accepted in the United States 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 may differ from those estimates. Cash and Cash Equivalents: This caption includes cash, commercial paper and certificates of deposit. The Company considers all highly liquid investments purchased with an original 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 68% of total inventories at June 30, 2002 and 77% of total inventories at July 1, 2001. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. During 2002, a reduction in inventory quantities resulted in a liquidation of LIFO inventories carried at lower costs prevailing in prior years. The liquidation of these inventories has reduced cost of sales by $2.6 million in 2002. If the FIFO inventory valuation method had been used exclusively, inventories would have been $44.8 million and $51.2 million higher in the respective years. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts. Investments: This caption represents the Company's investments in three 50%-owned joint ventures, preferred stock in a privately held iron castings business and common stock in a publicly traded software company. The common stock in the publicly traded company is being classified as available-for-sale and is reported at a fair market value. Unrealized losses incurred on this stock are recorded as a component of Accumulated Other Comprehensive Loss in the Shareholders' Investment section of the balance sheet. The investments in the joint ventures and the privately held business are accounted for under the equity method. Deferred Loan Costs: Expenses associated with the issuance of debt instruments are capitalized and are being amortized over the terms of the respective financing arrangement using the straight-line method over periods ranging from five to ten years. Accumulated amortization amounted to $1.6 million as of June 30, 2002 and $.1 million as of July 1, 2001. Other Long-Term Assets: This caption primarily represents costs of software used in the Company's business. Amortization of capitalized software is computed on an item-by-item basis over a period of three to ten years, depending on the estimated useful life of the software. Accumulated amortization amounted to $8.4 million as of June 30, 2002 and $7.4 million as of July 1, 2001. Goodwill: This caption represents goodwill related to the acquisition of GPP in fiscal 2001 (See Note 3). Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The carrying value of goodwill was 8 NOTES ... -------------------------------------------------------------------------------- $161.0 million and $166.7 million at June 30, 2002 and July 1, 2001, respectively. In accordance with SFAS 142, no goodwill amortization was recorded in fiscal year 2002, $1.1 million was reported in fiscal year 2001. The Company performed the required impairment test of goodwill in fiscal 2002 and found no impairment of the asset. Plant and Equipment and Depreciation: Plant and equipment are stated at cost and depreciation is computed using the straight-line method at rates based upon the estimated useful lives of the assets (20-30 years for land improvements, 20-50 years for buildings and 8-16 years for machinery and equipment). 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. Impairment of Long-Lived Assets: Property, plant and equipment and other long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. There were no adjustments to the carrying value of long-lived assets in fiscal 2002, 2001 and 2000. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, related to the disposal of a segment of a business. The Company adopted SFAS No. 144 on July 1, 2002. Management does not expect SFAS No. 144 to have a material impact on the Company's consolidated financial statements. Revenue Recognition: Revenue is recognized when title to the products being sold transfers to the customer, which is upon shipment. Deferred Revenue on Sale of Plant and Equipment: In fiscal 1997, the Company sold its Menomonee Falls, Wisconsin facility for approximately $16.0 million. The provisions of the contract state that the Company will continue to own and occupy the warehouse portion of the facility for a period of up to ten years (the Reservation Period). The contract also contains a buyout clause, at the buyer's option and under certain circumstances, of the remaining Reservation Period. Under the provisions of SFAS No. 66, "Accounting for Sales of Real Estate," the Company is required to account for this as a financing transaction as long as it continues to have substantial involvement with the facility during the Reservation Period or until the buyout option is exercised. Under this method, the cash received is reflected as deferred revenue and the assets and the accumulated depreciation remain on the Company's books. Depreciation expense continues to be recorded each period and imputed interest expense is also recorded and added to deferred revenue. Offsetting this is the imputed fair value lease income on the non-Briggs & Stratton occupied portion of the building. A pretax gain, which will be recognized at the earlier of the exercise of the buyout option or the expiration of the Reservation Period, is estimated to be $10 - $12 million. The annual cost of operating the warehouse portion of the facility is not material. Income Taxes: The Provision for Income Taxes includes Federal, state and foreign income taxes currently payable and those deferred or prepaid because of temporary differences between the financial statement and tax basis of assets and liabilities. The Future Income Tax Benefits represent temporary differences relating to current assets and current liabilities and the Deferred Income Tax Assets/Liabilities represent temporary differences relating to noncurrent assets and liabilities. Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $23.7 million in fiscal 2002, $21.5 million in fiscal 2001 and $24.3 million in fiscal 2000. 9 NOTES ... -------------------------------------------------------------------------------- Advertising Costs: Advertising costs, included in Engineering, Selling, General and Administrative Expenses on the accompanying Consolidated Statements of Earnings, are expensed as incurred. These expenses totaled $8.3 million in fiscal 2002, $7.8 million in fiscal 2001 and $6.8 million in fiscal 2000. The Company adopted EITF No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of Vendor's Products)," in the third quarter of fiscal 2002. Pursuant to EITF No. 01-09, the Company was required to reclassify co-op advertising expense previously reported as selling expense as a reduction in net sales. The impact of adopting EITF 01-09 was to reduce net sales by $7.2 million, $2.3 million and $1.3 million in fiscal 2002, 2001 and 2000, respectively. Shipping and Handling Fees and Costs: Revenue received from shipping and handling fees is reflected in net sales. Shipping fee revenue for fiscal 2002, 2001 and 2000 was $1.6 million, $1.7 million and $2.0 million, respectively. Shipping and handling costs are included in cost of goods sold. Foreign Currency Translation: Foreign currency balance sheet accounts are translated into United States dollars at the rates of exchange in effect at fiscal year end. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component of Shareholders' Investment. Earnings Per Share: The Company's earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share, for each period presented, were computed on the assumption that stock options were exercised at the beginning of the periods reported. The difference between weighted average shares outstanding and diluted average shares outstanding reflects the dilutive effects of stock options and the convertible senior notes. The shares outstanding used to compute diluted earnings per share for fiscal 2002, 2001 and 2000 excluded outstanding options to purchase 1,841,640, 1,679,564 and 1,079,564 shares of common stock, respectively, with weighted-average exercise prices of $55.14, $56.33 and $61.95, respectively. The options were excluded because their exercise prices were greater than the average market price of the common shares and their inclusion in the computation would have been antidilutive. Information on earnings per share is as follows (in thousands of dollars, except per share data):
FISCAL YEAR ENDED ------------------------------------------------------ JUNE 30, 2002 July 1, 2001 July 2, 2000 ------------- ------------ ------------ Net income used in basic earnings per share ................................ $ 53,120 $ 48,013 $ 136,473 Adjustment to net income to add after-tax interest expense on convertible notes .......................................................... 4,620 576 - ----------- ---------- ---------- Adjusted net income used in diluted earnings per share ..................... $ 57,740 $ 48,589 $ 136,473 =========== ========== ========== Average shares of common stock outstanding ................................. 21,615 21,598 22,788 Incremental common shares applicable to common stock options based on the common stock average market price during the period ...................... 6 10 52 Incremental common shares applicable to restricted common stock based on the common stock average market price during the period .................. 5 5 2 Incremental common shares applicable to convertible notes based on the conversion provisions of the convertible notes ........................... 2,826 353 - ----------- ---------- ---------- Diluted average common shares outstanding .................................. 24,452 21,966 22,842 =========== ========== ==========
10 NOTES ... -------------------------------------------------------------------------------- Comprehensive Income: SFAS No. 130, "Reporting Comprehensive Income," requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting method that includes disclosure of financial information that historically has not been recognized in the calculation of net income. The Company has chosen to report Comprehensive Income and Accumulated Other Comprehensive Income (Loss) which encompasses net income, unrealized gain (loss) on marketable securities, foreign currency translation, and unrealized gain on derivatives in the Consolidated Statements of Shareholders' Investment. Information on accumulated other comprehensive income (loss) is as follows (in thousands of dollars):
Unrealized Accumulated Gain (Loss) Cumulative Unrealized Other on Marketable Translation Gain (Loss) on Comprehensive Securities Adjustments Derivatives Loss ---------- ----------- ----------- ---- Balance at June 27, 1999 ...... $ 577 $ (2,309) $ - $ (1,732) Fiscal year change ............ (383) (1,816) - (2,199) ---------- --------- ---------- --------- Balance at July 2, 2000 ....... 194 (4,125) - (3,931) Fiscal year change ............ (947) (2,530) 1,226 (2,251) ---------- --------- ---------- --------- BALANCE AT JULY 1, 2001 ....... (753) (6,655) 1,226 (6,182) FISCAL YEAR CHANGE ............ (148) 4,017 (4,313) (444) ---------- --------- ---------- --------- BALANCE AT JUNE 30, 2002 ...... $ (901) $ (2,638) $ (3,087) $ (6,626) ========== ========= ========== =========
Derivatives: The Company enters into derivative contracts designated as cash flow hedges to manage its foreign currency exposures. These instruments generally do not have a maturity of more than twelve months. SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Any changes in fair value of these instruments are recorded in the income statement or other comprehensive income. On July 2, 2000, the impact of adopting SFAS No. 133 on Accumulated Other Comprehensive Loss resulted in a loss of $15 thousand. The Company reclassified immaterial amounts to the income statement during fiscal 2002 and 2001. The cumulative effect of adopting SFAS No. 133 on the results of operations was immaterial. During the fiscal year, there were no derivative instruments that were deemed to be ineffective. The amounts included in Accumulated Other Comprehensive Loss will be reclassified into income when the forecasted transaction occurs, generally within the next twelve months. These forecasted transactions represent the exporting of products for which the Company will receive foreign currency and the importing of products for which the Company will be required to pay in a foreign currency. Reclassification: Certain amounts in prior year financial statements have been reclassified to conform to current year presentation. Business Combinations: In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" having a required effective date for fiscal years beginning after December 31, 2001. Under the new rules, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company adopted the new rules on accounting for goodwill and other intangible assets in the first quarter of fiscal 2002. The Company performed the required impairment test of goodwill and indefinite lived intangible assets in fiscal 2002 and found no impairment of the assets as of June 30, 2002. Had the provisions of SFAS No. 142 been applied in fiscal 2001, the Company's fiscal 2001 net income would have increased $.7 million, or $.03 per basic and diluted earnings per share. Future Accounting Pronouncement: In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires that a liability for a cost 11 NOTES ... -------------------------------------------------------------------------------- associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect that the adoption of this statement will have a material impact on the Company's results of operations or financial position. (3) ACQUISITION: On May 15, 2001, the Company acquired Generac Portable Products, Inc. Generac Portable Products, Inc. was merged with, and into Generac Portable Products, LLC (GPP) on June 30, 2002. GPP is a designer, manufacturer and marketer of portable and standby generators, pressure washers and related accessories. The aggregate purchase price of $288.1 million included $267.6 million of cash and $20.5 million of liabilities assumed. The cash paid included $.5 million of cash acquired and $4.5 million of direct acquisition costs, and was funded through the issuance of the 8.875% senior notes as more fully described in Note 6. The provisions of the acquisition included a contingent purchase price based on the operating results of GPP. The Company will not pay any additional purchase price pursuant to these provisions. The provisions of the acquisition also provide for a potential purchase price refund based on the final valuation of the acquired inventory. The amount of this purchase price refund, if any, will be recorded as a reduction in goodwill when it is received. The acquisition has been accounted for using the purchase method of accounting. The purchase price was allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon their estimated fair values, with the excess purchase price recorded as goodwill. This initial purchase price allocation resulted in approximately $167.7 million of goodwill which was amortized on a straight-line basis over twenty years until the Company adopted SFAS No. 142 on July 2, 2001. Under SFAS No. 142, goodwill is no longer amortized, but is subject to periodic impairment tests. In 2002 the Company reduced goodwill by approximately $5.7 million related to the finalization of the purchase price allocation. This decrease was primarily the result of recording $16.0 million of deferred taxes related to differences in GPP's financial reporting versus tax reporting, offset by approximately $10.3 million of additional inventory and fixed asset reserves. The following table sets forth the unaudited pro forma information for the Company as if the acquisition of GPP had occurred on July 2, 2000 (in millions, except per share data):
2001 ---- Net Sales ......................... $ 1,465.3 Net Income ........................ $ 26.6 Basic Earnings Per Share .......... $ 1.23 Diluted Earnings Per Share ........ $ 1.21
(4) INCOME TAXES: The provision for income taxes consists of the following (in thousands of dollars):
2002 2001 2000 Current ---- ---- ---- Federal ............ $ 4,950 $ 4,042 $ 66,169 State .............. 587 594 10,425 Foreign ............ 1,567 1,251 2,014 -------- -------- -------- 7,104 5,887 78,608 Deferred ............. 20,286 17,973 1,542 -------- -------- -------- $ 27,390 $ 23,860 $ 80,150 ======== ======== ========
A reconciliation of the U.S. statutory tax rates to the effective tax rates follows:
2002 2001 2000 ---- ---- ---- U.S. statutory rate ..... 35.0% 35.0% 35.0% State taxes, net of Federal tax benefit ... 2.4% 2.5% 3.2% Foreign Sales Corporation tax benefit ........... (1.5%) (3.5%) (.5%) Other ................... (1.9%) (.8%) (.7%) ---- ---- ---- Effective tax rate ...... 34.0% 33.2% 37.0% ==== ==== ====
The Company received a refund of Foreign Sales Corporation tax benefits in fiscal 2002 and 2001. The components of deferred income taxes at the end of the fiscal year were (in thousands of dollars):
2002 2001 ---- ---- Future Income Tax Benefits: Inventory ......................... $ 6,971 $ 3,424 Payroll related accruals .......... 4,880 3,846 Warranty reserves ................. 17,780 18,311 Other accrued liabilities ......... 15,501 10,769 Miscellaneous ..................... (3,749) 2,084 -------- -------- $ 41,383 $ 38,434 ======== ========
12 NOTES ... --------------------------------------------------------------------------------
2002 2001 ---- ---- Deferred Income Taxes: Difference between book and tax methods applied to maintenance and supply inventories ...................... $ 9,325 $ 10,723 Pension cost ...................... (22,532) (13,187) Accumulated depreciation .......... (56,025) (55,163) Accrued employee benefits ......... 10,570 10,060 Postretirement health care obligation ........... 24,474 24,089 Deferred revenue on sale of plant & equipment ............. 5,992 6,059 Miscellaneous ..................... 791 (932) -------- -------- $(27,405) $(18,351) ======== ========
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 $8.0 million at June 30, 2002. 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. (5) SEGMENT AND GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS: In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and subsequent to the May 15, 2001 acquisition described in Note 3, the Company has concluded that it operates two reportable business segments that are managed separately based on fundamental differences in their operations. Summarized segment data is as follows (in thousands of dollars):
2002 2001 2000 ---- ---- ---- NET SALES - Engines .......................... $ 1,366,947 $ 1,289,858 $ 1,591,236 Power Products ................... 216,006 29,587 - Eliminations ..................... (53,581) (9,272) - ----------- ----------- ----------- $ 1,529,372 $ 1,310,173 $ 1,591,236 =========== =========== =========== INCOME FROM OPERATIONS - Engines .......................... $ 117,104 $ 99,156 $ 205,229 Power Products ................... 2,052 1,118 - Eliminations ..................... (798) (1,168) - ----------- ----------- ----------- $ 118,358 $ 99,106 $ 205,229 =========== =========== =========== ASSETS - Engines .......................... $ 1,080,259 $ 1,012,438 $ 930,245 Power Products ................... 279,199 287,058 - Eliminations ..................... (10,425) (3,301) - ----------- ----------- ----------- $ 1,349,033 $ 1,296,195 $ 930,245 =========== =========== =========== CAPITAL EXPENDITURES - Engines .......................... $ 42,086 $ 60,841 $ 71,441 Power Products ................... 1,842 481 - ----------- ----------- ----------- $ 43,928 $ 61,322 $ 71,441 =========== =========== =========== DEPRECIATION & AMORTIZATION - Engines .......................... $ 63,157 $ 58,362 $ 53,277 Power Products ................... 2,811 1,349 - ----------- ----------- ----------- $ 65,968 $ 59,711 $ 53,277 =========== =========== ===========
Information regarding the Company's geographic sales by the location the sale originated is as follows (in thousands of dollars):
2002 2001 2000 ---- ---- ---- United States ...................... $ 1,437,739 $ 1,226,034 $ 1,502,402 All Other Countries ................ 91,633 84,139 88,834 ----------- ----------- ----------- Total .............................. $ 1,529,372 $ 1,310,173 $ 1,591,236 =========== =========== ===========
The Company has no material long lived assets in an individual foreign country. In the fiscal years 2002, 2001 and 2000, there were sales to three major engine customers that individually exceeded 10% of total Company net sales. The sales to these customers are summarized below (in thousands of dollars and percent of total Company net sales):
2002 2001 2000 ---- ---- ---- Customer SALES % Sales % Sales % ----- - ----- - ----- - A $299,785 19% $267,516 20% $287,769 18% B 255,119 17% 187,001 14% 229,873 15% C 165,670 11% 150,682 12% 190,659 12% -------- ---- -------- ---- -------- ---- $720,574 47% $605,199 46% $708,301 45% ======== ==== ======== ==== ======== ====
13 NOTES ... -------------------------------------------------------------------------------- (6) INDEBTEDNESS: As of November 15, 2001, the Company replaced its $250 million revolving credit facility that would have expired in April 2002, with a three-year $300 million revolving credit facility (the credit facility) that expires in September 2004. The Company also has access to domestic lines of credit (domestic lines) totaling $15.0 million that remain in effect until canceled by either party. The domestic lines provide amounts for short-term use at the then prevailing rate. There are no significant compensating balance requirements for any of these domestic lines. There were no borrowings using these domestic lines or the credit facility as of June 30, 2002 and July 1, 2001. Borrowings under the credit facility by the Company bear interest at a rate per annum equal to, at its option, either: (1) a 1, 2, 3 or 6 month LIBOR rate plus a margin varying from 0.50% to 1.75%, depending upon the rating of the Company's long-term debt by Standard & Poor's Rating group, a division of McGraw-Hill Companies (S&P) and Moody's Investors Service, Inc. (Moody's) or (2) the higher of (a) the federal funds rate plus 0.50% or (b) the bank's prime rate plus a margin of up to 0.25%, also depending on the Company's long-term credit ratings. In addition, the Company is subject to a 0.10% to 0.35% commitment fee and a 0.50% to 1.75% letter of credit fee, depending on the Company's long-term credit ratings. The following data relates to domestic notes payable (in thousands of dollars):
2002 2001 ---- ---- Balance at Fiscal Year End .... $ 2,625 $ 3,300 Weighted Average Interest Rate at Fiscal Year End .... 4.00% 5.18%
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 $26.2 million, expire at various times through April, 2003 and are renewable. There were borrowings of $15.3 million at June 30, 2002 using these lines of credit and are included in foreign loans. None of these arrangements had material commitment fees or compensating balance requirements. The following information relates to foreign loans (in thousands of dollars):
2002 2001 ---- ---- Balance at Fiscal Year End .... $ 15,270 $ 16,291 Weighted Average Interest Rate at Fiscal Year End .... 5.41% 5.80%
The Long-Term Debt caption consists of the following (in thousands of dollars):
2002 2001 ---- ---- 5.00% Convertible Senior Notes Due 2006 ............................ $140,000 $140,000 7.25% Senior Notes Due 2007, Net of Unamortized Discount of $969 in 2002 and $1,282 in 2001 ...................... 89,031 98,718 8.875% Senior Notes Due 2011, Net of Unamortized Discount of $5,009 in 2002 and $5,584 in 2001 ...................... 269,991 269,416 -------- -------- Total Long-Term Debt ................ $499,022 $508,134 ======== ========
In May 2001, the Company issued $275.0 million of 8.875% Senior Notes due March 15, 2011 and $140.0 million of 5.00% Convertible Senior Notes due May 15, 2006. The convertible senior notes are convertible at the option of the holders into the Company's common stock at the conversion rate of 20.1846 shares per each $1,000 of convertible notes. Interest is paid semi-annually on both series of notes. No principal payments are due before the maturity dates. The net proceeds from the sale of the 8.875% senior notes and 5.00% convertible senior notes were used to fund the Company's acquisition of GPP, including the replacement of GPP's outstanding debt and to repay a portion of the Company's unrated commercial paper and short-term borrowings under its credit facilities. The 7.25% senior notes are due September 15, 2007. In accordance with the agreement, no principal payments are due before the maturity date, however the Company repurchased $10 million of the bonds in the fourth quarter of fiscal year 2002 after receiving unsolicited offers from bondholders. The separate indentures providing for the 7.25% senior notes, the 8.875% senior notes, the 5.00% convertible senior notes and the Company's credit 14 NOTES... -------------------------------------------------------------------------------- facility (collectively, the Domestic Indebtedness) each include a number of financial and operating restrictions. These covenants include restrictions on the Company's ability to: pay dividends; incur indebtedness; create liens; enter into sale and leaseback transactions; consolidate, merge, sell or lease all or substantially all of its assets; and dispose of assets or the proceeds of sales of its assets. The credit facility contains financial covenants that require the Company to maintain a minimum interest coverage ratio and net worth (for fiscal 2003 the Company is required to maintain a minimum net worth of $376.6 million), impose a maximum leverage ratio and total funded debt to EBITDA ratio and impose capital expenditure limits. In addition, the credit facility contains provisions that only apply if the Company's credit rating from S&P is BB or below or from Moody's is Ba2 or below. As of June 30, 2002, the Company was in compliance with these covenants. Additionally, under the terms of the indentures governing the Domestic Indebtedness, GPP became a joint and several guarantor of amounts outstanding under the Domestic Indebtedness. Refer to Note 15 to the Consolidated Financial Statements for subsidiary guarantor financial information. (7) OTHER INCOME: The components of other income (expense) are (in thousands of dollars):
2002 2001 2000 ------- ------- ------- Interest income ........................ $ 2,189 $ 2,069 $ 1,589 Loss on the disposition of plant and equipment .................. (3,192) (1,493) (2,378) Income from investments ................ 7,071 5,485 14,364 Transaction gain (loss) ................ 3,757 (4,973) 206 Derivatives gain (loss) ................ (3,829) 1,438 - Deferred financing costs ............... (1,420) (133) - Amortization of intangibles ............ (56) (1,052) - Other items ............................ 2,065 2,091 2,335 ------- ------- ------- Total .................................. $ 6,585 $ 3,432 $16,116 ======= ======= =======
(8) COMMITMENTS AND CONTINGENCIES: Product and general liability claims arise against the Company from time to time in the ordinary course of business. The Company is generally self-insured for claims up to $1 million per claim. Accordingly, a reserve is maintained for the estimated costs of such claims. On June 30, 2002 and July 1, 2001 the reserve for product and general liability claims was $2.8 million and $3.6 million, respectively. Because there is inherent uncertainty as to the eventual resolution of unsettled claims, no reasonable range of possible losses can be determined. Management does not anticipate that these claims, excluding the impact of insurance proceeds and reserves, will have a material adverse effect on the financial condition or results of operations of the Company. The Company has no material commitments for materials or capital expenditures as of June 30, 2002. (9) STOCK OPTIONS: The Company has a Stock Incentive Plan under which 5,361,935 shares of common stock have been reserved for issuance. The Company accounts for the plan under Accounting Principles Board Opinion No. 25, and no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
2002 2001 2000 ---- ---- ---- Net Income (in thousands): As Reported ................... $53,120 $48,013 $136,473 Pro Forma ..................... $49,494 $44,814 $134,600 Basic Earnings Per Share: As Reported ................... $2.46 $2.22 $5.99 Pro Forma ..................... $2.29 $2.07 $5.91 Diluted Earnings Per Share: As Reported ................... $2.36 $2.21 $5.97 Pro Forma ..................... $2.21 $2.04 $5.89
Information on the options outstanding is as follows:
Wtd. Avg. Shares Ex. Price ------ --------- Balance, June 27, 1999......................... 1,042,011 $ 49.28 Granted during the year........................ 471,020 74.53 Exercised during the year...................... (151,033) 38.49 Expired during the year........................ (58,970) 67.55 --------- Balance, July 2, 2000.......................... 1,303,028 $ 58.83 Granted during the year........................ 600,000 $ 46.22 Exercised during the year...................... (13,449) 20.45 Expired during the year........................ (180,738) 49.08 --------- BALANCE, JULY 1, 2001.......................... 1,708,841 $ 55.73 GRANTED DURING THE YEAR........................ 371,490 $ 49.19 EXERCISED DURING THE YEAR...................... (39,597) 27.64 EXPIRED DURING THE YEAR........................ (199,094) 54.59 --------- BALANCE, JUNE 30, 2002......................... 1,841,640 $ 55.14 =========
15 NOTES... --------------------------------------------------------------------------------
Grant Summary -------------------------------------------------------------------------------- Fiscal Grant Exercise Date Options Expiration Year Date Price Exercisable Outstanding Date ------ ---- -------- ----------- ----------- ---- 1998 8-5-97 65.690 8-5-00 223,440 8-5-02 1999 8-5-98 44.980 8-5-01 307,070 8-5-03 2000 8-4-99 74.530 8-4-02 403,670 8-4-04 2001 8-3-00 46.220 8-3-03 559,910 8-3-07 2002 8-7-01 49.190 8-7-04 347,550 8-7-08
The fair value of each option is estimated using the Black-Scholes option pricing model. The grant-date fair market value of the options and assumptions used to determine such value are:
Options granted during 2002 2001 2000 ---- ---- ---- Grant date fair value ........ $12.53 $11.47 $13.07 Assumptions: Risk-free interest rate .... 5.1% 6.0% 6.0% Expected volatility ........ 40.3% 37.6% 30.1% Expected dividend yield .... 3.1% 2.6% 2.5% Expected term (in years) ... 7.0 7.0 5.0
(10) 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 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. (11) FOREIGN EXCHANGE RISK MANAGEMENT: The Company enters into forward exchange contracts to hedge purchases and sales that are denominated in foreign currencies. The terms of these currency derivatives generally do not exceed twelve months and the purpose is to protect the Company from the risk that the eventual dollars being transferred will be adversely affected by changes in exchange rates. The Company has forward foreign currency exchange contracts to purchase Japanese yen. These contracts are used to hedge the commitments to purchase engines from the Company's Japanese joint venture. The Company also has forward contracts to sell foreign currency. These contracts are used to hedge foreign currency collections on sales of inventory. The Company's foreign currency forward contracts are carried at fair value based on current exchange rates. The Company has the following forward currency contracts outstanding at the end of fiscal 2002:
In Millions Hedge --------------------------------------------------- --------------------------- Notional Contract Fair Market (Gain)/Loss Conversion Latest Currency Contract Value Value Value at Fair Value Currency Expiration Date -------- -------- -------- -------- ----------- ------------- ---------- --------------- Japanese Yen Buy 239.5 1.8 2.0 (.2) U.S. September 2002 Euro Sell 100.9 93.6 99.2 5.6 U.S. April 2003 Australian Dollar Sell 2.0 1.1 1.1 - U.S. December 2002 Canadian Dollar Sell .9 .6 .6 - U.S. November 2002
The Company's foreign subsidiaries have the following forward currency contracts outstanding at the end of fiscal 2002:
In Millions Hedge --------------------------------------------------- --------------------------- Notional Contract Fair Market (Gain)/Loss Conversion Latest Currency Contract Value Value Value at Fair Value Currency Expiration Date -------- -------- -------- -------- ----------- ------------- ---------- --------------- Japanese Yen Sell 26.9 .4 .4 - Australian August 2002 U.S. Dollars Buy .4 .8 .8 - Australian August 2002 British Pounds Buy .6 1.7 1.7 - Australian June 2003
The Company continuously evaluates the effectiveness of its hedging program by evaluating its foreign exchange contracts compared to the anticipated underlying transactions. 16 NOTES... -------------------------------------------------------------------------------- (12) EMPLOYEE BENEFIT COSTS: Retirement Plan and Postretirement Benefits The Company has noncontributory, defined benefit retirement plans and postretirement benefit plans covering most Wisconsin employees. The following provides a reconciliation of obligations, plan assets and funded status of the plans for the two years indicated, (dollars in thousands):
Pension Benefits Other Postretirement Benefits ------------------------ ----------------------------- 2002 2001 2002 2001 --------- --------- --------- --------- Actuarial Assumptions: Discounted Rate Used to Determine Present Value of Projected Benefit Obligation ........... 7.25% 7.5% 7.25% 7.5% Expected Rate of Future Compensation Level Increases ................................. 4.0-5.0% 4.0-5.0% N/A n/a Expected Long-Term Rate of Return on Plan Assets ..................................... 9.0% 9.0% N/A n/a Change in Benefit Obligations: Actuarial Present Value of Benefit Obligations at Beginning of Year ............................ $ 703,275 $ 666,392 $ 108,557 $ 99,793 Service Cost ...................................... 10,014 9,482 1,341 1,215 Interest Cost ..................................... 51,203 48,079 8,028 7,091 Plan Amendments ................................... - 29,190 - - Acquisition ....................................... - 2,671 - - Special Termination Benefits ...................... 4,907 - 2,183 - Actuarial (Gain) Loss ............................. 30,692 (10,478) 12,337 13,035 Benefits Paid ..................................... (52,470) (42,061) (8,981) (12,577) --------- --------- --------- --------- Actuarial Present Value of Benefit Obligation at End of Year .................................. $ 747,621 $ 703,275 $ 123,465 $ 108,557 --------- --------- --------- --------- Change in Plan Assets: Plan Assets at Fair Value at Beginning of Year .... $ 940,582 $ 951,757 $ - $ - Actual Return on Plan Assets ...................... (32,866) 29,084 - - Acquisition ....................................... - 1,018 - - Employer Contributions ............................ 1,257 784 8,981 12,577 Benefits Paid ..................................... (52,470) (42,061) (8,981) (12,577) --------- --------- --------- --------- Plan Assets at Fair Value at End of Year .......... $ 856,503 $ 940,582 $ - $ - --------- --------- --------- --------- Plan Assets in Excess of (Less Than) Projected Benefit Obligation .............................. $ 108,882 $ 237,307 $(123,465) $(108,557) Remaining Unrecognized Net Obligation (Asset) ..... - (4,517) 275 321 Unrecognized Net Loss (Gain) ...................... (95,547) (244,579) 40,177 29,673 Unrecognized Prior Service Cost ................... 29,942 32,739 71 103 --------- --------- --------- --------- Net Amount Recognized at End of Year .............. $ 43,277 $ 20,950 $ (82,942) $ (78,460) ========= ========= ========= ========= Amounts Recognized on the Balance Sheets: Prepaid Pension ................................... $ 60,343 $ 36,275 $ - $ - Accrued Pension Cost .............................. (15,750) (14,494) - - Accrued Wages and Salaries ........................ (1,316) (831) - - Accrued Post Retirement Health Care Obligation .... - - (62,753) (61,767) Other Accruals .................................... - - (8,000) (4,800) Accrued Employee Benefits ......................... - - (12,189) (11,893) --------- --------- --------- --------- Net Amount Recognized at End of Year .............. $ 43,277 $ 20,950 $ (82,942) $ (78,460) ========= ========= ========= =========
17 NOTES... -------------------------------------------------------------------------------- The following table summarizes the plans' income and expense for the three years indicated (dollars in thousands):
Pension Benefits Other Postretirement Benefits ------------------------------------ ---------------------------------- 2002 2001 2000 2002 2001 2000 -------- -------- -------- -------- -------- -------- Components of Net Periodic Benefit Cost: Service Cost-Benefits Earned During the Year .... $ 10,014 $ 9,482 $ 10,622 $ 1,341 $ 1,215 $ 1,307 Interest Cost on Projected Benefit Obligation ... 51,203 48,079 47,475 8,028 7,091 7,343 Expected Return on Plan Assets .................. (77,192) (73,053) (63,845) - - - Amortization of: Transition Obligation (Asset) ................ (4,517) (5,306) (5,306) 46 47 46 Prior Service Cost ........................... 2,797 242 186 31 31 31 Actuarial (Gain) Loss ........................ (8,328) (7,822) 359 1,834 583 1,111 -------- -------- -------- -------- -------- -------- Net Periodic Benefit Expense (Income) ........... $(26,023) $(28,378) $(10,509) $ 11,280 $ 8,967 $ 9,838 ======== ======== ======== ======== ======== ========
In the second quarter of fiscal 2002, the Company offered and finalized an early retirement incentive program. As a result, the Company recorded $4.9 million of expense offsetting pension income of $26 million and $2.2 million was added to postretirement health care expense. The impact for the full fiscal year of 2002 reduced net income on an after-tax basis by $2.5 million, after consideration of salary and related expenditures savings. In July 2001, the Company extended its collective bargaining agreement with one of its unions. As part of this contract extension, the Company agreed to pay certain amounts to employees who were hired prior to January 1, 1980 upon their retirement. The impact of this plan amendment is included in the above tables. As described in Note 14, the Company contributed its two ductile iron foundries to Metal Technologies Holding Company, Inc. (MTHC). In connection with the contribution, MTHC agreed to assume pension and postretirement benefit obligations related to employees working at the foundries at the time of the transaction. The Company transferred to MTHC pension assets amounting to $11.3 million in fiscal 2001. The assumption of obligations by MTHC and transfer of pension assets did not result in a gain or loss to the Company. The Company's supplemental pension plan has benefit obligations in excess of plan assets. The benefit obligation, accumulated benefit obligation and fair value of plan assets were $25.2 million, $17.9 million and $.1 million respectively for fiscal year 2002 and $19.0 million, $14.9 million and $0 respectively for fiscal year 2001. The postretirement benefit plans are essentially unfunded. For measurement purposes a 9% annual rate of increase in the per capita cost of covered health care claims was assumed for the fiscal year 2003 decreasing gradually to 5% for the fiscal year 2008. The health care cost trend rate assumption has a significant effect on the amounts reported. An increase of one percentage point, would increase the accumulated postretirement benefit by $8.1 million and would increase the service and interest cost by $.8 million for the year. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by $7.5 million and decrease the service and interest cost by $.7 million for the fiscal year. Defined Contribution Plans The Company has a defined contribution retirement plan that includes most U.S. non-Wisconsin employees. Under the plan, the Company makes an annual contribution on behalf of covered employees equal to 2% of each participant's gross income, as defined. For the fiscal years 2002, 2001 and 2000, the net expense related to these plans was $1.6 million, $.2 million and $2.1 million, respectively. Wisconsin employees of the Company may participate in a salary reduction deferred compensation retirement plan. A maximum of 1-1/2% or 3% of each participant's salary, depending upon the participant's group, is matched by the Company. The Company contributions totaled $4.1 million in 2002, $4.7 million in 2001 and $4.6 million in 2000. 18 NOTES... -------------------------------------------------------------------------------- Postemployment Benefits The Company accrues the expected cost of postemployment benefits over the years that the employees render service. These benefits are substantially smaller amounts because they apply only to employees who permanently terminate employment prior to retirement. The items include disability payments, life insurance and medical benefits. These amounts are also discounted using an interest rate of 7.25% and 7.5% for fiscal year 2002 and 2001, respectively. Amounts are included in Accrued Employee Benefits in the balance sheet. (13) 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, Receivables, Accounts Payable, Domestic Notes Payable, Foreign Loans and Accrued Liabilities: The carrying amounts approximate fair market value because of the short maturity of these instruments. Long-Term Debt: The fair market value of the Company's long-term debt is estimated based on market quotations at year end. The estimated fair market values of the Company's financial instruments are (in thousands of dollars):
2002 ------------------------------- CARRYING FAIR AMOUNT VALUE ------ ----- CASH AND CASH EQUIVALENTS .......... $ 215,945 $ 215,945 RECEIVABLES ........................ $ 201,910 $ 201,910 ACCOUNTS PAYABLE ................... $ 103,648 $ 103,648 DOMESTIC NOTES PAYABLE ............. $ 2,625 $ 2,625 FOREIGN LOANS ...................... $ 15,270 $ 15,270 ACCRUED LIABILITIES ................ $ 131,582 $ 131,582 LONG-TERM DEBT - 5.00% CONVERTIBLE NOTES DUE 2006 ....................... $ 140,000 $ 150,865 7.25% NOTES DUE 2007 ............. $ 89,031 $ 88,712 8.875% NOTES DUE 2011 ............ $ 269,991 $ 288,562
2001 ------------------------------- Carrying Fair Amount Value ------ ----- Cash and cash equivalents .......... $ 88,743 $ 88,743 Receivables ........................ $ 145,138 $ 145,138 Accounts payable ................... $ 102,559 $ 102,559 Domestic notes payable ............. $ 3,300 $ 3,300 Foreign loans ...................... $ 16,291 $ 16,291 Accrued liabilities ................ $ 115,725 $ 115,725 Long-term debt - 5.00% Convertible Notes due 2006 ....................... $ 140,000 $ 150,066 7.25% Notes due 2007 ............. $ 98,718 $ 96,237 8.875% Notes due 2011 ............ $ 269,416 $ 277,608
(14) DISPOSITION OF BUSINESS: At the end of August 1999, the Company contributed its two ductile iron foundries to MTHC in exchange for $23.6 million in cash and $45.0 million aggregate par value convertible preferred stock. The provisions of the preferred stock include a 15% cumulative dividend and conversion rights into a minimum of 31% of MTHC common stock. Pursuant to EITF Abstract No. 86-29, the Company considered this contribution to be a monetary transaction, given the significant amount of cash received and recorded the consideration received at fair value. The preferred stock received was determined to have a fair value of $21.6 million based on provisions of the stock and the prevailing market returns for similar investments, estimated to be 30%, as of the date of the transaction. MTHC is the primary supplier to the Company for iron castings. There are no other material arrangements between the Company and MTHC. Based on the above and the fair market value of all consideration received, the transaction resulted in a $16.5 million gain. 19 NOTES... -------------------------------------------------------------------------------- (15) SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS Under the terms of the Company's Domestic Indebtedness (described in Note 6), GPP became a joint and several guarantor of the Domestic Indebtedness. Additionally, if at any time a domestic subsidiary of the Company constitutes a significant domestic subsidiary, then the domestic subsidiary will also become a guarantor of the Domestic Indebtedness. Each guarantee of the Domestic Indebtedness is the obligation of the guarantor and ranks equally and ratably with the existing and future senior unsecured obligations of that guarantor; accordingly, GPP has provided a full and unconditional guarantee of the Domestic Indebtedness. The condensed supplemental consolidating financial information reflects the operations of GPP (in thousands of dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR AS OF JUNE 30, 2002 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------- ----------- ---------- ------------ ------------ ------------ Current Assets................................... $ 527,111 $ 96,534 $ 70,387 $ (24,088) $ 669,944 Investment in Subsidiary......................... 312,679 - - (312,679) - Noncurrent Assets................................ 494,052 182,665 2,372 - 679,089 ------------ ----------- ------------ ----------- ----------- $ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033 ============ =========== ============ =========== =========== Current Liabilities.............................. $ 244,497 $ 10,133 $ 30,327 $ (18,934) $ 266,023 Long-Term Debt................................... 499,022 - - - 499,022 Other Long-Term Obligations...................... 135,192 (850) - - 134,342 Stockholders' Equity............................. 455,131 269,916 42,432 (317,833) 449,646 ------------ ----------- ------------ ----------- ----------- $ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033 ============ =========== ============ =========== ===========
STATEMENT OF EARNINGS: FOR THE FISCAL YEAR ENDED JUNE 30, 2002 --------------------------------------- Net Sales........................................ $ 1,334,891 $ 216,006 $ 80,976 $ (102,501) $ 1,529,372 Cost of Goods Sold............................... 1,102,548 195,533 62,416 (103,158) 1,257,339 ------------ ----------- ------------ ----------- ----------- Gross Profit................................... 232,343 20,473 18,560 657 272,033 Engineering, Selling, General and Administrative Expenses........................ 123,114 18,420 12,141 - 153,675 ------------ ----------- ------------ ----------- ----------- Income from Operations......................... 109,229 2,053 6,419 657 118,358 Interest Expense................................. (43,600) (50) (889) 106 (44,433) Other (Expense) Income, Net...................... 12,553 149 13,609 (19,726) 6,585 ------------ ----------- ------------ ----------- ----------- Income Before Provision for Income Taxes....... 78,182 2,152 19,139 (18,963) 80,510 Provision for Income Taxes....................... 25,062 761 1,567 - 27,390 ------------ ----------- ------------ ----------- ----------- Net Income....................................... $ 53,120 $ 1,391 $ 17,572 $ (18,963) $ 53,120 ============ =========== ============ =========== ===========
20 NOTES... --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR FOR THE FISCAL YEAR ENDED JUNE 30, 2002 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------------------------------------- ----------- ---------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ........................................ $ 53,120 $ 1,391 $ 17,572 $ (18,963) $ 53,120 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities- Depreciation and Amortization ................... 62,590 2,812 566 - 65,968 Equity in Earnings of Unconsolidated Affiliates.. (23,222) - 189 16,852 (6,181) (Gain) Loss on Disposition of Plant and Equipment ...................................... 3,593 (387) (14) - 3,192 Provision for Deferred Income Taxes ............. 12,103 8,183 - - 20,286 Change in Operating Assets and Liabilities- (Increase) Decrease in Receivables .............. (44,781) (1,361) (15,942) 5,312 (56,772) (Increase) Decrease in Inventories .............. 125,277 (2,352) (1,549) (657) 120,719 Increase in Prepaid Expenses and Other Current Assets ........................... (2,763) (122) (111) - (2,996) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes ........... 32,714 (2,958) 1,617 (5,312) 26,061 (Increase) Decrease in Prepaid Pension .......... (23,101) 289 - - (22,812) Other, Net ........................................ (17) (751) - - (768) --------- --------- --------- --------- --------- Net Cash Provided by Operating Activities ...... $ 195,513 $ 4,744 $ 2,328 $ (2,768) $ 199,817 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment .................. $ (41,048) $ (1,824) $ (1,056) $ - $ (43,928) Proceeds Received on Disposition of Plant and Equipment ............................. 362 9 35 - 406 Other, Net ........................................ 5,120 - - - 5,120 --------- --------- --------- --------- --------- Net Cash Used by Investing Activities .......... $ (35,566) $ (1,815) $ (1,021) $ - $ (38,402) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable ................................... $ 3,022 $ (3,697) $ (1,021) $ - $ (1,696) Borrowings (Repayments) on Long-Term Debt .................................. (10,393) - - - (10,393) Cash Dividends Paid ............................... (27,219) - (2,768) 2,768 (27,219) Proceeds from Exercise of Stock Options ........... 1,078 - - - 1,078 Net Cash Provided by (Used by) --------- --------- --------- --------- --------- Financing Activities ........................ $ (33,512) $ (3,697) $ (3,789) $ 2,768 $ (38,230) --------- --------- --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .............................. $ (106) $ 1,040 $ 3,083 $ - $ 4,017 --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................. $ 126,329 $ 272 $ 601 $ - $ 127,202 Cash and Cash Equivalents, Beginning of Year ....... 85,282 683 2,778 - 88,743 --------- --------- --------- --------- --------- Cash and Cash Equivalents, End of Year ............. $ 211,611 $ 955 $ 3,379 $ - $ 215,945 ========= ========= ========= ========= =========
21 NOTES ... -------------------------------------------------------------------------------- The condensed supplemental consolidating financial information reflects the operations of GPP for the 2001 fiscal year (in thousands of dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR AS OF JULY 1, 2001 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------ ----------- ---------- ------------ ------------ ------------ Current Assets .............................. $ 482,158 $ 98,523 $ 52,182 $ (19,433) $ 613,430 Investment in Subsidiary .................... 292,543 - - (292,543) - Noncurrent Assets ........................... 491,624 188,535 2,606 - 682,765 ----------- ----------- ----------- ------------ ----------- $ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195 =========== =========== =========== ============ =========== Current Liabilities ......................... $ 207,336 $ 18,737 $ 29,731 $ (13,622) $ 242,182 Long-Term Debt .............................. 508,134 - - - 508,134 Other Long-Term Obligations ................. 122,292 835 - - 123,127 Stockholders' Equity ........................ 428,563 267,486 25,057 (298,354) 422,752 ----------- ----------- ----------- ------------ ----------- $ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195 =========== =========== =========== ============ =========== STATEMENT OF EARNINGS: FOR THE FISCAL YEAR ENDED JULY 1, 2001 -------------------------------------- Net Sales ................................... $ 1,251,462 $ 29,587 $ 80,701 $ (51,577) $ 1,310,173 Cost of Goods Sold .......................... 1,037,817 25,814 61,159 (51,407) 1,073,383 ----------- ----------- ----------- ------------ ----------- Gross Profit .............................. 213,645 3,773 19,542 (170) 236,790 Engineering, Selling, General and Administrative Expenses ................... 124,146 2,656 10,882 - 137,684 ----------- ----------- ----------- ------------ ----------- Income from Operations .................... 89,499 1,117 8,660 (170) 99,106 Interest Expense ............................ (28,024) (23) (2,642) 24 (30,665) Other (Expense) Income, Net ................. 8,574 (1,073) 8,841 (12,910) 3,432 ----------- ----------- ----------- ------------ ----------- Income Before Provision for Income Taxes... 70,049 21 14,859 (13,056) 71,873 Provision for Income Taxes .................. 22,036 7 1,817 - 23,860 ----------- ----------- ----------- ------------ ----------- Net Income .................................. $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013 =========== =========== =========== ============ ===========
22 NOTES ... --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR FOR THE FISCAL YEAR ENDED JULY 1, 2001 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------------------------------- ----------- ---------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ....................................... $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities- Depreciation and Amortization ................... 57,724 1,349 638 - 59,711 Equity in Earnings of Unconsolidated Affiliates.. (5,762) - 159 562 (5,041) (Gain) Loss on Disposition of Plant and Equipment ...................................... 1,499 - (6) - 1,493 Provision for Deferred Income Taxes ............. 17,691 282 - - 17,973 Change in Operating Assets and Liabilities- Decrease in Receivables ......................... 35,479 1,868 5,375 (8,036) 34,686 (Increase) Decrease in Inventories .............. (6,325) (2,811) 1,659 170 (7,307) (Increase) Decrease in Prepaid Expenses and Other Current Assets ........................... 22 89 (161) - (50) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes ........... (47,372) 4,349 (11,753) 8,036 (46,740) (Increase) Decrease in Prepaid Pension .......... (28,646) 268 - - (28,378) Other, Net ....................................... (6,183) (209) - - (6,392) --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Operating Activities .......................... $ 66,140 $ 5,199 $ 8,953 $ (12,324) $ 67,968 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment ................. $ (60,262) $ (481) $ (579) $ - $ (61,322) Proceeds Received on Disposition of Plant and Equipment ............................. 4,113 - 39 - 4,152 Investments in Subsidiaries, Net of Cash Acquired ................................... (270,632) 456 3,002 - (267,174) Other, Net ....................................... 6,434 - (138) - 6,296 --------- --------- --------- --------- --------- Net Cash Provided by (Used by) Investing Activities .......................... $(320,347) $ (25) $ 2,324 $ - $(318,048) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable ................................... $ (41,175) $ (4,334) $ 2,935 $ - $ (42,574) Borrowings (Repayments) on Long-Term Debt .................................. 399,415 - - - 399,415 Cash Dividends Paid .............................. (26,763) - (12,324) 12,324 (26,763) Proceeds from Exercise of Stock Options .......... (5,843) - - - (5,843) Net Cash Provided by (Used by) --------- --------- --------- --------- --------- Financing Activities .......................... $ 325,634 $ (4,334) $ (9,389) $ 12,324 $ 324,235 --------- --------- --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ............................. $ - $ (157) $ (2,244) $ - $ (2,401) --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. $ 71,427 $ 683 $ (356) $ - $ 71,754 Cash and Cash Equivalents, Beginning of Year ...... 13,855 - 3,134 - 16,989 --------- --------- --------- --------- --------- Cash and Cash Equivalents, End of Year ............ $ 85,282 $ 683 $ 2,778 $ - $ 88,743 ========= ========= ========= ========= =========
23 INDEPENDENT AUDITORS' REPORTS -------------------------------------------------------------------------------- To the Shareholders of Briggs & Stratton Corporation: We have audited the accompanying consolidated balance sheet of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries, as of June 30, 2002, and the related consolidated statement of earnings, shareholders' investment and cash flows for the year then ended. 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 audit. The consolidated financial statements of Briggs & Stratton Corporation as of July 1, 2001 and for the years ended July 1, 2001 and July 2, 2000 were audited by other auditors who have ceased operations. Those other auditors expressed an unqualified opinion on those consolidated financial statements in their report dated July 26, 2001. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such 2002 financial statements present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries, as of June 30, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin August 1, 2002 THIS REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH ITS INCLUSION IN THIS FORM 10-K. To the Shareholders of Briggs & Stratton Corporation: We have audited the accompanying consolidated balance sheets of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of July 1, 2001 and July 2, 2000 and the related consolidated statements of earnings, shareholders' investment and cash flow for each of the three years in the period ended July 1, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries as of July 1, 2001 and July 2, 2000 and the results of their operations and their cash flows for each of the three years in the period ended July 1, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin July 26, 2001 24 QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED) ---------------------------------------------------------------------
In Thousands Per Share of Common Stock --------------------------------------------- --------------------------------------------------- Market Price Range on New York Net Net Stock Exchange Quarter Net Gross Income Income Dividends ------------------- Ended Sales Profit (Loss) (Loss) Declared High Low ----- ----- ------ ------ ------ -------- ------ ------ FISCAL 2002 SEPTEMBER $ 219,629(1) $ 19,821(1) $ (17,424) $ (.81) $ .31 $ 43.85 $ 29.65 DECEMBER 333,689(1) 54,994(1) 2,379 .11 .31 43.99 29.81 MARCH 516,758 102,495 37,614 1.58 .32 48.39 38.54 JUNE 459,296 94,723 30,551 1.30 .32 46.35 36.71 ---------- ---------- ---------- ---------- ---------- TOTAL $1,529,372 $ 272,033 $ 53,120 $ 2.36(2) $ 1.26 ========== ========== ========== ========== ========== Fiscal 2001 September $ 180,763(1) $ 25,312(1) $ (6,304) $ (.29) $ .31 $ 44.56 $ 32.13 December 367,720(1) 69,117(1) 19,928 .92 .31 46.00 30.38 March 430,187 85,899 29,889 1.38 .31 48.38 36.50 June 331,503 56,462 4,500 .21 .31 45.90 35.00 ---------- ---------- ---------- ---------- ---------- Total $1,310,173 $ 236,790 $ 48,013 $ 2.21(2) $ 1.24 ========== ========== ========== ========== ==========
The number of record holders of Briggs & Stratton Corporation Common Stock on August 22, 2002 was 4,669. The above amounts include the acquisition of GPP since May 15, 2001. Refer to the Notes to Consolidated Financial Statements. Net Income per share of Common Stock represents Diluted Earnings per Share. (1) Reflects the adoption of EITF No. 01-09 in the third quarter of fiscal 2002. Refer to the Notes to Consolidated Financial Statements. (2) Refer to Note 2 to Consolidated Financial Statements, for information about earnings per share. Amounts do not total because of differing numbers of shares outstanding at the end of each quarter. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRIGGS & STRATTON CORPORATION By /s/ James E. Brenn ------------------------------------ November 15, 2002 James E. Brenn, Senior Vice President and Chief Financial Officer - Principal Financial Officer 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/ John S. Shiely /s/ David L. Burner ----------------------------------- ---------------------------------------- John S. Shiely David L. Burner President and Chief Executive Director Officer and Director (Principal Executive Officer) /s/ E. Margie Filter ---------------------------------------- /s/ James E. Brenn E. Margie Filter ----------------------------------- Director James E. Brenn Senior Vice President and Chief Financial Officer (Principal Financial Officer and /s/ Robert J. O'Toole Principal Accounting Officer) ---------------------------------------- Robert J. O'Toole Director /s/ F. P. Stratton, Jr. ----------------------------------- F. P. Stratton, Jr. /s/ Charles I. Story Chairman and Director ---------------------------------------- Charles I. Story /s/ Jay H. Baker Director ----------------------------------- Jay H. Baker Director /s/ Brian C. Walker ---------------------------------------- /s/ Michael E. Batten Brian C. Walker ----------------------------------- Director Michael E. Batten Director *Each signature affixed as of November 15, 2002 26 CERTIFICATIONS CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, John S. Shiely, certify that: (1) I have reviewed this Annual Report on Form 10-K of Briggs & Stratton Corporation; (2) Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; (3) Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report. DATE: November 15, 2002 /s/ John S. Shiely --------------------------------------- John S. Shiely, President and Chief Executive Officer - Principal Executive Officer CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, James E. Brenn, certify that: (1) I have reviewed this Annual Report on Form 10-K of Briggs & Stratton Corporation; (2) Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; (3) Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report. DATE: November 15, 2002 /s/ James E. Brenn ---------------------------------------- James E. Brenn, Senior Vice President and Chief Financial Officer - Principal Financial Officer 27 EXHIBIT INDEX Exhibit Number Description 23.1 Independent Auditors' Consent* 23.2 Statement Regarding Consent of Arthur Andersen LLP* 99.1 Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002* 99.2 Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002* *Filed herewith 28