FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Commission file number 1-1370
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 WEST WIRTH STREET
WAUWATOSA, WISCONSIN 53222
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-259-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock (par value $0.01 per share) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
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.
Part of Form 10-K Into Which Portions
Document of Document are Incorporated
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Proxy Statement for Annual Meeting
on October 16, 2002 Part III
The Exhibit Index is located on page 42.
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BRIGGS & STRATTON CORPORATION
2002 FORM 10-K - TABLE OF CONTENTS
PAGE
PART I ----
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Executive Officers of the Registrant 6
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 37
PART III
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
Item 14. Controls and Procedures 37
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38
Signatures 40
Certifications 41
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. The words
"anticipate," "believe," "estimate," "expect," "intend," "may," "objective,"
"plan," "seek," "think," "will" and similar expressions are intended to identify
forward-looking statements. The forward-looking statements are based on Briggs &
Stratton's current views and assumptions and involve risks and uncertainties
that include, among other things: our ability to successfully forecast demand
for our products and appropriately adjust our manufacturing and inventory
levels; changes in our operating expenses; changes in interest rates; the
effects of weather on the purchasing patterns of consumers and original
equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with
whom we compete; the seasonal nature of our business; changes in laws and
regulations, including environmental and accounting standards; work stoppages or
other consequences of any deterioration in our employee relations; changes in
customer and OEM demand; changes in prices of purchased raw materials and parts;
changes in domestic economic conditions, including housing starts and changes in
consumer disposable income; changes in foreign economic conditions, including
currency rate fluctuations; and other factors that may be disclosed from time to
time in our SEC filings or otherwise. Some or all of the factors may be beyond
our control. We caution you that any forward-looking statement reflects only our
belief at the time the statement is made. We undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which the statement is made.
PART I
ITEM 1. BUSINESS
Briggs & Stratton is the world's largest producer of air cooled gasoline engines
for outdoor power equipment. Briggs & Stratton designs, manufactures, markets
and services these products for original equipment manufacturers (OEMs)
worldwide. These engines are primarily aluminum alloy gasoline engines ranging
from 3 to 25 horsepower.
Additionally, through its wholly owned subsidiary, Generac Portable Products, LLC, Briggs & Stratton is a leading designer, manufacturer and marketer of portable generators, pressure washers and related accessories. On May 15, 2001, Briggs & Stratton acquired Generac Portable Products, Inc. Generac Portable Products, Inc. was merged with, and into Generac Portable Products, LLC (GPP) on June 30, 2002.
Briggs & Stratton conducts its operations in two reportable segments: Engines and Power Products. Further information about Briggs & Stratton's business segments is contained in Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this report.
ENGINES
GENERAL
Briggs & Stratton's engines are used primarily by the lawn and garden equipment
industry, which accounted for 85% of fiscal 2002 OEM engine sales. Major lawn
and garden equipment applications include walk-behind lawn mowers, riding lawn
mowers and garden tillers. The remaining 15% of OEM sales in fiscal 2002 were
for use on products for industrial, construction, agricultural and other
consumer applications, that include generators, pumps and pressure washers. Many
retailers specify Briggs & Stratton's engines on the powered equipment they sell
and the Briggs & Stratton name is often featured prominently on a product
despite the fact that the engine is just a component. Briggs & Stratton engines
are marketed under various brand names including Classic(TM), Sprint(TM),
Quattro(TM), Quantum(R), INTEK(TM), I/C(R), Industrial Plus(TM) and
Vanguard(TM).
In fiscal 2002, approximately 24% of Briggs & Stratton's net sales were derived from sales in international markets, primarily to customers in Europe. Briggs & Stratton serves its key international markets through its European regional office in Switzerland, its distribution center in the Netherlands and sales and service subsidiaries in Australia, Austria, Canada, the Czech Republic, France, Germany, Mexico, New Zealand, Philippines, South Africa, Sweden and the United Kingdom. Briggs & Stratton is a leading supplier of gasoline engines in developed countries where there is an established lawn and garden equipment market. Briggs & Stratton also exports engines to developing nations where its engines are used in agricultural, marine, construction and other applications.
Briggs & Stratton engines are sold primarily by its worldwide sales force through direct calls on customers. Briggs & Stratton's marketing staff and engineers in the United States provide support and technical assistance to its sales force.
Briggs & Stratton also manufactures replacement engines and service parts and sells them to sales and service distributors. Briggs & Stratton owns its principal international distributors. In the United States the distributors are independently owned and operated. These distributors supply service parts and replacement engines directly to approximately 35,000 independently owned, authorized service dealers throughout the world. These distributors and service dealers implement Briggs & Stratton's commitment to reliability and service.
CUSTOMERS
Briggs & Stratton's engine sales are made primarily to OEMs. Briggs & Stratton's
three largest engine customers in each of the last three fiscal years were AB
Electrolux (principally its Electrolux Home Products Group), MTD Products Inc.
and Murray Inc. (owned by Summersong Investments, Inc.). Sales to each of these
customers were more than 10% of net sales in fiscal 2002, 2001, and 2000. Sales
to all three combined were 47% of net sales in fiscal 2002, 46% of net sales in
fiscal 2001 and 45% of net sales in fiscal 2000. Under purchasing plans
available to all of its gasoline engine customers, Briggs & Stratton typically
enters into annual engine supply arrangements with these large customers.
Over the years, sales of lawn and garden equipment by mass merchandisers have increased significantly in the United States, while sales by independent distributors and dealers have declined. Briggs & Stratton believes that in fiscal 2002 more than 75% of all lawn and garden equipment sold in the United States was sold through mass merchandisers such as Sears, Roebuck and Co. (Sears), The Home Depot, Inc. (The Home Depot), Wal*Mart Stores, Inc. and Lowe's Home Centers, Inc. (Lowe's). Given the buying power of the mass merchandisers, Briggs & Stratton, through its customers, has continued to experience pricing pressure. Briggs & Stratton expects that this pricing trend will continue in the foreseeable future. Briggs & Stratton believes that a similar trend has developed for its products in industrial and consumer applications outside of the lawn and garden market.
COMPETITION
The small gasoline engine industry is highly competitive. Briggs & Stratton's
major domestic competitors in engine manufacturing are Tecumseh Products Company
(Tecumseh), Honda Motor Co., Ltd. (Honda), Kohler Co. and Kawasaki Heavy
Industries, Ltd. (Kawasaki). Also, a domestic lawn mower manufacturer, The Toro
Company under its Lawn-Boy brand, manufactures some of its own engines. Eight
Japanese small engine manufacturers, of which Honda and Kawasaki are the
largest, compete directly with Briggs & Stratton in world markets in the sale of
engines to other OEMs and indirectly through their sale of end products.
Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe.
Briggs & Stratton believes the major areas of competition from all engine manufacturers include product quality, brand strength, price, timely delivery and service. Other factors affecting competition are short-term market share objectives, short-term profit objectives, exchange rate fluctuations, technology, product support and distribution strength. Briggs & Stratton believes its product value and service reputation have given it strong brand name recognition and enhance its competitive position.
SEASONALITY OF DEMAND
Sales of engines to lawn and garden equipment manufacturers are highly seasonal
because of retail customer buying patterns. The majority of lawn and garden
equipment is sold during the spring and summer months when most lawn care and
gardening activities are performed. Sales of lawn and garden equipment are also
influenced by weather conditions. Sales in Briggs & Stratton's fiscal third
quarter have historically been the highest, while sales in the first fiscal
quarter have historically been the lowest.
In order to efficiently use its capital investments and meet seasonal demand for engines, Briggs & Stratton pursues a relatively balanced production schedule throughout the year. The schedule is adjusted to reflect changes in estimated demand, customer inventory levels and other matters outside the control of Briggs & Stratton. Accordingly, inventory levels are generally higher during the first and second fiscal quarters in anticipation of increased customer demand. Inventory levels begin to decrease as sales increase in the third fiscal quarter. This seasonal pattern results in high inventories and low cash flow for Briggs & Stratton in the second and the beginning of the third fiscal quarters. The pattern results in higher cash flow in the latter portion of the third fiscal quarter and in the fourth fiscal quarter as inventories are liquidated and receivables are collected.
MANUFACTURING
Briggs & Stratton manufactures engines and parts at the following locations:
Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and Rolla, Missouri;
Auburn, Alabama; and Statesboro, Georgia. Briggs & Stratton has a parts
distribution center in Menomonee Falls, Wisconsin.
Briggs & Stratton manufactures a majority of the structural components used in its engines, including aluminum die castings, carburetors and ignition systems. Briggs & Stratton purchases certain parts such as piston rings, spark plugs, valves, ductile and grey iron castings, zinc die castings and plastic components, some stampings and screw machine parts and smaller quantities of other components. Raw material purchases consist primarily of aluminum and steel. Briggs & Stratton believes its sources of supply are adequate.
Briggs & Stratton has joint ventures with Daihatsu Motor Company for the manufacture of engines in Japan, with Puling Machinery Works and Yimin Machinery Plant for the production of engines in China and with Starting Industrial of Japan for the production of rewind starters in the U.S.
Briggs & Stratton has a strategic relationship with Mitsubishi Heavy Industries (MHI) for the global distribution of air cooled gasoline engines manufactured by MHI in Japan under Briggs & Stratton's Vanguard(TM) brand.
POWER PRODUCTS
GENERAL
In May 2001, Briggs & Stratton acquired GPP. GPP's two principal product lines
are portable generators and pressure washers. GPP sells its products through
multiple channels of retail distribution, including home centers, warehouse
clubs, mass merchants and independent dealers. Under the Craftsman(TM) label,
GPP or its predecessor has been one of Sear's major suppliers of portable
generators (since 1961) and pressure washers. GPP is also a core supplier of
products to The Home Depot and Lowe's. In addition, GPP is a core supplier for
many of the leading retail home centers and do-it-yourself retailers throughout
the United States, Canada and Europe.
GPP has assembled a comprehensive after-sales service network in North America for portable generators and pressure washers comprised of approximately 3,000 authorized independent dealers. GPP maintains its independent dealer network for the purpose of providing the after-sales service capability that supports its products.
To support GPP's European power generator business, local sales offices have been established in the United Kingdom, Germany and Spain.
CUSTOMERS
GPP sells to consumer home centers and warehouse clubs, as well as mass
merchants and independent dealers. Historically, GPP's major customers have been
Costco, Lowe's, The Home Depot and Sears. Other U.S. retail customers include
B.J.'s Wholesale Club, Sam's Club, Tractor Supply Company and Tru-Serv
Incorporated.
COMPETITION
The U.S. engine powered tools industry is highly concentrated with approximately
five competitors. The principal competitive factors in the engine powered tools
industry include price, service, product performance, technical innovation and
delivery. In the manufacture and sale of portable generators, GPP competes
primarily with Coleman Powermate (a division of The Coleman Company, Inc., an
affiliate of Sunbeam Corporation) and Honda. In the manufacture and sale of
pressure washers, GPP competes primarily with DeVilbiss Air Power Company (an
affiliate of Pentair, Inc.) and to a lesser extent, with Coleman Powermate,
Alfred Karcher GmbH & Co. and Campbell Hausfeld (an affiliate of Berkshire
Hathaway, Inc.).
GPP believes it has a significant share of the North American market for portable generators and consumer pressure washers.
SEASONALITY OF DEMAND
Sales of GPP's products are subject to seasonal patterns. Due to seasonal and
regional weather factors, sales of pressure washers and related working capital
requirements are typically higher during the fiscal third and fourth quarters
than at other times of the year. Sales of generators are typically higher during
the summer storm season. The residential and commercial construction markets are
sensitive to cyclical changes in the economy.
MANUFACTURING
GPP's U.S. manufacturing facility is located in Jefferson, Wisconsin. GPP
produces portable generators and pressure washers at this location.
GPP manufactures core components for portable generators, including alternators, where such integration improves operating profitability by providing lower costs.
GPP purchases engines from its parent, Briggs & Stratton, as well as from Generac Power Systems, Inc. and Honda. GPP has not experienced any difficulty obtaining necessary purchased components.
To service GPP's European customer base more effectively, GPP designs and assembles its European products in its Cheshire, England facility. This facility imports alternators, engines and other components and assembles portable generators to meet European product requirements.
CONSOLIDATED
GENERAL INFORMATION
Briggs & Stratton holds patents on features incorporated in its products;
however, the success of Briggs & Stratton's business is not considered to be
primarily dependent upon patent protection. Trademarks, licenses, franchises and
concessions are not a material factor in Briggs & Stratton's business.
For the years ending June 30, 2002, July 1, 2001 and July 2, 2000, Briggs & Stratton spent approximately $23.7 million, $21.5 million and $24.3 million, respectively, on research activities relating to the development of new products or the improvement of existing products.
The average number of persons employed by Briggs & Stratton during the fiscal year was 7,019. Employment ranged from a low of 6,192 in September 2001 to a high of 7,371 in December 2001.
EXPORT SALES
Export sales for fiscal 2002, 2001 and 2000 were $365.5 million (24% of total
sales), $325.6 million (25% of total sales) and $358.1 million (23% of total
sales), respectively. These sales were principally to customers in European
countries. Refer to Note 5 of Notes to Consolidated Financial Statements for
financial information about geographic areas. Also, refer to Item 7A of this
Form 10-K and Note 11 of Notes to Consolidated Financial Statements for
information about Briggs & Stratton's foreign exchange risk management.
ITEM 2. PROPERTIES
The corporate offices and one of Briggs & Stratton's engine manufacturing
facilities are located in a suburb of Milwaukee, Wisconsin. Briggs & Stratton
also has engine manufacturing facilities in Murray, Kentucky; Poplar Bluff and
Rolla, Missouri; Auburn, Alabama and Statesboro, Georgia. These are owned
facilities containing 3.6 million square feet of office and production area.
Briggs & Stratton occupies warehouse space totalling approximately 400,000
square feet in a suburb of Milwaukee, Wisconsin under a reservation of interest
agreement. Briggs & Stratton also leases warehouse space in the localities of
its engine manufacturing facilities, except Wisconsin, totalling 810,000 square
feet.
GPP's offices and domestic manufacturing facilities are located in Jefferson, Wisconsin. GPP also has a manufacturing facility in Cheshire, England. These are owned facilities containing 250,000 square feet of office and production area. GPP leases warehouse space totalling 210,000 square feet in three communities in Wisconsin.
The engine business with the OEMs is seasonal, with demand for engines at its height in the winter and early spring. Engine manufacturing operations run at capacity levels during the peak season, with many operations running three shifts. Engine operations generally run fewer shifts in the summer, when demand is weakest and production is considerably under capacity. During the winter, when finished goods inventories reach their highest levels, owned warehouse space may be insufficient and capacity may be expanded through rented space. Excess warehouse space exists in the spring and summer seasons.
Briggs & Stratton leases approximately 300,000 square feet of space to house its foreign sales and service operations in Australia, Austria, Canada, China, the Czech Republic, France, Germany, Mexico, the Netherlands, New Zealand, Philippines, Russia, South Africa, Spain, Sweden, Switzerland, United Arab Emirates and the United Kingdom.
Briggs & Stratton's owned properties are well maintained. Briggs & Stratton believes that its owned and leased facilities are adequate to perform its operations in a reasonable manner.
ITEM 3. LEGAL PROCEEDINGS
Briggs & Stratton has announced the voluntary recall of approximately 162,000
engines used on Fun Karts. Fuel from the engine can spill out if the Fun Kart
overturns making serious injury a possibility. The recall only applies to
engines that are installed on Fun Karts, which look and ride like go carts, but
were sold for personal use. The models included in the recall are:
- All 5 hp model series beginning with numbers 1352XX installed on Fun Karts.
- Only Fun Power model series beginning with numbers 1362XX made before June 22, 1995 and installed on Fun Karts.
Briggs & Stratton discontinued sale of these engines to OEM manufacturers in 1995.
The entire estimated cost of the recall and a related civil penalty imposed by the Consumer Product Safety Commission is reflected in fiscal 2002 net income at $1.5 million or $.06 per diluted share.
We do not believe the recall will have a material effect on Briggs & Stratton's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended June 30,
2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
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Name, Age, Position Business Experience for Past Five Years
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FREDERICK P. STRATTON, JR., 63 Mr. Stratton was elected to the position of Chairman
Chairman of the Board (1)(2) in November 1986. Mr. Stratton also held the
position of Chief Executive Officer from May 1977
through June 2001.
JOHN S. SHIELY, 50 Mr. Shiely was elected to his current position
President and Chief Executive Officer effective July 2001, after serving as President and
(1)(2)(3) Chief Operating Officer since August 1994.
MICHAEL D. HAMILTON, 60 Mr. Hamilton was elected to his current position
Executive Vice President and effective July 2001, after serving as Executive
President - Briggs & Stratton Asia Vice President - Sales and Service since June 1989.
JAMES E. BRENN, 54 Mr. Brenn was elected to his current position in
Senior Vice President and October 1998, after serving as Vice President and
Chief Financial Officer Controller since November 1988. He also served as
Treasurer from November 1999 until January 2000.
MARK R. HAZELTINE, 59 Mr. Hazeltine was elected to his current position in
Vice President and May 2002, after serving as Vice President and Sales
Sales Manager - Consumer Products Manager - Consumer Lawn & Garden since July
1999. He also served as Sales Manager since
February 1995.
ROBERT F. HEATH, 54 Mr. Heath was elected to his current position in
Secretary January 2002. He served as Assistant Secretary
since January 2001. In addition, Mr. Heath is Vice
President and General Counsel and has served in
these positions since January 2001. He also served
as General Counsel since December 1997.
CURTIS E. LARSON, JR., 54 Mr. Larson was elected to his current position in
Vice President - Distribution October 1995.
Sales and Customer Support
PAUL M. NEYLON, 55 Mr. Neylon was elected to his current position in
Senior Vice President - Engine Products October 2001, after serving as Senior Vice President
Division - Production from August 2000 to October 2001 and
as Vice President - Production since May 1999.
He previously served as Vice President - Operations
Support since January 1999 and prior to that held the
position of Vice President and General Manager -
Spectrum Division.
DORRANCE J. NOONAN, JR., 49 Mr. Noonan was elected to his current position
Senior Vice President and effective upon completion of Briggs & Stratton's
President - Briggs & Stratton acquisition of Generac Portable Products, Inc. in May
Home Power Products 2001. Prior to the acquisition, he held the position of
President, Chief Executive Officer and Director of
Generac Portable Products, LLC and Director of
Generac Portable Products, Inc. since July 1998.
WILLIAM H. REITMAN, 46 Mr. Reitman was elected an executive officer
Vice President - Marketing effective April 1998. He has served as Vice President
- Marketing since November 1995.
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STEPHEN H. RUGG, 55 Mr. Rugg was elected to his current position in May
Senior Vice President - Sales and Service 1999, after serving as Vice President - Sales since
November 1995.
THOMAS R. SAVAGE, 54 Mr. Savage was elected to his current position
Senior Vice President - Administration effective July 1997, after serving as Vice President
- Administration and General Counsel since
November 1994. He also served as Secretary from
November 1999 to June 2000.
MICHAEL D. SCHOEN, 42 Mr. Schoen was elected to his current position
Vice President - International effective July 2001. He was elected an executive
officer in August 2000, after serving as Vice
President - Operations Support since July 1999. He
previously held the position of Vice President
- International Operations since July 1996.
VINCENT R. SHIELY, 42 Mr. Shiely was elected to the position of Vice
Vice President and General President and General Manager - Engine Products
Manager - Engine Products effective in September 2002 after serving as Vice
(3) President and General Manager - Business Units
since December 2001. He also served as Vice
President and General Manager - Electrical
Products Division since October 1998.
TODD J. TESKE, 37 Mr. Teske was elected to his current position
Vice President - Corporate Development effective March 2001 after serving as Controller
since October 1998. He previously served as
Assistant Controller.
CARITA R. TWINEM, 47 Ms. Twinem was elected to her current position in
Treasurer February 2000, after serving as Tax Director since
July 1994.
JOSEPH C. WRIGHT, 43 Mr. Wright was elected an executive officer effective
Vice President and General September 2002. He has served as Vice President
Manager - Small Engine Division and General Manager - Small Engine Division since
July 1997. He previously served at Plant Manager.
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(1) Officer is also a Director of Briggs & Stratton. (2) Member of Executive Committee. (3) John S. Shiely and Vincent R. Shiely are brothers.
Officers are elected annually and serve until they resign, die, are removed, or a different person is appointed to the office.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Briggs & Stratton common stock and its common share purchase rights are traded on the NYSE under the symbol "BGG". Information required by this Item is incorporated by reference from the "Quarterly Financial Data, Dividend and Market Information" (unaudited) on page 36.
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) ................ 272,033 236,790 338,126 303,913 254,356 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2002 COMPARED TO FISCAL 2001
Sales
Fiscal 2002 net sales were approximately $1.5 billion, an increase of $219
million, or 17% compared to the previous year. Generac Portable Products (GPP),
included for a full fiscal year first time, added $186 million in sales the
fiscal year. Our engine unit volume increase of 8%, offset by an unfavorable
sales mix weighted towards lower priced engines accounts for the majority of the
remaining increase.
Gross Profit
The total Company gross profit rate of approximately 18% was comparable with
fiscal 2001. The Engine segment gross profit rate remained approximately 18% in
fiscal 2002. Reductions in manufacturing costs of $25 million (primarily,
repairs and maintenance, processing supplies, utilities and warranty) were
offset by $17 million of increased costs (primarily, fringe benefits which
included rising healthcare costs). GPP margins were approximately 9% for fiscal
2002, similar to their results for the 12 months ended June, 2001.
Engineering, Selling, General and Administrative Costs Engineering, selling, general and administrative costs increased $16 million or 12% compared to fiscal 2001. The increase is entirely attributable to the inclusion of $18 million of GPP engineering, selling, general, and administrative costs for a full year. The Engine segment Engineering, Selling and Administrative cost category experienced increased salaries and fringe benefit expenses of approximately $8 million, but these increases were offset by a $6 million impact of lower bad debt write-off experience and a bad debt recovery, and $3 million of lower marketing expenses.
Interest Expense
Interest expense increased $14 million in fiscal 2002 compared to fiscal 2001,
essentially the impact of increased borrowings associated with the GPP
acquisition.
Other Income
Other income increased $3 million in fiscal 2002 compared to fiscal 2001. This
increase is attributable to a $9 million increase in foreign currency
transaction gains offset by $5 million in derivative losses and $1 million in
amortization of deferred financing costs from the GPP acquisition.
Provision for Income Taxes
The effective tax rate increased to 34.0% in fiscal 2002 from 33.2%. The
effective rates both reflect a refund on Foreign Sales Corporation tax benefits,
however, the fiscal 2001 refund was larger.
FISCAL 2001 COMPARED TO FISCAL 2000
Acquisition
On May 15, 2001, Briggs & Stratton acquired GPP for net cash of $267 million.
Refer to Note 3 to the Consolidated Financial Statements for additional
information on the acquisition.
Sales
Net sales for fiscal 2001 totaled approximately $1.3 billion, a decrease of $281
million or 18% compared to the preceding year. The primary factors were a 10%
decline in engine unit volume, 15% lower sales of service components due to
Briggs & Stratton's distributors having an adequate stock of parts, and an
unfavorable sales mix as the entire 10% engine unit decline was made up of
larger horsepower engines. Inventories of riding equipment at the OEMs and
retailers were more than adequate to address soft demand for riding lawn and
garden equipment.
The other major factor adversely affecting the fiscal year was the weak Euro which lowered revenues by $24 million. Additionally, these revenues decreased because Briggs & Stratton's pricing reflected the need to remain competitive in the European market.
The acquisition of GPP added $30 million in sales.
Gross Profit
The gross profit rate decreased to 18% from 21% in fiscal 2000. The major
reasons for the decrease were lower plant utilization having a $32 million
impact and the weak Euro of $24 million. Offsetting these factors was the
favorable pension income impact of $12 million. Pension income included in gross
profit totaled $24 million in fiscal 2001.
Engineering, Selling, General and Administrative Expenses Engineering, selling, general and administrative expenses increased $5 million or 4% compared to fiscal 2000. Expenses in this category increased almost $20 million. The majority of the increase was due to the following factors: a $16 million planned expansion of staff and expenditures for business development and introduction of new product, a
$3 million bad debt write-off, and $3 million of GPP's operating costs incurred since the acquisition. The increased costs were offset by $14 million of lower employee benefit costs for profit sharing and increased pension income. Pension income in this category was $4 million in fiscal 2001.
Interest Expense
Interest expense increased $9 million or 44% in fiscal 2001 compared to fiscal
2000 because the level of borrowings was greater in fiscal 2001. The increased
level of borrowings resulted from increased seasonal working capital needs and
the funding of the GPP acquisition.
Other Income
Other income decreased $13 million in fiscal 2001 compared to fiscal 2000. This
decrease is attributed primarily to an $8 million reduction in equity income
from joint ventures and investments and $5 million in foreign currency
transaction losses.
Provision for Income Taxes
The effective tax rate decreased to 33.2% in fiscal 2001 from 37.0% in the
previous year. The majority of the decrease was the result of the finalization
and approval by the Congressional Joint Committee on Taxation of a refund on our
Federal taxes related to Foreign Sales Corporation tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEARS 2002, 2001 AND 2000
Cash flow from operating activities was $200 million, $68 million and $77 million, in fiscal 2002, 2001 and 2000, respectively.
The fiscal 2002 cash flow from operating activities increased $132 million, which was driven primarily by a reduction in inventory and an increase in accounts payable and accrued liabilities. The decrease in inventory levels was achieved through increased sales volume, while holding production levels consistent between years.
The fiscal 2001 cash flow from operating activities decreased $10 million, which reflects lower gains on the disposition of plant and equipment of $16 million. The lower gains from disposition of plant and equipment were because fiscal 2000 contained the disposition of the foundry assets. The increase in inventories was $114 million less in fiscal 2001 compared to the fiscal 2000 increase. This decrease was the result of planned inventory increases in fiscal 2000 to replenish abnormally low inventories to more normal levels. The change in accounts payable and accrued liabilities was $48 million less in fiscal 2001 due to timing of payments and lack of accruals for profit sharing due to lower performance. The $18 million increase in pension income is attributable to Briggs & Stratton's over funded pension plan.
The fiscal 2000 cash flow from operating activities decreased $38 million. This reflects increased net income of $30 million offset by the gain on disposition of foundry assets of $17 million and an increased requirement for operating capital of $41 million caused by increases in inventories at the end of fiscal 2000 offset by lower accounts receivable.
Net cash used in investing activities amounted to $38 million, $318 million and $43 million in fiscal 2002, 2001 and 2000, respectively. These cash flows include capital expenditures of $44 million, $61 million and $71 million in fiscal 2002, 2001 and 2000, respectively. These capital expenditures relate primarily to reinvestment in equipment, capacity additions and new products.
The fiscal 2001 cash used in investing activities includes $267 million of cash paid for the GPP acquisition, net of cash acquired. The fiscal 2000 cash used in investing activities is net of $24 million of proceeds received on disposition of plant and equipment.
Briggs & Stratton used cash in financing activities totalling $38 million and $77 million in fiscal 2002 and 2000, respectively. Briggs & Stratton provided cash through financing activities totalling $324 million in fiscal 2001. During fiscal 2002 Briggs & Stratton repaid $10 million of its 7.25% Senior Notes due 2007. Financing activities in fiscal 2001 included $399 million of proceeds received from issuing the 5.00% Convertible Senior Notes due 2006 and the 8.875% Senior Notes due 2011, in order to fund the acquisition of GPP and payment of short term borrowings. During fiscal 2000, Briggs & Stratton repaid the remaining $30 million on the 9.21% Senior Notes due 2001. Briggs & Stratton repurchased $6 million and $69 million of common shares in fiscal 2001 and 2000, respectively. There were no common shares repurchased in fiscal 2002.
Briggs & Stratton's significant contractual obligations are its pension plans, post retirement benefit obligations and deferred compensation arrangements. All of these obligations are recorded on our Balance Sheets and disclosed more fully in the Notes to the Consolidated Financial Statements. In addition, Briggs & Stratton is subject to certain financial and operating restrictions under its domestic debt agreements. As is fully disclosed in Note 6 of the notes to consolidated financial statements, these restrictions limit our ability to: pay dividends; incur further indebtedness; create liens; enter into sale and/or leaseback transactions; consolidate, sell or
lease all or substantially all of our assets; and dispose of assets or the proceeds of our assets, in addition to certain financial covenants. We believe we will remain in compliance with these covenants in fiscal 2003.
Future Liquidity and Capital Resources
Briggs & Stratton has a three-year $300 million revolving credit facility. This
credit facility is used to fund seasonal working capital requirements and other
financing needs. This facility and Briggs & Stratton's other indebtedness
contain certain restrictive covenants. Refer to Note 6 to the Consolidated
Financial Statements.
Briggs & Stratton expects capital expenditures to be $60 million for fiscal 2003. These anticipated expenditures are for continued investments in equipment and new products.
Management believes that available cash, the credit facility, cash generated from operations, existing lines of credit and access to debt markets will be adequate to fund Briggs & Stratton's capital requirements for the foreseeable future.
FINANCIAL STRATEGY
Management believes that the value of Briggs & Stratton is enhanced if the capital invested in operations yields a cash return that is greater than the cost of capital. In addition, Management believes that when capital cannot be invested for returns greater than the cost of capital, they should return the capital to the capital providers. Briggs & Stratton also believes that the substitution of lower (after-tax) cost debt for equity in its permanent capital structure will reduce its overall cost of capital. Examples of the above beliefs are the repurchase of common stock from fiscal 1997 to 2001 when capital was not required for operational expansion and the fiscal 2001 increase of capital through debt for an acquisition. Briggs & Stratton believes its profitability and strong cash flows will accommodate the increased use of debt without impairing its ability to finance growth or increase cash dividends per share on its common stock.
Briggs & Stratton has remaining authorization to buy up to 1.8 million shares of its stock in open market or private transactions under the June 2000 Board of Directors' authorization to repurchase up to 2.0 million shares. Briggs & Stratton did not repurchase shares in fiscal 2002 and does not anticipate any repurchases in fiscal 2003.
Also as a part of its financial strategy, subject to the discretion of its Board of Directors and the requirements of applicable law and debt covenants, Briggs & Stratton currently intends to increase future cash dividends per share at a rate approximating the inflation rate.
OTHER MATTERS
Early Retirement Incentive Program
In the second quarter of fiscal 2002, Briggs & Stratton offered and finalized an
early retirement incentive program. The net reduction in the global salaried
workforce was approximately 7%.
The impact for fiscal year 2002 was a reduction in net income on an after-tax basis of $2.5 million, after consideration of approximately $3 million in savings for lower salary related expenditures. The majority of the impact on net income was the result of recognizing the cost of the special termination benefits, which reduced net periodic pension income. The anticipated net income impact of salary related savings for fiscal 2003 is projected to be approximately $6 million on an after-tax basis.
General
In July 2001, Briggs & Stratton extended its collective bargaining agreement
with one of its unions. This agreement expires in 2006, and contains provisions
for future wage increases, medical cost sharing and increased pension benefits.
Emissions
Briggs & Stratton implemented a supplemental compliance plan for model years
2000 and 2001 with the California Air Resources Board (CARB), as required of
companies that sold more than a threshold number of Class I engines into
California. The objective of the plan was to achieve additional reductions in
extreme non-attainment areas. While CARB's aggressive program resulted in a
reduced product offering by Briggs & Stratton in California, the California
program did not have a material effect on Briggs & Stratton's financial
condition or results of operations.
The U.S. Environmental Protection Agency (EPA) has developed national emission standards under a two phase process for small air cooled engines. Briggs & Stratton currently has a complete product offering which complies with the EPA's Phase I engine emission standards. The Phase II program imposes more stringent standards over the useful life of the engine and is being phased in from 2001 to 2005 for Class II (225 or greater cubic centimeter displacement) engines and from 2003 to 2008 for Class I (under 225 cubic centimeter displacement) engines. Briggs & Stratton does not believe compliance with the new standards will have a material adverse effect on its financial position or results of operations.
Critical Accounting Policies
Briggs & Stratton's accounting policies are more fully described in Note 1 of
the Notes to the Consolidated Financial Statements. As discussed in Note 1, the
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results inevitably will
differ from those estimates, and such difference may be material to the
financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the recovery of accounts receivable, as well as those used in the determination of liabilities related to customer rebates, pension obligations, warranty, product liability, group health insurance and taxation. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some instances actuarial techniques. Briggs & Stratton reevaluates these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates.
New Accounting Pronouncements
The Emerging Issues Task Force (EITF) issued EITF Abstract No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of Vendor's Products)". This was adopted during fiscal 2002. Pursuant
to EITF No. 01-09, Briggs & Stratton was required to reclassify co-op
advertising expense previously reported as selling expense to 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.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for the
elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. On July 2, 2001, Briggs & Stratton adopted SFAS No.
142. Application of the nonamortization provision of SFAS No. 142 resulted in an
increase in net income of approximately $.7 million in fiscal 2002.
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. Briggs & Stratton adopted SFAS No. 144 on July 1, 2002. Management does not expect that SFAS No. 144 will have a material impact on Briggs & Stratton's consolidated financial statements.
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 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. Briggs & Stratton does not expect that the adoption of this statement will have a material impact on its results of operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Briggs & Stratton is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, Briggs & Stratton uses financial instruments. Briggs & Stratton does not hold or issue financial instruments for trading purposes.
FOREIGN CURRENCY
Briggs & Stratton's earnings are affected by fluctuations in the value of the
U.S. dollar against the Japanese Yen and Euro. The Yen is used to purchase
engines from Briggs & Stratton's joint venture, while Briggs & Stratton receives
Euros for certain products sold to European customers. Briggs & Stratton's
foreign subsidiaries' earnings are also influenced by fluctuations of the local
currency against the U.S. dollar as these subsidiaries purchase inventory from
the parent in U.S. dollars. Forward foreign exchange contracts are used to
partially hedge against the earnings effects of such fluctuations. At June 30,
2002, Briggs & Stratton had the following forward foreign exchange contracts
outstanding with the Fair Value Gains (Losses) shown (in thousands):
Hedge Notional Fair Market Conversion (Gain)/Loss Currency Value Value Currency at Fair Value -------- -------- ----------- ---------- ------------- Japanese Yen 239,485 2,008 U.S. (158) Euro 100,900 99,203 U.S. 5,554 Japanese Yen 26,881 399 Austrailian 10 Austrailian Dollars 1,950 1,086 U.S. (11) Canadian Dollars 900 592 U.S. 6 British Pounds 622 1,691 Austrailian (26) U.S. Dollars 421 748 Austrailian 26 |
All of the above contracts expire within twelve months.
Fluctuations in currency exchange rates may also impact the shareholders' investment in Briggs & Stratton. Amounts invested in Briggs & Stratton's non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at fiscal year end. The resulting translation adjustments are recorded in shareholders' investment as cumulative translation adjustments. The cumulative translation adjustments component of shareholders' investment increased $4 million during the year. Using the year-end exchange rates, the total amount invested in non-U.S. subsidiaries on June 30, 2002 was $26.8 million.
INTEREST RATES
Briggs & Stratton is exposed to interest rate fluctuations on its borrowings.
Briggs & Stratton manages its interest rate exposure through a combination of
fixed and variable rate debt. Depending on general economic conditions, Briggs &
Stratton has typically used variable rate debt for short-term borrowings and
fixed rate debt for longer-term borrowings.
On June 30, 2002, Briggs & Stratton had the following short-term loans outstanding (amounts in thousands):
Weighted Average
Currency Amount Interest Rate
-------- ------ ----------------
Euro 15,074 5.46%
U.S. Dollars 2,625 4.00%
Canadian Dollars 493 3.10%
|
These loans carry variable interest rates. Assuming borrowings are outstanding for an entire year an increase (decrease) of one percentage point in the weighted average interest rate, would increase (decrease) interest expense by $.2 million.
Long-term loans, net of unamortized discount, consisted of the following (amounts in thousands):
Description Amount Maturity ----------- ------ -------- 5.00% Convertible Notes $140,000 2006 7.25% Notes $ 89,031 2007 8.875% Notes $269,991 2011 |
These loans carry fixed rates of interest.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 ............................................................... 153,049 150,396
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.
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 Pain-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.
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 ............................... 116,358 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.
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.
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) Decrease 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.
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
$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.
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 note ............................ 2,826 353 -
----------- ---------- ----------
Diluted average common shares outstanding .................................. 24,452 21,966 22,842
=========== ========== ==========
|
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) - (2,189)
---------- --------- ---------- ---------
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
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 76,608
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 .......... 4,890 3,846
Warranty reserves ................. 17,780 18,311
Other accrued liabilities ......... 15,501 10,769
Miscellaneous ..................... (3,749) 2,084
-------- --------
$ 41,383 $ 38,434
======== ========
|
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
Post retirement
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) -
----------- ----------- -----------
$ 118,356 $ 99,108 $ 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 $ 1,226,035 $ 1,502,402
All Other Countries ................ 91,633 84,139 88,834
----------- ----------- -----------
Total .............................. $ 1,529,372 $ 1,310,179 $ 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 $229,785 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%
-------- ---- -------- ---- -------- ----
$720,754 47% $605,199 46% $708,301 45%
======== ==== ======== ==== ======== ====
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(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
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 ................ 70,071 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
=========
|
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.
(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)
========= ========= ========= =========
|
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.
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.
(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
============ =========== ============ =========== ===========
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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
========= ========= ========= ========= =========
|
The condensed supplemental consolidated 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
=========== =========== =========== ============ ===========
|
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
========= ========= ========= ========= =========
|
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 IS 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
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Briggs & Stratton changed independent accountants in May 2002 from Arthur Andersen LLP to Deloitte & Touche LLP. Information regarding the change in accountants was reported in Briggs & Stratton's Current Report on Form 8-KA dated May 20, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in Briggs & Stratton's definitive Proxy Statement, prepared for the 2002 Annual Meeting of Shareholders, under the captions "Election of Directors" and "Security Ownership of Management - Section 16(a) Beneficial Ownership Reporting Compliance", is incorporated herein by reference. The information concerning "Executive Officers of the Registrant", as a separate item, appears in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information in Briggs & Stratton's definitive Proxy Statement, prepared for the 2002 Annual Meeting of Shareholders, concerning this item, in the subsection titled "Director Compensation" under the caption "Election of Directors" and the "Executive Compensation" section, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in Briggs & Stratton's definitive Proxy Statement, prepared for the 2002 Annual Meeting of Shareholders, concerning this item, under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management", is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
In addition to the information that is incorporated in this item by reference to the Proxy Statement, the following chart gives aggregate information under all equity compensation plans of Briggs & Stratton through June 30, 2002.
Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding future issuance under
Plan Category warrants and rights options, warrants equity compensation plans
and rights (excluding securities
reflected in 1st column)
Equity compensation plans 1,900,640 $55.07 1,897,728
approved by security holders
(1)
Equity compensation plans not - N/A -
approved by security holders
Total 1,900,640 $55.07 1,897,728
|
(1) Represents options and restricted stock granted under Briggs & Stratton's Stock Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Briggs & Stratton has no relationships or related transactions to report pursuant to Item 13.
ITEM 14. CONTROLS AND PROCEDURES
There were no significant changes in Briggs & Stratton's internal controls or in other factors that could significantly affect these controls subsequent to the time when those controls were last evaluated by management, including any corrective actions with respect to significant deficiencies and material weaknesses.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are included under the caption "Financial Statements and Supplementary Data" in Part II, Item 8 and are incorporated herein by reference:
Consolidated Balance Sheets, June 30, 2002 and July 1, 2001
For the Years Ended June 30, 2002, July 1, 2001 and July 2, 2000:
Consolidated Statements of Earnings
Consolidated Statements of Shareholders' Investment Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
Independent Auditors' Reports
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Independent Auditors' Report
Report of Independent Public Accountants
All other financial statement schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions.
3. Exhibits
Refer to the Exhibit Index following the Certification Page, incorporated herein by reference. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the Exhibit Index by an asterisk following the Exhibit Number.
(b) Reports on Form 8-K
On May 23, 2002 and May 30, 2002, Briggs & Stratton filed a report on Form 8-K and 8-KA respectively, dated May 20, 2002 to report a change in its independent public accounting firm.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JUNE 30, 2002, JULY 1, 2001 AND JULY 2, 2000
Reserve for Balance Additions Balance
Doubtful Accounts Beginning Charged Charges to End of
Receivable of Year to Earnings Reserve, Net Other Year
---------- ------- ----------- ------------ ----- ----
2002 $1,599,000 (1,222,000) 1,326,000 - $1,703,000
2001 $1,544,000 3,631,000 (3,667,000) 91,000* $1,599,000
2000 $1,516,000 52,000 (24,000) - $1,544,000
|
*Consists of additions to the reserve related to the acquisition of GPP.
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Briggs & Stratton Corporation:
We have audited the consolidated financial statements of Briggs & Stratton Corporation and subsidiaries as of June 30, 2002, and for the year then ended and have issued our report thereon dated August 1, 2002; such report is included elsewhere in this Form 10-K. Our audit also included the consolidated financial statement schedule of Briggs & Stratton Corporation for the year ended June 30, 2002, listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic 2002 consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
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 IS THIS FORM 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Briggs & Stratton Corporation:
We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in the Briggs & Stratton Corporation annual report to shareholders on Form 10-K, and have issued our report thereon dated July 26, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index in item 14(a)(2) is the responsibility of the Corporation's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 26, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BRIGGS & STRATTON CORPORATION
By /s/ James E. Brenn
-------------------------------
James E. Brenn
September 17 , 2002 Senior Vice President and Chief
------------- 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 Officer and Director
Director (Principal Executive Officer)
/s/ E. Margie Filter
/s/ James E. Brenn -------------------------------
----------------------------------------- E. Margie Filter
James E. Brenn Director
Senior Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer) /s/ Peter A. Georgescu
-------------------------------
Peter A. Georgescu
/s/ F. P. Stratton, Jr. Director
-----------------------------------------
F. P. Stratton, Jr.
Chairman and Director /s/ Robert J. O'Toole
-------------------------------
Robert J. O'Toole
/s/ Jay H. Baker Director
-----------------------------------------
Jay H. Baker
Director /s/ Charles I. Story
-------------------------------
Charles I. Story
/s/ Michael E. Batten Director
-----------------------------------------
Michael E. Batten
Director
|
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: September 17, 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: September 17, 2002
/s/ James E. Brenn
---------------------------------------------
James E. Brenn, Senior Vice President and
Chief Financial Officer - Principal Financial
Officer
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BRIGGS & STRATTON CORPORATION
(Commission File No. 1-1370)
EXHIBIT INDEX
2002 ANNUAL REPORT ON FORM 10-K
Exhibit
Number Document Description
------ --------------------
2 Agreement and Plan of Merger, dated as of March 21, 2001, by
and among Briggs & Stratton Corporation, GPP Merger
Corporation, Generac Portable Products, Inc. and The Beacon
Group III - Focus Value Fund, L.P.
(Filed as Exhibit 2 to the Company's Report on Form 8-K
dated March 21, 2001 and incorporated by reference herein.)
3.1 Articles of Incorporation.
(Filed as Exhibit 3.2 to the Company's Report on Form 10-Q
for the quarter ended October 2, 1994 and incorporated by
reference herein.)
3.2 Bylaws, as amended and restated June 14, 2001.
(Filed as Exhibit 99 to the Company's Report on Form 8-K
dated June 14, 2001 and incorporated by reference herein.)
4.0 Rights Agreement dated as of August 7, 1996, between Briggs &
Stratton Corporation and Firstar Trust Company which includes
the form of Right Certificate as Exhibit A and the Summary of
Rights to Purchase Common Shares as Exhibit B.
(Filed as Exhibit 4.1 to the Company's Registration
Statement on Form 8-A, dated as of August 7, 1996 and
incorporated by reference herein.)
4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton
Corporation and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.1 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs &
Stratton Corporation issued pursuant to the Indenture dated
as of June 4, 1997 between Briggs & Stratton Corporation and
Bank One, N.A., as Trustee.
(Filed as Exhibit 4.2 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.3 Resolutions of the Board of Directors of Briggs & Stratton
Corporation authorizing the public offering of debt
securities of Briggs & Stratton Corporation in an aggregate
principal amount of up to $175,000,000.
(Filed as Exhibit 4.3 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.4 Actions of the Authorized Officers of Briggs & Stratton
Corporation authorizing the issuance of $100,000,000
aggregate principal amount of 7-1/4% Notes due September 15,
2007.
(Filed as Exhibit 4.4 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.5 Officers' Certificate and Company Order of Briggs & Stratton
Corporation executed in conjunction with the issuance of
$100,000,000 aggregate principal amount of 7-1/4% Notes due
September 15, 2007.
(Filed as Exhibit 4.5 to the Company's Report on Form 8-K
dated May 30, 1997 and incorporated by reference herein.)
4.6 Indenture dated as of May 14, 2001 between Briggs & Stratton
Corporation, the Guarantors listed on Schedule I thereto and
Bank One, N.A., as Trustee, providing for 5.00% Convertible
Senior Notes due May 15, 2006 (including form of Note, form
of Notation of Guarantee and other exhibits).
(Filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
|
Exhibit
Number Document Description
------ --------------------
4.7 Form of Supplemental Indenture dated as of May 15, 2001
between Subsequent Guarantors (Generac Portable Products,
Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products,
LLC), Briggs & Stratton Corporation, and Bank One, N.A., as
Trustee.
(Filed as Exhibit 4.7 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.8 Registration Rights Agreement dated as of May 8, 2001 between
Briggs & Stratton Corporation and Goldman, Sachs & Co. and
Banc of America Securities LLC, as Representatives of the
Several Purchasers, providing for the registration of the
5.00% Convertible Senior Notes due May 15, 2006.
(Filed as Exhibit 4.8 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.9 Indenture dated as of May 14, 2001 between Briggs & Stratton
Corporation, the Guarantors listed on Schedule I thereto and
Bank One, N.A., as Trustee, providing for 8.875% Senior Notes
due March 15, 2011 (including form of Note, form of Notation
of Guarantee and other exhibits).
(Filed as Exhibit 4.9 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.10 Form of Supplemental Indenture dated as of May 15, 2001
between Subsequent Guarantors (Generac Portable Products,
Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products,
LLC), Briggs & Stratton Corporation, and Bank One, N.A., as
Trustee.
(Filed as Exhibit 4.10 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.11 Exchange and Registration Rights Agreement dated as of May 9,
2001 between Briggs & Stratton Corporation and Goldman, Sachs
& Co. and Banc of America Securities LLC, as Representatives
of the Several Purchasers, providing for the registration or
exchange of the 8.875% Senior Notes due March 15, 2011.
(Filed as Exhibit 4.11 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.12 First Supplemental Indenture dated as of May 14, 2001 between
Briggs & Stratton Corporation and Bank One, N.A., as Trustee
under the Indenture dated as of June 4, 1997.
(Filed as Exhibit 4.12 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.13 Form of Indenture Supplement to Add a Subsidiary Guarantor
dated as of May 15, 2001 among each Subsidiary Guarantor
(Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and
Generac Portable Products, LLC), Briggs & Stratton
Corporation, and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.13 to the Company's Registration
Statement on Form S-3 filed on July 3, 2001, Registration
No. 333-64490 and incorporated herein by reference.)
4.14 Multicurrency Credit Agreement dated as of September 28,
2001, by and among Briggs & Stratton Corporation, Bank of
America, N.A., as Administrative Agent, and the other
financial institutions party thereto (the "Credit
Agreement").
(Filed as Exhibit 4.1 (a) to the Company's Report on Form
10-Q for the quarter ended December 30, 2001 and
incorporated by reference herein.)
|
Exhibit
Number Document Description
------ --------------------
4.15 First Amendment to the Credit Agreement, dated as of November
15, 2001.
(Filed as Exhibit 4.1 (b) to the Company's Report on Form
10-Q for the quarter ended December 30, 2001 and
incorporated by reference herein.)
10.0* Form of Officer Employment Agreement.
(Filed as Exhibit 10.0 to the Company's Report on Form 10-Q
for the quarter ended March 29, 1998 and incorporated by
reference herein.)
10.1* Amended and Restated Supplemental Executive Retirement Plan.
(Filed as Exhibit 10.1 to the Company's Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated by
reference herein.)
10.2* Amended and Restated Economic Value Added Incentive
Compensation Plan.
(Filed as Exhibit 10.2 to the Company's Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated by
reference herein.)
10.3* Form of Change of Control Employment Agreements.
(Filed as Exhibit 10.4 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)
10.4(a)* Trust Agreement with an independent trustee to provide
payments under various compensation agreements with company
employees upon the occurrence of a change in control.
(Filed as Exhibit 10.5 (a) to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.4(b)* Amendment to Trust Agreement with an independent trustee
to provide payments under various compensation agreements
with company employees.
(Filed as Exhibit 10.5 (b) to the Company's Annual Report
on Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.5(a)* 1999 Amended and Restated Stock Incentive Plan.
(Filed as Exhibit A to the Company's 1999 Annual Meeting
Proxy Statement and incorporated by reference herein.)
10.5(b)* Amendment to Amended and Restated Stock Incentive Plan.
(Filed as Exhibit 10.0 (b) to the Company's Report on Form
10-Q for the quarter ended September 26, 1999 and
incorporated by reference herein.)
10.6* Amended and Restated Leveraged Stock Option Program.
(Filed as Exhibit 10.4 to the Company's Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated by
reference herein.)
10.7* Amended and Restated Deferred Compensation Agreement for
Fiscal 1995.
(Filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for fiscal year ended July 2, 1995 and
incorporated by reference herein.)
10.8* Deferred Compensation Agreement for Fiscal 1998.
(Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for fiscal year ended June 29, 1997 and
incorporated by reference herein.)
10.9* Deferred Compensation Agreement for Fiscal 1999.
(Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for fiscal year ended June 28, 1998 and
incorporated by reference herein.)
10.10* Deferred Compensation Agreement for Fiscal 2000.
(Filed as Exhibit 10.12 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.11* Amended and Restated Deferred Compensation Plan for
Directors.
(Filed as Exhibit 10.00 to the Company's Report on Form
10-Q for the quarter ended December 26, 1999 and
incorporated by reference herein.)
10.12* Amended and Restated Director's Leveraged Stock Option Plan.
(Filed as Exhibit 10.3 to the Company's Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated by
reference herein.)
|
Exhibit
Number Document Description
------ --------------------
10.13* Agreement with Executive Officer.
(Filed as Exhibit 10.2 to the Company's Report on Form 10-Q
for the quarter ended December 27, 1998 and incorporated by
reference herein.)
10.14* Executive Life Insurance Plan.
(Filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.15(a)* Key Employees Savings and Investment Plan.
(Filed as Exhibit 10.18 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.15(b)* Amendment to Key Employees Savings and Investment Plan.
(Filed as Exhibit 10.1 to the Company's Report on Form 10-Q
for the quarter ended December 31, 2000 and incorporated by
reference herein.)
10.16* Consultant Reimbursement Arrangement.
(Filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1999 and
incorporated by reference herein.)
10.17* Notice of Election for Fixed Price Cash Pay-Out Under
Deferred Compensation Agreement by Frederick P. Stratton, Jr.
dated January 3, 2002, and Approval of Compensation Committee
dated January 15, 2002.
(Filed as Exhibit 10 to the Company's Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated by
reference herein.)
10.18* Briggs & Stratton Product Program.
(Filed herewith.)
12 Computation of Ratio of Earnings to Fixed Charges.
(Filed herewith.)
21 Subsidiaries of the Registrant.
(Filed herewith.)
23 Independent Auditors' Consent.
(Filed herewith.)
99.1 Certification of Principal Executive Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
(Filed herewith.)
99.2 Certification of Principal Financial Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
(Filed herewith.)
|
* Management contracts and executive compensation plans and arrangements required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
2002 Annual Report on Form 10-K
EXHIBIT 10.18
BRIGGS & STRATTON PRODUCT PROGRAM
RESOLVED, to enhance their understanding and appreciation of the Company's business, outside directors are encouraged to use products that are sold by the Company and its subsidiaries and products that are powered by the Company's engines and motors. Each such director may receive up to $10,000 of such products annually. The value of the products will be included in the recipient director's taxable income, and the Company will reimburse the director for applicable tax liability associated with the receipt of the products.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
2002 Annual Report on Form 10-K
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Fiscal Year Ended
---------------------------------------------------
June 30, 2002 July 1, 2001 July 2, 2000
------------- ------------ ------------
Net income $ 53,120 $ 48,013 $ 136,473
Add:
Interest 44,433 30,665 21,267
Income tax expense and other taxes on income 27,390 23,860 80,150
Fixed charges of unconsolidated subsidiaries -- -- 119
------------- ------------ ------------
Earnings as defined $ 124,943 $ 102,538 $ 238,009
============= ============ ============
Interest $ 44,433 $ 30,665 $ 21,267
Fixed charges of unconsolidated subsidiaries -- -- 119
------------- ------------ ------------
Fixed charges as defined $ 44,433 $ 30,665 $ 21,386
============= ============ ============
Ratio of earnings to fixed charges 2.8 x 3.3 x 11.1 x
============= ============ ============
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
2002 Annual Report on Form 10-K
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Country Percent Voting
Subsidiary of Incorporation Stock/Interests Owned
---------- ---------------- -----------------------
Briggs & Stratton AG Switzerland 100%
Briggs & Stratton Australia Pty. Limited Australia 100%
Briggs & Stratton Austria GmbH Austria 100%
Briggs & Stratton Canada Inc. Canada 100%
Briggs & Stratton CZ, s.r.o. Czech Republic 100%
Briggs & Stratton France, S.A.R.L. France 100%
Briggs & Stratton Germany GmbH Germany 100%
Briggs & Stratton International, Inc. Wisconsin 100%
Briggs & Stratton International Sales Corp. Virgin Islands 100%
Briggs & Stratton Mexico S.A. de C.V. Mexico 100%
Briggs & Stratton Netherlands B.V. Netherlands 100%
Briggs & Stratton New Zealand Limited New Zealand 100%
Briggs & Stratton RSA (Pty.) Ltd. South Africa 100%
Briggs & Stratton Sweden AB Sweden 100%
Briggs & Stratton Tech, LLC Wisconsin 100%
Briggs & Stratton U.K. Limited United Kingdom 100%
BSD, Inc. Wisconsin 100%
Generac Portable Products, LLC Delaware 100%
|
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
2002 Annual Report on Form 10-K
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-39113, 33-54357 and 333-42842 on Form S-8 and Registration Statement No. 333-64490 on Form S-3 of Briggs & Stratton Corporation of our reports dated August 1, 2002, appearing in this Annual Report on Form 10-K of Briggs & Stratton Corporation for the year ended June 30, 2002.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 17, 2002
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
2002 Annual Report on Form 10-K
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Briggs & Stratton Corporation (the "Company") on Form 10-K for the fiscal year ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John S. Shiely, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John S. Shiely
--------------------------------------------
John S. Shiely
Chief Executive Officer
September 17, 2002
|
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
2002 Annual Report on Form 10-K
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Briggs & Stratton Corporation (the "Company") on Form 10-K for the fiscal year ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James E. Brenn, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James E. Brenn
------------------------------------
James E. Brenn
Chief Financial Officer
September 17, 2002
|
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.