UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

ý

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended JULY 3, 2005

 

 

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from _______________ to _______________

 

Commission file number 1-1370

 

BRIGGS & STRATTON CORPORATION

(Exact name of registrant as specified in its charter)

 

A Wisconsin Corporation

 

39-0182330

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

12301 WEST WIRTH STREET

 

 

WAUWATOSA, WISCONSIN

 

53222

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  414-259-5333

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock (par value $0.01 per share)

 

New York Stock Exchange

Common Share Purchase Rights

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: NONE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.              Yes ý   No o

 

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.   o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).       Yes ý   No o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes o   No ý

 

The aggregate market value of Common Stock held by nonaffiliates of the registrant was approximately $2,061,460,445 based on the reported last sale price of such securities as of December 26, 2004, the last business day of the most recently completed second fiscal quarter.

 

Number of Shares of Common Stock Outstanding at August 17, 2005: 51,845,825.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

Part of Form 10-K Into Which Portions

Document

 

of Document are Incorporated

Proxy Statement for Annual Meeting

 

 

on October 19, 2005

 

Part III

 

The Exhibit Index is located on page 55.

 

 



 

BRIGGS & STRATTON CORPORATION

FISCAL 2005 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, Related Stockholder Matters and Issuer Purchases of Equity Securities

8

Item 6.

Selected Financial Data

9

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

17

Item 8.

Financial Statements and Supplementary Data

18

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

51

Item 9A.

Controls and Procedures

51

Item 9B.

Other Information

51

PART III

 

 

Item 10.

Directors and Executive Officers of the Registrant

51

Item 11.

Executive Compensation

52

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

52

Item 13.

Certain Relationships and Related Transactions

52

Item 14.

Principal Accountant Fees and Services

52

PART IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

52

 

Signatures

54

 

Cautionary Statement on Forward-Looking Statements

 

Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and other statements located elsewhere in this Annual Report 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,” “forecast,” “intend,” “may,” “objective,” “plan,” “project,” “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, tax, pension funding and accounting standards; work stoppages or other consequences of any deterioration in our employee relations; work stoppages by other unions that affect the ability of suppliers or customers to manufacture; acts of war or terrorism that may disrupt our business operations or those of our customers and suppliers; changes in customer and OEM demand; changes in prices of purchased raw materials and parts that we purchase; changes in domestic economic conditions, including housing starts and changes in consumer disposable income; changes in foreign economic conditions, including currency rate fluctuations; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; a successful transition supply agreement with Murray; the actions of other suppliers and the customers of Murray; the ability to successfully realize the maximum market value of acquired assets; work stoppages or other consequences of any deterioration in Murray’s employee relations; 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 31 horsepower.

 

Additionally, through its wholly owned subsidiary, Briggs & Stratton Power Products Group, LLC, Briggs & Stratton is a leading designer, manufacturer and marketer of generators (portable and home standby), pressure washers, snow throwers, lawn and garden powered equipment (riding and walk behind mowers, tillers, chipper/shredders, leaf blowers and vacuums) and related accessories.

 

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 6 of the Notes to Consolidated Financial Statements.

 

The Company’s Internet address is www.briggsandstratton.com. The Company makes available free of charge (other than an investor’s own Internet access charges) through its Internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission. Charters of the Audit, Compensation, Nominating and Governance Committees; Corporate Governance Guidelines and code of business conduct and ethics contained in the Briggs & Stratton Business Integrity Manual are available on the Company’s website and are available in print to any shareholder upon request to the Corporate Secretary.

 

Engines

 

General

 

Briggs & Stratton’s engines are used primarily by the lawn and garden equipment industry, which accounted for 80% of fiscal 2005 engine sales to OEMs. Major lawn and garden equipment applications include walk-behind lawn mowers, riding lawn mowers and garden tillers. The remaining 20% of OEM sales in fiscal 2005 were for use on products for industrial, construction, agricultural and other consumer applications, that include generators, pumps, pressure washers and snow throwers. 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 only a component. Briggs & Stratton engines are marketed under various brand names including Classic™, Sprint, Quattro™, Quantum®, INTEK™, I/C®, Industrial Plus™ and Vanguard™.

 

In fiscal 2005, approximately 23% of Briggs & Stratton’s Engine Segment 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, Brazil, Canada, China, the Czech Republic, England, France, Germany, Italy, Japan, Mexico, New Zealand, Russia, South Africa, Spain, Sweden and United Arab Emirates. 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. More detailed information about our foreign operations is in Note 6 of the Notes to Consolidated Financial Statements.

 

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 40,000 independently owned, authorized service dealers throughout the world. These distributors and service dealers implement Briggs & Stratton’s commitment to reliability and service.

 

1



 

Customers

 

Briggs & Stratton’s engine sales are made primarily to OEMs. Briggs & Stratton’s three largest engine customers in fiscal year 2005 were AB Electrolux (principally its Electrolux Outdoor Products Group, EOP), MTD Products Inc. (MTD) and Global Garden Products. Briggs & Stratton’s three largest engine customers in fiscal 2004 and 2003 were EOP, MTD and Murray Inc. Sales to EOP and MTD were more than 10% of consolidated net sales in fiscal 2005, 2004 and 2003, respectively. Sales to the top three customers combined were 44%, 51% and 48% of Engine Segment net sales in fiscal 2005, 2004 and 2003, respectively. Under purchasing plans available to all of its gasoline engine customers, Briggs & Stratton typically enters into annual engine supply arrangements.

 

Briggs & Stratton believes that in fiscal 2005 more than 80% of all lawn and garden powered equipment sold in the United States was sold through mass merchandisers such as Sears Holdings Corporation (Sears), The Home Depot, Inc. (The Home Depot), Wal-Mart Stores, Inc. (Wal-Mart) and Lowe’s Companies, 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

 

Briggs & Stratton’s major domestic competitors in engine manufacturing are Honda Motor Co., Ltd. (Honda), Kawasaki Heavy Industries, Ltd. (Kawasaki), Kohler Co. (Kohler) and Tecumseh Products Company (Tecumseh). Several 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. Additionally, some Chinese competitors have begun to sell product in Europe.

 

Briggs & Stratton believes it has a significant share of the worldwide market for engines that power outdoor equipment.

 

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 OEMs are highly seasonal because of consumer 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. Engine 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 generally increase during the first and second fiscal quarters in anticipation of 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: Auburn, Alabama; Statesboro, Georgia; Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Wauwatosa, Wisconsin; and Chongqing, China. 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,

 

2



 

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 and with Starting Industrial of Japan for the production of rewind starters in the United States.

 

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™ brand.

 

Power Products

 

General

 

Briggs & Stratton Power Products Group, LLC’s (BSPPG) four principal product lines include generators, pressure washers, snow throwers and lawn and garden powered equipment. BSPPG sells its products through multiple channels of retail distribution, including consumer home centers, warehouse clubs, mass merchants and independent dealers. BSPPG product lines are marketed under various brands including Briggs & Stratton, Craftsman®, Ferris, Giant Vac, Murray, Simplicity, Snapper and Troybuilt®.

 

BSPPG has a network of 9,500 independent dealers worldwide for the sale and service of snow throwers and lawn and garden powered equipment.

 

To support its international business, BSPPG has leveraged the existing Briggs & Stratton worldwide distribution network.

 

Customers

 

BSPPG sells to consumer home centers and warehouse clubs, as well as mass merchants and independent dealers. Historically, BSPPG’s major customers have been Lowe’s, The Home Depot and Sears. Other U.S. retail customers include Tractor Supply Inc., True Value Company, Sam’s Club and Wal-Mart.

 

Competition

 

The principal competitive factors in the power products industry include price, service, product performance, technical innovation and delivery. In the manufacture and sale of generators, BSPPG competes primarily with Coleman Powermate and Honda. BSPPG has various competitors, depending on the type of equipment. Primary competitors include: Honda (generators, pressure washers and lawn and garden equipment), Coleman Powermate Corporation (generators), DeVilbiss Air Power Company, a Division of Black & Decker (pressure washers), Alfred Karcher GmbH & Co. (pressure washers), John Deere (lawn mowers), MTD (lawn mowers), the Toro Company (lawn mowers), and Scag Power Equipment, a Division of Metalcraft of Mayville, Inc. (commercial lawn mowers).

 

BSPPG believes it has a significant share of the North American market for generators and consumer pressure washers.

 

Seasonality of Demand

 

Sales of BSPPG’s products are subject to seasonal patterns. Due to seasonal and regional weather factors, sales of pressure washers and lawn and garden powered equipment are typically higher during the fiscal third and fourth quarters than at other times of the year. Sales of generators and snow throwers are typically higher during the summer and fall seasons.

 

Manufacturing

 

BSPPG’s manufacturing facilities are located in Jefferson, Watertown and Port Washington, Wisconsin; McDonough, Georgia and Munnsville, New York. BSPPG also purchases certain powered equipment under contract manufacturing agreements.

 

BSPPG manufactures core components for its products, where such integration improves operating profitability by providing lower costs.

 

BSPPG purchases engines from its parent, Briggs & Stratton, as well as from Generac Power Systems, Inc., Honda, Kawasaki, Kohler and Tecumseh. BSPPG has not experienced any difficulty obtaining necessary purchased components.

 

3



 

To service BSPPG’s international customer base more effectively, BSPPG designs and assembles its international products at its U.S. locations and through a contract manufacturing arrangement in the Netherlands. In addition, Briggs & Stratton has a facility in China that serves both U.S. and international markets.

 

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. The Company owns several trademarks which it believes significantly affect a consumer’s choice of outdoor powered equipment and therefore create value. Licenses, franchises and concessions are not a material factor in Briggs & Stratton’s business.

 

For the years ending July 3, 2005, June 27, 2004 and June 29, 2003, Briggs & Stratton spent approximately $33.5 million, $25.9 million and $26.4 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 9,169. Employment ranged from a low of 9,084 in June 2005 to a high of 9,230 in January 2005.

 

Export Sales

 

Export sales for fiscal 2005, 2004 and 2003 were $477.4 million (18% of net sales), $362.4 million (19% of net sales) and $400.5 million (24% of net sales), respectively. These sales were principally to customers in European countries. Refer to Note 6 of the Notes to Consolidated Financial Statements for financial information about geographic areas. Also, refer to Item 7A of this Form 10-K and Note 13 of the 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 Wauwatosa, Wisconsin. Briggs & Stratton also has engine manufacturing facilities in Auburn, Alabama; Statesboro, Georgia; Murray, Kentucky; Poplar Bluff and Rolla, Missouri and Chongqing, China. These are owned facilities containing approximately 3.3 million square feet of office and production area. Briggs & Stratton occupies warehouse space totalling approximately 380,000 square feet in Menomonee Falls, Wisconsin under a reservation of interest agreement. Briggs & Stratton also leases warehouse space in the localities of its engine manufacturing facilities, except Wisconsin and China, totalling approximately 500,000 square feet.

 

BSPPG maintains office space and manufacturing facilities in Jefferson and Port Washington, Wisconsin; McDonough, Georgia; Munnsville, New York and Qingpu, China. Of these, the domestic facilities are owned and contain approximately 1.5 million square feet. BSPPG also leases warehouse space in Jefferson, Watertown and Port Washington, Wisconsin; McDonough, Georgia; Grand Prairie, Texas; Greenville, Ohio and Reno, Nevada totalling approximately 1.1 million square feet. Additionally, the Qingpu, China facility is leased and contains approximately 124,000 square feet.

 

The engine business is seasonal, with demand for engines at its height in the winter and early spring. Engine manufacturing operations run at capacity levels during the peak season, with many operations running three shifts. Engine operations generally run fewer shifts in the summer, when demand is weakest and production levels are lower. During the winter, when finished goods inventories reach their highest levels, owned warehouse space may be insufficient and warehouse capacity may be expanded through rented space.

 

Briggs & Stratton leases approximately 290,000 square feet of space to house its foreign sales and service operations in Australia, Austria, Brazil, Canada, the Czech Republic, England, France, Germany, Italy, Japan, Mexico, the Netherlands, New Zealand, Russia, South Africa, Spain, Sweden, Switzerland and United Arab Emirates.

 

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.

 

4



 

ITEM 3.          LEGAL PROCEEDINGS

 

Briggs & Stratton is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability) and patent and trademark matters.

 

On June 3, 2004, eight individuals who claim to have purchased lawnmowers in Illinois and Minnesota filed a lawsuit (Ronnie Phillips et al. v. Sears Roebuck Corporation et al., No. 04-L-334 (20th Judicial Circuit, St. Clair County, IL)) against the Company and other defendants alleging that the horsepower labels on the products they purchased were inaccurate. The plaintiffs seek certification of a class of all persons in the United States who, beginning January 1, 1995 through the present, purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured by defendants. The complaint seeks an injunction, compensatory and punitive damages, and attorneys’ fees. The Company intends to vigorously defend this case. On April 20, 2005, the court issued an order staying proceedings in the case pending settlement negotiations.

 

Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, Briggs & Stratton believes these unresolved legal actions will not have a material effect on its financial position.

 

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended July 3, 2005.

 

5



 

Executive Officers of the Registrant

 

Name, Age, Position

 

Business Experience for Past Five Years

 

 

 

JOHN S. SHIELY, 53
Chairman, President and Chief Executive Officer (1)(2)(3)

 

Mr. Shiely was elected to his current position effective January 2003, after serving as President and Chief Executive Officer since July 2001 and President and Chief Operating Officer since August 1994.

 

 

 

TODD J. TESKE, 40
Executive Vice President and Chief Operating Officer

 

Mr. Teske was elected to his current position effective September 2005 after serving as Senior Vice President and President – Briggs & Stratton Power Products Group, LLC since September 2003. He previously served as Vice President and President – Briggs & Stratton Power Products Group, LLC since February 2003. He also served as Vice President – Corporate Development from March 2001 after serving as Controller since October 1998.

 

 

 

JAMES E. BRENN, 57
Senior Vice President and Chief Financial Officer

 

Mr. Brenn was elected to his current position in October 1998, after serving as Vice President and Controller since November 1988. He also served as Treasurer from November 1999 until January 2000.

 

 

 

DAVID G. DEBAETS, 42
Vice President and General Manager – Large Engine Division

 

Mr. DeBaets was elected to his current position effective September 2003. He has served as Vice President and General Manager – Large Engine Division since April 2000. He also served as Vice President and General Manager – Die Cast Components from May 1996 to April 2000.

 

 

 

RICKY T. DILLON, 34
Controller

 

Mr. Dillon was elected an executive officer effective September 1, 2004. He has served as Controller since March 2002. He was previously employed by Arthur Andersen LLP for 9 years.

 

 

 

MARK R. HAZELTINE, 62
Vice President and Sales Manager – Consumer Products

 

Mr. Hazeltine was elected to his current position in May 2002, after serving as Vice President and Sales Manager – Consumer Lawn & Garden since July 1999. He also served as Sales Manager from February 1995 to June 1999.

 

 

 

ROBERT F. HEATH, 57
Secretary

 

Mr. Heath was elected to his current position in January 2002. He served as Assistant Secretary from January 2001 to December 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.

 

 

 

PAUL M. NEYLON, 58
Senior Vice President and President – Engine Power Products Group

 

Mr. Neylon was elected to his current position effective September 2005, after serving as Senior Vice President – Engine Products Group since October 2001. He previously served as Senior Vice President – Production, from August 2000 to October 2001 and as Vice President – Production from May 1999 to July 2000. He also served as Vice President – Operations Support since January 1999 and prior to that held the position of Vice President and General Manager – Spectrum Division.

 

6



 

WILLIAM H. REITMAN, 49
Vice President – Sales & Marketing

 

Mr. Reitman was elected to his current position effective October 2004, after serving as Vice President – Marketing since November 1995.

 

 

 

THOMAS R. SAVAGE, 57
Senior Vice President – Administration

 

Mr. Savage was elected to his current position 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, 45
Senior Vice President and President – International Power Products Group

 

Mr. Schoen was elected to his current position effective September 2005 after serving as Vice President – International Group since 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, 45
Vice President and President – Home Power Products Group
 (3)

 

Mr. Shiely was elected to his current position effective September 2005, after serving as Vice President and General Manager – Home Power Products Division since October 2004. He previously served as Vice President and General Manager – Engine Products Group since September 2002. He has also served as Vice President and General Manager – Business Units since December 2001, and as Vice President and General Manager – Electrical Products Division since October 1998.

 

 

 

CARITA R. TWINEM, 50
Treasurer

 

Ms. Twinem was elected to her current position in February 2000, after serving as Tax Director since July 1994.

 

 

 

JOSEPH C. WRIGHT, 46
Vice President and President – Yard Power Products Group

 

Mr. Wright was elected to his current position in September 2005 after serving as Vice President and General Manager – Lawn and Garden Division. He was elected an executive officer effective September 2002. He previously served as Vice President and General Manager – Small Engine Division since July 1997.

 


(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.

 

7



 

PART II

 

ITEM 5.                            MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

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 50.

 

Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

Briggs & Stratton did not make any purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act.

 

8



 

ITEM 6.                             SELECTED FINANCIAL DATA

 

Fiscal Year
(dollars in thousands, except per share data)

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY OF OPERATIONS (1) (2)

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

$

2,654,875

 

$

1,947,364

 

$

1,657,633

 

$

1,529,300

 

$

1,306,638

 

GROSS PROFIT ON SALES

 

504,891

 

439,872

 

328,079

 

269,964

 

233,255

 

PROVISION FOR INCOME TAXES

 

57,548

 

68,890

 

37,940

 

27,390

 

23,860

 

INCOME BEFORE EXTRAORDINARY GAIN

 

116,767

 

136,114

 

80,638

 

53,120

 

48,013

 

INCOME BEFORE EXTRAORDINARY GAIN PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings

 

2.27

 

3.01

 

1.86

 

1.23

 

1.11

 

Diluted Earnings

 

2.25

 

2.77

 

1.74

 

1.18

 

1.11

 

PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends

 

.68

 

.66

 

.64

 

.63

 

.62

 

Shareholders’ Investment

 

$

17.22

 

$

16.03

 

$

11.83

 

$

10.39

 

$

9.79

 

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)

 

51,472

 

45,286

 

43,279

 

43,230

 

43,196

 

DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
(in 000’s)

 

51,954

 

50,680

 

48,959

 

48,904

 

43,932

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER DATA (1) (2)

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ INVESTMENT

 

$

889,186

 

$

817,595

 

$

514,987

 

$

449,646

 

$

422,752

 

LONG-TERM DEBT

 

486,321

 

360,562

 

503,397

 

499,022

 

508,134

 

CAPITAL LEASES

 

1,988

 

 

 

 

 

TOTAL ASSETS

 

1,998,968

 

1,637,153

 

1,475,193

 

1,356,601

 

1,306,243

 

PLANT AND EQUIPMENT

 

981,943

 

867,987

 

876,664

 

879,635

 

890,191

 

PLANT AND EQUIPMENT, NET OF RESERVES

 

434,830

 

356,542

 

370,784

 

395,215

 

416,361

 

PROVISION FOR DEPRECIATION

 

66,348

 

59,816

 

58,325

 

61,091

 

56,117

 

EXPENDITURES FOR PLANT AND EQUIPMENT

 

86,075

 

52,962

 

40,154

 

43,928

 

61,322

 

WORKING CAPITAL

 

$

766,537

 

$

681,432

 

$

505,752

 

$

411,241

 

$

381,443

 

Current Ratio

 

3.2 to 1

 

3.3 to 1

 

2.7 to 1

 

2.6 to 1

 

2.6 to 1

 

NUMBER OF EMPLOYEES AT YEAR-END

 

9,073

 

7,732

 

7,249

 

6,971

 

6,974

 

NUMBER OF SHAREHOLDERS AT YEAR-END

 

4,058

 

4,230

 

4,503

 

4,686

 

4,129

 

QUOTED MARKET PRICE:

 

 

 

 

 

 

 

 

 

 

 

High

 

$

44.50

 

$

44.22

 

$

25.75

 

$

24.20

 

$

24.19

 

Low

 

$

30.83

 

$

24.68

 

$

15.38

 

$

14.83

 

$

15.19

 

 


(1)          The amounts include the acquisitions of Generac Portable Products, Inc. since May 15, 2001, Simplicity Manufacturing, Inc. since July 7, 2004, and certain assets of Murray, Inc. and Murray Canada Co. since February 11, 2005. Refer to the Notes to Consolidated Financial Statements.

(2)          Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.

 

9



 

ITEM 7.                             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

 

Acquisitions

 

On July 7, 2004, Briggs & Stratton Corporation and its subsidiary, Briggs & Stratton Power Products Group, LLC, acquired Simplicity Manufacturing, Inc. (“Simplicity”) for $227 million plus certain transaction related expenses. Simplicity designs, manufactures and markets a wide variety of premium yard and garden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. On February 11, 2005, Briggs & Stratton Corporation and its subsidiaries Briggs & Stratton Power Products Group, LLC and Briggs & Stratton Canada Inc. acquired certain assets of Murray, Inc. and Murray Canada Co (collectively “Murray”) for $121 million and entered into a transition supply agreement (“TSA”). The TSA gave Briggs & Stratton the right to purchase finished lawn, garden and snow products from Murray for a period up to eighteen months. Briggs & Stratton has reached an agreement with Murray to end the TSA effective September 30, 2005. See Note 3 of the Notes to Consolidated Financial Statements for detailed information on these acquisitions.

 

Results of Operations

 

FISCAL 2005 COMPARED TO FISCAL 2004

 

Net Sales

 

Fiscal 2005 consolidated net sales were approximately $2.7 billion, an increase of $708 million, or 36% compared to the previous year. The increase is attributable almost entirely to growth within the Power Products Segment.

 

Engine Segment net sales were $1.7 billion versus $1.6 billion in the prior year, an improvement of $122 million or 8%. The improvement was the result of a 10% engine unit shipment increase, which contributed $148 million; and $35 million from pricing and a favorable Euro exchange rate. The increase in Engine unit shipments was driven by market share gains as well as $119 million in increased shipments to our Power Products Segment, that were eliminated in consolidation. These favorable items were offset by: a mix of product that favored lower priced units and $22 million of lower service and component sales.

 

Power Products net sales were $1.2 billion versus $489 million in the prior year, a $704 million increase. The acquisition of Simplicity and Murray contributed $389 and $214 million respectively to the Segment’s growth. In addition, increased generator demand sparked by unprecedented hurricane activity early in the year, as well as Florida legislation that provided for a tax holiday on purchases of hurricane related supplies late in the fiscal year, resulted in increased segment sales of $102 million.

 

Gross Profit

 

Consolidated gross profit increased $65 million between years. The acquisition of Simplicity added $69 million. The sales of Murray branded products and components added $2 million. These increases along with other volume and price improvements in both segments were offset by significant cost increases, which led to margin percentage decreases in both segments.

 

Engine Segment margins decreased from 24% in fiscal 2004 to 21% in fiscal 2005. Pricing improvements, including the impact of the Euro, added $35 million to the Engine Segment margin. Manufacturing cost reduction programs contributed an additional $12 million. These positive margin enhancers were not enough to overcome a $59 million increase in manufacturing costs, primarily overhead, raw materials and component costs, and a $19 million decrease from a mix of lower margined product. Consistent with the prior year, the cost increases reflect initiatives by many vendors to pass along higher costs due to price pressures on scrap aluminum and steel. We currently anticipate that our 4.5% price increase and continued manufacturing cost reduction efforts should offset these costs in fiscal 2006.

 

The Power Products Segment margin decreased to 11% in fiscal 2005 from 12% in fiscal 2004. The acquisition of Simplicity contributed 9% gross margin in fiscal 2005 after the application of purchase accounting on acquired inventory. Murray sales were essentially at a zero margin after the application of purchase accounting, which reduced the overall segment margin by 3%. The margins on generators and pressure washers declined between years as the $10 million impact of pricing improvements was offset by component and freight costs on expedited shipments to meet generator demand early in the year. In addition, Euro purchases reduced the gross margin of the Power Products Segment by $4 million. Under the Company’s foreign currency management program, this negative impact on margins was offset by the positive impact of the Euro discussed for the Engine Segment.

 

10



 

Engineering, Selling, General and Administrative Costs

 

Engineering, selling, general and administrative costs increased $108 million or 53% compared to fiscal 2004. The write-off of a trade receivable from Murray, Inc. accounts for $39 million of the increase. The acquisition of Simplicity added another $56 million to the category. The remaining increase is attributable to planned increases in advertising expenses, increased salaries and fringe benefits, and increased international variable selling costs, including $1 million from the impact of a stronger Euro.

 

Interest Expense

 

Interest expense decreased approximately $1 million in fiscal 2005 compared to fiscal 2004. The decrease is attributable to lower borrowings between years.

 

Other Income

 

Other income increased $12 million between fiscal years 2005 and 2004. The increase is due to the receipt of $12 million in cash dividends from an equity investment in preferred stock of Metal Technologies, Inc., the entity that acquired two ductile foundries from the Company in August of 1999. Refer to Note 9 of the Notes to Consolidated Financial Statements for the details of the components of other income.

 

Provision for Income Taxes

 

The effective tax rate decreased from 34% in fiscal 2004 to 33% in fiscal 2005. The decrease is primarily attributable to a tax benefit on dividend income in the current year.

 

Extraordinary Gain

 

The extraordinary gain represents the difference between the estimated fair value of the selected assets acquired from Murray and the cash paid, after all tax considerations. See Note 3 of the Notes to Consolidated Financial Statements for additional information on this acquisition.

 

FISCAL 2004 COMPARED TO FISCAL 2003

 

Net Sales

 

Fiscal 2004 consolidated net sales were approximately $1.9 billion, an increase of $290 million, or 17% compared to the previous year. The improvement was driven primarily by increased sales volume in both Segments.

 

Engine Segment net sales were $1.6 billion in fiscal 2004, an increase of $189 million or 13% compared to the prior year. Engine Segment increases were driven by an 11% increase in unit volume resulting in $163 million in net sales. $59 million or 4% of the increase in engine unit volume is attributable to sales to our Power Products Segment. Lawn and garden sales volume gains were driven by a strong selling season at retail. Inventory levels were low at the major original equipment manufacturers going into this fiscal year. As a result, the demand for engines was high all year long in anticipation of a strong season, which materialized. We believe the volume increase is reflective of market growth and market penetration in the U.S. While our European sales unit volume was down due to the drought conditions in Europe during much of fiscal 2004, the Euro exchange rate drove a $26 million increase in net sales.

 

Power Products net sales were $489 million in fiscal 2004, an increase of $160 million, or 48%, over fiscal 2003. Generator volume benefited significantly by the wide spread power outages that occurred in the first quarter of fiscal 2004, as a result of the eastern electrical grid failure and the landfall of a major hurricane. There were no major power outages in fiscal 2003. These events, along with increased marketing efforts, increased consumer awareness which continued to drive the demand for generators higher in fiscal 2004. Pressure washer net sales gains were driven by continued advertising and promotions at major retailers, consistent with programs launched in the prior year and increased placement at a major retailer.

 

Gross Profit

 

Consolidated gross profit increased $112 million between years. Volume increases generated $76 million of the improvement; with approximately $60 million from increases in the Engine Segment and the remainder from the Power Products Segment. The remaining $36 million of gross margin increases came from gross margin percentage improvements in the Engine Segment.

 

Engine Segment margins improved from 20% to 24%. Pricing improvement due to the impact of a stronger Euro on European sales contributed $26 million to the improvement. A 14% increase in production volume contributed $18 million in absorption benefits and our manufacturing cost reduction programs contributed an additional

 

11



 

$14 million to the improvement. These positive margin enhancers were partially offset by a $22 million net increase in manufacturing costs, primarily overhead, raw materials and component costs. These cost increases reflect initiatives by many vendors to pass along higher costs due to price pressures on scrap aluminum and steel.

 

The Power Products Segment margin was at 12% in both fiscal 2004 and fiscal 2003. A 55% production volume improvement and manufacturing cost reduction efforts were offset by increased purchased component costs. The Power Products Segment purchases a major pressure washer component from a European supplier in Euros. In fiscal 2004 the Euro purchases reduced gross margins of the Power Products Segment by approximately $12 million. Under the Company’s foreign currency management program, this negative impact on margins was offset by the positive impact of the Euro discussed for the Engine Segment.

 

Engineering, Selling, General and Administrative Costs

 

Engineering, selling, general and administrative costs increased $28 million or 15% compared to fiscal 2003. Increases in this category include salaries and fringe benefit cost increases of approximately $6 million, professional services of $6 million, marketing cost increases of $5 million and international variable selling cost increases of $6 million. In addition, $2 million of the increase is attributable to bad debt expense associated with a prior fiscal year customer bankruptcy. The increases in salaries and fringe benefits reflect increased incentive compensation awards in the current year, as well as increased employee benefit costs, essentially pension and health care. The increase in professional services is attributable to several consulting projects related to our distributor channels, emissions regulations and Sarbanes-Oxley compliance efforts. Increased marketing costs were driven by increased spending on Power Products’ market expansion and international marketing efforts. Increases in international variable selling costs include $2 million attributable to translating Euro denominated expenditures by a stronger Euro.

 

Interest Expense

 

Interest expense decreased $3 million in fiscal 2004 compared to fiscal 2003. The decrease is essentially the result of reduced working capital borrowings in the current year and the impact of a fixed to variable interest rate swap. On March 16, 2004, the Company called for the redemption of its $140 million 5% convertible senior notes due in 2006. Substantially all of the holders of the notes exercised their conversion rights prior to the redemption date of May 15, 2004. This resulted in the issuance of approximately three million treasury shares in May 2004 and the write-off of approximately $2 million in deferred financing costs. The redemption of these bonds eliminated all convertible debt and reduced our long-term debt to approximately $361 million. The redemption will also eliminate approximately $7 million in interest expense in fiscal 2005. In April 2004, all interest rate swaps were terminated resulting in a net gain of approximately $500 thousand.

 

Other Income

 

Other income remained at approximately $9 million in fiscal 2004, consistent with prior years. Refer to Note 9 of the Notes to Consolidated Financial Statements for detail of the components of other income.

 

Provision for Income Taxes

 

The effective tax rate increased from 32% in fiscal 2003 to 34% in fiscal 2004. The rate reflects less of a benefit from foreign and state tax credits. Earnings from some of our foreign subsidiaries were down due to market conditions, while the domestic income contribution increased. The impact of lower tax credits was offset by a reduction in the tax provision due to the closing of a tax audit year and recording additional tax benefits related to the filing of our fiscal 2003 income tax return.

 

Liquidity and Capital Resources

 

FISCAL YEARS 2005, 2004 AND 2003

 

Cash flows from operating activities were $149 million, $50 million and $174 million in fiscal 2005, 2004 and 2003 respectively.

 

The fiscal 2005 cash flows from operations were $98 million higher than the prior year. Fiscal 2005 did not experience the significant increase in inventories experienced in 2004, resulting in a $142 million improvement in cash flows in fiscal 2005. During fiscal 2004, inventories for engines and power products were increased to what management believes are a more normal level. Accordingly, no such incremental inventory build-up was required in fiscal 2005. Offsetting the favorable impact of inventory levels on cash flows was a $27 million reduction in accounts payable and accrued liabilities between years. The decrease is primarily attributable to a $19 million reduction in incentive compensation accruals between years and $5 million in lower rebate accruals.

 

12



 

The fiscal 2004 cash flows from operating activities were $123 million lower than the prior year. Fiscal 2004 experienced a significant increase in inventory levels, which reduced cash flows from operating activities by $129 million in fiscal 2004 and $117 million between years. Engine inventories increased $76 million between years. This increase is attributable to strong production levels through the end of the fiscal year driven by a strong selling season at retail. In addition, we believed that the increased inventory was needed to meet our forecast for fiscal 2005. Our Power Products Segment also experienced an increase in inventory levels of $53 million between years. This increase in inventory reflects strong production levels throughout the year in order to replenish depleted inventories after the demand creating events for generators in fiscal 2004. Pressure washer inventory levels reflected increasing demand for the product due to significant market growth in the category. Inventory on hand will always reflect demand and our ability to respond to market changes at our production facilities in a timely manner.

 

Also contributing to the lower cash flows from operating activities in fiscal 2004 were increased receivables growth between years of $23 million, which reflects our sales growth at both Segments and timing of payments, lower payable increases between years of $40 million and lower deferred tax provisions between years of $11 million. Offsetting these reductions in cash flows in fiscal 2004 were increased earnings of $55 million, a reduction in prepaid expenses between years of $7 million and lower pension income of $7 million.

 

The fiscal 2003 cash flows from operating activities were $26 million lower than the prior year. Fiscal 2003 did not experience the significant reduction in inventory investment experienced in fiscal 2002, which caused cash flows to be $134 million less between years. Inventory levels are a function of planned production levels based on anticipated demand, contrasted with actual sell through of product at retail. In fiscal 2001 the market was soft resulting in lower than anticipated sales for the year and increased inventory levels throughout the channel. As a result of the unusually high inventory levels at the end of fiscal 2001, we lowered our planned production in 2002. The 2002 lawn and garden selling season was strong, and we were successful in getting our inventory levels back to a level we considered normal. The fiscal 2003 selling season was also strong resulting in no significant change in our inventory levels.

 

Offsetting this reduction in cash flows in fiscal 2003 were improved cash flows related to increased earnings of $28 million, a lower accounts receivable increase between years of $51 million and higher current liabilities of $19 million. Accounts receivable levels increased in fiscal 2002 because of strong fourth quarter sales versus the prior year. Sales strength in the fourth quarter was similar between fiscal 2003 and 2002 resulting in an accounts receivable balance that did not change significantly. Current liabilities, primarily accruals for profit sharing were greater between years because better performance in fiscal 2003 resulted in larger bonus awards than the prior year.

 

Cash used in investing activities was $437 million, $47 million and $33 million in fiscal 2005, 2004 and 2003, respectively. These cash flows include capital expenditures of $86 million, $53 million and $40 million in fiscal 2005, 2004 and 2003, respectively. The capital expenditures relate primarily to reinvestment in equipment, capacity additions and new products.

 

In fiscal 2005, cash used in investing activities also includes $232 million in cash paid for the Simplicity acquisition and $122 million for the acquisition of certain Murray assets.

 

In fiscal 2004, Briggs & Stratton received $6 million as a refund of a portion of the cash paid for the BSPPG acquisition in fiscal 2001. The amount was to adjust the original purchase price for the actual value received in acquired receivables and inventory.

 

In fiscal 2003, Briggs & Stratton increased its investment in its China joint venture from 52% to 90%. This increase in ownership interest gave Briggs & Stratton control over the joint venture. Accordingly, its operating results are now reflected in Briggs & Stratton’s consolidated financial statements. The actual cash outlay in fiscal 2003 for the restructuring was $343 thousand; however, the consolidation resulted in an increase in cash of approximately $4 million.

 

Briggs & Stratton provided cash from financing activities totaling $106 million and $13 million in fiscal 2005 and 2004 respectively. Briggs & Stratton used $37 million of cash in financing activities in fiscal 2003. Early in fiscal 2005 the Company used its available cash to finance the acquisition of Simplicity. To finance the acquisition of the Murray assets the Company issued $125 million in term notes in fiscal 2005. The Company incurred $1 million in fees in fiscal 2005 negotiating the term notes and an amendment to its revolving credit facility. During fiscal 2004, Briggs & Stratton did not use its revolver to finance working capital needs. In fiscal 2003 the Company used available cash to pay off its short-term loans and notes payable of $15 million.

 

13



 

During fiscal 2005, the Company received $20 million from the exercise of stock options compared to $45 million in fiscal 2004 and $5 million in fiscal 2003. The stock and option activity is a direct reflection of the market value of the Company’s stock and option strike prices that encourage the exercise of the options.

 

During fiscal 2003, the Company paid down $15 million of its short-term loans and notes payable. These loans were primarily used to fund the short-term working capital needs of Briggs & Stratton’s foreign operations. Given the level of cash flows the last two fiscal years and the available cash on hand, Briggs & Stratton made the decision to pay off these borrowings and fund these operations with available cash. Briggs & Stratton did not use its revolver to finance working capital needs during fiscal 2004. In fiscal 2004, Briggs & Stratton also incurred $2 million to negotiate a new revolving credit agreement.

 

Future Liquidity and Capital Resources

 

Briggs & Stratton has a $350 million revolving credit facility that expires in May 2009. This credit facility will be used to fund seasonal working capital requirements and other financing needs. This facility and Briggs & Stratton’s other indebtedness contain certain restrictive covenants described in Note 8 of the Notes to Consolidated Financial Statements.

 

Briggs & Stratton expects capital expenditures to be $80 million in fiscal 2006. These anticipated expenditures reflect our plans to continue to reinvest in equipment, new products, and capacity enhancements.

 

Management believes that available cash, the credit facility, cash generated from future 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. Consequently, management’s first priority is to reinvest capital into physical assets and products that maintain or grow the global cost leadership and market positions that Briggs & Stratton has achieved, and drive the economic value of the Company. Management’s next financial objective is to identify strategic acquisitions or alliances that enhance revenues and provide a superior economic return. Several successful joint ventures and the acquisition of Generac Portable Products, Inc. and Simplicity are examples of our successful execution of this strategy. Finally, management believes that when capital cannot be invested for returns greater than the cost of capital, we should return capital to the capital providers through dividends and/or stock buy-back.

 

Off-Balance Sheet Arrangements

 

Briggs & Stratton has no off-balance sheet arrangements or significant guarantees to third parties not fully recorded in our Balance Sheets or fully disclosed in our Notes to Consolidated Financial Statements. Briggs & Stratton’s significant contractual obligations include our debt agreements and certain employee benefit plans.

 

Briggs & Stratton is subject to financial and operating restrictions in addition to certain financial covenants under its domestic debt agreements. As is fully disclosed in Note 8 of the Notes to Consolidated Financial Statements, these restrictions could 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. We believe we will remain in compliance with these covenants in fiscal 2006. Briggs & Stratton has obligations concerning certain employee benefits including 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 Consolidated Financial Statements.

 

Contractual Obligations

 

A summary of the Company’s expected payments for significant contractual obligations as of July 3, 2005 is as follows (in thousands):

 

 

 

2006

 

2007-2008

 

2009-2010

 

Thereafter

 

Total

 

Long-Term Debt

 

$

 

$

215,000

 

$

 

$

275,000

 

$

490,000

 

Interest on Long-Term Debt

 

36,530

 

63,327

 

48,813

 

17,288

 

165,958

 

Capital Leases

 

758

 

1,539

 

 

 

2,297

 

Operating Leases

 

11,508

 

16,578

 

9,609

 

7,019

 

44,714

 

Consulting Agreement

 

288

 

175

 

 

 

463

 

Transition Supply Agreement

 

92,513

 

 

 

 

92,513

 

 

 

$

141,597

 

$

296,619

 

$

58,422

 

$

299,307

 

$

795,945

 

 

14



 

As of July 3, 2005, the Company had no material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment which generally have terms of less than 90 days.

 

Other Matters

 

Labor Agreement

 

Briggs & Stratton has collective bargaining agreements with its unions. These agreements expire at various times ranging from 2006-2008.

 

Emissions

 

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 has been phased in for Class II (225 or greater cubic centimeter) displacement engines and will be phased in through 2008 for Class I (under 225 cubic centimeter) displacement engines. The majority of Briggs & Stratton’s engines are certified to be compliant with the EPA’s Phase II standards.  Accordingly, Briggs & Stratton does not believe compliance with the new standards will have a material adverse effect on its financial position or results of operations.

 

EPA is also evaluating the development of Phase III standards to further reduce engine exhaust emissions and to control evaporative emissions from small off-road engines and equipment they are used in. A draft regulation is scheduled for publication in early calendar year 2006. We cannot predict the scope of any proposal or of the final regulations that EPA may ultimately adopt, and accordingly cannot estimate what, if any, impact such regulations could have on future financial performance.

 

The California Air Resources Board (CARB) staff issued a revised proposed Tier 3 regulation requiring additional reductions to engine exhaust emissions and also requiring new controls on evaporative emissions from small engines. The CARB staff proposal is phased in between 2006 and 2008 depending upon the size of the engine and type of control. While Briggs & Stratton believes the cost of the proposed regulation on a per engine basis may be significant, Briggs & Stratton does not believe the CARB staff proposal will have a material effect on its financial condition or results of operations. This assessment is based on a number of factors, including federal regulation, which precludes other states from opting into the California standard, revisions CARB made to its proposal from that published in September 2003 in response to recommendations from Briggs & Stratton and others in the regulated category, the fact that California represents a relatively small percentage of Briggs & Stratton’s engine sales and our ability and intention to pass increased costs associated with the CARB regulation on to California consumers.

 

The European Commission adopted an engine emission Directive regulating exhaust emissions from engines manufactured by Briggs & Stratton. The Directive parallels the regulation previously promulgated by the U.S. EPA. Stage 1 was effective in February, 2004 and Stage 2 will be phased in from 2005 to 2007, with some limited extensions available for specific size and type engines until 2010. Briggs & Stratton’s full European product line has been compliant with Stage 1 since 2004. Briggs & Stratton intends to have a full European product line compliant with Stage 2. Briggs & Stratton does not believe compliance with the Directive will have a material adverse effect on its financial position or results of operations.

 

Critical Accounting Policies

 

Briggs & Stratton’s critical accounting policies are more fully described in Note 2 and Note 14 of the Notes to Consolidated Financial Statements. As discussed in Note 2, 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 differences 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 and inventory reserves, as well as those used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, litigation and taxation.

 

15



 

The reserves for customer rebates, warranty, product liability, inventory reserves and doubtful accounts are fact specific and take into account such factors as specific customer situations, historical experience, and current and expected economic conditions. Changes in these reserves may be required if actual experience differs from the original estimates.

 

The Company’s estimate of income taxes payable, deferred income taxes, and the effective tax rate is based on a complex analysis of many factors including interpretations of Federal, state and foreign income tax laws, the difference between tax and financial reporting bases of assets and liabilities, estimates of amounts currently due or owed in various jurisdictions, and current accounting standards. We review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known. In addition, Federal, state and foreign taxing authorities periodically review the Company’s estimates and interpretation of income tax laws. Adjustments to the effective income tax rate and recorded assets and liabilities may occur in future periods if actual results differ significantly from original estimates and interpretations.

 

The pension benefit obligation and related pension income are calculated in accordance with Statement of Financial Accounting Standard (SFAS) No. 87, “Employer’s Accounting for Pensions”, and are impacted by certain actuarial assumptions, including the discount rate and the expected rate of return on plan assets. These rates are evaluated on an annual basis considering such factors as market interest rates and historical asset performance. Actuarial valuations at July 3, 2005 used a discount rate of 5.25% and an expected rate of return on plan assets of 8.75%.  Our discount rate was selected using a benchmark approach against the Moody’s Aa Corporate Bond rate and the Citigroup Pension Liability Index. A .25% decrease in the discount rate would increase annual pension expense by approximately $1.2 million. A .25% decrease in the expected return on plan assets would increase our annual pension expense by approximately $2.0 million.

 

The other postretirement benefits obligation and related expense charge are calculated in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” and are impacted by certain actuarial assumptions, including the health care trend rate. An increase of one percentage point in health care costs would increase the accumulated postretirement benefit obligation by $22.2 million and would increase the service and interest cost by $1.7 million. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by $20.3 million and decrease the service and interest cost by $1.5 million.

 

New Accounting Pronouncements

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued revised Statement 123R, “Share-Based Payment,” to be effective for annual periods beginning after June 15, 2005; thereby, becoming effective for Briggs & Stratton in the first quarter of fiscal 2006. Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the income statement. The cost is recognized over the requisite service period based on fair values measured on grant dates. The new standard may be adopted using either the modified prospective transition method or the modified retrospective method. We are currently evaluating our share-based employee compensation programs, the potential impact of this statement on our consolidated financial position and results of operations, and the alternative adoption methods.

 

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. This statement is effective for the company on July 2, 2006. The company does not believe the adoption of SFAS No. 151 will have a material impact on its Consolidated Financial Statements.

 

16



 

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 the Euro. The Yen is used to purchase engines from Briggs & Stratton’s joint venture. Briggs & Stratton purchases components in Euros from third parties and 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 July 3, 2005, 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

 

2,550,000

 

$

23,240

 

U.S.

 

$

1,221

 

Euro

 

35,000

 

$

42,319

 

U.S.

 

$

(1,585

)

Australian Dollars

 

2,391

 

$

1,781

 

U.S.

 

$

(11

)

 

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 and joint ventures are translated into U.S. dollars at the exchange rates in effect at fiscal year-end. The resulting cumulative translation adjustments are recorded in Shareholders’ Investment as Accumulated Other Comprehensive Income. The cumulative translation adjustments component of Shareholders’ Investment increased $0.9 million during the year. Using the year-end exchange rates, the total amount invested in non-U.S. subsidiaries on July 3, 2005 was $87.3 million.

 

Interest Rates

 

Briggs & Stratton is exposed to interest rate fluctuations on its borrowings, depending on general economic conditions.

 

On July 3, 2005, Briggs & Stratton had the following short-term loans outstanding (in thousands):

 

 

 

 

 

Weighted Average

 

Currency

 

Amount

 

Interest Rate

 

Australian Dollars

 

250

 

7.19

%

Euro

 

214

 

5.00

%

 

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 $5 thousand.

 

Long-term loans, net of unamortized discount, consisted of the following (in thousands):

 

Description

 

Amount

 

Maturity

 

7.25%

Senior Notes

 

$

89,589

 

2007

 

8.875%

Senior Notes

 

$

271,732

 

2011

 

Variable Rate Term Notes

 

$

125,000

 

2008

 

 

The Senior Notes carry fixed rates of interest and are therefore not subject to market fluctuation. The Variable Rate Term Note is subject to interest rate fluctuations, therefore an increase (decrease) of one percentage point in the weighted average interest rate would increase (decrease) interest expense by $1.25 million.

 

17



 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Consolidated Balance Sheets

 

AS OF JULY 3, 2005 AND JUNE 27, 2004

(in thousands)

 

 

 

2005

 

2004

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

161,573

 

$

342,394

 

Receivables, Less Reserves of $5,461 and $1,584, Respectively

 

360,786

 

230,510

 

Inventories:

 

 

 

 

 

Finished Products and Parts

 

283,405

 

206,638

 

Work in Process

 

174,648

 

124,483

 

Raw Materials

 

11,612

 

6,610

 

Total Inventories

 

469,665

 

337,731

 

Deferred Income Tax Asset

 

92,251

 

47,623

 

Prepaid Expenses and Other Current Assets

 

34,930

 

23,735

 

Total Current Assets

 

1,119,205

 

981,993

 

 

 

 

 

 

 

GOODWILL

 

253,066

 

151,991

 

 

 

 

 

 

 

OTHER INTANGIBLE ASSETS, Net

 

96,445

 

175

 

 

 

 

 

 

 

INVESTMENTS

 

49,783

 

49,259

 

 

 

 

 

 

 

PREPAID PENSION

 

 

81,730

 

 

 

 

 

 

 

DEFERRED LOAN COSTS, Net

 

6,016

 

6,325

 

 

 

 

 

 

 

OTHER LONG-TERM ASSETS, Net

 

39,623

 

9,138

 

 

 

 

 

 

 

PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

 

 

 

 

Land and Land Improvements

 

20,554

 

16,027

 

Buildings

 

172,093

 

163,621

 

Machinery and Equipment

 

768,091

 

674,047

 

Construction in Progress

 

21,205

 

14,292

 

 

 

981,943

 

867,987

 

Less - Accumulated Depreciation

 

547,113

 

511,445

 

Total Plant and Equipment, Net

 

434,830

 

356,542

 

 

 

$

1,998,968

 

$

1,637,153

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 

18



 

AS OF JULY 3, 2005 AND JULY 27, 2004

(in thousands, except per share data)

 

 

 

2005

 

2004

 

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Accounts Payable

 

$

155,973

 

$

120,409

 

Short-term Debt

 

443

 

3,127

 

Accrued Liabilities:

 

 

 

 

 

Wages and Salaries

 

42,715

 

55,528

 

Warranty

 

59,625

 

43,148

 

Accrued Postretirement Health Care Obligation

 

26,000

 

22,000

 

Other

 

67,912

 

56,349

 

Total Accrued Liabilities

 

196,252

 

177,025

 

Total Current Liabilities

 

352,668

 

300,561

 

DEFERRED INCOME TAX LIABILITY

 

113,794

 

70,454

 

 

 

 

 

 

 

ACCRUED PENSION COST

 

47,944

 

20,603

 

 

 

 

 

 

 

ACCRUED EMPLOYEE BENEFITS

 

15,125

 

14,201

 

 

 

 

 

 

 

ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION

 

77,607

 

38,248

 

 

 

 

 

 

 

LONG-TERM DEBT

 

486,321

 

360,562

 

 

 

 

 

 

 

OTHER LONG-TERM LIABILITIES

 

16,323

 

14,929

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ INVESTMENT:

 

 

 

 

 

 

 

 

 

 

 

Common Stock -

 

 

 

 

 

Authorized 120,000* and 60,000 Shares $.01 Par Value, Issued 57,854* and 28,927 Shares

 

579

 

289

 

Additional Paid-In Capital

 

55,793

 

48,657

 

Retained Earnings

 

1,029,329

 

927,766

 

Accumulated Other Comprehensive (Loss) Income

 

(48,331

)

4,028

 

Unearned Compensation on Restricted Stock

 

(1,985

)

(1,490

)

Treasury Stock at cost,

 

 

 

 

 

6,114* Shares in 2005 and 3,382 Shares in 2004

 

(146,199

)

(161,655

)

Total Shareholders’ Investment

 

889,186

 

817,595

 

 

 

$

1,998,968

 

$

1,637,153

 

 


*    Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 

19



 

Consolidated Statements of Earnings

 

FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003

(in thousands, except per share data)

 

 

 

2005

 

2004

 

2003

 

NET SALES

 

$

2,654,875

 

$

1,947,364

 

$

1,657,633

 

COST OF GOODS SOLD

 

2,149,984

 

1,507,492

 

1,329,554

 

Gross Profit

 

504,891

 

439,872

 

328,079

 

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

314,123

 

205,663

 

178,157

 

Income from Operations

 

190,768

 

234,209

 

149,922

 

INTEREST EXPENSE

 

(36,883

)

(37,665

)

(40,389

)

OTHER INCOME, Net

 

20,430

 

8,460

 

9,045

 

Income Before Provision for Income Taxes

 

174,315

 

205,004

 

118,578

 

PROVISION FOR INCOME TAXES

 

57,548

 

68,890

 

37,940

 

Income Before Extraordinary Item

 

116,767

 

136,114

 

80,638

 

EXTRAORDINARY GAIN - NEGATIVE GOODWILL

 

19,800

 

 

 

NET INCOME

 

$

136,567

 

$

136,114

 

$

80,638

 

EARNINGS PER SHARE DATA*

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

 

51,472

 

45,286

 

43,279

 

Income Before Extraordinary Item

 

$

2.27

 

$

3.01

 

$

1.86

 

Extraordinary Gain

 

.38

 

 

 

Basic Earnings Per Share

 

$

2.65

 

$

3.01

 

$

1.86

 

 

 

 

 

 

 

 

 

Diluted Average Shares Outstanding

 

51,954

 

50,680

 

48,959

 

Income Before Extraordinary Item

 

$

2.25

 

$

2.77

 

$

1.74

 

Extraordinary Gain

 

.38

 

 

 

Diluted Earnings Per Share

 

$

2.63

 

$

2.77

 

$

1.74

 

 


*                 Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 

20



 

Consolidated Statements of Shareholders’ Investment

 

FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

Accumulated

 

Unearned

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other 

 

Compensation

 

 

 

 

 

 

 

Common

 

Paid-In

 

Retained

 

Comprehensive

 

on Restricted

 

Treasury

 

Comprehensive

 

 

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

Stock

 

Stock

 

Income

 

BALANCES, JUNE 30, 2002

 

$

289

 

$

35,459

 

$

769,131

 

$

(6,626

)

$

(199

)

$

(348,408

)

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

80,638

 

 

 

 

$

80,638

 

Foreign Currency Translation Adjustments

 

 

 

 

4,454

 

 

 

4,454

 

Unrealized Gain on Marketable Securities, net of tax of $581

 

 

 

 

901

 

 

 

901

 

Unrealized Gain on Derivatives

 

 

 

 

3,100

 

 

 

3,100

 

Minimum Pension Liability Adjustment, net of tax of $(1,638)

 

 

 

 

(2,563

)

 

 

(2,563

)

Total Comprehensive Income

 

 

 

 

 

 

 

$

86,530

 

Cash Dividends Paid ($0.64* per share)

 

 

 

(27,709

)

 

 

 

 

 

Stock Option Activity, net of tax

 

 

(234

)

 

 

 

5,835

 

 

 

Restricted Stock Issued

 

 

(97

)

 

 

(238

)

335

 

 

 

Amortization of Unearned Compensation

 

 

 

 

 

150

 

 

 

 

Issuance of Treasury Shares

 

 

(44

)

 

 

 

760

 

 

 

Shares Issued to Directors

 

 

(10

)

 

 

 

63

 

 

 

BALANCES, JUNE 29, 2003

 

$

289

 

$

35,074

 

$

822,060

 

$

(734

)

$

(287

)

$

(341,415

)

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

136,114

 

 

 

 

$

136,114

 

Foreign Currency Translation Adjustments

 

 

 

 

3,042

 

 

 

3,042

 

Unrealized Gain on Derivatives

 

 

 

 

487

 

 

 

487

 

Minimum Pension Liability Adjustment, net of tax of $788

 

 

 

 

1,233

 

 

 

1,233

 

Total Comprehensive Income

 

 

 

 

 

 

 

$

140,876

 

Cash Dividends Paid ($0.66* per share)

 

 

 

(30,408

)

 

 

 

 

 

Stock Option Activity, net of tax

 

 

7,667

 

 

 

 

41,194

 

 

 

Restricted Stock Issued

 

 

322

 

 

 

(1,494

)

1,171

 

 

 

Amortization of Unearned Compensation

 

 

 

 

 

291

 

 

 

 

Issuance of Treasury Shares

 

 

5,546

 

 

 

 

137,270

 

 

 

Shares Issued to Directors

 

 

48

 

 

 

 

125

 

 

 

BALANCES, JUNE 27, 2004

 

$

289

 

$

48,657

 

$

927,766

 

$

4,028

 

$

(1,490

)

$

(161,655

)

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

136,567

 

 

 

 

$

136,567

 

Foreign Currency Translation Adjustments

 

 

 

 

881

 

 

 

881

 

Unrealized Gain on Derivatives

 

 

 

 

419

 

 

 

419

 

Minimum Pension Liability Adjustment, net of tax of $(34,306)

 

 

 

 

(53,659

)

 

 

(53,659

)

Total Comprehensive Income

 

 

 

 

 

 

 

$

84,208

 

Cash Dividends Paid ($0.68* per share)

 

 

 

(35,004

)

 

 

 

 

 

Stock Option Activity, net of tax

 

 

6,990

 

 

 

 

14,752

 

 

 

Restricted Stock Issued

 

 

316

 

 

 

(1,006

)

688

 

 

 

Amortization of Unearned Compensation

 

 

 

 

 

511

 

 

 

 

Stock Split

 

290

 

(290

)

 

 

 

 

 

 

Deferred Stock

 

 

3

 

 

 

 

 

 

 

Shares Issued to Directors

 

 

117

 

 

 

 

16

 

 

 

BALANCES, JULY 3, 2005

 

$

579

 

$

55,793

 

$

1,029,329

 

$

(48,331

)

$

(1,985

)

$

(146,199

)

 

 

 


*                 Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 

21



 

Consolidated Statement of Cash Flows

 

FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003

(in thousands)

 

 

 

2005

 

2004

 

2003

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net Income

 

$

136,567

 

$

136,114

 

$

80,638

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

 

Extraordinary Gain

 

(19,800

)

 

 

Depreciation and Amortization

 

73,543

 

66,898

 

63,526

 

Earnings of Unconsolidated Affiliates, Net of Dividends

 

678

 

(3,484

)

1,106

 

Loss on Disposition of Plant and Equipment

 

2,418

 

7,390

 

3,850

 

Provision for Deferred Income Taxes

 

(3,896

)

12,800

 

24,278

 

Change in Operating Assets and Liabilities, Net of Effects of Acquisition:

 

 

 

 

 

 

 

Increase in Receivables

 

(26,892

)

(28,588

)

(5,958

)

Decrease (Increase) in Inventories

 

12,784

 

(128,594

)

(11,932

)

Decrease (Increase) in Prepaid Expenses and Other Current Assets

 

2,650

 

2,017

 

(4,663

)

(Decrease) Increase in Accounts Payable, Accrued Liabilities and Income Taxes

 

(27,673

)

4,696

 

44,321

 

Increase in Accrued/Prepaid Pension

 

(1,050

)

(6,070

)

(13,566

)

Other, Net

 

(771

)

(13,023

)

(7,875

)

Net Cash Provided by Operating Activities

 

148,558

 

50,156

 

173,725

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Additions to Plant and Equipment

 

(86,075

)

(52,962

)

(40,154

)

Proceeds Received on Disposition of Plant and Equipment

 

1,940

 

720

 

3,464

 

Proceeds Received on Sale of Certain Assets of a Subsidiary

 

4,050

 

 

 

Refund of Cash Paid for Acquisition

 

 

5,686

 

 

Cash Paid for Acquisitions, Net of Cash Acquired

 

(355,094

)

 

 

Investment in Joint Venture

 

(1,500

)

 

3,531

 

Net Cash Used by Investing Activities

 

(436,679

)

(46,556

)

(33,159

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net (Repayments) Borrowings on Loans and Notes Payable

 

(2,684

)

187

 

(14,955

)

Net Borrowings (Repayments) on Long-Term Debt

 

125,000

 

(22

)

 

Issuance Cost of Debt

 

(925

)

(1,789

)

 

Cash Dividends Paid

 

(35,065

)

(30,408

)

(27,709

)

Proceeds from Exercise of Stock Options

 

20,139

 

45,314

 

5,490

 

Net Cash Provided by (Used by) Financing Activities

 

106,465

 

13,282

 

(37,174

)

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

835

 

697

 

5,478

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(180,821

)

17,579

 

108,870

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

 

Beginning of Year

 

342,394

 

324,815

 

215,945

 

End of Year

 

$

161,573

 

$

342,394

 

$

324,815

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Interest Paid

 

$

36,357

 

$

38,884

 

$

39,448

 

Income Taxes Paid

 

$

66,410

 

$

53,253

 

$

20,724

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 

22



 

Notes to Consolidated Financial Statements

 

FOR THE FISCAL YEARS ENDED JULY 3, 2005, JUNE 27, 2004 AND JUNE 29, 2003

 

(1) Nature of Operations:

 

Briggs & Stratton (the “Company”) is a U.S. based producer of air cooled gasoline engines and engine powered outdoor equipment. The engines are sold worldwide, primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment. The Company’s wholly owned subsidiary, Briggs & Stratton Power Products Group, LLC (“BSPPG”), is a designer, manufacturer and marketer of a wide range of outdoor power equipment and related accessories. BSPPG’s products are sold worldwide.

 

(2) Summary of Significant Accounting Policies:

 

Fiscal Year: The Company’s fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day of June in each year. Therefore, the 2005 fiscal year was 53 weeks long and the 2004 and 2003 fiscal years were 52 weeks long. All references to years relate to fiscal years rather than calendar years.

 

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its majority 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.

 

Receivables: Receivables are recorded at the original carrying value less reserves for estimated uncollectible accounts. In fiscal 2005, Briggs & Stratton wrote off a $38.9 million trade receivable from Murray, Inc., a major original equipment manufacturer. See Note 3 for additional discussion of Murray, Inc.

 

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 48% of total inventories at July 3, 2005 and 56% of total inventories at June 27, 2004. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. During fiscal 2003, 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 reduced cost of goods sold by $0.2 million in 2003. There was no such reduction of inventory in fiscal 2005 and 2004. If the FIFO inventory valuation method had been used exclusively, inventories would have been $52.5 million and $51.4 million higher in 2005 and 2004, respectively. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts.

 

Goodwill and Other Intangible Assets: Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Other Intangible Assets reflect identifiable intangible assets that arise from purchase acquisitions. Other Intangible Assets are comprised of trademarks, patents and customer relationships. Goodwill and trademarks, which are considered to have indefinite lives are not amortized; however, both must be tested for impairment annually. Amortization is recorded on a straight line basis for other intangible assets with finite lives. Patents have been assigned an estimated weighted average useful life of thirteen years. The customer relationships have been assigned an estimated useful life of twenty-five years. The Company is subject to financial statement risk in the event that goodwill and intangible assets become impaired. The Company performed the required impairment tests in fiscal 2005, 2004 and 2003, and found no impairment of the assets.

 

Investments: This caption represents the Company’s investment in its 50%-owned joint ventures and preferred stock in a privately held iron castings business. The investments in the joint ventures are accounted

 

23



 

for under the equity method. In fiscal 2003, the Company determined losses on an investment in common stock of a publicly traded software company were “other than temporary”, and as a result, the Company reclassified the pretax unrealized loss of $1.8 million to earnings.

 

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 three to ten years. Accumulated amortization related to open issues amounted to $7.7 million as of July 3, 2005 and $5.9 million as of June 27, 2004.

 

Other Long-Term Assets: This caption includes 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 $11.3 million as of July 3, 2005 and $8.7 million as of June 27, 2004.

 

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 3-16 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 income from operations.

 

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 2005, 2004 or 2003.

 

Warranty: The Company recognizes the cost associated with its standard warranty on engines and power products at the time of sale. The amount recognized is based on historical failure rates and current claim cost experience. The following is a reconciliation of the changes in accrued warranty costs for fiscal 2005 and 2004 (in thousands):

 

 

 

2005

 

2004

 

Balance, Beginning of Period

 

$

43,148

 

$

47,590

 

Adjustment Related to Acquisitions

 

10,623

 

 

Payments

 

(35,796

)

(30,761

)

Provision for Current Year Warranties

 

41,761

 

29,150

 

Credit for Prior Years Warranties

 

(111

)

(2,831

)

Balance, End of Period

 

$

59,625

 

$

43,148

 

 

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 when the Company no longer has substantial

 

24



 

involvement with the facility, is estimated to be $6.2 million. As management believes it may cease operations at this facility by the end of fiscal 2006, this gain could be recognized during fiscal 2006, but will be recognized no later than the first quarter of fiscal 2007, when the Reservation Period expires. The annual cost of operating the warehouse portion of the facility is not material.

 

Revenue Recognition: Net sales include sales of engines, power products, and related service parts and accessories, net of allowances for cash discounts, customer volume rebates and discounts, and advertising allowances. In accordance with Staff Accounting Bulletin No. 104 as amended, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. This is generally upon shipment, except for certain international shipments, where revenue is recognized when the customer receives the product.

 

Included in net sales are costs associated with programs under which Briggs & Stratton shares the expense of financing certain dealer and distributor inventories, referred to as floor plan expense. This represents interest for a pre-established length of time based on a variable rate from a contract with a third party financing source for dealer and distributor inventory purchases. Sharing the cost of these financing arrangements is used by Briggs & Stratton as a marketing incentive for customers to buy inventory. The financing costs included in net sales in fiscal 2005 were $10.6 million. There were no similar costs in fiscal 2004 and fiscal 2003.

 

The Company also offers a variety of customer rebates and sales incentives. The Company records estimates for rebates and incentives at the time of sale, as a reduction in net sales.

 

Income Taxes: The Provision for Income Taxes includes Federal, state and foreign income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The Deferred Income Tax Asset represents temporary differences relating to current assets and current liabilities, and the Deferred Income Tax Liability represents temporary differences relating to noncurrent assets and liabilities.

 

Retirement Plans: The Company has noncontributory, defined benefit retirement plans and postretirement benefit plans covering certain employees. Retirement benefits represent a form of deferred compensation, which are subject to change due to changes in assumptions. Management reviews underlying assumptions on an annual basis. Refer to Note 14 of the Notes to Consolidated Financial Statements.

 

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 $33.5 million in fiscal 2005, $25.9 million in fiscal 2004 and $26.4 million in fiscal 2003.

 

Advertising Costs: Advertising costs, included in Engineering, Selling, General and Administrative Expenses in the accompanying Consolidated Statements of Earnings, are expensed as incurred. These expenses totaled $35.8 million in fiscal 2005, $15.0 million in fiscal 2004 and $13.2 million in fiscal 2003.

 

The Company reports co-op advertising expense as a reduction in net sales. Co-op advertising expense reported as a reduction in net sales totaled $23.6 million in fiscal 2005, $12.8 million in fiscal 2004 and $9.5 million in fiscal 2003.

 

Shipping and Handling Fees and Costs: Revenue received from shipping and handling fees is reflected in net sales. Shipping fee revenue for fiscal 2005, 2004 and 2003 was $4.1 million, $1.8 million and $1.6 million, respectively. Shipping and handling costs are included in cost of goods sold.

 

Foreign Currency Translation: Foreign currency balance sheet accounts are translated into dollars at the rates of exchange in effect at fiscal year-end. Income and expenses incurred in a foreign currency 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: Basic earnings per share, for each period presented, is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per

 

25



 

share, for each period presented, is computed reflecting the potential dilution that would occur if options or other contracts to issue common stock were exercised or converted into common stock at the beginning of the period.

 

The fiscal 2005 diluted earnings per share calculation includes all options outstanding as of July 3, 2005. The shares outstanding used to compute diluted earnings per share for fiscal 2004 and 2003 excludes outstanding options to purchase 428,520* and 3,351,580* shares of common stock, respectively, with weighted-average exercise prices of $37.27* and $26.70*, respectively. The options are excluded because their exercise prices are greater than the average market price of the common shares, and their inclusion in the computation would be antidilutive.

 

Information on earnings per share is as follows (in thousands):

 

 

 

Fiscal Year Ended

 

 

 

July 3, 2005

 

June 27, 2004

 

June 29, 2003

 

Net Income Before Extraordinary Gain Used in Basic Earings Per Share

 

$

116,767

 

$

136,114

 

$

80,638

 

Adjustment to Net Income Before Extraordinary Gain to Add After-tax Interest Expense on Convertible Notes

 

 

4,053

 

4,760

 

Adjusted Net Income Before Extraordinary Gain Used in Diluted Earnings Per Share

 

$

116,767

 

$

140,167

 

$

85,398

 

Extraordinary Gain Used in Basic and Diluted Earinings Per Share

 

$

19,800

 

$

 

$

 

Net Income Used in Basic Earnings Per Share

 

$

136,567

 

$

136,114

 

$

80,638

 

Adjustment to Net Income to Add After-tax Interest Expense on Convertible Notes

 

 

4,053

 

4,760

 

Adjusted Net Income Used in Diluted Earnings Per Share

 

$

136,567

 

$

140,167

 

$

85,398

 

Average Shares of Common Stock Outstanding*

 

51,472

 

45,286

 

43,279

 

Incremental Common Shares Applicable to Common Stock Options Based on the Common Stock Average Market Price During the Period*

 

446

 

360

 

 

Incremental Common Shares Applicable to Restricted Common Stock Based on the Common Stock Average Market Price During the Period*

 

36

 

26

 

28

 

Incremental Common Shares Applicable to Convertible Notes Based on the Conversion Provisions of the Convertible Notes*

 

 

5,008

 

5,652

 

Diluted Average Common Shares Outstanding*

 

51,954

 

50,680

 

48,959

 

 


*                                        Share data adjusted for effect of 2-for-1 stock split effective October 29, 2004.

 

Comprehensive Income: 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, cumulative translation adjustments, unrealized gain (loss) on derivatives and minimum pension liability adjustments in the Consolidated Statements of Shareholders’ Investment. Information on Accumulated Other Comprehensive Income (Loss) is as follows (in thousands):

 

 

 

Unrealized

 

 

 

 

 

Minimum

 

Accumulated

 

 

 

Gain (Loss)

 

Cumulative

 

Unrealized

 

Pension

 

Other

 

 

 

on Marketable

 

Translation

 

Gain (Loss) on

 

Liability

 

Comprehensive

 

 

 

Securities

 

Adjustments

 

Derivatives

 

Adjustment

 

Income (Loss)

 

Balance at June 30, 2002

 

$

(901

)

$

(2,638

)

$

(3,087

)

$

 

$

(6,626

)

Fiscal Year Change

 

901

 

4,454

 

3,100

 

(2,563

)

5,892

 

Balance at June 29, 2003

 

 

1,816

 

13

 

(2,563

)

(734

)

Fiscal Year Change

 

 

3,042

 

487

 

1,233

 

4,762

 

Balance at June 27, 2004

 

 

4,858

 

500

 

(1,330

)

4,028

 

Fiscal Year Change

 

 

881

 

419

 

(53,659

)

(52,359

)

Balance at July 3, 2005

 

$

 

$

5,739

 

$

919

 

$

(54,989

)

$

(48,331

)

 

Derivatives: Derivatives are recorded on the balance sheet as assets or liabilities, measured at fair value. Briggs & Stratton enters into derivative contracts designated as cash flow hedges to manage its foreign

 

26



 

currency exposures. These instruments generally do not have a maturity of more than twelve months. Briggs & Stratton has used interest rate swaps designated as fair value hedges to manage its debt portfolio. These instruments generally have maturities and terms consistent with the underlying debt instrument.

 

Changes in the fair value of cash flow hedges are recorded on the Consolidated Statement of Earnings or as a component of Accumulated Other Comprehensive Income (Loss). The amounts included in Accumulated Other Comprehensive Income (Loss) will be reclassified into income when the forecasted transactions occur, generally within the next twelve months. These forecasted transactions represent the exporting of products for which Briggs & Stratton will receive foreign currency and the importing of products for which it will be required to pay in a foreign currency. Changes in the fair value of fair value hedges related to interest rate swaps are recorded as an increase/decrease to long-term debt. Changes in the fair value of all derivatives deemed to be ineffective are recorded as either income or expense in the accompanying Consolidated Statements of Earnings. See discussion in Note 13.

 

Reclassification: Certain amounts in prior year financial statements have been reclassified to conform to current year presentation.

 

(3) Acquisitions:

 

On July 7, 2004, Briggs & Stratton and its subsidiary, Briggs & Stratton Power Products Group, LLC (“BSPPG”) acquired Simplicity Manufacturing, Inc. (“Simplicity”). Simplicity designs, manufactures and markets a wide variety of premium yard and garden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. The purchase price included $250.2 million of cash, a $2.3 million liability for future tax benefits, and $135.3 million of liabilities assumed. The cash paid included $17.8 million of cash acquired and $9.4 million of direct acquisition costs.

 

The Simplicity acquisition has been accounted for using the purchase method of accounting. The purchase price was allocated to identifiable assets acquired and liabilities assumed based upon their estimated fair values, with the excess purchase price recorded as goodwill. Final adjustments to the purchase price allocation, which will include the resolution of certain tax matters, are not expected to be material to the consolidated financial statements.

 

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Assets Acquired:

 

 

 

Current Assets

 

$

123,055

 

Property, Plant and Equipment

 

62,960

 

Goodwill

 

102,853

 

Other Intangible Assets

 

98,120

 

Other Noncurrent Assets

 

867

 

Total Assets

 

387,855

 

Liabilities Assumed:

 

 

 

Current Liabilities

 

51,299

 

Deferred Tax Liabilities

 

46,846

 

Post Retirement Benefits

 

36,665

 

Other Noncurrent Liabilities

 

503

 

Total Liabilities

 

135,313

 

Net Assets

 

$

252,542

 

 

27



 

The following table summarizes pro forma results for the twelve months ended June 27, 2004, as though the business combination had been completed at the beginning of the earliest comparable period (in thousands, except per share data):

 

 

 

Twelve Months Ended

 

 

 

June 27, 2004

 

Net Sales

 

$

2,267,222

 

Net Income

 

$

142,815

 

 

 

 

 

Basic Earnings Per Share

 

$

3.15

 

Diluted Earnings Per Share

 

$

2.90

 

 

On February 11, 2005, Briggs & Stratton Corporation and its subsidiaries, Briggs & Stratton Power Products Group, LLC and Briggs & Stratton Canada, Inc. acquired certain assets of Murray, Inc. and Murray Canada Co. (collectively “Murray”) and entered into a transition supply agreement (“TSA”). The TSA gives Briggs & Stratton the right to purchase finished lawn, garden and snow products from Murray for a period up to eighteen months. Briggs & Stratton has reached an agreement with Murray to end the TSA effective September 30, 2005. The cash purchase price was $122.7 million, including direct acquisition costs of $1.8 million. Briggs & Stratton financed the acquisition through the issuance of $125 million variable rate Term Notes due February 11, 2008, with no prepayment penalty. The Term Notes have financial and operating restrictions consistent with other debt agreements, as disclosed in Note 8. Although no liabilities were assumed pursuant to the asset purchase agreement, there are certain consumer and customer related obligations incident to the acquisition that have been considered. In addition, there were certain obligations created by the TSA that have been considered in purchase accounting.

 

The Murray 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 recognized (as discussed above) based upon their estimated fair values. The estimated fair value of Murray assets acquired exceeded the acquisition cost by $19.8 million, after all tax considerations, and this amount was recognized as an extraordinary gain. Final adjustments to the purchase price allocation are not expected to be material to the consolidated financial statements.

 

The following table summarizes the fair value of the assets acquired, liabilities assumed and extraordinary gain recognized at the date of acquisition (in thousands):

 

Assets Acquired:

 

 

 

Accounts Receivable, net

 

$

78,851

 

Inventory, net

 

83,286

 

Deferred Tax Asset

 

3,263

 

Total Assets

 

165,400

 

Liabilities Recognized:

 

 

 

Federal and State Taxes Payable

 

13,015

 

Rebates

 

4,241

 

Warranty

 

1,850

 

TSA Obligations

 

3,810

 

Total Liabilities

 

22,916

 

Net Assets

 

142,484

 

Cash Paid

 

122,684

 

Extraordinary Gain:

 

$

19,800

 

 

Subsequent to fiscal year 2005, Briggs & Stratton received a refund of $6.3 million of its purchase price for receivables identified as uncollectible. All remaining acquired receivables, net, have been collected.

 

28



 

(4) Goodwill and Other Intangible Assets:

 

The changes in the carrying amount of goodwill for the fiscal years ended July 3, 2005 and June 27, 2004 are as follows (in thousands):

 

 

 

2005

 

2004

 

Beginning Goodwill Balance

 

$

151,991

 

$

159,756

 

Goodwill Acquired During the Period

 

102,853

 

 

Tax Benefit on Amortization

 

(1,778

)

(2,079

)

Purchase Accounting Adjustments

 

 

(5,686

)

Ending Goodwill Balance

 

$

253,066

 

$

151,991

 

 

See Note 3 for a discussion of goodwill from business acquisitions during fiscal 2005.

 

The Company’s other intangible assets, primarily from acquisitions, are valued based on independent appraisals and, for the years ended July 3, 2005 and June 27, 2004 are as follows (in thousands):

 

 

 

2005

 

2004

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Carrying

 

Accumulated

 

 

 

Carrying

 

Accumulated

 

 

 

 

 

Amount

 

Amortization

 

Net

 

Amount

 

Amortization

 

Net

 

Amortized Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

$

13,280

 

$

(1,116

)

$

12,164

 

$

70

 

$

(29

)

$

41

 

Customer Relationships

 

17,910

 

(716

)

17,194

 

 

 

 

Miscellaneous

 

279

 

(192

)

87

 

279

 

(145

)

134

 

Total Amortized Intangible Assets

 

31,469

 

(2,024

)

29,445

 

349

 

(174

)

175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks/Brand Names

 

67,000

 

 

67,000

 

 

 

 

Total Unamortized Intangible Assets

 

67,000