1
                                   FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


(Mark One)  
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE 
                 SECURITIES EXCHANGE ACT OF 1934 

       For the fiscal year ended    JUNE 28, 1998 
                                      OR
[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934                           
       For the transition period from ____________ to ____________

Commission file number 1-1370

                          BRIGGS & STRATTON CORPORATION
                          -----------------------------
             (Exact name of registrant as specified in its charter)

             A Wisconsin Corporation                       39-0182330
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         (State or other jurisdiction of               (I.R.S. Employer
         incorporation or organization)                Identification No.)

             12301 WEST WIRTH STREET
              WAUWATOSA, WISCONSIN                            53222
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         (Address of principal executive offices)           (Zip Code)

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

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


Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock (par value $0.01 per share) New York Stock Exchange Common Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $877,470,000 based on the reported last sale price of such securities as of August 20, 1998. Number of Shares of Common Stock Outstanding at August 20, 1998: 23,623,591. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Part of Form 10-K Into Which Portions Document of Document are Incorporated -------- ---------------------------- Proxy Statement for Annual Meeting on October 21, 1998 Part III The Exhibit Index is located on page 30. 2 BRIGGS & STRATTON CORPORATION 1998 FORM 10-K - TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business 1 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Security Holders 4 Executive Officers of the Registrant 4 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 5 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28 PART III Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 Item 13. Certain Relationships and Related Transactions 28 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28 Signatures 29
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS Certain statements in Item 1. Business and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words "anticipate", "believe", "estimate", "expect", "objective", and "think" or similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things, the effects of weather on the purchasing patterns of the Company's customers and end use purchasers of the Company's engines; the seasonal nature of the Company's business; actions of competitors; changes in laws and regulations, including accounting standards; employee relations; customer demand; prices of purchased raw materials and parts; domestic economic conditions, including housing starts and changes in consumer disposable income; foreign economic conditions, including currency rate fluctuations; the ability of the Company's customers and suppliers to meet year 2000 compliance; and unanticipated internal year 2000 issues. Some or all of the factors may be beyond the Company's control. 3 PART I ITEM 1. BUSINESS GENERAL Briggs & Stratton Corporation is the world's largest producer of air cooled gasoline engines for outdoor power equipment. The Company designs, manufactures, markets and services these products for original equipment manufacturers (OEMs) worldwide. These engines are aluminum alloy gasoline engines ranging from 3 through 22 horsepower. The Company's engines are used primarily by the lawn and garden equipment industry, which accounted for 79% of fiscal 1998 OEM engine sales. The major lawn and garden equipment applications include walk-behind lawn mowers, riding lawn mowers and garden tillers. The remaining 21% of OEM sales in fiscal 1998 were for use on many products for industrial, construction, agricultural and consumer applications, including generators, pumps and pressure washers. Many retailers specify the Company's engines on the powered equipment they sell, and the Briggs & Stratton name is often featured prominently on a product despite the fact that its engine is just a component. Briggs & Stratton engines are marketed under various brand names including Classic(TM), Sprint(TM), Quattro (TM), Quantum(R), INTEK(TM), I/C(R), Diamond I/C(R), Industrial Plus(TM) and Vanguard(TM). In fiscal 1998, approximately 22% of the Company's net sales were derived from sales in international markets, primarily to customers in Europe. Briggs & Stratton serves its key international markets through its European regional office in Switzerland, its distribution center in the Netherlands and sales and service subsidiaries in Australia, Austria, Canada, Czech Republic, France, Germany, New Zealand, Sweden, the United Kingdom and Mexico. The Company is a leading supplier of gasoline engines in developed countries where there is an established lawn and garden equipment market. The Company also exports to developing nations where its engines are used in agricultural, marine, construction and other applications. Briggs & Stratton engines are sold primarily by its worldwide sales force through direct calls on customers. The Company's marketing staff and engineers 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. The Company 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 30,000 independently owned authorized service dealers throughout the world. These distributors and service dealers implement Briggs & Stratton's commitment to reliability and service. CUSTOMERS The Company's sales are primarily made directly to original equipment manufacturers. The Company's three largest customers accounted for 46%, 46% and 48% of net sales in fiscal 1998, 1997 and 1996, respectively. Sales to the Company's largest engine customer, MTD Products Inc., were 18%, 21% and 21% of net sales in fiscal 1998, 1997 and 1996, respectively. Sales to its second largest customer, AB Electrolux (including its Frigidaire Home Products group), were 15%, 14% and 14% of net sales in fiscal 1998, 1997 and 1996, respectively, and sales to its third largest customer, Tomkins PLC (including its Murray subsidiary products), were 13%, 11% and 13% of net sales in fiscal 1998, 1997 and 1996, respectively. Under purchasing plans available to all of its gasoline engine customers, the Company typically enters into annual engine supply arrangements with these large customers. The Company has no reason to anticipate a change in this practice or in its historical business relationships with these equipment manufacturers. Over the past several years, sales in the United States of lawn and garden equipment by mass merchandisers have increased significantly, while sales by independent distributors and dealers have declined. The Company believes that in 1998 more than 75% of all lawn and garden equipment sold in the United States was sold through mass merchandisers such as Sears, Wal-Mart, Kmart, Home Depot and Lowe's. Given the buying power of the mass merchandisers, the Company, through its 1 4 customers, has experienced pricing pressure. The Company expects that this trend will continue in the foreseeable future. The Company believes that a similar trend has developed for commercial products for industrial and consumer applications. COMPETITION The small gasoline engine industry is highly competitive. The Company's major domestic competitors in engine manufacturing are Tecumseh Products Company, Honda Motor Co., Ltd., Kohler Co. and Kawasaki Heavy Industries, Ltd. Also, two domestic lawn mower manufacturers, Toro Co. under its Lawn-Boy brand, and Honda, manufacture their own engines. Eight Japanese small engine manufacturers, of which Honda and Kawasaki are the largest, compete directly with the Company in world markets in the sale of engines and indirectly through their sale of end products that compete with the end products produced by the Company's customers. Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe. The Company 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 and product support and distribution strength. Briggs & Stratton believes its product quality and service reputation have given it strong brand name recognition and enhance its competitive position. SEASONALITY OF DEMAND Sales of engines to lawn and garden equipment manufacturers are highly seasonal because of the buying patterns of retail customers. The majority of lawn and garden equipment is sold during the spring and summer months when most lawn care and gardening activities are performed. Sales of lawn and garden equipment are also influenced by weather conditions. Sales in the Company's fiscal third quarter have historically been the highest, while sales in the first fiscal quarter have historically been the lowest. The sale of lawn and garden equipment has shifted from smaller dealers to larger mass merchandisers, who do not wish to carry large inventories of lawn and garden equipment. In order to efficiently use its capital investments and meet seasonal demand for engines, the Company pursues a balanced production schedule throughout the year, subject to ongoing adjustment to reflect changes in estimated demand, customer inventory levels and other matters outside the control of the Company. Accordingly, inventory levels are generally higher during the first and second fiscal quarters in anticipation of increased customer demand in the third fiscal quarter, at which time inventory levels begin to decrease as sales increase. In recent years, lawn and garden equipment manufacturers have tended to place orders with engine manufacturers and to take deliveries later in the selling season, specifically later in the Company's third fiscal quarter and in the Company's fourth fiscal quarter. This seasonal pattern results in high inventories and receivables and low cash for the Company in the second and the beginning of the third fiscal quarters, with a rapid shift to lower inventories and receivables and ultimately higher cash in the latter portion of the third fiscal quarter and in the fourth fiscal quarter. MANUFACTURING Briggs & Stratton manufactures engines and parts at the following locations in the United States: Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, Alabama; and Statesboro, Georgia. The Company has a parts distribution center in Menomonee Falls, Wisconsin. Parts and components are manufactured at foundries located in West Allis, Wisconsin and Ravenna, Michigan. The Company believes that it has adequate capacity to meet its currently anticipated production needs. Briggs & Stratton manufactures a majority of the structural components used in its engines, including ductile iron castings, aluminum die castings and a high percentage of other major components, such as carburetors and ignition systems. The Company purchases certain finished 2 5 standard commercial parts such as piston rings, spark plugs, valves, grey iron castings, zinc die castings and plastic components, some stampings and screw machine parts and smaller quantities of other components. Raw material purchases are principally for aluminum, iron and steel. The Company believes its sources of supply are adequate. The Company has joint ventures with Daihatsu Motor Company for the manufacture of engines in Japan, with Puling Machinery Works and Yimin Machinery Plant for the production of engines in China, and with Starting Industrial of Japan for the production of rewind starters in the U.S. The Company also has two new joint ventures in India. Kirloskar Briggs & Stratton, a joint venture with Kirloskar Oil Engines Ltd., will be responsible for sales and distribution of Briggs & Stratton engines and parts in India and will assemble and distribute generators and pumps powered by Briggs & Stratton engines. Hero Briggs & Stratton is a joint venture with Hero Motors, part of the Hero Group, for the manufacture of engines and transmissions to be used in two wheel transportation vehicles. The Company has a strategic relationship with Mitsubishi Heavy Industries (MHI) for the international distribution of engines for outdoor power equipment manufactured by MHI in Japan. OTHER GENERAL INFORMATION The Company holds certain patents on features incorporated in its products; however, the success of the Company's business is not considered to be primarily dependent upon patent protection. Licenses, franchises and concessions are not a material factor in the Company's business. For the years ending June 28, 1998, June 29, 1997 and June 30, 1996, the Company spent approximately $19,950,000, $19,525,000 and $15,019,000, respectively, on Company sponsored research activities relating to the development of new products or the improvement of existing products. The average number of persons employed by the Company during the fiscal year was 7,350. Employment ranged from a low of 7,205 in July 1997 to a high of 7,486 in October 1997. EXPORT SALES Export sales for fiscal 1998 were $288,510,000 (22% of total sales), for fiscal 1997 were $304,230,000 (23% of total sales) and for fiscal 1996 were $323,747,000 (25% of total sales). These sales were principally to customers in European countries. ITEM 2. PROPERTIES The corporate offices and two of the Company's manufacturing facilities are located in suburbs of Milwaukee, Wisconsin. The Company also has manufacturing facilities in Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, Alabama; Statesboro, Georgia; and Ravenna, Michigan. These are owned facilities containing over 3.9 million square feet of office and production area. The Company occupies warehouse space totalling 400,000 square feet in a suburb of Milwaukee, Wisconsin under a reservation of interest agreement. The engine business is seasonal, with demand for engines at its height in the winter and early spring. Engine manufacturing operations run at capacity levels during the peak season, with many operations running three shifts. Engine operations generally run one shift in the summer, when demand is weakest and production is considerably under capacity. During the winter, when finished goods inventories reach their highest levels, owned warehouse space may be insufficient and capacity may be expanded through rented space. Excess warehouse space exists in the spring and summer seasons. The Company's owned properties are well maintained. The Company leases 174,000 square feet of space to house its European warehouse in the Netherlands and its foreign sales and service operations in Australia, Austria, Canada, the Czech Republic, France, Germany, Mexico, New Zealand, Sweden, Switzerland and the United Kingdom. 3 6 ITEM 3. LEGAL PROCEEDINGS There are no pending legal proceedings that are required to be reported under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended June 28, 1998. EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age, Position Business Experience for Past Five Years - ------------------- --------------------------------------- FREDERICK P. STRATTON, JR., 59 Mr. Stratton was elected to the position of Chief Executive Officer in May Chairman and Chief Executive Officer 1977 and Chairman in November 1986. He also served in the position of President (1) (2) (3) from January 1992 to August 1994. JOHN S. SHIELY, 46 Mr. Shiely was elected to his current position in August 1994, after serving President and Chief Operating Officer as Executive Vice President - Administration since November 1991. (1) (2) ROBERT H. ELDRIDGE, 59 Mr. Eldridge was elected to his current position effective April 1995. He has Executive Vice President and served as Secretary-Treasurer since January 1984. Chief Financial Officer, Secretary-Treasurer (1) MICHAEL D. HAMILTON, 56 Mr. Hamilton was elected to his present position effective June 1989. Executive Vice President - Sales and Service JAMES A. WIER, 55 Mr. Wier was elected to his current position in April 1989. Executive Vice President - Operations JAMES E. BRENN, 50 Mr. Brenn was elected to his current position in November 1988. Vice President and Controller RICHARD J. FOTSCH, 43 Mr. Fotsch was elected to his current position effective July 1997, after serving Senior Vice President - in the executive officer position of Vice President; General Manager - Small Engine Group Engine Division since May 1993. HUGO A. KELTZ, 50 Mr. Keltz was elected to his present position in May 1992. Vice President - International CURTIS E. LARSON, JR., 50 Mr. Larson was elected to this executive officer position in October 1995 after Vice President - Distribution serving as Vice President - Industrial Engine Division since January 1993. Sales and Service
4 7 PAUL M. NEYLON, 51 Mr. Neylon was elected to his current position in May 1993. Vice President; General Manager - Spectrum Division WILLIAM H. REITMAN, 42 Mr. Reitman was elected an executive officer effective April 20, 1998. He has Vice President - Marketing served as Vice President - Marketing since November 1995, after serving as Marketing Director - New Ventures since March 1993. STEPHEN H. RUGG, 51 Mr. Rugg was elected to his current position in November 1995, after serving as Vice President - Sales Vice President - Sales and Marketing since November 1988. THOMAS R. SAVAGE, 50 Mr. Savage was elected to his current position effective July 1997, after Senior Vice President - Administration serving as Vice President - Administration and General Counsel since November 1994. He joined the Company in April 1992 as General Counsel. GREGORY D. SOCKS, 49 Mr. Socks was elected to his current position effective July 1997, after serving Vice President; General Manager - in the executive officer position of Vice President; General Manager - Large Castings Division Engine Division since May 1993. GERALD E. ZITZER, 51 Mr. Zitzer was elected to his current position in November 1988. Vice President - Human Resources
(1) Officer is also a Director of the Company. (2) Member of Executive Committee. (3) Member of Planning Committee. Officers are elected annually and serve until they resign, die, are removed, or a different person is appointed to the office. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this Item is incorporated by reference to "Quarterly Financial Data, Dividend and Market Information" on page 27. 5 8 ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year 1998 1997 1996 1995 1994 (dollars in thousands, except per share data) SUMMARY OF OPERATIONS NET SALES 1,327,610 1,316,413 1,287,029 1,339,677 1,285,517 GROSS PROFIT ON SALES 254,674 221,216 261,748 271,618 266,540 PROVISION FOR INCOME TAXES 42,500 37,740 56,640 65,570 67,240 NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 70,645 61,565 92,412 104,805 102,481 NET INCOME 70,645 61,565 92,412 104,805 69,923 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (000) 24,666 28,551 28,927 28,927 28,927 DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (000) 24,775 28,678 29,059 29,072 29,120 PER SHARE OF COMMON STOCK: Basic Earnings before cumulative effect of accounting changes 2.86 2.16 3.19 3.62 3.54 Basic Earnings 2.86 2.16 3.19 3.62 2.42 Diluted Earnings 2.85 2.15 3.18 3.61 2.40 Cash Dividends 1.12 1.09 1.05 .98 .90 Shareholders' Investment 13.28 13.82 17.30 15.19 13.96 OTHER DATA SHAREHOLDERS' INVESTMENT 316,488 351,097 500,505 439,478 403,792 LONG-TERM DEBT 128,102 142,897 60,000 75,000 75,000 TOTAL ASSETS 793,409 842,189 838,164 798,493 777,355 PLANT AND EQUIPMENT 812,428 796,714 776,638 726,331 669,593 PLANT AND EQUIPMENT, NET OF RESERVES 391,927 396,266 374,212 343,297 285,890 PROVISION FOR DEPRECIATION 47,511 43,345 43,032 44,445 42,950 EXPENDITURES FOR PLANT AND EQUIPMENT 45,893 71,262 77,746 131,034 40,804 WORKING CAPITAL 159,101 204,422 266,208 256,075 276,040 Current Ratio 1.7 to 1 2.0 to 1 2.4 to 1 2.3 to 1 2.3 to 1 NUMBER OF EMPLOYEES AT YEAR END 7,265 7,661 7,199 6,958 8,628 NUMBER OF SHAREHOLDERS AT YEAR END 4,911 5,336 5,879 6,792 6,228 QUOTED MARKET PRICE: High 53-3/8 53-5/8 46-7/8 39-1/4 45-1/8 Low 36-7/8 36-1/2 32-3/4 30-1/2 32-1/2
NOTES: (1) The number of shares of common stock and per share data have been adjusted for a 2-for-1 stock split in fiscal 1995. (2) The cumulative effects of accounting changes in 1994 were for postretirement health care, postemployment benefits and deferred income taxes. 6 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL 1998 COMPARED TO FISCAL 1997 Sales Net sales for fiscal 1998 totaled $1,328 million, up 1% or $11 million from the preceding year. This increase resulted primarily from a $34 million increase in sales dollars due to a 3% increase in engine unit shipments and a $6 million increase in service parts sales due to increased demand. These increases were partially offset by a $19 million decrease in sales dollars due to a mix change to lower horsepower, lower priced engines and a $10 million decrease in revenue from European customers with whom the Company shares currency risk. Gross Profit The gross profit margin for the 1998 fiscal year increased to 19% from 17% in the 1997 fiscal year. The primary reason for this favorable change was the lack of the $37 million charge related to the early retirement window (described later). There was also a $2 million increase due to improvements in manufacturing productivity. These were offset by the $10 million in lost gross profit due to the reduced revenue from European customers described above. Engineering, Selling, General and Administrative Expenses Engineering, selling, general and administrative expenses increased $12 million or 11% between years. This increase was caused primarily by the costs associated with the new company-wide information system which totaled $7 million (discussed later) and increased costs of new venture activities which totaled $7 million, of which $4 million related to the Company's POWERCOM software business. The Company signed a letter of intent for the sale of its POWERCOM software business shortly after the end of the fiscal year. This sale is not expected to result in any material gains or losses. Interest Expense Interest expense for the 1998 fiscal year was $9 million higher than in 1997. This resulted from using increased domestic short-term borrowings to finance seasonal increases in accounts receivable and inventories during the year and an increase in long-term debt over the preceding year. Seasonal borrowings were paid off by the end of the fiscal year. Provision for Income Taxes The effective tax rate decreased to 37.6% in 1998 from 38.0% in the previous year. This was due primarily to reductions in the foreign tax provision and in other tax related items that were individually insignificant. FISCAL 1997 COMPARED TO FISCAL 1996 Sales Net sales for fiscal 1997 increased 2% or $29.4 million compared to the prior year. The primary reason for this was a 1% increase in engine unit shipments. The remaining 1% increase in net sales was a result of modest price increases and a mix improvement. Gross Profit Gross profit for fiscal 1997 decreased 15% or $40.5 million compared to the same period in the prior year. The primary reason for this decrease was a charge of $37.1 million related to an early retirement window accepted by certain Milwaukee hourly employees in accordance with the current union contract. The gross profit rate was 17% in fiscal 1997 compared to 20% in fiscal 1996. In addition to the early retirement window, the gross profit rate was also negatively impacted by increases in warranty expenses totaling $9.3 million due to claims experience, increases in the unit price of aluminum totaling $3.7 million, and the absence in fiscal 1997 of the $3.5 million credit for employees who had accepted early retirement in fiscal 1995 and canceled their acceptance in fiscal 1996. Savings from lower labor costs at the Company's new engine plants partially offset the preceding factors impacting the gross profit rate. Engineering, Selling, General and Administrative Expenses Engineering, selling, general and administrative expenses for fiscal 1997 increased 8% or $9.2 million compared to fiscal 1996. This increase was primarily due to increased employee compensation of $4.0 million, planned increases in manpower and other costs of $2.7 million relating to new venture activities, and increased professional services of $1.5 million primarily resulting from the start of the implementation of a new enterprise-wide information system. 7 10 Provision for Income Taxes The effective income tax rate used in both periods was 38.0%. LIQUIDITY AND CAPITAL RESOURCES FISCAL YEARS 1998, 1997 AND 1996 Cash flows from operating activities was $136 million, $143 million and $94 million, in fiscal 1998, 1997 and 1996, respectively. The primary source of funds was from net income excluding depreciation. The significant change between fiscal 1997 and fiscal 1996 amounts was due to changes in working capital as explained below. The fiscal 1998 cash flow from operating activities reflects a $7 million increase in accounts receivable and an $18 million decrease in inventories resulting from increased sales late in the last fiscal quarter. The fiscal 1997 cash flow from operating activities reflects an increase in accounts receivable of $11 million and lower inventories of $11 million resulting from increased sales at the end of the fiscal year when compared to the previous year. Also, increased accounts payable of $17 million caused by the timing of payments, increased accrued liabilities of $5 million resulting primarily from increased profit sharing provisions, and increased federal and state income taxes payable of $4 million caused by the timing of payments, all contributed to the cash flows of the Company. The fiscal 1996 cash flow from operating activities reflects an increase in receivables of $25 million resulting from higher sales at the end of the fiscal year and a decrease in accrued liabilities of $26 million primarily due to decreased profit sharing provisions. Net cash used in investing activities amounted to $45 million, $51 million and $77 million in fiscal 1998, 1997 and 1996, respectively. Cash flows used in investing activities included additions to plant and equipment of $46 million, $71 million and $78 million in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 capital expenditures principally related to investment in equipment. The fiscal 1997 capital expenditures related primarily to reinvestment in equipment and new products, while the fiscal 1996 expenditures principally related to the construction of three new engine manufacturing plants and a foundry and plant expansions at existing facilities. The 1997 cash flows from investing activities also included $16 million related to the sale of the Menomonee Falls, Wisconsin facility. The sale of this facility is described under "Other Matters." Net cash used in financing activities amounted to $119 million, $129 million and $38 million in fiscal 1998, 1997 and 1996, respectively. These financing activities included the repurchase of the Company's common stock, totaling $86 million in 1998 and $179 million in 1997. In each of fiscal 1998 and 1997, $15 million was paid on the 9.21% Senior Notes due 2001. Cash dividends totaled $28 million, $31 million and $30 million in fiscal 1998, 1997 and 1996, respectively. The cash dividends in 1998 were less than those paid in the preceding two years because the common stock repurchase program resulted in less stock outstanding in that year. In fiscal 1997, the Company issued ten-year notes which resulted in $98 million of net proceeds from the offering. The $9 million in proceeds from the exercise of stock options in 1998 was substantially higher than in prior years due to increased option activity. Future Liquidity and Capital Resources The Company has in place a $250 million revolving credit facility to be used to fund seasonal working capital requirements and other financing needs. This credit facility expires in April 2002 and contains certain restrictive covenants. Because the Company has been using some available cash in its ongoing stock repurchase program, the Company will be placing more reliance on borrowings to fund working capital needs than it did prior to fiscal 1997. Accordingly, the Company experienced higher interest expense in fiscal 1998, and anticipates interest expense to remain at such higher levels in the future. In May 1997, the Company filed a shelf registration for $175 million of debt securities to be issued periodically. Of this, $75 million has not yet been issued on the registration statement. The Company may decide to offer all or part of the remaining securities depending on many factors, including general economic conditions, cash required for operations and the timing of the remaining open market repurchases of its common stock. Management expects capital expenditures to total $72 million in fiscal 1999, consisting of projects which include reinvestment in equipment and new products. Management believes that available cash, the credit facility, cash generated from operations, existing lines of credit and access to public debt markets will be adequate to fund the Company's capital requirements for the foreseeable future. 8 11 FINANCIAL STRATEGY Management of the Company subscribes to the premise that the value of the Company is enhanced if the capital invested in the Company's operations yields a cash return that is greater than the Company's cost of capital. Given this belief, the Company implemented this financial strategy by means of a "dutch auction" tender offer (described below) and a public debt offering in fiscal 1997. The Company also continued the repurchase of its outstanding common stock in the open market in the 1998 fiscal year. The Company believes this will provide a capital structure that makes greater use of financial leverage without imposing excessive risk on either the Company's shareholders or creditors. The Company also believes that the substitution of lower (after-tax) cost debt for equity in its permanent capital structure will reduce its overall cost of capital and that its profitability and strong cash flows will accommodate the increased use of debt without impairing its ability to finance growth or increase cash dividends per share on its common stock. In fiscal 1997, the Company's Board of Directors authorized the purchase of up to $300 million of shares of its common stock by means of a tender offer and open market or private transactions. As of June 28, 1998, purchases totaled $264 million. Future purchases will depend on many factors, including the market price of the shares, the Company's business and financial position, and general economic and market conditions. The Company intends to fund any future purchases of its common stock through a combination of available cash, cash generated from operations and additional borrowings. Also as a part of its financial strategy, subject to the discretion of its Board of Directors and the requirements of applicable law, the Company currently intends to increase future cash dividends per share at a rate approximating the inflation rate. OTHER MATTERS Year 2000 Issues The Company is implementing a new company-wide information system. This new system is expected to address the great majority of information technology year 2000 computer issues. The new system will replace the Company's mainframe computer, which is being retired in early calendar 1999. The new system has been installed and implementation has been completed in approximately one-half of the Company's U.S. operations. Other internal year 2000 issues not directly related to the previously described project are being addressed and tested in parallel with the main project. These are expected to be completed by the middle of the 1999 calendar year. Project expenditures to date total $26 million. The Company expects to incur an additional $8 million of incremental costs, running through the 2002 fiscal year, because of related projects. The Company has developed an overall comprehensive Year 2000 Program to address year 2000 issues. This program is based on the Automotive Industry Action Group's model system consisting of five steps: Awareness; Inventory and Assessment; Remediation; Testing; and Readiness Certification. Oversight of the program is the responsibility of a group of senior executives with progress reported to the Company's Board of Directors. A risk assessment and exposure analysis has been made, and each area has been ranked as high, medium or low. The Company's high risk areas have been identified as information technology systems and infrastructures, customers, suppliers, and financial institutions. The software for a new company-wide information system, which is broad based, has already been installed and is effectively in use for over 50% of company operations. And since remaining operations are substantially similar, management does not anticipate the need to develop an extensive contingency plan for information technology systems. The non-information technology systems are midway through the assessment phase and remediation is scheduled for completion by mid-calendar year 1999 without material incremental costs anticipated. Based on the assessment of its non-information technology systems to date, the Company currently does not anticipate the need to develop an extensive contingency plan for non-information systems, so it is not expecting to incur material incremental costs to do this. The Company's largest customers have certified that they will be year 2000 compliant before the end of calendar year 1999, as to their relationships with the Company. The identification of critical vendors has been completed and a survey is scheduled for completion by the first quarter of calendar year 1999. Alternative suppliers will be identified for those not expected to be compliant by the end of 1999, as to their relationships with the Company. The Company's financial institutions are currently being surveyed and it is anticipated that they are year 2000 compliant, or will be before the end of calendar year 1999. 9 12 Selected areas, both internal and external, will be tested to assure the integrity of the Company's remediation programs. The testing will be completed by mid-calendar year 1999. It is anticipated that any requisite changes necessary to become year 2000 compliant will be completed prior to mid-calendar year 1999 and contingency plans will be developed, as necessary, to address unforeseen circumstances prior to the end of calendar year 1999. The Company believes its Year 2000 Program is adequate to detect in advance year 2000 compliance issues, and that it has the necessary resources to remedy them. However, the year 2000 problem has many aspects and potential consequences, some of which are not reasonably foreseeable, and there can be no assurance that unforeseen consequences will not arise. Emissions The U.S. Environmental Protection Agency (EPA) is developing national emission standards under a two phase process for small air cooled engines. The Company currently has a complete product offering which complies with EPA's Phase I engine emission standards. The EPA issued a Notice of Proposed Rulemaking for Phase II emission standards in January of 1998 incorporating the agreement in principle reached between EPA and several engine manufacturers, including the Company. This proposed Phase II program will impose more stringent standards over the useful life of the engine and will be phased in from 2001 to 2005. EPA expects to finalize the Phase II regulation by the end of 1998. While it is impossible to precisely quantify the cost of compliance until the standards are issued, the Company believes compliance with the new standards will not have a material adverse effect on its financial position or results of operations. The California Air Resources Board (CARB) staff completed a review of the existing Tier II standards and proposed that alternative standards and implementation dates be adopted by CARB. Alternative Tier II standards were adopted by CARB at its March 26, 1998 meeting and are not harmonized with EPA's proposed Phase II, but rather require the accelerated introduction of overhead valve engine technology into California. In addition, individual companies which sell more than a threshold number of Class I engines into California must submit a supplemental compliance plan to CARB to achieve additional reductions in extreme non-attainment areas. While CARB's aggressive program may result in a reduced product offering by the Company in California, it is not anticipated that the California program will have a material effect on the financial condition or results of operations of the Company. Sale of the Menomonee Falls, Wisconsin Facility The sale of the Company's Menomonee Falls, Wisconsin facility for approximately $16.0 million was completed during fiscal 1997. 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 Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate," the Company is required to account for this as a financing transaction as the Company 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 a 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 fair value lease income on the non-Company occupied portion of the building. A pretax gain, which will be recognized at the earlier of the exercise of the buyout option or the expiration of the Reservation Period, is estimated to be $10 million to $12 million. The annual cost of operating the warehouse portion of the facility is not material. New Accounting Pronouncements In June 1998 the Financial Accounting Standards Board adopted Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities". This new standard will be effective for the Company in fiscal 2000, and requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Any fair value changes will be recorded in net income or comprehensive income. The Company does not expect that the adoption of this standard will have a material effect on the results of operations. 10 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, the Company selectively uses financial instruments. The Company does not hold or issue financial instruments for trading purposes. FOREIGN CURRENCY The Company's earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies primarily as a result of purchasing engines from its Japanese joint venture. The Company's foreign subsidiaries' earnings are also influenced by fluctuations of the local currency against the U.S. dollar as these subsidiaries purchase inventory from the parent in U.S. dollars. Forward foreign exchange contracts are used to partially hedge against the earnings effects of such fluctuations. At June 28, 1998, the Company had the following forward foreign exchange contracts outstanding at the Fair Value Gains and (Losses) shown (in thousands):
Notional U.S. Fair Value Currency Value Dollars Gains and (Losses) - -------- -------- ------- ------------------ Japanese Yen 3,600,000 28,000 ($2,200) Australian Dollars 400 300 60
All of the above contracts expire in less than one year. Although the Company sells its domestically produced engines to foreign customers in U.S. dollars, the Company has shared some of the currency risk with customers for certain sales transactions. Accordingly, the Company is exposed to fluctuations in foreign exchange rates, primarily related to the U.S. dollar/European Currency Unit rate. Historically, the Company has managed these risks through limitations on the amount of sharing provided to customers. These programs are generally for one year. Fluctuations in currency exchange rates may also impact the stockholders' equity of the Company. Amounts invested in the Company's non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at year end. The resulting translation adjustments are recorded in stockholders' equity as cumulative translation adjustments. The dollar was stronger relative to many of the foreign currencies at June 28, 1998 compared to June 29, 1997. Consequently, the cumulative translation adjustments component of stockholders' equity decreased $1.1 million during the year. Using the year-end exchange rates, the total amount invested in subsidiaries at June 28, 1998 was approximately $9.9 million. INTEREST RATES The Company is exposed to interest rate fluctuations on its borrowings. The Company manages its interest rate exposure through a combination of fixed and variable rate debt. Depending on general economic conditions, the Company has typically used variable rate debt for short-term borrowings and fixed rate debt for longer-term borrowings. At June 28, 1998, the Company had the following short-term loans outstanding (amount in thousands):
Average Annual Currency Amount Interest Rate - -------- ------ --------------- German Mark 19,561 4.52% British Pounds 140 8.10% Dutch Guilder 1,715 5.10% Irish Punt 227 6.90% Canadian Dollars 2,797 6.50% Swedish Krona 1,000 8.05% French Franc 665 5.19% U.S. Dollars 4,700 5.94%
All of the above loans carry variable interest rates. Long-term loans consisted of the following (amounts in thousands):
Description Amount Maturity - ----------- ------ -------- 9.21% Senior Notes $45,000 $15,000 in fiscal 1999, 2000 and 2001 7.25% Notes 98,102 2007
Each of the above loans carries a fixed rate of interest. 11 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS AS OF JUNE 28, 1998 AND JUNE 29, 1997 (in thousands)
ASSETS 1998 1997 ---- ---- CURRENT ASSETS: Cash and Cash Equivalents $ 84,527 $112,859 Receivables, Less Reserves of $1,537 and $1,522, Respectively 136,629 129,877 Inventories - Finished Products and Parts 58,975 83,361 Work in Process 45,217 37,922 Raw Materials 3,684 4,674 -------- -------- Total Inventories 107,876 125,957 Future Income Tax Benefits 31,287 31,602 Prepaid Expenses 21,727 18,121 -------- -------- Total Current Assets 382,046 418,416 DEFERRED INCOME TAX ASSETS 9,555 16,975 CAPITALIZED SOFTWARE 9,881 10,532 PLANT AND EQUIPMENT: Land and Land Improvements 15,781 15,548 Buildings 148,868 146,769 Machinery and Equipment 630,043 584,834 Construction in Progress 17,736 49,563 -------- -------- 812,428 796,714 Less - Accumulated Depreciation 420,501 400,448 -------- -------- Total Plant and Equipment, Net 391,927 396,266 -------- -------- $793,409 $842,189 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 12 15 AS OF JUNE 28, 1998 AND JUNE 29, 1997 (in thousands)
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997 ---- ---- CURRENT LIABILITIES: Accounts Payable $ 76,915 $ 82,166 Domestic Notes Payable 4,700 5,000 Foreign Loans 14,336 13,359 Current Maturities on Long-Term Debt 15,000 15,000 Accrued Liabilities - Wages and Salaries 29,502 25,767 Warranty 29,565 27,017 Other 42,398 34,769 --------- --------- Total Accrued Liabilities 101,465 87,553 Federal and State Income Taxes 10,529 10,916 --------- --------- Total Current Liabilities 222,945 213,994 DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT 15,893 15,966 ACCRUED PENSION COST 26,477 31,891 ACCRUED EMPLOYEE BENEFITS 12,571 12,324 ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION 70,933 74,020 LONG-TERM DEBT 128,102 142,897 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT: Common Stock - Authorized 60,000 shares $.01 Par Value, Issued 28,927 in 1998 and 1997 289 289 Additional Paid-In Capital 37,776 40,533 Retained Earnings 533,805 490,682 Cumulative Translation Adjustments (2,110) (1,033) Treasury Stock at cost, 5,103 shares in 1998 and 3,513 in 1997 (253,272) (179,374) --------- --------- Total Shareholders' Investment 316,488 351,097 --------- --------- $ 793,409 $ 842,189 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 13 16 CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED JUNE 28, 1998, JUNE 29, 1997 AND JUNE 30, 1996 (in thousands, except per share data)
1998 1997 1996 ---- ---- ---- NET SALES $ 1,327,610 $ 1,316,413 $ 1,287,029 COST OF GOODS SOLD 1,072,936 1,095,197 1,025,281 ----------- ----------- ----------- Gross Profit on Sales 254,674 221,216 261,748 ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 129,986 117,497 108,339 ----------- ----------- ----------- Income from Operations 124,688 103,719 153,409 INTEREST EXPENSE (19,352) (9,880) (10,069) OTHER INCOME, Net 7,809 5,466 5,712 ----------- ----------- ----------- Income Before Provision for Income Taxes 113,145 99,305 149,052 PROVISION FOR INCOME TAXES 42,500 37,740 56,640 ----------- ----------- ----------- NET INCOME $ 70,645 $ 61,565 $ 92,412 =========== =========== =========== Average Shares Outstanding 24,666 28,551 28,927 BASIC EARNINGS PER SHARE $ 2.86 $ 2.16 $ 3.19 =========== =========== =========== Diluted Average Shares Outstanding 24,775 28,678 29,059 DILUTED EARNINGS PER SHARE $ 2.85 $ 2.15 $ 3.18 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 14 17 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED JUNE 28, 1998, JUNE 29, 1997 AND JUNE 30, 1996 (in thousands)
Additional Cumulative Common Paid-In Retained Translation Treasury Stock Capital Earnings Adjustments Stock ----- ------- -------- ----------- ----- BALANCES, JULY 2, 1995 $ 289 $ 41,698 $ 397,627 $ (136) $ -- Net Income -- -- 92,412 -- -- Cash Dividends Paid ($1.05 per share) -- -- (30,373) -- -- Purchase of Common Stock for Treasury -- -- -- -- (1,185) Exercise of Stock Options -- (800) -- -- 1,185 Currency Translation Adjustments -- -- -- (212) -- --------- --------- --------- --------- --------- BALANCES, JUNE 30, 1996 289 40,898 459,666 (348) -- Net Income -- -- 61,565 -- -- Cash Dividends Paid ($1.09 per share) -- -- (30,549) -- -- Purchase of Common Stock for Treasury -- -- -- -- (179,924) Exercise of Stock Options -- (365) -- -- 550 Currency Translation Adjustments -- -- -- (685) -- --------- --------- --------- --------- --------- BALANCES, JUNE 29, 1997 289 40,533 490,682 (1,033) (179,374) Net Income -- -- 70,645 -- -- Cash Dividends Paid ($1.12 per share) -- -- (27,522) -- -- Purchase of Common Stock for Treasury -- -- -- -- (85,943) Exercise of Stock Options -- (2,757) -- -- 12,045 Currency Translation Adjustments -- -- -- (1,077) -- --------- --------- --------- --------- --------- BALANCES, JUNE 28, 1998 $ 289 $ 37,776 $ 533,805 $ (2,110) $(253,272) ========= ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 15 18 CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED JUNE 28, 1998, JUNE 29, 1997 AND JUNE 30, 1996 (in thousands)
1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 70,645 $ 61,565 $ 92,412 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities - Depreciation 47,511 43,345 43,032 Amortization of Discount on 7.25% Notes Due 2007 205 17 -- Loss on Disposition of Plant and Equipment 1,973 1,608 2,692 Provision for Deferred Income Taxes 7,735 (16,105) 770 Change in Operating Assets and Liabilities - (Increase) in Receivables (6,752) (10,531) (25,230) Decrease in Inventories 18,081 11,446 3,271 (Increase) in Other Current Assets (3,606) (2,396) (2,895) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes 8,274 25,378 (15,595) Other, Net (7,676) 28,590 (3,961) --------- --------- --------- Net Cash Provided by Operating Activities 136,390 142,917 94,496 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment (45,893) (71,262) (77,746) Proceeds Received on Sale of Plant and Equipment 620 4,133 1,069 Proceeds Received on Sale of Menomonee Falls, Wisconsin Facility -- 15,966 -- --------- --------- --------- Net Cash Used in Investing Activities (45,273) (51,163) (76,677) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable 677 (1,563) (6,481) Net Borrowings on 7.25% Notes Due 2007 -- 97,880 -- Repayment on 9.21% Senior Notes Due 2001 (15,000) (15,000) -- Cash Dividends Paid (27,522) (30,549) (30,373) Purchase of Common Stock for Treasury (85,943) (179,924) (1,185) Proceeds from Exercise of Stock Options 9,288 185 385 --------- --------- --------- Net Cash Used in Financing Activities (118,500) (128,971) (37,654) --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (949) (563) (174) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,332) (37,780) (20,009) CASH AND CASH EQUIVALENTS: Beginning of Year 112,859 150,639 170,648 --------- --------- --------- End of Year $ 84,527 $ 112,859 $ 150,639 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid $ 17,989 $ 9,298 $ 10,137 ========= ========= ========= Income Taxes Paid $ 33,352 $ 49,707 $ 48,865 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 16 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 28, 1998, JUNE 29, 1997 AND JUNE 30, 1996 (1) NATURE OF OPERATIONS: Briggs & Stratton Corporation (the Company) is a U.S. based producer of air cooled gasoline engines. These engines are sold primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment worldwide. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day of June in each year. Therefore, the 1998, 1997 and 1996 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 Briggs & Stratton Corporation and its wholly owned domestic and foreign subsidiaries after elimination of intercompany accounts and transactions. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: This caption includes cash, commercial paper and certificates of deposit. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at cost, which does not exceed market. The last-in, first-out (LIFO) method was used for determining the cost of approximately 88% of total inventories at June 28, 1998, and 93% at June 29, 1997 and June 30, 1996. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. If the FIFO inventory valuation method had been used exclusively, inventories would have been $48,100,000, $48,894,000 and $48,125,000 higher in the respective years. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts. Plant and Equipment and Depreciation: Plant and equipment is stated at cost, and depreciation is computed using the straight-line method at rates based upon the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in other income. Income Taxes: The Provision for Income Taxes includes Federal, state and foreign income taxes currently payable and those deferred or prepaid because of temporary differences between the financial statement and tax basis of assets and liabilities. The Future Income Tax Benefits represent temporary differences relating to current assets and current liabilities and the Deferred Income Tax Assets represent temporary differences relating to noncurrent assets and liabilities. Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $19,950,000 in 1998, $19,525,000 in 1997 and $15,019,000 in 1996. Accrued Employee Benefits: The Company's life insurance program includes payment of a death benefit to beneficiaries of retired employees. The Company accrues for the estimated cost of these benefits over the estimated working life of the employee. Past service costs for all retired employees have been fully provided for. The Company also accrues for the estimated cost of supplemental retirement and death benefit agreements with executive officers. 17 20 NOTES . . . Advertising Costs: Advertising costs, included in Engineering, Selling, General and Administrative Expenses on the accompanying Consolidated Statement of Earnings, are expensed as incurred. These expenses totaled $7,325,000 in 1998, $7,989,000 in 1997 and $7,066,000 in 1996. Foreign Currency Translation: Foreign currency balance sheet accounts are translated into United States dollars at the rates of exchange in effect at fiscal year end. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component of Shareholders' Investment. Start-Up Costs: It is the Company's policy to expense all start-up costs for new manufacturing plants. Under this policy, the Company expensed $11,660,000 in fiscal 1996. Capitalized Software: This caption represents costs of software used in the Company's business. Amortization of Capitalized Software is computed on an item-by-item basis over a period of three to ten years, depending on the estimated useful life of the software. Accumulated amortization amounted to $7,137,000 as of June 28, 1998, and $4,442,000 as of June 29, 1997. Deferred Revenue on Sale of Plant & Equipment: The sale of the Company's Menomonee Falls, Wisconsin facility for approximately $16.0 million was completed at the beginning of the fiscal quarter ended December 29, 1996. The provisions of the contract state that the Company will continue to own and occupy the warehouse portion of the facility for a period of up to ten years (the "Reservation Period"). The contract also contains a buyout clause, at the buyer's option and under certain circumstances, of the remaining Reservation Period. Under the provisions of Statement of Financial Accounting Standards (FAS) No. 66, "Accounting for Sales of Real Estate," the Company is required to account for this as a financing transaction as the Company 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 a 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-Company occupied portion of the building. A pretax gain, which will be recognized at the earlier of the exercise of the buyout option or the expiration of the Reservation Period, is estimated to be $10 million to $12 million. The annual cost of operating the warehouse portion of the facility is not material. Derivatives: The Company uses derivative financial instruments to manage its foreign currency and interest rate exposures. Gains and losses relating to hedges of probable transactions with noncontrolled subsidiaries and third parties are deferred and recognized as adjustments of carrying amounts when the transaction occurs. Gains and losses on hedges of transactions that are not probable of occurring and hedges of transactions with controlled subsidiaries are recognized in the Company's results of operations. Earnings Per Share: The Company adopted Financial Accounting Standard No. 128 during the second quarter of the current fiscal year. The Company's earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share, for each period presented, were computed on the assumption that stock options were exercised at the beginning of the periods reported. The difference between weighted average shares outstanding and diluted average shares outstanding reflects the dilutive effects of stock options. Earnings per share of common stock are computed based on the weighted average number of shares outstanding during each period. The shares repurchased on May 20, 1997 pursuant to the dutch auction tender offer, which totaled 3,506,190 shares at $51.00 per share, and the Company's ongoing share repurchase program affect the year-to-date comparisons. 18 21 NOTES . . . (3) INCOME TAXES: The provision for income taxes consists of the following (in thousands of dollars):
1998 1997 1996 ---- ---- ---- Current Federal $ 29,295 $ 45,474 $ 46,448 State 4,442 6,723 7,768 Foreign 1,028 1,648 1,654 -------- -------- -------- 34,765 53,845 55,870 Deferred 7,735 (16,105) 770 -------- -------- -------- Total $ 42,500 $ 37,740 $ 56,640 ======== ======== ========
A reconciliation of the U.S. statutory tax rates to the effective tax rates follows: 1998 1997 1996 ---- ---- ---- U.S. statutory rate 35.0% 35.0% 35.0% State taxes, net of Federal tax benefit 3.1% 3.1% 3.4% Foreign Sales Corporation tax benefit (.8%) (.9%) (.7%) Other .3% .8% .3% ----- ------ ----- Effective tax rate 37.6% 38.0% 38.0% ===== ====== ===== The components of deferred tax assets and liabilities at the end of the fiscal year were (in thousands of dollars): 1998 1997 ---- ---- Future Income Tax Benefits: Inventory $ 2,212 $ 2,916 Payroll related accruals 3,602 4,244 Warranty reserves 11,531 10,537 Other accrued liabilities 11,542 8,926 Miscellaneous 2,400 4,979 -------- -------- $ 31,287 $ 31,602 ======== ======== 1998 1997 ---- ---- Deferred Income Taxes: Difference between book and tax methods applied to maintenance and supply inventories $ 11,198 $ 12,464 Pension cost 7,137 9,688 Accumulated depreciation (53,109) (50,207) Accrued employee benefits 8,529 7,904 Postretirement health care obligation 27,664 28,868 Deferred revenue on sale of plant & equipment 6,198 6,226 Miscellaneous 1,938 2,032 -------- -------- $ 9,555 $ 16,975 ======== ======== The Company has not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. These undistributed earnings amounted to approximately $7,300,000 at June 28, 1998. If these earnings were remitted to the U.S., they would be subject to U.S. income tax. However, this tax would be substantially less than the U.S. statutory income tax because of available foreign tax credits. (4) EXPORT SALES AND SIGNIFICANT CUSTOMERS: Export sales for fiscal 1998 were $288,510,000 (22% of total sales), for fiscal 1997 were $304,230,000 (23%) and for fiscal 1996 were $323,747,000 (25%). These sales were principally to customers in European countries. In the fiscal years 1998, 1997 and 1996, there were sales to three major engine customers that exceeded 10% of total Company net sales. The sales to these customers are summarized below (in thousands of dollars and percent of total Company sales):
A $235,468 18% $282,428 21% $267,257 21% B 203,931 15% 180,770 14% 177,314 14% C 165,937 13% 142,840 11% 163,065 13% ------- -- ------- -- ------- -- $605,336 46% $606,038 46% $607,636 48% ======= == ======= == ======= ==
19 22 NOTES . . . (5) INDEBTEDNESS: The Company has access to a $250,000,000 revolving credit facility (the Credit Facility) which expires in April 2002. The Company also has access to additional domestic lines of credit totaling $18,000,000 which remain in effect until canceled by either party. They provide amounts for short-term use at the then prevailing rate. There are no significant compensating balance requirements for any of these lines, and there were no borrowings at June 28, 1998 using these lines or the Credit Facility. Borrowings under the Credit Facility by the Company bear interest at a rate per annum equal to, at its option, either: (1) the higher of (a) the bank's reference rate or (b) 0.5% per annum above the Federal Funds rate; or (2) LIBOR plus a margin that may be adjusted up or down based on the Company's debt ratings. The Credit Facility contains certain restrictive covenants that require the Company to maintain certain financial conditions including a maximum limit on the ratio of debt to capital and a minimum fixed charge coverage ratio. The Credit Facility imposes limitations on liens, certain indebtedness, the sales of assets and certain investments. The following data relates to domestic notes payable (in thousands of dollars): 1998 1997 ---- ---- Balance at Fiscal Year End $ 4,700 $ 5,000 Weighted Average Interest Rate at Fiscal Year End 5.94% 5.98% The lines of credit available to the Company in foreign countries are in connection with short-term borrowings and bank overdrafts used in the normal course of business. These amounts total $15,894,000, expire at various times through December, 1998 and are renewable. None of these arrangements had material commitment fees or compensating balance requirements. The following information relates to foreign loans (in thousands of dollars): 1998 1997 ---- ---- Balance at Fiscal Year End $14,336 $13,359 Weighted Average Interest Rate at Fiscal Year End 4.97% 4.49% The Long-Term Debt caption consists of the following (in thousands of dollars): 1998 1997 ---- ---- 9.21% Senior Notes Due 2001 at Face Amount $ 45,000 $ 60,000 7.25% Notes Due 2007, Net of Unamortized Discount of $1,898 in 1998 and $2,103 in 1997 98,102 97,897 -------- -------- $143,102 $157,897 Less Current Maturities 15,000 15,000 -------- -------- Total Long-Term Debt $128,102 $142,897 ======== ======== The 9.21% Senior Notes are due June 15, 2001. Payments on these notes are due in five equal annual installments beginning in 1997. The notes include covenants that limit total borrowings, require maintenance of a minimum net worth and set certain restrictions on the sale or collateralizing of the Company's assets. The 7.25% notes are due September 15, 2007. No principal payments are due before that date. These notes have covenants that limit secured funded debt and certain sale-leaseback transactions. (6) OTHER INCOME: The components of other income (expense) are (in thousands of dollars): 1998 1997 1996 ---- ---- ---- Interest income $ 2,720 $ 3,981 $ 4,477 Loss on the disposition of plant and equipment (1,973) (1,608) (2,692) Income from joint ventures 5,232 3,026 2,957 Other items 1,830 67 970 -------- -------- ------- Total $ 7,809 $ 5,466 $ 5,712 ======== ======== ======= 20 23 NOTES . . . (7) COMMITMENTS AND CONTINGENCIES: The Company is a 50% guarantor on bank loans of two unconsolidated joint ventures. One is in Japan for the manufacture of engines and the second in the United States for the manufacture of parts. These bank loans totaled approximately $6,000,000 at the end of 1998. Product and general liability claims arise against the Company from time to time in the ordinary course of business. The Company is self-insured for future claims up to $1 million per claim. Accordingly, a reserve is maintained for the estimated costs of such claims. At June 28, 1998 and June 29, 1997, the reserve for product and general liability claims was $5.8 million and $4.6 million, respectively, based on available information. There is inherent uncertainty as to the eventual resolution of unsettled claims. Management, however, believes that any losses in excess of established reserves will not have a material effect on the Company's financial condition or results of operations. The Company has no material commitments for materials or capital expenditures at June 28, 1998. (8) STOCK OPTIONS: The Company has a Stock Incentive Plan under which 3,361,935 shares of common stock have been reserved for issuance. The Company accounts for the plan under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with FAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the following pro forma amounts: 1998 1997 1996 ---- ---- ---- Net Income (in thousands): As Reported $70,645 $61,565 $92,412 Pro Forma $69,574 $60,777 $91,690 Basic Earnings Per Share: As Reported $2.86 $2.16 $3.19 Pro Forma $2.82 $2.13 $3.17 Diluted Earnings Per Share: As Reported $2.85 $2.15 $3.18 Pro Forma $2.81 $2.12 $3.16 Because the FAS No. 123 method of accounting has not been applied to options granted prior to July 2, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Information on the options outstanding is as follows: 1996 ------------------------- Wtd. Avg. Shares Ex. Price ------ --------- Balance, beginning of year 1,169,620 $ 38.41 Granted during the year 600,000 49.08 Exercised during the year (65,089) 17.07 --------- Balance, end of year 1,704,531 $ 42.98 ========= 1997 ------------------------- Wtd. Avg. Shares Ex. Price ------ --------- Balance, beginning of year 1,704,531 $ 42.98 Granted during the year 106,550 53.30 Exercised during the year (24,369) 17.26 --------- Balance, end of year 1,786,712 $ 43.95 ========= 1998 ------------------------- Wtd. Avg. Shares Ex. Price ------ --------- Balance, beginning of year 1,786,712 $ 43.95 Granted during the year 241,980 65.69 Exercised during the year (236,873) 35.65 --------- Balance, end of year 1,791,819 $ 47.98 ========= Grant Summary - --------------------------------------------------------------------------- Fiscal Grant Exercise Date Options Expiration Year Date Price (a) Exercisable Outstanding Date - ---- ---- --------- ----------- ----------- ---------- 1990 2-20-90 $ 13.014 50%, 1-1-94; 1,076 2-19-00 50%, 1-1-95 1991 2-19-91 14.524 50%, 1-1-95; 45,010 2-18-01 50%, 1-1-96 1992 5-18-92 21.525 50%, 1-1-96; 111,722 5-17-02 50%, 1-1-97 1994 8-16-93 48.369 8-16-96 177,828 8-16-98 1995 8-12-94 45.854 8-12-97 507,653 8-12-99 1996 8-7-95 49.080 8-7-98 600,000 8-7-00 1997 8-6-96 53.300 8-6-99 106,550 8-6-01 1998 8-5-97 65.690 8-5-00 241,980 8-4-02 There were no options granted in fiscal 1993. (a) Exercise prices of earlier grants have been adjusted as appropriate To reflect a two-for-one stock split in October 1994 and the spin-off of the Company's lock business in February 1995. 21 24 NOTES . . . The fair value of each option is estimated using the Black-Scholes option pricing model. The grant-date fair market value of the options and assumptions used to determine such value are as follows: Options granted during 1998 1997 1996 ---- ---- ---- Grant date fair value $5.98 $5.42 $5.39 Assumptions: Risk-free interest rates 6.1% 6.3% 6.4% Expected volatility 20.4% 20.6% 24.6% Expected dividend yield 2.6% 2.5% 2.7% Expected term (in years) 5.0 5.0 5.0 (9) SHAREHOLDER RIGHTS PLAN: On August 6, 1996, the Board of Directors declared a dividend distribution of one common stock purchase right (a "right") for each share of the Company's common stock outstanding on August 19, 1996. Each right would entitle shareowners to buy one-half of one share of the Company's common stock at an exercise price of $160.00 per full common share, subject to adjustment. The rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15 percent or more of the outstanding shares of common stock. The rights expire on August 19, 2006, unless redeemed or exchanged by the Company earlier. Rights granted under a previous plan expired July 1, 1996. (10) FOREIGN EXCHANGE RISK MANAGEMENT: The Company enters into forward exchange contracts to hedge purchase commitments denominated in foreign currencies. The term of these currency derivatives never exceeds one year and the purpose is to protect the Company from the risk that the eventual dollars being transferred will be adversely affected by changes in exchange rates. The Company has forward foreign currency exchange contracts to purchase 3.6 billion Japanese yen for $28 million through January, 1999. These contracts are used to hedge the commitments to purchase engines from the Company's Japanese joint venture and accordingly any gain or loss has been deferred at the end of the 1998 fiscal year. The amount deferred was a loss of approximately $2.2 million. The Company's foreign subsidiaries have the following forward currency contracts outstanding at the end of fiscal 1998: In Millions ---------------------- Local U.S. Latest Currency Currency Dollars Expiration Date - -------- -------- ------- --------------- Australian Dollars .4 .3 July, 1998 There are no significant gains or losses included in the above amounts. 22 25 NOTES . . . (11) EMPLOYEE BENEFIT COSTS: Retirement Plan The Company has noncontributory, defined benefit retirement plans covering most Wisconsin employees. The following tables summarize the plans' income and expense, actuarial assumptions, and funded status for the three years indicated (dollars in thousands):
Qualified Plans Supplemental Plans -------------------------------- ------------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Income and Expense: - ------------------- Service Cost-Benefits Earned During the Year $ 9,030 $ 11,309 $ 13,143 $ 461 $ 378 $ 456 Interest Cost on Projected Benefit Obligation 43,518 40,990 41,722 1,013 860 926 Actual Return on Plan Assets (118,434) (114,303) (104,872) (11) (11) (9) Net Amortization, Deferral and Windows 59,121 58,525 51,830 374 395 462 --------- --------- --------- -------- -------- -------- Net Periodic Pension Expense (Income) $ (6,765) $ (3,479) $ 1,823 $ 1,837 $ 1,622 $ 1,835 ========= ========= ========= ======== ======== ======== Actuarial Assumptions: - --------------------- Discount Rate Used to Determine Present Value of Projected Benefit Obligation: 7.0% 7.75% 7.75% 7.0% 7.75% 7.75% Expected Rate of Future Compensation Level Increases 5.0% 5.5% 5.5% 5.0% 5.5% 5.5% Expected Long-Term Rate of Return on Plan Assets 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Funded Status: - ------------- Actuarial Present Value of Benefit Obligations: Vested $ 539,480 $ 482,712 $ 413,035 $ 12,863 $ 8,869 $ 8,286 Non-Vested 29,638 32,735 34,268 -- -- 21 --------- --------- --------- -------- -------- -------- Accumulated Benefit Obligation 569,118 515,447 447,303 12,863 8,869 8,307 Effect of Projected Future Wage and Salary Increases 64,472 82,941 120,083 2,630 3,228 4,766 --------- --------- --------- -------- -------- -------- Projected Benefit Obligation 633,590 598,388 567,386 15,493 12,097 13,073 Plan Assets at Fair Market Value 845,828 767,108 681,819 127 127 126 --------- --------- --------- -------- -------- -------- Plan Assets in Excess of (Less Than) Projected Benefit Obligation 212,238 168,720 114,433 (15,366) (11,970) (12,947) Remaining Unrecognized Net Obligation (Asset) Arising from the Initial Application of SFAS No. 87 (20,739) (26,006) (31,321) -- 132 179 Unrecognized Net Loss (Gain) (207,403) (164,779) (75,983) 4,778 2,531 4,494 Unrecognized Prior Service Cost (1,394) (2,002) (2,447) 881 953 1,029 --------- --------- --------- -------- -------- -------- Prepaid (Accrued) Pension Cost $ (17,298) $ (24,067) $ 4,682 $ (9,707) $ (8,354) $ (7,245) Less Current Portion -- -- -- 528 530 511 --------- --------- --------- -------- -------- -------- $ (17,298) $ (24,067) $ 4,682 $ (9,179) $ (7,824) $ (6,734) ========= ========= ========= ======== ======== ========
23 26 NOTES . . . The Company offered early retirement windows to certain of its Milwaukee union members during the 1995 fiscal year. As a result, $13,806,000 was added to pension expense and $5,253,000 was added to postretirement health care expense in the fourth quarter of the 1995 fiscal year. When the retirements were scheduled to occur in the first fiscal quarter of 1996, a number of these union members canceled their acceptance, and thus credits totaling $3,477,000 were recorded as a change in the original accounting estimate. A second retirement window was offered in fiscal 1997. The cost of this window was additional pension expense of $33,457,000 and additional postretirement health care expense of $3,644,000 in the fourth quarter of the 1997 fiscal year. During fiscal 1996, the defined benefit pension plan which covered employees at two of the Company's plants was terminated and replaced by a defined contribution retirement plan that includes most U.S. non-Wisconsin employees. The impact of the termination was not material. Under the new plan, the Company will make a contribution on behalf of covered employees equal to 2% of each participant's gross income, as defined. For fiscal years 1998, 1997 and 1996, the cost to the Company was $1,641,000, $1,352,000 and $757,000, respectively. Most U.S. employees of the Company may participate in a salary reduction deferred compensation retirement plan. The Company makes matching contributions of $.50 for every $1.00 deferred by a participant to a maximum of 1-1/2% or 3% of each participant's salary, depending upon the participant's group. Company contributions totaled $3,918,000 in 1998, $3,944,000 in 1997 and $2,825,000 in 1996. Postretirement Benefits The Company records the expected health care and life insurance benefits for employees during the years that the employees render service. For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health care claims was assumed for the years 1998 through 2000, decreasing gradually to 6% for the year 2007. The health care cost trend rate assumption has a significant effect on the amounts reported. The rates, if changed by one percentage point, would change the accumulated postretirement benefit by $5,704,000 and would change the service and interest cost by $701,000 for the year. The discount rate used in determining the accumulated postretirement benefit obligations was 7.0% compounded annually. Both the health care and life insurance plans are unfunded. The components of the accumulated postretirement benefit obligations were (in thousands of dollars): Health Care ----------- 1998 1997 ---- ---- Retirees $49,307 $51,553 Fully eligible plan participants 2,897 467 Other active participants 30,131 26,961 ------- ------- 82,335 78,981 Unrecognized loss (6,602) (161) ------- ------- 75,733 78,820 Less current portion 4,800 4,800 ------- ------- $70,933 $74,020 ======= ======= Life Insurance -------------- 1998 1997 ---- ---- Retirees $11,354 $ 9,048 Fully eligible plan participants 1,315 1,720 Other active participants 1,576 1,453 ------- -------- 14,245 12,221 Unrecognized net obligation (460) (507) Unrecognized prior service cost (756) (827) Unrecognized loss (1,985) (35) ------- -------- 11,044 10,852 -- -- Less current portion ------- -------- $11,044 $ 10,852 ======= ======== The current portion of the health care component above represents the benefits expected to be paid within the next twelve months and is included in the caption Accrued Liabilities in the accompanying balance sheet. The net health care balance has its own caption in this balance sheet. The life insurance component is included in the caption Accrued Employee Benefits. 24 27 NOTES . . . The net periodic postretirement costs recorded were (in thousands of dollars): Health Care ----------------- 1998 1997 1996 ---- ---- ---- Service cost-benefits attributed to service during the year $1,145 $1,272 $ 1,596 Interest cost on accumulated benefit obligation 5,856 5,226 5,480 Other -- -- (91) ------ ------ ------- $7,001 $6,498 $ 6,985 ====== ====== ======= Life Insurance --------------------- 1998 1997 1996 ---- ---- ---- Service cost-benefits attributed to service during the year $ 61 $ 87 $ 90 Interest cost on accumulated benefit obligation 917 964 947 Other 118 118 118 ------ ------ ------ $1,096 $1,169 $1,155 ====== ====== ====== Postemployment Benefits The Company also accrues the expected cost of postemployment benefits over the years that the employees render service. These benefits are substantially smaller amounts because they apply only to employees who permanently terminate employment prior to retirement. The items included in this amount are disability payments, life insurance and medical benefits, and these amounts are also discounted using a 7.0% interest rate. The balance in this reserve at the end of fiscal 1998 was $1,527,000 and at the end of fiscal 1997 was $1,468,000. Both were included in the caption Accrued Employee Benefits in the accompanying balance sheets. (12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents, Domestic Notes Payable and Foreign Loans: The carrying amount approximates fair value because of the short maturity of those instruments. Long-Term Debt: The fair value of the Company's long-term debt is estimated based on quotations made on similar issues. The estimated fair values of the Company's financial instruments are as follows (in thousands of dollars): 1998 ------------- Carrying Fair Amount Value -------- ----- Cash and cash equivalents $ 84,527 $ 84,527 Domestic notes payable $ 4,700 $ 4,700 Foreign loans $ 14,336 $ 14,336 Long-term debt - 9.21% Senior Notes due 2001, including current maturities $ 45,000 $ 47,012 7.25% Notes due 2007 $ 98,102 $105,071 1997 ------------- Carrying Fair Amount Value -------- ------ Cash and cash equivalents $112,859 $112,859 Domestic notes payable $ 5,000 $ 5,000 Foreign loans $ 13,359 $ 13,359 Long-term debt - 9.21% Senior Notes due 2001, including current maturities $ 60,000 $ 62,885 7.25% Notes due 2007 $ 97,897 $100,531 25 28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Briggs & Stratton Corporation: We have audited the accompanying consolidated balance sheets of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of June 28, 1998 and June 29, 1997, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended June 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries as of June 28, 1998 and June 29, 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 28, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Milwaukee, Wisconsin, July 30, 1998. 26 29 QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED)
In Thousands Per Share of Common Stock ------------------------------------ ------------------------------------------- Market Price Range on New York Net Net Stock Exchange Quarter Net Gross Income Income Dividends ------------------- Ended Sales Profit (Loss) (Loss) Declared High Low - ------- ----- ------ ------ ------ --------- ---- --- FISCAL 1998 - ----------- SEPTEMBER $ 170,557 $ 26,411 $ (2,632) $ (.10) $ .28 51-3/8 47-1/8 DECEMBER 308,481 50,897 10,294 .41 .28 53-3/8 47-1/4 MARCH 469,055 94,773 35,778 1.46 .28 49 43-1/8 JUNE 379,517 82,593 27,205 1.13 .28 46-1/4 36-7/8 ----------- ----------- ----------- ------ ----- TOTAL $ 1,327,610 $ 254,674 $ 70,645 $ 2.86* $1.12 =========== =========== =========== ====== ===== Fiscal 1997 - ----------- September $ 161,731 $ 17,969 $ (5,262) $ (.18) $ .27 45-7/8 36-1/2 December 299,664 56,857 16,694 .58 .27 44-5/8 39-1/4 March 475,955 107,119 46,514 1.60 .27 46-3/8 43 June 379,063 39,271 3,619 .13 .28 53-5/8 42-5/8 ----------- ----------- ----------- ------ ----- Total $ 1,316,413 $ 221,216 $ 61,565 $ 2.16* $1.09 =========== =========== =========== ====== =====
The number of record holders of Briggs & Stratton Corporation Common Stock on August 20, 1998 was 4,892. Net Income (Loss) per share of Common Stock represents Basic Earnings per Share. * See Footnote No. 2 "Summary of Accounting Policies - Earnings per Share" to the Consolidated Financial Statements. 27 30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not changed independent accountants in the last two years. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information in the Corporation's definitive Proxy Statement, prepared for the 1998 Annual Meeting of Shareholders, concerning directors of the Corporation under the caption "Election of Directors", is incorporated herein by reference. The information concerning "Executive Officers of the Registrant" as a separate item, appears in Part I of this Form 10-K. There is no information required by Item 405 of Regulation S-K to be reported. ITEM 11. EXECUTIVE COMPENSATION The information in the Corporation's definitive Proxy Statement, prepared for the 1998 Annual Meeting of Shareholders, concerning this item, in paragraphs two and three under the caption "Election of Directors", in the final two paragraphs of the "Nominating, Compensation and Governance Committee Report on Executive Compensation" and the "Executive Compensation" section, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information in the Corporation's definitive Proxy Statement, prepared for the 1998 Annual Meeting of Shareholders, concerning this item, under captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management", is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has no relationships or related transactions to report pursuant to Item 13. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are included under the caption "Financial Statements and Supplementary Data" in Part II, Item 8 hereof and are incorporated herein by reference: Consolidated Balance Sheets, June 28, 1998 and June 29, 1997 For the Years Ended June 28, 1998, June 29, 1997 and June 30, 1996: Consolidated Statements of Earnings and Shareholders' Investment Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements Report of Independent Public Accountants 2. Financial Statement Schedules All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions. 3. Exhibits See Exhibit Index following the Signature Page, which is incorporated herein by reference. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the Exhibit Index by an asterisk following the Exhibit Number. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. 28 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRIGGS & STRATTON CORPORATION By /s/ R. H. Eldridge ---------------------------------------- R. H. Eldridge September 3, 1998 Executive Vice President and Chief Financial Officer, Secretary-Treasurer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Frederick P. Stratton, Jr. and Robert H. Eldridge, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.* /s/ F. P. Stratton, Jr. /s/ Peter A. Georgescu - ----------------------------------- ----------------------------------- F. P. Stratton, Jr. Peter A. Georgescu Chairman and Chief Executive Officer Director and Director (Principal Executive Officer) /s/ Robert H. Eldridge /s/ Robert J. O'Toole - ----------------------------------- ----------------------------------- Robert H. Eldridge Robert J. O'Toole Executive Vice President and Director Chief Financial Officer, Secretary-Treasurer and Director (Principal Financial Officer) /s/ James E. Brenn /s/ C. B. Rogers, Jr. - ----------------------------------- ----------------------------------- James E. Brenn C. B. Rogers, Jr. Vice President and Controller Director (Principal Accounting Officer) /s/ Michael E. Batten /s/ John S. Shiely - ----------------------------------- ----------------------------------- Michael E. Batten John S. Shiely Director President and Chief Operating Officer and Director /s/ E. Margie Filter /s/ Charles I. Story - ----------------------------------- ----------------------------------- E. Margie Filter Charles I. Story Director Director *Each signature affixed as of September 3, 1998. 29 32 BRIGGS & STRATTON CORPORATION (Commission File No. 1-1370) EXHIBIT INDEX 1998 ANNUAL REPORT ON FORM 10-K Exhibit Number Document Description ------ -------------------- 3.1 Articles of Incorporation. (Filed as Exhibit 3.2 to the Company's Report on Form 10-Q for the quarter ended October 2, 1994, and incorporated by reference herein.) 3.2 Bylaws. (Filed as Exhibit 3.2 to the Company's Registration Statement on Form 8-B dated October 12, 1992 and incorporated by reference herein.) 4.0 Rights Agreement dated as of August 7, 1996, between Briggs & Stratton Corporation and Firstar Trust Company which includes the form of Right Certificate as Exhibit A and the Summary of Rights to Purchase Common Shares as Exhibit B. (Filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A, dated as of August 7, 1996 and incorporated by reference herein.) 4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee. (Filed as Exhibit 4.1 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs & Stratton Corporation issued pursuant to the Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee. (Filed as Exhibit 4.2 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.3 Resolutions of the Board of Directors of Briggs & Stratton Corporation authorizing the public offering of debt securities of Briggs & Stratton Corporation in an aggregate principal amount of up to $175,000,000. (Filed as Exhibit 4.3 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.4 Actions of the Authorized Officers of Briggs & Stratton Corporation authorizing the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15, 2007. (Filed as Exhibit 4.4 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.5 Officers' Certificate and Company Order of Briggs & Stratton Corporation executed in conjunction with the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15, 2007. (Filed as Exhibit 4.5 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 10.0* Forms of Officer Employment Agreements. (Filed as Exhibit 10.0 to the Company's Report on Form 10-Q for the quarter ended March 29, 1998 and incorporated by reference herein.) 10.1* Survivor Annuity Plan. (Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for fiscal year ended June 30, 1986 and incorporated by reference herein.) 10.2* Supplemental Retirement Program. (Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for fiscal year ended June 30, 1990 and incorporated by reference herein.) 30 33 Exhibit Number Document Description ------ -------------------- 10.3(a)* Economic Value Added Incentive Compensation Plan, as amended and restated effective April 18, 1995. (Filed as Exhibit 10.3 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.3(b)* Amendment to Economic Value Added Incentive Compensation Plan. (Filed as Exhibit 10.3 (c) to the Company's Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated by reference herein.) 10.3(c)* Second Amendment to Economic Value Added Incentive Compensation Plan. (Filed as Exhibit 10.3 (c) to the Company's Annual Report on Form 10-K for fiscal year ended June 29, 1997 and incorporated by reference herein.) 10.4* Form of Change of Control Employment Agreements. (Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.5(a)* Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees upon the occurrence of a change in control. (Filed as Exhibit 10.5 (a) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.5(b)* Amendment to Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees. (Filed as Exhibit 10.5 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.6* Stock Incentive Plan. (Filed as Exhibit A to the Company's 1993 Annual Meeting Proxy Statement, which was filed as Exhibit 100A to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.7(a)* Leveraged Stock Option Program. (Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.7(b)* Amendment to Leveraged Stock Option Program. (Filed as Exhibit 10.7 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.8* Amended and Restated Deferred Compensation Agreement for Fiscal 1995. (Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.9* Deferred Compensation Agreement for Fiscal 1997. (Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for fiscal year ended June 30, 1996 and incorporated by reference herein.) 10.10* Deferred Compensation Agreement for Fiscal 1998. (Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year ended June 29, 1997 and incorporated by reference herein.) 10.11* Deferred Compensation Agreement for Fiscal 1999. (Filed herewith.) 10.12* Officer Employment Agreement. (Filed as Exhibit 10.11 to the Company's Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated by reference herein.) 10.13* Deferred Compensation Plan for Directors. (Filed as Exhibit 10.12 to the Company's Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated by reference herein.) 31 34 Exhibit Number Document Description ------ -------------------- 10.14* Director's Leveraged Stock Option Plan. (Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for fiscal year ended June 29, 1997 and incorporated by reference herein.) 11 Computation of Earnings Per Share of Common Stock. (Filed herewith.) 12 Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.) 21 Subsidiaries of the Registrant. (Filed herewith.) 23 Consent of Independent Public Accountants. (Filed herewith.) 24 Power of Attorney. (Included in the Signatures Page of this report.) 27(a) Financial Data Schedule, 6/28/98. (Filed herewith.) 27(b) Restated Financial Data Schedule, 6/29/97. (Filed herewith.) 27(c) Restated Financial Data Schedule, 6/30/96. (Filed herewith.) * Management contracts and executive compensation plans and arrangements required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K. 32
   1
                         BRIGGS & STRATTON CORPORATION

                        1998 Annual Report on Form 10-K

                               EXHIBIT NO. 10.11

                DEFERRED COMPENSATION AGREEMENT FOR FISCAL 1999

AGREEMENT made this 2nd day of June, 1998, between Briggs & Stratton
Corporation (the "Company") and Frederick P. Stratton, Jr. (the "Executive").

1.   Deferral of Compensation. This Agreement shall operate to defer, on an
     unfunded basis, compensation earned by the Executive as an employee of the
     Company for the Company's fiscal year ending in 1999, to the extent that
     such compensation would otherwise be non-deductible under Section 162(m) of
     the Internal Revenue Code, as amended from time to time. The amount
     deferred hereunder shall be paid to the Executive as soon as practicable
     following the Company fiscal year in which the Executive terminates
     employment with the Company, such payment to be made in one lump sum, or in
     such other manner as may be agreed upon between the Executive and the
     Company's Nominating and Salaried Personnel Committee of the Board. Such
     agreement, if any, must occur before the termination of employment by the
     Executive, or such payment shall be in a lump sum.

2.   Death of Executive. If the Executive dies prior to receiving all funds
     payable hereunder, the entire unpaid balance shall be paid in the same
     manner as provided for the Executive under the Company's Economic Value
     Added Incentive Compensation Plan.

3.   Binding Effect. This Agreement has been approved by the Company's Board of
     Directors and its Nominating and Salaried Personnel Committee, and shall be
     binding and inure to the benefit of the Company, its successors and assigns
     and the Executive and his heirs, executors, administrators, and legal
     representatives.

4.   Earnings on Deferrals. On or before June 27, 1999, the Executive shall
     elect to have any deferrals hereunder credited with earnings in accordance
     with (a) or (b) below:

     (a)  Earnings on a book (unfunded) basis beginning on the date the deferred
          amount would otherwise have been paid, and continuing thereafter at a
          rate equal to 80% of the prime rate made available to the best
          customers of Firstar Bank Milwaukee, N.A., and adjusted and compounded
          annually as of the last day of each subsequent Company fiscal year
          until paid;

     (b)  Earnings at a rate designed to reflect the performance of Company
          stock. Under this alternative, the amount deferred shall be converted
          into shares of phantom Company stock as soon as practicable following
          the determination of the amount deferred under this Agreement. Each
          year, the Committee shall determine the amount of dividends that would
          have been paid on the phantom stock and 


   2


          convert such dividends into additional shares of phantom stock.
          Following the conversions described above, the Company shall promptly
          advise Executive of the number of phantom shares acquired. If
          Executive chooses this investment alternative, Executive may elect to
          receive distributions in cash or stock; provided that any stock
          distributions shall be subject to any necessary approvals under
          securities laws or exchange requirements.

5.   Section 16 Consequences. Executive acknowledges that an election under
     Section 4(b) above will have implications under Section 16 of the
     Securities Exchange Act of 1934, including potential Section 16(b)
     liability if Executive or an affiliate has a matching transaction.
     Executive acknowledges that he will be responsible for reporting
     transactions under this Agreement on the applicable Form 4 or Form 5.

6.   Unfunded Status of Agreement. It is intended that this Agreement constitute
     an "unfunded" arrangement for deferred compensation. The Committee may
     authorize the creation of a trust or other arrangement to meet the
     obligations created under this Agreement provided, however, that unless the
     Committee otherwise determines, the existence of such trust or other
     arrangement is consistent with the "unfunded" status of the Agreement.

7.   Miscellaneous. Payment of deferrals hereunder shall be subject to tax or
     other withholding requirements as may be required by law. The Company's
     Board, or its Nominating and Salaried Personnel Committee, shall have the
     power to modify or terminate this Agreement, but only with consent of the
     Executive.

IN WITNESS WHEREOF, Briggs & Stratton Corporation has caused this Deferred
Compensation Agreement to be executed by its duly authorized Director and
Frederick P. Stratton, Jr., together with his spouse, Anne Y. Stratton, hereunto
have set their hands as of the date first above written.

                                       BRIGGS & STRATTON CORPORATION

                                       By: /s/ C. B. Rogers, Jr.
                                         ----------------------------
                                         Clarence B. Rogers, Jr.
                                         Chairman, Nominating and
                                         Salaried Personnel Committee


                                           /s/ F. P. Stratton, Jr.
                                         ----------------------------
                                         Frederick P. Stratton, Jr.


                                           /s/ Anne Y. Stratton
                                         ----------------------------
                                         Anne Y. Stratton


                                       2
   1
          BRIGGS & STRATTON CORPORATION AND CONSOLIDATED SUBSIDIARIES

                                 EXHIBIT NO. 11

               COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK


Fiscal Year Ended --------------------------------------------------- June 28, 1998 June 29, 1997 June 30, 1996 ------------- ------------- ------------- COMPUTATIONS FOR STATEMENTS OF INCOME Net income $ 70,645 $ 61,565 $ 92,412 ============= ============= ============= Basic earnings per share of common stock: Average shares of common stock outstanding 24,666 28,551 28,927 ============= ============= ============= Basic earnings per share of common stock $ 2.86 $ 2.16 $ 3.19 ============= ============= ============= Diluted earnings per share of common stock: Average shares of common stock outstanding 24,666 28,551 28,927 Incremental common shares applicable to common stock options based on the common stock average market price during the period 109 127 132 ------------- ------------- ------------- Average common shares assuming dilution 24,775 28,678 29,059 ============= ============= ============= Fully diluted earnings per average share of common stock, assuming conversion of all applicable securities $ 2.85 $ 2.15 $ 3.18 ============= ============= =============
   1
                         BRIGGS & STRATTON CORPORATION

                                 EXHIBIT NO. 12

               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                             (dollars in thousands)

Fiscal Year Ended -------------------------------------------- June 28, 1998 June 29, 1997 June 30, 1996 ------------- ------------- ------------- Net income $ 70,645 $ 61,565 $ 92,412 Add: Interest 19,352 9,880 10,069 Income tax expense and other taxes on income 42,500 37,740 56,640 Fixed charges of unconsolidated subsidiaries 510 668 574 -------- -------- -------- Earnings as defined $133,007 $109,853 $159,695 ======== ======== ======== Interest $ 19,352 $ 9,880 $ 10,069 Fixed charges of unconsolidated subsidiaries 510 668 574 -------- -------- -------- Fixed Charges as defined $ 19,862 $ 10,548 $ 10,643 ======== ======== ======== Ratio of earnings to fixed charges 6.7x 10.4x 15.0x ======== ======== ========
   1
                 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

                                 EXHIBIT NO. 21
                         SUBSIDIARIES OF THE REGISTRANT


                                               State or Country   Percent Voting
              Subsidiary                       of Incorporation     Stock Owned
              ----------                       ----------------     -----------

Briggs & Stratton AG                              Switzerland         100%
 
Briggs & Stratton Australia Pty. Limited          Australia           100%

Briggs & Stratton Austria GmbH                    Austria             100%

Briggs & Stratton Canada Inc.                     Canada              100%

Briggs & Stratton Czech Republic s.r.o.           Czech Republic      100%

Briggs & Stratton France, S.A.R.L.                France              100%

Briggs & Stratton Germany GmbH                    Germany             100%

Briggs & Stratton International, Inc.             Wisconsin           100%

Briggs & Stratton International Sales Corp.       Virgin Islands      100%

Briggs & Stratton Mexico S.A. de C.V.             Mexico              100%

Briggs & Stratton Netherlands B.V.                Netherlands         100%

Briggs & Stratton New Zealand Limited             New Zealand         100%

Briggs & Stratton Sweden AB                       Sweden              100%

Briggs & Stratton U.K. Limited                    United Kingdom      100%

Briggs & Stratton Daihatsu, Inc.                  Wisconsin           100%

Future Parkland Development, Inc.                 Wisconsin           100%








   1
                 BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

                                 EXHIBIT NO. 23
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statements, File No. 33-39113, File No.
333-25271 and File No. 33-54357.

                                         ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
September 3, 1998.







 

5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF BRIGGS & STRATTON CORPORATION FOR THE FISCAL YEAR ENDED JUNE 28, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JUN-28-1998 JUN-30-1997 JUN-28-1998 84,527 0 136,629 0 107,876 382,046 812,428 420,501 793,409 222,945 0 0 0 289 316,199 793,409 1,327,610 1,327,610 1,072,936 1,072,936 122,177 0 19,352 113,145 42,500 70,645 0 0 0 70,645 2.86 2.85
 

5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF BRIGGS & STRATTON CORPORATION FOR THE FISCAL YEAR ENDED JUNE 29, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE INFORMATION HAS BEEN RESTATED TO CONFORM WITH THE REQUIREMENTS OF FAS NO. 128, EARNINGS PER SHARE. 1,000 12-MOS JUN-29-1997 JUL-01-1996 JUN-29-1997 112,859 0 129,877 0 125,957 418,416 796,714 400,448 842,189 213,994 0 0 0 289 350,808 842,189 1,316,413 1,316,413 1,095,197 1,095,197 112,031 0 9,880 99,305 37,740 61,565 0 0 0 61,565 2.16 2.15 REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH FAS NO. 128, EARNINGS PER SHARE. REPRESENTS DILUTED EARNINGS PER SHARE IN ACCORDANCE WITH FAS NO. 128, EARNINGS PER SHARE.
 

5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF BRIGGS & STRATTON CORPORATION FOR THE FISCAL YEAR ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE INFORMATION HAS BEEN RESTATED TO CONFORM WITH THE REQUIREMENTS OF FAS NO. 128, EARNINGS PER SHARE. 1,000 12-MOS JUN-30-1996 JUL-03-1995 JUN-30-1996 150,639 0 119,346 0 137,403 456,387 776,638 402,426 838,164 190,179 0 0 0 289 500,216 838,164 1,287,029 1,287,029 1,025,281 1,025,281 102,627 0 10,069 149,052 56,640 92,412 0 0 0 92,412 3.19 3.18 REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH FAS NO. 128, EARNINGS PER SHARE. REPRESENTS DILUTED EARNINGS PER SHARE IN ACCORDANCE WITH FAS NO. 128, EARNINGS PER SHARE.