Briggs & Stratton Reports Results For the Q1 of Fiscal 2001
16 October 2000
Briggs & Stratton Corporation Reports Results For the First Quarter of Fiscal 2001
MILWAUKEE, Oct. 16 Briggs & Stratton Corporation
Operations in the first quarter of fiscal 2001 produced a net loss
of $6.3 million or $.29 per diluted share compared to net income of
$15.3 million or $.66 per share for last year's first quarter. Total net
income and earnings per diluted share for the first quarter of fiscal 2000
were $25.7 million and $1.10, respectively, when the impact of a gain on
disposition of foundry assets is added to the operational results.
The operational decrease in first quarter net income was primarily the
result of 39% lower engine unit shipments, a 5% reduction in engine
production, a 13% increase in engineering, selling and administrative
expenses, and increased interest expense.
The engine unit shipment decrease of 39% was responsible for the 40% drop
in net sales. In fiscal 2001, for the first time, a portion of engine unit
sales into Europe was denominated in Euros. The negative pretax impact of
exchange rates in the first quarter was $5 million. However, price increases
experienced on a worldwide basis partially offset the Euro impact.
Gross profit as a percent of sales declined from 18.5% in first quarter
fiscal 2000 to 14.3% in fiscal 2001. The Euro impact was a major part of the
decrease. In addition, 5% fewer engines were produced, principally at plants
that make engines for non-lawn and garden applications. Reduced manufacturing
volume resulted in a smaller portion of fixed costs being assigned to product
causing more costs to be expensed in the quarter. The above issues account
for about two-thirds of the gross profit percentage decline. Higher spending
in certain manufacturing categories, offset by a small increase in labor
productivity accounts for the remainder of the decrease.
The 13% increase in engineering, selling and administrative expenses was
due to planned expansions of staff and expenditures for business development
and introduction of new products.
Interest expense was $1.4 million or 46% higher than first quarter
fiscal 2000. This was the result of higher first quarter working capital
financing requirements in fiscal 2001. Inventories of finished engine units
at the start of this fiscal year were higher than at the start of the last
fiscal year so the average investment in inventory financed by borrowings is
greater this year. Interest rates on the short-term lines are also slightly
higher in fiscal 2001.
The gain on disposition of foundry assets of $16.5 million in the first
fiscal quarter of 2000 is the major difference between fiscal 2001 and fiscal
2000's other income and expense category.
Fiscal 2001 has reverted to the historical seasonal pattern of low engine
unit shipments in the first quarter. As indicated in prior press releases, the
engine shortage concerns of a year ago have disappeared providing little
incentive for equipment manufacturers to purchase engines in the summer and
early fall. At this time, lawn and garden equipment manufacturers and
retailers still believe that fiscal 2001 markets will be on a par with the
previous year. Currently, the Company believes that engine unit shipments
will be about the same for the full fiscal year. Second quarter engine unit
shipments are expected to be lower than last year and the third and fourth
quarters are expected to make up the unit shipment shortfall experienced in
the first half of the year.
Revenues for the full year, however, in spite of comparable unit
shipments, are now expected to be about 3% lower than fiscal 2000. The
primary drivers of the decrease are the mix of engine units being shipped and
the projected impact of the Euro if the exchange rate remains similar to its
current level.
The planned mix of engines sold now appears to be weighted towards lower
horsepower, lower priced units which will decrease the sales dollars. The
negative Euro currency exchange impact for fiscal 2001 is projected to be
approximately $15-$20 million.
Mix impact should be particularly evident in the second fiscal quarter
when the Company expects engine unit volume to be down 7% compared to fiscal
2000 and lower sales dollars of approximately 15%. Large engine shipments for
lawn and garden applications were high in fiscal 2000's second quarter but
this year the Company anticipates those units returning to a third quarter
shipping pattern.
Gross profit as a percent of sales is projected to decline to 20.9% from
the 21.3% in fiscal 2000. Major factors causing the decrease are the
unfavorable Euro exchange rate as discussed above and the probable decrease in
production levels from fiscal 2000 by approximately 9%. Even though unit
shipment levels are expected to be similar between years, fiscal 2000
benefited from a restoration of depleted inventory levels which caused
production to be up 14%. Fewer fixed cost dollars will be assigned to product
causing more costs to be expensed in the fiscal year. Offsetting the negative
Euro and production volume impacts are projected productivity gains and some
improvement in margin due to the mix of units sold.
Engineering, selling and administrative expenses for fiscal 2001 are
projected to be greater than last year by approximately 8%. The reasons for
this planned increase are the same as those given for the first quarter
increase.
Interest expense for fiscal 2001 is projected to be greater than last year
by approximately 7%. A higher investment in inventory for the entire fiscal
2001 period along with a compression of the shipping cycle into the late
second and third fiscal quarters, which delays conversion to cash until later
in the year, are expected to cause greater borrowings for working capital in
fiscal 2001.
Inventories of finished engine units are higher than last year and
projected to peak late in the second quarter of fiscal 2001. These
inventories were planned in order to satisfy anticipated equipment
manufacturers' demand for engines in the peak season. Because of the later
shipping cycle in fiscal 2001, accounts receivable will probably be lower than
corresponding amounts from fiscal 2000. Additional lines of credit are
expected to be added during the second fiscal quarter of 2001 to provide
adequate funding needed for in-season working capital requirements.
Capital expenditures for fiscal 2001 are projected to be approximately
$76 million. This capital expenditure level provides for base replacement,
new product, capacity and cost reduction requirements.
The projections above could result in an earnings level for fiscal 2001
that is 20% to 25% below the operating results experienced in fiscal 2000,
excluding the gain on disposition of the foundry assets. This updated
earnings projection for fiscal 2001 is significantly different than the
earnings direction given in the previous press release because recent
reassessments of demand have resulted in lower projected sales and production
volumes and a less favorable sales mix.
Consolidated Statements of Earnings
(In Thousands)
Three Months Ended Fiscal September
2000 1999
NET SALES $180,833 $298,933
COST OF GOODS SOLD 155,035 243,551
Gross Profit on Sales 25,798 55,382
ENGINEERING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 33,612 29,640
Income (Loss) from Operations (7,814) 25,742
INTEREST EXPENSE (4,568) (3,127)
GAIN ON DISPOSITION OF FOUNDRY ASSETS -- 16,545
OTHER INCOME (EXPENSE), Net 2,373 1,633
Income (Loss) Before Provision for
Income Taxes (10,009) 40,793
PROVISION (CREDIT) FOR INCOME TAXES (3,705) 15,090
Net Income (Loss) $(6,304) $25,703
Average Shares Outstanding 21,612 23,132
BASIC EARNINGS PER SHARE $(0.29) $1.11
Diluted Average Shares Outstanding 21,629 23,281
DILUTED EARNINGS PER SHARE $(0.29) $ 1.10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of the End of Fiscal
September 2000 and 1999
(In Thousands)
2000 1999
CURRENT ASSETS:
Cash and Cash Equivalents $11,939 $12,970
Accounts Receivable 140,370 222,478
Inventories 356,874 209,498
Other 57,377 52,720
Total Current Assets 566,560 497,666
OTHER ASSETS:
Investments 51,308 43,339
Deferred Income Tax Asset -- 1,534
Prepaid Pension 8,398 --
Capitalized Software 6,673 7,156
Total Other Assets 66,379 52,029
PLANT AND EQUIPMENT, at Cost 851,135 805,301
Less - Accumulated Depreciation 454,457 418,222
Net Plant and Equipment 396,678 387,079
$1,029,617 $936,774
2000 1999
CURRENT LIABILITIES:
Accounts Payable $92,348 $110,531
Domestic Notes Payable 198,126 43,746
Foreign Loans 16,015 12,225
Current Maturities on Long-Term Debt -- 15,000
Accrued Liabilities 125,534 150,807
Total Current Liabilities 432,023 332,309
OTHER LIABILITIES:
Deferred Revenue on Sale of
Plant & Equipment 15,649 15,773
Deferred Income Tax Liability 5,031 --
Accrued Pension Cost 11,671 15,456
Accrued Employee Benefits 12,831 13,421
Postretirement Health Care Obligation 64,971 66,281
Long-Term Debt 98,564 113,359
Total Other Liabilities 208,717 224,290
SHAREHOLDERS' INVESTMENT:
Common Stock and Additional
Paid-in Capital 36,367 38,018
Retained Earnings 708,987 631,576
Accumulated Other Comprehensive
Income (Loss) (5,684) (928)
Unearned Compensation on
Restricted Stock (384) (279)
Treasury Stock, at Cost (350,409) (288,212)
Total Shareholders' Investment 388,877 380,175
$1,029,617 $936,774
Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended Fiscal September
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
Net Income (Loss) $(6,304) $25,703
Depreciation and Amortization 13,318 12,398
(Gain) Loss on Disposition of Plant and Equipment 54 (16,453)
Credit for Deferred Income Taxes (3) (1,914)
Increase in Accounts Receivable (137) (28,361)
Increase in Inventories (99,100) (73,409)
(Increase) Decrease in Other Current Assets 816 (884)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities (32,731) 11,995
Other, Net (4,451) (4,095)
Net Cash Used in Operating Activities (128,538) (75,020)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (15,326) (21,661)
Proceeds Received on Disposition
of Plant and Equipment 814 23,389
Net Cash Provided by (Used in)
Investing Activities (14,512) 1,728
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings on Loans and Notes Payable 151,976 37,812
Dividends (6,689) (6,934)
Purchase of Common Stock for Treasury (6,118) (9,138)
Proceeds from Exercise of Stock Options 253 3,814
Net Cash Provided by Financing Activities 139,422 25,554
EFFECT OF EXCHANGE RATE CHANGES (1,422) (98)
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,050) (47,836)
CASH AND CASH EQUIVALENTS, Beginning 16,989 60,806
CASH AND CASH EQUIVALENTS, Ending $11,939 $12,970