Briggs & Stratton faces possible bankruptcy
Manufacturer may sell business units
A century-old Milwaukee manufacturer whose products are in the garages, yards and gardens of millions of American homes faces a July 15 deadline critical in its efforts to stave off bankruptcy.
Briggs & Stratton Corp., which once employed about 11,000 people in Milwaukee and rose to fame as the world’s largest producer of small gasoline engines used in outdoor power equipment, has been slammed by plummeting sales from the COVID-19 pandemic, foreign competition and dried-up capital markets for refinancing debt and selling assets.
As of Dec. 31, the company had net debt of $581 million and faced an “increasing likelihood” of a default or restructuring, according to S&P Global Ratings. In mid-June, Briggs did not make a $6.7 million interest payment, triggering a 30-day grace period before it constitutes a default on a credit agreement.
“We expect the next 30 days will prove challenging for Briggs as it looks to find some foothold before potentially falling into bankruptcy or some other drastic reorganization,” analyst Tom Hayes with Northcoast Research said in a June 19 note to investors.
“Briggs would likely need, at bare minimum, to have a deal in place to sell off the identified turf business assets to stave off an accelerated bankruptcy filing,” Hayes said. “If Briggs can show some progress on the asset sale, it may allow some chance of working with the current bondholders, on either a workaround or a more predefined bankruptcy proceeding.”
Briggs & Stratton executives declined to be interviewed for this article. In a written statement provided to the Milwaukee Journal Sentinel, the company said it was attempting to sell certain businesses and assets to shore up its balance sheet and focus on its core strength of building small engines and focusing on new products such as lithium-ion batteries.
“The COVID-19 impact has been substantial, coming right in the middle of the main part of our selling season. Not only has it put a strain on the business, but capital markets have been extremely volatile during a time when we are trying to refinance our debt,” Briggs spokesman Rick Carpenter said in an email to the Journal Sentinel.
Bonuses for top executives
Yet while the company skipped its interest payment in June, the board of
directors voted to give executives and other key employees more than $5 million in cash retention awards. The additional money included $1.2 million for Todd Teske, chairman, president and CEO; $600,000 for Mark Schwertfeger, senior vice president and chief financial officer; $425,000 for David Rodgers, senior vice president and president of the engines and power division; and $425,000 for Harold Redman, senior vice president and president of the turf and consumer products division.
“The Retention Awards are in lieu of annual bonus and long-term incentive compensation awards for fiscal 2021,” Briggs said in a Securities and Exchange Commission filing.
Such payments are “a frequent precursor to a bankruptcy filing,” Hayes said.
The timing struck some people the wrong way, especially as the value of Briggs stock has sunk and last week closed at $1.22 per share.
“It doesn’t seem like they are operating in the best interests of the shareholders. When you’re in financial trouble, you don’t give management a $5 million pay increase,” said George Reis, president of GVR Investment Management Inc. in Two Rivers.
Mark Eskritt, who says he worked about 10 years as an engineer at Briggs, put it this way: “Unbelievable. Briggs & Stratton is going to pay its CEO $1.2 million when the stock has gone down over 90% since he’s taken over, and the poor performance of the company has resulted in the loss of millions for investors and thousands of jobs.”
On June 29, Briggs said it was cutting more than 200 jobs at its factory on North 124th Street in Wauwatosa as part of the company’s previously announced move of manufacturing to its factory in rural New York.
Approximately 184 of the 228 affected employees are represented by United Steelworkers Local 2-232, which for decades has seen its membership numbers slide from Briggs moving work to nonunion plants outside Wisconsin.
“At one time, back in the 1970s and early ’80s, we had close to 11,000 members,” said Ross Winklbauer, a Steelworkers sub-district director who worked for 33 years at Briggs & Stratton factories.
Currently, the company has 1,363 employees in the Milwaukee area, including 488 in production and distribution. It also has several hundred hourly production contract workers.
Winklbauer says it’s been painful to watch the demise of Briggs’ presence in Milwaukee.
“We never had a great working relationship, but we tolerated each other,” he said. “The company was making money hand over fist. And now they’re facing bankruptcy.”
A colorful history in Milwaukee
Like Harley-Davidson, another icon in Milwaukee engine manufacturing, Briggs & Stratton has a colorful history that stems from a modest beginning. In the company’s early days, Stephen Briggs and Harold Stratton manufactured an automobile, the “Briggs & Stratton Flyer.” They also produced motors for washing machines, and during World War II, made generators for the war effort.
The company has “reinvented itself numerous times over the course of 110-plus years,” Carpenter said.
It also has a lengthy history of strained relations with labor unions, including a bitter strike in 1983 that lasted 13 weeks and ended after the company threatened to hire permanent replacement workers.
Over decades, Briggs has opened and closed plants in Wisconsin, Missouri, Kentucky, Tennessee, Alabama and other locations. Thousands of Wisconsin jobs were lost to new plants in the South.
In 2007, Briggs shuttered an engine plant in Rolla, Missouri, that once employed up to 800 people — moving much of that production to China. For a while, a low-cost plant in the Czech Republic served Briggs’ European market, but the company resisted the temptation to move all its manufacturing overseas because the U.S. plants could build an engine with only 30 minutes of labor, making them very efficient.
In 2008, the company closed its Simplicity-brand plant in Port Washington, and in 2009 it announced the closing of plants in Jefferson and Watertown, eliminating more than 400 jobs. In 2012, it announced the closure of a plant in Newbern, Tennessee, resulting in the loss of nearly 700 jobs.
“All we can do is pray for each one of those people,” K.W. Dennison, the mayor of Newbern, in western Tennessee, said at the time.
At one time, Briggs had four manufacturing plants in the Milwaukee area including a plant in Menomonee Falls that’s now owned by Harley-Davidson Inc. The company was one of the largest blue-collar employers in the area before jobs went to Georgia, Alabama, Missouri and other states.
“Even in 2003, we still had close to 3,000 members. These were very good, family-supporting jobs that were moved out of state at the cost of our membership,” Winklbauer said.
While Briggs has reduced manufacturing in the Milwaukee area, it has expanded in rural New York state with the manufacture of zero-turn and commercial mowers under the Ferris, Simplicity and Snapper Pro brands.
“It’s been a huge success story,” said Brandon Lovett, city manager in Sherrill, New York, where Briggs is the largest private employer.
“I’ve got people literally telling me that we should give a parade for these guys every year for the investment they’ve made in the community,” Lovett said.
New York State and local officials have offered Briggs tax credits, grants and other incentives to expand factories as the company has pulled back from Milwaukee-area unionized plants.
“Briggs and Stratton management adopted a union avoidance strategy in the early 1980s and has pursued it aggressively ever since,” said Michael Rosen, a labor union leader and economics instructor at Milwaukee Area Technical College.
“It’s fairly clear that over the last 45 years Briggs has hopped around or relocated production to nonunion plants and to areas that gave them subsidies,” Rosen said.
Briggs says the production move to Sherrill has come from an investment it made in a plant there in 2019. The company also has a plant in nearby Munnsville, New York.
“We have expertise and (factory) capacity in New York with regard to turf products — zero-turn mowers, etc., that result in natural synergies by having them all together in one place,” Carpenter said. “This move is part of our strategic repositioning that we announced in March and is a natural balancing of U.S. based production that we have been doing on an ongoing basis for years. We consider all factors in making this assessment.”
Pandemic, competition hurt sales
The company has been battered by not only COVID-19 but also foreign competition and the loss of large customers in the outdoor power equipment business.
“While still an iconic brand, we believe Briggs now finds itself with its back against the wall, with few favorable options in the current environment,” Hayes said.
He was encouraged about Briggs’ reorganization plan, presented in March, as it outlined steps necessary to adjust to the changing business environment.
“However, the perfect storm of COVID-related business and customer interruptions significantly impacted Briggs’ ability to complete the steps necessary to move the financing and asset sale forward in the time needed,” Hayes said.
“We believe the window of opportunity is almost completely shut and Briggs is either looking at some bankruptcy protection or a significant restructuring of its debt that will further negatively impact the remaining equity position.”