** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

Washington, D.C. 20549

 

**FORM 10-Q**

(Mark One)

x             QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly periodended October 1, 2006

OR

o               TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition periodfrom_______________ to _______________

Commission file number 1-1370

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

 

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

 

| 12301 West Wirth Street,  Wauwatosa, Wisconsin 53222 |
|-----------------------------------------------------------|
| (Address of  Principal Executive Offices) (Zip Code) |

 

| 414/259-5333                                               |
|------------------------------------------------------------|
| (Registrant’s  telephone number, including area code) |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  X   No      

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

 

| Large accelerated filer |   X   | Accelerated  filer |         |   | Non-accelerated filer |         |   |
|-------------------------|---------------------------|--------------------|--------------------------------------------|--------|-----------------------|--------------------------------------------|--------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes       No   X 

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 

|                                          |   | Outstanding at    |
|------------------------------------------|--------|-------------------|
| Class                                    |   | October 27, 2006  |
| COMMON STOCK,  par value $0.01 per share |   | 49,382,057 Shares |

 

 

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

INDEX
|                                      | **Page No.**                                                                                               | ** ** |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------|------------|
|                                 |                                                                                                            |       |   |
| PART  I – FINANCIAL INFORMATION |                                                                                                            |       |   |
|                                 |                                                                                                            |       |   |
| Item  1.                             | Financial  Statements                                                                                           |       |   |   |
|                                 |                                                                                                            |       |   |
|                                 | Consolidated Condensed Balance Sheets – October 1,  2006 and July 2, 2006                                  |       | 3 |   |
|                                 |                                                                                                            |       |   |
|                                 | Consolidated Condensed Statements of Income – Three Months  Ended October 1, 2006 and  October 2, 2005     |       | 5 |   |
|                                 |                                                                                                            |       |   |
|                                 | Consolidated Condensed Statements of Cash Flows – Three  Months Ended October 1, 2006 and  October 2, 2005 |       | 6 |   |
|                                 |                                                                                                            |       |   |
|                                 | Notes to Consolidated Condensed Financial Statements                                                            |       | 7 |   |
|                                 |                                                                                                            |       |   |
| Item 2.                              | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                     |       | 18 |   |
|                                 |                                                                                                            |       |   |
| Item 3.                              | Quantitative and Qualitative Disclosures About Market  Risk                                                     |       | 21 |   |
|                                 |                                                                                                            |       |   |
| Item 4.                              | Controls and Procedures                                                                                         |       | 21 |   |
|                                 |                                                                                                            |       |   |
| PART  II – OTHER INFORMATION    |                                                                                                            |       |   |
|                                 |                                                                                                            |       |   |
| Item  1.                             | Legal  Proceedings                                                                                              |       | 23 |   |
|                                 |                                                                                                            |       |   |
| Item  1A.                            | Risk  Factors                                                                                                   |       | 23 |   |
|                                 |                                                                                                            |       |   |
| Item 2.                              | Unregistered Sales of Equity Securities and Use of  Proceeds                                                    |       | 23 |   |
|                                 |                                                                                                            |       |   |
| Item 4.                              | Submission of Matters to a Vote of Security Holders                                                             |       | 23 |   |
|                                 |                                                                                                            |       |   |
| Item  5.                             | Other  Information                                                                                              |       | 24 |   |
|                                 |                                                                                                            |       |   |
| Item 6.                              | Exhibits                                                                                                        |       | 25 |   |
|                                 |                                                                                                            |       |   |
| Signatures                           |                                                                                                            | 26         |   |
|                                 |                                                                                                            |       |   |
| Exhibit  Index                       |                                                                                                            | 27         |   |

 

2

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED BALANCE SHEETS(In thousands)

ASSETS
|                                            | ** ** | **October 1,** | ** ** | **July 2,** | ** ** |
|--------------------------------------------|------------|---------------------|------------|------------------|------------|
| ** **                                 | ** ** | **2006**            | ** ** | **2006**         | ** ** |
| ** **                                 | ** ** | **(Unaudited)**     | ** ** | ** **       | ** ** |
| CURRENT ASSETS:                            |       |                |       |             |       |
| Cash and cash  equivalents                 |       | $                   | 44,170     |             | $          | 95,091 |   |
| Accounts  receivable, net                  |       | 227,892             |       | 273,502          |       |
| Inventories -                              |       |                |       |             |       |
| Finished  products and parts               |       | 500,283             |       | 364,711          |       |
| Work in process                            |       | 196,192             |       | 188,358          |       |
| Raw materials                              |       | 9,887               |       | 8,946            |       |
| Total inventories                          |       | 706,362             |       | 562,015          |       |
| Deferred income  tax asset                 |       | 61,064              |       | 58,024           |       |
| Prepaid expenses  and other current assets |       | 25,532              |       | 43,020           |       |
| Total current  assets                      |       | 1,065,020           |       | 1,031,652        |       |
|                                       |       |                |       |             |       |
| OTHER ASSETS:                              |       |                |       |             |       |
| Goodwill                                   |       | 251,885             |       | 251,885          |       |
| Prepaid pension                            |       | 76,650              |       | 75,789           |       |
| Investments                                |       | 46,474              |       | 48,917           |       |
| Deferred loan  costs, net                  |       | 4,014               |       | 4,308            |       |
| Other intangible  assets, net              |       | 93,985              |       | 94,596           |       |
| Other long-term  assets, net               |       | 7,283               |       | 6,765            |       |
| Total other  assets                        |       | 480,291             |       | 482,260          |       |
|                                       |       |                |       |             |       |
| PLANT AND EQUIPMENT:                       |       |                |       |             |       |
| Cost                                       |       | 1,017,983           |       | 1,008,164        |       |
| Less -  accumulated depreciation           |       | 591,220             |       | 577,876          |       |
| Total plant and  equipment, net            |       | 426,763             |       | 430,288          |       |
|                                       |       | $                   | 1,972,074  |             | $          | 1,944,200 |   |

 

The accompanying notesare an integral part of these statements.

3

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

CONSOLIDATEDCONDENSED BALANCE SHEETS (Continued)(In thousands, except per share data)

LIABILITIES &SHAREHOLDERS’ INVESTMENT
|                                                                  |   | October  1, |      | July  2,  |   |
|------------------------------------------------------------------|--------|-------------|-----------|-----------|--------|
|                                                             |   | 2006        |      | 2006      |   |
|                                                             |   | (Unaudited) |      |      |   |
| CURRENT LIABILITIES:                                             |   |        |      |      |   |
| Accounts payable                                                 |   | $           | 152,984   |      | $      | 161,291 |   |
| Accrued  liabilities                                             |   | 160,618     |      | 178,381   |   |
| Dividends  payable                                               |   | 11,267      |      | -         |   |
| Current maturity  on long-term debt                              |   | 81,015      |      | -         |   |
| Short-term debt                                                  |   | 121,852     |      | 3,474     |   |
| Total current  liabilities                                       |   | 527,736     |      | 343,146   |   |
|                                                             |   |        |      |      |   |
| OTHER LIABILITIES:                                               |   |        |      |      |   |
| Long-term debt                                                   |   | 302,490     |      | 383,324   |   |
| Deferred income  tax liability                                   |   | 101,965     |      | 102,862   |   |
| Accrued pension  cost                                            |   | 26,091      |      | 25,587    |   |
| Accrued employee  benefits                                       |   | 16,391      |      | 16,267    |   |
| Accrued  postretirement health care obligation                   |   | 83,272      |      | 84,136    |   |
| Other long-term  liabilities                                     |   | 1,512       |      | 1,672     |   |
| Total other  liabilities                                         |   | 531,721     |      | 613,848   |   |
|                                                             |   |        |      |      |   |
|  SHAREHOLDERS’ INVESTMENT:                             |   |        |      |      |   |
| Common stock -                                                   |   |        |      |      |   |
| Authorized  120,000 shares, $.01 par value, issued 57,854 shares |   | 579         |      | 579       |   |
| Additional paid-in  capital                                      |   | 67,684      |      | 65,126    |   |
| Retained  earnings                                               |   | 1,057,123   |      | 1,086,397 |   |
| Accumulated  other comprehensive income                          |   | 4,231       |      | 4,960     |   |
| Treasury stock  at cost, 8,345 and 6,654 shares, respectively    |   | (217,000    | )         | (169,856  | )      |
| Total  shareholders’ investment                             |   | 912,617     |      | 987,206   |   |
|                                                             |   | $           | 1,972,074 |      | $      | 1,944,200 |   |

 

The accompanying notesare an integral part of these statements.

4

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME(In thousands, except per share data)(Unaudited)
|                                                      |   | Three  Months Ended |    |
|-----------------------------------------------------------|--------|---------------------|---------|
|                                                           |   | October  1,         |    | October  2, |   |
|                                                      |   | 2006                |    | 2005 |   |
|                                                      |   |                |    |   |   |
| NET SALES                                                 |   | $                   | 338,249 |   | $ | 511,709 |   |
|                                                      |   |                |    |   |   |
| COST OF GOODS SOLD                                        |   | 293,887             |    | 430,401 |   |
|                                                      |   |                |    |   |   |
| Gross profit on  sales                                    |   | 44,362              |    | 81,308 |   |
|                                                      |   |                |    |   |   |
| ENGINEERING, SELLING,  GENERAL AND                        |   |                |    |   |   |
| ADMINISTRATIVE  EXPENSES                                  |   | 66,321              |    | 70,277 |   |
|                                                      |   |                |    |   |   |
| Income (loss)  from operations                            |   | (21,959             | )       | 11,031 |   |
|                                                      |   |                |    |   |   |
| INTEREST EXPENSE                                          |   | (9,037              | )       | (10,028 | ) |
|                                                      |   |                |    |   |   |
| OTHER INCOME, net                                         |   | 3,457               |    | 6,264 |   |
|                                                      |   |                |    |   |   |
| Income (Loss)  before provision (credit) for income taxes |   | (27,539             | )       | 7,267 |   |
|                                                      |   |                |    |   |   |
| PROVISION (CREDIT) FOR  INCOME TAXES                      |   | (9,501              | )       | 2,540 |   |
|                                                      |   |                |    |   |   |
| NET INCOME (LOSS)                                         |   | $                   | (18,038 | ) | $ | 4,727 |   |
|                                                      |   |                |    |   |   |
| EARNINGS PER SHARE DATA  -                                |   |                |    |   |   |
|                                                      |   |                |    |   |   |
| Average shares  outstanding                               |   | 50,583              |    | 51,695 |   |
|                                                      |   |                |    |   |   |
| Basic earnings  (loss) per share                          |   | $                   | (0.36   | ) | $ | 0.09 |   |
|                                                      |   |                |    |   |   |
| Diluted average  shares outstanding                       |   | 50,583              |    | 52,053 |   |
|                                                      |   |                |    |   |   |
| Diluted earnings  (loss) per share                        |   | $                   | (0.36   | ) | $ | 0.09 |   |
|                                                      |   |                |    |   |   |
| CASH DIVIDENDS PER SHARE                                  |   | $                   | 0.22    |   | $ | 0.22 |   |

 

The accompanying notesare an integral part of these statements.

5

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

CONSOLIDATEDCONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
|                                                                                  |   | Three  Months Ended |    |
|---------------------------------------------------------------------------------------|--------|---------------------|---------|
|                                                                                       |   | October  1,         |    | October  2, |   |
|                                                                                  |   | 2006                |    | 2005 |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                |   |                |    |   |   |
| Net income  (loss)                                                                    |   | $                   | (18,038 | ) | $ | 4,727 |   |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities: |   |                |    |   |   |
| Depreciation and  amortization                                                        |   | 18,154              |    | 19,424 |   |
| Earnings of  unconsolidated affiliates, net of dividends                              |   | 2,806               |    | 2,494 |   |
| Loss (Gain) on  disposition of plant and equipment                                    |   | 37                  |    | (6,156 | ) |
| Provision for  deferred income taxes                                                  |   | (3,937              | )       | (7,746 | ) |
| Stock  compensation expense                                                           |   | 2,819               |    | 2,096 |   |
| Change in  operating assets and liabilities:                                          |   |                |    |   |   |
| Decrease in  receivables                                                              |   | 45,610              |    | 17,136 |   |
| Increase in  inventories                                                              |   | (144,347            | )       | (102,980 | ) |
| Decrease  (Increase) in prepaid expenses and other current assets                     |   | 10,785              |    | (5,450 | ) |
| (Increase)  Decrease in prepaid/accrued pension                                       |   | (357                | )       | 2,862 |   |
| Decrease in  accounts payable, accrued liabilities, and income taxes                  |   | (20,397             | )       | (7,355 | ) |
| Other, net                                                                            |   | (1,364              | )       | (4,186 | ) |
| Net cash used in  operating activities                                                |   | (108,229            | )       | (85,134 | ) |
|                                                                                  |   |                |    |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                |   |                |    |   |   |
| Additions to  plant and equipment                                                     |   | (13,844             | )       | (16,317 | ) |
| Proceeds  received on sale of plant and equipment                                     |   | 262                 |    | 10,474 |   |
| Refund of cash  paid for acquisition                                                  |   | -                   |    | 6,347 |   |
| Net cash (used  in) provided by investing activities                                  |   | (13,582             | )       | 504 |   |
|                                                                                  |   |                |    |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                |   |                |    |   |   |
| Net borrowings  on loans and notes payable                                            |   | 118,378             |    | 4,278 |   |
| Stock option  proceeds and tax benefits                                               |   | 750                 |    | 2,418 |   |
| Treasury stock  purchases                                                             |   | (48,232             | )       | - |   |
| Net cash  provided by financing activities                                            |   | 70,896              |    | 6,696 |   |
|                                                                                  |   |                |    |   |   |
| EFFECT OF FOREIGN  CURRENCY EXCHANGE RATE                                             |   |                |    |   |   |
| CHANGES ON CASH  AND CASH EQUIVALENTS                                                 |   | (6                  | )       | 928 |   |
|                                                                                  |   |                |    |   |   |
| NET DECREASE IN CASH  AND CASH EQUIVALENTS                                            |   | (50,921             | )       | (77,006 | ) |
|                                                                                  |   |                |    |   |   |
| CASH AND CASH  EQUIVALENTS, beginning                                                 |   | 95,091              |    | 161,573 |   |
|                                                                                  |   |                |    |   |   |
| CASH AND CASH  EQUIVALENTS, ending                                                    |   | $                   | 44,170  |   | $ | 84,567 |   |
|                                                                                  |   |                |    |   |   |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION:                                    |   |                |    |   |   |
| Interest paid                                                                         |   | $                   | 15,988  |   | $ | 17,258 |   |
| Income taxes paid                                                                     |   | $                   | 644     |   | $ | 1,778 |   |

 

The accompanying notesare an integral part of these statements.

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

NOTES TOCONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

General Information

The accompanyingunaudited consolidated condensed financial statements have been prepared inaccordance with the rules and regulations of the Securities and ExchangeCommission and therefore do not include all information and footnotes necessaryfor a fair presentation of financial position, results of operations and cashflows in conformity with accounting principles generally accepted in theU.S.  However, in the opinion of Briggs& Stratton Corporation, adequate disclosures have been presented to makethe information not misleading, and all adjustments necessary to present fairstatements of the results of operations and financial position have beenincluded.  All of these adjustments areof a normal recurring nature.  Theseconsolidated condensed financial statements should be read in conjunction withthe financial statements and the notes thereto which were included in our latestAnnual Report on Form 10-K.

### Common Stock

Briggs &Stratton repurchased 1,733,200 shares at a total cost of $48.2 million duringthe three months ended October 1, 2006. No shares were repurchased in the same period a year ago.  The timing and amount of future repurchaseswill be dependent upon the market price of the stock and certain governing loancovenants.

### Earnings PerShare

Basic earnings pershare, for each period presented, is computed by dividing net income by theweighted average number of shares of common stock outstanding during theperiod.  Diluted earnings per share, foreach period presented, is computed reflecting the potential dilution that wouldoccur if options or other contracts to issue common stock were exercised orconverted into common stock at the beginning of the period.

Shares outstandingused to compute diluted earnings per share for the quarter ended October 1,2006 excluded approximately 157,000 shares of restricted and deferred stock andoutstanding options to purchase approximately 3,467,000 shares of common stockas their inclusion would have been anti-dilutive.  In the prior fiscal year, outstanding optionsto purchase approximately 1,504,000 shares of common stock were excluded fromthe computation of diluted earnings per share for the quarter ended October 2,2005 because their inclusion would have been anti-dilutive.

Information on earningsper share is as follows (in thousands):

 
|                                                                                                                                    | ** ** | **Three Months Ended** | ** ** | ** **          | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------|------------|
| ** **                                                                                                                         | ** ** | **October 1,**              | ** ** | **October 2,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                         | ** ** | **2006**                         | ** ** | **2005**            | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                               |       |                             |       |                |       |   |   |   |   |
| Net income  (loss)                                                                                                                 |       | $                                | (18,038    | )                   | $          | 4,727 |   |   |   |   |   |
|                                                                                                                               |       |                             |       |                |       |   |   |   |   |
| Average shares  of common stock outstanding                                                                                        |       | 50,583                           |       | 51,695              |       |   |   |   |   |
|                                                                                                                               |       |                             |       |                |       |   |   |   |   |
| Incremental common shares applicable to common stock    options based on the common stock average market price  during the period  |       | -                                |       | 322                 |       |   |   |   |   |
|                                                                                                                               |       |                             |       |                |       |   |   |   |   |
| Incremental common shares applicable to restricted common  stock based on the common stock average market price during  the period |       | -                                |       | 36                  |       |   |   |   |   |
|                                                                                                                               |       |                             |       |                |       |   |   |   |   |
| Diluted average shares  of common stock outstanding                                                                                |       | 50,583                           |       | 52,053              |       |   |   |   |   |
|                                                                                                                                    |            |                                  |            |                     |            |  |  |  |  |  |  |

 

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

Comprehensive Income

Comprehensiveincome is a more inclusive financial reporting method that includes disclosureof certain financial information that historically has not been recognized inthe calculation of net income. Comprehensive income is defined as net income and other changes inshareholders’ investment from transactions and events other than withshareholders.  Total comprehensive income(loss) is as follows (in thousands):
|                                                   | ** ** | **Three  Months Ended** | ** ** | ** **      | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|-----------------|------------|
| ** **                                        | ** ** | **October  1,**         | ** ** | **October  2,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | **2006**                | ** ** | **2005**        | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                              |       |                    |       |            |       |   |   |   |   |
| Net income (loss)                                 |       | $                       | (18,038    | )               | $          | 4,727 |   |   |   |   |   |
| Cumulative translation  adjustments               |       | 461                     |       | 820             |       |   |   |   |   |
| Unrealized gain (loss)  on derivative instruments |       | (1,190                  | )          | 5,827           |       |   |   |   |   |
| Total comprehensive  income (loss)                |       | $                       | (18,767    | )               | $          | 11,374 |   |   |   |   |   |

 

The components ofAccumulated Other Comprehensive Income are as follows (in thousands):

 
|                                            | ** ** | **October  1,** | ** ** | **July 2,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-----------------|------------|-------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **2006**        | ** ** | **2006**    | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                       |       |            |       |        |       |       |       |       |       |
| Cumulative  translation adjustments        |       | $               | 7,985      |        | $          | 7,524      |       |       |       |   |   |
| Unrealized loss  on derivative instruments |       | (1,526          | )          | (336        | )          |       |       |       |       |
| Minimum pension  liability adjustment      |       | (2,228          | )          | (2,228      | )          |       |       |       |       |
| Accumulated  other comprehensive income    |       | $               | 4,231      |        | $          | 4,960      |       |       |       |   |   |

 

Derivatives

Derivatives arerecorded on the balance sheet as assets or liabilities, measured at fairvalue.  Briggs & Stratton enters intoderivative contracts designated as cash flow hedges to manage its foreigncurrency exposures.  These instrumentsgenerally do not have a maturity of more than twelve months.

Changes in thefair value of cash flow hedges are recorded on the Consolidated CondensedStatements of Income or as a component of Accumulated Other ComprehensiveIncome.  The amounts included inAccumulated Other Comprehensive Income will be reclassified into income whenthe forecasted transactions occur, generally within the next twelvemonths.  These forecasted transactionsrepresent the exporting of products for which Briggs & Stratton willreceive foreign currency and the importing of products for which it will berequired to pay in a foreign currency. Changes in the fair value of all derivatives deemed to be ineffectiveare recorded as either income or expense in the accompanying ConsolidatedCondensed Statements of Income.

Briggs &Stratton manages its exposure to fluctuation in the cost of natural gas used byits operating facilities through participation in a third party managed dollarcost averaging program linked to NYMEX futures. As a participant in the program, Briggs & Stratton hedges a minimumof 50% of its anticipated monthly natural gas usage along with a pool of othercompanies.  Briggs & Stratton doesnot hold any actual futures contracts and actual delivery of natural gas is notrequired of the participants in the program. Cash settlements occur on a monthly basis based on the differencebetween the average dollar price of the underlying NYMEX futures held by thethird party and the actual price of natural gas paid by Briggs & Strattonin the 

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

period. The fair value ofthe underlying NYMEX futures is reflected as an asset or liability on theaccompanying Consolidated Condensed Balance Sheets.  Changes in fair value are reflected as aComponent of Accumulated Other Comprehensive Income, which are reclassifiedinto the income statement as the monthly cash settlements occur and actualnatural gas is consumed.

Reduction in Force

Briggs & Strattonrecorded an expense of approximately $4.1 million associated with a worldwideemployee reduction during the fiscal year ended July 2, 2006. The amountrecorded represented expected expenditures for severance and other relatedemployee separation costs associated with the reduction. As of the quarterended October 1, 2006, no reserve remained.

9

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

Segment and GeographicInformation

Briggs &Stratton operates two reportable business segments that are managed separatelybased on fundamental differences in their operations.  Summarized segment data is as follows (inthousands):
|                                          | ** ** | **Three  Months Ended** | ** ** | ** **      | ** ** |
|------------------------------------------|------------|-------------------------|------------|-----------------|------------|
| ** **                               | ** ** | **October  1,**         | ** ** | **October  2,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **2006**                | ** ** | **2005**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| NET SALES:                               |       |                    |       |            |       |   |   |   |   |
| Engines                                  |       | $                       | 189,596    |            | $          | 285,429 |   |   |   |   |   |
| Power Products                           |       | 186,887                 |       | 300,607         |       |   |   |   |   |
| Inter-Segment  Eliminations              |       | (38,234                 | )          | (74,327         | )          |   |   |   |   |
| Total                                    |       | $                       | 338,249    |            | $          | 511,709 |   |   |   |   |   |
|                                     |       |                    |       |            |       |   |   |   |   |
| International  Sales (included in above) |       |                    |       |            |       |   |   |   |   |
| Engines                                  |       | $                       | 77,619     |            | $          | 93,301 |   |   |   |   |   |
| Power Products                           |       | 33,793                  |       | 22,236          |       |   |   |   |   |
| Total                                    |       | $                       | 111,412    |            | $          | 115,537 |   |   |   |   |   |
|                                     |       |                    |       |            |       |   |   |   |   |
| GROSS PROFIT ON SALES:                   |       |                    |       |            |       |   |   |   |   |
| Engines                                  |       | $                       | 24,699     |            | $          | 59,684 |   |   |   |   |   |
| Power Products                           |       | 20,253                  |       | 19,504          |       |   |   |   |   |
| Inter-Segment  Eliminations              |       | (590                    | )          | 2,120           |       |   |   |   |   |
| Total                                    |       | $                       | 44,362     |            | $          | 81,308 |   |   |   |   |   |
|                                     |       |                    |       |            |       |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS:          |       |                    |       |            |       |   |   |   |   |
| Engines                                  |       | $                       | (24,122    | )               | $          | 8,767 |   |   |   |   |   |
| Power Products                           |       | 2,753                   |       | 144             |       |   |   |   |   |
| Inter-Segment  Eliminations              |       | (590                    | )          | 2,120           |       |   |   |   |   |
| Total                                    |       | $                       | (21,959    | )               | $          | 11,031 |   |   |   |   |   |

 

Warranty

Briggs & Stratton recognizes the cost associatedwith its standard warranty on Engines and Power Products at the time ofsale.  The amount recognized is based onhistorical failure rates and current claim cost experience.  The following is a reconciliation of thechanges in accrued warranty costs for the reporting period (in thousands):
|                                       | ** ** | **Three  Months Ended** | ** ** | ** **      | ** ** |
|---------------------------------------|------------|-------------------------|------------|-----------------|------------|
| ** **                            | ** ** | **October  1,**         | ** ** | **October  2,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **2006**                | ** ** | **2005**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Beginning  balance                    |       | $                       | 53,233     |            | $          | 59,625 |   |   |   |   |   |
| Payments                              |       | (9,437                  | )          | (9,436          | )          |   |   |   |   |
| Provision for current year warranties |       | 8,190                   |       | 8,609           |       |   |   |   |   |
| Adjustments to prior years warranties |       | (1,600                  | )          | (1,800          | )          |   |   |   |   |
| Ending balance                        |       | $                       | 50,386     |            | $          | 56,998 |   |   |   |   |   |

 

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

## StockIncentives

Stock basedcompensation is calculated by estimating the fair value of incentive stockawards granted and amortizing the estimated value over the awards’ vestingperiod. Stock based compensation expense was $2.8 million and $2.1 million forthe quarters ended October 1, 2006 and October 2, 2005, respectively.

Pension and Postretirement Benefits

Briggs & Stratton has noncontributory, definedbenefit retirement plans and postretirement plans covering certainemployees.  The following tablessummarize the plans’ income and expense for the periods indicated (inthousands):
|                                                | ** ** | **Pension Benefits**   | ** ** | **Other Postretirement Benefits** | ** ** |
|------------------------------------------------|------------|------------------------|------------|-----------------------------------|------------|
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Three Months Ended**            | ** ** |
| ** **                                     | ** ** | **October 1,**    | ** ** | **October 2,**               | ** ** | **October 1,** | ** ** | **October 2,** | ** ** |
| ** **                                     | ** ** | **2006**               | ** ** | **2005**                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Components of  net periodic expense:           |       |                   |       |                              |       |   |   |   |   |
| Service  cost-benefits earned                  |       | $                      | 3,352      |                              | $          | 4,022 |   | $ | 606 |   | $ | 876 |   |
| Interest cost on  projected benefit obligation |       | 14,512                 |       | 13,096                            |       | 3,981 |   | 3,827 |   |
| Expected return  on plan assets                |       | (17,010                | )          | (17,205                           | )          | - |   | - |   |
| Amortization of:                               |       |                   |       |                              |       |   |   |   |   |
| Transition obligation                          |       | 2                      |       | 2                                 |       | 12 |   | 11 |   |
| Prior service cost                             |       | 822                    |       | 774                               |       | (213 | ) | 8 |   |
| Actuarial loss                                 |       | 1,381                  |       | 2,701                             |       | 3,560 |   | 4,035 |   |
| Net periodic expense                           |       | $                      | 3,059      |                              | $          | 3,390 |   | $ | 7,946 |   | $ | 8,757 |   |

 

Briggs & Stratton is not required to make anycontributions to the pension plans in fiscal 2007 and did not make anycontributions in fiscal 2006; however, the Company expects to contribute up to$12 million in fiscal 2007 as approved by the Board of Directors.  During the first quarter of fiscal 2007, theCompany contributed $3.0 million to the pension plans.

Briggs & Stratton expects to make benefit paymentsof approximately $1.7 million for its non-qualified pension plans during fiscal2007.  As of October 1, 2006, Briggs& Stratton had made payments of approximately $0.4 million for itsnon-qualified pension plans.  Briggs& Stratton anticipates benefit payments of approximately $35.0 million forits other postretirement benefit plans during fiscal 2007.  As of October 1, 2006, Briggs & Strattonhad made payments of approximately $8.7 million for its other postretirementbenefit plans.

## Commitmentsand Contingencies

Briggs & Stratton issubject to various unresolved legal actions that arise in the normal course ofits business. These actions typically relate to product liability (includingasbestos-related liability), patent and trademark matters, and disputes withcustomers, suppliers, distributors and dealers, competitors and employees.

On June 3, 2004, eightindividuals who claim to have purchased lawnmowers in Illinois and Minnesotafiled a lawsuit (*Ronnie Phillips et al. v.Sears Roebuck Corporation et al.*, No. 04-L-334 (20th JudicialCircuit, St. Clair County, IL)) against Briggs & Stratton and otherdefendants alleging that the horsepower labels on the products they purchasedwere inaccurate. The plaintiffs have amended their complaint several times andcurrently seek an injunction, compensatory and punitive damages, and attorneys’fees under various federal and state laws including the Racketeer Influencedand Corrupt Organization Act on behalf of all persons in the United States who,beginning January 1, 1994 through the present, purchased a lawnmower containinga two-stroke

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BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

or four-stroke gasoline combustion engine up to30 horsepower that was manufactured by the defendants. On May 31, 2006, thedefendants removed the case to the U.S. District Court for the SouthernDistrict of Illinois (No. 06-412-DRH). The defendants subsequently filedcrossclaims against each other for indemnification and contribution and filed amotion to dismiss the amended complaint.

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

 

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## BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

## FinancialInformation of Subsidiary Guarantor of Indebtedness

In June 1997, Briggs& Stratton issued $100 million of 7.25% senior notes; in May 2001, Briggs& Stratton issued $275 million of 8.875% senior notes; and in February2005, Briggs & Stratton issued $125 million of variable rate term notes. Inaddition, Briggs & Stratton has a $350 million revolving credit facilitythat expires in May 2009 that is used to finance seasonal working capital needs.

Underthe terms of Briggs & Stratton’s 8.875% senior notes, 7.25% senior notes,variable rate term notes, and the revolving credit agreement (collectively, the“Domestic Indebtedness”), Briggs & Stratton Power Products Group, LLC andits wholly owned subsidiary, Simplicity Manufacturing, Inc., are joint andseveral guarantors of the Domestic Indebtedness (the “Guarantor”). Theguarantees are full and unconditional guarantees. Additionally, if at any timea domestic subsidiary of Briggs & Stratton constitutes a significantdomestic subsidiary, then such domestic subsidiary will also become a guarantorof the Domestic Indebtedness. Currently, all of the Domestic Indebtedness isunsecured. If Briggs & Stratton were to fail to make a payment of interestor principal on its due date, the Guarantor is obligated to pay the outstandingDomestic Indebtedness. Briggs & Stratton had the following outstandingamounts related to the guaranteed debt (in thousands):
|                                                  |   | October  1, 2006 |    | Maximum   |   |
|--------------------------------------------------|--------|------------------|---------|-----------|--------|
|                                             |   | Carrying  Amount |    | Guarantee |   |
|                                             |   |             |    |      |   |
| 8.875% Senior  Notes, due March 15, 2011         |   | $                | 267,490 |      | $      | 270,000 |   |
|                                             |   |             |    |      |   |
| Variable Rate  Term Notes, due February 11, 2008 |   | $                | 35,000  |      | $      | 35,000 |   |
|                                             |   |             |    |      |   |
| 7.25% Senior  Notes, due September 15, 2007      |   | $                | 81,015  |      | $      | 81,175 |   |
|                                             |   |             |    |      |   |
| Revolving Credit  Facility, expiring May 2009    |   | $                | 118,106 |      | $      | 350,000 |   |

 

The following condensed supplementalconsolidating financial information reflects the summarized financialinformation of Briggs & Stratton, its Guarantor and Non-GuarantorSubsidiaries (in thousands):

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## BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

BALANCE SHEETAs of October 1, 2006
|                                |   | Briggs & Stratton |      | Guarantor    |   | Non-Guarantor |   |         |    |         |   |
|--------------------------------|--------|---------------------------------|-----------|--------------|--------|---------------|--------|--------------|---------|--------------|--------|
|                           |   | Corporation                     |      | Subsidiaries |   | Subsidiaries  |   | Eliminations |    | Consolidated |   |
|                           |   |                            |      |         |   |          |   |         |    |         |   |
| Current assets                 |   | $                               | 639,422   |         | $      | 654,295       |   | $            | 200,829 |         | $      | (429,526 | ) | $ | 1,065,020 |   |
| Investment in  subsidiaries    |   | 794,601                         |      | —       |   | —        |   | (794,601     | )       | —       |   |
| Non-current assets             |   | 443,390                         |      | 440,836      |   | 22,828        |   | —       |    | 907,054      |   |
|                           |   | $                               | 1,877,413 |         | $      | 1,095,131     |   | $            | 223,657 |         | $      | (1,224,127 | ) | $ | 1,972,074 |   |
|                           |   |                            |      |         |   |          |   |         |    |         |   |
| Current liabilities            |   | $                               | 516,301   |         | $      | 272,147       |   | $            | 151,740 |         | $      | (412,452 | ) | $ | 527,736 |   |
| Long-term debt                 |   | 302,490                         |      | —       |   | —        |   | —       |    | 302,490      |   |
| Other long-term  obligations   |   | 128,931                         |      | 99,962       |   | 338           |   | —       |    | 229,231      |   |
| Shareholders’  investment |   | 929,691                         |      | 723,022      |   | 71,579        |   | (811,675     | )       | 912,617      |   |
|                           |   | $                               | 1,877,413 |         | $      | 1,095,131     |   | $            | 223,657 |         | $      | (1,224,127 | ) | $ | 1,972,074 |   |

 

BALANCE SHEETAs of July 2, 2006
|                                |   | Briggs & Stratton |      | Guarantor    |   | Non-Guarantor |   |         |    |         |   |
|--------------------------------|--------|---------------------------------|-----------|--------------|--------|---------------|--------|--------------|---------|--------------|--------|
|                           |   | Corporation                     |      | Subsidiaries |   | Subsidiaries  |   | Eliminations |    | Consolidated |   |
|                           |   |                            |      |         |   |          |   |         |    |         |   |
| Current assets                 |   | $                               | 536,849   |         | $      | 694,535       |   | $            | 191,913 |         | $      | (391,645 | ) | $ | 1,031,652 |   |
| Investment in  subsidiaries    |   | 794,317                         |      | —       |   | —        |   | (794,317     | )       | —       |   |
| Non-current assets             |   | 451,150                         |      | 442,853      |   | 18,545        |   | —       |    | 912,548      |   |
|                           |   | $                               | 1,782,316 |         | $      | 1,137,388     |   | $            | 210,458 |         | $      | (1,185,962 | ) | $ | 1,944,200 |   |
|                           |   |                            |      |         |   |          |   |         |    |         |   |
| Current liabilities            |   | $                               | 265,185   |         | $      | 317,133       |   | $            | 137,325 |         | $      | (376,497 | ) | $ | 343,146 |   |
| Long-term debt                 |   | 383,324                         |      | —       |   | —        |   | —       |    | 383,324      |   |
| Other long-term  obligations   |   | 131,453                         |      | 98,729       |   | 342           |   | —       |    | 230,524      |   |
| Shareholders’  investment |   | 1,002,354                       |      | 721,526      |   | 72,791        |   | (809,465     | )       | 987,206      |   |
|                           |   | $                               | 1,782,316 |         | $      | 1,137,388     |   | $            | 210,458 |         | $      | (1,185,962 | ) | $ | 1,944,200 |   |

 

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## BRIGGS & STRATTONCORPORATION AND SUBSIDIARIES

STATEMENT OFINCOMEFor the Three Months Ended Octrober 1, 2006
|                                                            |   | Briggs & Stratton |    | Guarantor    |   | Non-Guarantor |   |         |   |         |   |
|------------------------------------------------------------|--------|---------------------------------|---------|--------------|--------|---------------|--------|--------------|--------|--------------|--------|
|                                                       |   | Corporation                     |    | Subsidiaries |   | Subsidiaries  |   | Eliminations |   | Consolidated |   |
|                                                       |   |                            |    |         |   |          |   |         |   |         |   |
| Net sales                                                  |   | $                               | 180,185 |         | $      | 181,487       |   | $            | 45,985 |         | $      | (69,408 | ) | $ | 338,249 |   |
| Cost of goods sold                                         |   | 158,184                         |    | 164,524      |   | 38,358        |   | (67,179      | )      | 293,887      |   |
| Gross profit                                               |   | 22,001                          |    | 16,963       |   | 7,627         |   | (2,229       | )      | 44,362       |   |
| Engineering, selling,  general and administrative expenses |   | 40,958                          |    | 16,794       |   | 8,569         |   | —       |   | 66,321       |   |
| Income (Loss) from  operations                             |   | (18,957                         | )       | 169          |   | (942          | )      | (2,229       | )      | (21,959      | )      |
| Interest expense                                           |   | (9,584                          | )       | (5           | )      | (70           | )      | 622          |   | (9,037       | )      |
| Other income (expense),  net                               |   | 857                             |    | 954          |   | (158          | )      | 1,804        |   | 3,457        |   |
| Income (Loss)  before income taxes                         |   | (27,684                         | )       | 1,118        |   | (1,170        | )      | 197          |   | (27,539      | )      |
| Provision (Credit) for income  taxes                       |   | (9,551                          | )       | 4            |   | 141           |   | (95          | )      | (9,501       | )      |
| Net income (loss)                                          |   | $                               | (18,133 | )            | $      | 1,114         |   | $            | (1,311 | )            | $      | 292 |   | $ | (18,038 | ) |

 

STATEMENT OF INCOME

For the Three MonthsEnded October 2, 2005
|                                                            |   | Briggs & Stratton |    | Guarantor    |   | Non-Guarantor |   |         |   |         |   |
|------------------------------------------------------------|--------|---------------------------------|---------|--------------|--------|---------------|--------|--------------|--------|--------------|--------|
|                                                       |   | Corporation                     |    | Subsidiaries |   | Subsidiaries  |   | Eliminations |   | Consolidated |   |
|                                                       |   |                            |    |         |   |          |   |         |   |         |   |
| Net sales                                                  |   | $                               | 267,041 |         | $      | 297,859       |   | $            | 50,305 |         | $      | (103,496 | ) | $ | 511,709 |   |
| Cost of goods sold                                         |   | 214,529                         |    | 280,463      |   | 41,540        |   | (106,131     | )      | 430,401      |   |
| Gross profit                                               |   | 52,512                          |    | 17,396       |   | 8,765         |   | 2,635        |   | 81,308       |   |
| Engineering, selling,  general and administrative expenses |   | 42,923                          |    | 18,289       |   | 9,065         |   | —       |   | 70,277       |   |
| Income (Loss)  from operations                             |   | 9,589                           |    | (893         | )      | (300          | )      | 2,635        |   | 11,031       |   |
| Interest expense                                           |   | (11,371                         | )       | (14          | )      | (53           | )      | 1,410        |   | (10,028      | )      |
| Other income (expense),  net                               |   | 7,711                           |    | 1,776        |   | (988          | )      | (2,235       | )      | 6,264        |   |
| Income (Loss)  before income taxes                         |   | 5,929                           |    | 869          |   | (1,341        | )      | 1,810        |   | 7,267        |   |
| Provision for income  taxes                                |   | 2,075                           |    | 698          |   | 640           |   | (873         | )      | 2,540        |   |
| Net income (loss)                                          |   | $                               | 3,854   |         | $      | 171           |   | $            | (1,981 | )            | $      | 2,683 |   | $ | 4,727 |   |

 

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STATEMENT OF CASHFLOWSFor the Three Months Ended October 1, 2006
|                                                                                |   | Briggs & Stratton |     | Guarantor    |   | Non-Guarantor |   |         |   |         |   |
|--------------------------------------------------------------------------------|--------|---------------------------------|----------|--------------|--------|---------------|--------|--------------|--------|--------------|--------|
|                                                                           |   | Corporation                     |     | Subsidiaries |   | Subsidiaries  |   | Eliminations |   | Consolidated |   |
| Net Cash (Used in)  Provided by                                                |   |                            |     |         |   |          |   |         |   |         |   |
| Operating  Activities                                                          |   | $                               | (163,547 | )            | $      | 48,656        |   | $            | (2,251 | )            | $      | 8,913 |   | $ | (108,229 | ) |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Cash Flows from  Investing Activities:                                         |   |                            |     |         |   |          |   |         |   |         |   |
| Additions to  plant and equipment                                              |   | (7,075                          | )        | (2,661       | )      | (4,108        | )      | —       |   | (13,844      | )      |
| Proceeds  received on sale of plant                                            |   |                            |     |         |   |          |   |         |   |         |   |
| and equipment                                                                  |   | 223                             |     | 31           |   | 8             |   | —       |   | 262          |   |
| Capital  contributions to subsidiary                                           |   | (384                            | )        | —       |   | (147          | )      | 531          |   | —       |   |
| Net Cash (Used in)  Provided by                                                |   |                            |     |         |   |          |   |         |   |         |   |
| Investing  Activities                                                          |   | (7,236                          | )        | (2,630       | )      | (4,247        | )      | 531          |   | (13,582      | )      |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Cash Flows from  Financing Activities:                                         |   |                            |     |         |   |          |   |         |   |         |   |
| Net borrowings  (repayments) on loans and notes payable                        |   | 169,236                         |     | (48,591      | )      | 6,165         |   | (8,432       | )      | 118,378      |   |
| Cash dividends  paid                                                           |   | —                          |     | —       |   | 481           |   | (481         | )      | —       |   |
| Stock option  proceeds and tax benefits                                        |   | 750                             |     | —       |   | —        |   | —       |   | 750          |   |
| Treasury stock  purchases                                                      |   | (48,232                         | )        | —       |   | —        |   | —       |   | (48,232      | )      |
| Capital  contributions received                                                |   | —                          |     | 383          |   | 148           |   | (531         | )      | —       |   |
| Net Cash Provided by  (Used in)                                                |   |                            |     |         |   |          |   |         |   |         |   |
| Financing  Activities                                                          |   | 121,754                         |     | (48,208      | )      | 6,794         |   | (9,444       | )      | 70,896       |   |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Effect of Foreign  Currency Exchange Rate Changes on Cash and Cash Equivalents |   | —                          |     | —       |   | (6            | )      | —       |   | (6           | )      |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Net (Decrease) Increase  in Cash and Cash Equivalents                          |   | (49,029                         | )        | (2,182       | )      | 290           |   | —       |   | (50,921      | )      |
| Cash and Cash  Equivalents, Beginning                                          |   | 57,623                          |     | 6,812        |   | 30,656        |   | —       |   | 95,091       |   |
| Cash and Cash Equivalents, Ending                                              |   | $                               | 8,594    |         | $      | 4,630         |   | $            | 30,946 |         | $      | — |   | $ | 44,170 |   |

 

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STATEMENT OF CASHFLOWSFor the Three Months Ended October 2, 2005
|                                                                                |   | Briggs & Stratton |     | Guarantor    |   | Non-Guarantor |   |         |   |         |   |
|--------------------------------------------------------------------------------|--------|---------------------------------|----------|--------------|--------|---------------|--------|--------------|--------|--------------|--------|
|                                                                           |   | Corporation                     |     | Subsidiaries |   | Subsidiaries  |   | Eliminations |   | Consolidated |   |
| Net Cash (Used in)  Provided by Operating Activities                           |   | $                               | (131,763 | )            | $      | 38,685        |   | $            | (1,598 | )            | $      | 9,542 |   | $ | (85,134 | ) |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Cash Flows from  Investing Activities:                                         |   |                            |     |         |   |          |   |         |   |         |   |
| Additions to  plant and equipment                                              |   | (11,457                         | )        | (4,094       | )      | (766          | )      | —       |   | (16,317      | )      |
| Proceeds  received on sale of plant and equipment                              |   | 10,455                          |     | 19           |   | —        |   | —       |   | 10,474       |   |
| Refund of cash  paid for acquistion                                            |   | —                          |     | 6,347        |   | —        |   | —       |   | 6,347        |   |
| Capital  contributions to subsidiary                                           |   | (383                            | )        | —       |   | —        |   | 383          |   | —       |   |
| Net Cash (Used in)  Provided by Investing Activities                           |   | (1,385                          | )        | 2,272        |   | (766          | )      | 383          |   | 504          |   |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Cash Flows from  Financing Activities:                                         |   |                            |     |         |   |          |   |         |   |         |   |
| Net borrowings  (repayments) on loans and notes payable                        |   | 39,636                          |     | (39,547      | )      | 13,731        |   | (9,542       | )      | 4,278        |   |
| Stock option  proceeds and tax benefits                                        |   | 2,418                           |     | —       |   | —        |   | —       |   | 2,418        |   |
| Capital  contributions received                                                |   | —                          |     | 383          |   | —        |   | (383         | )      | —       |   |
| Net Cash Provided by  (Used in) Financing Activities                           |   | 42,054                          |     | (39,164      | )      | 13,731        |   | (9,925       | )      | 6,696        |   |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Effect of Foreign  Currency Exchange Rate Changes on Cash and Cash Equivalents |   | —                          |     | —       |   | 928           |   | —       |   | 928          |   |
|                                                                           |   |                            |     |         |   |          |   |         |   |         |   |
| Net (Decrease) Increase  in Cash and Cash Equivalents                          |   | (91,094                         | )        | 1,793        |   | 12,295        |   | —       |   | (77,006      | )      |
| Cash and Cash  Equivalents, Beginning                                          |   | 143,034                         |     | 6,376        |   | 12,163        |   | —       |   | 161,573      |   |
| Cash and Cash Equivalents, Ending                                              |   | $                               | 51,940   |         | $      | 8,169         |   | $            | 24,458 |         | $      | — |   | $ | 84,567 |   |

 

 

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

Thefollowing is management’s discussion and analysis of Briggs & Stratton’sfinancial condition and results of operations for the periods included in theaccompanying consolidated condensed financial statements:

RESULTS OFOPERATIONS

SALES

Consolidated netsales for the first quarter of fiscal 2007 totaled $338 million, a decrease of$173 million or 34% when compared to the same period the preceding year.

The EnginesSegment net sales decrease was $96 million or 34% between years.  Lower engine unit shipments of 37% for thefirst quarter of fiscal 2007 as compared to fiscal 2006 are primarily theresult of diminished original equipment manufacturer (“OEM”) demand.  The absence of any significant weatherrelated events in the first quarter of fiscal 2007 as compared to 2006negatively impacted generator sales, which drives the demand for engines usedin OEM production of generators.  OEMdemand for engines to be used in the production of lawn and garden equipmentalso declined in the fiscal 2007 first quarter as demand in the retail lawn andgarden market remained soft as compared to fiscal 2006.

The Power ProductsSegment net sales decreased $114 million or 38% in the first quarter of fiscal2007.  Generator sales were downapproximately 50% in units or $56 million during the first quarter of fiscal2007 as compared to the same period in fiscal 2006.  Demand for generators was lower than thefirst quarter of fiscal 2006 as there were no landed hurricanes in the currentyear, whereas fiscal 2006 first quarter results included the impact of twomajor landed hurricanes.  Pressure washersales decreased 45% in unit volume or $15 million in the first quarter offiscal 2007 as sales were soft at retailers this season.  Lawn and garden equipment being sold underthe Murray brand experienced a $54 million decrease in sales during the first quarterof fiscal 2007 as product placement and sales volumes at major retailers werelower in the first quarter of fiscal 2007.

GROSS PROFIT MARGIN

The consolidatedgross profit margin was 13.1% in the first quarter of fiscal 2007 and 15.9% forthe same period of the preceding year.

Engines Segmentmargins decreased to 13.0% in fiscal 2007 from 20.9% in fiscal 2006. Thedecrease in margin is attributable to the absence of a $6 million gain recordedon the disposition of operating assets in the first quarter of fiscal 2006coupled with reduced production levels and absorption in the first quarter offiscal 2007 as a result of lower sales volumes.

The Power ProductsSegment margins for the first quarter increased from 6.5% in fiscal 2006 to10.8% in fiscal 2007. Operating losses in the first quarter of fiscal 2006associated with the winding down of the Transition Supply Agreement with theestate of Murray, Inc. did not occur in the first quarter of fiscal 2007.  The net change in gross profit associatedwith the Murray branded product from the first quarter of fiscal 2006 to fiscal2007 was an increase of approximately $12 million.

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ENGINEERING, SELLING,GENERAL AND ADMINISTRATIVE EXPENSES

Engineering,selling, general and administrative expenses in the first quarter of fiscal2007 were $66 million, a decrease of $4 million or 6% as compared to fiscal2006. The reduced expense in fiscal 2007 is attributed to reduced professionalservices of $2 million, reduced advertising expense of $1 million, and variousother expense reductions.

INTEREST EXPENSE

Interest expense was $9million in the first quarter of fiscal 2007, compared to $10 million in thefirst quarter of fiscal 2006. The decrease is attributable to lower averageborrowings during the first quarter of fiscal 2007.  Average borrowings were lower due to therepayment of $90 million in term notes during the fourth quarter of fiscal2006.

PROVISION FOR INCOMETAXES

The effective taxrate used in the first quarter of fiscal 2007 was 34.5% as compared to 35.0%for the first quarter of fiscal 2006. Management estimates the rate will bebetween 33.0% and 35.0% for the entire fiscal year 2007, whereas the full yearrate for fiscal 2006 was 32.8%.  Theestimated rate in the current year is attributable to factors such as earningsexpectations, anticipated dividend income and foreign tax credit implications.

#### LIQUIDITY AND CAPITAL RESOURCES

Cash used in operatingactivities for the first quarter of fiscal 2007 was $108 million, an increasein cash used of $23 million from the first quarter of fiscal 2006.  The increase in cash used in operatingactivities in the first quarter of fiscal 2007 is largely a result of loweroperating results as compared to fiscal 2006 as net income during the firstquarter of fiscal 2007 was $23 million lower than fiscal 2006.   Decreased sales and product demand in thefirst quarter of fiscal 2007 as compared to fiscal 2006 also had an impact onchanges in working capital.  During thefirst quarter of fiscal 2007 changes to working capital accounts includinginventory, accounts payable, and accounts receivable resulted in a $26 millionincrease in cash used in operating activities, as compared to the first quarterof fiscal 2006.  This increase in cashused was offset by changes in prepaid expenses and other current assetsassociated with normal business activity.

In the firstquarter of fiscal 2007, cash used in investing activities was $14 millionhigher than in fiscal 2006. The increase in the use of cash in the firstquarter of fiscal 2007 is attributable primarily to the absence of proceeds onthe sale of a building and other operating assets of $10 million during fiscal2006.

Net cash providedby financing activities was $71 million in the first quarter of fiscal 2007, a$64 million increase from the $7 million net cash provided in fiscal 2006.  Net borrowings during the first quarter offiscal 2007 were $114 million higher as compared to the same period in fiscal2006.  The increase in borrowings duringfiscal 2007 is attributable to the repurchase of treasury shares and workingcapital requirements.  Treasury sharerepurchases of 1.7 million shares or $48 million were made during the firstquarter of fiscal 2007 whereas no treasury share repurchases were made in thefirst quarter of fiscal 2006.

FUTURE LIQUIDITYAND CAPITAL RESOURCES

Briggs &Stratton has a $350 million revolving credit facility that expires in May 2009.The credit facility is used to fund seasonal working capital requirements andother financing needs.  As of the end thefirst quarter of fiscal 2007, $232 million was available under the revolvingcredit facility.

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

On August 10,2006, Briggs & Stratton announced its intent to initiate repurchases of upto $120 million of its common stock through open market transactions duringfiscal 2007 and fiscal 2008.  The timingand amount of actual purchases will depend upon the market price of the stockand certain governing loan covenants.  Asof November 1, 2006 approximately $48 million of common stock has beenrepurchased under this plan.

Management expectscash outflows for capital expenditures to be approximately $80 million infiscal 2007. These anticipated expenditures provide for continued investment inequipment and new products. These expenditures will be funded using availablecash.

Management believes thatavailable cash, the credit facility, cash generated from operations, existinglines of credit and access to debt markets will be adequate to fund our capitalrequirements for the foreseeable future.

#### OFF-BALANCE SHEET ARRANGEMENTS

There have been nomaterial changes since the September 1, 2006, filing of the Company’s AnnualReport on Form 10-K.

#### CONTRACTUAL OBLIGATIONS

There have been nomaterial changes since the September 1, 2006, filing of the Company’s AnnualReport on Form 10-K.

#### CRITICAL ACCOUNTING POLICIES

There have been nomaterial changes in Briggs & Stratton’s critical accounting policies sincethe September 1, 2006 filing of its Annual Report on Form 10-K.  As discussed in our annual report, thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the U.S. requires management to make estimates andassumptions about future events that affect the amounts reported in thefinancial statements and accompanying notes. Future events and their effects cannot be determined with absolutecertainty.  Therefore, the determinationof estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and suchdifferences may be material to the financial statements.

The mostsignificant accounting estimates inherent in the preparation of our financialstatements include estimates as to the recovery of accounts receivable andinventory reserves, as well as those used in the determination of liabilitiesrelated to customer rebates, pension obligations, postretirement benefits,warranty, product liability, group health insurance and taxation.  Various assumptions and other factorsunderlie the determination of these significant estimates.  The process of determining significantestimates is fact specific and takes into account factors such as historicalexperience, current and expected economic conditions, product mix, and, in someinstances, actuarial techniques.  Briggs& Stratton re-evaluates these significant factors as facts andcircumstances change.

#### NEW ACCOUNTING PRONOUNCEMENTS

On July 13, 2006,the FASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes — an interpretation of FASB Statement No. 109”.  Interpretation 48 clarifies the accountingfor uncertainty in income taxes recognized in an entity’s financial statementsin accordance with FASB Statement No. 109 and prescribes a standard methodologyfor financial statement disclosure of tax positions taken or expected to betaken on a tax return.  Interpretation 48is effective for fiscal years beginning after December 15, 2006, with earlyadoption permitted.  At this time, theimpact, if any, of adoption of Interpretation 48 on our consolidated financialposition is being assessed.

On September 15,2006 the FASB issued SFAS No. 157, “Fair Value Measurements,” which definesfair value, establishes a framework for measuring fair value 

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and expands disclosuresabout fair value measurements. SFAS No.157 is effective for fiscal yearsbeginning after November 15, 2007. At this time, the impact of adoption of SFASNo.157 on our consolidated financial position is being assessed.

On September 29,2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans”. Effective for fiscal years ending after December 15, 2006, SFAS No. 158requires the recognition of a net liability or asset to report the fundedstatus of defined benefit pension and other postretirement benefit plans on thebalance sheet.  Adoption of SFAS No. 158will be on a prospective basis and is expected to occur during the fourthquarter of the current fiscal year.  Atthis time, the impact of adoption of SFAS No. 158 on our consolidated financialposition is being assessed.

#### CAUTIONARY STATEMENT ON FORWARD-LOOKINGSTATEMENTS

Thisreport contains certain forward-looking statements that involve risks anduncertainties that could cause actual results to differ materially from thoseprojected in the forward-looking statements. The words “anticipate”, “believe”,“estimate”, “expect”, “forecast”, “intend”, “may”, “objective”, “plan”, “project”,“seek”, “think”, “will”, and similar expressions are intended to identifyforward-looking statements. The forward-looking statements are based on Briggs& Stratton’s current views and assumptions and involve risks anduncertainties that include, among other things, the ability to successfullyforecast demand for our products and appropriately adjust our manufacturing andinventory levels; changes in our operating expenses; changes in interest rates;the effects of weather on the purchasing patterns of consumers and originalequipment manufacturers (OEMs); actions of engine manufacturers and OEMs withwhom we compete; the seasonal nature of our business; changes in laws andregulations, including environmental, tax, pension funding and accountingstandards; work stoppages or other consequences of any deterioration in ouremployee relations; work stoppages by other unions that affect the ability ofsuppliers or customers to manufacture; acts of war or terrorism that maydisrupt our business operations or those of our customers and suppliers;changes in customer and OEM demand; changes in prices of raw materials andparts that we purchase; changes in domestic economic conditions, includinghousing starts and changes in consumer disposable income; changes in foreigneconomic conditions, including currency rate fluctuations; our customer’sability to successfully obtain financing; the actions of customers of our OEMcustomers; the impact of new competitors in the market; the ability tosuccessfully realize the maximum market value of acquired assets; new factsthat come to light in the future course of litigation proceedings which couldaffect our assessment of those matters; and other factors that may be disclosedfrom time to time in our SEC filings or otherwise. Some or all of the factorsmay be beyond our control. We caution you that any forward-looking statementreflects only our belief at the time the statement is made. We undertake noobligation to update any forward-looking statement to reflect events orcircumstances after the date on which the statement is made.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

There have been nomaterial changes since the September 1, 2006, filing of the Company’s AnnualReport on Form 10-K.

## ITEM 4.  CONTROLS AND PROCEDURES

## DISCLOSURE CONTROLS AND PROCEDURES

Briggs & Stratton’smanagement, with the participation of the Company’s Chief Executive Officer andChief Financial Officer, has evaluated the effectiveness of Briggs &Stratton’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,as amended (the “Exchange Act”)) as of the end of the period covered by thisreport. Based on such evaluation, Briggs & Stratton’s Chief ExecutiveOfficer and Chief Financial Officer have concluded that, as of the end of suchperiod, the Company’s disclosure controls and procedures are effective inrecording, processing, summarizing and reporting, on a timely basis,information required to be disclosed by Briggs & Stratton in the reportsthat it files or submits under the Exchange Act.

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## INTERNAL CONTROL OVER FINANCIAL REPORTING

There has not been anychange in Briggs & Stratton’s internal control over financial reportingduring the first fiscal quarter that has materially affected, or is reasonablylikely to materially affect, Briggs & Stratton’s internal control overfinancial reporting.

 

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PART II - OTHER INFORMATION

ITEM 1. LEGALPROCEEDINGS

A discussion oflegal proceedings is included in the Notes to Consolidated Condensed FinancialStatements of this Form 10-Q under the heading Commitments and Contingenciesand incorporated herein by reference.

ITEM 1A.  RISK FACTORS

See “Risk Factors”in Item 1A of the Company’s annual report on Form 10-K for the yearended July 2, 2006.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS
|                                     |   |               |   |                     |   | Total  Number of     |      | Maximum           |   |
|-------------------------------------|--------|--------------------|--------|--------------------------|--------|----------------------|-----------|-------------------|--------|
|                                |   | Total Number  |   | Average  Price           |   | Shares  Purchased    |      | Dollars  That May |   |
|                                |   | of Shares          |   | Paid  per Share (2) |   | As Part  of Publicly |      | Be  Spent Under   |   |
| 2007 Fiscal Month                   |   | Purchased (1) |   |                     |   | Announced  Plans (3) |      | the  Plan (3)     |   |
|                                |   |               |   |                     |   |                 |      |              |   |
| July 3, 2006 to July  30, 2006      |   | -                  |   | $                        | -      |                 | -         |              | $      | - |   |
| July 31, 2006 to August  27, 2006   |   | 369,200            |   | 28.41                    |   | 369,200              |      | 109,511,495       |   |
| August 28, 2006 to  October 1, 2006 |   | 1,364,000          |   | 27.67                    |   | 1,364,000            |      | 71,768,003        |   |
| Total First Quarter                 |   | 1,733,200          |   | $                        | 27.83  |                 | 1,733,200 |              |   |   |
|                                     |        |                    |        |                          |        |                      |           |                   |        |  |  |

 

(1)            All share repurchaseswere effected in accordance with the safe harbor provisions of Rule 10-b-18 ofthe Securities Exchange Act.

(2)            Briggs & Strattonrepurchased shares in open market transactions.

(3)            On August 10, 2006,Briggs & Stratton announced its intent to initiate repurchases of up to$120 million of its common stock through open market transactions over the next18 months.  The timing and amount ofpurchases is dependent upon the market price of the stock and certain governingloan covenants.  As of November 1, 2006,approximately $48 million of common stock has been repurchased under this plan.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

Atthe Annual Meeting of Shareholders on October 18, 2006, director nominees namedbelow were elected to a three-year term expiring in 2009 by the indicated votescast for and withheld with respect to each nominee.

| Name of Nominee        |   | For        |   | Withheld |   |
|------------------------|--------|------------|--------|----------|--------|
| Robert J. O’Toole |   | 46,151,031 |   | 376,864  |   |
| John S. Shiely         |   | 46,041,628 |   | 486,268  |   |
| Charles I. Story       |   | 46,085,595 |   | 442,301  |   |

 

Directors whose terms ofoffice continue past the Annual Meeting of Shareholders are:

William F. Achtmeyer,Michael E. Batten, David L. Burner, Mary K. Bush, and Brian C. Walker.

The Board of Directors ofBriggs & Stratton Corporation has unanimously elected Keith R. McLoughlin adirector of the company effective January 17, 2007.  Mr. McLoughlin succeeds Jay H. Baker, whorecently 

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retired from the Board,and will serve as a member of the class of directors whose terms of officeexpire in 2008.

Shareholdersratified the selection of PricewaterhouseCoopers LLP as the Company’sindependent registered public accounting firm. The vote was 46,320,986 for the proposal, 84,821 against, with 122,088abstentions.

Shareholdersratified the Rights Agreement as amended by the Board of Directors on August 9,2006.  The vote was 27,459,419 for theproposal, 11,471,262 against, with 604,395 abstentions.

## ITEM 5.  OTHER INFORMATION

Briggs &Stratton is in the process of investing up to $20 million to establish anengine assembly plant in Europe to better serve the European market.  The plant is planned to be operational by thebeginning of calendar year 2007, and Briggs & Stratton anticipatesassembling up to 250,000 engines at the facility during fiscal 2007.  The plant will ultimately have assemblycapacity of up to one million engines.

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

ITEM 6.  EXHIBITS
| Exhibit  Number |   | Description                                                                                              |   |   |
|-----------------|--------|----------------------------------------------------------------------------------------------------------|--------|--------|
|            |   |                                                                                                     |
| 10.15           |   | Amendment to the Key  Employees Savings and Investment Plan                                              |
|            |   | (Filed herewith)                                                                                         |
|            |   |                                                                                                     |
| 31.1       |   | Certification of  Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 |
|            |   | (Filed herewith)                                                                                         |
|            |   |                                                                                                     |
| 31.2       |   | Certification of  Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 |
|            |   | (Filed herewith)                                                                                         |
|            |   |                                                                                                     |
| 32.1       |   | Certification of the  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|            |   | (Furnished herewith)                                                                                     |
|            |   |                                                                                                     |
| 32.2       |   | Certification of the  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|            |   | (Furnished herewith)                                                                                     |

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BRIGGS &STRATTON CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

BRIGGS & STRATTONCORPORATION

(Registrant)
| Date: November 3, 2006 | /s/ James E. Brenn                                     |   |
|------------------------|--------------------------------------------------------|--------|
|                   | James E. Brenn                                         |
|                   | Senior Vice President  and Chief Financial Officer and |
|                   | Duly Authorized Officer                                |

 

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EXHIBIT INDEX
| Exhibit  Number |   | Description                                                                                              |   |   |
|-----------------|--------|----------------------------------------------------------------------------------------------------------|--------|--------|
|            |   |                                                                                                     |
| 10.15           |   | Amendment to the Key  Employees Savings and Investment Plan                                              |
|            |   | (Filed herewith)                                                                                         |
|            |   |                                                                                                     |
| 31.1       |   | Certification of  Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 |
|            |   | (Filed herewith)                                                                                         |
|            |   |                                                                                                     |
| 31.2       |   | Certification of  Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 |
|            |   | (Filed herewith)                                                                                         |
|            |   |                                                                                                     |
| 32.1       |   | Certification of the  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|            |   | (Furnished herewith)                                                                                     |
|            |   |                                                                                                     |
| 32.2       |   | Certification of the  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|            |   | (Furnished herewith)                                                                                     |

 

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