UNITED STATES SECURITIES ANDEXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 
|   | (Mark One)                             |                                                                                                                                                                                                                                                                                                                                    |
|--------|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | [ **ü** ]               | ANNUAL  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                  |   |
|   |                                   | For the fiscal year ended                         JULY  2, 2006                         |   |
|   |                                   | OR                                                                                                                                                                                                                                                                                                                                      |   |
|   | [      ] | TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                              |   |
|   |                                   | For the transition period from ____________ to ____________                                                                                                                                                                                                                                                                             |   |
|   |                                   |                                                                                                                                                                                                                                                                                                                                    |   |

 

Commission file number 1-1370

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

 
|                                                                                                | A Wisconsin Corporation |                |   |   | 39-0182330 |   |
|-----------------------------------------------------------------------------------------------------|-------------------------|---------------------|--------|--------|------------|--------|
| (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)          |
|                                                                                                |                    |                |
| Registrant’s telephone number, including area code:      414-259-5333 |
|                                                                                                |
| Securities registered pursuant to Section 12(b) of the Act:                                         |                    |                |
|                                                                                                     |                         |                     |        |        |            |        |  |  |  |  |

 
|                                     | Title of Each Class |                    |   |   | Name of Each Exchange on  Which Registered |   |
|------------------------------------------|---------------------|-------------------------|--------|--------|--------------------------------------------|--------|
| Common Stock (par value $0.01 per share) |                | New York Stock Exchange |
| Common Share Purchase Rights             |                | New York Stock Exchange |

 

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

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.Yes    **ü**      No        

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.Yes          No    **ü**   

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.       Yes    **ü**      No        

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.      [         ]

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer     **ü**     Accelerated filer           Non-acceleratedfiler        

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct).            Yes          No  **ü**  

 

The aggregate market valueof Common Stock held by nonaffiliates of the registrant was approximately $1.93billion based on the reported last sale price of such securities as of December30, 2005, the last business day of the most recently completed second fiscalquarter.

 

Number of Shares of CommonStock Outstanding at August 21, 2006: 51,215,205.

 

|   | DOCUMENTS INCORPORATED BY  REFERENCE |   |
|--------|--------------------------------------|--------|

 
|                                |     | Part of Form 10-K Into  Which Portions |
|-------------------------------------|----------|----------------------------------------|
|                                | Document |                                   |   |   | of Document are  Incorporated |   |
| Proxy Statement for Annual  Meeting |     |                                   |
| on October 18, 2006                 |     | Part III                               |
|                                     |          |                                        |  |  |  |  |

 

The Exhibit Index is located on page 60.

 

 

**BRIGGS& STRATTON CORPORATION**

**FISCAL2006 FORM 10-K**

**TABLE OFCONTENTS**

 
| **PART I**   | ** ** | ** **                                                                   | ** ** | **Page**   |
|--------------|------------|------------------------------------------------------------------------------|------------|------------|
| Item 1.      |       | Business                                                                     |       | 1          |
| Item 1A.     |       | Risk Factors                                                                 |       | 4          |
| Item 2.      |       | Properties                                                                   |       | 6          |
| Item 3.      |       | Legal Proceedings                                                            |       | 7          |
| Item 4.      |       | Submission of  Matters to a Vote of Security Holders                         |       | 7          |
|         |       | Executive Officers  of the Registrant                                        |       | 8          |
| **PART II**  | ** ** | ** **                                                                   | ** ** | ** ** |
| Item 5.      |       | Market for the Registrant’s Common Equity,  Related Stockholder Matters |       |       |
|         |       | and  Issuer Purchases of Equity Securities                                   |       | 11         |
| Item 6.      |       | Selected Financial Data                                                      |       | 12         |
| Item 7.      |       | Management’s Discussion and Analysis of  Financial Condition and        |       |       |
|         |       | Results  of Operations                                                       |       | 13         |
| Item  7A.    |       | Quantitative  and Qualitative Disclosures About Market Risk                  |       | 20         |
| Item  8.     |       | Financial  Statements and Supplementary Data                                 |       | 21         |
| Item  9.     |       | Changes  in and Disagreements with Accountants on Accounting and             |       |       |
|         |       | Financial  Disclosure                                                        |       | 55         |
| Item  9A.    |       | Controls  and Procedures                                                     |       | 55         |
| Item 9B.     |       | Other  Information                                                           |       | 55         |
| **PART III** | ** ** | ** **                                                                   | ** ** | ** ** |
| Item  10.    |       | Directors  and Executive Officers of the Registrant                          |       | 56         |
| Item  11.    |       | Executive  Compensation                                                      |       | 56         |
| Item  12.    |       | Security  Ownership of Certain Beneficial Owners and Management and          |       |       |
|         |       | Related  Stockholder Matters                                                 |       | 56         |
| Item  13.    |       | Certain  Relationships and Related Transactions                              |       | 56         |
| Item  14.    |       | Principal  Accountant Fees and Services                                      |       | 56         |
| **PART IV**  | ** ** | ** **                                                                   | ** ** | ** ** |
| Item  15.    |       | Exhibits  and Financial Statement Schedules                                  |       | 57         |
|         |       | Signatures                                                                   |       | 59         |

 

**Cautionary Statement on Forward-Looking Statements**

 

Certain statements in Management’s Discussion and Analysis of FinancialCondition and Results of Operations and other statements located elsewhere inthis Annual Report may contain forward-looking statements that involve risksand uncertainties that could cause actual results to differ materially fromthose projected in the forward-looking statements. The words “anticipate,” “believe,”“estimate,” “expect,” “forecast,” “intend,” “may,” “objective,” “plan,” “project,”“seek,” “think,” “will” and similar expressions are intended to identifyforward-looking statements. The forward-looking statements are based on theCompany’s current views and assumptions and involve risks and uncertaintiesthat include, among other things, the ability to successfully forecast demandfor our products and appropriately adjust our manufacturing and inventorylevels; changes in our operating expenses; changes in interest rates; theeffects 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 and partsthat we purchase; changes in domestic economic conditions, including housingstarts and changes in consumer disposable income; changes in foreign economicconditions, including currency rate fluctuations; our customers’ ability tosuccessfully obtain financing; the actions of customers of our OEM customers;actions by potential acquirers of certain OEMs; the ability to successfullyrealize the maximum market value of acquired assets; new facts that come tolight in the future course of litigation proceedings which could affect ourassessment of those matters; and other factors that may be disclosed from timeto time in our SEC filings or otherwise. Some or all of the factors may bebeyond our control. We caution you that any forward-looking statement reflectsonly our belief at the time the statement is made. We undertake no obligationto update any forward-looking statement to reflect events or circumstancesafter the date on which the statement is made.

 

 

**PART I**

 

**ITEM 1.     BUSINESS**

 

Briggs & Stratton is the world’s largest producer of air cooledgasoline engines for outdoor power equipment. Briggs & Stratton designs,manufactures, markets and services these products for original equipmentmanufacturers (OEMs) worldwide. These engines are primarily aluminum alloygasoline engines with displacements ranging from 31 cubic centimeters to 997cubic centimeters.

 

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

 

Briggs & Stratton conducts its operations in two reportablesegments: Engines and Power Products. Further information about Briggs &Stratton’s business segments is contained in Note 6 of the Notes toConsolidated Financial Statements.

 

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

 

**Engines**

** **

**General**

 

Briggs & Stratton’s engines are used primarily by the lawn andgarden equipment industry, which accounted for 78% of fiscal 2006 engine salesto OEMs. Major lawn and garden equipment applications include walk-behind lawnmowers, riding lawn mowers and garden tillers. The remaining 22% of OEM salesin fiscal 2006 were for use on products for industrial, construction,agricultural and other consumer applications, that include generators, pumps,pressure washers and snow throwers. Many retailers specify Briggs &Stratton’s engines on the powered equipment they sell, and the Briggs &Stratton name is often featured prominently on a product despite the fact thatthe engine is only a component.

 

In fiscal 2006, approximately 27% of Briggs & Stratton’s EnginesSegment net sales were derived from sales in international markets, primarilyto customers in Europe. Briggs & Stratton serves its key internationalmarkets through its European regional office in Switzerland, its distributioncenter in the Netherlands and sales and service subsidiaries in Australia,Austria, Brazil, Canada, China, the Czech Republic, England, France, Germany,Italy, Japan, Mexico, New Zealand, Poland, Russia, South Africa, Spain, Swedenand United Arab Emirates. Briggs & Stratton is a leading supplier ofgasoline engines in developed countries where there is an established lawn andgarden equipment market. Briggs & Stratton also exports engines todeveloping nations where its engines are used in agricultural, marine,construction and other applications. More detailed information about ourforeign operations is in Note 6 of the Notes to Consolidated FinancialStatements.

 

Briggs & Stratton engines are sold primarily by its worldwide salesforce through direct calls on customers. Briggs & Stratton’s marketingstaff and engineers in the United States provide support and technicalassistance to its sales force.

 

Briggs & Stratton also manufactures replacement engines and serviceparts and sells them to sales and service distributors. Briggs & Strattonowns its principal international distributors. In the United States thedistributors are independently owned and operated. These distributors supplyservice parts and replacement engines directly to independently owned,authorized service dealers throughout the world. These distributors and servicedealers implement Briggs & Stratton’s commitment to reliability andservice.

 

1

 

**Customers**

 

Briggs & Stratton’s engine sales are made primarily to OEMs. Briggs& Stratton’s three largest external engine customers in fiscal year 2006and fiscal year 2005 were Husqvarna Outdoor Products Group (HOP), MTD ProductsInc. (MTD) and Global Garden Products. In fiscal 2004, Briggs & Stratton’sthree largest engine customers were HOP, MTD and Murray Inc. Sales to HOP weremore than 14% of consolidated net sales in fiscal 2006, 2005 and 2004,respectively. Sales to the top three customers combined were 42%, 44% and 51%of Engines Segment net sales in fiscal 2006, 2005 and 2004, respectively. Underpurchasing plans available to all of its gasoline engine customers, Briggs& Stratton typically enters into annual engine supply arrangements.

 

Briggs & Stratton believes that in fiscal 2006 more than 80% of alllawn and garden powered equipment sold in the United States was sold throughmass merchandisers such as Sears Holdings Corporation (Sears), The Home Depot,Inc. (The Home Depot), Wal-Mart Stores, Inc. (Wal-Mart) and Lowe’s Companies,Inc. (Lowe’s). Given the buying power of the mass merchandisers, Briggs &Stratton, through its customers, has continued to experience pricing pressure.Briggs & Stratton expects that this pricing trend will continue in theforeseeable future. Briggs & Stratton believes that a similar trend hasdeveloped for its products in industrial and consumer applications outside ofthe lawn and garden market.

 

**Competition**

 

Briggs & Stratton’s major domestic competitors in enginemanufacturing are Honda Motor Co., Ltd. (Honda), Kawasaki Heavy Industries,Ltd. (Kawasaki), Kohler Co. (Kohler) and Tecumseh Products Company (Tecumseh).Several Japanese and Chinese small engine manufacturers, of which Honda andKawasaki are the largest, compete directly with Briggs & Stratton in worldmarkets in the sale of engines to other OEMs and indirectly through their saleof end products.

 

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

 

Briggs & Stratton believes the major areas of competition from allengine manufacturers include product quality, brand strength, price, timelydelivery and service. Other factors affecting competition are short-term marketshare objectives, short-term profit objectives, exchange rate fluctuations,technology, product support and distribution strength. Briggs & Strattonbelieves its product value and service reputation have given it strong brandname recognition and enhance its competitive position.

 

**Seasonality of Demand**

 

Sales of engines to lawn and garden OEMs are highly seasonal because ofconsumer buying patterns. The majority of lawn and garden equipment is soldduring the spring and summer months when most lawn care and gardeningactivities are performed. Sales of lawn and garden equipment are alsoinfluenced by weather conditions. Engine sales in Briggs & Stratton’sfiscal third quarter have historically been the highest, while sales in thefirst fiscal quarter have historically been the lowest.

 

In order to efficiently use its capital investments and meet seasonaldemand for engines, Briggs & Stratton pursues a relatively balancedproduction schedule throughout the year. The schedule is adjusted to reflectchanges in estimated demand, customer inventory levels and other mattersoutside the control of Briggs & Stratton. Accordingly, inventory levelsgenerally increase during the first and second fiscal quarters in anticipationof customer demand. Inventory levels begin to decrease as sales increase in thethird fiscal quarter. This seasonal pattern results in high inventories and lowcash flow for Briggs & Stratton in the second and the beginning of thethird fiscal quarters. The pattern results in higher cash flow in the latterportion of the third fiscal quarter and in the fourth fiscal quarter asinventories are liquidated and receivables are collected.

 

**Manufacturing**

 

Briggs & Stratton manufactures engines and parts at the followinglocations: Auburn, Alabama; Statesboro, Georgia; Murray, Kentucky; Poplar Bluffand Rolla, Missouri; Wauwatosa, Wisconsin; and Chongqing, China. Briggs &Stratton has a parts distribution center in Menomonee Falls, Wisconsin.

 

Briggs & Stratton manufactures a majority of the structuralcomponents used in its engines, including aluminum die castings, carburetorsand ignition systems. Briggs & Stratton purchases certain parts such aspiston rings, spark plugs, valves, ductile and grey iron castings, zinc diecastings and plastic components, some stampings and screw machine parts andsmaller quantities of other components. Raw material

 

2

 

purchases consist primarily of aluminum and steel. Briggs &Stratton believes its sources of supply are adequate.

 

Briggs & Stratton has joint ventures with Daihatsu Motor Companyfor the manufacture of engines in Japan and with Starting Industrial of Japanfor the production of rewind starters in the United States.

 

Briggs & Stratton has a strategic relationship with MitsubishiHeavy Industries (MHI) for the global distribution of air cooled gasolineengines manufactured by MHI in Japan under Briggs & Stratton’s VanguardTM brand.

 

**Power Products**

** **

**General**

 

Briggs & Stratton Power Products Group, LLC’s (BSPPG) fourprincipal product lines include generators, pressure washers, snow throwers andlawn and garden powered equipment. BSPPG sells its products through multiplechannels of retail distribution, including consumer home centers, warehouseclubs, mass merchants and independent dealers. BSPPG product lines are marketedunder various brands including Briggs & Stratton, Craftsman®, Ferris, GiantVac, Murray, Simplicity, Snapper and Troy-Bilt®.

 

BSPPG has a network of independent dealers worldwide for the sale andservice of snow throwers and lawn and garden powered equipment.

 

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

 

**Customers**

 

BSPPG sells to consumer home centers and warehouse clubs, as well asmass merchants and independent dealers. Historically, BSPPG’s major customershave been Lowe’s, The Home Depot and Sears. Other U.S. retail customers includeTractor Supply Inc., True Value Company, W.W. Grainger and Wal-Mart.

 

**Competition**

 

The principal competitive factors in the power products industryinclude price, service, product performance, technical innovation and delivery.BSPPG has various competitors, depending on the type of equipment. Primarycompetitors include: Honda (generators, pressure washers and lawn and gardenequipment), Coleman Powermate Corporation (generators), DeVilbiss Air PowerCompany, a Division of Black & Decker (pressure washers), Alfred KarcherGmbH & Co. (pressure washers), John Deere (commercial and consumer lawnmowers), MTD (lawn mowers), the Toro Company (commercial and consumer lawnmowers), and Scag Power Equipment, a Division of Metalcraft of Mayville, Inc.(commercial lawn mowers).

 

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

 

**Seasonality of Demand**

 

Sales of BSPPG’s products are subject to seasonal patterns. Due toseasonal and regional weather factors, sales of pressure washers and lawn andgarden powered equipment are typically higher during the fiscal third andfourth quarters than at other times of the year. Sales of generators and snowthrowers are typically higher during the first and second fiscal quarters.

 

**Manufacturing**

 

BSPPG’s manufacturing facilities are located in Jefferson, Watertownand Port Washington, Wisconsin; McDonough, Georgia; Munnsville, New York; andQingpu, China. BSPPG also purchases certain powered equipment under contractmanufacturing agreements.

 

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

 

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

 

BSPPG assembles products for the international markets at its U.S. andChina locations and through contract manufacturing agreements with other OEMs.

 

3

 

**Consolidated**

** **

**General Information**

 

Briggs & Stratton holds patents on features incorporated in itsproducts; however, the success of Briggs & Stratton’s business is notconsidered to be primarily dependent upon patent protection. The Company ownsseveral trademarks which it believes significantly affect a consumer’s choiceof outdoor powered equipment and therefore create value. Licenses, franchisesand concessions are not a material factor in Briggs & Stratton’s business.

 

For the fiscal years ended July 2, 2006, July 3, 2005 and June 27,2004, Briggs & Stratton spent approximately $28.8 million, $33.5 millionand $25.9 million, respectively, on research activities relating to thedevelopment of new products or the improvement of existing products.

 

The average number of persons employed by Briggs & Stratton duringthe fiscal year was 8,930. Employment ranged from a low of 8,701 in June 2006to a high of 9,107 in September 2005.

 

**Export Sales**

 

Export sales for fiscal 2006, 2005 and 2004 were $527.0 million (21% ofnet sales), $477.4 million (18% of net sales) and $362.4 million (19% of netsales), respectively. These sales were principally to customers in Europeancountries. Refer to Note 6 of the Notes to Consolidated Financial Statements forfinancial information about geographic areas. Also, refer to Item 7A of thisForm 10-K and Note 13 of the Notes to Consolidated Financial Statements forinformation about Briggs & Stratton’s foreign exchange risk management.

 

**ITEM 1A.     RISKFACTORS**

 

In addition to the risks referred to elsewhere in this Annual Report onForm 10-K, the following risks, among others, sometimes may have affected, andin the future could affect, the Company and its subsidiaries’ business,financial condition or results of operations. Additional risks not discussed ornot presently known to the Company or that the Company currently deemsinsignificant may also impact its business and stock price.

 

**Demand for products fluctuates significantly due toseasonality. In addition, changes in the weather and consumer disposable incomeimpact demand.**

 

Sales of our products are subject to seasonal and consumer buyingpatterns. Consumer demand in our markets can be reduced by unfavorable weather,a reduction in disposable income, and other factors. We manufacture throughoutthe year although our sales are concentrated in the second half of our fiscalyear. This operating method requires us to anticipate demand of our customersmany months in advance. If we overestimate or underestimate demand during agiven year, we may not be able to adjust our production quickly enough to avoidexcess or insufficient inventories, and that may in turn limit our ability tomaximize our potential sales.

 

**We have only a limited ability to pass through cost increasesin our raw materials to our customers during the year.**

 

We generally enter into annual purchasing plans with our largestcustomers, so our ability to raise our prices during a particular year toreflect increased raw materials costs is limited.

 

**A significant portion of our net sales comes frommajor customers and the loss of any of these customers would negatively impactour financial results.**

 

In fiscal 2006, our three largest customers accounted for 33% of ournet sales. The loss of a significant portion of the business of one or more ofthese key customers would significantly impact our net sales and profitability.

 

**Changes in environmental or other laws could requireextensive changes in our operations or to our products.**

 

Our operations and products are subject to a variety of foreign,federal, state and local laws and regulations governing, among other things,emissions to air, discharges to water, noise, the generation, handling,storage, transportation, treatment and disposal of waste and other materialsand health and safety matters. New engine emission regulations are being phasedin between 2000 and 2008 by the federal government and the State of California.We do not expect these changes to have a material adverse effect on us, but we

 

4

 

cannot be certain that these or other proposed changes in applicablelaws or regulations will not adversely affect our business or financialcondition in the future.

 

**Foreign economic conditions and currency ratefluctuations can reduce our sales.**

 

In fiscal 2006, we derived approximately 21% of our net sales frominternational markets, primarily Europe. Weak economic conditions in Europecould reduce our sales and currency fluctuations could adversely affect oursales or profit levels in U.S. dollar terms.

 

**Actions of our competitors could reduce our sales orprofits.**

 

Our markets are highly competitive and we have a number of significantcompetitors in each market. Competitors may reduce their costs, lower theirprices or introduce innovative products that could hurt our sales or profits.In addition, our competitors may focus on reducing our market share to improvetheir results.

 

**Disruptions caused by labor disputes or organizedlabor activities could harm our business.**

 

A portion of our workforce is currently represented by labor unions. Inaddition, we may from time to time experience union organizing activities inour non-union facilities. Disputes with the current labor union or new unionorganizing activities could lead to work slowdowns or stoppages and make itdifficult or impossible for us to meet scheduled delivery times for productshipments to our customers, which could result in loss of business. Inaddition, union activity could result in higher labor costs, which could harmour financial condition, results of operations and competitive position.

 

**Failure to successfully integrate acquisitions couldadversely impact our results.**

 

The integration process of acquisitions could disrupt the activities ofour business and require, among other things, coordination of administrativeand other functions. If we fail to overcome these challenges or any otherproblems encountered in connection with acquisitions, our financial condition,results of operations and competitive position could suffer.

 

**We have approximately $383.3 million of long-termdebt, in addition to the seasonal borrowings we incur under our working capitalfacilities. This level of debt could adversely affect our operating flexibilityand put us at a competitive disadvantage.**

 

Our level of debt and the limitations imposed on us by the indenturesfor the notes and our other credit agreements could have importantconsequences, including the following:

 

•                  wewill have to use a portion of our cash flow from operations for debt servicerather than for our operations;

•                  wemay not be able to obtain additional debt financing for future working capital,capital expenditures or other corporate purposes or may have to pay more forsuch financing;

•                  someor all of the debt under our current or future revolving credit facilities willbe at a variable interest rate, making us more vulnerable to increases ininterest rates; 

•                  wecould be less able to take advantage of significant business opportunities,such as acquisition opportunities, and to react to changes in market orindustry conditions;

•                  wewill be more vulnerable to general adverse economic and industry conditions;and 

•                  we may be disadvantaged compared tocompetitors with less leverage.

 

The terms of the indentures for the senior notes do not fully prohibitus from incurring substantial additional debt in the future and our revolvingcredit facilities permit additional borrowings, subject to certain conditions.If new debt is added to our current debt levels, the related risks we now facecould intensify.

 

We expect to obtain the money to pay our expenses and to pay theprincipal and interest on the outstanding 8.875% senior notes, the 7.725%senior notes, the variable rate term notes, the credit facilities and otherdebt primarily from our operations. Our ability to meet our expenses thusdepends on our future performance, which will be affected by financial,business, economic and other factors. We will not be able to control many ofthese factors, such as economic conditions in the markets where we operate andpressure from competitors. We cannot be certain that the money we earn will besufficient to allow us to pay principal and interest on our debt and meet ourother obligations. If we do not have enough money, we may be required torefinance all or part of our existing debt, sell assets or borrow more money.We cannot guarantee that we will be able to do so on terms acceptable to us. Inaddition, the terms of existing or future debt

 

5

 

agreements, including the revolving credit facilities and ourindentures, may restrict us from adopting any of these alternatives.

 

**We are substantially restricted by the terms of theoutstanding senior notes and our other debt, which could adversely affect us.**

 

The indentures relating to the senior notes and our revolving creditagreements each include a number of significant financial and operatingrestrictions, which may prevent us from capitalizing on business opportunitiesand taking some corporate actions. These covenants could adversely affect us bylimiting our ability to plan for or react to market conditions or to meet ourcapital needs. These covenants include, among other things, restrictions on ourability to:

 

•                  paydividends or make distributions in respect of our capital stock or to make certainother restricted payments;

•                  incurindebtedness or issue preferred shares;

•                  createliens;

•                  makeloans or investments;

•                  enterinto sale and leaseback transactions;

•                  agreeto payment restrictions affecting our restricted subsidiaries;

•                  consolidate,merge, sell or lease all or substantially all of our assets; 

•                  enterinto transactions with affiliates; 

•                  designateour subsidiaries as unrestricted subsidiaries; and

•                  disposeof assets or the proceeds of sales of our assets.

 

In addition, our revolving credit facility contains financial covenantsthat, among other things, require us to maintain a minimum interest coverageratio and impose a maximum leverage ratio.

 

**Our failure to comply with restrictive covenants underthe indentures governing the senior notes and our revolving credit facilitiescould trigger prepayment obligations.**

 

Our failure to comply with the restrictive covenants described abovecould result in an event of default, which, if not cured or waived, couldresult in us being required to repay these borrowings before their due date. Ifwe are forced to refinance these borrowings on less favorable terms, ourresults of operations and financial condition could be adversely affected byincreased costs and rates.

 

**ITEM 2.     PROPERTIES**

 

The corporate offices and one of Briggs & Stratton’s enginemanufacturing facilities are located in Wauwatosa, Wisconsin. Briggs &Stratton also has engine manufacturing facilities in Auburn, Alabama;Statesboro, Georgia; Murray, Kentucky; Poplar Bluff and Rolla, Missouri andChongqing, China. These are owned facilities containing approximately 3.3million square feet of office and production area. Briggs & Stratton also leaseswarehouse space in the localities of its engine manufacturing facilities,except China, totaling approximately 1.0 million square feet.

 

BSPPG maintains office space and manufacturing facilities in Jefferson,Watertown and Port Washington, Wisconsin; McDonough, Georgia; Munnsville, NewYork and Qingpu, China. Of these, the domestic facilities are owned and containapproximately 1.5 million square feet. BSPPG also leases warehouse space inJefferson, Watertown and Fort Atkinson, Wisconsin; McDonough, Georgia; GrandPrairie, Texas; Greenville, Ohio; Reno, Nevada; Lawrenceburg, Tennessee andHamilton, New York totaling approximately 1.7 million square feet.Additionally, the Qingpu, China facility is leased and contains approximately393,000 square feet.

 

Briggs & Stratton leases approximately 297,000 square feet of spaceto house its foreign sales and service operations.

 

As Briggs & Stratton’s business is seasonal, additional warehousespace may be leased when inventory levels are at their peak. Briggs &Stratton’s owned properties are well maintained. Briggs & Stratton believesthat its owned and leased facilities are adequate to perform its operations ina reasonable manner.

 

6

 

**ITEM 3.     LEGALPROCEEDINGS**

 

Briggs & Stratton is subject to various unresolved legal actionsthat arise in the normal course of its business. These actions typically relateto product liability (including asbestos-related liability), patent andtrademark matters, and disputes with customers, suppliers, distributors anddealers, competitors and employees.

 

On January 14, 2005, the Company filed a lawsuit against Kohler Co.(Briggs & Stratton Corporation v. Kohler Co., No 05-C-0025-C (U.S. DistrictCourt, Western District of Wisconsin)) alleging Kohler’s single-cylinderCourage engine infringes two of the Company’s U.S. patents. Kohler filedcounterclaims against the Company on April 15, 2005 alleging that the Company’spricing and contracting practices violate federal antitrust laws and relatedstate laws. In July 2006, the parties entered into a confidential settlementagreement pursuant to which the lawsuit has been dismissed.

 

On June 3, 2004, eight individuals who claim to have purchasedlawnmowers in Illinois and Minnesota filed a lawsuit (Ronnie Phillips et al. v.Sears Roebuck Corporation et al., No. 04-L-334 (20th Judicial Circuit, St.Clair County, IL)) against the Company and other defendants alleging that thehorsepower labels on the products they purchased were inaccurate. Theplaintiffs have amended their complaint several times and currently seek aninjunction, compensatory and punitive damages, and attorneys’ fees undervarious federal and state laws including the Racketeer Influenced and CorruptOrganization Act on behalf of all persons in the United States who, beginningJanuary 1, 1994 through the present, purchased a lawnmower containing atwo-stroke or four-stroke gasoline combustion engine up to 30 horsepower thatwas manufactured by the defendants. On May 31, 2006, the defendants removed thecase to the U.S. District Court for the Southern District of Illinois (No.06-412-DRH). Defendant MTD has announced a settlement with the plaintiffs andin August 2006 filed a motion seeking preliminary approval of its settlement bythe court. The defendants have filed crossclaims against each other forindemnification and contribution, and filed a motion to dismiss the amendedcomplaint.

 

Although it is not possible to predict with certainty the outcome ofthese unresolved legal actions or the range of possible loss, Briggs &Stratton believes these unresolved legal actions will not have a materialeffect on its financial position. Briggs & Stratton currently does not haveenough information to estimate the impact that certain matters may have on itsfuture results of operations.

 

**ITEM 4.     SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

No matters were submitted to a vote of security holders, through thesolicitation of proxies or otherwise, during the three months ended July 2,2006.

 

7

 

**ExecutiveOfficers of the Registrant**

 
|                                                                                   | Name, Age, Position |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | Business Experience for  Past Five Years |   |
|----------------------------------------------------------------------------------------|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| JOHN S. SHIELY, 54  Chairman, President and Chief Executive Officer  (1)(2)(3)         |                | Mr. Shiely was elected to his current position effective January  2003, after serving as President and Chief Executive Officer since July 2001  and President and Chief Operating Officer since August 1994.                                                                                                                                                                                                                                                                 |
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| TODD J. TESKE, 41  Executive Vice President and Chief  Operating Officer               |                | Mr. Teske was elected to his current position effective September  2005 after serving as Senior Vice President and President – Briggs &  Stratton Power Products Group, LLC since September 2003. He previously served  as Vice President and President – Briggs & Stratton Power Products Group,  LLC since February 2003. He also served as Vice President – Corporate  Development from March 2001 after serving as Controller since October 1998. |
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| JAMES E. BRENN, 58  Senior Vice President and Chief Financial Officer                  |                | Mr. Brenn was elected to his current position in October 1998, after  serving as Vice President and Controller since November 1988. He also served  as Treasurer from November 1999 until January 2000.                                                                                                                                                                                                                                                                      |
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| DAVID G. DEBAETS, 43  Vice President and  General Manager – Large Engine Division |                | Mr. DeBaets was elected to his current position effective September  2003. He has served as Vice President and General Manager – Large Engine  Division since April 2000. He also served as Vice President and General Manager  – Die Cast Components from May 1996 to April 2000.                                                                                                                                                                                 |
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| RICKY T. DILLON, 35  Controller  (4)                                                   |                | Mr. Dillon was appointed Vice President – Controller in March 2006.  He was elected as an executive officer effective September 1, 2004 and has  served as Controller since March 2002. He was previously employed by Arthur  Andersen LLP for 9 years.                                                                                                                                                                                                                 |
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| MARK R. HAZELTINE, 63  Vice President and  Sales Manager – Consumer Products      |                | Mr. Hazeltine was elected to his current position in May 2002, after  serving as Vice President and Sales Manager – Consumer Lawn & Garden  since July 1999. He also served as Sales Manager from February 1995 to June  1999.                                                                                                                                                                                                                                      |
|                                                                                   |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ROBERT F. HEATH, 58  Secretary                                                         |                | Mr. Heath was elected to his current position in January 2002. He  served as Assistant Secretary from January 2001 to December 2001. In  addition, Mr. Heath is Vice President and General Counsel and has served in  these positions since January 2001. He also served as General Counsel since  December 1997.                                                                                                                                                            |

 

8

 
| PAUL M. NEYLON, 59  Senior Vice President – Operations                                            |   | Mr. Neylon retired as Senior Vice President – Operations effective on  September 1, 2006. Mr. Neylon was elected to his current position effective  May 2006, after serving as Senior Vice President and President – Engine Power  Products Group since September 2005. He previously served as Senior Vice  President – Engine Products Group from October 2001 to September 2005 and as  Senior Vice President – Production from August 2000 to October 2001 and as  Vice President – Production from May 1999 to July 2000. He also served as  Vice President – Operations Support since January 1999 and prior to that held  the position of Vice President and General Manager – Spectrum Division. |
|--------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| HAROLD L. REDMAN, 42  Vice President and President –   Home Power Products Group                  |   | Mr. Redman was elected to his current position effective September  2006. He has served as Vice President and President – Home Power Products  since May 2006. He also served as Senior Vice President – Sales &  Marketing – Simplicity Manufacturing, Inc. since July 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| WILLIAM H. REITMAN, 50  Senior Vice President – Sales & Marketing                             |   | Mr. Reitman was elected to his current position effective May 2006,  after serving as Vice President – Sales & Marketing since October 2004.  He also served as Vice President – Marketing since November 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| THOMAS R. SAVAGE, 58  Senior Vice President – Administration                                      |   | Mr. Savage was elected to his current position effective July 1997,  after serving as Vice President – Administration and General Counsel since  November 1994. He also served as Secretary from November 1999 to June 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| MICHAEL D. SCHOEN, 46  Senior Vice President and President –   International Power Products Group |   | Mr. Schoen was elected to his current position effective September  2005 after serving as Vice President – International Group since July 2001.  He was elected an executive officer in August 2000, after serving as Vice  President – Operations Support since July 1999. He previously held the position  of Vice President – International Operations since July 1996.                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| VINCENT R. SHIELY, 46  Senior Vice President and President –   Yard Power Products Group (3)      |   | Mr. Shiely was elected to his current position effective May 2006,  after serving as Vice President and President – Home Power Products Group  since September 2005. He also served as Vice President and General Manager –  Home Power Products Division October 2004 to September 2005. He previously  served as Vice President and General Manager – Engine Products Group since  September 2002. He has also served as Vice President and General Manager –  Business Units since December 2001, and as Vice President and General Manager  – Electrical Products Division since October 1998.                                                                                                                 |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| GEORGE R. THOMPSON, 58  Vice President – Corporate Communications  & Community Relations      |   | Mr. Thompson was elected an executive officer effective February  2006. He has served as Vice President – Corporate Communications &  Community Relations since May 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| CARITA R. TWINEM, 51  Treasurer                                                                        |   | Ms. Twinem was elected to her current position in February 2000. In  addition, Ms. Twinem is Tax Director and has served in this position since  July 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

9

 
| JOSEPH C. WRIGHT, 47  Senior Vice President and President –   Engine Power Products Group |   | Mr. Wright was elected to his current position in May 2006 after  serving as Vice President and President – Yard Power Products Group since  September 2005. He also served as Vice President and General Manager – Lawn  and Garden Division from September 2004 to September 2005. He was elected an  executive officer effective September 2002. He previously served as Vice  President and General Manager – Small Engine Division since July 1997. |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

(1)     Officer is also a Director of Briggs &Stratton. (2) Member of Executive Committee.

(3)     John S. Shiely and Vincent R. Shiely arebrothers.

(4)     On August 31, 2006, theCompany filed a Form 8-K, announcing Mr. Dillon's resignation from thisposition and announcing that it would search for a qualified candidate to fillthis position.

 

Officers are elected annually and serve until they resign, die, areremoved, or a different person is appointed to the office.

 

10

 

**PART II**

 

**ITEM 5.****                          ****MARKET FOR THE REGISTRANT’SCOMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

Briggs & Stratton common stock and its common share purchase rightsare traded on the NYSE under the symbol “BGG”. Information required by thisItem is incorporated by reference from the “Quarterly Financial Data, Dividendand Market Information” (unaudited) on page 54.

 

**Changes in Securities, Use of Proceeds and IssuerPurchases of Equity Securities**

 

During the fourth quarter of fiscal 2006, Briggs & Strattonpurchased equity securities registered by the Company pursuant to Section 12 ofthe Exchange Act, as follows:

 
|                           |   |         |   |       |          | Total Number of     |   | Maximum Number  |          |
|--------------------------------|--------|--------------|--------|------------|---------------|---------------------|--------|-----------------|---------------|
|                           |   |         |   |       |          | Shares Purchased    |   | of Shares That  |          |
|                           |   | Total Number |   | Average    |          | As Part of Publicly |   | May Yet Be      |          |
|                           |   | of Shares    |   | Price Paid |          | Announced Plans     |   | Purchased Under |          |
|                           | Period |         |   |       | Purchased (1) |                |   |            | Per Share (2) |   |   | (3) (5) |   |   | The Plan (4) |   |   |
| April 3, 2006 - April 30, 2006 |   |  91,200 |   | $          | 33.39         |                |   |  91,200    |          | 992,400 |   |
| May 1, 2006 - May 28, 2006     |   | 155,300      |   | $          | 34.23         |                |   | 155,300         |          | 837,100 |   |
| May 29, 2006 - July 2, 2006    |   | -            |   | $          | -             |                |   | -               |          | 837,100 |   |
|                                |        |              |        |            |               |                     |        |                 |               |  |  |  |  |  |  |  |  |  |  |

 

(1)        All share repurchases were effected in accordance with the safe harborprovisions of Rule 10b-18 of the Securities Exchange Act.

 

(2)        Briggs & Stratton repurchased shares in open market transactions.

 

(3)        On February 2, 2006, Briggs & Stratton announced its intent torepurchase up to one million shares of its common stock through open markettransactions. The share repurchase was completed as of May 3, 2006.

 

(4)        In June 2000, the Board of Directors authorized the repurchase of2,000,000 shares of Briggs & Stratton common stock in open market orprivate transactions.

 

(5)        On August 10, 2006, Briggs & Stratton announced that it intends toinitiate repurchases of up to $120 million of its common stock through openmarket transactions over the next 18 months. The timing and amount of purchaseswill be dependent upon the market price of the stock and certain governing loancovenants. As of August 31, 2006, approximately $21 million of common stock hasbeen repurchased under this plan.

 

11

 

**ITEM 6.     SELECTED FINANCIAL DATA**

 
| Fiscal Year                                                                    | **2006**      |          | 2005      |   | 2004      |   | 2003      |      | 2002      |   |
|--------------------------------------------------------------------------------|---------------|---------------|-----------|--------|-----------|--------|-----------|-----------|-----------|--------|
| (dollars in thousands, except per share data)                                  |          |          |      |   |      |   |      |      |      |   |
|                                                                           |          |          |      |   |      |   |      |      |      |   |
| **SUMMARY  OF OPERATIONS** (1) (2)                                             |          |          |      |   |      |   |      |      |      |   |
| NET SALES                                                                      | **$**         | **2,542,171** |      | $      | 2,654,875 |   | $         | 1,947,364 |      | $      | 1,657,633 |   | $ | 1,529,300 |   |
| GROSS PROFIT  ON SALES                                                         | **491,684**   |          | 504,891   |   | 439,872   |   | 328,079   |      | 269,964   |   |
| PROVISION  FOR INCOME TAXES                                                    | **50,020**    |          | 57,548    |   | 68,890    |   | 37,940    |      | 27,390    |   |
| INCOME  BEFORE EXTRAORDINARY GAIN                                              | **102,346**   |          | 116,767   |   | 136,114   |   | 80,638    |      | 53,120    |   |
| INCOME BEFORE EXTRAORDINARY GAIN PER SHARE  OF COMMON STOCK:                   | ** **    |          |      |   |      |   |      |      |      |   |
| Basic  Earnings                                                                | **1.99**      |          | 2.27      |   | 3.01      |   | 1.86      |      | 1.23      |   |
| Diluted  Earnings                                                              | **1.98**      |          | 2.25      |   | 2.77      |   | 1.74      |      | 1.18      |   |
| PER SHARE OF COMMON STOCK:                                                     | ** **    |          |      |   |      |   |      |      |      |   |
| Cash  Dividends                                                                | **.88**       |          | .68       |   | .66       |   | .64       |      | .63       |   |
| Shareholders’  Investment                                                 | **$**         | **19.33**     |      | $      | 17.22     |   | $         | 16.03     |      | $      | 11.83 |   | $ | 10.39 |   |
| WEIGHTED  AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s) | **51,479**    |          | 51,472    |   | 45,286    |   | 43,279    |      | 43,230    |   |
| DILUTED  NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)          | **51,594**    |          | 51,954    |   | 50,680    |   | 48,959    |      | 48,904    |   |
|                                                                           | ** **    |          |      |   |      |   |      |      |      |   |
| **OTHER  DATA** (1) (2)                                                        | ** **    |          |      |   |      |   |      |      |      |   |
| SHAREHOLDERS’  INVESTMENT                                                 | **$**         | **987,206**   |      | $      | 889,186   |   | $         | 817,595   |      | $      | 514,987 |   | $ | 449,646 |   |
| LONG-TERM  DEBT                                                                | **383,324**   |          | 486,321   |   | 360,562   |   | 503,397   |      | 499,022   |   |
| CAPITAL  LEASES                                                                | **1,385**     |          | 1,988     |   | -         |   |      | -         |      |   | - |   |   |
| TOTAL ASSETS                                                                   | **1,944,200** |          | 1,998,968 |   | 1,637,153 |   | 1,475,193 |      | 1,356,601 |   |
| PLANT AND  EQUIPMENT                                                           | **1,008,164** |          | 1,005,644 |   | 867,987   |   | 876,664   |      | 879,635   |   |
| PLANT AND  EQUIPMENT, NET OF RESERVES                                          | **430,288**   |          | 447,255   |   | 356,542   |   | 370,784   |      | 395,215   |   |
| PROVISION  FOR DEPRECIATION                                                    | **72,734**    |          | 66,348    |   | 59,816    |   | 58,325    |      | 61,091    |   |
| EXPENDITURES  FOR PLANT AND EQUIPMENT                                          | **69,518**    |          | 86,075    |   | 52,962    |   | 40,154    |      | 43,928    |   |
| WORKING  CAPITAL                                                               | **$**         | **688,506**   |      | $      | 766,537   |   | $         | 681,432   |      | $      | 505,752 |   | $ | 411,241 |   |
| Current  Ratio                                                                 | **3.0 to 1**  |          | 3.2 to 1  |   | 3.3 to 1  |   | 2.7 to 1  |      | 2.6 to 1  |   |
| NUMBER OF  EMPLOYEES AT YEAR-END                                               | **8,701**     |          | 9,073     |   | 7,732     |   | 7,249     |      | 6,971     |   |
| NUMBER OF  SHAREHOLDERS AT YEAR-END                                            | **3,874**     |          | 4,058     |   | 4,230     |   | 4,503     |      | 4,686     |   |
| QUOTED MARKET PRICE:                                                           | ** **    |          |      |   |      |   |      |      |      |   |
| High                                                                           | **$**         | **40.38**     |      | $      | 44.50     |   | $         | 44.22     |      | $      | 25.75 |   | $ | 24.20 |   |
| Low                                                                            | **$**         | **30.01**     |      | $      | 30.83     |   | $         | 24.68     |      | $      | 15.38 |   | $ | 14.83 |   |
|                                                                                |               |               |           |        |           |        |           |           |           |        |  |  |  |  |  |  |  |  |

 

(1)          The amounts include the acquisitions of Simplicity Manufacturing, Inc.since July 7, 2004 and certain assets of Murray, Inc. and Murray Canada Co.since February 11, 2005. Refer to the Notes to Consolidated FinancialStatements.

 

(2)          Share data adjusted for effect of 2-for-1 stock split effective October29, 2004.

 

12

 

**ITEM 7.****                            ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

**Results of Operations**

 

*FISCAL 2006 COMPARED TO FISCAL 2005*

 

Net Sales

Fiscal 2006 consolidated net sales were approximately $2.5 billion, adecrease of $113 million compared to the previous year. The decrease is drivenprimarily by lower sales volumes in both segments.

 

Engines Segment net sales were $1.6 billion versus $1.7 billion in theprior year, a decrease of $91 million or 5%. The decrease is primarily theresult of a 7% decrease in engine unit shipments between years. The shipmentdecline is attributable to softer retail demand for lawn and garden equipmentand efforts by retailers and OEMs to control inventory levels in the wake ofreduced demand. This unit shipment decline was partially offset by $30 millionfrom a price increase implemented in the beginning of the fiscal year, as wellas a favorable mix of engine unit shipments.

 

Power Products net sales were $1.2 billion in both fiscal 2006 and2005. Lower volumes in fiscal 2006 of $105 million for pressure washer and lawnand garden equipment sales were almost fully offset by $75 million of increasedvolume and pricing on generators as well as $23 million from a favorable mix oflawn and garden product. Management believes the decline in volume of lawn andgarden and pressure washer sales is attributable to lower consumerdiscretionary spending, which resulted in lower demand at retailers.

 

Gross Profit

Consolidated gross profit decreased $13 million in fiscal 2006. Thedecrease is primarily the result of the volume decreases noted above offset bypricing improvements in both segments.

 

Engines Segment margins increased from 21% in fiscal 2005 to 23% infiscal 2006. The increase in margin is attributable to the price increasediscussed above as well as $13 million in gains on the sale of operatingassets. In addition, ongoing cost reduction programs contributed $8 million tothe margin. These positive margin enhancers were enough to overcome the impactof a 4% production volume decline, a mix of product that favored lower marginunits and other manufacturing cost increases.

 

The Power Products Segment margin decreased to 10% in fiscal 2006 from11% in fiscal 2005. The decline is primarily attributable to $19 million inlosses associated with the wind down of operations at the Murray, Inc.operating facility and the write-off of excess inventory related to Murrayproduct. Partially offsetting these losses was $16 million in pricingimprovements, primarily on generators.

 

Engineering, Selling, General and Administrative Costs

Engineering, selling, general and administrative costs increased $2million between years. Excluding the impact of the $39 million write-off of theMurray, Inc. trade receivable that occurred in fiscal 2005 the categoryincreased $41 million between years.

 

Increases in this category in fiscal 2006 as compared to fiscal 2005included: $9 million from the expensing of stock based compensation in fiscal2006, $12 million in increased legal fees associated with litigation, $9million associated with increased information technology spending, and $2million from increased engineering costs associated with new productdevelopment in the Power Products Segment. Planned increases of $9.0 million inselling and advertising costs also contributed to the year over year increasein this category.

 

Interest Expense

Interest expense increased $5 million in fiscal 2006 compared to fiscal2005. The increase is attributable to higher borrowings between yearsassociated with the term notes used for the Murray, Inc. asset acquisition inFebruary 2005.

 

Other Income

Other income decreased $2 million in fiscal 2006 as compared to fiscal2005. The decrease is attributed primarily to higher deferred financingexpenses. Deferred financing expense increased as a result of the accelerationof debt repayments and the write-off of associated deferred financing costs.

 

Provision for Income Taxes

The effective tax rate was approximately 33% in both fiscal 2006 andfiscal 2005.

 

13

 

*FISCAL 2005 COMPARED TO FISCAL 2004*

 

Net Sales

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

 

Engines Segment net sales were $1.7 billion versus $1.6 billion in the prioryear, an improvement of $122 million or 8%. The improvement was the result of a10% engine unit shipment increase, which contributed $148 million; and $35million from pricing and a favorable Euro exchange rate. The increase in engineunit shipments was driven by market share gains as well as $119 million inincreased shipments to our Power Products Segment, that were eliminated inconsolidation. These favorable items were offset by: a mix of product thatfavored lower priced units and $22 million of lower service and componentsales.

 

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

 

Gross Profit

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

 

Engines Segment margins decreased from 24% in fiscal 2004 to 21% infiscal 2005. Pricing improvements, including the impact of the Euro, added $35million to the Engines Segment margin. Manufacturing cost reduction programscontributed an additional $12 million. These positive margin enhancers were notenough to overcome a $59 million increase in manufacturing costs, primarilyoverhead, raw materials and component costs, and a $19 million decrease from amix of lower margined product. Consistent with the prior year, the costincreases reflect initiatives by many vendors to pass along higher costs due toprice pressures on scrap aluminum and steel.

 

The Power Products Segment margin decreased to 11% in fiscal 2005 from12% in fiscal 2004. The acquisition of Simplicity contributed 9% gross marginin fiscal 2005 after the application of purchase accounting on acquiredinventory. Murray sales were essentially at a zero margin after the applicationof purchase accounting, which reduced the overall segment margin by 3%. Themargins on generators and pressure washers declined between years as the $10million impact of pricing improvements was offset by component and freightcosts on expedited shipments to meet generator demand early in the year. Inaddition, Euro purchases reduced the gross margin of the Power Products Segmentby $4 million. Under the Company’s foreign currency management program, thisnegative impact on margins was offset by the positive impact of the Euro discussedfor the Engines Segment.

 

Engineering, Selling, General and Administrative Costs

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

 

Interest Expense

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

 

Other Income

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

 

14

 

Provision for Income Taxes

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

 

Extraordinary Gain

The extraordinary gain represents the difference between the estimatedfair value of the selected assets acquired from Murray and the cash paid, afterall tax considerations. See Note 3 of the Notes to Consolidated FinancialStatements for additional information on this acquisition.

 

**Liquidity and Capital Resources**

 

*FISCAL YEARS 2006, 2005 AND 2004*

 

Cash flows from operating activities were $155 million, $149 millionand $50 million in fiscal 2006, 2005 and 2004 respectively.

 

The fiscal 2006 cash flows from operating activities were $6 millionhigher than the prior year. The primary reason for the increase is lowerworking capital requirements in the current year. Lower fourth quarter sales infiscal 2006 resulted in higher inventory levels offset by lower receivables andaccrued liabilities including rebates, incentive compensation and income taxes.The reduction in net income between years was more than offset by a series ofincreased non-cash items in the current year including non-cash pensioncharges, stock compensation expense, gains on fixed asset sales, the deferredtax credit, and the elimination of the extraordinary gain in the current year.

 

The fiscal 2005 cash flows from operations were $98 million higher thanthe prior year. Fiscal 2005 did not experience the significant increase ininventories experienced in 2004, resulting in a $141 million improvement incash flows in fiscal 2005. During fiscal 2004, inventories for engines andpower products were increased to what management believes are a more normallevel. Accordingly, no such incremental inventory build-up was required infiscal 2005. Offsetting the favorable impact of inventory levels on cash flowswas a $27 million reduction in accounts payable and accrued liabilities betweenyears. The decrease is primarily attributable to a $19 million reduction inincentive compensation accruals between years and $5 million in lower rebateaccruals. 

 

The fiscal 2004 cash flows from operating activities were $123 millionlower than the prior year. Fiscal 2004 experienced a significant increase ininventory levels, which reduced cash flows from operating activities by $129million in fiscal 2004 and $117 million between years. Engine inventoriesincreased $76 million between years. This increase is attributable to strongproduction levels through the end of the fiscal year driven by a strong sellingseason at retail. In addition, we believed that the increased inventory wasneeded to meet our forecast for fiscal 2005. Our Power Products Segment alsoexperienced an increase in inventory levels of $53 million between years. Thisincrease in inventory reflects strong production levels throughout the year inorder to replenish depleted inventories after the demand creating events forgenerators in fiscal 2004. Pressure washer inventory levels reflectedincreasing demand for the product due to significant market growth in thecategory. Inventory on hand will always reflect demand and our ability torespond to market changes at our production facilities in a timely manner.

 

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

 

Cash used in investing activities was $55 million, $437 million and $47million in fiscal 2006, 2005 and 2004, respectively. These cash flows includecapital expenditures of $70 million, $86 million and $53 million in fiscal2006, 2005 and 2004, respectively. The capital expenditures relate primarily toreinvestment in equipment, capacity additions and new products.

 

In fiscal 2006, Briggs & Stratton received $12 million in cash fromthe sale of certain operating assets. In addition, Briggs & Stratton received$6 million as a refund of a portion of the cash paid for certain assets ofMurray, Inc. in fiscal 2005.

 

In fiscal 2005, cash used in investing activities also includes $232million in cash paid for the Simplicity acquisition and $123 million for theacquisition of certain Murray assets.

 

15

 

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

 

Briggs & Stratton used cash of $169 million through financingactivities in fiscal 2006. Briggs & Stratton provided cash from financingactivities of $106 million, and $13 million in fiscal 2005 and fiscal 2004,respectively.

 

In fiscal 2006 the company paid off $104 million of its long term debt,including $90 million of its term notes due in fiscal 2008. In addition, Briggs& Stratton re-purchased $35 million of its common shares in fiscal 2006.

 

Early in fiscal 2005 the Company used its available cash to finance theacquisition of Simplicity. To finance the acquisition of the Murray assets theCompany issued $125 million in term notes in fiscal 2005. The Company incurred$1 million in fees in fiscal 2005 negotiating the term notes and an amendmentto its revolving credit facility. During fiscal 2004, Briggs & Stratton didnot use its revolver to finance working capital needs.

 

During fiscal 2006, the Company received $12 million from the exerciseof stock options compared to $20 million in fiscal 2005 and $45 million infiscal 2004. The stock and option activity is a direct reflection of the marketvalue of the Company’s stock and option strike prices that encourage theexercise of the options.

 

Future Liquidity and Capital Resources

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

 

On August 10, 2006, Briggs & Stratton announced its intent toinitiate repurchases of up to $120 million of its common stock through openmarket transactions during fiscal 2007 and fiscal 2008. The timing and amountof actual purchases will depend upon the market price of the stock and certaingoverning loan covenants. As of August 31, 2006, approximately $21 million ofcommon stock has been repurchased under this plan.

 

Briggs & Stratton expects capital expenditures to be $80 million infiscal 2007. These anticipated expenditures reflect our plans to continue toreinvest in equipment, new products, and capacity enhancements.

 

Management believes that available cash, the credit facility, cashgenerated from future operations, existing lines of credit and access to debtmarkets will be adequate to fund Briggs & Stratton’s capital requirementsfor the foreseeable future.

 

**Financial Strategy**

 

Management believes that the value of Briggs & Stratton is enhancedif the capital invested in operations yields a cash return that is greater thanthe cost of capital. Consequently, management’s first priority is to reinvestcapital into physical assets and products that maintain or grow the global costleadership and market positions that Briggs & Stratton has achieved, anddrive the economic value of the Company. Management’s next financial objectiveis to identify strategic acquisitions or alliances that enhance revenues andprovide a superior economic return. Several successful joint ventures and theacquisition of Generac Portable Products, Inc. and Simplicity are examples ofour successful execution of this strategy. Finally, management believes thatwhen capital cannot be invested for returns greater than the cost of capital,we should return capital to the capital providers through dividends and/orstock buy-backs.

 

**Off-Balance Sheet Arrangements**

 

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

 

Briggs & Stratton is subject to financial and operatingrestrictions in addition to certain financial covenants under its domestic debtagreements. As is fully disclosed in Note 8 of the Notes to ConsolidatedFinancial Statements, these restrictions could limit our ability to: paydividends; incur further indebtedness; create liens; enter into sale and/orleaseback transactions; consolidate, sell or lease all or substantially all ofour assets; and dispose of assets or the proceeds of our assets. We believe wewill remain in compliance with these covenants in fiscal 2007. Briggs &Stratton has obligations concerning certain employee benefits including itspension plans, post retirement benefit obligations and deferred compensationarrangements. All of these obligations are recorded on our Balance Sheets anddisclosed more fully in the Notes to Consolidated Financial Statements.

 

16

 

**Contractual Obligations**

 

A summary of the Company’s expected payments for significantcontractual obligations as of July 2, 2006 is as follows (in thousands):

 
|                       |   |    | Total         |   |   |   | 2007   |   |          | 2008-2009 |   | 2010-2011     |   | Thereafter |   |
|----------------------------|--------|---------|---------------|--------|--------|--------|--------|--------|---------------|-----------|--------|---------------|--------|------------|--------|
| Long-Term Debt             |   | $       | 386,175       |   | $      | -      |   | $      | 116,175       |      | $      | 270,000       |   | $          | -      |   |
| Interest on Long-Term Debt |   | 123,931 |          | 32,166 |   | 50,829 |   | 40,936 |          | -         |   |
| Capital Leases             |   | 1,540   |          | 686    |   | 854    |   | -      |          | -         |   |
| Operating Leases           |   | 49,474  |          | 13,716 |   | 18,677 |   | 11,095 |          | 5,986     |   |
| Consulting Agreement       |   | 582     |          | 429    |   | 153    |   | -      |          | -         |   |
|                       |   | $       |  561,702 |   | $      | 46,997 |   | $      |  186,688 |      | $      |  322,031 |   | $          | 5,986  |   |
|                            |        |         |               |        |        |        |        |        |               |           |        |               |        |            |        |  |  |  |  |  |

 

As of July 2, 2006, the Company had no material purchase obligationsother than those created in the ordinary course of business related toinventory and property, plant and equipment which generally have terms of lessthan 90 days.

 

**Other Matters**

 

Labor Agreement

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

 

Emissions

The U.S. Environmental Protection Agency (EPA) has developed nationalemission standards under a two phase process for small air cooled engines.Briggs & Stratton currently has a complete product offering which complieswith the EPA’s Phase I engine emission standards. The Phase II program imposesmore stringent standards over the useful life of the engine and has been phasedin for Class II (225 or greater cubic centimeter) displacement engines and willbe phased in through 2008 for Class I (under 225 cubic centimeter) displacementengines. The majority of Briggs & Stratton’s engines are certified to becompliant with the EPA’s Phase II standards and all engines will be Phase IIcertified in the next year. Accordingly, Briggs & Stratton does not believecompliance with the new standards will have a material adverse effect on itsfinancial position or results of operations.

 

The EPA is also evaluating the development of Phase III standards tofurther reduce engine exhaust emissions and to control evaporative emissionsfrom small off-road engines and equipment they are used in. A draft regulationis scheduled for publication by the end of calendar year 2006. We cannotpredict the scope of any proposal or of the final regulations that the EPA mayultimately adopt, and accordingly cannot estimate what, if any, impact suchregulations could have on future financial performance.

 

The California Air Resources Board (CARB) adopted a Tier 3 regulationrequiring additional reductions to engine exhaust emissions and also requiringnew controls on evaporative emissions from small engines. The Tier 3 regulationis phased in between 2006 and 2008 depending upon the size of the engine andtype of control. While Briggs & Stratton believes the cost of theregulation on a per engine basis may be significant, Briggs & Stratton doesnot believe the regulation will have a material effect on its financialcondition or results of operations. This assessment is based on a number offactors, including federal regulation, which precludes other states from optinginto the California standard, revisions the CARB made to its adopted regulationfrom the proposal published in September 2003 in response to recommendationsfrom Briggs & Stratton and others in the regulated category, the fact thatCalifornia represents a relatively small percentage of Briggs & Stratton’sengine sales and our ability and intention to pass increased costs associatedwith the CARB regulation on to California consumers.

 

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

 

17

 

Critical Accounting Policies

Briggs & Stratton’s critical accounting policies are more fullydescribed in Note 2 and Note 14 of the Notes to Consolidated FinancialStatements. As discussed in Note 2, the preparation of financial statements inconformity with accounting principles generally accepted in the U.S. (“GAAP”)requires management to make estimates and assumptions about future events thataffect the amounts reported in the financial statements and accompanying notes.Future events and their effects cannot be determined with absolute certainty.Therefore, the determination of estimates requires the exercise of judgment.Actual results inevitably will differ from those estimates, and suchdifferences may be material to the financial statements.

 

The most significant accounting estimates inherent in the preparationof our financial statements include estimates as to the recovery of accountsreceivable and inventory reserves, as well as those used in the determinationof liabilities related to customer rebates, pension obligations, postretirementbenefits, warranty, product liability, litigation and taxation.

 

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

 

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

 

The pension benefit obligation and related pension expense or incomeare calculated in accordance with Statement of Financial Accounting Standard(SFAS) No. 87, “Employer’s Accounting for Pensions”, and are impacted bycertain actuarial assumptions, including the discount rate and the expectedrate of return on plan assets. These rates are evaluated on an annual basisconsidering such factors as market interest rates and historical assetperformance. Actuarial valuations at July 2, 2006 used a discount rate of 6.35%and an expected rate of return on plan assets of 8.75%. Our discount rate wasselected using a methodology that matches plan cash flows with a selection ofMoody’s Aa or higher rated bonds, resulting in a discount rate that bettermatches a bond yield curve with comparable cash flows. A 0.25% decrease in thediscount rate would increase annual pension expense by approximately $0.4million. A 0.25% decrease in the expected return on plan assets would increaseour annual pension expense by approximately $2.0 million. In estimating theexpected return on plan assets, the Company considers the historical returns onplan assets, adjusted for forward looking considerations, including inflationassumptions and active management of the plan’s invested assets. Changes in thediscount rate and return on assets can have a significant effect on the fundedstatus of our pension plans, stockholders’ equity and expense. We cannot predictthese changes in discount rates or investment returns and, therefore, cannotreasonably estimate whether the impact in subsequent years will be significant.

 

The Company uses a market-related value of assets that recognizes thedifference between the expected return and the actual return on plan assetsover a five year period. As of July 2, 2006 the Company had $133.0 million ofunrecognized asset gains associated with its market-related value of assets andsubject to amortization in future periods.

 

The funded status of the Company’s pension plan is the differencebetween the projected benefit obligation and the fair value of its plan assets.The projected benefit obligation is the actuarial present value of all benefitsexpected to be earned by the employees’ service. At July 2, 2006 the projectedbenefit obligation exceeded the fair value of plan assets by $4 million.Material differences may arise between the funded status of the plan and therecorded asset or liability as certain items that have an immediate impact onthe projected benefit obligation are amortized over a longer period of time forbalance sheet purposes using actuarial assumptions. As of July 2, 2006 therewere $136.7 million in actuarial losses not reflected in the recorded asset or liability.

 

The other postretirement benefits obligation and related expense orincome are calculated in accordance with SFAS No. 106, “Employers’ Accountingfor Postretirement Benefits Other Than Pensions” and are impacted by

 

18

 

certain actuarial assumptions, including the health care trend rate. Anincrease of one percentage point in health care costs would increase theaccumulated postretirement benefit obligation by $14.5 million and wouldincrease the service and interest cost by $1.5 million. A correspondingdecrease of one percentage point, would decrease the accumulated postretirementbenefit by $13.5 million and decrease the service and interest cost by $1.3million.

 

For pension benefits and postretirement benefits, actuarial gains andlosses are accounted for in accordance with GAAP. Accumulation of actuarialgains and losses results from differences in actual experience compared tooriginal assumptions over several years for discount rates, health care costtrends, and other factors.

Accumulated actuarial gains and losses are amortized over futureperiods, and as a result, will impact recognized expense and the recordedobligation in future periods. Refer to Note 14 for additional discussion.

 

New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - anamendment of ARB No. 43, Chapter 4.” SFAS No. 151 seeks to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts and wasted material (spoilage) in the determination of inventory carryingcosts. The statement requires such costs to be treated as a current periodexpense. This statement became effective for the company on July 2, 2006. Theadoption of SFAS No. 151 does not have a material impact on the ConsolidatedFinancial Statements.

 

On July 13, 2006, the FASB issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”.Interpretation 48 clarifies the accounting for uncertainty in income taxesrecognized in an entity’s financial statements in accordance with Statement 109and prescribes a standard methodology for financial statement disclosure of taxpositions taken or expected to be taken on a tax return. Additionally,Interpretation 48 provides guidance on de-recognition, classification, interestand penalties, accounting in interim periods, disclosure and transition.Interpretation 48 is effective for fiscal years beginning after December 15,2006, with early adoption permitted. At this time, the impact, if any, ofadoption of Interpretation 48 on our consolidated financial position has notbeen made.

 

19

 

**ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Briggs & Stratton is exposed to market risk from changes in foreignexchange and interest rates. To reduce the risk from changes in foreignexchange rates, Briggs & Stratton uses financial instruments. Briggs &Stratton does not hold or issue financial instruments for trading purposes.

 

**Foreign Currency**

 

Briggs & Stratton’s earnings are affected by fluctuations in thevalue of the U.S. dollar against the Japanese Yen and the Euro. The Yen is usedto purchase engines from Briggs & Stratton’s joint venture. Briggs &Stratton purchases components in Euros from third parties and receives Eurosfor certain products sold to European customers. Briggs & Stratton’sforeign subsidiaries’ earnings are also influenced by fluctuations of the localcurrency against the U.S. dollar as these subsidiaries purchase inventory fromthe parent in U.S. dollars. Forward foreign exchange contracts are used topartially hedge against the earnings effects of such fluctuations. At July 2,2006, Briggs & Stratton had the following forward foreign exchangecontracts outstanding with the Fair Value (Gains) Losses shown (in thousands):

 
| Hedge               |   | Notional  |   | Fair  Market |   | Conversion |   | (Gain)  Loss |   |
|---------------------|--------|-----------|--------|--------------|--------|------------|--------|--------------|--------|
| Currency            |   |      |   | Value        |   |       |   | Value        |   |   |   | Currency |   |   | at  Fair Value |   |
| Japanese Yen        |   | 1,650,000 |   |         | $      | 14,615     |   |         | U.S.   |   | $ | (229 | ) |   |
| Euro                |   | 81,000    |   |         | $      | 104,802    |   |         | U.S.   |   | $ | 1,031 |   |   |
| Australian  Dollars |   | 4,175     |   |         | $      | 3,098      |   |         | U.S.   |   | $ | (71 | ) |   |
|                     |        |           |        |              |        |            |        |              |        |  |  |  |  |  |  |  |  |  |  |  |

 

All of the above contracts expire within twelve months.

 

Fluctuations in currency exchange rates may also impact theshareholders’ investment in Briggs & Stratton. Amounts invested in Briggs& Stratton’s non-U.S. subsidiaries and joint ventures are translated intoU.S. dollars at the exchange rates in effect at fiscal year-end. The resultingcumulative translation adjustments are recorded in Shareholders’ Investment asAccumulated Other Comprehensive Income. The cumulative translation adjustmentscomponent of Shareholders’ Investment increased $1.8 million during the year.Using the year-end exchange rates, the total amount invested in non-U.S.subsidiaries on July 2, 2006 was $89.1 million.

 

**Interest Rates**

 

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

 

On July 2, 2006, Briggs & Stratton had the following short-termloans outstanding (in thousands):

 
|         |   |   |   | Weighted  Average |   |
|--------------|--------|--------|--------|-------------------|--------|
| Currency     |   |   |   |              | Amount |   |   |   | Interest  Rate |   |   |
| U.S. Dollars |   | 3,000  |   | 6.58%             |   |
| Euro         |   | 338    |   | 5.00%             |   |
|              |        |        |        |                   |        |  |  |  |  |  |  |

 

These loans carry variable interest rates. Assuming borrowings areoutstanding for an entire year, an increase (decrease) of one percentage pointin the weighted average interest rate, would increase (decrease) interestexpense by $34 thousand.

 

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

 
| Description               |         |   |   |    | Amount |   |   |   | Maturity |   |   |
|---------------------------|--------------|--------|--------|---------|--------|--------|--------|--------|----------|--------|--------|
| 7.25%                     | Senior Notes |   | $      | 80,973  |   |   | 2007   |   |
| 8.875%                    | Senior Notes |   | $      | 267,351 |   |   | 2011   |   |
| Variable  Rate Term Notes |         | $      | 35,000 |    |   | 2008   |   |
|                           |              |        |        |         |        |        |        |        |          |        |        |  |  |  |

 

The Senior Notes carry fixed rates of interest and are therefore notsubject to market fluctuation. The Variable Rate Term Note is subject tointerest rate fluctuations, therefore an increase (decrease) of one percentagepoint in the weighted average interest rate would increase (decrease) interestexpense by $350 thousand.

 

20

 

**ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**Consolidated Balance Sheets**

 
| *AS OF JULY 2, 2006 AND JULY 3, 2005* |
|---------------------------------------|
| (in thousands)                        |

 
| **ASSETS**                                                     |   | ** **    | **2006**      | ** ** |   |      | 2005   |   |   |
|----------------------------------------------------------------|--------|---------------|---------------|------------|--------|-----------|--------|--------|--------|
| CURRENT  ASSETS:                                               |   | ** **    |          |       |   |
| Cash and Cash Equivalents                                      |   | **$**         | **95,091**    |       | $      | 161,573   |   |
| Receivables, Less Reserves of  $4,851 and $5,461, Respectively |   | **273,502**   |          | 360,786    |   |
| Inventories:                                                   |   | ** **    |          |       |   |
| Finished Products and Parts                                    |   | **364,711**   |          | 283,405    |   |
| Work in Process                                                |   | **188,358**   |          | 174,648    |   |
| Raw Material                                                   |   | **8,946**     |          | 11,612     |   |
| Total Inventories                                              |   | **562,015**   |          | 469,665    |   |
| Deferred Income Tax Asset                                      |   | **58,024**    |          | 92,251     |   |
| Prepaid Expenses and Other  Current Assets                     |   | **43,020**    |          | 34,930     |   |
| Total Current Assets                                           |   | **1,031,652** |          | 1,119,205  |   |
| GOODWILL                                                       |   | **251,885**   |          | 253,663    |   |
| OTHER INTANGIBLE ASSETS, Net                                   |   | **94,596**    |          | 96,445     |   |
| INVESTMENTS                                                    |   | **48,917**    |          | 49,783     |   |
| PREPAID PENSION                                                |   | **75,789**    |          | -          |   |
| DEFERRED LOAN COSTS, Net                                       |   | **4,308**     |          | 6,016      |   |
| OTHER LONG-TERM ASSETS, Net                                    |   | **6,765**     |          | 26,601     |   |
| PLANT AND EQUIPMENT:                                           |   | ** **    |          |       |   |
| Land and Land Improvements                                     |   | **17,956**    |          | 20,554     |   |
| Buildings                                                      |   | **130,044**   |          | 172,093    |   |
| Machinery and Equipment                                        |   | **830,537**   |          | 791,792    |   |
| Construction in Progress                                       |   | **29,627**    |          | 21,205     |   |
|                                                           |   | **1,008,164** |          | 1,005,644  |   |
|                                                           |   | ** **    |          |       |   |
| Less - Accumulated  Depreciation                               |   | **577,876**   |          | 558,389    |   |
| Total Plant and Equipment,  Net                                |   | **430,288**   |          | 447,255    |   |
|                                                           |   | **$**         | **1,944,200** |       | $      | 1,998,968 |   |
|                                                                |        |               |               |            |        |           |        |        |        |  |  |

 

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

 

21

 

 
| *AS OF JULY 2, 2006 AND JULY 3, 2005* |
|---------------------------------------|
| (in thousands, except per share data) |

 
| **LIABILITIES  AND SHAREHOLDERS’ INVESTMENT**                      | ** ** | ** **    | **2006**      | ** ** | ** ** | ** ** |      | 2005   |   | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|---------------|---------------|------------|------------|------------|-----------|--------|--------|------------|------------|
| CURRENT  LIABILITIES:                                                   |       |          |          |       |       |       |      |
| Accounts  Payable                                                       |       | **$**         | **161,291**   | ** ** | ** ** | $          | 155,973   |   |   |
| Short-term  Debt                                                        |       | **3,474**     | ** **    | ** ** | 443        |       |      |
| Accrued Liabilities:                                                    |       | ** **    | ** **    | ** ** |       |       |      |
| Wages and  Salaries                                                     |       | **32,743**    | ** **    | ** ** | 42,715     |       |      |
| Warranty                                                                |       | **53,233**    | ** **    | ** ** | 59,625     |       |      |
| Accrued  Postretirement Health Care Obligation                          |       | **26,000**    | ** **    | ** ** | 26,000     |       |      |
| Other                                                                   |       | **66,405**    | ** **    | ** ** | 67,912     |       |      |
| Total  Accrued Liabilities                                              |       | **178,381**   | ** **    | ** ** | 196,252    |       |      |
| Total  Current Liabilities                                              |       | **343,146**   | ** **    | ** ** | 352,668    |       |      |
| DEFERRED INCOME TAX LIABILITY                                           |       | **102,862**   | ** **    | ** ** | 113,794    |       |      |
| ACCRUED PENSION COST                                                    |       | **25,587**    | ** **    | ** ** | 47,944     |       |      |
| ACCRUED EMPLOYEE BENEFITS                                               |       | **16,267**    | ** **    | ** ** | 15,125     |       |      |
| ACCRUED POSTRETIREMENT HEALTH CARE  OBLIGATION                          |       | **84,136**    | ** **    | ** ** | 77,607     |       |      |
| LONG-TERM DEBT                                                          |       | **383,324**   | ** **    | ** ** | 486,321    |       |      |
| OTHER LONG-TERM LIABILITIES                                             |       | **1,672**     | ** **    | ** ** | 16,323     |       |      |
| COMMITMENTS AND CONTINGENCIES                                           |       | ** **    | ** **    | ** ** |       |       |      |
| SHAREHOLDERS’ INVESTMENT:                                          |       | ** **    | ** **    | ** ** |       |       |      |
| Common Stock  -                                                         |       | ** **    | ** **    | ** ** |       |       |      |
| Authorized  120,000 Shares $.01 Par Value,  Issued 57,854 Shares        |       | **579**       | ** **    | ** ** | 579        |       |      |
| Additional  Paid-In Capital                                             |       | **67,325**    | ** **    | ** ** | 55,793     |       |      |
| Retained  Earnings                                                      |       | **1,086,397** | ** **    | ** ** | 1,029,329  |       |      |
| Accumulated  Other Comprehensive Income (Loss)                          |       | **4,960**     | ** **    | ** ** | (48,331    | )          |      |
| Unearned  Compensation on Restricted Stock                              |       | **(2,199**    | **)**         | ** ** | (1,985     | )          |      |
| Treasury  Stock at cost,  6,654 Shares in 2006 and 6,114 Shares in 2005 |       | **(169,856**  | **)**         | ** ** | (146,199   | )          |      |
| Total  Shareholders’ Investment                                    |       | **987,206**   | ** **    | ** ** | 889,186    |       |      |
|                                                                    |       | **$**         | **1,944,200** | ** ** | ** ** | $          | 1,998,968 |   |   |
|                                                                         |            |               |               |            |            |            |           |        |        |            |            |  |  |

 

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

 

22

 

**Consolidated Statements of Earnings**

 
| *FOR THE FISCAL YEARS ENDED JULY 2, 2006, JULY 3,  2005 AND JUNE 27, 2004* |
|----------------------------------------------------------------------------|
| (in thousands, except per share data)                                      |

 
| ** **                                                 | ** ** | ** **    | **2006**      | ** ** | ** ** | ** ** |      | 2005      |   |   |      |   | 2004   |   |   |   |
|------------------------------------------------------------|------------|---------------|---------------|------------|------------|------------|-----------|-----------|--------|--------|-----------|--------|--------|--------|--------|--------|
| NET SALES                                                  |       | **$**         | **2,542,171** | ** ** |       | $          | 2,654,875 |      |   | $      | 1,947,364 |   |   |
| COST OF GOODS SOLD                                         |       | **2,050,487** | ** **    |       | 2,149,984  |       |      | 1,507,492 |   |   |
| Gross Profit                                               |       | **491,684**   | ** **    |       | 504,891    |       |      | 439,872   |   |   |
| ENGINEERING,  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |       | **315,718**   | ** **    |       | 314,123    |       |      | 205,663   |   |   |
| Income from  Operations                                    |       | **175,966**   | ** **    |       | 190,768    |       |      | 234,209   |   |   |
| INTEREST EXPENSE                                           |       | **(42,091**   | **)**         |       | (36,883    | )          |      | (37,665   | )      |   |
| OTHER INCOME, Net                                          |       | **18,491**    | ** **    |       | 20,430     |       |      | 8,460     |   |   |
| Income  Before Provision for Income Taxes                  |       | **152,366**   | ** **    |       | 174,315    |       |      | 205,004   |   |   |
| PROVISION FOR INCOME TAXES                                 |       | **50,020**    | ** **    |       | 57,548     |       |      | 68,890    |   |   |
| Income  Before Extraordinary Item                          |       | **102,346**   | ** **    |       | 116,767    |       |      | 136,114   |   |   |
| EXTRAORDINARY GAIN - NEGATIVE GOODWILL                     |       | **-**         | ** **    |       | 19,800     |       |      | -         |   |   |
| NET INCOME                                                 |       | **$**         | **102,346**   | ** ** |       | $          | 136,567   |      |   | $      | 136,114   |   |   |
| EARNINGS PER SHARE DATA*                                   |       | ** **    | ** **    |       |       |       |      |      |   |   |
| Weighted  Average Shares Outstanding                       |       | **51,479**    | ** **    |       | 51,472     |       |      | 45,286    |   |   |
| Income  Before Extraordinary Item                          |       | **$**         | **1.99**      | ** ** |       | $          | 2.27      |      |   | $      | 3.01      |   |   |
| Extraordinary  Gain                                        |       | **-**         | ** **    |       | .38        |       |      | -         |   |   |
| Basic  Earnings Per Share                                  |       | **$**         | **1.99**      | ** ** |       | $          | 2.65      |      |   | $      | 3.01      |   |   |
|                                                       |       | ** **    | ** **    |       |       |       |      |      |   |   |
| Diluted  Average Shares Outstanding                        |       | **51,594**    | ** **    |       | 51,954     |       |      | 50,680    |   |   |
| Income  Before Extraordinary Item                          |       | **$**         | **1.98**      | ** ** |       | $          | 2.25      |      |   | $      | 2.77      |   |   |
| Extraordinary  Gain                                        |       | **-**         | ** **    |       | .38        |       |      | -         |   |   |
| Diluted  Earnings Per Share                                |       | **$**         | **1.98**      | ** ** |       | $          | 2.63      |      |   | $      | 2.77      |   |   |
|                                                            |            |               |               |            |            |            |           |           |        |        |           |        |        |        |        |        |  |  |  |

 

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

 

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

 

23

 

**Consolidated Statements of Shareholders’Investment**

 
| *FOR THE FISCAL YEARS ENDED JULY 2, 2006, JULY 3,  2005 AND JUNE 27, 2004* |
|----------------------------------------------------------------------------|
| (in thousands, except per share data)                                      |

 
|                                                                |       |       |       |       |       |        |       | Accumulated   |          | Unearned      |       |        |       |          |        |
|---------------------------------------------------------------------|------------|------------|------------|------------|------------|-------------|------------|---------------|---------------|---------------|------------|-------------|------------|---------------|-------------|
|                                                                |       |       |       | Additional |       |        |       | Other Com-    |          | Compensation  |       |        |       |          |        |
|                                                                |       | Common     |       | Paid-In    |       | Retained    |       | prehensive    |          | on Restricted |       | Treasury    |       | Comprehensive |        |
|                                                                |       | Stock      |       | Capital    |       | Earnings    |       | Income (Loss) |          | Stock         |       | Stock       |       | Income        |        |
| BALANCES, JUNE 29, 2003                                             |       | $          | 289        |       | $          | 35,074      |       | $             | 822,060       |          | $          | (734        | )          | $             | (287        | ) | $ | (341,415 | ) |   |   |
| Comprehensive Income:                                               |       |       |       |       |       |        |       |          |          |          |       |        |       |          |        |
| Net Income                                                          |       | -          |       | -          |       | 136,114     |       | -             |          | -             |       | -           |       | $             | 136,114     |   |
| Foreign Currency Translation                                        |       |       |       |       |       |        |       |          |          |          |       |        |       |          |        |
| Adjustments                                                         |       | -          |       | -          |       | -           |       | 3,042         |          | -             |       | -           |       | 3,042         |        |
| Unrealized Gain on Derivatives                                      |       | -          |       | -          |       | -           |       | 487           |          | -             |       | -           |       | 487           |        |
| Minimum Pension Liability  Adjustment, net of tax of  $788          |       | -          |       | -          |       | -           |       | 1,233         |          | -             |       | -           |       | 1,233         |        |
| Total Comprehensive Income                                          |       | -          |       | -          |       | -           |       | -             |          | -             |       | -           |       | $             | 140,876     |   |
| Cash Dividends Paid  ($0.66* per share)                             |       | -          |       | -          |       | (30,408     | )          | -             |          | -             |       | -           |       |          |        |
| Stock Option Activity, net of tax                                   |       | -          |       | 7,667      |       | -           |       | -             |          | -             |       | 41,194      |       |          |        |
| Restricted Stock                                                    |       | -          |       | 322        |       | -           |       | -             |          | (1,494        | )          | 1,171       |       |          |        |
| Amortization of Unearned  Compensation                              |       | -          |       | -          |       | -           |       | -             |          | 291           |       | -           |       |          |        |
| Issuance of Treasury Shares                                         |       | -          |       | 5,546      |       | -           |       | -             |          | -             |       | 137,270     |       |          |        |
| Shares Issued to Directors                                          |       | -          |       | 48         |       | -           |       | -             |          | -             |       | 125         |       |          |        |
| BALANCES, JUNE 27, 2004                                             |       | $          | 289        |       | $          | 48,657      |       | $             | 927,766       |          | $          | 4,028       |       | $             | (1,490      | ) | $ | (161,655 | ) |   |   |
| Comprehensive Income:                                               |       |       |       |       |       |        |       |          |          |          |       |        |       |          |        |
| Net Income                                                          |       | -          |       | -          |       | 136,567     |       | -             |          | -             |       | -           |       | $             | 136,567     |   |
| Foreign Currency Translation Adjustments                            |       | -          |       | -          |       | -           |       | 881           |          | -             |       | -           |       | 881           |        |
| Unrealized Gain on Derivatives                                      |       | -          |       | -          |       | -           |       | 419           |          | -             |       | -           |       | 419           |        |
| Minimum Pension Liability  Adjustment, net of tax of  $(34,306)     |       | -          |       | -          |       | -           |       | (53,659       | )             | -             |       | -           |       | (53,659       | )           |
| Total Comprehensive Income                                          |       | -          |       | -          |       | -           |       | -             |          | -             |       | -           |       | $             | 84,208      |   |
| Cash Dividends Paid  ($0.68* per share)                             |       | -          |       | -          |       | (35,004     | )          | -             |          | -             |       | -           |       |          |        |
| Stock Option Activity, net of tax                                   |       | -          |       | 6,990      |       | -           |       | -             |          | -             |       | 14,752      |       |          |        |
| Restricted Stock                                                    |       | -          |       | 316        |       | -           |       | -             |          | (1,006        | )          | 688         |       |          |        |
| Amortization of Unearned  Compensation                              |       | -          |       | -          |       | -           |       | -             |          | 511           |       | -           |       |          |        |
| Stock Split                                                         |       | 290        |       | (290       | )          | -           |       | -             |          | -             |       | -           |       |          |        |
| Deferred Stock                                                      |       | -          |       | 3          |       | -           |       | -             |          | -             |       | -           |       |          |        |
| Shares Issued to Directors                                          |       | -          |       | 117        |       | -           |       | -             |          | -             |       | 16          |       |          |        |
| **BALANCES, JULY 3, 2005**                                          | ** ** | **$**      | **579**    | ** ** | **$**      | **55,793**  | ** ** | **$**         | **1,029,329** | ** **    | **$**      | **(48,331** | **)**      | **$**         | **(1,985**  | **)** | **$** | **(146,199** | **)** | ** ** | ** ** |
| **Comprehensive Income:**                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | ** **    | ** **    | ** **    | ** ** | ** **  | ** ** | ** **    | ** **  |
| **Net Income**                                                      | ** ** | **-**      | ** ** | **-**      | ** ** | **102,346** | ** ** | **-**         | ** **    | **-**         | ** ** | **-**       | ** ** | **$**         | **102,346** | ** ** |
| **Foreign Currency Translation**                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | ** **    | ** **    | ** **    | ** ** | ** **  | ** ** | ** **    | ** **  |
| **Adjustments**                                                     | ** ** | **-**      | ** ** | **-**      | ** ** | **-**       | ** ** | **1,785**     | ** **    | **-**         | ** ** | **-**       | ** ** | **1,785**     | ** **  |
| **Unrealized Loss on Derivatives**                                  | ** ** | **-**      | ** ** | **-**      | ** ** | **-**       | ** ** | **(1,255**    | **)**         | **-**         | ** ** | **-**       | ** ** | **(1,255**    | **)**       |
| **Minimum Pension Liability  Adjustment, net of tax of  $(33,733)** | ** ** | **-**      | ** ** | **-**      | ** ** | **-**       | ** ** | **52,761**    | ** **    | **-**         | ** ** | **-**       | ** ** | **52,761**    | ** **  |
| **Total Comprehensive Income**                                      | ** ** | **-**      | ** ** | **-**      | ** ** | **-**       | ** ** | **-**         | ** **    | **-**         | ** ** | **-**       | ** ** | **$**         | **155,637** | ** ** |
| **Cash Dividends Paid  ($0.88 per share)**                          | ** ** | **-**      | ** ** | **-**      | ** ** | **(45,278** | **)**      | **-**         | ** **    | **-**         | ** ** | **-**       | ** ** | ** **    | ** **  |
| **Purchase of Common Stock  for Treasury**                          | ** ** | **-**      | ** ** | **-**      | ** ** | **-**       | ** ** | **-**         | ** **    | **-**         | ** ** | **(34,919** | **)**      | ** **    | ** **  |
| **Stock Option Activity, net of tax**                               | ** ** | **-**      | ** ** | **10,455** | ** ** | **-**       | ** ** | **-**         | ** **    | **-**         | ** ** | **10,254**  | ** ** | ** **    | ** **  |
| **Restricted Stock**                                                | ** ** | **-**      | ** ** | **431**    | ** ** | **-**       | ** ** | **-**         | ** **    | **(1,490**    | **)**      | **925**     | ** ** | ** **    | ** **  |
| **Amortization of Unearned  Compensation**                          | ** ** | **-**      | ** ** | **-**      | ** ** | **-**       | ** ** | **-**         | ** **    | **1,276**     | ** ** | **-**       | ** ** | ** **    | ** **  |
| **Deferred Stock**                                                  | ** ** | **-**      | ** ** | **605**    | ** ** | **-**       | ** ** | **-**         | ** **    | **-**         | ** ** | **-**       | ** ** | ** **    | ** **  |
| **Shares Issued to Directors**                                      | ** ** | **-**      | ** ** | **41**     | ** ** | **-**       | ** ** | **-**         | ** **    | **-**         | ** ** | **83**      | ** ** | ** **    | ** **  |
| **BALANCES, JULY 2, 2006**                                          | ** ** | **$**      | **579**    | ** ** | **$**      | **67,325**  | ** ** | **$**         | **1,086,397** | ** **    | **$**      | **4,960**   | ** ** | **$**         | **(2,199**  | **)** | **$** | **(169,856** | **)** | ** ** | ** ** |

 

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

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

 

24

 

**Consolidated Statements of Cash Flows**

 
| *FOR THE FISCAL YEARS ENDED JULY 2, 2006, JULY 3,  2005 AND JUNE 27, 2004* |
|----------------------------------------------------------------------------|
| (in thousands)                                                             |

 
|                                                                               |   | ** **   | **2006**    | ** ** |       |   |    | 2005     |   |   |    |   | 2004   |   |   |   |
|------------------------------------------------------------------------------------|--------|--------------|-------------|------------|------------|--------|---------|----------|--------|--------|---------|--------|--------|--------|--------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |         |        |       |       |   |    |     |   |   |
| Net Income                                                                         |   | **$**        | **102,346** | ** ** | ** ** | $      | 136,567 |     |   | $      | 136,114 |   |   |
| Adjustments  to Reconcile Net Income to Net Cash Provided by Operating Activities: |   | ** **   | ** **  | ** ** |       |   |    |     |   |   |
| Extraordinary  Gain                                                                |   | **-**        | ** **  | ** ** | (19,800    | )      |    | -        |   |   |
| Depreciation  and Amortization                                                     |   | **77,234**   | ** **  | ** ** | 72,793     |   |    | 66,608   |   |   |
| Earnings of  Unconsolidated Affiliates, Net of Dividends                           |   | **459**      | ** **  | ** ** | 678        |   |    | (3,484   | )      |   |
| (Gain) Loss  on Disposition of Plant and Equipment                                 |   | **(11,139**  | **)**       | ** ** | 2,418      |   |    | 7,390    |   |   |
| Stock Compensation  Expense                                                        |   | **9,999**    | ** **  | ** ** | 1,268      |   |    | 291      |   |   |
| Provision  for Deferred Income Taxes                                               |   | **(10,438**  | **)**       | ** ** | (3,896     | )      |    | 12,800   |   |   |
| Change in  Operating Assets and Liabilities, Net of Effects of Acquisition:        |   | ** **   | ** **  | ** ** |       |   |    |     |   |   |
| Decrease  (Increase) in Receivables                                                |   | **87,284**   | ** **  | ** ** | (26,892    | )      |    | (28,588  | )      |   |
| (Increase)  Decrease in Inventories                                                |   | **(92,350**  | **)**       | ** ** | 12,784     |   |    | (128,594 | )      |   |
| (Increase)  Decrease in Prepaid Expenses and Other Current Assets                  |   | **(12,302**  | **)**       | ** ** | 2,650      |   |    | 2,017    |   |   |
| (Decrease)  Increase in Accounts Payable, Accrued Liabilities and Income Taxes     |   | **(7,695**   | **)**       | ** ** | (27,673    | )      |    | 4,696    |   |   |
| Change in  Accrued/Prepaid Pension                                                 |   | **10,847**   | ** **  | ** ** | (1,050     | )      |    | (6,070   | )      |   |
| Other, Net                                                                         |   | **363**      | ** **  | ** ** | (1,289     | )      |    | (13,024  | )      |   |
| Net Cash  Provided by Operating Activities                                         |   | **154,608**  | ** **  | ** ** | 148,558    |   |    | 50,156   |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                             |   | ** **   | ** **  | ** ** |       |   |    |     |   |   |
| Additions to  Plant and Equipment                                                  |   | **(69,518**  | **)**       | ** ** | (86,075    | )      |    | (52,962  | )      |   |
| Proceeds  Received on Disposition of Plant and Equipment                           |   | **11,518**   | ** **  | ** ** | 1,940      |   |    | 720      |   |   |
| Proceeds  Received on Sale of Certain Assets of a Subsidiary                       |   | **-**        | ** **  | ** ** | 4,050      |   |    | -        |   |   |
| Refund of  Cash Paid for Acquisition                                               |   | **6,347**    | ** **  | ** ** | -          |   |    | 5,686    |   |   |
| Cash Paid  for Acquisitions, Net of Cash Acquired                                  |   | **-**        | ** **  | ** ** | (355,094   | )      |    | -        |   |   |
| Other, Net                                                                         |   | **(3,400**   | **)**       | ** ** | (1,500     | )      |    | -        |   |   |
| Net Cash  Used by Investing Activities                                             |   | **(55,053**  | **)**       | ** ** | (436,679   | )      |    | (46,556  | )      |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                             |   | ** **   | ** **  | ** ** |       |   |    |     |   |   |
| Net  Borrowings (Repayments) on Loans and Notes Payable                            |   | **3,031**    | ** **  | ** ** | (2,684     | )      |    | 187      |   |   |
| Net  (Repayments) Borrowings on Long-Term Debt                                     |   | **(103,826** | **)**       | ** ** | 125,000    |   |    | (22      | )      |   |
| Issuance  Cost of Debt                                                             |   | **-**        | ** **  | ** ** | (925       | )      |    | (1,789   | )      |   |
| Cash  Dividends Paid                                                               |   | **(45,278**  | **)**       | ** ** | (35,065    | )      |    | (30,408  | )      |   |
| Stock Option  Exercise Proceeds and Tax Benefits                                   |   | **12,457**   | ** **  | ** ** | 20,139     |   |    | 45,314   |   |   |
| Treasury  Stock Purchases                                                          |   | **(34,919**  | **)**       | ** ** | -          |   |    | -        |   |   |
| Net Cash  (Used by) Provided by Financing Activities                               |   | **(168,535** | **)**       | ** ** | 106,465    |   |    | 13,282   |   |   |
| EFFECT OF  FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS     |   | **2,498**    | ** **  | ** ** | 835        |   |    | 697      |   |   |
| NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                              |   | **(66,482**  | **)**       | ** ** | (180,821   | )      |    | 17,579   |   |   |
| CASH AND  CASH EQUIVALENTS:                                                        |   | ** **   | ** **  | ** ** |       |   |    |     |   |   |
| Beginning of  Year                                                                 |   | **161,573**  | ** **  | ** ** | 342,394    |   |    | 324,815  |   |   |
| End of Year                                                                        |   | **$**        | **95,091**  | ** ** | ** ** | $      | 161,573 |     |   | $      | 342,394 |   |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                 |   | ** **   | ** **  | ** ** |       |   |    |     |   |   |
| Interest  Paid                                                                     |   | **$**        | **40,503**  | ** ** | ** ** | $      | 36,357  |     |   | $      | 38,884  |   |   |
| Income Taxes  Paid                                                                 |   | **$**        | **75,347**  | ** ** | ** ** | $      | 66,410  |     |   | $      | 53,253  |   |   |
|                                                                                    |        |              |             |            |            |        |         |          |        |        |         |        |        |        |        |        |  |  |  |

 

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

 

25

 

**Notes to Consolidated Financial Statements**

 
| *FOR THE FISCAL YEARS ENDED JULY 2, 2006, JULY 3,  2005 AND JUNE 27, 2004* |
|----------------------------------------------------------------------------|

 

**(1) Nature of Operations:**

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

 

**(2) Summary of Significant Accounting Policies:**

Fiscal Year:The Company’s fiscal year consists of 52 or 53 weeks, ending on the Sundaynearest the last day of June in each year. Therefore, the 2006 fiscal year was52 weeks long, the 2005 fiscal year was 53 weeks long and the 2004 fiscal yearwas 52 weeks long. All references to years relate to fiscal years rather thancalendar years.

 

Principles of Consolidation: The consolidated financial statements include the accounts of theCompany and its majority owned domestic and foreign subsidiaries afterelimination of intercompany accounts and transactions.

 

Accounting Estimates: The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results may differ from those estimates.

 

Cash and Cash Equivalents: This caption includes cash, commercial paper and certificates of deposit.The Company considers all highly liquid investments purchased with an originalmaturity of three months or less to be cash equivalents.

 

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

 

Inventories:Inventories are stated at cost, which does not exceed market. The last-in,first-out (LIFO) method was used for determining the cost of approximately 53%of total inventories at July 2, 2006 and 48% of total inventories at July 3,2005. The cost for the remaining portion of the inventories was determinedusing the first-in, first-out (FIFO) method. If the FIFO inventory valuationmethod had been used exclusively, inventories would have been $56.8 million and$52.5 million higher in 2006 and 2005, respectively. The LIFO inventoryadjustment was determined on an overall basis, and accordingly, each class ofinventory reflects an allocation based on the FIFO amounts.

 

Goodwill and Other Intangible Assets: Goodwill reflects the cost of an acquisitionin excess of the fair values assigned to identifiable net assets acquired.Other Intangible Assets reflect identifiable intangible assets that arose frompurchase acquisitions. Other Intangible Assets are comprised of trademarks,patents and customer relationships. Goodwill and trademarks, which are consideredto have indefinite lives are not amortized; however, both must be tested forimpairment annually. Amortization is recorded on a straight line basis forother intangible assets with finite lives. Patents have been assigned anestimated weighted average useful life of thirteen years. The customerrelationships have been assigned an estimated useful life of twenty-five years.The Company is subject to financial statement risk in the event that goodwilland intangible assets become impaired. The Company performed the requiredimpairment tests in fiscal 2006, 2005 and 2004, and found no impairment of theassets.

 

Investments:This caption represents the Company’s investment in its 30% and 50% owned jointventures and preferred stock in a privately held iron castings business. Theinvestments in the joint ventures are accounted for under the equity method.

 

26

 

**Notes . . .**

 

Deferred Loan Costs: Expenses associated with the issuance of debt instruments arecapitalized and are being amortized over the terms of the respective financingarrangement using the straight-line method over periods ranging from three toten years. Accumulated amortization related to open issues amounted to $10.4million as of July 2, 2006 and $7.7 million as of July 3, 2005.

 

Plant and Equipment and Depreciation: Plant and equipment are stated at cost anddepreciation is computed using the straight-line method at rates based upon theestimated useful lives of the assets, as follows:

 
|                      | Useful Life Range (In Years) |   |
|---------------------------|------------------------------|--------|
| Software                  | 3 - 10                       |   |   |
| Land Improvements         | 20 - 40                      |   |   |
| Buildings                 | 20 - 50                      |   |   |
| Machinery & Equipment | 3 - 20                       |   |   |
|                           |                              |        |  |  |

 

Expenditures for repairs and maintenance are charged to expense asincurred. Expenditures for major renewals and betterments, which significantlyextend the useful lives of existing plant and equipment, are capitalized anddepreciated. Upon retirement or disposition of plant and equipment, the costand related accumulated depreciation are removed from the accounts, and anyresulting gain or loss is recognized in cost of goods sold.

 

Impairment of Long-Lived Assets: Property, plant and equipment and otherlong-term assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. If thesum of the expected undiscounted cash flows is less than the carrying value ofthe related asset or group of assets, a loss is recognized for the differencebetween the fair value and carrying value of the asset or group of assets. Therewere no adjustments to the carrying value of long-lived assets in fiscal 2006,2005 or 2004.

 

Warranty: TheCompany recognizes the cost associated with its standard warranty on enginesand power products at the time of sale. The amount recognized is based onhistorical failure rates and current claim cost experience. The following is areconciliation of the changes in accrued warranty costs for fiscal 2006 and2005 (in thousands):

 
|                                  |   | ** **  | **2006**   | ** ** | ** ** |   | 2005   |   |   |
|---------------------------------------|--------|-------------|------------|------------|------------|--------|--------|--------|--------|
| Balance, Beginning of Period          |   | **$**       | **59,625** | ** ** | $          | 43,148 |   |
| Adjustment Related to Acquisitions    |   | **-**       | ** ** | 10,623     |       |
| Payments                              |   | **(36,733** | **)**      | (35,796    | )          |
| Provision for Current Year Warranties |   | **34,056**  | ** ** | 41,761     |       |
| Credit for Prior Years Warranties     |   | **(3,715**  | **)**      | (111       | )          |
| Balance, End of Period                |   | **$**       | **53,233** | ** ** | $          | 59,625 |   |
|                                       |        |             |            |            |            |        |        |        |        |  |  |

 

Deferred Revenue on Sale of Plant and Equipment: During the fourth quarter of fiscal 2006, apre-tax gain of $6.1 million was recorded as the company ceased its involvementin its Menomonee Falls, Wisconsin facility sold in 1997. The terms andconditions of the sales contract were such that the Company continued to ownand occupy a portion of the warehouse until the fourth quarter of fiscal 2006.Under the provisions of SFAS No. 66, “Accounting for Sales of Real Estate,” theCompany accounted for the agreement as a financing transaction while itremained involved with the facility. Under this method, the cash received infiscal 1997 was reflected as deferred revenue and the assets and theaccumulated depreciation remained on the Company’s books until its involvementin the facility ceased. Depreciation expense, imputed interest expense, andimputed fair value lease income on the non-Briggs & Stratton occupiedportion of the building were recorded and added to deferred revenue up untilthe fourth quarter of fiscal 2006.

 

Revenue Recognition: Net sales include sales of engines, power products, and relatedservice parts and accessories, net of allowances for cash discounts, customervolume rebates and discounts, and advertising allowances. In accordance withStaff Accounting Bulletin No. 104, “Revenue Recognition,” as amended, theCompany recognizes revenue when all of the following criteria are met:persuasive evidence of an

 

27

 

**Notes . . .**

 

arrangement exists, delivery has occurred, the price is fixed ordeterminable, and collectibility is reasonably assured. This is generally uponshipment, except for certain international shipments, where revenue isrecognized when the customer receives the product.

 

Included in net sales are costs associated with programs under whichBriggs & Stratton shares the expense of financing certain dealer anddistributor inventories, referred to as floor plan expense. This representsinterest for a pre-established length of time based on a variable rate from acontract with a third party financing source for dealer and distributorinventory purchases. Sharing the cost of these financing arrangements is usedby Briggs & Stratton as a marketing incentive for customers to buyinventory. The financing costs included in net sales in fiscal 2006 and 2005were $12.7 million and $10.6 million, respectively. There were no similar costsin fiscal 2004.

 

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

 

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

 

Retirement Plans: The Company has noncontributory, defined benefit retirement plans andpostretirement benefit plans covering certain employees. Retirement benefitsrepresent a form of deferred compensation, which are subject to change due tochanges in assumptions. Management reviews underlying assumptions on an annualbasis. Refer to Note 14 of the Notes to Consolidated Financial Statements.

 

Research and Development Costs: Expenditures relating to the development ofnew products and processes, including significant improvements and refinementsto existing products, are expensed as incurred. The amounts charged againstincome were $28.8 million in fiscal 2006, $33.5 million in fiscal 2005 and$25.9 million in fiscal 2004.

 

Advertising Costs: Advertising costs, included in Engineering, Selling, General andAdministrative Expenses in the accompanying Consolidated Statements ofEarnings, are expensed as incurred. These expenses totaled $33.4 million infiscal 2006, $35.8 million in fiscal 2005 and $15.0 million in fiscal 2004.

 

The Company reports co-op advertising expense as a reduction in netsales. Co-op advertising expense reported as a reduction in net sales totaled$20.2 million in fiscal 2006, $23.6 million in fiscal 2005 and $12.8 million infiscal 2004.

 

Shipping and Handling Fees and Costs: Revenue received from shipping and handlingfees is reflected in net sales. Shipping fee revenue for fiscal 2006, 2005 and2004 was $4.5 million, $4.1 million and $1.8 million, respectively. Shippingand handling costs are included in cost of goods sold.

 

Foreign Currency Translation: Foreign currency balance sheet accounts are translated into dollars atthe rates of exchange in effect at fiscal year-end. Income and expensesincurred in a foreign currency are translated at the average rates of exchangein effect during the year. The related translation adjustments are madedirectly to a separate component of Shareholders’ Investment.

 

Earnings Per Share: Basic earnings per share, for each period presented, is computed bydividing net income by the weighted average number of shares of common stockoutstanding during the period. Diluted earnings per share, for each periodpresented, is computed reflecting the potential dilution that would occur ifoptions or other contracts to issue common stock were exercised or convertedinto common stock at the beginning of the period.

 

The shares outstanding used to compute diluted earnings per share forfiscal 2006 and 2004 excludes outstanding options to purchase 1,434,193 and428,520* shares of common stock, respectively, with weighted average exerciseprices of $37.21 and $37.27*, respectively. The fiscal 2005 diluted earningsper share calculation includes all options outstanding as of July 3, 2005. Forfiscal 2006 and fiscal 2004, the options are excluded because their exerciseprices are greater than the average market price of the common shares, andtheir inclusion in the computation would be antidilutive.

 

28

 

**Notes . . .**

 

Informationon earnings per share is as follows (in thousands):

 
| ** **                                                                                                                                       | ** ** | **Fiscal Year Ended** | ** **  |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|
| ** **                                                                                                                                       | ** ** | **July 2, 2006**      | ** **  | July  3, 2005 |   | June  27, 2004 |   |
| Net Income  Before Extraordinary Gain Used in Basic Earnings Per Share                                                                           |       | **$**                 | **102,346** |   | $ | 116,767 |   | $ | 136,114 |   |
| Adjustment  to Net Income Before Extraordinary Gain to Add After-tax Interest Expense on  Convertible Notes                                      |       | **-**                 |        | - |   | 4,053 |   |
| Adjusted Net  Income Before Extraordinary Gain Used in Diluted Earnings Per Share                                                                |       | **$**                 | **102,346** |   | $ | 116,767 |   | $ | 140,167 |   |
| Extraordinary  Gain Used in Basic and Diluted Earnings Per Share                                                                                 |       | **$**                 | **-**       |   | $ | 19,800 |   | $ | - |   |
| Net Income  Used in Basic Earnings Per Share                                                                                                     |       | **$**                 | **102,346** |   | $ | 136,567 |   | $ | 136,114 |   |
| Adjustment  to Net Income to Add After-tax Interest Expense on Convertible Notes                                                                 |       | **-**                 |        | - |   | 4,053 |   |
| Adjusted Net  Income Used in Diluted Earnings Per Share                                                                                          |       | **$**                 | **102,346** |   | $ | 136,567 |   | $ | 140,167 |   |
| Average  Shares of Common Stock Outstanding*                                                                                                     |       | **51,479**            |        | 51,472 |   | 45,286 |   |
| Incremental  Common Shares Applicable to Common Stock Options Based on the Common Stock  Average Market Price During the Period*                 |       | **42**                |        | 446 |   | 360 |   |
| Incremental  Common Shares Applicable to Deferred and Restricted Common Stock Based on the  Common Stock Average Market Price During the Period* |       | **73**                |        | 36 |   | 26 |   |
| Incremental  Common Shares Applicable to Convertible Notes Based on the Conversion  Provisions of the Convertible Notes*                         |       | **-**                 |        | - |   | 5,008 |   |
| Diluted  Average Common Shares Outstanding*                                                                                                      |       | **51,594**            |        | 51,954 |   | 50,680 |   |

 

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

 

Comprehensive Income: Comprehensive income is a more inclusive financial reporting methodthat includes disclosure of financial information that historically has notbeen recognized in the calculation of net income. The Company has chosen toreport Comprehensive Income and Accumulated Other Comprehensive Income (Loss)which encompasses net income, unrealized gain (loss) on marketable securities,cumulative translation adjustments, unrealized gain (loss) on derivatives andminimum pension liability adjustments in the Consolidated Statements ofShareholders’ Investment. Information on Accumulated Other Comprehensive Income(Loss) is as follows (in thousands):

 
|                         |       |        |      |           |        | Minimum    |       | Accumulated   |       |
|------------------------------|------------|-------------|-----------|----------------|-------------|------------|------------|---------------|------------|
|                         |       | Cumulative  |      | Unrealized     |        | Pension    |       | Other         |       |
|                         |       | Translation |      | Gain (Loss) on |        | Liability  |       | Comprehensive |       |
|                         |       | Adjustments |      |           | Derivatives |       |       | Adjustment    |       | (Loss) Income |   |
| Balance at  June 29, 2003    |       |        | $         | 1,816          |        |       |       |          | $          | 13 |   |   |   |   | $ | (2,563 | ) |   |   |   | $ | (734 | ) |   |   |
| Fiscal Year Change           |       |        | 3,042     |           |        |       |       | 487           |       |   |   |   | 1,233 |   |   |   |   | 4,762 |   |   |   |
| Balance at  June 27, 2004    |       |        | 4,858     |           |        |       |       | 500           |       |   |   |   | (1,330 | ) |   |   |   | 4,028 |   |   |   |
| Fiscal Year Change           |       |        | 881       |           |        |       |       | 419           |       |   |   |   | (53,659 | ) |   |   |   | (52,359 | ) |   |   |
| **Balance  at July 3, 2005** | ** ** | ** **  | **5,739** | ** **     | ** **  | ** ** | ** ** | **919**       | ** ** | ** ** | ** ** | ** ** | **(54,989** | **)** | ** ** | ** ** | ** ** | **(48,331** | **)** | ** ** | ** ** |
| **Fiscal Year Change**       | ** ** | ** **  | **1,785** | ** **     | ** **  | ** ** | ** ** | **(1,255**    | **)**      | ** ** | ** ** | ** ** | **52,761** | ** ** | ** ** | ** ** | ** ** | **53,291** | ** ** | ** ** | ** ** |
| **Balance  at July 2, 2006** | ** ** | ** **  | **$**     | **7,524**      | ** **  | ** ** | ** ** | ** **    | **$**      | **(336** | **)** | ** ** | ** ** | ** ** | **$** | **(2,228** | **)** | ** ** | ** ** | ** ** | **$** | **4,960** | ** ** | ** ** | ** ** |
|                              |            |             |           |                |             |            |            |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Derivatives:Derivatives are recorded on the balance sheet as assets or liabilities,measured at fair value. Briggs & Stratton enters into derivative contractsdesignated as cash flow hedges to manage its foreign currency exposures. Theseinstruments generally do not have a maturity of more than twelve months. Briggs& Stratton has used interest rate swaps designated as fair value hedges tomanage its debt portfolio. These instruments generally have maturities andterms consistent with the underlying debt instrument.

 

Changes in the fair value of cash flow hedges are recorded on theConsolidated Statement of Earnings or as a component of Accumulated OtherComprehensive Income (Loss). The amounts included in Accumulated OtherComprehensive Income (Loss) will be reclassified into income when theforecasted transactions occur, generally within the next twelve months. Theseforecasted transactions represent the exporting of products for which Briggs& Stratton will receive foreign currency and the importing of products forwhich it will be required

 

29

 

**Notes . . .**

 

to pay in a foreign currency. Changes in the fair value of fair valuehedges related to interest rate swaps are recorded as an increase/decrease tolong-term debt. Changes in the fair value of all derivatives deemed to beineffective are recorded as either income or expense in the accompanyingConsolidated Statements of Earnings. See discussion in Note 13.

 

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

** **

**(3) Acquisitions:**

 

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

 

On February 11, 2005, Briggs & Stratton Corporation and itssubsidiaries, Briggs & Stratton Power Products Group, LLC and Briggs &Stratton Canada, Inc. acquired certain assets of Murray, Inc. and Murray CanadaCo. (collectively “Murray”). The cash purchase price was $122.7 million,including direct acquisition costs of $1.8 million. Briggs & Strattonfinanced the acquisition through the issuance of $125 million variable rateTerm Notes due February 11, 2008, with no prepayment penalty. The Term Noteshave financial and operating restrictions consistent with other debtagreements, as disclosed in Note 8. The estimated fair value of Murray assetsacquired exceeded the acquisition cost by $19.8 million, after all taxconsiderations, and this amount was recognized as an extraordinary gain.

** **

**(4) Goodwill and Other Intangible Assets:**

 

The changes in the carrying amount of goodwill for the fiscal yearsended July 2, 2006 and July 3, 2005 are as follows (in thousands):

 
|                                |   | ** ** | **2006**    | ** ** | ** ** |    | 2005   |   |   |
|-------------------------------------|--------|------------|-------------|------------|------------|---------|--------|--------|--------|
| Beginning Goodwill Balance          |   | **$**      | **253,663** | ** ** | $          | 151,991 |   |
| Goodwill Acquired During the Period |   | **-**      | ** **  | 103,450    |       |
| Tax Benefit on Amortization         |   | **(1,778** | **)**       | (1,778     | )          |
| Ending Goodwill Balance             |   | **$**      | **251,885** | ** ** | $          | 253,663 |   |
|                                     |        |            |             |            |            |         |        |        |        |  |  |

 

The Company’s other intangible assets, primarily from acquisitions forthe years ended July 2, 2006 and July 3, 2005 are as follows (in thousands):

 
|                                 |   | **2006**     | ** ** | 2005             |       |
|--------------------------------------|--------|--------------|------------|------------------|------------|
|                                 |   | **Gross**    | ** ** | ** **       | ** ** | ** ** | ** ** | Gross |   |   |   |   |   |
|                                 |   | **Carrying** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** | Carrying |   | Accumulated |   |   |   |
|                                 |   | **Amount**   | ** ** | **Amortization** | ** ** | ** ** | **Net** | ** ** | ** ** | Amount |   | Amortization |   |   | Net |   |   |
| Amortized  Intangible Assets:        |   | ** **   | ** ** | ** **       | ** ** | ** ** | ** ** |   |   |   |   |   |   |
| Patents                              |   | **$**        | **13,281** | ** **       | **$**      | **(2,203** | **)** | ** ** | ** ** | **$** | **11,078** | ** ** | $ | 13,280 |   | $ | (1,116 | ) |   |   | $ | 12,164 |   |
| Customer Relationships               |   | **17,910**   | ** ** | **(1,433**       | **)**      | ** ** | ** ** | **16,477** | ** ** | 17,910 |   | (716 | ) |   |   | 17,194 |   |
| Miscellaneous                        |   | **279**      | ** ** | **(238**         | **)**      | ** ** | ** ** | **41** | ** ** | 279 |   | (192 | ) |   |   | 87 |   |
| Total Amortized Intangible Assets    |   | **31,470**   | ** ** | **(3,874**       | **)**      | ** ** | ** ** | **27,596** | ** ** | 31,469 |   | (2,024 | ) |   |   | 29,445 |   |
|                                 |   | ** **   | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |   |   |   |
| Unamortized  Intangible Assets:      |   | ** **   | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |   |   |   |
| Trademarks/Brand Names               |   | **67,000**   | ** ** | **-**            | ** ** | ** ** | ** ** | **67,000** | ** ** | 67,000 |   | - |   |   |   | 67,000 |   |
| Total  Unamortized Intangible Assets |   | **67,000**   | ** ** | **-**            | ** ** | ** ** | ** ** | **67,000** | ** ** | 67,000 |   | - |   |   |   | 67,000 |   |
| Total  Intangible Assets             |   | **$**        | **98,470** | ** **       | **$**      | **(3,874** | **)** | ** ** | ** ** | **$** | **94,596** | ** ** | $ | 98,469 |   | $ | (2,024 | ) |   |   | $ | 96,445 |   |
|                                      |        |              |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Amortization expense of other intangible assets amounts to approximately$1,850,000, $1,850,000, and $56,000 in 2006, 2005, and 2004, respectively.

 

30

 

 

**Notes . ...**

 

The estimated amortizationexpense of other intangible assets for the next five years is (in thousands):

 
| 2007   |   | $     | 1,844  |   |
|--------|--------|-------|--------|--------|
| 2008   |   | 1,804 |   |
| 2009   |   | 1,798 |   |
| 2010   |   | 1,794 |   |
| 2011   |   | 1,794 |   |
|   |   | $     | 9,034  |   |

 

**(5) Income Taxes:**

The provision for incometaxes on income before extraordinary gain consists of the following (inthousands):

 
| Current  |   | ** **  | **2006**   | ** ** | ** ** |   | 2005   |   |   |   | 2004 |   |   |
|----------|--------|-------------|------------|------------|------------|--------|--------|--------|--------|--------|------|--------|--------|
| Federal  |   | **$**       | **51,743** | ** ** | $          | 51,144 |   | $      | 46,506 |   |
| State    |   | **7,796**   | ** ** | 7,948      |       | 8,039  |   |
| Foreign  |   | **919**     | ** ** | 2,352      |       | 1,545  |   |
|     |   | **60,458**  | ** ** | 61,444     |       | 56,090 |   |
| Deferred |   | **(10,438** | **)**      | (3,896     | )          | 12,800 |   |
|     |   | **$**       | **50,020** | ** ** | $          | 57,548 |   | $      | 68,890 |   |
|          |        |             |            |            |            |        |        |        |        |        |      |        |        |  |  |  |

 

A reconciliation of the U.S.statutory tax rates to the effective tax rates on income before extraordinarygain follows:

 
|                                     |   | ** ** | **2006**   | ** ** | ** ** |   |   | 2005  |   |   |   | 2004 |   |   |
|------------------------------------------|--------|------------|------------|------------|------------|--------|--------|-------|--------|--------|--------|------|--------|--------|
| U.S.  Statutory Rate                     |   | **35.0%**  | ** ** |       | 35.0%      |   |   | 35.0% |   |   |
| State  Taxes, Net of Federal Tax Benefit |   | **2.6%**   | ** ** |       | 2.4%       |   |   | 3.0%  |   |   |
| Foreign  Tax Benefits                    |   | **(0.1%**  | **)**      |       | (0.8%      | )      |   | (0.9% | )      |   |
| Resolution  of Prior Period Tax Matters  |   | **(1.7%**  | **)**      |       | **-**      |   |   | (2.2% | )      |   |
| Benefit  on Dividends Received           |   | **(2.9%**  | **)**      |       | (4.0%      | )      |   | -     |   |   |
| Other                                    |   | **(0.1%**  | **)**      |       | 0.4%       |   |   | (1.3% | )      |   |
| Effective  Tax Rate                      |   | **32.8%**  | ** ** |       | 33.0%      |   |   | 33.6% |   |   |
|                                          |        |            |            |            |            |        |        |       |        |        |        |      |        |        |  |  |

 

Thecomponents of deferred income taxes were as follows (in thousands):

 
|                                        |   | ** ** | **2006**   | ** ** | ** ** |   | 2005   |   |   |
|---------------------------------------------|--------|------------|------------|------------|------------|--------|--------|--------|--------|
| Current Asset (Liability):                  |   | ** ** | ** ** |       |       |
| Difference Between Book and Tax Related to: |   | ** ** | ** ** |       |       |
| Inventory                                   |   | **$**      | **13,844** | ** ** | $          | 11,798 |   |
| Payroll  Related Accruals                   |   | **3,190**  | ** ** | 4,702      |       |
| Warranty  Reserves                          |   | **21,161** | ** ** | 22,605     |       |
| Workers  Compensation Accruals              |   | **3,000**  | ** ** | 3,611      |       |
| Other  Accrued Liabilities                  |   | **18,749** | ** ** | 17,365     |       |
| Minimum  Pension Liability                  |   | **1,424**  | ** ** | 35,157     |       |
| Miscellaneous                               |   | **(3,344** | **)**      | (2,987     | )          |
| Deferred  Income Tax Asset                  |   | **$**      | **58,024** | ** ** | $          | 92,251 |   |
|                                             |        |            |            |            |            |        |        |        |        |  |

 

31

 

**Notes . ...**

 
|                                               |   | ** **        | **2006**    | ** ** | ** ** |    | 2005   |   |   |
|----------------------------------------------------|--------|-------------------|-------------|------------|------------|---------|--------|--------|--------|
| Long-Term  Liability (Asset):                      |   | ** **        | ** **  |       |       |
| Difference  Between Book and Tax Related to:       |   | ** **        | ** **  |       |       |
| Pension Cost                                       |   | **$**             | **29,557**  | ** ** | $          | 32,945  |   |
| Accumulated Depreciation                           |   | **69,318**        | ** **  | 79,029     |       |
| Intangibles                                        |   | **61,630**        | ** **  | 58,473     |       |
| Accrued Employee Benefits                          |   | **(18,507**       | **)**       | (13,840    | )          |
| Postretirement Health Care Obligation              |   | **(32,462**       | **)**       | (29,940    | )          |
| Deferred Revenue on Sale of Plant &  Equipment |   | **  -** | ** **  | (5,717     | )          |
| Miscellaneous                                      |   | **(6,674**        | **)**       | (7,156     | )          |
| Deferred Income Tax Liability                      |   | **$**             | **102,862** | ** ** | $          | 113,794 |   |
|                                                    |        |                   |             |            |            |         |        |        |        |  |

 

The Company has not recordeddeferred income taxes applicable to undistributed earnings of foreignsubsidiaries that are indefinitely reinvested in foreign operations. Theseundistributed earnings amounted to approximately $7.9 million at July 2, 2006.If these earnings were remitted to the U.S., they would be subject to U.S.income tax. However, this tax would be less than the U.S. statutory income taxbecause of available foreign tax credits.

 

**(6) Segmentand Geographic Information and Significant Customers:**

The Company has concludedthat it operates two reportable business segments that are managed separatelybased on fundamental differences in their operations. Summarized segment datais as follows (in thousands):

 
|                    |   | ** **    | **2006**      | ** ** | ** ** |      | 2005   |   |      |   | 2004 |   |   |
|-------------------------|--------|---------------|---------------|------------|------------|-----------|--------|--------|-----------|--------|------|--------|--------|
| NET SALES:              |   | ** **    | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **1,648,224** | ** ** | $          | 1,739,184 |   | $      | 1,617,409 |   |
| Power  Products         |   | **1,186,025** | ** **    | 1,193,616  |       | 489,250   |   |
| Eliminations            |   | **(292,078**  | **)**         | (277,925   | )          | (159,295  | )      |
|                    |   | **$**         | **2,542,171** | ** ** | $          | 2,654,875 |   | $      | 1,947,364 |   |
| GROSS PROFIT ON SALES:  |   | ** **    | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **381,932**   | ** ** | $          | 372,162   |   | $      | 382,713   |   |
| Power  Products         |   | **113,166**   | ** **    | 133,888    |       | 57,846    |   |
| Eliminations            |   | **(3,414**    | **)**         | (1,159     | )          | (687      | )      |
|                    |   | **$**         | **491,684**   | ** ** | $          | 504,891   |   | $      | 439,872   |   |
| INCOME FROM OPERATIONS: |   | ** **    | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **149,760**   | ** ** | $          | 142,653   |   | $      | 204,468   |   |
| Power  Products         |   | **29,620**    | ** **    | 49,274     |       | 30,428    |   |
| Eliminations            |   | **(3,414**    | **)**         | (1,159     | )          | (687      | )      |
|                    |   | **$**         | **175,966**   | ** ** | $          | 190,768   |   | $      | 234,209   |   |
| ASSETS:                 |   | ** **    | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **1,174,569** | ** ** | $          | 1,297,789 |   | $      | 1,446,514 |   |
| Power  Products         |   | **1,148,279** | ** **    | 877,933    |       | 391,121   |   |
| Eliminations            |   | **(378,648**  | **)**         | (176,754   | )          | (200,482  | )      |
|                    |   | **$**         | **1,944,200** | ** ** | $          | 1,998,968 |   | $      | 1,637,153 |   |
| CAPITAL EXPENDITURES:   |   | ** **    | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **54,208**    | ** ** | $          | 67,802    |   | $      | 47,444    |   |
| Power  Products         |   | **15,310**    | ** **    | 18,273     |       | 5,518     |   |
|                    |   | **$**         | **69,518**    | ** ** | $          | 86,075    |   | $      | 52,962    |   |
|                         |        |               |               |            |            |           |        |        |           |        |      |        |        |  |  |  |

 

32

 

**Notes . ...**

 
|                              |   | ** ** | **2006**   | ** ** |   |   | 2005   |   |   |   | 2004 |   |   |
|-----------------------------------|--------|------------|------------|------------|--------|--------|--------|--------|--------|--------|------|--------|--------|
| DEPRECIATION  & AMORTIZATION: |   | ** ** |       |       |   |   |   |
| Engines                           |   | **$**      | **59,053** |       | $      | 59,069 |   | $      | 63,454 |   |
| Power  Products                   |   | **18,181** |       | 13,724     |   | 3,154  |   |
|                              |   | **$**      | **77,234** |       | $      | 72,793 |   | $      | 66,608 |   |
|                                   |        |            |            |            |        |        |        |        |        |        |      |        |        |  |  |  |

 

Information regarding theCompany’s geographic sales by the location in which the sale originated is as follows(in thousands):

 
|                |   | ** **  | **2006**      | ** ** |   |      | 2005   |   |      |   | 2004 |   |   |
|---------------------|--------|-------------|---------------|------------|--------|-----------|--------|--------|-----------|--------|------|--------|--------|
| United States       |   | **$**       | **2,353,010** |       | $      | 2,481,374 |   | $      | 1,795,128 |   |
| All Other Countries |   | **189,161** |          | 173,501    |   | 152,236   |   |
| Total               |   | **$**       | **2,542,171** |       | $      | 2,654,875 |   | $      | 1,947,364 |   |
|                     |        |             |               |            |        |           |        |        |           |        |      |        |        |  |  |  |

 

TheCompany has no material long lived assets in an individual foreign country.

 

Salesto the following customers in the Company’s Engine Segment amount to greaterthan or equal to 9% of consolidated net sales, respectively:

 
|      |   | **2006**    |           |       |       | 2005       |       |       |   | 2004    |       |   |   |
|-----------|--------|-------------|----------------|------------|------------|------------|------------|------------|--------|---------|------------|--------|--------|
| Customer: |   | ** **  | **Net  Sales** |       | ** ** | **%**      | ** ** | ** ** |   |    | Net  Sales |   |   | % |   |   |   |   | Net  Sales |   |   | % |   |   |
| HOP       |   | **$**       | **407,964**    | ** ** |       | **16%**    | ** ** |       | $      | 374,941 |       |   | 14%    |   |   | $ | 318,705 |   |   | 16% |   |
| MTD       |   | **217,339** | ** **     |       | **9%**     | ** ** |       | 316,911    |   |    | 12%        |   |   | 334,748 |   |   | 17% |   |
|      |   | **$**       | **625,303**    | ** ** |       | **25%**    | ** ** |       | $      | 691,852 |       |   | 26%    |   |   | $ | 653,453 |   |   | 33% |   |
|           |        |             |                |            |            |            |            |            |        |         |            |        |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(7) Leases:**

The Company leases certainfacilities, vehicles, and equipment under both capital and operating leases.Assets held under capital leases are included in Plant and Equipment and arecharged to depreciation and interest over the life of the lease. Relatedliabilities are included in Other Accrued Liabilities and Other Long-TermLiabilities. Operating leases are not capitalized and lease payments areexpensed over the life of the lease. Terms of the leases, including purchaseoptions, renewals, and maintenance costs, vary by lease. Rental expense forfiscal 2006, 2005 and 2004 was $18.9 million, $16.1 million and $10.2 million,respectively.

 

Future minimum leasecommitments for all non-cancelable leases as of July 2, 2006 are as follows (inthousands):

 
| Fiscal Year                                     |   |   |   | Operating |   | Capital |   |
|-------------------------------------------------|--------|--------|--------|-----------|--------|---------|--------|
| 2007                                            |   | $      | 13,716 |      | $      | 686     |   |
| 2008                                            |   | 10,624 |   | 854       |   |
| 2009                                            |   | 8,053  |   | -         |   |
| 2010                                            |   | 6,730  |   | -         |   |
| 2011                                            |   | 4,365  |   | -         |   |
| Thereafter                                      |   | 5,986  |   | -         |   |
| Total future minimum lease commitments          |   | $      | 49,474 |      | 1,540  |    |
| Less: Interest                                  |   |   |   | (155      | )      |
| Present value of minimum capital lease payments |   |   |   | $         | 1,385  |    |

 

**(8)Indebtedness:**

On August 8, 2006, theCompany amended its unsecured five-year $350 million revolving credit facility(the credit facility) that expires in May 2009 to allow a repurchase of itscommon stock for aggregate consideration not to exceed $120 million during theperiod from August 10, 2006 through February 8, 2008. There were no borrowingsunder the credit facility as of July 2, 2006 or July 3, 2005.

 

33

 

**Notes . ...**

 

Borrowings under the creditfacility by the Company bear interest at a rate per annum equal to, at its option,either:

 

(1) a 1, 2, 3 or 6 monthLIBOR rate plus a margin varying from 0.50% to 2.00%, depending upon the ratingof the Company’s long-term debt by Standard & Poor’s Rating group, adivision of McGraw-Hill Companies (S&P) and Moody’s Investors Service, Inc.(Moody’s); or

 

(2) the higher of (a) thefederal funds rate plus 0.50% or (b) the bank’s prime rate.

 

In addition, the Company issubject to a 0.10% to 0.375% commitment fee and a 0.50% to 2.00% letter ofcredit fee, depending on the Company’s long-term credit ratings.

 

The lines of creditavailable to the Company in foreign countries are in connection with short-termborrowings and bank overdrafts used in the normal course of business. These amountstotal $14.8 million, expire at various times through November 2006 and arerenewable. None of these arrangements had material commitment fees orcompensating balance requirements. Borrowings using these lines of credit areincluded in short-term debt. Outstanding balances are as follows (inthousands):

 
|                                               |   | ** ** | **2006**  | ** ** |   |   | 2005   |   |   |
|----------------------------------------------------|--------|------------|-----------|------------|--------|--------|--------|--------|--------|
| Balance at  Fiscal Year-End                        |   | **$**      | **3,474** |       | $      | 443    |   |
| Weighted  Average Interest Rate at Fiscal Year-End |   | **6.38%**  |      | 5.93%      |   |
|                                                    |        |            |           |            |        |        |        |        |        |  |  |

 

TheLong-Term Debt caption consists of the following (in thousands):

 
|                                                                                             |   | ** **  | **2006**    | ** ** |   |    | 2005   |   |   |
|--------------------------------------------------------------------------------------------------|--------|-------------|-------------|------------|--------|---------|--------|--------|--------|
|                                                                                             |   | ** **  |        |       |   |
| 7.25% Senior  Notes Due 2007, Net of Unamortized Discount of $202 in 2006 and $411 in  2005      |   | **$**       | **80,973**  |       | $      | 89,589  |   |
| 8.875%  Senior Notes Due 2011, Net of Unamortized Discount of $2,649 in 2006 and  $3,268 in 2005 |   | **267,351** |        | 271,732    |   |
| Variable  Rate Term Notes Due 2008                                                               |   | **35,000**  |        | 125,000    |   |
| Total  Long-Term Debt                                                                            |   | **$**       | **383,324** |       | $      | 486,321 |   |
|                                                                                                  |        |             |             |            |        |         |        |        |        |  |  |

 

On August 8, 2006, theCompany amended its unsecured three-year $125 million term loan agreement (theterm loan) that expires on February 11, 2008 to allow a repurchase of itscommon stock for aggregate consideration not to exceed $120 million during theperiod from August 10, 2006 through February 8, 2008. The Company prepaid $90million of the term loan in the fourth quarter of fiscal 2006. The Company isrequired to repay the aggregate principal balance of the term loan on February11, 2008 (maturity date). 

 

Borrowings under the termloan by the Company bear interest at a rate per annum equal to, at its option,either:

 

(1) a 1, 2, 3 or 6 monthLIBOR rate plus a margin varying from 0.50% to 1.75%, depending upon the ratingof the Company’s long-term debt by S&P and Moody’s; or

 

(2) the higher of (a) thefederal funds rate plus 0.50% or (b) the bank’s prime rate.

 

In May 2001, the Company issued$275 million of 8.875% Senior Notes due March 15, 2011. No principal paymentsare due before the maturity date; however, the Company repurchased $5.0 millionof the bonds in the second quarter of fiscal year 2006 after receivingunsolicited offers from bondholders.

 

In May 1997, the Companyissued $100 million of 7.25% Senior Notes due September 15, 2007. No principalpayments are due before the maturity date; however, the Company repurchased$10.0 million of the bonds in the fourth quarter of fiscal year 2002 and $8.825million in the fourth quarter of fiscal year 2006 after receiving unsolicitedoffers from bondholders.

 

The separate indenturesprovided for the 7.25% Senior Notes and the 8.875% Senior Notes and the CreditAgreements for the term loan and the credit facility (collectively, the “DomesticIndebtedness”) each include a number of financial and operating restrictions.These covenants include restrictions on the Company’s ability to: paydividends; repurchase shares; incur indebtedness; create liens; enter into saleand leaseback

 

34

 

**Notes . ...**

 

transactions; consolidate,merge, sell or lease all or substantially all of its assets; and dispose ofassets or the proceeds of sales of its assets. The credit facility containsfinancial covenants that require the Company to maintain a minimum interestcoverage ratio and net worth (as of fiscal year end 2006 the Company wasrequired to maintain a minimum net worth of $685.4 million) and impose a maximumleverage ratio. As of July 2, 2006, the Company was in compliance with thesecovenants.

 

Additionally, under theterms of the indentures and Credit Agreements governing the DomesticIndebtedness, BSPPG and its wholly owned subsidiary, Simplicity became jointand several guarantors of amounts outstanding under the Domestic Indebtedness.Refer to Note 16 of the Notes to Consolidated Financial Statements forsubsidiary guarantor financial information.

 

**(9) OtherIncome:**

The components of otherincome (expense) are as follows (in thousands):

 
|                                               | ** ** | ** ** | **2006**   | ** ** |   |   | 2005   |   |   |   | 2004 |   |   |
|----------------------------------------------------|------------|------------|------------|------------|--------|--------|--------|--------|--------|--------|------|--------|--------|
| Interest  Income                                   | ** ** | **$**      | **2,856**  |       | $      | 1,155  |   | $      | 2,970  |   |
| Income on  Preferred Stock                         | ** ** | **12,000** |       | 12,492     |   | 2,293  |   |
| Equity in  Earnings from Unconsolidated Affiliates | ** ** | **4,174**  |       | 5,289      |   | 5,583  |   |
| Deferred  Financing Costs                          | ** ** | **(1,708** | **)**      | (1,233     | )      | (3,778 | )      |
| Other Items                                        | ** ** | **1,169**  |       | 2,727      |   | 1,392  |   |
| Total                                              | ** ** | **$**      | **18,491** |       | $      | 20,430 |   | $      | 8,460  |   |
|                                                    |            |            |            |            |        |        |        |        |        |        |      |        |        |  |  |  |

 

**(10)Commitments and Contingencies:**

Product and generalliability claims arise against the Company from time to time in the ordinary courseof business. The Company is generally self-insured for claims up to $2.0million per claim. Accordingly, a reserve is maintained for the estimated costsof such claims. On July 2, 2006 and July 3, 2005 the reserve for product andgeneral liability claims (which includes asbestos-related liabilities) was $7.3million and $8.0 million, respectively. Because there is inherent uncertaintyas to the eventual resolution of unsettled claims, no reasonable range ofpossible losses can be determined. Management does not anticipate that theseclaims, excluding the impact of insurance proceeds and reserves, will have amaterial adverse effect on the financial condition or results of operations ofthe Company.

 

In October 1998, the Companyjoined seventeen other companies in guaranteeing a $17.9 million letter ofcredit issued as a guarantee of certain City of Milwaukee Revenue Bonds used todevelop a residential rental property. The Revenue Bonds were issued on behalfof a not-for-profit organization established to manage the project and rentalproperty post construction. The revenues from the rental property are used tofund operating expenses and all debt service requirements. The Company’s shareof the guarantee and the maximum exposure to the Company under the agreement is$1.8 million. The letter of credit and underlying guarantee expires August 15,2008. Management believes the likelihood is remote that material payments willbe required under this guarantee. Accordingly, no liability has been reflectedin the accompanying Consolidated Balance Sheets related to this item.

 

Certain independent dealersand distributors finance inventory purchases through a third party financingcompany. Briggs & Stratton has indemnified the third party finance companyagainst credit default. The Company’s maximum exposure under this agreement dueto customer credit default in a fiscal year is $1.6 million. In fiscal 2006 andfiscal 2005, the third party financing company provided financing for $294.4million and $339.4 million of Briggs & Stratton product, respectively. Asof July 2, 2006 and July 3, 2005 there were $180.3 million and $187.9 millionin receivables outstanding under this arrangement. Briggs & Stratton madeno payments under this indemnity in fiscal 2006 and fiscal 2005.

 

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 Judicial Circuit, St. Clair County, IL)) against the Companyand other defendants alleging that the horsepower labels on the products theypurchased were inaccurate. The plaintiffs have amended their complaint severaltimes and currently seek an injunction, compensatory and punitive damages, andattorneys’ fees under various federal and state

 

35

 

**Notes . ...**

 

laws including the RacketeerInfluenced and Corrupt Organization Act on behalf of all persons in the UnitedStates who, beginning January 1, 1994 through the present, purchased alawnmower containing a two-stroke or four-stroke gasoline combustion engine upto 30 horsepower that was manufactured by the defendants. On May 31, 2006, thedefendants removed the case to the U.S. District Court for the Southern Districtof Illinois (No. 06-412-DRH). The defendants subsequently filed crossclaimsagainst each other for indemnification and contribution, and filed a motion todismiss the amended complaint. Although it is not possible to predict withcertainty the outcome of these unresolved legal actions or the range ofpossible loss, Briggs & Stratton believes these unresolved legal actionswill not have a material effect on its financial position.

 

The Company has no materialcommitments for materials or capital expenditures as of July 2, 2006.

 

**(11) StockIncentives:**

Effective October 20, 2004,Briggs & Stratton adopted an Incentive Compensation Plan under which4,000,000 shares of common stock(8,000,000 shares as a result of the 2-for-1 stock split) were reserved for futureissuance. Briggs & Stratton previously had a Stock Incentive Plan underwhich 5,361,935 shares of common stock were reserved for issuance. The adoptionof the Incentive Compensation Plan reduced the number of shares available forfuture issuance under the Stock Incentive Plan to zero. However, as of July 2,2006, there were 2,663,310 outstanding option and restricted stock awardsgranted under the Stock Incentive Plan that are or may become exercisable inthe future. In accordance with both plans, Briggs & Stratton can issueeligible employees stock options, stock appreciation rights, restricted stock,deferred stock and cash bonus awards subject to certain annual limitations. Theplans also allow Briggs & Stratton to issue directors non-qualified stockoptions and directors’ fees in stock.

 

Effective July 4, 2005,Briggs & Stratton’s stock based compensation plans are accounted for underStatement of FinancialAccounting Standards (“SFAS”) No. 123(R), “Share Based Payment” using themodified prospective method. During the year ended July 2, 2006, Briggs &Stratton recognized stock based compensation expense of approximately $10.0million. Prior to July 4, 2005, the plans were accounted for according toAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees.” Thus, no compensation cost was recognized prior to fiscal 2006. Hadcompensation cost for the plans been determined consistent with SFAS No.123(R), Briggs & Stratton’s net income and earnings per share would havebeen reduced to the following pro forma amounts for the fiscal years ended July3, 2005 and June 27, 2004 (in thousands, except per share data):

 
|                                                                                                          |   |    | 2005    |    |   |    | 2004   |   |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------|---------|---------|--------|---------|--------|--------|--------|
| Net income  as reported (in thousands)                                                                        |   | $       | 136,567 |    | $      | 136,114 |   |
| Basic EPS:                                                                                                    |   |    |    |    |   |
| Deduct employee  compensation expense determined under a fair value based  method, net of related tax effects |   | (5,837  | )       | (3,528  | )      |
| Income Available to Common Stockholders:                                                                      |   | 130,730 |    | 132,586 |   |
| Diluted EPS:                                                                                                  |   |    |    |    |   |
| Add  reduction in interest expense related to convertible debt                                                |   | -       |    | 4,053   |   |
| Income Available to Common Stockholders:                                                                      |   | $       | 130,730 |    | $      | 136,639 |   |
|                                                                                                          |   |    |    |    |   |
| Basic  Earnings Per Share:*                                                                                   |   |    |    |    |   |
| As Reported                                                                                                   |   | $       | 2.65    |    | $      | 3.01    |   |
| Pro Forma                                                                                                     |   | $       | 2.54    |    | $      | 2.93    |   |
| Diluted  Earnings Per Share:*                                                                                 |   |    |    |    |   |
| As Reported                                                                                                   |   | $       | 2.63    |    | $      | 2.77    |   |
| Pro Forma                                                                                                     |   | $       | 2.52    |    | $      | 2.70    |   |
|                                                                                                               |        |         |         |         |        |         |        |        |        |  |  |

 

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

 

36

 

**Notes . ...**

 

On the grant date, theexercise price of each stock option issued exceeds the market value of thestock. The fair value of each option is estimated using the Black-Scholesoption pricing model, and the assumptions are based on historical data andstandard industry valuation practices and methodology. The assumptions used todetermine fair value are as follows:

 
|                                                                                                                           |   | ** ** | **2006** | ** ** |   |   | 2005   |   |   |   | 2004 |   |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------|----------|------------|--------|--------|--------|--------|--------|--------|------|--------|--------|
| Options Granted During Grant Date Fair Value*                                                                                  |   | **$**      | **7.37** |       | $      | 12.12  |   | $      | 9.98   |   |
| (Since options are only granted once per year, the  grant date fair value equals the  weighted average grant date fair value.) |   | ** ** |     |       |   |   |   |
| Assumptions:                                                                                                                   |   | ** ** |     |       |   |   |   |
| Risk-free Interest Rate                                                                                                        |   | **4.3%**   |     | 4.2%       |   | 4.6%   |   |
| Expected Volatility                                                                                                            |   | **25.1%**  |     | 28.4%      |   | 33.1%  |   |
| Expected Dividend Yield                                                                                                        |   | **1.9%**   |     | 1.9%       |   | 2.3%   |   |
| Expected Term (In Years)                                                                                                       |   | **5.0**    |     | 10.0       |   | 10.0   |   |
|                                                                                                                                |        |            |          |            |        |        |        |        |        |        |      |        |        |  |  |  |

 

Informationon the options outstanding is as follows:

 
|                           |       |          |       |              |       | Wtd.  Avg.  |       | Aggregate  |       |
|--------------------------------|------------|---------------|------------|-------------------|------------|-------------|------------|------------|------------|
|                           |       |          |       |              |       | Remaining   |       | Intrinsic  |       |
|                           |       |          |       | Wtd.  Avg.        |       | Contractual |       | Value      |       |
|                           |       | Shares*       |       | Ex.  Price        |       |        | Term       |       |       | (in  thousands) |   |
| Balance,  June 29, 2003        |       | 3,351,580     |       | $                 | 26.70      |        |       |       |       |   |   |
|                           |       |          |       |              |       |        |       |       |       |
| Granted  During the Year       |       | 876,100       |       | 30.44             |       |        |       |       |       |   |
| Exercised  During the Year     |       | (1,723,390)   |       | 26.29             |       |        |       |       |       |   |
| Expired  During the Year       |       | (6,000)       |       | 37.27             |       |        |       |       |       |   |
| Balance,  June 27, 2004        |       | 2,498,290     |       | $                 | 28.27      |        |       |       |       |   |   |
|                           |       |          |       |              |       |        |       |       |       |
| Granted  During the Year       |       | 1,149,340     |       | 36.68             |       |        |       |       |       |   |
| Exercised  During the Year     |       | (622,262)     |       | 32.67             |       |        |       |       |       |   |
| Expired  During the Year       |       | (18,200)      |       | 37.27             |       |        |       |       |       |   |
| **Balance,  July 3, 2005**     | ** ** | **3,007,168** | ** ** | **$**             | **30.52**  | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Granted  During the Year**   | ** ** | **355,123**   | ** ** | **38.83**         | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Exercised  During the Year** | ** ** | **(418,858)** | ** ** | **26.92**         | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Expired  During the Year**   | ** ** | **-**         | ** ** | **-  ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Balance,  July 2, 2006**     | ** ** | **2,943,433** | ** ** | **$**             | **32.05**  | ** **  | ** ** | **5.90**   | ** ** | **$5,985** | ** ** |
| **Exercisable,  July 2, 2006** | ** ** | **750,920**   | ** ** | **$**             | **23.81**  | ** **  | ** ** | **2.32**   | ** ** | **$5,477** | ** ** |
|                                |            |               |            |                   |            |             |            |            |            |  |  |  |  |

 

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

 

37

 

**Notes . ...**

 

The total intrinsic value ofoptions exercised during the fiscal years ended 2006, 2005 and 2004, was $3.4million, $3.3 million and $11.2 million, respectively, and the total fair valueof options exercised during fiscal 2006 was $14.7 million. The exercise ofoptions resulted in cash receipts of $11.3 million, $20.0 million and $45.3million in fiscal 2006, 2005 and 2004, respectively.

 
| Grant Summary* |   |
|----------------|--------|
| Fiscal         |   | Grant |   | Date |   | Expiration |   | Exercise |   | Options |   |
|  Year     |   |   |   |   | Date |   |   | Exercisable |   |   | Date |   |   |   | Price |   |   | Outstanding |   |
| 2001           |   | 8-3-00 |   | 8-3-03 |   | 8-3-07 |   | $   23.11      |   | 141,208 |   |
| 2002           |   | 8-7-01 |   | 8-7-04 |   | 8-7-08 |   | 24.60 |   | 307,132 |   |
| 2003           |   | 8-13-02 |   | 8-13-05 |   | 8-13-09 |   | 23.35 |   | 302,580 |   |
| 2004           |   | 8-15-03 |   | 8-15-06 |   | 8-15-13 |   | 30.44 |   | 758,320 |   |
| 2005           |   | 8-13-04 |   | 8-13-07 |   | 8-13-14 |   | 36.68 |   | 1,079,070 |   |
| 2006           |   | 8-16-05 |   | 8-16-08 |   | 8-16-10 |   | 38.83 |   | 355,123 |   |
|                |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Below is a summary of thestatus of the Company’s nonvested shares as of July 2, 2006, and changes duringthe year then ended:

 
|                            |   | Deferred Stock |   | Restricted Stock |     | Stock Options                     |   |
|---------------------------------|--------|----------------|--------|------------------|----------|-----------------------------------|--------|
|                            |   |           | Shares |             |     | Wtd. Avg.  Grant Date

Fair Value |   |   | Shares |   |   | Wtd. Avg.  Grant Date

Fair Value |   |   | Shares |   |   | Wtd. Avg.  Grant Date

Fair Value |   |
| Nonvested  shares, July 3, 2005 |   | 1,000          |   |             |   $ | 34.25                             |   |   | 99,000 |   |   $ | 29.54 |   | 2,139,970 |   |   $ | 30.36 |   |
| Granted                         |   | 27,905         |   |             | 35.50    |                              |   | 42,574 |   | 34.99 |   | 355,123 |   | 34.96 |   |
| Cancelled                       |   | -              |   |             | -        |                              |   | (4,000 | ) | 34.25 |   | - |   |  - |   |
| Vested                          |   | -              |   |             | -        |                              |   | (10,000 | ) | 18.13 |   | (302,580 | ) | 18.88 |   |
| Nonvested  shares, July 2, 2006 |   | 28,905         |   |             | 35.45    |                              |   | 127,574 |   | 32.11 |   | 2,192,513 |   | 32.69 |   |
|                                 |        |                |        |                  |          |                                   |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of July 2, 2006, therewas $8.7 million of total unrecognized compensation cost related to nonvestedshare-based compensation. That cost is expected to be recognized over aweighted average period of 1.40 years. The total fair value of shares vested duringfiscal 2006 was $10.7 million.

 

Under the plans, the Companyhas issued restricted stock to certain employees. During fiscal years 2006,2005 and 2004, the Company has issued 42,574, 26,000 and 49,000* shares,respectively. The restricted stock vests on the fifth anniversary date of theissue provided the recipient is still employed by the Company. The aggregatemarket value on the date of issue of approximately $1.5 million, $1.0 millionand $1.5 million in fiscal 2006, 2005 and 2004, respectively, has been recordedas unearned compensation, a separate component of the Shareholders’ Investmentsection of the Consolidated Balance Sheets, and is being amortized over thefive-year vesting period.

 

Under the plans, the Companymay also issue stock to its directors in lieu of directors fees. The Companyhas issued 3,477, 3,463 and 5,250* shares in fiscal 2006, 2005 and 2004,respectively, under this provision of the plans.

 

Under the IncentiveCompensation Plan, the Company may also issue deferred stock to its officersand key employees. The Company has issued 27,905 and 1,000 shares in fiscal2006 and 2005, respectively, under this provision. The aggregate market valueon the date of issue was approximately $990,000 and $34,000, respectively.Expense is recognized ratably over the five-year vesting period.

 

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

 

 

38

 

**Notes . ...**

 

The following tablesummarizes the components of the Company’s stock-based compensation programsrecorded as expense:

 
|                                        |   | ** ** | **2006**   | ** ** | ** ** |   | 2005   |   |   |   | 2004   |   |   |
|---------------------------------------------|--------|------------|------------|------------|------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Stock Options:                              |   | ** ** | ** ** |       |       |   |   |
| Pretax  compensation expense                |   | **$**      | **8,252**  | ** ** | $          | 754    |   | $      | -      |   |   |
| Tax benefit                                 |   | **(2,707** | **)**      | (249       | )          | -      |   |   |
| Stock option  expense, net of tax           |   | **$**      | **5,545**  | ** ** | $          | 505    |   | $      | -      |   |   |
|                                        |   | ** ** | ** ** |       |       |   |   |
| Restricted Stock:                           |   | ** ** | ** ** |       |       |   |   |
| Pretax  compensation expense                |   | **$**      | **1,142**  | ** ** | $          | 511    |   | $      | 291    |   |
| Tax benefit                                 |   | **(374**   | **)**      | (169       | )          | (98    | )      |
| Restricted  stock expense, net of tax       |   | **$**      | **768**    | ** ** | $          | 342    |   | $      | 193    |   |
|                                        |   | ** ** | ** ** |       |       |   |   |
| Deferred Stock:                             |   | ** ** | ** ** |       |       |   |   |
| Pretax compensation  expense                |   | **$**      | **605**    | ** ** | $          | 3      |   | $      | -      |   |   |
| Tax benefit                                 |   | **(198**   | **)**      | (1         | )          | -      |   |   |
| Deferred  stock expense, net of tax         |   | **$**      | **407**    | ** ** | $          | 2      |   | $      | -      |   |   |
|                                        |   | ** ** | ** ** |       |       |   |   |
| Total Stock-Based Compensation:             |   | ** ** | ** ** |       |       |   |   |
| Pretax  compensation expense                |   | **$**      | **9,999**  | ** ** | $          | 1,268  |   | $      | 291    |   |
| Tax benefit                                 |   | **(3,279** | **)**      | (419       | )          | (98    | )      |
| Total  stock-based compensation, net of tax |   | **$**      | **6,720**  | ** ** | $          | 849    |   | $      | 193    |   |
|                                             |        |            |            |            |            |        |        |        |        |        |        |        |        |  |  |  |

 

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

 

**(12)Shareholder Rights Agreement:**

On August 6, 1996, the Boardof Directors declared a dividend distribution of one common stock purchaseright (a right) for each share of the Company’s common stock outstanding onAugust 19, 1996. Each right would entitle shareowners to buy one-half of oneshare of the Company’s common stock at an exercise price of $160.00 per fullcommon share ($80.00 per full common share after taking into consideration theeffect of a 2-for-1 stock split effective October 29, 2004), subject toadjustment. The rights agreement relating to the rights was amended by theBoard of Directors on August 9, 2006 to extend the term of the rights agreementby three years to October 18, 2009, to increase from 15 percent to 20 percentor more the percentage of outstanding shares that a person or group mustacquire or attempt to acquire in order for the rights to become exercisable,and to add a qualifying offer clause that permits shareholders to vote toredeem the rights in certain circumstances. Shareholders have the opportunityto ratify the rights agreement in an effort to determine the viewpoint ofshareholders on the advisability of the rights agreement at their annualmeeting scheduled for October 18, 2006. If the rights agreement is not ratifiedby shareholders as proposed, the Board of Directors of the Company intends toreevaluate the rights agreement and determine whether it believes the rightsagreement in its current form continues to be in the shareholders’ bestinterests. The Board may, as a result of such reevaluation and determination,terminate the rights agreement, modify the terms of the rights agreement orallow the rights agreement to remain in place without change, among otheractions.

 

**(13)Foreign Exchange Risk Management:**

The Company enters intoforward exchange contracts to hedge purchases and sales that are denominated inforeign currencies. The terms of these currency derivatives do not exceedtwelve months, and the purpose is to protect the Company from the risk that theeventual dollars being transferred will be adversely affected by changes in exchangerates.

 

The Company has forwardforeign currency exchange contracts to purchase Japanese yen. These contractsare used to hedge the commitments to purchase engines from the Company’sJapanese joint venture. The Company also has forward contracts to sell foreigncurrency. These contracts are used to hedge foreign currency collections onsales of inventory. The Company’s foreign currency forward contracts arecarried at fair value based on current exchange rates.

 

39

 

**Notes . ...**

 

The Company has thefollowing forward currency contracts outstanding at the end of fiscal 2006:

 
|              |   |     |     | In  Millions |   |         |   |        |   |
|-------------------|--------|----------|----------|--------------|--------|--------------|--------|-------------|--------|
| Hedge             |   | Notional |     | Contract     |   | Fair  Market |   | (Gain)/Loss |   | Conversion |   | Latest |   |
| Currency          |   |     | Contract |         | Value  |         | Value  |        | Value  |   | at  Fair Value |   | Currency |   | Expiration  Date |   |
| Japanese Yen      |   | Buy      |     | 1,650.0      |   |         | 14.4   |        |   | 14.6 |   |   | (.2 | ) |   | U.S. |   | January  2007 |   |
| Euro              |   | Sell     |     | 81.0         |   |         | 103.8  |        |   | 104.8 |   |   | 1.0 |   |   | U.S. |   | May  2007 |   |
| Australian Dollar |   | Sell     |     | 4.2          |   |         | 3.2    |        |   | 3.1 |   |   | (.1 | ) |   | U.S. |   | December  2006 |   |
|                   |        |          |          |              |        |              |        |             |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Company had thefollowing forward currency contracts outstanding at the end of fiscal 2005:

 
|              |   |     |     | In  Millions |   |         |   |        |   |
|-------------------|--------|----------|----------|--------------|--------|--------------|--------|-------------|--------|
| Hedge             |   | Notional |     | Contract     |   | Fair  Market |   | (Gain)/Loss |   | Conversion |   | Latest |   |
| Currency          |   |     | Contract |         | Value  |         | Value  |        | Value  |   | at  Fair Value |   | Currency |   | Expiration  Date |   |
| Japanese Yen      |   | Buy      |     | 2,550.0      |   |         | 24.4   |        |   | 23.2 |   |   | 1.2 |   |   | U.S. |   | June  2006 |   |
| Euro              |   | Sell     |     | 35.0         |   |         | 43.9   |        |   | 42.3 |   |   | (1.6 | ) |   | U.S. |   | June  2006 |   |
| Australian Dollar |   | Sell     |     | 2.4          |   |         | 1.8    |        |   | 1.8 |   |   | 0 |   |   | U.S. |   | May  2006 |   |
|                   |        |          |          |              |        |              |        |             |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Company continuouslyevaluates the effectiveness of its hedging program by evaluating its foreignexchange contracts compared to the anticipated underlying transactions. TheCompany did not have any ineffective hedges in fiscal 2006 or 2005.

 

40

 

**Notes . ...**

 

**(14)Employee Benefit Costs:**

 

Retirement Plan and OtherPostretirement Benefits

 

The Company hasnoncontributory, defined benefit retirement plans and other postretirementbenefit plans covering certain employees. The Company uses a June 30 measurementdate for all of its plans. The following provides a reconciliation ofobligations, plan assets and funded status of the plans for the two yearsindicated (in thousands):

 
| ** **                                         | ** ** | **Pension Benefits** | ** **    | **Other Postretirement Benefits** | ** ** |
|----------------------------------------------------|------------|----------------------|---------------|-----------------------------------|------------|
| ** **                                         | ** ** | ** **           | **2006**      | ** **                        | ** ** | ** ** | **2005** | ** ** | ** ** | ** ** | **2006** | ** ** | ** ** | ** ** | **2005** | ** ** | ** ** |
| Actuarial  Assumptions:                            |       |                 | ** **    | ** **                        |       |   | ** ** | ** ** |   |   |
| Discounted  Rate Used to Determine Present         |       | ** **           | ** **    |                              |       | ** ** | ** ** |   |   |
| Value of  Projected Benefit Obligation             |       | **6.35%**            | ** **    | 5.25%                             |       | **6.09%** | ** ** | 5.25% |   |
| Expected  Rate of Future Compensation              |       | ** **           | ** **    |                              |       | ** ** | ** ** |   |   |
| Level  Increases                                   |       | **3.0-5.0%**         | ** **    | 3.0-5.0%                          |       | **n/a** | ** ** | n/a |   |
| Expected Long-Term  Rate of Return on Plan  Assets |       | **8.75%**            | ** **    | 8.75%                             |       | **n/a** | ** ** | n/a |   |
| Change in Benefit Obligations:                     |       |                 | ** **    | ** **                        |       |   | ** ** | ** ** |   |   |
| Projected  Benefit Obligation at Beginning of Year |       | **$**                | **1,032,014** | ** **                        | $          | 902,325 |   | **$** | **305,091** | ** ** | $ | 243,457 |   |
| Service Cost                                       |       | **15,430**           | ** **    | 12,993                            |       | **3,031** | ** ** | 2,734 |   |
| Interest  Cost                                     |       | **52,595**           | ** **    | 54,448                            |       | **15,025** | ** ** | 16,703 |   |
| Plan  Amendments                                   |       | **3,881**            | ** **    | -                                 |       |   | **(6,970** | **)** | - |   |   |
| Acquisition                                        |       | **-**                | ** **    | ** **                        | -          |   |   | **-** | ** ** | ** ** | 36,665 |   |
| Plan  Participant Contributions                    |       | **-**                | ** **    | ** **                        | -          |   |   | **3,558** | ** ** | 3,730 |   |
| Actuarial  (Gain) Loss                             |       | **(88,200**          | **)**         | 124,756                           |       | **(13,551** | **)** | 31,744 |   |
| Benefits  Paid                                     |       | **(66,086**          | **)**         | (62,508                           | )          | **(29,232** | **)** | (29,942 | ) |
| Projected  Benefit Obligation at End of Year       |       | **$**                | **949,634**   | ** **                        | $          | 1,032,014 |   | **$** | **276,952** | ** ** | $ | 305,091 |   |
| Change in Plan Assets:                             |       |                 | ** **    | ** **                        |       |   | ** ** | ** ** |   |   |
| Fair Value  of Plan Assets at Beginning of Year    |       | **$**                | **917,443**   | ** **                        | $          | 916,280 |   | **$** | **-** | ** ** | ** ** | $ | - |   |   |
| Actual  Return on Plan Assets                      |       | **92,112**           | ** **    | 62,165                            |       | **-** | ** ** | ** ** | - |   |   |
| Plan  Participant Contributions                    |       | **-**                | ** **    | ** **                        | -          |   |   | **3,558** | ** ** | 3,730 |   |
| Employer  Contributions                            |       | **1,734**            | ** **    | 1,506                             |       | **25,674** | ** ** | 26,212 |   |
| Benefits Paid                                      |       | **(66,086**          | **)**         | (62,508                           | )          | **(29,232** | **)** | (29,942 | ) |
| Fair Value  of Plan Assets at End of Year          |       | **$**                | **945,203**   | ** **                        | $          | 917,443 |   | **$** | **-** | ** ** | ** ** | $ | - |   |   |
| Funded Status:                                     |       |                 | ** **    | ** **                        |       |   | ** ** | ** ** |   |   |
| Plan Assets  (Less Than) in Excess of Projected    |       | ** **           | ** **    |                              |       | ** ** | ** ** |   |   |
| Benefit  Obligation                                |       | **$**                | **(4,431**    | **)**                             | $          | (114,571 | ) | **$** | **(276,952** | **)** | $ | (305,091 | ) |
| Remaining  Unrecognized Net Obligation             |       | **57**               | ** **    | 65                                |       | **89** | ** ** | 135 |   |
| Unrecognized  Net Loss                             |       | **33,740**           | ** **    | 155,308                           |       | **157,711** | ** ** | 187,056 |   |
| Minimum  Pension Liability                         |       | **(4,192**           | **)**         | (113,185                          | )          | **-** | ** ** | ** ** | - |   |   |
| Unrecognized  Prior Service Cost                   |       | **23,628**           | ** **    | 23,039                            |       | **(6,362** | **)** | (22 | ) |
| Net Amount  Recognized at End of Year              |       | **$**                | **48,802**    | ** **                        | $          | (49,344 | ) | **$** | **(125,514** | **)** | $ | (117,922 | ) |
| Amounts Recognized on the Balance Sheets:          |       |                 | ** **    | ** **                        |       |   | ** ** | ** ** |   |   |
| Prepaid  Pension                                   |       | **$**                | **75,789**    | ** **                        | $          | - |   |   | **$** | **-** | ** ** | ** ** | $ | - |   |   |
| Accrued  Pension Cost                              |       | **(25,587**          | **)**         | (47,944                           | )          | **-** | ** ** | ** ** | - |   |   |
| Accrued  Wages and Salaries                        |       | **(1,400**           | **)**         | (1,400                            | )          | **-** | ** ** | ** ** | - |   |   |
| Accrued  Postretirement Health Care Obligation     |       | **-**                | ** **    | ** **                        | -          |   |   | **(84,136** | **)** | (77,607 | ) |
| Accrued  Liabilities                               |       | **-**                | ** **    | ** **                        | -          |   |   | **(26,000** | **)** | (26,000 | ) |
| Accrued  Employee Benefits                         |       | **-**                | ** **    | ** **                        | -          |   |   | **(15,378** | **)** | (14,315 | ) |
| Net Amount  Recognized at End of Year              |       | **$**                | **48,802**    | ** **                        | $          | (49,344 | ) | **$** | **(125,514** | **)** | $ | (117,922 | ) |
|                                                    |            |                      |               |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

41

 

**Notes . ...**

 

The accumulated benefitobligation for all defined benefit pension plans was $898 million and $967million at June 30, 2006 and 2005, respectively.

 

The following tablesummarizes the plans’ income and expense for the three years indicated (inthousands):

 
|                                          |   | Pension  Benefits |       | Other  Postretirement Benefits |       |
|-----------------------------------------------|--------|-------------------|------------|--------------------------------|------------|
|                                          |   | ** **        | **2006**   | ** **                     | ** ** |   | 2005 |   |   | ** ** | **2004** | ** ** | ** ** |   | 2006 |   |   |   | 2005 |   |   |   | 2004 |   |   |
| Components  of Net Periodic Expense (Income): |   |              | ** ** | ** **                     |       |   | ** ** | ** ** |   |   |   |   |   |   |
| Service Cost-Benefits Earned During the Year  |   | ** $**       | **15,430** | ** **                     |  $    | 12,993 |   |  $ | 13,188 | ** ** | ** $** | **3,031** |   |  $ | 2,734 |   |  $ | 1,673 |   |
| Interest Cost on Projected Benefit Obligation |   | **52,595**        | ** ** | 54,448                         |       | 51,089 | ** ** | **15,025** |   | 16,703 |   | 10,766 |   |
| Expected Return on Plan Assets                |   | **(68,988)**      | ** ** | (70,806)                       |       | (72,458) | ** ** | **-** |   | - |   | - |   |
| Amortization  of:                             |   | ** **        | ** ** |                           |       |   | ** ** | ** ** |   |   |   |   |   |
| Transition Obligation (Asset)                 |   | **8**             | ** ** | 8                              |       | 8 | ** ** | **46** |   | 46 |   | 46 |   |
| Prior Service Cost                            |   | **3,292**         | ** ** | 3,140                          |       | 3,080 | ** ** | **(629)** |   | 31 |   | 31 |   |
| Actuarial Loss (Gain)                         |   | **10,254**        | ** ** | 772                            |       | 607 | ** ** | **15,793** |   | 14,249 |   | 8,354 |   |
| Net Periodic Expense (Income)                 |   | ** $**       | **12,591** | ** **                     |  $    | 555 |   |  $ | (4,486) | ** ** | ** $** | **33,266** |   |  $ | 33,763 |   |  $ | 20,870 |   |
|                                               |        |                   |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Significant assumptions usedin determining net periodic benefit cost for the fiscal years indicated are asfollows:

 
|                           |   | Pension  Benefits |     | Other  Postretirement Benefits |   |
|--------------------------------|--------|-------------------|----------|--------------------------------|--------|
|                           |   | ** **        | **2006** | ** **                     |   |   | 2005 |   |   |   | 2004 |   |   | ** ** | **2006** | ** ** |   |   | 2005 |   |   |   | 2004 |   |   |
|                           |   | ** **        |     |                           |   |   |   | ** ** |   |   |   |   |   |
| Discount Rate                  |   | **5.25%**         |     | 6.25%                          |   | 6.0% |   | **5.25** | **%** |   | 6.25 | % |   | 6.0 | % |   |
| Expected Return on Plan Assets |   | **8.75%**         |     | 8.75%                          |   | 8.75% |   | **n/a** | ** ** |   | n/a |   |   | n/a |   |   |
| Compensation Increase Rate     |   | **3.0-5.0%**      |     | 3.0-5.0%                       |   | 3.0-5.0% |   | **n/a** | ** ** |   | n/a |   |   | n/a |   |   |
|                                |        |                   |          |                                |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

An additional pensionobligation is required when the accumulated benefit obligation exceeds the sumof the fair value of plan assets and the accrued pension expense. At July 2,2006, the Company’s additional pension obligation was $4.2 million, of which$2.2 million was included as a reduction in accumulated other comprehensiveincome, net of tax benefit of $1.4 million, and $0.5 million was included as anintangible asset as part of the other assets in the consolidated balance sheet.At July 3, 2005, the Company’s additional pension obligation was $113.2million, of which $55.0 million was included as a reduction in accumulatedother comprehensive income, net of tax benefit of $35.2 million, and $23.0million was included as an intangible asset as part of the other assets in theconsolidated balance sheet.

 

The “other postretirementbenefit” plans are essentially unfunded.

 

For measurement purposes a10% annual rate of increase in the per capita cost of covered health careclaims was assumed for Briggs & Stratton for the fiscal year 2006decreasing gradually to 5% for the fiscal year 2011. In fiscal 2005, Briggs& Stratton acquired the liabilities associated with the SimplicityPost-Retirement Benefit Plan covering certain Port Washington, Wisconsinemployees. For measurement purposes this plan assumes a 6.5% annual rate ofincrease in the per capita cost decreasing gradually to 5% for the fiscal year2009. The health care cost trend rate assumptions have a significant effect onthe amounts reported. An increase of one percentage point, would increase theaccumulated postretirement benefit by $14.5 million and would increase theservice and interest cost by $1.5 million for fiscal 2006. A correspondingdecrease of one percentage point, would decrease the accumulated postretirementbenefit by $13.5 million and decrease the service and interest cost by $1.3million for the fiscal year 2006.

 

Plan Assets

A Board of Directors appointedInvestment Committee (“Committee”) manages the investment of the pension planassets. The Committee has established and operates under an Investment Policy.It determines the asset allocation and target ranges based upon periodicasset/liability studies and capital market projections. The Committee retainsexternal investment managers to invest the assets. The Investment Policyprohibits certain investment transactions, such as lettered stock, commoditycontracts, margin transactions and short

 

42

 

**Notes . ...**

 

selling, unless theCommittee gives prior approval. Briggs & Stratton’s pension plansweighted-average asset allocations and target allocations at June 30, 2006, and2005, by asset category are as follows:

 
|                                |   |    |     | Plan Assets at Year-end |     |
|-------------------------------------|--------|---------|----------|-------------------------|----------|
| Asset  Category                     |   |    | Target % |                    | **2006** |   | 2005 |   |
| Domestic Bonds                      |   | 12%-30% |     | **14**                  | **%**    |   | 15 | % |   |
| Non-Investment Grade Bonds          |   | 0%-15%  |     | **8**                   | **%**    |   | 10 | % |   |
| Non-US Bonds                        |   | 0%-10%  |     | **5**                   | **%**    |   | 5 | % |   |
| Domestic Equities                   |   | 24%-46% |     | **38**                  | **%**    |   | 41 | % |   |
| Global & International Equities |   | 8%-22%  |     | **16**                  | **%**    |   | 15 | % |   |
| Alternative & Absolute Return   |   | 5%-25%  |     | **15**                  | **%**    |   | 9 | % |   |
| Real Estate                         |   | 4%-10%  |     | **4**                   | **%**    |   | 5 | % |   |
|                                |   |    |     | **100**                 | **%**    |   | 100 | % |   |
|                                     |        |         |          |                         |          |  |  |  |  |  |  |

 

The plan’s investmentstrategy is based on an expectation that, over time, equity securities willprovide higher total returns than debt securities. The plan primarily minimizesthe risk of large losses through diversification of investments by asset class,by investing in different types of styles within the classes and by using anumber of different managers. The Committee monitors the asset allocation andinvestment performance monthly, with a more comprehensive quarterly review withits consultant.

 

The plan’s expected returnon assets is based on management’s and the Committee’s expectations oflong-term average rates of return to be achieved by the plan’s investments.These expectations are based on the plan’s historical returns and expectedreturns for the asset classes in which the plan is invested.

 

Contributions

The Company is not requiredto make any contributions to the pension plans in fiscal 2007; however, theCompany expects to contribute $12 million as approved by the Board ofDirectors.

 

Estimated Future BenefitPayments

Projected benefit paymentsfrom the plans as of July 2, 2006 are estimated as follows (in thousands):

 
|        |   | Pension Benefits |      | Other Postretirement Benefits |          |
|-------------|--------|------------------|-----------|-------------------------------|---------------|
|        |   |             |      |                          |          | Retiree |   |   |   |   |   |
| Year Ending |   |             | Qualified |                          | Non-Qualified |   | Medical |   | Retiree Life |   |   | LTD |   |   |
| 2007        |   | $                | 62,227    |                          | $             | 1,627 |   |   $ | 26,577 |   |   $ | 1,228 |   | $ | 134 |   |
| 2008        |   | 63,119           |      | 1,610                         |          | 26,663 |   | 1,257 |   | 135 |   |
| 2009        |   | 64,112           |      | 1,594                         |          | 26,351 |   | 1,283 |   | 135 |   |
| 2010        |   | 65,146           |      | 2,147                         |          | 24,501 |   | 1,307 |   | 111 |   |
| 2011        |   | 65,869           |      | 2,117                         |          | 25,360 |   | 1,328 |   | 89 |   |
| 2012-2016   |   | 344,979          |      | 12,636                        |          | 103,538 |   | 6,888 |   | 173 |   |
|             |        |                  |           |                               |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Defined Contribution Plans

Employees of the Company mayparticipate in various defined contribution savings plans that allowparticipants to contribute a portion of their earnings in accordance with planspecifications. A maximum of 1-1/2% or 3% of each participant’s salary,depending upon the participant’s group, is matched by the Company. For certainemployees, this Company matching contribution is discretionary. The Companycontributions totaled $6.7 million in 2006, $5.7 million in 2005 and $4.6million in 2004.

 

Postemployment Benefits

The Company accrues theexpected cost of postemployment benefits over the years that the employeesrender service. These benefits are substantially smaller amounts because theyapply only to employees who permanently terminate employment prior to retirement.The items include disability payments, life insurance and medical benefits.These amounts are also discounted using an interest rate of 6.09% and 5.25% forfiscal

 

43

 

**Notes . ...**

 

year 2006 and 2005, respectively.Amounts are included in Accrued Employee Benefits in the Consolidated BalanceSheets.

 

**(15)Disclosures About Fair Value of Financial Instruments:**

The following methods andassumptions were used to estimate the fair value of each class of financialinstruments for which it is practicable to estimate that value:

 

Cash and Cash Equivalents,Receivables, Accounts Payable, Domestic Notes Payable, Foreign Loans, AccruedLiabilities and Income Taxes Payable: The carrying amounts approximate fair market value because of theshort maturity of these instruments.

 

Long-Term Debt: The fair market value of the Company’slong-term debt is estimated based on market quotations at year-end.

 

The estimated fair marketvalues of the Company’s Long-Term Debt is (in thousands):

 
|                          |   | **2006**     |        | 2005       |      |
|-------------------------------|--------|--------------|-------------|------------|-----------|
|                          |   | **Carrying** | ** **  | **Fair**   |      | Carrying |   | Fair |   |
|                          |   | **Amount**   | ** **  | ** ** | **Value** | ** ** |   | Amount |   |   | Value |   |   |
| Long-term Debt -              |   | ** **   | ** **  | ** ** |      |   |   |   |   |
| 7.25% Notes  Due 2007         |   | **$**        | **80,973**  | ** ** | **$**     | **83,672** |   | $ | 89,589 |   | $ | 95,209 |   |
| 8.875% Notes  Due 2011        |   | **$**        | **267,351** | ** ** | **$**     | **298,007** |   | $ | 271,732 |   | $ | 321,457 |   |
| Variable  Term Notes Due 2008 |   | **$**        | **35,000**  | ** ** | **$**     | **35,000** |   | $ | 125,000 |   | $ | 125,000 |   |
|                               |        |              |             |            |           |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(16)Separate Financial Information of Subsidiary Guarantors of Indebtedness**

In June of 1997, Briggs& Stratton issued $100 million of 7.25% senior notes, in May 2001, theCompany issued $275 million of 8.875% senior notes and in February 2005, theCompany issued $125 million of variable rate term notes. In addition, Briggs& Stratton has a $350 million revolving credit facility that expires in May2009 used to finance seasonal working capital needs.

 

Under the terms of Briggs& Stratton’s 8.875% senior notes, 7.25% senior notes, variable rate termnotes and revolving credit agreement, (collectively, the “DomesticIndebtedness”), BSPPG and its wholly owned subsidiary Simplicity Manufacturing,Inc., are joint and several guarantors of the Domestic Indebtedness (the“Guarantor”). The guarantees are full and unconditional guarantees.Additionally, if at any time a domestic subsidiary of Briggs & Strattonconstitutes a significant domestic subsidiary, then such domestic subsidiarywill also become a guarantor of the Domestic Indebtedness. Currently all of theDomestic Indebtedness is unsecured. If Briggs & Stratton were to fail tomake a payment of interest or principal on its due date, the Guarantor isobligated to pay the outstanding Domestic Indebtedness. Briggs & Strattonhad the following outstanding amounts related to the guaranteed debt (inthousands):

 
|                                            |   | July 2, 2006 |          |      |   |
|-------------------------------------------------|--------|--------------|---------------|-----------|--------|
|                                            |   | Carrying     |          | Maximum   |   |
|                                            |   | Amount       |          | Guarantee |   |
| 8.875% Senior Notes, due March 15, 2011         |   | $            | 267,351       |      | $      | 270,000 |   |
| Variable Rate Term Notes, due February 11, 2008 |   | $            | 35,000        |      | $      | 35,000 |   |
| 7.25% Senior Notes, due September 15, 2007      |   | $            | 80,973        |      | $      | 81,175 |   |
| Revolving Credit Facility, expiring May 2009    |   | $            | -   |      | $      | 350,000 |   |

 

44

 

**Notes . ...**

 

The following condensedsupplemental consolidating financial information reflects the summarizedfinancial information of Briggs & Stratton, its Guarantors andNon-Guarantor Subsidiaries (in thousands):

 
| **BALANCE SHEET:**          | ** ** | **Briggs & Stratton** | ** **      | **Guarantor** | ** **     | **Non-Guarantor** | ** **       | ** ** | ** **       | ** ** | ** **       |
|-----------------------------|------------|---------------------------|-----------------|---------------|----------------|-------------------|------------------|------------|------------------|------------|------------------|
| **As of July 2, 2006**      |       | ** **                | **Corporation** | ** **    | **Subsidiary** | ** **        | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Current Assets              |       |                      | $               | 536,849       |           |              |             | $          |  694,535    |       |             |   | $ |  191,913 |   |   | $ |  (391,645 | ) |   | $ |  1,031,652 |   |   |
| Investment in Subsidiary    |       |                      | 794,317         |          |           |              | -                |       |             |       | -                |   |   | (794,317 | ) |   | - |   |   |
| Noncurrent 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’ Equity   |       |                      | 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 |   |   |
|                        |       |                      |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |
| As of July 3, 2005          |       |                      |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |
| Current Assets              |       |                      | $               | 702,178       |           |              |             | $          |  424,473    |       |             |   | $ |  185,436 |   |   | $ |  (192,882 | ) |   | $ |  1,119,205 |   |   |
| Investment in Subsidiary    |       |                      | 770,539         |          |           |              | -                |       |             |       | -                |   |   | (770,539 | ) |   | - |   |   |
| Noncurrent Assets           |       |                      | 416,503         |          |           |              | 447,986          |       |             |       | 15,274           |   |   | - |   |   | 879,763 |   |   |
|                        |       |                      | $               | 1,889,220     |           |              |             | $          | 872,459          |       |             |   | $ | 200,710 |   |   | $ | (963,421 | ) |   | $ | 1,998,968 |   |   |
|                        |       |                      |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |
| Current Liabilities         |       |                      | $               | 328,914       |           |              |             | $          |  74,890     |       |             |   | $ |  130,483 |   |   | $ |  (181,619 | ) |   | $ |  352,668 |   |   |
| Long-Term Debt              |       |                      | 486,321         |          |           |              | -                |       |             |       | -                |   |   | - |   |   | 486,321 |   |   |
| Other Long-Term Obligations |       |                      | 173,536         |          |           |              | 96,974           |       |             |       | 283              |   |   | - |   |   | 270,793 |   |   |
| Shareholders’ Equity   |       |                      | 900,449         |          |           |              | 700,595          |       |             |       | 69,944           |   |   | (781,802 | ) |   | 889,186 |   |   |
|                        |       |                      | $               | 1,889,220     |           |              |             | $          | 872,459          |       |             |   | $ | 200,710 |   |   | $ | (963,421 | ) |   | $ | 1,998,968 |   |   |
|                             |            |                           |                 |               |                |                   |                  |            |                  |            |                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

45

 

**Notes . ...**

 
| **STATEMENT  OF EARNINGS:**                                | ** ** | **Briggs  & Stratton** | ** **      | **Guarantor** | ** ** | **Non-Guarantor** | ** **     | ** ** | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|----------------------------|-----------------|---------------|------------|-------------------|----------------|------------|------------|------------------|------------|
| **For the  Fiscal Year Ended July 2, 2006**                | ** ** | ** **                 | **Corporation** | ** **    | ** ** | ** **        | **Subsidiary** | ** ** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net Sales                                                  |       |                       | $               | 1,611,327     |       |              |           | $          | 1,160,175  |             |       |   | $ | 189,160 |   |   |   |   | $ | (418,491 | ) |   |   | $ | 2,542,171 |   |   |
| Cost of Goods Sold                                         |       |                       | 1,254,911       |          |       |              | 1,052,361      |       |       |             | 156,079    |   |   |   |   | (412,864 | ) |   |   | 2,050,487 |   |   |
| Gross Profit                                               |       |                       | 356,416         |          |       |              | 107,814        |       |       |             | 33,081     |   |   |   |   | (5,627 | ) |   |   | 491,684 |   |   |
| Engineering, Selling, General and Administrative  Expenses |       |                       | 201,926         |          |       |              | 81,852         |       |       |             | 31,940     |   |   |   |   | - |   |   |   | 315,718 |   |   |
| Income from Operations                                     |       |                       | 154,490         |          |       |              | 25,962         |       |       |             | 1,141      |   |   |   |   | (5,627 | ) |   |   | 175,966 |   |   |
| Interest Expense                                           |       |                       | (45,143         | )             |       |              | (52            | )          |       |             | (206       | ) |   |   |   | 3,310 |   |   |   | (42,091 | ) |   |
| Other Income (Expense), Net                                |       |                       | 31,977          |          |       |              | 4,761          |       |       |             | (919       | ) |   |   |   | (17,328 | ) |   |   | 18,491 |   |   |
| Income Before Provision for Income Taxes                   |       |                       | 141,324         |          |       |              | 30,671         |       |       |             | 16         |   |   |   |   | (19,645 | ) |   |   | 152,366 |   |   |
| Provision for Income Taxes                                 |       |                       | 46,354          |          |       |              | 10,123         |       |       |             | 919        |   |   |   |   | (7,376 | ) |   |   | 50,020 |   |   |
| Net Income (Loss)                                          |       |                       | $               | 94,970        |       |              |           | $          | 20,548     |             |       |   | $ | (903 | ) |   |   |   | $ | (12,269 | ) |   |   | $ | 102,346 |   |   |
|                                                       |       |                       |            |          |       |              |           |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| For the Fiscal Year Ended July 3, 2005                     |       |                       |            |          |       |              |           |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                  |       |                       | $               | 1,687,476     |       |              |           | $          | 1,240,377  |             |       |   | $ | 173,501 |   |   |   |   | $ | (446,479 | ) |   |   | $ | 2,654,875 |   |   |
| Cost of Goods Sold                                         |       |                       | 1,341,686       |          |       |              | 1,112,885      |       |       |             | 139,269    |   |   |   |   | (443,856 | ) |   |   | 2,149,984 |   |   |
| Gross Profit                                               |       |                       | 345,790         |          |       |              | 127,492        |       |       |             | 34,232     |   |   |   |   | (2,623 | ) |   |   | 504,891 |   |   |
| Engineering, Selling, General and Administrative  Expenses |       |                       | 200,086         |          |       |              | 80,888         |       |       |             | 33,149     |   |   |   |   | - |   |   |   | 314,123 |   |   |
| Income from Operations                                     |       |                       | 145,704         |          |       |              | 46,604         |       |       |             | 1,083      |   |   |   |   | (2,623 | ) |   |   | 190,768 |   |   |
| Interest Expense                                           |       |                       | (36,352         | )             |       |              | (31            | )          |       |             | (109       | ) |   |   |   | (391 | ) |   |   | (36,883 | ) |   |
| Other Income (Expense), Net                                |       |                       | 64,312          |          |       |              | 844            |       |       |             | 1,227      |   |   |   |   | (45,953 | ) |   |   | 20,430 |   |   |
| Income Before Provision for Income Taxes                   |       |                       | 173,664         |          |       |              | 47,417         |       |       |             | 2,201      |   |   |   |   | (48,967 | ) |   |   | 174,315 |   |   |
| Provision for Income Taxes                                 |       |                       | 59,046          |          |       |              | 18,099         |       |       |             | 2,352      |   |   |   |   | (21,949 | ) |   |   | 57,548 |   |   |
| Income Before Extraordinary Item                           |       |                       | 114,618         |          |       |              | 29,318         |       |       |             | (151       | ) |   |   |   | (27,018 | ) |   |   | 116,767 |   |   |
| Extraordinary Gain                                         |       |                       | -               |          |       |              | 19,800         |       |       |             | -          |   |   |   |   | - |   |   |   | 19,800 |   |   |
| Net Income (Loss)                                          |       |                       |  $         | 114,618       |       |              |           |  $    | 49,118     |             |       |   |  $ | (151 | ) |   |   |   | $ | (27,018 | ) |   |   | $ | 136,567 |   |   |
|                                                       |       |                       |            |          |       |              |           |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| For the Fiscal Year Ended June 27, 2004                    |       |                       |            |          |       |              |           |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                  |       |                       |  $         | 1,562,114     |       |              |           |  $    | 460,122    |             |       |   |  $ | 152,236 |   |   |   |   | $ | (227,108 | ) |   |   | $ | 1,947,364 |   |   |
| Cost of Goods Sold                                         |       |                       | 1,205,950       |          |       |              | 405,720        |       |       |             | 120,253    |   |   |   |   | (224,431 | ) |   |   | 1,507,492 |   |   |
| Gross Profit                                               |       |                       | 356,164         |          |       |              | 54,402         |       |       |             | 31,983     |   |   |   |   | (2,677 | ) |   |   | 439,872 |   |   |
| Engineering, Selling, General and Administrative  Expenses |       |                       | 155,830         |          |       |              | 24,029         |       |       |             | 25,804     |   |   |   |   | - |   |   |   | 205,663 |   |   |
| Income from Operations                                     |       |                       | 200,334         |          |       |              | 30,373         |       |       |             | 6,179      |   |   |   |   | (2,677 | ) |   |   | 234,209 |   |   |
| Interest Expense                                           |       |                       | (37,236         | )             |       |              | (2             | )          |       |             | (84        | ) |   |   |   | (343 | ) |   |   | (37,665 | ) |   |
| Other Income (Expense), Net                                |       |                       | 28,787          |          |       |              | (55            | )          |       |             | 983        |   |   |   |   | (21,255 | ) |   |   | 8,460 |   |   |
| Income Before Provision for Income Taxes                   |       |                       | 191,885         |          |       |              | 30,316         |       |       |             | 7,078      |   |   |   |   | (24,275 | ) |   |   | 205,004 |   |   |
| Provision for Income Taxes                                 |       |                       | 64,473          |          |       |              | 11,574         |       |       |             | 1,545      |   |   |   |   | (8,702 | ) |   |   | 68,890 |   |   |
| Net Income                                                 |       |                       |  $         | 127,412       |       |              |           |  $    | 18,742     |             |       |   |  $ | 5,533 |   |   |   |   | $ | (15,573 | ) |   |   | $ | 136,114 |   |   |
|                                                            |            |                            |                 |               |            |                   |                |            |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

46

 

**Notes . ...**

 
| **STATEMENT  OF CASH FLOWS:**                                                  | ** ** | **Briggs  & Stratton** | ** **      | **Guarantor** | ** **     | **Non-Guarantor** | ** **       | ** ** | ** **       | ** ** | ** **       |
|--------------------------------------------------------------------------------|------------|----------------------------|-----------------|---------------|----------------|-------------------|------------------|------------|------------------|------------|------------------|
| **For the  Fiscal Year Ended July 2, 2006**                                    |       | ** **                 | **Corporation** | ** **    | **Subsidiary** | ** **        | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                         |       |                       |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |   |   |
| Net Income (Loss)                                                              |       |                       |  $         | 94,970        |           |              |             |  $    | 20,548           |       |             |   |  $ | (903 | ) |   |   |   | $ | (12,269 | ) |   |   | $ | 102,346 |   |   |
| Adjustments to Reconcile Net Income to Net Cash  Provided by (Used by)         |       |                       |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |   |   |
| Operating Activities:                                                          |       |                       |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and Amortization                                                  |       |                       | 57,437          |          |           |              | 18,030           |       |             |       | 1,767            |   |   |   |   | - |   |   |   | 77,234 |   |   |
| Earnings of Unconsolidated Affiliates, Net of  Dividends                       |       |                       | (4,802          | )             |           |              | -                |       |             |       | 58               |   |   |   |   | 5,203 |   |   |   | 459 |   |   |
| (Gain) Loss on Disposition of Plant and Equipment                              |       |                       | (12,059         | )             |           |              | 584              |       |             |       | 336              |   |   |   |   | - |   |   |   | (11,139 | ) |   |
| Stock Compensation Expense                                                     |       |                       | 9,999           |          |           |              | -                |       |             |       | -                |   |   |   |   | - |   |   |   | 9,999 |   |   |
| Provision for Deferred Income Taxes                                            |       |                       | (11,477         | )             |           |              | 266              |       |             |       | 773              |   |   |   |   | - |   |   |   | (10,438 | ) |   |
| Change in Operating Assets and Liabilities:                                    |       |                       |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in Receivables                                             |       |                       | 93,660          |          |           |              | (225,177         | )          |             |       | 16,959           |   |   |   |   | 201,842 |   |   |   | 87,284 |   |   |
| (Increase) Decrease in Inventories                                             |       |                       | (58,310         | )             |           |              | (31,992          | )          |             |       | (5,932           | ) |   |   |   | 3,884 |   |   |   | (92,350 | ) |   |
| Decrease (Increase) in Prepaid Expenses and Other  Current Assets              |       |                       | 3,161           |          |           |              | (15,675          | )          |             |       | 212              |   |   |   |   | - |   |   |   | (12,302 | ) |   |
| (Decrease) Increase in Accounts Payable, Accrued  Liabilities and Income Taxes |       |                       | (26,673         | )             |           |              | 213,070          |       |             |       | 887              |   |   |   |   | (194,979 | ) |   |   | (7,695 | ) |   |
| Change in Accrued/Prepaid Pension                                              |       |                       | 10,813          |          |           |              | 34               |       |             |       | -                |   |   |   |   | - |   |   |   | 10,847 |   |   |
| Other, Net                                                                     |       |                       | 5,868           |          |           |              | (5,370           | )          |             |       | (136             | ) |   |   |   | 1 |   |   |   | 363 |   |   |
| Net Cash Provided by (Used by) Operating Activities                            |       |                       | 162,587         |          |           |              | (25,682          | )          |             |       | 14,021           |   |   |   |   | 3,682 |   |   |   | 154,608 |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                          |       |                       |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |   |   |
| Additions to Plant and Equipment                                               |       |                       | (50,084         | )             |           |              | (14,745          | )          |             |       | (4,689           | ) |   |   |   | - |   |   |   | (69,518 | ) |   |
| Proceeds Received on Disposition of Plant and  Equipment                       |       |                       | 11,420          |          |           |              | 51               |       |             |       | 47               |   |   |   |   | - |   |   |   | 11,518 |   |   |
| Cash Investment in Subsidiary                                                  |       |                       | (391            | )             |           |              | -                |       |             |       | 9                |   |   |   |   | 382 |   |   |   | - |   |   |
| Refund of Cash paid for Acquisition                                            |       |                       | -               |          |           |              | 6,347            |       |             |       | -                |   |   |   |   | - |   |   |   | 6,347 |   |   |
| Other, Net                                                                     |       |                       | (3,400          | )             |           |              | -                |       |             |       | -                |   |   |   |   | - |   |   |   | (3,400 | ) |   |
| Net Cash Used by Investing Activities                                          |       |                       | (42,455         | )             |           |              | (8,347           | )          |             |       | (4,633           | ) |   |   |   | 382 |   |   |   | (55,053 | ) |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                          |       |                       |            |          |           |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |   |   |
| Net (Repayments) Borrowings on Loans and Notes  Payable                        |       |                       | (33,977         | )             |           |              | 34,082           |       |             |       | 9,308            |   |   |   |   | (6,382 | ) |   |   | 3,031 |   |   |
| Net Repayment on Long-Term Debt                                                |       |                       | (103,826        | )             |           |              | -                |       |             |       | -                |   |   |   |   | - |   |   |   | (103,826 | ) |   |
| Cash Dividends Paid                                                            |       |                       | (45,278         | )             |           |              | -                |       |             |       | (2,701           | ) |   |   |   | 2,701 |   |   |   | (45,278 | ) |   |
| Capital Contributions Received                                                 |       |                       | -               |          |           |              | 383              |       |             |       | -                |   |   |   |   | (383 | ) |   |   | - |   |   |
| Stock Option Exercise Proceeds and Tax Benefits                                |       |                       | 12,457          |          |           |              | -                |       |             |       | -                |   |   |   |   | - |   |   |   | 12,457 |   |   |
| Treasury Stock Repurchases                                                     |       |                       | (34,919         | )             |           |              | -                |       |             |       | -                |   |   |   |   | - |   |   |   | (34,919 | ) |   |
| Net Cash (Used by) Provided by Financing Activities                            |       |                       | (205,543        | )             |           |              | 34,465           |       |             |       | 6,607            |   |   |   |   | (4,064 | ) |   |   | (168,535 | ) |   |
| EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS |       |                       | -               |          |           |              | -                |       |             |       | 2,498            |   |   |   |   | - |   |   |   | 2,498 |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                           |       |                       | (85,411         | )             |           |              | 436              |       |             |       | 18,493           |   |   |   |   | - |   |   |   | (66,482 | ) |   |
| Cash and Cash Equivalents, Beginning of Year                                   |       |                       | 143,034         |          |           |              | 6,376            |       |             |       | 12,163           |   |   |   |   | - |   |   |   | 161,573 |   |   |
| Cash and Cash Equivalents, End of Year                                         |       |                       |  $         | 57,623        |           |              |             |  $    | 6,812            |       |             |   |  $ | 30,656 |   |   |   |   | $ | - |   |   |   | $ | 95,091 |   |   |
|                                                                                |            |                            |                 |               |                |                   |                  |            |                  |            |                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

47

 

**Notes . ...**

 
| STATEMENT OF CASH  FLOWS:                                                                      |   | Briggs & Stratton |        | Guarantor |       | Non-Guarantor |         |    |         |   |         |
|------------------------------------------------------------------------------------------------|--------|-----------------------|-------------|-----------|------------|---------------|--------------|---------|--------------|--------|--------------|
| For the Fiscal Year  Ended July 3, 2005                                                        |   |                  | Corporation |      | Subsidiary |          | Subsidiaries |    | Eliminations |   | Consolidated |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                          |   |                  |        |      |       |          |         |    |         |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Net Income (Loss)                                                                              |   |                  |  $     | 114,618   |       |          |         |  $ | 49,118       |   |         |   | $ | (151 | ) |   |   |   | $ | (27,018 | ) |   |   | $ | 136,567 |   |   |
| Adjustments to Reconcile Net Income to Net Cash  Provided by (Used by)   Operating Activities: |   |                  |        |      |       |          |         |    |         |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Extraordinary Gain                                                                             |   |                  | -           |      |       |          | (19,800      | )       |         |   | -            |   |   |   |   | - |   |   |   | (19,800 | ) |   |
| Depreciation and Amortization                                                                  |   |                  | 58,071      |      |       |          | 13,693       |    |         |   | 1,029        |   |   |   |   | - |   |   |   | 72,793 |   |   |
| Earnings of Unconsolidated Affiliates, Net of  Dividends                                       |   |                  | (17,090     | )         |       |          | -            |    |         |   | (745         | ) |   |   |   | 18,513 |   |   |   | 678 |   |   |
| Loss (Gain) on Disposition of Plant and Equipment                                              |   |                  | 2,702       |      |       |          | 109          |    |         |   | (393         | ) |   |   |   | - |   |   |   | 2,418 |   |   |
| Stock Compensation Expense                                                                     |   |                  | 1,268       |      |       |          | -            |    |         |   | -            |   |   |   |   | - |   |   |   | 1,268 |   |   |
| Provision for Deferred Income Taxes                                                            |   |                  | (4,829      | )         |       |          | 2,790        |    |         |   | (1,857       | ) |   |   |   | - |   |   |   | (3,896 | ) |   |
| Change in Operating Assets and Liabilities, Net of  Effects of Acquisition:                    |   |                  |        |      |       |          |         |    |         |   |         |   |   |   |   |   |   |   |   |   |   |   |
| (Increase) Decrease in Receivables                                                             |   |                  | (91,296     | )         |       |          | 23,037       |    |         |   | 67,106       |   |   |   |   | (25,739 | ) |   |   | (26,892 | ) |   |
| (Increase) Decrease in Inventories                                                             |   |                  | (16,956     | )         |       |          | 34,470       |    |         |   | (6,740       | ) |   |   |   | 2,010 |   |   |   | 12,784 |   |   |
| (Increase) Decrease in Prepaid Expenses and Other  Current Assets                              |   |                  | (218        | )         |       |          | 4,184        |    |         |   | (1,316       | ) |   |   |   | - |   |   |   | 2,650 |   |   |
| (Decrease) Increase in Accounts Payable, Accrued  Liabilities and Income T axes                |   |                  | (30,142     | )         |       |          | 25,720       |    |         |   | (61,468      | ) |   |   |   | 38,217 |   |   |   | (27,673 | ) |   |
| Change in Accrued/Prepaid Pension                                                              |   |                  | (1,056      | )         |       |          | 6            |    |         |   | -            |   |   |   |   | - |   |   |   | (1,050 | ) |   |
| Other, Net                                                                                     |   |                  | 3,942       |      |       |          | (5,214       | )       |         |   | 29           |   |   |   |   | (46 | ) |   |   | (1,289 | ) |   |
| Net Cash Provided by (Used by) Operating Activities                                            |   |                  | 19,014      |      |       |          | 128,113      |    |         |   | (4,506       | ) |   |   |   | 5,937 |   |   |   | 148,558 |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                          |   |                  |        |      |       |          |         |    |         |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Additions to Plant and Equipment                                                               |   |                  | (60,117     | )         |       |          | (17,206      | )       |         |   | (8,752       | ) |   |   |   | - |   |   |   | (86,075 | ) |   |
| Proceeds Received on Disposition of Plant and  Equipment                                       |   |                  | 908         |      |       |          | 16           |    |         |   | 1,016        |   |   |   |   | - |   |   |   | 1,940 |   |   |
| Proceeds Received on Sale of Certain Assets of a  Subsidiary                                   |   |                  | -           |      |       |          | -            |    |         |   | 4,050        |   |   |   |   | - |   |   |   | 4,050 |   |   |
| Cash Investment in Subsidiary                                                                  |   |                  | (375,799    | )         |       |          | -            |    |         |   | (14,069      | ) |   |   |   | 389,868 |   |   |   | - |   |   |
| Cash Paid for Acquisitions, Net of Cash Acquired                                               |   |                  | (719        | )         |       |          | (337,713     | )       |         |   | (16,662      | ) |   |   |   | - |   |   |   | (355,094 | ) |   |
| Other, Net                                                                                     |   |                  | (1,500      | )         |       |          | -            |    |         |   | -            |   |   |   |   | - |   |   |   | (1,500 | ) |   |
| Net Cash Used by Investing Activities                                                          |   |                  | (437,227    | )         |       |          | (354,903     | )       |         |   | (34,417      | ) |   |   |   | 389,868 |   |   |   | (436,679 | ) |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                          |   |                  |        |      |       |          |         |    |         |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Net Borrowings (Repayments) on Loans and Notes  Payable                                        |   |                  | 125,289     |      |       |          | (125,434     | )       |         |   | 9,937        |   |   |   |   | (12,476 | ) |   |   | (2,684 | ) |   |
| Net Borrowings on Long-Term Debt                                                               |   |                  | 125,000     |      |       |          | -            |    |         |   | -            |   |   |   |   | - |   |   |   | 125,000 |   |   |
| Issuance Cost of Debt                                                                          |   |                  | (925        | )         |       |          | -            |    |         |   | -            |   |   |   |   | - |   |   |   | (925 | ) |   |
| Cash Dividends Paid                                                                            |   |                  | (35,065     | )         |       |          | -            |    |         |   | (6,539       | ) |   |   |   | 6,539 |   |   |   | (35,065 | ) |   |
| Capital Contributions Received                                                                 |   |                  | -           |      |       |          | 354,593      |    |         |   | 35,275       |   |   |   |   | (389,868 | ) |   |   | - |   |   |
| Proceeds from Exercise of Stock Options                                                        |   |                  | 20,139      |      |       |          | -            |    |         |   | -            |   |   |   |   | - |   |   |   | 20,139 |   |   |
| Net Cash Provided by Financing Activities                                                      |   |                  | 234,438     |      |       |          | 229,159      |    |         |   | 38,673       |   |   |   |   | (395,805 | ) |   |   | 106,465 |   |   |
| EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS                 |   |                  | -           |      |       |          | -            |    |         |   | 835          |   |   |   |   | - |   |   |   | 835 |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                           |   |                  | (183,775    | )         |       |          | 2,369        |    |         |   | 585          |   |   |   |   | - |   |   |   | (180,821 | ) |   |
| Cash and Cash Equivalents, Beginning of Year                                                   |   |                  | 326,809     |      |       |          | 4,007        |    |         |   | 11,578       |   |   |   |   | - |   |   |   | 342,394 |   |   |
| Cash and Cash  Equivalents, End of Year                                                        |   |                  |  $     | 143,034   |       |          |         |  $ | 6,376        |   |         |   |  $ | 12,163 |   |   |   |   | $ | - |   |   |   | $ | 161,573 |   |   |
|                                                                                                |        |                       |             |           |            |               |              |         |              |        |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

48

 

**Notes. . .**

 
| STATEMENT OF CASH FLOWS:                                                                     |   | Briggs & Stratton |    | Guarantor     |   | Non-Guarantor |       |         |   |         |     |
|----------------------------------------------------------------------------------------------|--------|-----------------------|---------|---------------|--------|---------------|------------|--------------|--------|--------------|----------|
| For the  Fiscal Year Ended June 27, 2004                                                     |   | Corporation           |    | Subsidiary    |   | Subsidiaries  |       | Eliminations |   | Consolidated |     |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                        |   |                  |    |          |   |          | ** ** |         |   |         |     |   |   |   |   |   |
| Net Income                                                                                   |   |                  | $       | 127,412       |   |          | $          | 18,742       |   |         | $        | 5,533 |   |   |   | $ | (15,573 | ) | $ | 136,114 |   |
| Adjustments to Reconcile Net Income to Net  Cash Provided by (Used by) Operating Activities: |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |
| Depreciation  and Amortization                                                               |   |                  | 62,705  |          |   |          | 3,154      |         |   |         | 749      |   |   |   |   | - |   |   | 66,608 |   |
| Earnings of  Unconsolidated Affiliates, Net of Dividends                                     |   |                  | (12,657 | )             |   |          | -          |         |   |         | (725     | ) |   |   |   | 9,898 |   |   | (3,484 | ) |
| Loss on  Disposition of Plant and Equipment                                                  |   |                  | 6,252   |          |   |          | 163        |         |   |         | 975      |   |   |   |   | - |   |   | 7,390 |   |
| Stock  Compensation Expense                                                                  |   |                  | 291     |          |   |          | -          |         |   |         | -        |   |   |   |   | - |   |   | 291 |   |
| Provision  for Deferred Income Taxes                                                         |   |                  | 5,604   |          |   |          | 7,196      |         |   |         | -        |   |   |   |   | - |   |   | 12,800 |   |
| Change in Operating Assets and Liabilities:                                                  |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| Increase in  Receivables                                                                     |   |                  | (34,485 | )             |   |          | (10,492    | )            |   |         | (132,053 | ) |   |   |   | 148,442 |   |   | (28,588 | ) |
| Increase in  Inventories                                                                     |   |                  | (61,003 | )             |   |          | (63,860    | )            |   |         | (5,475   | ) |   |   |   | 1,744 |   |   | (128,594 | ) |
| (Increase)  Decrease in Prepaid Expenses and Other Current Assets                            |   |                  | (76     | )             |   |          | 645        |         |   |         | 1,448    |   |   |   |   | - |   |   | 2,017 |   |
| Increase in  Accounts Payable, Accrued Liabilities and Income Taxes                          |   |                  | 24,386  |          |   |          | 2,144      |         |   |         | 108,539  |   |   |   |   | (130,373 | ) |   | 4,696 |   |
| Change in  Accrued/Prepaid Pension                                                           |   |                  | (6,022  | )             |   |          | (10        | )            |   |         | (38      | ) |   |   |   | - |   |   | (6,070 | ) |
| Other, Net                                                                                   |   |                  | (15,087 | )             |   |          | (160       | )            |   |         | 2,223    |   |   |   |   | - |   |   | (13,024 | ) |
| Net Cash  Provided by (Used by) Operating Activities                                         |   |                  | 97,320  |          |   |          | (42,478    | )            |   |         | (18,824  | ) |   |   |   | 14,138 |   |   | 50,156 |   |
|                                                                                         |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                        |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| Additions to  Plant and Equipment                                                            |   |                  | (43,526 | )             |   |          | (5,518     | )            |   |         | (3,918   | ) |   |   |   | - |   |   | (52,962 | ) |
| Proceeds  Received on Disposition of Plant and Equipment                                     |   |                  | 659     |          |   |          | 61         |         |   |         | -        |   |   |   |   | - |   |   | 720 |   |
| Refund of  Cash Paid for Acquisition                                                         |   |                  | 5,686   |          |   |          | -          |         |   |         | -        |   |   |   |   | - |   |   | 5,686 |   |
| Net Cash  Used by Investing Activities                                                       |   |                  | (37,181 | )             |   |          | (5,457     | )            |   |         | (3,918   | ) |   |   |   | - |   |   | (46,556 | ) |
|                                                                                         |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                        |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| Net  (Repayments) Borrowings on Loans and Notes Payable                                      |   |                  | (50,528 | )             |   |          | 51,042     |         |   |         | 17,740   |   |   |   |   | (18,067 | ) |   | 187 |   |
| Net  Repayments on Long-Term Debt                                                            |   |                  | (22     | )             |   |          | -          |         |   |         | -        |   |   |   |   | - |   |   | (22 | ) |
| Issuance  Cost of Debt                                                                       |   |                  | (1,789  | )             |   |          | -          |         |   |         | -        |   |   |   |   | - |   |   | (1,789 | ) |
| Cash  Dividends Paid                                                                         |   |                  | (30,408 | )             |   |          | -          |         |   |         | (3,929   | ) |   |   |   | 3,929 |   |   | (30,408 | ) |
| Proceeds  from Exercise of Stock Options                                                     |   |                  | 45,314  |          |   |          | -          |         |   |         | -        |   |   |   |   | - |   |   | 45,314 |   |
| Net Cash  (Used by) Provided by Financing Activities                                         |   |                  | (37,433 | )             |   |          | 51,042     |         |   |         | 13,811   |   |   |   |   | (14,138 | ) |   | 13,282 |   |
|                                                                                         |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| EFFECT OF  FOREIGN CURRENCY                                                                  |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| EXCHANGE RATE CHANGES ON CASH AND CASH  EQUIVALENTS                                          |   |                  | -       |          |   |          | (675       | )            |   |         | 1,372    |   |   |   |   | - |   |   | 697 |   |
|                                                                                         |   |                  |    |          |   |          |       |         |   |         |     |   |   |   |   |   |   |   |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                        |   |                  | 22,706  |          |   |          | 2,432      |         |   |         | (7,559   | ) |   |   |   | - |   |   | 17,579 |   |
| Cash and  Cash Equivalents, Beginning of Year                                                |   |                  | 304,103 |          |   |          | 1,575      |         |   |         | 19,137   |   |   |   |   | - |   |   | 324,815 |   |
| Cash and  Cash Equivalents, End of Year                                                      |   |                  | $       |  326,809 |   |          | $          | 4,007        |   |         | $        | 11,578 |   |   |   | $ | - |   | $ | 342,394 |   |
|                                                                                              |        |                       |         |               |        |               |            |              |        |              |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

49

 

**Notes . . .**

 

**(17)Reduction in Force**

 

Briggs & Strattonrecorded an expense of approximately $4.1 million associated with a worldwideemployee reduction during the year ended July 2, 2006. The amount recordedrepresents expected expenditures for severance and other related employeeseparation costs associated with the reduction. As of the year ended July 2,2006, a reserve of $0.4 million remained.

 

50

 

**Report of Independent RegisteredPublic Accounting Firm**

 

To the Board of Directorsand Shareholders of Briggs & Stratton Corporation:

 

We have completed integratedaudits of Briggs & Stratton Corporation’s fiscal years 2006 and 2005consolidated financial statements and of its internal control over financialreporting as of July 2, 2006 in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Our opinions, based on ouraudits, are presented below.

 

Consolidated financialstatements and financial statement schedule

 

In our opinion, theconsolidated financial statements listed in the index appearing under Item15(a)(1) present fairly, in all material respects, the financial position ofBriggs & Stratton Corporation and its subsidiaries at July 2, 2006 and July3, 2005, and the results of their operations and their cash flows for each ofthe two years in the period ended July 2, 2006 in conformity with accounting principlesgenerally accepted in the United States of America. In addition, in ouropinion, the financial statement schedule listed in the index appearing underItem 15(a)(2) presents fairly, in all material respects, the information setforth therein when read in conjunction with the related consolidated financialstatements. These financial statements and financial statement schedule are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and financial statement schedule based onour audits. We conducted our audits of these statements in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit of financial statements includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

As discussedin Note 11 to the consolidated financial statements, the Company changed itsmethod of accounting for stock-based compensation in 2006.

 

Internal control overfinancial reporting

 

Also, in our opinion,management’s assessment, included in the accompanying Management’s Report on InternalControl over Financial Reporting, that the Company maintained effectiveinternal control over financial reporting as of July 2, 2006 based on criteriaestablished in *Internal Control – IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO), is fairly stated, in all material respects, basedon those criteria. Furthermore, in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as ofJuly 2, 2006 based on criteria established in *InternalControl – Integrated Framework* issued by the COSO. The Company’smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting. Our responsibility is to express opinions onmanagement’s assessment and on the effectiveness of the Company’s internalcontrol over financial reporting based on our audit. We conducted our audit ofinternal control over financial reporting in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained inall material respects. An audit of internal control over financial reportingincludes obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother procedures as we consider necessary in the circumstances. We believe thatour audit provides a reasonable basis for our opinions.

 

A company’s internal controlover financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii)provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management anddirectors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of

 

51

 

**Report of Independent RegisteredPublic Accounting Firm**

 

unauthorized acquisition,use, or disposition of the company’s assets that could have a material effecton the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

**PricewaterhouseCoopersLLP**

Milwaukee, Wisconsin 

August 31, 2006

 

52

 

**Report of Independent RegisteredPublic Accounting Firm**

 

To the Shareholders of Briggs & Stratton Corporation:

 

We have audited the accompanyingconsolidated statements of earnings, shareholders’ investment and cash flows ofBriggs & Stratton Corporation (a Wisconsin Corporation) and subsidiariesfor the year ended June 27, 2004. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, theresults of operations of Briggs & Stratton Corporation and subsidiaries andtheir cash flows for the year ended June 27, 2004, in conformity with accountingprinciples generally accepted in the United States of America.

 

**Deloitte& Touche LLP**

 

Milwaukee, Wisconsin 

July 22, 2004

 

53

 

**QuarterlyFinancial Data, Dividend and Market Information (Unaudited)**

 
|             |       | In Thousands |        |
|------------------|------------|--------------|-------------|
| Quarter

Ended   |       | Net

Sales   |        | Gross

Profit |   | Income

(Loss) Before

Extraordinary Gain |   | Extraordinary

Gain |   | Net Income

(Loss) |   |
| **Fiscal  2006** |       |         |        |   |   |   |   |   |   |   |   |
| **September**    | ** ** | ** **   | **$**       | **511,709** | ** ** | ** ** | ** ** | **$** | **81,308** | ** ** | ** ** | **$** | **4,727** | ** ** | ** ** | ** ** | **$** | **-** | ** ** | ** ** | ** ** | **$** | **4,727** | ** ** | ** ** |
| **December**     | ** ** | ** **   | **574,313** | ** ** | ** ** | ** ** | **117,352** | ** ** | ** ** | **21,818** | ** ** | ** ** | ** ** | **-** | ** ** | ** ** | ** ** | **21,818** | ** ** | ** ** |
| **March**        | ** ** | ** **   | **800,194** | ** ** | ** ** | ** ** | **180,933** | ** ** | ** ** | **60,008** | ** ** | ** ** | ** ** | **-** | ** ** | ** ** | ** ** | **60,008** | ** ** | ** ** |
| **June**         | ** ** | ** **   | **655,955** | ** ** | ** ** | ** ** | **112,091** | ** ** | ** ** | **15,793** | ** ** | ** ** | ** ** | **-** | ** ** | ** ** | ** ** | **15,793** | ** ** | ** ** |
| **Total**        | ** ** | ** **   | **$**       | **2,542,171** | ** ** | ** ** | ** ** | **$** | **491,684** | ** ** | ** ** | **$** | **102,346** | ** ** | ** ** | ** ** | **$** | **-** | ** ** | ** ** | ** ** | **$** | **102,346** | ** ** | ** ** |
|             |       |         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fiscal 2005      |       |         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| September        |       |         | $           | 438,995 |   |   |   | $ | 70,818 |   |   | $ | (1,488 | ) |   |   | $ | - |   |   |   | $ | (1,488 | ) |   |
| December         |       |         | 503,700     |   |   |   | 106,142 |   |   | 7,060 |   |   |   | - |   |   |   | 7,060 |   |   |
| March            |       |         | 840,463     |   |   |   | 165,728 |   |   | 60,824 |   |   |   | 19,800 |   |   | 80,624 |   |   |
| June             |       |         | 871,717     |   |   |   | 162,203 |   |   | 50,371 |   |   |   | - |   |   |   | 50,371 |   |   |
| Total            |       |         | $           | 2,654,875 |   |   |   | $ | 504,891 |   |   | $ | 116,767 |   |   |   | $ | 19,800 |   |   | $ | 136,567 |   |   |

 
|            |       | Per Share of Common Stock |       |
|-----------------|------------|---------------------------|------------|
|            |       |                      |       |   |   |   |   |   |   | Market Price Range |   |
|            |       | Income                    |       |   |   | Net |   |   |   | on New York |   |
| Quarter         |       | (Loss) Before             |       | Extraordinary |   | Income |   | Dividends |   | Stock Exchange |   |
| Ended           |       | Extraordinary Gain        |       | Gain |   | (Loss) |   | Declared |   | High |   | Low |   |
| **Fiscal 2006** | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **September**   | ** ** | ** **                | **$**      | **.09** | ** ** | ** ** | ** ** | **$** | **-** | ** ** | ** ** | ** ** | **$** | **.09** | ** ** | ** ** | ** ** | **$** | **.22** | ** ** | ** ** | **$** | **37.99** | ** ** | ** ** | **$** | **33.25** | ** ** | ** ** |
| **December**    | ** ** | ** **                | **.42**    | ** ** | ** ** | ** ** | ** ** | **-** | ** ** | ** ** | ** ** | **.42** | ** ** | ** ** | ** ** | **.22** | ** ** | ** ** | **40.38** | ** ** | ** ** | **31.02** | ** ** | ** ** |
| **March**       | ** ** | ** **                | **1.16**   | ** ** | ** ** | ** ** | ** ** | **-** | ** ** | ** ** | ** ** | **1.16** | ** ** | ** ** | ** ** | **.22** | ** ** | ** ** | **40.21** | ** ** | ** ** | **33.40** | ** ** | ** ** |
| **June**        | ** ** | ** **                | **.31**    | ** ** | ** ** | ** ** | ** ** | **-** | ** ** | ** ** | ** ** | **.31** | ** ** | ** ** | ** ** | **.22** | ** ** | ** ** | **38.19** | ** ** | ** ** | **30.01** | ** ** | ** ** |
| **Total**       | ** ** | ** **                | **$**      | **1.98** | ** ** | ** ** | ** ** | **$** | **-** | ** ** | ** ** | ** ** | **$** | **1.98** | ** ** | ** ** | ** ** | **$** | **.88** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **      | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fiscal 2005     |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| September       |       |                      | $          | (.03 | ) |   |   | $ | - |   |   |   | $ | (.03 | ) |   |   | $ | .17 |   |   | $ | 44.50 |   |   | $ | 34.60 |   |   |
| December        |       |                      | .14        |   |   |   |   | - |   |   |   | .14 |   |   |   | .17 |   |   | 42.40 |   |   | 33.63 |   |   |
| March           |       |                      | 1.18       |   |   |   |   | .38 |   |   |   | 1.56 |   |   |   | .17 |   |   | 42.20 |   |   | 36.91 |   |   |
| June            |       |                      | .98        |   |   |   |   | - |   |   |   | .98 |   |   |   | .17 |   |   | 37.36 |   |   | 30.83 |   |   |
| Total           |       |                      | $          | 2.25 | (1) |   |   | $ | .38 |   |   |   | $ | 2.63 | (1) |   |   | $ | .68 |   |   |   |   |   |   |   |   |

 

The number of record holdersof Briggs & Stratton Corporation Common Stock on August 21, 2006 was 3,891.

 

Net Income per share ofCommon Stock represents Diluted Earnings per Share.

 

(1) Refer to Note 2 of theNotes to Consolidated Financial Statements, for information about DilutedEarnings per Share. Amounts may not total because of differing numbers ofshares outstanding at the end of each quarter.

 

54

 

**ITEM 9.****                          ****CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

Briggs & Strattonchanged independent accountants in August 2004 from Deloitte & Touche LLPto PricewaterhouseCoopers LLP. Information regarding the change in independentaccountants was reported in Briggs & Stratton’s Current Report on AmendedForm 8-K dated August 4, 2004. There were no disagreements or any reportableevents subject to Item 304(b) requiring disclosure.

 

**ITEM 9A.****                ****CONTROLS AND PROCEDURES**

 

**DisclosureControls and Procedures**

The Company’s management,with the participation of the Company’s Chief Executive Officer and ChiefFinancial Officer, have evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) asof the end of the period covered by this report. Based on such evaluation, theCompany’s Chief Executive Officer and Chief Financial Officer have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures are effective in recording, processing, summarizing, and reporting,on a timely basis, information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act.

 

**Management’sReport on Internal Control Over Financial Reporting**

The Company’s management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Exchange Act Rule 13a-15(f).The Company’s management, with the participation of the Company’s ChiefExecutive Officer and Chief Financial Officer, has evaluated the effectivenessof the Company’s internal control over financial reporting based on theframework in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on this evaluation,the Company’s management has concluded that, as of the end of the periodcovered by this report, the Company’s internal controls over financialreporting were effective.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of the effectivenessto future periods are subject to the risk that the controls may becomeinadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

 

PricewaterhouseCoopers LLP,an independent registered public accounting firm, who has audited the Company’sconsolidated financial statements, has also audited management’s assessment ofthe effectiveness of the Company’s internal control over financial reporting asof July 2, 2006, and the effectiveness of internal controls over financial reportingas of July 2, 2006, as stated in their report which is included herein.

 

**Changes inInternal Control Over Financial Reporting**

There has not been anychange in the Company’s internal control over financial reporting during thefourth fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

**ITEM 9B.****                 ****OTHER INFORMATION**

 

**Entry intoa Material Definitive Agreement**

On August 8, 2006, Briggs& Stratton Corporation amended its Term Loan Agreement dated February 11,2005 (as filed February 15, 2005) and previously amended on March 18, 2005 (asfiled March 23, 2005) to allow a repurchase of shares of its common stock foraggregate consideration not to exceed $120 million during the period August 10,2006 through February 8, 2008 (a copy is included as Exhibit 10.22 (b) and isincorporated herein by reference).

 

On August 8, 2006, Briggs& Stratton Corporation amended its Multicurrency Credit Agreement dated May28, 2004 (as filed March 23, 2005) and previously amended on March 18, 2005 (asfiled March 23, 2005) to allow a repurchase of shares of its common stock foraggregate consideration not to exceed $120 million during the period August 10,2006 through February 8, 2008 (a copy is included as Exhibit 10.23 (b) and isincorporated herein by reference).

 

55

 

The amended agreementscontain financial and operating restrictions and covenants consistent withthose disclosed in Note 8 of the Notes to Consolidated Financial Statements.

 

**PART III**

 

**ITEM 10.****                     ****DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

 

(a)          Executive Officers. Reference is made to “Executive Officers ofRegistrant” in Part I after Item 4.

 

(b)         Directors. The information required by this Item is in Briggs &Stratton’s definitive Proxy Statement, prepared for the 2006 Annual Meeting ofShareholders, under the caption “Election of Directors”, and is incorporatedherein by reference.

 

(c)          Section 16 Compliance. The information required by this Item is inBriggs & Stratton’s definitive Proxy Statement, prepared for the 2006Annual Meeting of Shareholders, under the caption “Section 16(a) BeneficialOwnership Reporting Compliance”, and is incorporated herein by reference.

 

(d)         Audit Committee Financial Expert. The information required by this Itemis in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2006Annual Meeting of Shareholders, under the caption “Corporate Governance – AuditCommittee”, and is incorporated herein by reference.

 

(e)          Identification of Audit Committee. The information required by thisItem is in Briggs & Stratton’s definitive Proxy Statement, prepared for the2006 Annual Meeting of Shareholders, under the caption “Corporate Governance – AuditCommittee”, and is incorporated herein by reference.

 

(f)            Code of Ethics. Briggs & Stratton hasadopted a written code of ethics, referred to as the Briggs & StrattonBusiness Integrity Manual applicable to all directors, officers and employees,which includes provisions related to accounting and financial mattersapplicable to the Principal Executive Officer, Principal Financial Officer,Principal Accounting Officer and Controller. The Briggs & Stratton BusinessIntegrity Manual is available on the Company’s corporate website atwww.briggsandstratton.com. If the Company makes any substantive amendment to,or grants any waiver of, the code of ethics for any director or officer, Briggs& Stratton will disclose the nature of such amendment or waiver on itscorporate website or in a Current Report on Form 8-K.

 

**ITEM 11.****                     ****EXECUTIVE COMPENSATION**

 

The information in Briggs& Stratton’s definitive Proxy Statement, prepared for the 2006 AnnualMeeting of Shareholders, concerning this item, in the subsection titled “DirectorCompensation” under the caption “Corporate Governance” and the “ExecutiveCompensation” section, is incorporated herein by reference.

 

**ITEM 12.****                     ****SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

The information in Briggs& Stratton’s definitive Proxy Statement, prepared for the 2006 AnnualMeeting of Shareholders, concerning this item, under the captions “SecurityOwnership of Certain Beneficial Owners”, “Security Ownership of Directors &Executive Officers” and “Equity Compensation Plan Information” is incorporatedherein by reference.

 

**ITEM 13.****                     ****CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

Briggs & Stratton has norelationships or related transactions to report pursuant to Item 13.

 

**ITEM 14.****                     ****PRINCIPAL ACCOUNTANT FEESAND SERVICES**

 

The information required bythis Item is in Briggs & Stratton’s definitive Proxy Statement, preparedfor the 2006 Annual Meeting of Shareholders, under the caption “IndependentAuditors Fees”, and is incorporated herein by reference.

 

56

 

**PARTIV**

 

**ITEM 15.****                     ****EXHIBITS AND FINANCIALSTATEMENT SCHEDULES**

 

(a)1.                      Financial Statements

 

The following financialstatements are included under the caption “Financial Statements and SupplementaryData” in Part II, Item 8 and are incorporated herein by reference: 

 

Consolidated Balance Sheets,July 2, 2006 and July 3, 2005 

 

For the Fiscal Years EndedJuly 2, 2006, July 3, 2005 and June 27, 2004: 

Consolidated Statements ofEarnings 

Consolidated Statements ofShareholders’ Investment 

Consolidated Statements ofCash Flows 

Notes to ConsolidatedFinancial Statements 

 

Reports of IndependentRegistered Public Accounting Firms

 

2.               Financial Statement Schedules

 

Schedule II - Valuation and QualifyingAccounts

Report of IndependentRegistered Public Accounting Firm

 

All other financialstatement schedules provided for in the applicable accounting regulations ofthe Securities and Exchange Commission are not required under the relatedinstructions.

 

3.               Exhibits

 

Refer to the Exhibit Indexincorporated herein by reference. Each management contract or compensatory planor arrangement required to be filed as an exhibit to this report is identifiedin the Exhibit Index by an asterisk following the Exhibit Number.

 

**BRIGGS & STRATTON CORPORATION ANDSUBSIDIARIES**

**SCHEDULE II VALUATION AND QUALIFYINGACCOUNTS**

 

*FOR FISCAL YEARS ENDED JULY 2,2006, JULY 3, 2005 AND JUNE 27, 2004*

 
| Reserve  for       |   | Balance    |   | Additions    |   |          |        | Adjustment   |   | Balance   |   |
|--------------------|--------|------------|--------|--------------|--------|---------------|-------------|--------------|--------|-----------|--------|
| Doubtful  Accounts |   | Beginning  |   | Charged      |   | Charges  to   |        | Related  to  |   | End  of   |   |
| Receivable         |   | of  Year   |   | to  Earnings |   | Reserve,  Net |        | Acquisitions |   | Year      |   |
| 2006               |   | $5,461,000 |   | 4,321,000    |   |          | (4,931,000  | )            |   | -         |   | $4,851,000 |   |
| 2005               |   | $1,584,000 |   | 39,681,000   | *      |          | (39,382,000 | )*           |   | 3,578,000 |   | $5,461,000 |   |
| 2004               |   | $1,780,000 |   | 1,899,000    |   |          | (2,095,000  | )            |   | -         |   | $1,584,000 |   |

 

* Reflects the write-off of atrade receivable of Murray, Inc.

 

57

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Shareholders of Briggs& Stratton Corporation:

 

We have audited the consolidated statements of earnings, shareholders’investment and cash flows of Briggs & Stratton Corporation and subsidiariesfor the year ended June 27, 2004, and have issued our report thereon dated July22, 2004; such report is included elsewhere in this Form 10-K. Our audit alsoincluded the consolidated financial statement schedule of Briggs & StrattonCorporation for the year ended June 27, 2004, listed in Item 15. Thisconsolidated financial statement schedule is the responsibility of the Company’smanagement. Our responsibility is to express an opinion based on our audit. Inour opinion, such consolidated financial statement schedule, when considered inrelation to the basic consolidated financial statements taken as a whole,presents fairly in all material respects the information set forth therein.

 

**Deloitte& Touche LLP**

Milwaukee, Wisconsin 

July 22, 2004

 

58

 

**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                    | BRIGGS & STRATTON  CORPORATION |
|-------------------------|------------------------------------|
|                    |                               |
|                    |                               |
|                    | By                                 | /s/  James E. Brenn |
|                    |                               | James  E. Brenn |
| September  1, 2006 |                               | Senior  Vice President and |
|                    |                               | Chief  Financial Officer |

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe dates indicated.*

 
| /s/  John S. Shiely                        |   | /s/  Michael E. Batten         |
|--------------------------------------------|--------|--------------------------------|
| John S. Shiely                             |   | Michael E. Batten              |
| Chairman, President and  Chief Executive   |   | Director                       |
| Officer and Director  (Principal Executive |   |                           |
| Officer)                                   |   |                           |
|                                       |   | /s/  David L. Burner           |
|                                       |   | David L. Burner                |
| /s/  James E. Brenn                        |   | Director                       |
| James E. Brenn                             |   |                           |
| Senior Vice President and  Chief Financial |   |                           |
| Officer (Principal  Financial Officer)     |   | /s/  Mary K. Bush              |
|                                       |   | Mary K. Bush                   |
| /s/  Ricky T. Dillon                       |   | Director                       |
| Ricky T. Dillon                            |   |                           |
| Controller (Principal  Accounting Officer) |   | /s/  Robert J. O’Toole    |
|                                       |   | Robert J. O’Toole         |
| /s/  William F. Achtmeyer                  |   | Director                       |
| William F. Achtmeyer                       |   |                           |
| Director                                   |   | /s/  Charles I. Story          |
|                                       |   | Charles I. Story               |
| /s/  Jay H. Baker                          |   | Director                       |
| Jay H. Baker                               |   |                           |
| Director                                   |   | /s/  Brian C. Walker           |
|                                       |   | Brian C. Walker                |
|                                       |   | Director                       |
|                                       |   |                           |
|                                       |   |                           |
|                                       |   |                           |
|                                       |   | *Each signature affixed as  of |
|                                       |   | September  1, 2006.            |

 

59

 

BRIGGS &STRATTON CORPORATION

(CommissionFile No. 1-1370)

 

EXHIBIT INDEX

2006 ANNUALREPORT ON FORM 10-K

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                       |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                                                                                                         |
| 3.1         |       | Articles of Incorporation.                                                                                                                                                                                                                                                       |
|        |       | (Filed  as Exhibit 3.2 to the Company’s Report on Form 10-Q for the quarter ended  October 2, 1994 and incorporated by reference herein.)                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                             |
| 3.1(a)      |       | Amendment to Articles of  Incorporation.                                                                                                                                                                                                                                         |
|        |       | (Filed  as Exhibit 3.1 to the  Company’s Report on Form 10-Q for the quarter ended September 26, 2004 and  incorporated by reference herein.)                                                                                                                               |
|        |       |                                                                                                                                                                                                                                                                             |
| 3.2         |       | Bylaws, as amended and  restated June 14, 2001.                                                                                                                                                                                                                                  |
|        |       | (Filed  as Exhibit 99 to the  Company’s Report on Form 8-K dated June 14, 2001 and incorporated by  reference herein.)                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                             |
| 3.2(a)      |       | Amendment to Bylaws  Adopted by Resolution of the Board of Directors on April 21, 2004.                                                                                                                                                                                          |
|        |       | (Filed  as Exhibit 3.2 to the  Company’s Report on Form 10-Q for the quarter ended March 28, 2004 and incorporated  by reference herein.)                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                             |
| 4.0         |       | Rights Agreement dated as  of August 7, 1996, as amended through August 9, 2006, between Briggs &  Stratton Corporation and National City Bank which includes the form of Right  Certificate as Exhibit A and the Summary of Rights to Purchase Common Shares  as Exhibit B. |
|        |       | (Filed  as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A/A dated as  of August 15, 2006 and incorporated by reference herein.)                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                             |
| 4.1         |       | Indenture dated as of June  4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as  Trustee.                                                                                                                                                                   |
|        |       | (Filed  as Exhibit 4.1 to the  Company’s Report on Form 8-K dated May 30, 1997 and incorporated by reference  herein.)                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                             |
| 4.2         |       | Form of 7-1/4% Note due  September 15, 2007 of Briggs & Stratton Corporation issued pursuant to  the Indenture dated as of June 4, 1997 between Briggs & Stratton  Corporation and Bank One, N.A., as Trustee.                                                           |
|        |       | (Filed  as Exhibit 4.2 to the Company’s Report on Form 8-K dated May 30, 1997 and  incorporated by reference herein.)                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                             |
| 4.3         |       | Resolutions of the Board  of Directors of Briggs & Stratton Corporation authorizing the public  offering of debt securities of Briggs & Stratton Corporation in an  aggregate principal amount of up to $175,000,000.                                                    |
|        |       | (Filed  as Exhibit 4.3 to the Company’s Report on Form 8-K dated May 30, 1997 and  incorporated by reference herein.)                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                             |
| 4.4         |       | Actions of the Authorized  Officers of Briggs & Stratton Corporation authorizing the issuance of  $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15,  2007.                                                                                           |
|        |       | (Filed  as Exhibit 4.4 to the Company’s Report on Form 8-K dated May 30, 1997 and  incorporated by reference herein.)                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                             |
| 4.5         |       | Officers’ Certificate and  Company Order of Briggs & Stratton Corporation executed in conjunction  with the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes  due September 15, 2007.                                                                |
|        |       | (Filed  as Exhibit 4.5 to the Company’s Report on Form 8-K dated May 30, 1997 and  incorporated by reference herein.)                                                                                                                                                       |

 

60

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                     |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                                                                                                                       |
| 4.6         |       | Indenture dated as of May  14, 2001 between Briggs & Stratton Corporation, the Guarantors listed on  Schedule I thereto and Bank One, N.A., as Trustee, providing for 8.875%  Senior Notes due March 15, 2011 (including form of Note, form of Notation of  Guarantee and other exhibits). |
|        |       | (Filed  as Exhibit 4.9 to the Company’s Registration Statement on Form S-3 filed on  July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.)                                                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                           |
| 4.7         |       | Form of Supplemental  Indenture dated as of May 15, 2001 between Subsequent Guarantors (Generac  Portable Products, Inc., GPPD, Inc., GPPW, Inc. and Generac Portable  Products, LLC), Briggs & Stratton Corporation, and Bank One, N.A., as  Trustee.                                     |
|        |       | (Filed  as Exhibit 4.10 to the Company’s Registration Statement on Form S-3 filed on  July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.)                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                           |
| 4.8         |       | First Supplemental  Indenture dated as of May 14, 2001 between Briggs & Stratton Corporation  and Bank One, N.A., as Trustee under the Indenture dated as of June 4, 1997.                                                                                                                 |
|        |       | (Filed  as Exhibit 4.12 to the Company’s Registration Statement on Form S-3 filed on  July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.)                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                           |
| 4.9         |       | Form of Indenture  Supplement to Add a Subsidiary Guarantor dated as of May 15, 2001 among each  Subsidiary Guarantor (Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc.  and Generac Portable Products, LLC), Briggs & Stratton Corporation, and  Bank One, N.A., as Trustee.       |
|        |       | (Filed  as Exhibit 4.13 to the Company’s Registration Statement on Form S-3 filed on  July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.)                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.0*       |       | Form of Officer Employment  Agreement.                                                                                                                                                                                                                                                         |
|        |       | (Filed  as Exhibit 10.0 to the Company’s Report on Form 10-Q for the quarter ended  March 29, 1998 and incorporated by reference herein.)                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.1*       |       | Amended and Restated  Supplemental Executive Retirement Plan.                                                                                                                                                                                                                                  |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended  March 31, 2002 and incorporated by reference herein.)                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.1(a)*    |       | Amendment to Supplemental  Executive Retirement Plan.                                                                                                                                                                                                                                          |
|        |       | (Filed  as Exhibit 10.1 (a) to the Company’s Report on Form 10-K for fiscal year  ended June 29, 2003 and incorporated by reference herein.)                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.2*       |       | Amended and Restated  Economic Value Added Incentive Compensation Plan.                                                                                                                                                                                                                        |
|        |       | (Filed  as Exhibit 10.2 to the Company’s Report on Form 10-K for fiscal year ended  July 3, 2005 and incorporated by reference herein.)                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.3*       |       | Form of Change of Control  Employment Agreements.                                                                                                                                                                                                                                              |
|        |       | (Filed  as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for fiscal year  ended June 27, 1993 and incorporated by reference herein.)                                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.3 (a)*   |       | Amendment to Change in  Control Employment Agreements.                                                                                                                                                                                                                                         |
|        |       | (Filed  as Exhibit 10.3 (a) to the Company’s Report on Form 10-K for fiscal year  ended June 27, 2004 and incorporated by reference herein.)                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                           |
| 10.4*       |       | Trust Agreement with an  independent trustee to provide payments under various compensation agreements  with Company employees upon the occurrence of a change in control.                                                                                                                     |
|        |       | (Filed  as Exhibit 10.5 (a) to the Company’s Annual Report on Form 10-K for fiscal  year ended July 2, 1995 and incorporated by reference herein.)                                                                                                                                        |

 

61

 
| **Exhibit** | ** ** | ** **                                                                                                                                              |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                |
| 10.4(a)*    |       | Amendment to Trust  Agreement with an independent trustee to provide payments under various  compensation agreements with Company employees.            |
|        |       | (Filed  as Exhibit 10.5 (b) to the Company’s Annual Report on Form 10-K for fiscal  year ended July 2, 1995 and incorporated by reference herein.) |
|        |       |                                                                                                                                                    |
| 10.5*       |       | 1999 Amended and Restated  Stock Incentive Plan.                                                                                                        |
|        |       | (Filed  as Exhibit A to the Company’s 1999 Annual Meeting Proxy Statement and  incorporated by reference herein.)                                  |
|        |       |                                                                                                                                                    |
| 10.5 (a)*   |       | Amendment to Stock  Incentive Plan.                                                                                                                     |
|        |       | (Filed  as Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended  March 30, 2003 and incorporated by reference herein.)          |
|        |       |                                                                                                                                                    |
| 10.5 (b)*   |       | Amendment to Stock  Incentive Plan.                                                                                                                     |
|        |       | (Filed  as Exhibit 10.5 (c) to the Company’s Report on Form 10-K for fiscal year  ended June 27, 2004 and incorporated by reference herein.)       |
|        |       |                                                                                                                                                    |
| 10.5 (c)*   |       | 2004 Amended and Restated  Briggs & Stratton Corporate Incentive Compensation Plan.                                                                 |
|        |       | (Filed  as Exhibit B to the Company’s 2004 Annual Meeting Proxy Statement and  incorporated by reference herein.)                                  |
|        |       |                                                                                                                                                    |
| 10.5(d)*    |       | Amended and Restated  Briggs & Stratton Corporation Incentive Compensation Plan as Modified  October 29, 2004.                                      |
|        |       | (Filed  as Exhibit 10.5 to the Company’s Report on Form 10-Q for quarter ended  September 26, 2004 and incorporated by reference herein.)          |
|        |       |                                                                                                                                                    |
| 10.6*       |       | Premium Option and Stock  Award Program.                                                                                                                |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 8-K dated August 9, 2005 and  incorporated by reference herein.)                           |
|        |       |                                                                                                                                                    |
| 10.6(a)*    |       | Form of Stock Option  Agreement under the Premium Option and Stock Award Program.                                                                       |
|        |       | (Filed  as Exhibit 10.6 (a) to the Company’s Report on Form 10-K for fiscal year  ended July 3, 2005 and incorporated by reference herein.)        |
|        |       |                                                                                                                                                    |
| 10.6(b)*    |       | Amended and Restated Form  of Stock Option Agreement under the Premium Option and Stock Award Program.                                                  |
|        |       | (Filed  as Exhibit 10.6 (a) to the Company’s Report on Form 10-Q for quarter ended  April 2, 2006 and incorporated by reference herein.)           |
|        |       |                                                                                                                                                    |
| 10.6(c)*    |       | Form of Restricted Stock  Award Agreement under the Premium Option and Restricted Stock Program.                                                        |
|        |       | (Filed  as Exhibit 10.6 (b) to the Company’s Report on Form 10-K for fiscal year  ended June 27, 2004 and incorporated by reference herein.)       |
|        |       |                                                                                                                                                    |
| 10.6(d)*    |       | Amended Form of Restricted  Stock Award Agreement Under the Premium Option and Stock Award Program.                                                     |
|        |       | (Filed  as Exhibit 10.6 (c) to the Company’s Report on Form 10-K for fiscal year  ended July 3, 2005 and incorporated by reference herein.)        |
|        |       |                                                                                                                                                    |
| 10.6(e)*    |       | Form of Deferred Stock  Award Agreement Under the Premium Option and Stock Award Program.                                                               |
|        |       | (Filed  as Exhibit 10.6 (d) to the Company’s Report on Form 10-K for fiscal year  ended July 3, 2005 and incorporated by reference herein.)        |
|        |       |                                                                                                                                                    |
| 10.11*      |       | Amended and Restated  Deferred Compensation Plan for Directors.                                                                                         |
|        |       | (Filed  as Exhibit 10.11 to the Company’s Report on Form 10-K for fiscal year ended  June 27, 2004 and incorporated by reference herein.)          |
|        |       |                                                                                                                                                    |
| 10.12*      |       | Amended and Restated  Director’s Premium Option and Stock Grant Program.                                                                           |
|        |       | (Filed  as Exhibit 10.12 to the Company’s Report on Form 10-K for fiscal year ended  July 3, 2005 and incorporated by reference herein.)           |

 

62

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                               |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                 |
| 10.12(a)*   |       | Form of Director’s Stock  Option Agreement under the Director’s Premium Option and Stock Grant Program.                                                                        |
|        |       | (Filed  as Exhibit 10.12 (a) to the Company’s Report on Form 10-Q for quarter ended  April 2, 2006 and incorporated by reference herein.)                                           |
|        |       |                                                                                                                                                                                     |
| 10.14*      |       | Executive Life Insurance  Plan.                                                                                                                                                          |
|        |       | (Filed  as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for fiscal year  ended June 27, 1999 and incorporated by reference herein.)                                    |
|        |       |                                                                                                                                                                                     |
| 10.14(a)*   |       | Amendment to Executive  Life Insurance Program.                                                                                                                                          |
|        |       | (Filed  as Exhibit 10.14 (a) to the Company’s Report on Form 10-K for fiscal year  ended June 29, 2003 and incorporated by reference herein.)                                       |
|        |       |                                                                                                                                                                                     |
| 10.14 (b)*  |       | Amendment to Executive  Life Insurance Plan.                                                                                                                                             |
|        |       | (Filed  as Exhibit 10.14 (b) to the Company’s Report on Form 10-K for fiscal year  ended June 27, 2004 and incorporated by reference herein.)                                       |
|        |       |                                                                                                                                                                                     |
| 10.15*      |       | Key Employees Savings and  Investment Plan.                                                                                                                                              |
|        |       | (Filed  as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for fiscal year  ended June 27, 1999 and incorporated by reference herein.)                                    |
|        |       |                                                                                                                                                                                     |
| 10.15(a)*   |       | Amendment to Key Employees  Savings and Investment Plan.                                                                                                                                 |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended  December 31, 2000 and incorporated by reference herein.)                                        |
|        |       |                                                                                                                                                                                     |
| 10.15(b)*   |       | Amendment to Key Employee  Savings and Investment Plan.                                                                                                                                  |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended  March 30, 2003 and incorporated by reference herein.)                                           |
|        |       |                                                                                                                                                                                     |
| 10.16*      |       | Consultant Reimbursement  Arrangement.                                                                                                                                                   |
|        |       | (Filed  as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for fiscal year  ended June 27, 1999 and incorporated by reference herein.)                                    |
|        |       |                                                                                                                                                                                     |
| 10.17*      |       | Briggs & Stratton  Product Program.                                                                                                                                                  |
|        |       | (Filed  as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for fiscal year  ended June 30, 2002 and incorporated by reference herein.)                                    |
|        |       |                                                                                                                                                                                     |
| 10.18*      |       | Consulting Agreement  entered into on May 4, 2005 between Briggs & Stratton Corporation and  Stephen H. Rugg.                                                                        |
|        |       | (Filed  as Exhibit 10.5 to the Company’s Report on Form 8-K dated May 4, 2005 and  incorporated by reference herein.)                                                               |
|        |       |                                                                                                                                                                                     |
| 10.18(a)*   |       | Consulting Agreement  entered into on August 14, 2006 between Briggs & Stratton Corporation and  Paul M. Neylon.                                                                     |
|        |       | (Filed  as Exhibit 10.5 to the Company’s Report on Form 8-K dated August 9, 2006 and  incorporated by reference herein.)                                                            |
|        |       |                                                                                                                                                                                     |
| 10.19       |       | Retention and Consulting  Agreement entered into on September 12, 2005 between Briggs & Stratton  Corporation and Mark R. Hazeltine.                                                 |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 8-K dated September12, 2005  and incorporated by reference herein.)                                                         |
|        |       |                                                                                                                                                                                     |
| 10.20       |       | Asset Purchase Agreement,  dated January 25, 2005, by and among Briggs & Stratton Power Products  Group, LLC, Briggs & Stratton Canada Inc., Murray, Inc. and Murray Canada  Co. |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 8-K dated January25, 2005 and  incorporated by reference herein.)                                                           |
|        |       |                                                                                                                                                                                     |
| 10.21       |       | Transition Supply  Agreement, dated February 11, 2005, between Briggs & Stratton Power  Products Group, LLC and Murray, Inc.                                                         |
|        |       | (Form  of Transition Supply Agreement filed as Exhibit 10.2 to the Company’s Report  on Form 8-K dated January 25, 2005 and incorporated by reference herein.)                      |

 

63

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                 |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                                                                                                                                                                                                   |
| 10.22       |       | Term Loan Agreement, dated  February 11, 2005, among Briggs & Stratton Corporation and LaSalle Bank  N.A., as syndication agent, and Bank of America, N.A., as administrative  agent.                                                                                                                                                                                  |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 8-K dated February 11, 2005  and incorporated by reference herein.)                                                                                                                                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.22 (a)   |       | Term Loan Agreement  Amendment, dated March 18, 2005, among Briggs & Stratton Corporation,  various financial institutions and Bank of America, N.A., as administrative  agent.                                                                                                                                                                                        |
|        |       | (Filed  as Exhibit 10.1 to the Company’s Report on Form 8-K dated March 18, 2005 and  incorporated by reference herein.)                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.22 (b)   |       | Term  Loan Agreement Amendment, dated August 8, 2006, among Briggs & Stratton Corporation,  various financial institutions and Bank of America, N.A., as administrative  agent.                                                                                                                                                                                        |
|        |       | (Filed  herewith.)                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.23       |       | Multicurrency Credit  Agreement, dated May 28, 2004, among Briggs & Stratton Corporation, the  financial institutions party hereto, and LaSalle Bank National Association,  M&I Marshall & Ilsley Bank and U.S. Bank National Association, as co-documentation  agents, and Bank of America, N.A., as administrative agent, issuing bank and  swing line bank. |
|        |       | (Filed  as Exhibit 10.2 to the Company’s Report on Form 8-K dated March 18, 2005 and  incorporated by reference herein.)                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.23 (a)   |       | Multicurrency Credit  Agreement Amendment, dated March 18, 2005, among Briggs & Stratton  Corporation, various financial institutions and Bank of America, N.A., as administrative  agent.                                                                                                                                                                             |
|        |       | (Filed  as Exhibit 10.3 to the Company’s Report on Form 8-K dated March 18, 2005 and  incorporated by reference herein.)                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.23 (b)   |       | Multicurrency Credit  Agreement Amendment, dated August 8, 2006, among Briggs & Stratton  Corporation, various financial institutions and Bank of America, N.A., as administrative  agent.                                                                                                                                                                             |
|        |       | (Filed  herewith.)                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 12          |       | Computation of Ratio of  Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                        |
|        |       | (Filed  herewith.)                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 16          |       | Letter Regarding Change in  Certifying Accountant                                                                                                                                                                                                                                                                                                                          |
|        |       | (Filed  as Exhibit 16.2 to the Company’s Report on Form 8-K/A filed on September 9,  2004 and incorporated by reference herein.)                                                                                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 21          |       | Subsidiaries of the  Registrant.                                                                                                                                                                                                                                                                                                                                           |
|        |       | (Filed  herewith.)                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 23.1        |       | Consent of  PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                  |
|        |       | (Filed  herewith.)                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 23.2        |       | Consent of Deloitte &  Touche LLP, an Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                   |
|        |       | (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.)                                                                                                                                                                                                                                                                                                                                                         |

 

64

 
| **Exhibit** | ** ** | ** **                                                                                               |
|-------------|------------|----------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                 |
| 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.)                                                                                   |

 

----

*       Management contracts and executive compensation plans and arrangementsrequired to be filed as exhibits pursuant to Item 15(a)(3) of Form 10-K.

 

65