UNITED STATES SECURITIES AND EXCHANGE 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 1, 2007                         |   |
|   |                                   | OR                                                                                                                                                                                                                                                                                                                                     |   |
|   | [      ] | TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                             |   |
|   |                                   | For the transition period from ____________ to ____________                                                                                                                                                                                                                                                                            |   |
|   |                                   |                                                                                                                                                                                                                                                                                                                                   |   |

Commissionfile 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 registered pursuantto Section 12(g) of the Act:             NONE

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act. Yes    **ü**      No          

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.Yes            No     **ü**   

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes    **ü**      No          

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.      [   **ü**   ]

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act).            Yes         No   **ü**

 

The aggregate market value of Common Stock held by non affiliates ofthe registrant was approximately $1.27 billion based on the reported last saleprice of such securities as of December 31, 2006, the last business day of themost recently completed second fiscal quarter.

 

Number of Shares of CommonStock Outstanding at August 20, 2007: 49,706,060.

 

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

 
|                                |     | Part of Form 10-K Into  Which Portions |
|-------------------------------------|----------|----------------------------------------|
|                                | Document |                                   |   |   | of Document are  Incorporated |   |
| Proxy Statement for Annual  Meeting |     |                                   |
| on October 17, 2007                 |     | Part III                               |
|                                     |          |                                        |  |  |  |  |

 

The Exhibit Index is located onpage 57.

 

 

**BRIGGS & STRATTON CORPORATION****FISCAL 2007 FORM 10-K****TABLE OF CONTENTS**

 

 
| **PART I**   | ** ** | ** **                                                                                                             | ** ** | **Page**   |
|--------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|------------|
| Item 1.      |       | Business                                                                                                               |       | 1          |
| Item  1A.    |       | Risk  Factors                                                                                                          |       | 4          |
| Item 1B.     |       | Unresolved Staff Comments                                                                                              |       | 6          |
| 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 |       | 10         |
| Item 6.      |       | Selected Financial Data                                                                                                |       | 11         |
| Item 7.      |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                            |       | 12         |
| Item 7A.     |       | Quantitative and Qualitative Disclosures  About Market Risk                                                            |       | 19         |
| Item 8.      |       | Financial Statements and Supplementary Data                                                                            |       | 20         |
| Item 9.      |       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                                  |       | 53         |
| Item 9A.     |       | Controls and Procedures                                                                                                |       | 53         |
| Item 9B.     |       | Other Information                                                                                                      |       | 53         |
| **PART III** | ** ** | ** **                                                                                                             | ** ** | ** ** |
| Item 10.     |       | Directors, Executive Officers and Corporate  Governance                                                                |       | 53         |
| Item 11.     |       | Executive Compensation                                                                                                 |       | 54         |
| Item 12.     |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                        |       | 54         |
| Item 13.     |       | Certain Relationships and Related  Transactions, and Director Independence                                             |       | 54         |
| Item 14.     |       | Principal Accountant Fees and Services                                                                                 |       | 54         |
| **PART IV**  | ** ** | ** **                                                                                                             | ** ** | ** ** |
| Item 15.     |       | Exhibits and Financial Statement Schedules                                                                             |       | 54         |
|         |       | Signatures                                                                                                             |       | 56         |

 

**CautionaryStatement on Forward-Looking Statements**

 

This release containscertain forward-looking statements that involve risks and uncertainties thatcould cause actual results to differ materially from those projected in theforward-looking statements. The words “anticipate”, “believe”, “estimate”, “expect”,“forecast”, “intend”, “may”, “objective”, “plan”, “project”, “seek”, “think”, “will”,and similar expressions are intended to identify forward-looking statements.The forward-looking statements are based on the Company’s current views andassumptions and involve risks and uncertainties that include, among otherthings, the ability to successfully forecast demand for our products andappropriately adjust our manufacturing and inventory levels; changes in ouroperating expenses; changes in interest rates; the effects of weather on thepurchasing patterns of consumers and original equipment manufacturers (OEMs);actions of engine manufacturers and OEMs with whom we compete; the seasonalnature of our business; changes in laws and regulations, includingenvironmental, tax, pension funding and accounting standards; work stoppages orother consequences of any deterioration in our employee relations; workstoppages by other unions that affect the ability of suppliers or customers tomanufacture; acts of war or terrorism that may disrupt our business operationsor those of our customers and suppliers; changes in customer and OEM demand;changes in prices of raw materials and parts that we purchase; changes indomestic economic conditions, including housing starts and changes in consumerdisposable income; changes in foreign economic conditions, including currencyrate fluctuations; the actions of customers of our OEM customers; the abilityto bring new productive capacity on line efficiently and with good quality; theability to successfully realize the maximum market value of assets that mayrequire disposal if products or production methods change; new facts that cometo light 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, including the factors discussed inItem 1A, Risk Factors, of the Company’s Annual Report on Form 10-K and in itsperiodic reports on Form 10-Q. Some or all of the factors may be beyond ourcontrol. We caution you that any forward-looking statement reflects only ourbelief at the time the statement is made. We undertake no obligation to updateany forward-looking statement to reflect events or circumstances after the dateon which the statement is made.

 

 

**PART I**

 

**ITEM 1.          BUSINESS**

 

Briggs & Stratton is theworld’s largest producer of air cooled gasoline engines for outdoor powerequipment. Briggs & Stratton designs, manufactures, markets and servicesthese products for original equipment manufacturers (OEMs) worldwide. Theseengines are aluminum alloy gasoline engines with displacements ranging from 31cubic centimeters to 993 cubic centimeters.

 

Additionally, through itswholly owned subsidiary, Briggs & Stratton Power Products Group, LLC,Briggs & Stratton is a leading designer, manufacturer and marketer ofgenerators (portable and home standby), pressure washers, air compressors, snowthrowers, lawn and garden powered equipment (riding and walk behind mowers,tillers, chipper/shredders, leaf blowers and vacuums) and related accessories.

 

Briggs & Stratton conductsits operations in two reportable segments: Engines and Power Products. Furtherinformation about Briggs & Stratton’s business segments is contained inNote 6 of the Notes to Consolidated Financial Statements.

 

The Company’s Internet addressis www.briggsandstratton.com. The Company makes available free of charge (otherthan an investor’s own Internet access charges) through its Internet websitethe Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, and amendments to those reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, assoon as reasonably practicable after it electronically files such materialwith, or furnishes such material to, the Securities and Exchange Commission.Charters of the Audit, Compensation, Nominating and Governance Committees;Corporate Governance Guidelines and code of business conduct and ethicscontained in the Briggs & Stratton Business Integrity Manual are availableon the Company’s website and are available in print to any shareholder uponrequest to the Corporate Secretary.

 

**Engines**

 

**General**

 

Briggs & Stratton’s EnginesSegment’s engines are used primarily by the lawn and garden equipment industry,which accounted for 84% of the segment’s fiscal 2007 engine sales to OEMs.Major lawn and garden equipment applications include walk-behind lawn mowers,riding lawn mowers, garden tillers and snow throwers. The remaining 16% ofengine sales to OEMs in fiscal 2007 were for use on products for industrial,construction, agricultural and other consumer applications, that includegenerators, pumps and pressure washers. 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 2007, approximately28% of Briggs & Stratton’s Engines Segment net sales were derived fromsales in international markets, primarily to customers in Europe. Briggs &Stratton serves its key international markets through its European regionaloffice in Switzerland, its distribution center in the Netherlands and sales andservice subsidiaries and offices in Australia, Austria, Brazil, Canada, China,the Czech Republic, England, France, Germany, Italy, Japan, Mexico, NewZealand, Poland, Russia, South Africa, Spain, Sweden and United Arab Emirates.Briggs & Stratton is a leading supplier of gasoline engines in developedcountries where there is an established lawn and garden equipment market.Briggs & Stratton also exports engines to developing nations where itsengines are used in agricultural, marine, construction and other applications.More detailed information about our foreign operations is in Note 6 of theNotes to Consolidated Financial Statements.

 

Briggs & Stratton enginesare sold primarily by its worldwide sales force through direct calls on customers.Briggs & Stratton’s marketing staff and engineers in the United Statesprovide support and technical assistance to its sales force.

 

Briggs & Stratton alsomanufactures replacement engines and service parts and sells them to sales andservice distributors. Briggs & Stratton owns its principal internationaldistributors. In the United States the distributors are independently owned andoperated. These distributors supply service parts and replacement enginesdirectly to independently owned, authorized service dealers throughout theworld. These distributors and service dealers implement Briggs & Stratton’scommitment to reliability and service. 

 

1

 

**Customers**

 

Briggs & Stratton’s enginesales are made primarily to OEMs. Briggs & Stratton’s three largestexternal engine customers in fiscal years 2007, 2006 and 2005 were HusqvarnaOutdoor Products Group (HOP), MTD Products Inc. (MTD) and John Deere PowerProducts. Sales to the top three customers combined were 54%, 51% and 45% ofEngines Segment net sales in fiscal 2007, 2006 and 2005, respectively. Underpurchasing plans available to all of its gasoline engine customers, Briggs& Stratton typically enters into annual engine supply arrangements.

 

Briggs & Stratton believesthat in fiscal 2007 more than 80% of all lawn and garden powered equipment soldin the United States was sold through mass merchandisers such as Sears HoldingsCorporation (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 themass merchandisers, Briggs & Stratton, through its customers, has continuedto experience pricing pressure. Briggs & Stratton expects that this pricingtrend will continue in the foreseeable future. Briggs & Stratton believesthat a similar trend has developed for its products in industrial and consumerapplications outside of the lawn and garden market.

 

**Competition**

 

Briggs & Stratton’s majordomestic competitors in engine manufacturing are Honda Motor Co., Ltd. (Honda),Kawasaki Heavy Industries, Ltd. (Kawasaki), Kohler Co. (Kohler), and TecumsehProducts Company (Tecumseh). Several Japanese and Chinese small enginemanufacturers, of which Honda and Kawasaki are the largest, compete directlywith Briggs & Stratton in world markets in the sale of engines to otherOEMs and indirectly through their sale of end products.

 

Briggs & Stratton believesit has a significant share of the worldwide market for engines that poweroutdoor equipment.

 

Briggs & Stratton believesthe major areas of competition from all engine manufacturers include productquality, brand strength, price, timely delivery and service. Other factorsaffecting competition are short-term market share objectives, short-term profitobjectives, exchange rate fluctuations, technology, product support anddistribution strength. Briggs & Stratton believes its product value andservice reputation have given it strong brand name recognition and enhance itscompetitive position.

 

**Seasonalityof Demand**

 

Sales of engines to lawn andgarden OEMs are highly seasonal because of consumer buying patterns. Themajority of lawn and garden equipment is sold during the spring and summermonths when most lawn care and gardening activities are performed. Sales oflawn and garden equipment are also influenced by weather conditions. Enginesales in Briggs & Stratton’s fiscal third quarter have historically beenthe highest, while sales in the first fiscal quarter have historically been thelowest.

 

In order to efficiently use itscapital investments and meet seasonal demand for engines, Briggs & Strattonpursues a relatively balanced production schedule throughout the year. Theschedule is adjusted to reflect changes in estimated demand, customer inventorylevels and other matters outside the control of Briggs & Stratton.Accordingly, inventory levels generally increase during the first and secondfiscal quarters in anticipation of customer demand. Inventory levels begin todecrease as sales increase in the third fiscal quarter. This seasonal patternresults in high inventories and low cash flow for Briggs & Stratton in thesecond and the beginning of the third fiscal quarters. The pattern results inhigher cash flow in the latter portion of the third fiscal quarter and in thefourth fiscal quarter as inventories are liquidated and receivables arecollected.

 

**Manufacturing**

 

Briggs & Strattonmanufactures engines and parts at the following locations: Auburn, Alabama;Statesboro, Georgia; Murray, Kentucky; Poplar Bluff and Rolla, Missouri;Wauwatosa, Wisconsin; Chongqing, China; and Ostrava, Czech Republic. Briggs& Stratton has a parts distribution center in Menomonee Falls, Wisconsin.

 

In April 2007, the Companyannounced that it would be discontinuing operations at our Rolla, Missourifacility in October 2007. Engine manufacturing performed in Rolla will bemoving to the Chongqing, China and Poplar Bluff, Missouri plants.

 

Briggs & Strattonmanufactures a majority of the structural components used in its engines,including aluminum die castings, carburetors and ignition systems. Briggs &Stratton purchases certain parts such as

 

2

 

piston rings, spark plugs,valves, ductile and grey iron castings, zinc die castings and plasticcomponents, some stampings and screw machine parts and smaller quantities ofother components. Raw material purchases consist primarily of aluminum andsteel. Briggs & Stratton believes its sources of supply are adequate.

 

Briggs & Stratton has jointventures with Daihatsu Motor Company for the manufacture of engines in Japan,with Starting Industrial of Japan for the production of rewind starters in theUnited States, and The Toro Company for the manufacture of two-cycle engines inChina.

 

Briggs & Stratton has astrategic relationship with Mitsubishi Heavy Industries (MHI) for the globaldistribution of air cooled gasoline engines manufactured by MHI in Japan underBriggs & Stratton’s VanguardTM brand.

 

**PowerProducts**

 

**General**

 

Briggs & Stratton PowerProducts Group, LLC’s (BSPPG) principal product lines include portable andstandby generators, pressure washers, air compressors, snow throwers and lawnand 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 ofindependent dealers worldwide for the sale and service of snow throwers andlawn and garden powered equipment.

 

To support its internationalbusiness, BSPPG has leveraged the existing Briggs & Stratton worldwidedistribution network.

 

**Customers**

 

Historically, BSPPG’s majorcustomers have been Lowe’s, The Home Depot and Sears. Other U.S. retailcustomers include Tractor Supply Inc., True Value Company, W.W. Grainger, Wal-Martand Menards.

 

**Competition**

 

The principal competitivefactors in the power products industry include price, service, productperformance, technical innovation and delivery. BSPPG has various competitors,depending on the type of equipment. Primary competitors include: Honda(portable generators, pressure washers and lawn and garden equipment), ColemanPowermate Corporation (portable generators), Generac Power Systems, Inc. (“Generac”)(standby generators), DeVilbiss Air Power Company, a Division of Black &Decker (pressure washers), Alfred Karcher GmbH & Co. (pressure washers),John Deere (commercial and consumer lawn mowers), MTD (lawn mowers), the ToroCompany (commercial and consumer lawn mowers), and Scag Power Equipment, aDivision of Metalcraft of Mayville, Inc. (commercial lawn mowers).

 

BSPPG believes it has asignificant share of the North American market for portable generators andconsumer pressure washers.

 

**Seasonalityof Demand**

 

Sales of BSPPG’s products aresubject to seasonal patterns. Due to seasonal and regional weather factors,sales of pressure washers and lawn and garden powered equipment are typicallyhigher during the fiscal third and fourth quarters than at other times of theyear. Sales of portable generators and snow throwers are typically higherduring the first and second fiscal quarters.

 

**Manufacturing**

 

BSPPG’s manufacturingfacilities are located in Jefferson, Watertown and Port Washington, Wisconsin;McDonough, Georgia; Munnsville, New York; Newbern, Tennessee; and Qingpu, China.BSPPG also purchases certain powered equipment under contract manufacturingagreements.

 

BSPPG plans to close itsPort Washington, Wisconsin manufacturing facility during the second quarter offiscal 2009. Production will move to the McDonough, Georgia facility.

 

3

 

BSPPG manufactures corecomponents for its products, where such integration improves operatingprofitability by providing lower costs.

 

BSPPG purchases engines fromits parent, Briggs & Stratton, as well as from Generac, Honda, Kawasaki andKohler. BSPPG has not experienced any difficulty obtaining necessary engines orother purchased components.

 

BSPPG assembles products forthe international markets at its U.S. and China locations and through contractmanufacturing agreements with other OEMs.

 

**Consolidated**

 

**GeneralInformation**

 

Briggs & Stratton holdspatents on features incorporated in its products; however, the success ofBriggs & Stratton’s business is not considered to be primarily dependentupon patent protection. The Company owns several trademarks which it believessignificantly affect a consumer’s choice of outdoor powered equipment andtherefore create value. Licenses, franchises and concessions are not a materialfactor in Briggs & Stratton’s business.

 

For the fiscal years ended July1, 2007, July 2, 2006 and July 3, 2005, Briggs & Stratton spentapproximately $25.7 million, $28.8 million and $33.5 million, respectively, onresearch activities relating to the development of new products or theimprovement of existing products.

 

The average number of personsemployed by Briggs & Stratton during fiscal 2007 was 7,666. Employmentranged from a high of 8,439 in July 2006 to a low of 7,235 in October 2006.

 

**ExportSales**

 

Export sales for fiscal 2007,2006 and 2005 were $490.7 million (23% of net sales), $527.0 million (21% ofnet sales) and $477.4 million (18% of net sales), respectively. These saleswere principally to customers in European countries. Refer to Note 6 of theNotes to Consolidated Financial Statements for financial information aboutgeographic areas. Also, refer to Item 7A of this Form 10-K and Note 13 of theNotes to Consolidated Financial Statements for information about Briggs &Stratton’s foreign exchange risk management.

 

**ITEM 1A. RISK FACTORS**

 

In addition to the risksreferred to elsewhere in this Annual Report on Form 10-K, the following risks,among others, may have affected, and in the future could affect, the Companyand its subsidiaries’ business, financial condition or results of operations.Additional risks not discussed or not presently known to the Company or thatthe Company currently deems insignificant may also impact its business andstock price.

 

**Demand forproducts fluctuates significantly due to seasonality. In addition, changes inthe weather and consumer disposable income impact demand.**

 

Sales of our products aresubject to seasonal and consumer buying patterns. Consumer demand in ourmarkets can be reduced by unfavorable weather, a reduction in disposable income,and other factors. We manufacture throughout the year although our sales areconcentrated in the second half of our fiscal year. This operating methodrequires us to anticipate demand of our customers many months in advance. If weoverestimate or underestimate demand during a given year, we may not be able toadjust our production quickly enough to avoid excess or insufficientinventories, and that may in turn limit our ability to maximize our potentialsales.

 

**We haveonly a limited ability to pass through cost increases in our raw materials toour customers during the year.**

 

We generally enter into annualpurchasing plans with our largest customers, so our ability to raise our pricesduring a particular year to reflect increased raw materials costs is limited.

 

4

 

**Asignificant portion of our net sales comes from major customers and the loss ofany of these customers would negatively impact our financial results.**

 

In fiscal 2007, our threelargest customers accounted for 36% of our consolidated net sales. The loss ofa significant portion of the business of one or more of these key customerswould significantly impact our net sales and profitability.

 

**Changes inenvironmental or other laws could require extensive changes in our operationsor to our products.**

 

Our operations and products aresubject to a variety of foreign, federal, state and local laws and regulationsgoverning, among other things, emissions to air, discharges to water, noise,the generation, handling, storage, transportation, treatment and disposal ofwaste and other materials and health and safety matters. New engine emissionregulations are being phased in through 2008 by the federal government and theState of California. We do not expect these changes to have a material adverseeffect on us, but we cannot be certain that these or other proposed changes inapplicable laws or regulations will not adversely affect our business orfinancial condition in the future.

 

**Foreigneconomic conditions and currency rate fluctuations can reduce our sales.**

 

In fiscal 2007, we derivedapproximately 23% of our consolidated net sales from international markets,primarily Europe. Weak economic conditions in Europe could reduce our sales andcurrency fluctuations could adversely affect our sales or profit levels in U.S.dollar terms.

 

**Actions ofour competitors could reduce our sales or profits.**

 

Our markets are highlycompetitive and we have a number of significant competitors in each market.Competitors may reduce their costs, lower their prices or introduce innovativeproducts that could hurt our sales or profits. In addition, our competitors mayfocus on reducing our market share to improve their results.

 

**Disruptionscaused by labor disputes or organized labor activities could harm our business.**

 

A portion of our workforce iscurrently represented by labor unions. In addition, we may from time to timeexperience union organizing activities in our non-union facilities. Disputeswith the current labor union or new union organizing activities could lead towork slowdowns or stoppages and make it difficult or impossible for us to meetscheduled delivery times for product shipments to our customers, which couldresult in loss of business. In addition, union activity could result in higherlabor costs, which could harm our financial condition, results of operationsand competitive position.

 

**As of July1, 2007, we had approximately $384.0 million of long-term debt. In addition, wehave the ability to incur additional borrowings on our revolving creditfacility. This level of debt could adversely affect our operating flexibilityand put us at a competitive disadvantage.**

 

Ourlevel of debt and the limitations imposed on us by the indentures for the notesand our other credit agreements could have important consequences, includingthe following:

 

**•**                  we will have touse a portion of our cash flow from operations for debt service rather than forour operations;

**•**                  we may not beable to obtain additional debt financing for future working capital, capitalexpenditures or other corporate purposes or may have to pay more for suchfinancing;

**•**                  some or all ofthe debt under our current or future revolving credit facilities will be at avariable interest rate, making us more vulnerable to increases in interestrates;

**•**                  we could be lessable to take advantage of significant business opportunities, such asacquisition opportunities, and to react to changes in market or industryconditions;

**•**                  we will be morevulnerable to general adverse economic and industry conditions; and

**•**                  we may bedisadvantaged compared to competitors with less leverage.

 

Theterms of the indentures for the senior notes do not fully prohibit us fromincurring substantial additional debt in the future and our revolving creditfacilities permit additional borrowings, subject to certain conditions. If newdebt is added to our current debt levels, the related risks we now face couldintensify.

 

We expect to obtain the moneyto pay our expenses and to pay the principal and interest on the outstanding8.875% senior notes, the 7.25% senior notes, the variable rate term notes, thecredit facilities and other debt primarily from our operations. Our ability tomeet our expenses thus depends on our future performance,

 

5

 

which will be affected byfinancial, business, economic and other factors. We will not be able to controlmany of these factors, such as economic conditions in the markets where weoperate and pressure from competitors. We cannot be certain that the money weearn will be sufficient to allow us to pay principal and interest on our debtand meet our other obligations. If we do not have enough money, we may berequired to refinance all or part of our existing debt, sell assets or borrowmore money. We cannot guarantee that we will be able to do so on termsacceptable to us. In addition, the terms of existing or future debt agreements,including the revolving credit facilities and our indentures, may restrict usfrom adopting any of these alternatives.

 

**We arerestricted by the terms of the outstanding senior notes and our other debt,which could adversely affect us.**

 

Theindentures relating to the senior notes and our revolving credit agreementseach include a number of financial and operating restrictions, which mayprevent us from capitalizing on business opportunities and taking somecorporate actions. These covenants could adversely affect us by limiting ourability to plan for or react to market conditions or to meet our capital needs.These covenants include, among other things, restrictions on our ability to:

 

•                  pay dividends ormake distributions in respect of our capital stock or to make certain otherrestricted payments;

•                  incurindebtedness or issue preferred shares;

•                  create liens;

•                  make loans orinvestments;

•                  enter into saleand leaseback transactions;

•                  agree to paymentrestrictions affecting our restricted subsidiaries;

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

•                  enter intotransactions with affiliates; and

•                  dispose ofassets or the proceeds of sales of our assets.

 

In addition, our revolvingcredit facility contains financial covenants that, among other things, requireus to maintain a minimum interest coverage ratio and impose a maximum leverageratio.

 

**Ourfailure to comply with restrictive covenants under the indentures governing thesenior notes and our revolving credit facilities could trigger prepaymentobligations.**

 

Ourfailure to comply with the restrictive covenants described above could resultin an event of default, which, if not cured or waived, could result in us beingrequired to repay these borrowings before their due date. If we are forced torefinance these borrowings on less favorable terms, our results of operationsand financial condition could be adversely affected by increased costs andrates.

 

**ITEM 1B.     UNRESOLVEDSTAFF COMMENTS**

 

None.

 

**ITEM 2.        PROPERTIES**

 

Thecorporate offices and one of Briggs & Stratton’s engine manufacturingfacilities are located in Wauwatosa, Wisconsin. Briggs & Stratton also hasengine manufacturing facilities in Auburn, Alabama; Statesboro, Georgia;Murray, Kentucky; Poplar Bluff, Missouri; Ostrava, Czech Republic andChongqing, China. These are owned facilities containing approximately 3.1million square feet of office and production area. The Company currently leasesan engine manufacturing facility in Rolla, Missouri, which containsapproximately 404,000 square feet. Briggs & Stratton also leases warehousespace in the localities of its engine manufacturing facilities, except China, totalingapproximately 619,750 square feet. Additionally, a service parts distributioncenter consisting of approximately 335,400 square feet is leased in MenomoneeFalls, Wisconsin.

 

BSPPGmaintains office space and manufacturing facilities in Brookfield, Jefferson,Watertown and Port Washington, Wisconsin; McDonough, Georgia; Newbern,Tennessee; Munnsville, New York and Qingpu, China. Of these, the domesticfacilities, except Brookfield, Wisconsin, are owned and contain approximately

 

6

 

1.5million square feet. The Brookfield, Wisconsin office space is leased andcontains approximately 26,000 square feet. BSPPG also leases warehouse space inJefferson, Watertown and Fort Atkinson, Wisconsin; McDonough, Georgia; GrandPrairie, Texas; Greenville, Ohio; Reno, Nevada; and Sherrill and Hamilton, NewYork totaling approximately 1.8 million square feet. Additionally, the Qingpu,China facility is leased and contains approximately 131,000 square feet.

 

Briggs& Stratton leases approximately 290,000 square feet of space to house itsforeign sales and service operations.

 

AsBriggs & Stratton’s business is seasonal, additional warehouse space may beleased when inventory levels are at their peak. Briggs & Stratton’s ownedproperties are well maintained. Briggs & Stratton believes that its ownedand leased facilities are adequate to perform its operations in a reasonablemanner.

 

**ITEM 3.        LEGALPROCEEDINGS**

 

Briggs& Stratton is subject to various unresolved legal actions that arise in thenormal course of its business. These actions typically relate to productliability (including asbestos-related liability), patent and trademark matters,and disputes with customers, suppliers, distributors and dealers, competitorsand employees.

 

OnJune 3, 2004, eight individuals who claim to have purchased lawnmowers inIllinois and Minnesota filed a lawsuit (Ronnie Phillips et al. v. Sears RoebuckCorporation et al., No. 04-L-334 (20th Judicial Circuit, St. Clair County, IL))against the Company and other defendants alleging that the horsepower labels onthe products they purchased were inaccurate. The plaintiffs have amended theircomplaint several times and currently seek an injunction, compensatory andpunitive damages, and attorneys’ fees under various federal and state lawsincluding the Racketeer Influenced and Corrupt Organization Act on behalf ofall persons in the United States who, beginning January 1, 1994 through thepresent, purchased a lawnmower containing a two-stroke or four-stroke gasolinecombustion engine up to 30 horsepower that was manufactured or sold by thedefendants. On May 31, 2006, the defendants removed the case to the U.S.District Court for the Southern District of Illinois (No. 06-412-DRH). Thedefendants subsequently filed cross claims against each other forindemnification and contribution and filed a motion to dismiss the amendedcomplaint. On March 30, 2007, the Court issued an order granting the defendants’motion to dismiss the amended complaint in its entirety, but the order permitsthe plaintiffs to refile a complaint after amending several claims. An opinionof the Court providing more detail concerning its order is expected but has notyet been filed. Two defendants, MTD Products, Inc. and American Honda MotorCompany, have notified the Court that they have reached a settlement with theputative plaintiff class, but neither defendant’s agreement has yet beenapproved by the Court.

 

Althoughit is not possible to predict with certainty the outcome of these unresolvedlegal actions or the range of possible loss, Briggs & Stratton believes therange of possible losses for these unresolved legal actions will not have amaterial effect on its financial position.

 

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

 

No matters were submitted to avote of security holders, through the solicitation of proxies or otherwise,during the three months ended July 1, 2007.

 

7

 

**Executive Officers of theRegistrant**

 
|                                                                                                  | Name, Age, Position |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | Business Experience for  Past Five Years |   |
|-------------------------------------------------------------------------------------------------------|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                                  |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| JOHN  S. SHIELY, 55  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, 42  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, 59  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, 44  Vice President – North American Operations  (Engine Power Products Group) |                | Mr.  DeBaets was elected to his current position effective September 2007. 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.                                                                                                                                                                                  |
|                                                                                                  |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| MARK  R. HAZELTINE, 64  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, 59  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.                                                                                                                                                        |
|                                                                                                  |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| HAROLD  L. REDMAN, 43  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, 51  Senior Vice President – Sales &  Customer Support                   |                | Mr.  Reitman was elected to his current position effective September 2007, after  serving as Senior Vice President–  Sales & Marketing since May 2006, and Vice President–Sales  & Marketing since October 2004. He also served as Vice President – Marketing  since November 1995.                                                                                                                                                                    |

 

8

 
| DAVID J. RODGERS, 36  Controller                                                                      |   | Mr. Rodgers was  elected as an executive officer in September 2007 and has served as  Controller since December 2006. He was previously employed by Roundy’s  Supermarkets, Inc. as Vice President – Controller from September 2005 to  November 2006 and Vice President – Retail Controller from May 2003 to August  2005. He also was previously employed by Arthur Andersen LLP and Deloitte  & Touche LLP.                                                                                                                                                                                          |
|-------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| THOMAS R. SAVAGE, 59  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, 47  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, 47  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. |
|                                                                                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| CARITA R. TWINEM, 52  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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| JOSEPH C. WRIGHT, 48  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)     Officeris also a Director of Briggs & Stratton. (2) Member of the Board ofDirectors Executive Committee.

(3)     JohnS. Shiely and Vincent R. Shiely are brothers.

 

Officers are elected annuallyand serve until they resign, die, are removed, or a different person isappointed to the office.

 

9

 

**PART II**

 

**ITEM 5.****       ****MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND  ISSUER PURCHASES OF EQUITY SECURITIES**

 

Briggs& Stratton common stock and its common share purchase rights are traded onthe NYSE under the symbol “BGG”. Information required by this Item isincorporated by reference from the “Quarterly Financial Data, Dividend andMarket Information” (unaudited) on page 52.

 

**Changes in Securities, Use of Proceeds and Issuer Purchasesof Equity Securities**

 

Briggs& Stratton did not make any purchases of equity securities registered bythe company pursuant to Section 12 of the Exchange Act during the fourthquarter of fiscal 2007.

 

**Five-year Stock Performance Graph**

 

Thechart below is a comparison of the cumulative return over the last five fiscalyears had $100 been invested at the close of business on June 30, 2001 in eachof Briggs & Stratton common stock, the Standard & Poor’s (S&P)Smallcap 600 Index and the S&P Machinery Index.

 

**FIVEYEAR CUMULATIVE TOTAL RETURN COMPARISON* Briggs & Stratton versus Published Indices**

 

 

 
|   |                            | 6/02   |   | 6/03   |   | 6/04   |   | 6/05   |   | 6/06   |   | 6/07   |   |
|--------|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| n      | Briggs &  Stratton          |   | 100.00 |   | 135.83 |   | 242.40 |   | 193.44 |   | 178.24 |   | 186.34 |   |
|  | S&P  Smallcap 600           |   | 100.00 |   | 96.42  |   | 130.41 |   | 147.95 |   | 168.55 |   | 195.58 |   |
| • | S&P Machinery (diversified) |   | 100.00 |   | 98.61  |   | 143.97 |   | 139.05 |   | 167.53 |   | 207.08 |   |

 
| * | Total return  calculation is based on compounded monthly returns with reinvested dividends. |   |   |   |
|---|---------------------------------------------------------------------------------------------|--------|--------|--------|

 

10

 

**ITEM 6.        SELECTED FINANCIAL DATA**

 
| Fiscal Year                                                                    | **2007**      |          | 2006      |   | 2005            |   | 2004      |            | 2003      |   |
|--------------------------------------------------------------------------------|---------------|---------------|-----------|--------|-----------------|--------|-----------|-----------------|-----------|--------|
| (dollars in thousands, except per share data)                                  |          |          |      |   |            |   |      |            |      |   |
|                                                                           |          |          |      |   |            |   |      |            |      |   |
| **SUMMARY OF OPERATIONS**  (1) (2)                                             | ** **    |          |      |   |            |   |      |            |      |   |
| NET SALES                                                                      | **$**         | **2,157,233** |      | $      |  2,542,171 |   | $         |  2,654,875 |      | $      | 1,947,364 |   | $ | 1,657,633 |   |
| GROSS PROFIT  ON SALES                                                         | **287,132**   |          | 491,684   |   | 504,891         |   | 439,872   |            | 328,079   |   |
| PROVISION  (CREDIT) FOR INCOME TAXES                                           | **(7,465**)   |          | 50,020    |   | 57,548          |   | 68,890    |            | 37,940    |   |
| INCOME  BEFORE EXTRAORDINARY GAIN                                              | **146**       |          | 102,346   |   | 116,767         |   | 136,114   |            | 80,638    |   |
| INCOME  BEFORE EXTRAORDINARY GAIN PER SHARE OF COMMON STOCK:                   | **0.00**      |          | 1.99      |   | 2.27            |   | 3.01      |            | 1.86      |   |
| Basic  Earnings                                                                | **0.00**      |          | 1.98      |   | 2.25            |   | 2.77      |            | 1.74      |   |
| Diluted  Earnings                                                              |          |          |      |   |            |   |      |            |      |   |
| PER SHARE OF COMMON STOCK:                                                     | **.88**       |          | .88       |   | .68             |   | .66       |            | .64       |   |
| Cash  Dividends                                                                | **$**         | **17.09**     |      | $      | 19.33           |   | $         | 17.22           |      | $      | 16.03 |   | $ | 11.83 |   |
| Shareholders’  Investment                                                 |          |          |      |   |            |   |      |            |      |   |
| WEIGHTED  AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s) | **49,715**    |          | 51,479    |   | 51,472          |   | 45,286    |            | 43,279    |   |
| DILUTED  NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)          | **49,827**    |          | 51,594    |   | 51,954          |   | 50,680    |            | 48,959    |   |
|                                                                           | ** **    |          |      |   |            |   |      |            |      |   |
| **OTHER DATA** (1) (2)                                                         | **$**         | **846,054**   |      | $      | 987,206         |   | $         | 889,186         |      | $      | 817,595 |   | $ | 514,987 |   |
| SHAREHOLDERS’  INVESTMENT                                                 | **384,048**   |          | 383,324   |   | 486,321         |   | 360,562   |            | 503,397   |   |
| LONG-TERM  DEBT                                                                | **2,379**     |          | 1,385     |   | 1,988           |   | -         |            |      | -      |   |   |
| CAPITAL  LEASES                                                                | **1,887,168** |          | 1,944,200 |   | 1,998,968       |   | 1,637,153 |            | 1,475,193 |   |
| TOTAL ASSETS                                                                   | **1,006,402** |          | 1,008,164 |   | 1,005,644       |   | 867,987   |            | 876,664   |   |
| PLANT AND  EQUIPMENT                                                           | **388,318**   |          | 430,288   |   | 447,255         |   | 356,542   |            | 370,784   |   |
| PLANT AND  EQUIPMENT, NET OF RESERVES                                          | **70,379**    |          | 72,734    |   | 66,348          |   | 59,816    |            | 58,325    |   |
| PROVISION  FOR DEPRECIATION                                                    | **68,000**    |          | 69,518    |   | 86,075          |   | 52,962    |            | 40,154    |   |
| EXPENDITURES  FOR PLANT AND EQUIPMENT                                          | **$**         | **526,623**   |      | $      | 688,506         |   | $         | 766,537         |      | $      | 681,432 |   | $ | 505,752 |   |
| WORKING  CAPITAL                                                               | **2.1 to 1**  |          | 3.0 to 1  |   | 3.2 to 1        |   | 3.3 to 1  |            | 2.7 to 1  |   |
| Current  Ratio                                                                 | **7,260**     |          | 8,701     |   | 9,073           |   | 7,732     |            | 7,249     |   |
| NUMBER OF  EMPLOYEES AT YEAR-END                                               | **3,693**     |          | 3,874     |   | 4,058           |   | 4,230     |            | 4,503     |   |
| NUMBER OF  SHAREHOLDERS AT YEAR-END                                            |          |          |      |   |            |   |      |            |      |   |
| QUOTED MARKET PRICE:                                                           | ** **    |          |      |   |            |   |      |            |      |   |
| High                                                                           | **$**         | **33.07**     |      | $      | 40.38           |   | $         | 44.50           |      | $      | 44.22 |   | $ | 25.75 |   |
| Low                                                                            | **$**         | **24.29**     |      | $      | 30.01           |   | $         | 30.83           |      | $      | 24.68 |   | $ | 15.38 |   |
|                                                                                |               |               |           |        |                 |        |           |                 |           |        |  |  |  |  |  |  |  |

 

(1)   Theamounts include the acquisitions of Simplicity Manufacturing, Inc. since July7, 2004 and certain assets of Murray, Inc. since February 11, 2005. See Note 3of the Notes to Consolidated Financial Statements for additional information.

 

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

 

11

 

**ITEM 7.****       ****MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS**

 

**Results of Operations**

 

*FISCAL 2007 COMPARED TO FISCAL 2006*

 

NetSales

Fiscal2007 consolidated net sales were approximately $2.16 billion, a decrease of$385 million compared to the previous year. The decrease is primarily due tolower sales volumes in both segments.

 

EnginesSegment net sales were $1.45 billion compared to $1.65 billion in the prioryear, a decrease of $201.2 million or 12%. The decrease is primarily the resultof a 12% decrease in engine unit shipments between years. The shipment declineis due to a 66% reduction of engine shipments for portable generators caused bya lack of events, such as hurricanes, that cause power outages. The reminder ofthe decrease is due to lower retail demand for lawn and garden equipment in theU.S. along with a smaller market share in Europe. Unfavorable weatherconditions and various economic factors contributed to difficult marketconditions for lawn and garden products. Pricing improvements and the impact offavorable Euro exchange rates in fiscal 2007 were almost entirely offset by anunfavorable mix shift to smaller displacement, lower priced engines.

 

PowerProducts Segment net sales were $890.4 million in fiscal 2007 compared to $1.19billion in fiscal 2006, a decrease of $295.6 million or 25%. Approximately$113.0 million of the decrease was the result of the anticipated reduction ofMurray branded lawn and garden product sold to retailers. Excluding Murraybranded product, lawn and garden equipment sales were comparable between years.The remainder of the net sales decrease was primarily due to a 58% reduction ofportable generator unit shipments because of no landed hurricane activity infiscal 2007 and lower pre-hurricane season sales. These sales decreases werepartially offset by an increase in pressure washer unit shipments compared tothe same period in the prior year and the introduction of new air compressorand home standby generator products.

 

GrossProfit 

Consolidatedgross profit was $287.1 million in fiscal 2007 compared to $491.7 million infiscal 2006, a decrease of $204.6 million or 42%. In fiscal 2007, the Companyrecorded impairment charges of $43.1 million ($26.2 million, net of taxes)related to write-downs of assets primarily associated with the announcedrationalization of two manufacturing plants. The remainder of the decrease isthe result of lower sales and production volumes in both segments.

 

EnginesSegment gross margins decreased to $208.4 million in fiscal 2007 from $381.9million in fiscal 2006, a decrease of $173.5 million. Engines Segment grossprofit margins decreased to 14.4% in fiscal 2007 from 23.2% in fiscal 2006.Approximately $33.9 million of the decline is attributable to expense incurredwith the write-down of assets primarily associated with the rationalization of amajor operating plant in the United States. The balance of the reductionresulted primarily from lower sales and production volumes, and increased costsfor raw materials. Lower unit sales negatively impacted fiscal 2007 margins byapproximately $70.0 million. Pricing improvements and the impact of favorableEuro exchange rates in fiscal 2007 were almost entirely offset by anunfavorable mix shift to smaller displacement, lower priced engines. Rawmaterial cost increases primarily related to aluminum, steel, and zinc alsonegatively impacted margins. Engine production volumes decreased 18.9% infiscal 2007 compared to fiscal 2006 reducing fixed cost absorption byapproximately $45.0 million. In addition, fiscal 2006 included gains ofapproximately $12.2 million associated with certain asset sales that were notrecurring in fiscal 2007.

 

The Power ProductsSegment gross margins decreased to $80.8 million in fiscal 2007 from $113.2million in fiscal 2006, a decrease of $32.4 million. The Power Products Segmentmargin decreased to 9.1% in fiscal 2007 from 9.5% in fiscal 2006. Assetimpairment charges of $9.2 million primarily related to the write-down ofassets associated with a plan to close the Port Washington manufacturingfacility by October 2008 accounted for a gross profit margin decline ofapproximately 1.0%. Portable generator production volume declines of 65% offsetby increased production of pressure washers decreased fixed cost absorption byapproximately $13.6 million. These declines were offset by a decrease of $19million of 2006 expenses associated with the wind down of operations at theMurray, Inc. operating facility and the write-off of excess inventory relatedto Murray product.

 

12

 

Engineering, Selling,General and Administrative Costs

Engineering, selling,general and administrative costs decreased to $265.6 million in fiscal 2007from $315.7 million in fiscal 2006, a decrease of $50.1 million. Engineering,selling, general and administrative costs as a percent of sales decreased to12.3% in fiscal 2007 from 12.4% in fiscal 2006.

 

Thedecrease in engineering, selling, general and administrative expenses is due toplanned reductions in salaries and benefits of $14 million, reducedprofessional services and legal fees of $21 million and reduced selling,marketing and advertising expenses of $12 million.

 

InterestExpense 

Interestexpense increased $1.6 million in fiscal 2007 compared to fiscal 2006. Theincrease is attributable to higher average borrowings between years to supporthigher average working capital requirements.

 

OtherIncome

Otherincome decreased $3.7 million in fiscal 2007 as compared to fiscal 2006. Thedecrease in other income is due to lower dividends received as well as theCompany’s portion of lower earnings at its joint venture investments.

 

Provisionfor Income Taxes 

Theeffective tax rate was 102% for fiscal 2007 and 33% for fiscal 2006. The fiscal2007 effective tax rate results primarily from our ability to exclude from taxableincome a portion of the distributions received from investments and the benefitfrom the research credit and the production activities deduction.

 

*FISCAL 2006 COMPARED TO FISCAL 2005*

 

NetSales

Fiscal2006 consolidated net sales were approximately $2.5 billion, a decrease of $113million compared to the previous year. The decrease is primarily due to lowersales volumes in both segments.

 

EnginesSegment net sales were $1.6 billion versus $1.7 billion in the prior year, adecrease of $91 million or 5%. The decrease is primarily the result of a 7%decrease in engine unit shipments between years. The shipment decline isattributable to softer retail demand for lawn and garden equipment and effortsby retailers and OEMs to control inventory levels in the wake of reduceddemand. This unit shipment decline was partially offset by $30 million from aprice increase implemented in the beginning of the fiscal year, as well as afavorable mix of engine unit shipments.

 

PowerProducts net sales were $1.2 billion in both fiscal 2006 and 2005. Lowervolumes in fiscal 2006 of $105 million for pressure washer and lawn and gardenequipment sales were almost fully offset by $75 million of increased volume andpricing on generators as well as $23 million from a favorable mix of lawn andgarden product. Management believes the decline in volume of lawn and gardenand pressure washer sales is attributable to lower consumer discretionaryspending, which resulted in lower demand at retailers.

 

GrossProfit

Consolidatedgross profit decreased $13 million in fiscal 2006. The decrease is primarilythe result of the volume decreases noted above offset by pricing improvementsin both segments.

 

EnginesSegment margins increased from 21% in fiscal 2005 to 23% in fiscal 2006. Theincrease in margin is attributable to the price increase discussed above aswell as $13 million in gains on the sale of operating assets. In addition,ongoing cost reduction programs contributed $8 million to the margin. Thesepositive margin enhancers were enough to overcome the impact of a 4% productionvolume decline, a mix of product that favored lower margin units and othermanufacturing cost increases.

 

ThePower Products Segment margin decreased to 10% in fiscal 2006 from 11% infiscal 2005. The decline is primarily attributable to $19 million in lossesassociated with the wind down of operations at the Murray, Inc. operatingfacility and the write-off of excess inventory related to Murray product.Partially offsetting these losses was $16 million in pricing improvements,primarily on generators.

 

Engineering, Selling,General and Administrative Costs

Engineering, selling,general and administrative costs increased $2 million between years. Excludingthe impact of the $39 million write-off of the Murray, Inc. trade receivablethat occurred in fiscal 2005 the category increased $41 million between years.

 

13

 

Increasesin this category in fiscal 2006 as compared to fiscal 2005 included: $9 millionfrom the expensing of stock based compensation in fiscal 2006, $12 million inincreased legal fees associated with litigation, $9 million associated withincreased information technology spending, and $2 million from increasedengineering costs associated with new product development in the Power ProductsSegment. Planned increases of $9.0 million in selling and advertising costsalso contributed to the year over year increase in this category.

 

InterestExpense

Interestexpense increased $5 million in fiscal 2006 compared to fiscal 2005. Theincrease is attributable to higher borrowings between years associated with theterm notes used for the Murray, Inc. asset acquisition in February 2005.

 

OtherIncome

Otherincome decreased $2 million in fiscal 2006 as compared to fiscal 2005. Thedecrease is attributed primarily to higher deferred financing expenses.Deferred financing expense increased as a result of the acceleration of debtrepayments and the write-off of associated deferred financing costs.

 

Provisionfor Income Taxes

Theeffective tax rate was approximately 33% in both fiscal 2006 and fiscal 2005.

 

**Liquidity and Capital Resources**

 

*FISCAL YEARS 2007, 2006 AND 2005*

 

Cashflows from operating activities were $88 million, $155 million and $149 millionin fiscal 2007, 2006 and 2005, respectively.

 

Thefiscal 2007 cash flows from operating activities were $67 million less than theprior year. The primary reason for the decrease is due to net income beinglower by $102 million in fiscal 2007 compared to fiscal 2006. The decrease innet income was partially offset by non-cash impairment charges of $43 millionin fiscal 2007. In addition, higher fourth quarter sales within our EnginesSegment increased working capital requirements for accounts receivable by $54million partially offset by higher accounts payable and accrued liabilities.

 

Thefiscal 2006 cash flows from operating activities were $6 million higher thanthe prior year. The primary reason for the increase is lower working capitalrequirements in fiscal 2006. Lower fourth quarter sales in fiscal 2006 resultedin higher inventory levels offset by lower receivables and accrued liabilitiesincluding rebates, incentive compensation and income taxes. The reduction innet income between years was more than offset by a series of increased non-cashitems in fiscal 2006 including non-cash pension charges, stock compensationexpense, gains on fixed asset sales, the deferred tax credit, and theelimination of the extraordinary gain.

 

Thefiscal 2005 cash flows from operations were $98 million higher than the prioryear. Fiscal 2005 did not experience the significant increase in inventoriesexperienced in 2004, resulting in a $141 million improvement in cash flows infiscal 2005. During fiscal 2004, inventories for engines and power productswere increased to what management believes were a more normal level.Accordingly, no such incremental inventory build-up was required in fiscal2005. Offsetting the favorable impact of inventory levels on cash flows was 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.

 

Cashused in investing activities was $67 million, $55 million and $437 million infiscal 2007, 2006 and 2005, respectively. These cash flows include capitalexpenditures of $68 million, $70 million and $86 million in fiscal 2007, 2006and 2005, respectively. The capital expenditures relate primarily toreinvestment in equipment, capacity additions and new products. During fiscal2007, we increased our Engines Segment capacity by opening a new plant inOstrava, Czech Republic which accounted for $15 million of capitalexpenditures. This new plant began production in December 2006. In addition,the Power Products Segment is adding lawn and garden product capacity with anew plant in Newbern, Tennessee that accounted for $6 million of capitalexpenditures in fiscal 2007. This plant is expected to begin production in thesecond quarter of fiscal 2008.

 

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

 

Infiscal 2005, cash used in investing activities also includes $232 million incash paid for the Simplicity acquisition and $123 million for the acquisitionof certain Murray assets.

 

14

 

Briggs& Stratton used cash of $89 million and $169 million in financingactivities in fiscal 2007 and fiscal 2006, respectively. Briggs & Strattonprovided cash from financing activities of $106 million in fiscal 2005.

 

Infiscal 2007, Briggs & Stratton repurchased $48.2 million of its commonshares outstanding as part of a $120 million share repurchase programauthorized by the Board of Directors in fiscal 2007. In addition, the Companypaid common stock dividends of $44 million in fiscal 2007.

 

Infiscal 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 repurchased $35 million of its common shares in fiscal 2006.

 

Earlyin fiscal 2005, the Company used its available cash to finance the acquisitionof Simplicity. To finance the acquisition of the Murray assets, the Companyissued $125 million in term notes in fiscal 2005. The Company incurred $1million in fees in fiscal 2005 negotiating the term notes and an amendment toits revolving credit facility.

 

TheCompany received $4 million, $12 million, and $20 million in fiscal years 2007,2006 and 2005, respectively, from the exercise of stock options. The stockoption activity is a direct reflection of the market value of the Company’sstock and option strike prices that encourage the exercise of the options.

 

FutureLiquidity and Capital Resources

Atthe end of fiscal 2007, the Company had no borrowings outstanding under its$350 million revolving credit facility that was to expire in May 2009. On July12, 2007, the Company entered into a $500 million amended and restatedmulticurrency credit agreement. The Amended Credit Agreement (“Revolver”)provides a revolving credit facility for up to $500 million in revolving loans,including up to $25 million in swing-line loans. The Company will use proceedsof the Revolver to, among other things, pay off amounts outstanding under theCompany’s Term Loan Agreement dated February 11, 2005 with various financialinstitutions. The Revolver will also be used to fund seasonal working capitalrequirements and other financing needs. At any time during the term of theRevolver, the Company may, so long as no event of default has occurred and iscontinuing and certain other conditions are satisfied, elect to increase themaximum amount available under the Revolver from $500 million by up to anamount not to exceed $250 million through, at the Company’s election, increasesof commitments by existing lenders and/or the addition of new lenders. TheRevolver has a term of five years and all outstanding borrowings on theRevolver will be due and payable on July 12, 2012.

 

OnAugust 10, 2006, Briggs & Stratton announced its intent to initiaterepurchases of up to $120 million of its common stock through open markettransactions during fiscal 2007 and fiscal 2008. The timing and amount ofactual purchases will depend upon certain governing loan covenants. As ofAugust 30, 2007, approximately $48.2 million of common stock has been repurchasedunder this plan.

 

Briggs& Stratton expects capital expenditures to be approximately $80 million infiscal 2008. These anticipated expenditures reflect our plans to continue toreinvest in equipment, new products, and capacity enhancements.

 

Managementbelieves that available cash, the credit facility, cash generated from futureoperations, existing lines of credit and access to debt markets will beadequate to fund Briggs & Stratton’s capital requirements for theforeseeable future.

 

**Financial Strategy**

 

Managementbelieves that the value of Briggs & Stratton is enhanced if the capitalinvested in operations yields a cash return that is greater than the cost ofcapital. Consequently, management’s first priority is to reinvest capital intophysical assets and products that maintain or grow the global cost leadershipand market positions that Briggs & Stratton has achieved, and drive theeconomic value of the Company. Management’s next financial objective is toidentify strategic acquisitions or alliances that enhance revenues and providea 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 & Strattonhas no off-balance sheet arrangements or significant guarantees to thirdparties not fully recorded in our Balance Sheets or fully disclosed in ourNotes to Consolidated Financial Statements. Briggs & Stratton’s significantcontractual obligations include our debt agreements and certain employeebenefit plans.

 

15

 

Briggs& Stratton is subject to financial and operating restrictions in additionto certain financial covenants under its domestic debt agreements. As is fullydisclosed in Note 8 of the Notes to Consolidated Financial Statements, theserestrictions could limit our ability to: pay dividends; incur furtherindebtedness; create liens; enter into sale and/or leaseback transactions;consolidate, sell or lease all or substantially all of our assets; and disposeof assets or the proceeds of our assets. We believe we will remain incompliance with these covenants in fiscal 2008. Briggs & Stratton hasobligations concerning certain employee benefits including its pension plans,postretirement benefit obligations and deferred compensation arrangements. Allof these obligations are recorded on our Balance Sheets and disclosed morefully in the Notes to Consolidated Financial Statements.

 

**Contractual Obligations**

 

Asummary of the Company’s expected payments for significant contractualobligations as of July 1, 2007 is as follows (in thousands): 

 
|                       |   |   | Total   |   |   |    | 2008   |   |   | 2009-2010 |   | 2011-2012 |   | Thereafter |   |
|----------------------------|--------|--------|---------|--------|--------|---------|--------|--------|--------|-----------|--------|-----------|--------|------------|--------|
| Long-Term Debt             |   | $      | 386,139 |   | $      | 116,139 |   | $      | -      |      | $      | 270,000   |   | $          | -      |   |
| Interest on Long-Term Debt |   | 89,658 |    | 24,760 |   | 47,925  |   | 16,973 |   | -         |   |
| Capital Leases             |   | 2,892  |    | 1,222  |   | 755     |   | 782    |   | 133       |   |
| Operating Leases           |   | 49,473 |    | 14,161 |   | 19,289  |   | 9,700  |   | 6,323     |   |
| Consulting Agreement       |   | 153    |    | 153    |   | -       |   | -      |   | -         |   |
|                       |   | $      | 528,315 |   | $      | 156,435 |   | $      | 67,969 |      | $      | 297,455   |   | $          | 6,456  |   |
|                            |        |        |         |        |        |         |        |        |        |           |        |           |        |            |        |  |  |  |  |  |

 

**Other Matters**

 

LaborAgreement 

Briggs& Stratton has collective bargaining agreements with its unions. Theseagreements expire at various times ranging from 2007-2011.

 

Emissions

TheU.S. Environmental Protection Agency (EPA) has developed national emissionstandards under a two-phase process for small air cooled engines. Briggs &Stratton currently has a complete product offering that complies with the EPA’sPhase II engine emission standards.

 

TheEPA issued proposed Phase III standards to further reduce engine exhaustemissions and to control evaporative emissions from small off-road engines andequipment they are used in. The proposed standards are similar to those adoptedby the California Air Resources Board (CARB). The proposed Phase III programwould require some evaporative controls in 2007 and go into full effect in 2011for Class II engines (225 cubic centimeter displacement and larger) and 2012for Class I engines (less than 225 cubic centimeter displacement). Briggs &Stratton does not believe compliance with the new standards will have amaterial adverse effect on its financial position or results of operations.

 

CARB’sTier 3 regulation requires additional reductions to engine exhaust emissionsand new controls on evaporative emissions from small engines. The Tier 3regulation is phased in between 2006 and 2008 depending upon the size of theengine and type of control. While Briggs & Stratton believes the cost ofthe regulation may increase engine costs per unit, 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 revisions the CARB made to its adopted regulation from theproposal published in September 2003 in response to recommendations from Briggs& Stratton and others in the regulated category and intention to passincreased costs associated with the regulation on to consumers.

 

The European Commissionadopted an engine emission Directive regulating exhaust emissions from enginesmanufactured by Briggs & Stratton. The Directive parallels the regulationspreviously promulgated by the U.S. EPA. Stage 1 was effective in February 2004and Stage 2 phases in between calendar years 2005 and 2007, with some limitedextensions available for specific size and type engines until 2010. Briggs& Stratton’s full European product line has been compliant with Stage 1since 2004. Briggs & Stratton has certified the majority of its Class 2 enginesto be compliant with the Stage 2 standards and intends to have a full Europeanproduct line compliant with Stage 2 before the end of calendar year 2007.Briggs & Stratton does not believe compliance with the Directive will havea material adverse effect on its financial position or results of operations.

 

16

 

Critical AccountingPolicies

Briggs & Stratton’scritical accounting policies are more fully described in Note 2 and Note 14 ofthe Notes to Consolidated Financial Statements. As discussed in Note 2, thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the U.S. (“GAAP”) requires management to make estimatesand assumptions about future events that affect the amounts reported in thefinancial statements and accompanying notes. Future events and their effectscannot be determined with absolute certainty. Therefore, the determination ofestimates requires the exercise of judgment. Actual results inevitably willdiffer from those estimates, and such differences may be material to thefinancial statements.

 

Themost significant accounting estimates inherent in the preparation of ourfinancial statements include estimates as to the recovery of accounts receivableand inventory reserves, as well as those used in the determination ofliabilities related to customer rebates, pension obligations, postretirementbenefits, warranty, product liability, litigation and taxation.

 

Thereserves for customer rebates, warranty, product liability, inventory anddoubtful accounts are fact specific and take into account such factors asspecific customer situations, historical experience, and current and expectedeconomic conditions.

 

TheCompany’s estimate of income taxes payable, deferred income taxes, and theeffective tax rate is based on a complex analysis of many factors includinginterpretations of Federal, state and foreign income tax laws, the differencebetween tax and financial reporting bases of assets and liabilities, estimatesof amounts currently due or owed in various jurisdictions, and currentaccounting standards. We review and update our estimates on a quarterly basisas 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.

 

Thepension benefit obligation and related pension expense or income are calculatedin accordance with Statement of Financial Accounting Standard (SFAS) No.158, “Employer’sAccounting for Defined Benefit Pension and Other Postretirement Plans - anamendment of FASB Statements No. 87, 88, 106 and 132 (R)”, 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 1, 2007 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 $0.1million. 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 cannotpredict these changes in discount rates or investment returns and, therefore,cannot reasonably estimate whether the impact in subsequent years will besignificant.

 

Thefunded status of the Company’s pension plan is the difference between theprojected benefit obligation and the fair value of its plan assets. Theprojected benefit obligation is the actuarial present value of all benefitsexpected to be earned by the employees’ service adjusted for future potentialwage increases. At July 1, 2007 the fair value of plan assets exceeded theprojected benefit obligation by approximately $63 million.

 

Theother postretirement benefits obligation and related expense or income are alsocalculated in accordance with SFAS No. 158, “Employer’s Accounting for DefinedBenefit Pension and Other Postretirement Plans – an amendment of FASBStatements No. 87, 88, 106 and 132 (R)” and are impacted by certain actuarialassumptions, including the health care trend rate. An increase of onepercentage point in health care costs would increase the accumulatedpostretirement benefit obligation by $11.5 million and would increase theservice and interest cost by $0.9 million. A corresponding decrease of onepercentage point, would decrease the accumulated postretirement benefit by$10.8 million and decrease the service and interest cost by $0.8 million.

 

For pension andpostretirement benefits, actuarial gains and losses are accounted for inaccordance with GAAP. Refer to Note 14 of the Notes to the ConsolidatedFinancial Statements for additional discussion.

 

17

 

NewAccounting Pronouncements 

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities – Including an Amendment of FASBStatement No. 115,” (SFAS 159). This standard permits an entity to choose tomeasure many financial instruments and certain other items at fair value. Thefair value option permits a company to choose to measure eligible items at fairvalue at specified election dates. A company will report unrealized gains andlosses on items for which the fair value option has been elected in earningsafter adoption. Statement 159 is effective for fiscal years beginning afterNovember 15, 2007. At this time, the impact of adoption of SFAS 159 on ourconsolidated financial position is being assessed.

 

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS157), which defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements. SFAS 157 iseffective for fiscal years beginning after November 15, 2007. At this time, theimpact of adoption of SFAS 157 on our consolidated financial position is beingassessed.

 

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans - an amendment of FASBStatements No. 87, 88, 106, and 132(R),” (SFAS 158). SFAS 158 requiresrecognition of the overfunded or underfunded status of a postretirement benefitplan in the statement of financial position, as well as recognition of changesin that funded status through comprehensive income in the year in which theyoccur. SFAS 158 also requires a change in the measurement of a plan’s assetsand benefit obligations as of the end date of the employer’s fiscal year. SFAS158 is effective for fiscal years ending after December 15, 2006, except forthe measurement date provisions, which are effective for fiscal years endingafter December 15, 2008. See Note 14 – Pension and Other PostretirementBenefits in the Notes to Consolidated Financial Statements for furtherdiscussion regarding the Company’s adoption of SFAS 158 in its 2007 fiscalyear.

 

InJune 2006, the FASB issued FASB Interpretation No. 48 Accounting forUncertainty in Income Taxes (FIN 48) an interpretation of FASB Statement No.109 (SFAS 109). This interpretation clarifies the accounting for uncertainty inincome taxes recognized in a company’s financial statements in accordance withSFAS 109. FIN48 details how companies should recognize, measure, present anddisclose uncertain tax positions that have been or expect to be taken. As such,financial statements will reflect expected future tax consequences of uncertaintax positions presuming the taxing authorities’ full knowledge of the positionand all relevant facts. FIN48 is effective for public companies for annualperiods that begin after December 15, 2006. Briggs & Stratton Corporationis required to and intends to adopt the provisions of FIN 48 as of July 2,2007. The cumulative effect of adoption will be recorded as an adjustment tothe opening balance of retained earnings for fiscal 2008. We have evaluated theimpact of FIN 48 and do not expect it to have a material impact on ourfinancial condition or results of operations.

 

InNovember 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4,” (SFAS No. 151). SFASNo. 151 seeks to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs and wasted material (spoilage) in thedetermination of inventory carrying costs. The statement requires such costs tobe treated as a current period expense. This statement became effective for thecompany on July 2, 2006. The adoption of SFAS No. 151 did not have a materialimpact on the Consolidated Financial Statements.

 

18

 

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

 

Briggs& Stratton is exposed to market risk from changes in foreign exchange andinterest rates. To reduce the risk from changes in foreign exchange rates,Briggs & Stratton uses financial instruments. Briggs & Stratton doesnot hold or issue financial instruments for trading purposes.

 

**Foreign Currency**

 

Briggs& Stratton’s earnings are affected by fluctuations in the value of the U.S.dollar against various currencies, with the Japanese Yen and the Euro as the mostsignificant. The Yen is used to purchase engines from Briggs & Stratton’sjoint venture. Briggs & Stratton purchases components in Euros from thirdparties and receives Euros for certain products sold to European customers.Briggs & Stratton’s foreign subsidiaries’ earnings are also influenced byfluctuations of the local currency against the U.S. dollar as thesesubsidiaries previously purchased inventory from the parent in U.S. dollars.Starting mid-year of fiscal 2007, subsidiaries make these purchases in Euros.Forward foreign exchange contracts are used to partially hedge against theearnings effects of such fluctuations. At July 1, 2007, Briggs & Strattonhad the following forward foreign exchange contracts outstanding with the FairValue (Gains) Losses shown (in thousands): 

 
| Hedge               |   | Notional  |   | Fair  Market |   | Conversion |   | (Gain)  Loss |   |
|---------------------|--------|-----------|--------|--------------|--------|------------|--------|--------------|--------|
| Currency            |   |      |   | Value        |   |       |   | Value        |   |   |   | Currency |   |   | at  Fair Value |   |
| Japanese Yen        |   | 2,300,000 |   |         | $      | 18,998     |   |         | U.S.   |   | $ | 229 |   |   |
| Euro                |   | 38,000    |   |         | $      | 51,590     |   |         | U.S.   |   | $ | 206 |   |   |
| Australian  Dollars |   | 4,471     |   |         | $      | 3,790      |   |         | U.S.   |   | $ | 211 |   |   |
|                     |        |           |        |              |        |            |        |              |        |  |  |  |  |  |  |  |  |  |  |  |

 

Allof the above contracts expire within twelve months.

 

Fluctuationsin currency exchange rates may also impact the shareholders’ investment inBriggs & Stratton. Amounts invested in Briggs & Stratton’s non-U.S.subsidiaries and joint ventures are translated into U.S. dollars at theexchange rates in effect at fiscal year-end. The resulting cumulativetranslation adjustments are recorded in Shareholders’ Investment as AccumulatedOther Comprehensive Income. The cumulative translation adjustments component ofShareholders’ Investment increased $4.3 million during the year. Using theyear-end exchange rates, the total amount invested in non-U.S. subsidiaries onJuly 1, 2007 was approximately $86 million.

 

**Interest Rates**

 

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

 

OnJuly 1, 2007, Briggs & Stratton had the following short-term loansoutstanding (in thousands):

 
|         |   |                     |   | Weighted  Average |   |
|--------------|--------|--------------------------|--------|-------------------|--------|
| Currency     |   |                     |   |              | Amount |   |   |   | Interest  Rate |   |   |
| U.S. Dollars |   | $   3,000 |   | 7.05%             |   |
|              |        |                          |        |                   |        |  |  |  |  |  |  |

 

Thisloan has a variable interest rate. Assuming borrowings are outstanding for anentire year, an increase (decrease) of one percentage point in the weightedaverage interest rate, would increase (decrease) interest expense by $30thousand.

 

Long-termloans, net of unamortized discount, consisted of the following (in thousands):

 
| Description               |         |   |   |    | Amount |   |   |   | Maturity |   |   |
|---------------------------|--------------|--------|--------|---------|--------|--------|--------|--------|----------|--------|--------|
| 7.25%                     | Senior Notes |   | $      | 81,139  |   |   | 2007   |   |
| 8.875%                    | Senior Notes |   | $      | 267,909 |   |   | 2011   |   |
| Variable  Rate Term Notes |         | $      | 35,000 |    |   | 2008   |   |
|                           |              |        |        |         |        |        |        |        |          |        |        |  |  |  |

 

The Senior Notes carryfixed rates of interest and are therefore not subject to market fluctuation.The Variable Rate Term Note is subject to interest rate fluctuations, thereforean increase (decrease) of one percentage point in the weighted average interestrate would increase (decrease) interest expense by $350 thousand.

 

19

 

**ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA**

**Consolidated Balance Sheets**

 
| *AS OF JULY 1, 2007 AND JULY 2, 2006* |
|---------------------------------------|
| (in thousands)                        |

 
| **ASSETS**                                                     |       | ** **    | **2007**      | ** ** |   |      | 2006   |   |   |
|----------------------------------------------------------------|------------|---------------|---------------|------------|--------|-----------|--------|--------|--------|
| CURRENT ASSETS:                                                |       |          |          |       |   |
| Cash and Cash Equivalents                                      | ** ** | **$**         | **29,469**    |       | $      | 95,091    |   |
| Receivables, Less Reserves of $4,102 and  $4,851, Respectively | ** ** | **327,475**   |          | 273,502    |   |
| Inventories:                                                   |       |          |          |       |   |
| Finished Products and Parts                                    | ** ** | **345,763**   |          | 364,711    |   |
| Work in Process                                                | ** ** | **199,215**   |          | 188,358    |   |
| Raw Materials                                                  | ** ** | **7,804**     |          | 8,946      |   |
| Total Inventories                                              | ** ** | **552,782**   |          | 562,015    |   |
| Deferred Income Tax Asset                                      | ** ** | **55,520**    |          | 49,960     |   |
| Prepaid Expenses and Other Current Assets                      | ** ** | **30,547**    |          | 43,020     |   |
| Total Current Assets                                           | ** ** | **995,793**   |          | 1,023,588  |   |
| GOODWILL                                                       | ** ** | **250,107**   |          | 251,885    |   |
| OTHER INTANGIBLE ASSETS, Net                                   | ** ** | **92,556**    |          | 94,596     |   |
| INVESTMENTS                                                    | ** ** | **47,326**    |          | 48,917     |   |
| PREPAID PENSION                                                | ** ** | **103,247**   |          | 75,789     |   |
| DEFERRED LOAN COSTS, Net                                       | ** ** | **3,135**     |          | 4,308      |   |
| OTHER LONG-TERM ASSETS, Net                                    | ** ** | **6,686**     |          | 6,765      |   |
| PLANT AND EQUIPMENT:                                           |       |          |          |       |   |
| Land and Land Improvements                                     | ** ** | **18,039**    |          | 17,956     |   |
| Buildings                                                      | ** ** | **142,873**   |          | 130,044    |   |
| Machinery and Equipment                                        | ** ** | **814,037**   |          | 830,537    |   |
| Construction in Progress                                       | ** ** | **31,453**    |          | 29,627     |   |
| ** **                                                     |       | **1,006,402** |          | 1,008,164  |   |
| ** **                                                     |       | ** **    |          |       |   |
| Less - Accumulated Depreciation                                | ** ** | **618,084**   |          | 577,876    |   |
| Total Plant and Equipment, Net                                 | ** ** | **388,318**   |          | 430,288    |   |
| ** **                                                     |       | **$**         | **1,887,168** |       | $      | 1,936,136 |   |
|                                                                |            |               |               |            |        |           |        |        |        |  |  |  |

 

Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

 

20

 

 
| *AS OF JULY 1, 2007 AND JULY 2, 2006* |
|---------------------------------------|
| (in thousands, except per share data) |

 
| **LIABILITIES  AND SHAREHOLDERS’ INVESTMENT**                     | ** ** | ** **    | **2007**      | ** ** | ** ** | ** ** |      | 2006   |   | ** ** | ** ** |
|------------------------------------------------------------------------|------------|---------------|---------------|------------|------------|------------|-----------|--------|--------|------------|------------|
| CURRENT  LIABILITIES:                                                  |       |          |          |       |       |       |      |
| Accounts Payable                                                       |       | **$**         | **179,476**   | ** ** | ** ** | $          | 161,291   |   |   |
| Short-term Debt                                                        |       | **3,000**     | ** **    | ** ** | 3,474      |       |      |
| Current Maturities on Long-term Debt                                   |       | **116,139**   | ** **    | ** ** | -          |       |      |
| Accrued Liabilities:                                                   |       |          | ** **    | ** ** |       |       |      |
| Wages and Salaries                                                     |       | **27,901**    | ** **    | ** ** | 32,743     |       |      |
| Warranty                                                               |       | **37,353**    | ** **    | ** ** | 32,555     |       |      |
| Accrued Postretirement Health Care  Obligation                         |       | **37,504**    | ** **    | ** ** | 26,000     |       |      |
| Other                                                                  |       | **67,797**    | ** **    | ** ** | 66,405     |       |      |
| Total Accrued Liabilities                                              |       | **170,555**   | ** **    | ** ** | 157,703    |       |      |
| Total Current Liabilities                                              |       | **469,170**   | ** **    | ** ** | 322,468    |       |      |
| DEFERRED INCOME TAX LIABILITY                                          |       | **37,300**    | ** **    | ** ** | 94,798     |       |      |
| ACCRUED PENSION COST                                                   |       | **39,438**    | ** **    | ** ** | 25,587     |       |      |
| ACCRUED WARRANTY                                                       |       | **17,213**    | ** **    | ** ** | 20,678     |       |      |
| ACCRUED EMPLOYEE BENEFITS                                              |       | **20,072**    | ** **    | ** ** | 16,267     |       |      |
| ACCRUED POSTRETIREMENT HEALTH CARE  OBLIGATION                         |       | **186,868**   | ** **    | ** ** | 84,136     |       |      |
| LONG-TERM DEBT                                                         |       | **267,909**   | ** **    | ** ** | 383,324    |       |      |
| OTHER LONG-TERM LIABILITIES                                            |       | **3,144**     | ** **    | ** ** | 1,672      |       |      |
| COMMITMENTS AND CONTINGENCIES                                          |       |          | ** **    | ** ** |       |       |      |
| SHAREHOLDERS’ INVESTMENT:                                         |       |          | ** **    | ** ** |       |       |      |
| Common Stock -                                                         |       |          | ** **    | ** ** |       |       |      |
| Authorized 120,000 Shares $.01 Par Value,  Issued 57,854 Shares        |       | **579**       | ** **    | ** ** | 579        |       |      |
| Additional Paid-In Capital                                             |       | **73,149**    | ** **    | ** ** | 65,126     |       |      |
| Retained Earnings                                                      |       | **1,042,673** | ** **    | ** ** | 1,086,397  |       |      |
| Accumulated Other Comprehensive Income  (Loss)                         |       | **(56,510**   | **)**         | ** ** | 4,960      |       |      |
| Treasury Stock at cost,  8,222 Shares in 2007 and 6,654 Shares in 2006 |       | **(213,837**  | **)**         | ** ** | (169,856   | )          |      |
| Total Shareholders’ Investment                                    |       | **846,054**   | ** **    | ** ** | 987,206    |       |      |
|                                                                   |       | **$**         | **1,887,168** | ** ** | ** ** | $          | 1,936,136 |   |   |
|                                                                        |            |               |               |            |            |            |           |        |        |            |            |  |  |

 

Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

 

21

 

**Consolidated Statements of Earnings**

 
| *FOR THE FISCAL YEARS ENDED JULY 1, 2007, JULY 2,  2006 AND JULY 3, 2005* |
|---------------------------------------------------------------------------|
| (in thousands, except per share data)                                     |

 
| ** **                                                 | ** ** | ** **    | **2007**      | ** ** | ** ** | ** ** |      | 2006      |   |   |      |   | 2005   |   |   |   |
|------------------------------------------------------------|------------|---------------|---------------|------------|------------|------------|-----------|-----------|--------|--------|-----------|--------|--------|--------|--------|--------|
| NET SALES                                                  |       | **$**         | **2,157,233** | ** ** |       | $          | 2,542,171 |      |   | $      | 2,654,875 |   |   |
| COST OF GOODS SOLD                                         |       | **1,827,013** | ** **    |       | 2,050,487  |       |      | 2,149,984 |   |   |
| IMPAIRMENT CHARGE                                          |       | **43,088**    | ** **    |       | -          |       |      | -         |   |   |
| Gross Profit                                               |       | **287,132**   | ** **    |       | 491,684    |       |      | 504,891   |   |   |
| ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE  EXPENSES |       | **265,596**   | ** **    |       | 315,718    |       |      | 314,123   |   |   |
| Income from Operations                                     |       | **21,536**    | ** **    |       | 175,966    |       |      | 190,768   |   |   |
| INTEREST EXPENSE                                           |       | **(43,691**   | **)**         |       | (42,091    | )          |      | (36,883   | )      |   |
| OTHER INCOME, Net                                          |       | **14,836**    | ** **    |       | 18,491     |       |      | 20,430    |   |   |
| Income (Loss) Before Provision (Credit) for  Income Taxes  |       | **(7,319**    | **)**         |       | 152,366    |       |      | 174,315   |   |   |
| PROVISION (CREDIT) FOR INCOME TAXES                        |       | **(7,465**    | **)**         |       | 50,020     |       |      | 57,548    |   |   |
| Income Before Extraordinary Item                           |       | **146**       | ** **    |       | 102,346    |       |      | 116,767   |   |   |
| EXTRAORDINARY GAIN - NEGATIVE GOODWILL                     |       | **-**         | ** **    |       | -          |       |      | 19,800    |   |   |
| NET INCOME                                                 |       | **$**         | **146**       | ** ** |       | $          | 102,346   |      |   | $      | 136,567   |   |   |
| EARNINGS PER SHARE DATA                                    |       |          | ** **    |       |       |       |      |      |   |   |
| Weighted Average Shares Outstanding                        |       | **49,715**    | ** **    |       | 51,479     |       |      | 51,472    |   |   |
| Income Before Extraordinary Item                           |       | **$**         | **0.00**      | ** ** |       | $          | 1.99      |      |   | $      | 2.27      |   |   |
| Extraordinary Gain                                         |       | **-**         | ** **    |       | -          |       |      | .38       |   |   |
| Basic Earnings Per Share                                   |       | **$**         | **0.00**      | ** ** |       | $          | 1.99      |      |   | $      | 2.65      |   |   |
| Diluted Average Shares Outstanding                         |       | **49,827**    | ** **    |       | 51,594     |       |      | 51,954    |   |   |
| Income Before Extraordinary Item                           |       | **$**         | **0.00**      | ** ** |       | $          | 1.98      |      |   | $      | 2.25      |   |   |
| Extraordinary Gain                                         |       | **-**         | ** **    |       | -          |       |      | .38       |   |   |
| Diluted Earnings Per Share                                 |       | **$**         | **0.00**      | ** ** |       | $          | 1.98      |      |   | $      | 2.63      |   |   |
|                                                            |            |               |               |            |            |            |           |           |        |        |           |        |        |        |        |        |  |  |  |

 

Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

 

22

 

**Consolidated Statements of Shareholders’Investment**

 
| *FOR THE FISCAL YEARS ENDED JULY 1, 2007, JULY 2,  2006 AND JULY 3, 2005* |
|---------------------------------------------------------------------------|
| (in thousands, except per share data)                                     |

 
|                                                                    |       |   |    |       |       |        |       | Accumulated |          |        |          |          |       |
|-------------------------------------------------------------------------|------------|--------|---------|------------|------------|-------------|------------|-------------|---------------|-------------|---------------|---------------|------------|
|                                                                    |       |   |    | Additional |       |        |       | Other Com-  |          |        |          |          |       |
|                                                                    |       | Common |    | Paid-In    |       | Retained    |       | prehensive  |          | Treasury    |          | Comprehensive |       |
|                                                                    |       | Stock  |    |       | Capital    |        |       | Earnings    |          |        | Income (Loss) |          |       | Stock |   |   | Income |   |   |
| BALANCES, JUNE  27, 2004                                                |       | $      | 289     |       | $          | 47,167      |       | $           | 927,766       |        | $             | 4,028         |       | $ | (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                                                        |       | -      |    | (690       | )          | -           |       | -           |          | 688         |          |          |       |
| Amortization of  Unearned Compensation                                  |       | -      |    | 511        |       | -           |       | -           |          | -           |          |          |       |
| Stock Split                                                             |       | 290    |    | (290       | )          | -           |       | -           |          | -           |          |          |       |
| Deferred Stock                                                          |       | -      |    | 3          |       | -           |       | -           |          | -           |          |          |       |
| Shares Issued to  Directors                                             |       | -      |    | 117        |       | -           |       | -           |          | 16          |          |          |       |
| BALANCES, JULY 3,  2005                                                 |       | $      | 579     |       | $          | 53,808      |       | $           | 1,029,329     |        | $             | (48,331       | )          | $ | (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 ($0.88 per share)                                  |       | -      |    | -          |       | (45,278     | )          | -           |          | -           |          |          |       |
| Purchase of  Common Stock for Treasury                                  |       | -      |    | -          |       | -           |       | -           |          | (34,919     | )             |          |       |
| Stock Option  Activity, net of tax                                      |       | -      |    | 10,455     |       | -           |       | -           |          | 10,254      |          |          |       |
| Restricted Stock                                                        |       | -      |    | (1,059     | )          | -           |       | -           |          | 925         |          |          |       |
| Amortization of  Unearned Compensation                                  |       | -      |    | 1,276      |       | -           |       | -           |          | -           |          |          |       |
| Deferred Stock                                                          |       | -      |    | 605        |       | -           |       | -           |          | -           |          |          |       |
| Shares Issued to  Directors                                             |       | -      |    | 41         |       | -           |       | -           |          | 83          |          |          |       |
| **BALANCES,  JULY 2, 2006**                                             | ** ** | **$**  | **579** |       | **$**      | **65,126**  | ** ** | **$**       | **1,086,397** | ** **  | **$**         | **4,960**     | ** ** | **$** | **(169,856** | **)** |   | ** ** |
| **Comprehensive  Income:**                                              |       |   |    |       | ** ** |        | ** ** |        | ** **    |        | ** **    |          | ** ** |
| **Net  Income**                                                         | ** ** | **-**  |    | **-**      | ** ** | **146**     | ** ** | **-**       | ** **    | **-**       | ** **    | **$**         | **146**    | ** ** |
| **Foreign  Currency Translation Adjustments**                           | ** ** | **-**  |    | **-**      | ** ** | **-**       | ** ** | **4,275**   | ** **    | **-**       | ** **    | **4,275**     | ** ** |
| **Unrealized  Loss on Derivatives**                                     | ** ** | **-**  |    | **-**      | ** ** | **-**       | ** ** | **(765**    | **)**         | **-**       | ** **    | **(765**      | **)**      |
| **Minimum  Pension Liability Adjustment,****net of tax of $(1,218)**    |       | **-**  |    | **-**      | ** ** | **-**       | ** ** | **(1,904**  | **)**         | **-**       | ** **    | **(1,904**    | **)**      |
| **Total  Comprehensive Income**                                         | ** ** | **-**  |    | **-**      | ** ** | **-**       | ** ** | **-**       | ** **    | **-**       | ** **    | **$**         | **1,752**  | ** ** |
| **Cash  Dividends Paid ($0.88 per share)**                              | ** ** | **-**  |    | **-**      | ** ** | **(43,870** | **)**      | **-**       | ** **    | **-**       | ** **    |          | ** ** |
| **Purchase  of Common Stock for Treasury**                              | ** ** | **-**  |    | **-**      | ** ** | **-**       | ** ** | **-**       | ** **    | **(48,232** | **)**         |          | ** ** |
| **Stock  Option Activity, net of tax**                                  | ** ** | **-**  |    | **7,226**  | ** ** | **-**       | ** ** | **-**       | ** **    | **3,725**   | ** **    |          | ** ** |
| **Restricted  Stock**                                                   | ** ** | **-**  |    | **(559**   | **)**      | **-**       | ** ** | **-**       | ** **    | **436**     | ** **    |          | ** ** |
| **Amortization  of Unearned Compensation**                              | ** ** | **-**  |    | **1,023**  | ** ** | **-**       | ** ** | **-**       | ** **    | **-**       | ** **    |          | ** ** |
| **Deferred  Stock**                                                     | ** ** | **-**  |    | **326**    | ** ** | **-**       | ** ** | **-**       | ** **    | **-**       | ** **    |          | ** ** |
| **Shares  Issued to Directors**                                         | ** ** | **-**  |    | **7**      | ** ** | **-**       | ** ** | **-**       | ** **    | **90**      | ** **    |          | ** ** |
| **Adjustment  to Initially Apply SFAS 158,****net of tax of $(40,328)** |       | **-**  |    | **-**      | ** ** | **-**       | ** ** | **(63,076** | **)**         | **-**       | ** **    |          | ** ** |
| **BALANCES,  JULY 1, 2007**                                             | ** ** | **$**  | **579** |       | **$**      | **73,149**  | ** ** | **$**       | **1,042,673** | ** **  | **$**         | **(56,510**   | **)**      | **$** | **(213,837** | **)** |   | ** ** |
|                                                                         |            |        |         |            |            |             |            |             |               |             |               |               |            |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

The accompanying Notes to ConsolidatedFinancial Statements are an integral part of these statements.

 

23

 

**Consolidated Statements of Cash Flows**

 
| *FOR THE FISCAL YEARS ENDED JULY 1, 2007, JULY 2,  2006 AND JULY 3, 2005* |
|---------------------------------------------------------------------------|
| (in thousands)                                                            |

 
|                                                                               |   | ** **  | **2007**   | ** ** |     |   |    | 2006     |   |   |    |   | 2005 |   |   |
|------------------------------------------------------------------------------------|--------|-------------|------------|------------|----------|--------|---------|----------|--------|--------|---------|--------|------|--------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |        |       |       |     |   |    |     |   |
| Net Income                                                                         |   | **$**       | **146**    | ** ** |     | $      | 102,346 |     |   | $      | 136,567 |   |
| Adjustments to Reconcile Net Income to Net  Cash Provided by Operating Activities: |   |        | ** ** |       |     |   |    |     |   |
| Extraordinary Gain                                                                 |   | **-**       | ** ** |       | -        |   |    | (19,800  | )      |
| Depreciation and Amortization                                                      |   | **74,314**  | ** ** |       | 77,234   |   |    | 72,793   |   |
| Stock Compensation Expense                                                         |   | **8,484**   | ** ** |       | 9,999    |   |    | 1,268    |   |
| Impairment Charge                                                                  |   | **43,088**  | ** ** |       | -        |   |    | -        |   |
| Earnings of Unconsolidated Affiliates, Net  of Dividends                           |   | **1,576**   | ** ** |       | 459      |   |    | 678      |   |
| (Gain) Loss on Disposition of Plant and  Equipment                                 |   | **2,939**   | ** ** |       | (11,139  | )      |    | 2,418    |   |
| Provision for Deferred Income Taxes                                                |   | **(21,513** | **)**      |       | (10,438  | )      |    | (3,896   | )      |
| Change in Operating Assets and Liabilities,  Net of Effects of Acquisition:        |   |        | ** ** |       |     |   |    |     |   |
| (Increase) Decrease in Receivables                                                 |   | **(53,972** | **)**      |       | 87,284   |   |    | (26,892  | )      |
| (Increase) Decrease in Inventories                                                 |   | **7,732**   | ** ** |       | (92,350  | )      |    | 12,784   |   |
| (Increase) Decrease in Prepaid Expenses and  Other Current Assets                  |   | **11,558**  | ** ** |       | (12,302  | )      |    | 2,650    |   |
| Increase (Decrease) in Accounts Payable,  Accrued Liabilities and Income Taxes     |   | **16,418**  | ** ** |       | (7,695   | )      |    | (27,734  | )      |
| Change in Accrued/Prepaid Pension                                                  |   | **1,830**   | ** ** |       | 10,847   |   |    | (1,050   | )      |
| Other, Net                                                                         |   | **(4,761**  | **)**      |       | 363      |   |    | (1,289   | )      |
| Net Cash Provided by Operating Activities                                          |   | **87,839**  | ** ** |       | 154,608  |   |    | 148,497  |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |        | ** ** |       |     |   |    |     |   |
| Additions to Plant and Equipment                                                   |   | **(68,000** | **)**      |       | (69,518  | )      |    | (86,075  | )      |
| Proceeds Received on Disposition of Plant  and Equipment                           |   | **599**     | ** ** |       | 11,518   |   |    | 1,940    |   |
| Proceeds Received on Sale of Certain Assets  of a Subsidiary                       |   | **-**       | ** ** |       | -        |   |    | 4,050    |   |
| Refund of Cash Paid for Acquisition                                                |   | **-**       | ** ** |       | 6,347    |   |    | -        |   |
| Cash Paid for Acquisitions, Net of Cash  Acquired                                  |   | **-**       | ** ** |       | -        |   |    | (355,094 | )      |
| Other, Net                                                                         |   | **-**       | ** ** |       | (3,400   | )      |    | (1,500   | )      |
| Net Cash Used by Investing Activities                                              |   | **(67,401** | **)**      |       | (55,053  | )      |    | (436,679 | )      |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |        | ** ** |       |     |   |    |     |   |
| Net (Repayments) Borrowings on Loans and  Notes Payable                            |   | **(473**    | **)**      |       | 3,031    |   |    | (2,684   | )      |
| Net (Repayments) Borrowings on Long-Term  Debt                                     |   | **-**       | ** ** |       | (103,826 | )      |    | 125,000  |   |
| Issuance Cost of Debt                                                              |   | **-**       | ** ** |       | -        |   |    | (925     | )      |
| Cash Dividends Paid                                                                |   | **(43,870** | **)**      |       | (45,278  | )      |    | (35,004  | )      |
| Stock Option Exercise Proceeds and Tax  Benefits                                   |   | **3,694**   | ** ** |       | 12,457   |   |    | 20,139   |   |
| Treasury Stock Purchases                                                           |   | **(48,232** | **)**      |       | (34,919  | )      |    | -        |   |
| Net Cash (Used) Provided by Financing  Activities                                  |   | **(88,881** | **)**      |       | (168,535 | )      |    | 106,526  |   |
| EFFECT OF FOREIGN CURRENCY EXCHANGE RATE  CHANGES ON CASH AND CASH EQUIVALENTS     |   | **2,821**   | ** ** |       | 2,498    |   |    | 835      |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                          |   | **(65,622** | **)**      |       | (66,482  | )      |    | (180,821 | )      |
| CASH AND CASH EQUIVALENTS:                                                         |   |        | ** ** |       |     |   |    |     |   |
| Beginning of Year                                                                  |   | **95,091**  | ** ** |       | 161,573  |   |    | 342,394  |   |
| End of Year                                                                        |   | **$**       | **29,469** | ** ** |     | $      | 95,091  |     |   | $      | 161,573 |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:                                 |   |        | ** ** |       |     |   |    |     |   |
| Interest Paid                                                                      |   | **$**       | **43,169** | ** ** |     | $      | 40,503  |     |   | $      | 36,357  |   |
| Income Taxes Paid                                                                  |   | **$**       | **12,342** | ** ** |     | $      | 75,347  |     |   | $      | 66,410  |   |
|                                                                                    |        |             |            |            |          |        |         |          |        |        |         |        |      |        |        |  |  |  |

 

Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

 

24

 

**Notes to Consolidated Financial Statements**

 
| *FOR THE FISCAL YEARS ENDED JULY 1, 2007, JULY 2,  2006 AND JULY 3, 2005* |
|---------------------------------------------------------------------------|

 

**(1)Nature of Operations:**

Briggs& Stratton (the “Company”) is a U.S. based producer of air cooled gasolineengines and engine powered outdoor equipment. The engines are sold worldwide,primarily to original equipment manufacturers of lawn and garden equipment andother gasoline engine powered equipment. The Company’s wholly owned subsidiary,Briggs & Stratton Power Products Group, LLC (“BSPPG”), is a designer,manufacturer and marketer of a wide range of outdoor power equipment andrelated accessories. BSPPG’s products are sold primarily in the U.S.

 

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

FiscalYear: The Company’s fiscalyear consists of 52 or 53 weeks, ending on the Sunday nearest the last day ofJune in each year. Therefore, the 2007 fiscal year was 52 weeks long, the 2006fiscal year was 52 weeks long and the 2005 fiscal year was 53 weeks long. Allreferences to years relate to fiscal years rather than calendar years.

 

Principlesof Consolidation: The consolidatedfinancial statements include the accounts of the Company and its majority owneddomestic and foreign subsidiaries after elimination of intercompany accountsand transactions.

 

AccountingEstimates: The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results may differ from those estimates.

 

Cashand Cash Equivalents: This caption includescash, commercial paper and certificates of deposit. The Company considers allhighly liquid investments purchased with an original maturity of three monthsor less to be cash equivalents. At July 2, 2007, $16.2 million of book overdraftsare included in accounts payable.

 

Receivables:Receivables are recorded at the original carrying value less reserves forestimated uncollectible accounts.

 

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 50%of total inventories at July 1, 2007 and 53% of total inventories at July 2,2006. The cost for the remaining inventories was determined using the first-in,first-out (FIFO) method. During fiscal 2007, a reduction in inventoryquantities resulted in a liquidation of LIFO inventories carried at lower costsprevailing in prior years. The liquidation of these inventories increased costof goods sold by $92 thousand in 2007. There was no such reduction of inventoryin fiscal 2006 or 2005. If the FIFO inventory valuation method had been usedexclusively, inventories would have been $63.3 million and $56.8 million higherin 2007 and 2006, respectively. The LIFO inventory adjustment was determined onan overall basis, and accordingly, each class of inventory reflects anallocation based on the FIFO amounts.

 

Goodwilland Other Intangible Assets:Goodwill reflects the cost of acquisitions in excess of the fair valuesassigned to identifiable net assets acquired. Other Intangible Assets reflectidentifiable intangible assets that arose from purchase acquisitions. OtherIntangible Assets are comprised of trademarks, patents and customerrelationships. Goodwill and trademarks, which are considered to have indefinitelives are not amortized; however, both must be tested for impairment annually.Amortization is recorded on a straight line basis for other intangible assetswith finite lives. Patents have been assigned an estimated weighted averageuseful life of thirteen years. The customer relationships have been assigned anestimated useful life of twenty-five years. The Company is subject to financialstatement risk in the event that goodwill and intangible assets becomeimpaired. The Company performed the required impairment tests in fiscal 2007,2006 and 2005, and found no impairment of the assets.

 

Investments: This caption represents theCompany’s investment in its 30% and 50% owned joint ventures and preferredstock in a privately held foundry business. The investments in the jointventures are accounted for under the equity method.

 

25

 

**Notes . . .**

 

DeferredLoan Costs: Expenses associatedwith the issuance of debt instruments are capitalized and are being amortizedover the terms of the respective financing arrangement using the straight-linemethod over periods ranging from three to ten years. Accumulated amortizationrelated to outstanding debt instruments amounted to $12.3 million as of July 1,2007 and $10.4 million as of July 2, 2006.

 

Plantand Equipment and Depreciation:Plant and equipment are stated at cost and depreciation is computed using thestraight-line method at rates based upon the estimated useful lives of theassets, as follows:

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

 

Expendituresfor repairs and maintenance are charged to expense as incurred. Expendituresfor major renewals and betterments, which significantly extend the useful livesof existing plant and equipment, are capitalized and depreciated. Uponretirement or disposition of plant and equipment, the cost and relatedaccumulated depreciation are removed from the accounts, and any resulting gainor loss is recognized in cost of goods sold.

 

Impairmentof Long-Lived Assets: Property, plant andequipment and other long-term assets are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. If the sum of the expected undiscounted cash flows is less thanthe carrying value of the related asset or group of assets, a loss isrecognized for the difference between the fair value and carrying value of theasset or group of assets. There were no adjustments to the carrying value oflong-lived assets in fiscal 2006 or 2005. Refer to Note 18 of the Notes toConsolidated Financial Statements for impairment charges recognized in fiscal2007.

 

Warranty:The Company recognizes the cost associated with its standard warranty onengines and power products at the time of sale. The amount recognized is basedon historical failure rates and current claim cost experience. The following isa reconciliation of the changes in accrued warranty costs for fiscal 2007 and 2006(in thousands):

 

|                                   |   | ** **  | **2007**   | ** ** | ** ** |   | 2006   |   |   |
|----------------------------------------|--------|-------------|------------|------------|------------|--------|--------|--------|--------|
| Balance,  Beginning of Period          |   | **$**       | **53,233** | ** ** | $          | 59,625 |   |
| Payments                               |   | **(34,046** | **)**      | (36,733    | )          |
| Provision  for Current Year Warranties |   | **35,372**  | ** ** | 34,056     |       |
| Credit  for Prior Years Warranties     |   | **7**       | ** ** | (3,715     | )          |
| Balance,  End of Period                |   | **$**       | **54,566** | ** ** | $          | 53,233 |   |
|                                        |        |             |            |            |            |        |        |        |        |  |  |  |

 

DeferredRevenue on Sale of Plant and Equipment:During fiscal 2006, a pre-tax gain of $6.1 million was recorded as the Companyceased its involvement in its Menomonee Falls, Wisconsin facility sold in 1997.The terms and conditions of the sales contract were such that the Companycontinued to own and occupy a portion of the warehouse until the fourth quarterof fiscal 2006. Under the provisions of SFAS No. 66, “Accounting for Sales ofReal Estate,” the Company accounted for the agreement as a financingtransaction while it remained involved with the facility. Under this method,the cash received in fiscal 1997 was reflected as deferred revenue and theassets and the accumulated depreciation remained on the Company’s books untilits involvement in the facility ceased. Depreciation expense, imputed interestexpense, and imputed fair value lease income on the non-Briggs & Strattonoccupied portion of the building were recorded and added to deferred revenue upuntil the fourth quarter of fiscal 2006.

 

Revenue Recognition:Net sales include sales of engines, power products, and related service partsand accessories, net of allowances for cash discounts, customer volume rebatesand discounts, and advertising allowances. In accordance with Staff AccountingBulletin No. 104, “Revenue Recognition,” as amended, the Company recognizesrevenue when all of the following criteria are met: persuasive evidence of an

 

26

 

**Notes . . .**

 

arrangementexists, delivery has occurred, the price is fixed or determinable, andcollectibility is reasonably assured. This is generally upon shipment, exceptfor certain international shipments, where revenue is recognized when the customerreceives the product.

 

Includedin net sales are costs associated with programs under which Briggs &Stratton shares the expense of financing certain dealer and distributorinventories, referred to as floor plan expense. This represents interest for apre-established length of time based on a variable rate from a contract with athird party financing source for dealer and distributor inventory purchases.Sharing the cost of these financing arrangements is used by Briggs &Stratton as a marketing incentive for customers to buy inventory. The financingcosts included in net sales in fiscal 2007, 2006 and 2005 were $13.1 million,$12.7 million and $10.6 million, respectively.

 

TheCompany also offers a variety of customer rebates and sales incentives. TheCompany records estimates for rebates and incentives at the time of sale, as areduction in net sales.

 

IncomeTaxes: The Provision (Credit)for Income Taxes includes Federal, state and foreign income taxes currentlypayable and those deferred because of temporary differences between thefinancial 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.

 

RetirementPlans: The Company hasnoncontributory, defined benefit retirement plans and postretirement benefitplans covering certain employees. Retirement benefits represent a form ofdeferred compensation, which are subject to change due to changes inassumptions. Management reviews underlying assumptions on an annual basis.Refer to Note 14 of the Notes to Consolidated Financial Statements.

 

Researchand Development Costs: Expenditures relatingto the development of new products and processes, including significantimprovements and refinements to existing products, are expensed as incurred.The amounts charged against income were $25.7 million in fiscal 2007, $28.8million in fiscal 2006 and $33.5 million in fiscal 2005.

 

AdvertisingCosts: Advertising costs,included in Engineering, Selling, General and Administrative Expenses in theaccompanying Consolidated Statements of Earnings, are expensed as incurred.These expenses totaled $31.5 million in fiscal 2007, $33.4 million in fiscal2006 and $35.8 million in fiscal 2005.

 

TheCompany reports co-op advertising expense as a reduction in net sales. Co-opadvertising expense reported as a reduction in net sales totaled $11.4 millionin fiscal 2007, $20.2 million in fiscal 2006 and $23.6 million in fiscal 2005.

 

Shippingand Handling Fees and Costs:Revenue received from shipping and handling fees is reflected in net sales.Shipping fee revenue for fiscal 2007, 2006 and 2005 was $4.3 million, $4.5million and $4.1 million, respectively. Shipping and handling costs areincluded in cost of goods sold.

 

ForeignCurrency Translation: Foreign currencybalance sheet accounts are translated into dollars at the rates of exchange ineffect at fiscal year-end. Income and expenses incurred in a foreign currencyare translated at the average rates of exchange in effect during the year. Therelated translation adjustments are made directly to a separate component ofShareholders’ Investment.

 

EarningsPer Share: Basic earnings pershare, for each period presented, is computed by dividing net income by theweighted average number of shares of common stock outstanding during theperiod. Diluted earnings per share, for each period presented, is computed reflectingthe potential dilution that would occur if options or other contracts to issuecommon stock were exercised or converted into common stock at the beginning ofthe period.

 

The shares outstandingused to compute diluted earnings per share for fiscal 2007 and 2006 excludesoutstanding options to purchase 2,722,091 and 1,434,193 shares of common stock,respectively, with weighted average exercise prices of $35.64 and $37.21,respectively. The fiscal 2005 diluted earnings per share calculation includes alloptions outstanding as of July 3, 2005. For fiscal 2007 and 2006, the optionsare excluded because their exercise prices are greater than the average marketprice of the common shares, and their inclusion in the computation would beantidilutive.

 

27

 

**Notes . . .**

 

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

 
| ** **                                                              | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                              | ** ** | **July 1, 2007**      | ** ** | July  2, 2006 |   | July  3, 2005 |   |   |
| Net Income Before Extraordinary Gain Used  in Basic Earnings Per Share  | ** ** | **$**                 | **146**    | ** ** |   | $ | 102,346 |   |   | $ | 116,767 |   |   |
| Extraordinary Gain Used in Basic and  Diluted Earnings Per Share        | ** ** | **$**                 | **-**      | ** ** |   | $ | **-** | ** ** |   | $ | 19,800 |   |   |
| Net Income Used in Basic and Diluted  Earnings Per Share                | ** ** | **$**                 | **146**    | ** ** |   | $ | 102,346 |   |   | $ | 136,567 |   |   |
| Average Shares of Common Stock Outstanding                              | ** ** | ** **            | **49,715** | ** ** |   |   | 51,479 |   |   |   | 51,472 |   |   |
| Incremental Common Shares Applicable to  Common Stock Options Based     |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| on the Common Stock Average Market Price  During the Period             | ** ** | ** **            | **16**     | ** ** |   |   | 42 |   |   |   | 446 |   |   |
| Incremental Common Shares Applicable to  Deferred and Restricted Common |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Stock Based on the Common Stock Average  Market Price During the Period | ** ** | ** **            | **96**     | ** ** |   |   | 73 |   |   |   | 36 |   |   |
| Diluted Average Common Shares Outstanding                               | ** ** | ** **            | **49,827** | ** ** |   |   | 51,594 |   |   |   | 51,954 |   |   |

 

ComprehensiveIncome: 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. For the year ended July 1, 2007, the Company’simplementation of SFAS No. 158 affected Accumulated Other Comprehensive Incomeby recognizing the funded status of the Company’s defined benefit pension andother postretirement plans. Information on Accumulated Other ComprehensiveIncome (Loss) is as follows (in thousands): 

 
|                        |   |        |        |           |       | Minimum   |        | Unrecognized   |       | Accumulated   |       |
|-----------------------------|--------|-------------|-------------|----------------|------------|-----------|-------------|----------------|------------|---------------|------------|
|                        |   | Cumulative  |        | Unrealized     |       | Pension   |        | Pension and    |       | Other         |       |
|                        |   | Translation |        | Gain (Loss) on |       | Liability |        | Postretirement |       | Comprehensive |       |
|                        |   |        | Adjustments |           |       |      | Derivatives |           |       |          | Adjustment |   |   |   | Obligation |   |   |   | Income (Loss) |   |
| 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** | ** ** |   |
| **Fiscal Year Change**      |   |        | **4,275**   | ** **     |       |      | **(765**    | **)**          |       |          | **2,228**  | ** ** |   |   | **(67,208** | **)** |   |   | **(61,470** | **)** |   |
| **Balance at July 1, 2007** |   |        | **$**       | **11,799**     | ** ** |      |        | **$**          | **(1,101** | **)**         |       |   | **$** | - | ** ** |   |   | **$** | **(67,208** | **)** |   |   | **$** | **(56,510** | **)** |   |

 

Derivatives:Derivatives are recorded on the Balance Sheets as assets or liabilities,measured at fair value. Briggs & Stratton enters into derivative contractsdesignated as cash flow hedges to manage currency and certain materialexposures. These instruments generally do not have a maturity of more thantwelve months.

 

Changesin the fair value of cash flow hedges to manage its foreign currency exposureare recorded on the Consolidated Statements of Earnings or as a component ofAccumulated Other Comprehensive Income. The amounts included in AccumulatedOther Comprehensive Income will be reclassified into income when the forecastedtransactions occur. These forecasted transactions represent the exporting ofproducts for which Briggs & Stratton will receive foreign currency and theimporting of products for which it will be required to pay in a foreigncurrency. Changes in the fair value of all derivatives deemed to be ineffectivewould be recorded as either income or expense in the accompanying ConsolidatedStatements of Earnings.

 

Briggs & Strattonmanages its exposure to fluctuation in the cost of natural gas used by itsoperating facilities through participation in a third party managed dollar costaveraging program linked to NYMEX futures. As a participant in the program,Briggs & Stratton hedges a minimum of 50% of its anticipated monthlynatural gas usage along with a pool of other companies. Briggs & Strattondoes not hold any actual futures contracts, and actual delivery of natural gasis not required of the participants in the program. Cash settlements occur on amonthly basis based on the difference between the average dollar price of the underlyingNYMEX futures held by the third party and the actual price of natural gas paidby Briggs & Stratton in the period. The fair value of

 

28

 

**Notes . . .**

 

theunderlying NYMEX futures is reflected as an asset or liability on theaccompanying Consolidated Condensed Balance Sheets. Changes in fair value arereflected as a Component of Accumulated Other Comprehensive Income, which arereclassified into the income statement as the monthly cash settlements occur andactual natural gas is consumed.

 

Briggs& Stratton manages its exposure to fluctuations in the cost of copper to beused in manufacturing by entering into forward purchase contracts designated ascash flow hedges. Briggs & Stratton hedges approximately 35% of itsanticipated copper usage, and the fair value of outstanding future contracts isreflected as an asset or liability on the accompanying Consolidated BalanceSheets based on NYMEX prices. Changes in fair value are reflected as acomponent of Accumulated Other Comprehensive Income if the forward purchasecontracts are deemed to be effective. Changes in the fair value of allderivatives deemed to be ineffective would be recorded as either income orexpense in the accompanying Consolidated Statements of Earnings. Unrealizedgains or losses associated with the forward purchase contracts are captured ininventory costs and are realized in the income statement when sales ofinventory are made.

 

NewAccounting Pronouncements: In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities - Including an Amendment of FASB Statement No. 115,”(SFAS 159). This standard permits an entity to choose to measure many financialinstruments and certain other items at fair value. The fair value optionpermits a company to choose to measure eligible items at fair value atspecified election dates. A company will report unrealized gains and losses onitems for which the fair value option has been elected in earnings afteradoption. Statement 159 is effective for fiscal years beginning after November15, 2007. At this time, the impact of adoption of SFAS 159 on our consolidatedfinancial position is being assessed.

 

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS157), which defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements. SFAS 157 iseffective for fiscal years beginning after November 15, 2007. At this time, theimpact of adoption of SFAS 157 on our consolidated financial position is beingassessed.

 

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans - an amendment of FASBStatements No. 87, 88, 106, and 132(R),” (SFAS 158). SFAS 158 requiresrecognition of the overfunded or underfunded status of a benefit postretirementplan in the statement of financial position, as well as recognition of changesin that funded status through comprehensive income in the year in which theyoccur. SFAS 158 also requires a change in the measurement of a plan’s assetsand benefit obligations as of the end date of the employer’s fiscal year. SFAS158 is effective for fiscal years ending after December 15, 2006, except forthe measurement date provisions, which are effective for fiscal years endingafter December 15, 2008. See Note 14 - Pension and Other PostretirementBenefits in the Notes to Consolidated Financial Statements for furtherdiscussion regarding the Company’s adoption of SFAS 158 in its 2007 fiscalyear.

 

InJune 2006, the FASB issued FASB Interpretation No. 48 Accounting forUncertainty in Income Taxes (FIN 48) an interpretation of FASB Statement No.109 (SFAS 109). This interpretation clarifies the accounting for uncertainty inincome taxes recognized in a company’s financial statements in accordance withSFAS 109, Accounting for Income Taxes. FIN 48 details how companies shouldrecognize, measure, present and disclose uncertain tax positions that have beenor expect to be taken. As such, financial statements will reflect expectedfuture tax consequences of uncertain tax positions presuming the taxingauthorities’ full knowledge of the position and all relevant facts. FIN 48 iseffective for public companies for annual periods that begin after December 15,2006. Briggs & Stratton Corporation is required to and intends to adopt theprovisions of FIN 48 as of July 2, 2007. The cumulative effect of adoption willbe recorded as an adjustment to the opening balance of retained earnings forfiscal 2008. We have evaluated the impact of FIN 48 and do not expect it tohave a material impact on our financial condition or results of operations.

 

In November 2004, theFASB issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43,Chapter 4.” SFAS No. 151 seeks to clarify the accounting for abnormal amountsof idle facility expense, freight, handling costs and wasted material(spoilage) in the determination of inventory carrying costs. The statement requiressuch costs to be treated as a current period expense. This statement becameeffective for the company on July 2, 2006. The adoption of SFAS No. 151 did nothave a material impact on the Consolidated Financial Statements.

 

29

 

**Notes . . .**

 

Reclassification:Certain amounts in prior year financial statements have been reclassified toconform to current year presentation.

 

**(3) Acquisitions:**

 

OnFebruary 11, 2005, Briggs & Stratton Corporation and its subsidiaries,Briggs & Stratton Power Products Group, LLC and Briggs & StrattonCanada, Inc. acquired certain assets of Murray, Inc. and Murray Canada Co.(collectively “Murray”). The cash purchase price was $122.7 million, includingdirect acquisition costs of $1.8 million. Briggs & Stratton financed theacquisition through the issuance of $125 million variable rate Term Notes dueFebruary 11, 2008, with no prepayment penalty. The Term Notes have financialand operating restrictions consistent with other debt agreements, as disclosed inNote 8. The estimated fair value of Murray assets acquired exceeded theacquisition cost by $19.8 million, after all tax considerations, and thisamount was recognized as an extraordinary gain in fiscal 2005.

 

On July7, 2004, Briggs & Stratton and its subsidiary, Briggs & Stratton PowerProducts Group, LLC (“BSPPG”) acquired Simplicity Manufacturing, Inc. (“Simplicity”).Simplicity designs, manufactures and markets a wide variety of premium yard andgarden tractors, lawn tractors, riding mowers, snow throwers, attachments, andother lawn and garden products like rototillers and chipper shredders. Thepurchase price included $250.2 million of cash, a $2.3 million liability forfuture tax benefits, and $135.3 million of liabilities assumed. The cash paid included$17.8 million of cash acquired and $9.4 million of direct acquisition costs.

 

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

 

The changes in thecarrying amount of goodwill for the fiscal years ended July 1, 2007 and July 2,2006 are as follows (in thousands):

 
|                         |   | ** ** | **2007**    | ** ** | ** ** |    | 2006   |   |   |
|------------------------------|--------|------------|-------------|------------|------------|---------|--------|--------|--------|
| Beginning  Goodwill Balance  |   | **$**      | **251,885** | ** ** | $          | 253,663 |   |
| Tax  Benefit on Amortization |   | **(1,778** | **)**       | (1,778     | )          |
| Ending  Goodwill Balance     |   | **$**      | **250,107** | ** ** | $          | 251,885 |   |
|                              |        |            |             |            |            |         |        |        |        |  |  |

 

TheCompany’s other intangible assets for the years ended July 1, 2007 and July 2,2006 are as follows (in thousands): 

 
|                                |   | **2007**     | ** ** | 2006             |       |
|-------------------------------------|--------|--------------|------------|------------------|------------|
|                                |   | **Gross**    | ** ** | ** **       | ** ** | ** ** | ** ** | Gross |   |   |   |   |   |
|                                |   | **Carrying** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** | Carrying |   | Accumulated |   |   |   |
|                                |   | **Amount**   | ** ** | **Amortization** | ** ** | ** ** | **Net** | ** ** | ** ** | Amount |   | Amortization |   |   | Net |   |   |
| Amortized Intangible Assets:        |   | ** **   | ** ** | ** **       | ** ** | ** ** | ** ** |   |   |   |   |   |   |
| Patents                             |   | **$**        | **13,281** | ** **       | **$**      | **(3,488** | **)** | ** ** | ** ** | **$** | **9,793** |   | $ | 13,281 |   | $ | (2,203 | ) |   |   | $ | 11,078 |   |
| Customer Relationships              |   | **17,910**   | ** ** | **(2,149**       | **)**      | ** ** | ** ** | **15,761** |   | 17,910 |   | (1,433 | ) |   |   | 16,477 |   |
| Miscellaneous                       |   | **279**      | ** ** | **(277**         | **)**      | ** ** | ** ** | **2** |   | 279 |   | (238 | ) |   |   | 41 |   |
| Total Amortized Intangible Assets   |   | **31,470**   | ** ** | **(5,914**       | **)**      | ** ** | ** ** | **25,556** |   | 31,470 |   | (3,874 | ) |   |   | 27,596 |   |
|                                |   | ** **   | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |   |   |   |   |
| 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             |   | **$**        | **98,470** | ** **       | **$**      | **(5,914** | **)** | ** ** | ** ** | **$** | **92,556** |   | $ | 98,470 |   | $ | (3,874 | ) |   |   | $ | 94,596 |   |
|                                     |        |              |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Amortizationexpense of other intangible assets amounts to approximately $2,039,200,$1,850,000 and $1,850,000 in 2007, 2006, and 2005, respectively.

 

30

 

**Notes . . .**

 

Theestimated amortization expense of other intangible assets for the next fiveyears is (in thousands):

 
| 2008   |   | $     | 1,860  |   |
|--------|--------|-------|--------|--------|
| 2009   |   | 1,860 |   |
| 2010   |   | 1,860 |   |
| 2011   |   | 1,860 |   |
| 2012   |   | 1,860 |   |
|   |   | $     | 9,300  |   |

 

**(5) Income Taxes:**

Theprovision (credit) for income taxes on income before extraordinary gainconsists of the following (in thousands):

 
| Current  |   | ** **  | **2007**   | ** ** | ** ** |   | 2006   |   |   |   | 2005 |   |   |
|----------|--------|-------------|------------|------------|------------|--------|--------|--------|--------|--------|------|--------|--------|
| Federal  |   | **$**       | **11,861** |       | $          | 51,743 |   | $      | 51,144 |   |
| State    |   | **961**     |       | 7,796      |       | 7,948  |   |
| Foreign  |   | **1,226**   |       | 919        |       | 2,352  |   |
|     |   | **14,048**  |       | 60,458     |       | 61,444 |   |
| Deferred |   | **(21,513** | )          | (10,438    | )          | (3,896 | )      |
|     |   | **$**       | **(7,465** | **)**      | $          | 50,020 |   | $      | 57,548 |   |
|          |        |             |            |            |            |        |        |        |        |        |      |        |        |  |  |  |

 

Areconciliation of the U.S. statutory tax rates to the effective tax rates onincome before extraordinary gain follows:

 
|                                     |   | ** ** | **2007** | ** ** | ** ** |   |   | 2006 |   |   |   | 2005 |   |   |
|------------------------------------------|--------|------------|----------|------------|------------|--------|--------|------|--------|--------|--------|------|--------|--------|
| U.S.  Statutory Rate                     |   | **35.0%**  |     |       | 35.0       | %      |   | 35.0 | %      |   |
| State  Taxes, Net of Federal Tax Benefit |   | **14.4%**  |     |       | 2.6        | %      |   | 2.4  | %      |   |
| Foreign  Tax Benefits                    |   | **(6.0%**  | **)**    |       | (0.1       | %)     |   | (0.8 | %)     |   |
| Resolution  of Prior Period Tax Matters  |   | **-**      |     |       | (1.7       | %)     |   | -    |   |   |
| Benefit  on Dividends Received           |   | **48.7%**  |     |       | (2.9       | %)     |   | (4.0 | %)     |   |
| Other                                    |   | **9.9**%   |     |       | (0.1       | %)     |   | 0.4  | %      |   |
| Effective  Tax Rate                      |   | **102.0**% |     |       | 32.8       | %      |   | 33.0 | %      |   |
|                                          |        |            |          |            |            |        |        |      |        |        |        |      |        |        |  |

 

The components ofdeferred income taxes were as follows (in thousands):

 
|                                        |   | ** ** | **2007**   | ** ** | ** ** |   | 2006   |   |   |
|---------------------------------------------|--------|------------|------------|------------|------------|--------|--------|--------|--------|
| Current Asset (Liability):                  |   | ** ** | ** ** |       |       |
| Difference Between Book and Tax Related to: |   | ** ** | ** ** |       |       |
| Inventory                                   |   | **$**      | **15,153** | ** ** | $          | 13,844 |   |
| Payroll  Related Accruals                   |   | **3,110**  | ** ** | 3,190      |       |
| Warranty  Reserves                          |   | **14,670** | ** ** | 13,097     |       |
| Workers  Compensation Accruals              |   | **2,971**  | ** ** | 3,000      |       |
| Other  Accrued Liabilities                  |   | **23,765** | ** ** | 18,749     |       |
| Pension Cost                                |   | **977**    | ** ** | 1,424      |       |
| Miscellaneous                               |   | **(5,126** | **)**      | (3,344     | )          |
| Deferred  Income Tax Asset                  |   | **$**      | **55,520** | ** ** | $          | 49,960 |   |
|                                             |        |            |            |            |            |        |        |        |        |  |

 

31

 

**Notes . . .**

 
|                                         |   | ** **  | **2007**   | ** ** | ** ** |   | 2006   |   |   |
|----------------------------------------------|--------|-------------|------------|------------|------------|--------|--------|--------|--------|
| Long-Term  Liability (Asset):                |   | ** **  | ** ** |       |       |
| Difference  Between Book and Tax Related to: |   | ** **  | ** ** |       |       |
| Pension Cost                                 |   | **$**       | **34,114** |       | $          | 29,557 |   |
| Accumulated Depreciation                     |   | **48,198**  |       | 69,318     |       |
| Intangibles                                  |   | **64,952**  |       | 61,630     |       |
| Accrued Employee Benefits                    |   | **(24,165** | **)**      | (18,507    | )          |
| Postretirement Health Care Obligation        |   | **(72,558** | **)**      | (32,462    | )          |
| Warranty                                     |   | **(6,712**  | **)**      | (8,064     | )          |
| Miscellaneous                                |   | **(6,529**  | **)**      | (6,674     | )          |
| Deferred Income Tax Liability                |   | **$**       | **37,300** |       | $          | 94,798 |   |
|                                              |        |             |            |            |            |        |        |        |        |  |

 

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 $6.5 million at July 1, 2007.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)Segment and Geographic Information and Significant Customers:**

The Company has concluded thatit operates two reportable business segments that are managed separately basedon fundamental differences in their operations. Summarized segment data is asfollows (in thousands):

 
|                    |   | ** **    | **2007**      | ** ** | ** ** |      | 2006   |   |      |   | 2005 |   |   |
|-------------------------|--------|---------------|---------------|------------|------------|-----------|--------|--------|-----------|--------|------|--------|--------|
| NET SALES:              |   | ** **    | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **1,447,051** | ** ** | $          | 1,648,224 |   | $      | 1,739,184 |   |
| Power  Products         |   | **890,376**   | ** **    | 1,186,025  |       | 1,193,616 |   |
| Eliminations            |   | **(180,194**  | **)**         | (292,078   | )          | (277,925  | )      |
|                    |   | **$**         | **2,157,233** | ** ** | $          | 2,542,171 |   | $      | 2,654,875 |   |
| GROSS PROFIT ON SALES:  |   |          | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **208,444**   | ** ** | $          | 381,932   |   | $      | 372,162   |   |
| Power  Products         |   | **80,759**    | ** **    | 113,166    |       | 133,888   |   |
| Eliminations            |   | **(2,071**    | **)**         | (3,414     | )          | (1,159    | )      |
|                    |   | **$**         | **287,132**   | ** ** | $          | 491,684   |   | $      | 504,891   |   |
| INCOME FROM OPERATIONS: |   |          | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **15,493**    | ** ** | $          | 149,760   |   | $      | 142,653   |   |
| Power  Products         |   | **6,358**     | ** **    | 29,620     |       | 49,274    |   |
| Eliminations            |   | **(315**      | **)**         | (3,414     | )          | (1,159    | )      |
|                    |   | **$**         | **21,536**    | ** ** | $          | 175,966   |   | $      | 190,768   |   |
| ASSETS:                 |   |          | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **1,183,720** | ** ** | $          | 1,174,569 |   | $      | 1,297,789 |   |
| Power  Products         |   | **1,180,992** | ** **    | 1,148,279  |       | 877,933   |   |
| Eliminations            |   | **(477,544**  | **)**         | (378,648   | )          | (176,754  | )      |
|                    |   | **$**         | **1,887,168** | ** ** | $          | 1,944,200 |   | $      | 1,998,968 |   |
| CAPITAL EXPENDITURES:   |   |          | ** **    |       |       |      |   |
| Engines                 |   | **$**         | **45,848**    | ** ** | $          | 54,208    |   | $      | 67,802    |   |
| Power  Products         |   | **22,152**    | ** **    | 15,310     |       | 18,273    |   |
|                    |   | **$**         | **68,000**    | ** ** | $          | 69,518    |   | $      | 86,075    |   |
|                         |        |               |               |            |            |           |        |        |           |        |      |        |        |  |  |  |

 

32

 

**Notes . . .**

 
| DEPRECIATION  & AMORTIZATION: |   | ** ** |       |   |   |   |   |
|-----------------------------------|--------|------------|------------|--------|--------|--------|--------|
| Engines                           |   | **$**      | **54,757** |   | $      | 59,053 |   | $ | 59,069 |   |
| Power  Products                   |   | **19,557** |       | 18,181 |   | 13,724 |   |
|                              |   | **$**      | **74,314** |   | $      | 77,234 |   | $ | 72,793 |   |

 

Information regarding theCompany’s geographic sales by the location in which the sales originate is asfollows (in thousands):

 
|                |   | ** **  | **2007**      | ** ** |   |      | 2006   |   |      |   | 2005 |   |   |
|---------------------|--------|-------------|---------------|------------|--------|-----------|--------|--------|-----------|--------|------|--------|--------|
| United States       |   | **$**       | **1,960,471** |       | $      | 2,353,010 |   | $      | 2,481,374 |   |
| All Other Countries |   | **196,762** |          | 189,161    |   | 173,501   |   |
| Total               |   | **$**       | **2,157,233** |       | $      | 2,542,171 |   | $      | 2,654,875 |   |
|                     |        |             |               |            |        |           |        |        |           |        |      |        |        |  |  |  |

 

Sales to the followingcustomers in the Company’s Engines Segment amount to greater than or equal to10% of consolidated net sales, respectively:

 
|      |   | **2007**     |           |       |       | 2006     |       |       |   | 2005     |       |   |   |
|-----------|--------|----------------------------------|----------------|------------|------------|------------------------------|------------|------------|--------|------------------------------|------------|--------|--------|
| Customer: |   | ** **                       | **Net  Sales** |       | ** ** | **%**                        | ** ** | ** ** |   |                         | Net  Sales |   |   | % |   |   |   |   | Net  Sales |   |   | % |   |   |
| HOP       |   | **$**                            | **443,393**    | ** ** |       | **21**                       | %          |       | $      | 407,964                      |       |   | 16     | % |   | $ | 374,941 |   |   | 14 | % |
| MTD       |   | **206,291**                      | ** **     |       | **10**     | %                            |       | 230,123    |   |                         | 9          | %      |   | 316,911 |   |   | 12 | % |
|      |   | **$**                            | **649,684**    | ** ** |       | **31**                       | %          |       | $      | 638,087                      |       |   | 25     | % |   | $ | 691,852 |   |   | 26 | % |
|           |        |                                  |                |            |            |                              |            |            |        |                              |            |        |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(7)  Leases:**

TheCompany leases certain facilities, vehicles, and equipment under both capitaland operating leases. Assets held under capital leases are included in Plantand Equipment and are charged to depreciation and interest over the life of thelease. Related liabilities are included in Other Accrued Liabilities and OtherLong-Term Liabilities. Operating leases are not capitalized and lease paymentsare expensed over the life of the lease. Terms of the leases, includingpurchase options, renewals, and maintenance costs, vary by lease. Rentalexpense for fiscal 2007, 2006 and 2005 was $22.5 million, $18.9 million and$16.1 million, respectively.

 

Future minimum leasecommitments for all non-cancelable leases as of July 1, 2007 are as follows (inthousands):

 
| Fiscal Year                                     |   |   |   | Operating |   | Capital |   |
|-------------------------------------------------|--------|--------|--------|-----------|--------|---------|--------|
| 2008                                            |   | $      | 14,161 |      | $      | 1,221   |   |
| 2009                                            |   | 10,435 |   | 375       |   |
| 2010                                            |   | 8,854  |   | 381       |   |
| 2011                                            |   | 5,975  |   | 388       |   |
| 2012                                            |   | 3,725  |   | 395       |   |
| Thereafter                                      |   | 6,323  |   | 132       |   |
| Total future minimum lease commitments          |   | $      | 49,473 |      | 2,892  |    |
| Less: Interest                                  |   |   |   | 513       |   |
| Present value of minimum capital lease payments |   |   |   | $         | 2,379  |    |

 

**(8)  Indebtedness:**

OnAugust 8, 2006, the Company amended its unsecured five-year $350 millionrevolving credit facility (the credit facility) that expires in May 2009 toallow repurchases of its common stock for aggregate consideration not to exceed$120 million during the period from August 10, 2006 through February 8, 2008.There were no borrowings under the credit facility as of July 1, 2007 or July2, 2006.

 

Borrowingsunder the credit facility by the Company bear interest at a rate per annumequal 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

 

33

 

**Notes . ...**

 

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

 

Inaddition, the Company is subject to a 0.10% to 0.375% commitment fee and a0.50% to 2.00% letter of credit fee, depending on the Company’s long-termcredit ratings.

 

Thelines of credit available to the Company in foreign countries are in connectionwith short-term borrowings and bank overdrafts used in the normal course ofbusiness. These amounts total $15.0 million, expire at various times throughoutfiscal 2008 and are renewable. None of these arrangements had materialcommitment fees or compensating balance requirements. Borrowings using theselines of credit are included in short-term debt. Outstanding balances are asfollows (in thousands):

 
|                                               |   | ** ** | **2007**  | ** ** |   |   | 2006   |   |   |
|----------------------------------------------------|--------|------------|-----------|------------|--------|--------|--------|--------|--------|
| Balance at  Fiscal Year-End                        |   | **$**      | **3,000** |       | $      | 3,474  |   |
| Weighted  Average Interest Rate at Fiscal Year-End |   | **7.05**   | %         | 6.38       | %      |
|                                                    |        |            |           |            |        |        |        |        |        |  |  |

 

The Long-Term Debt andCurrent Maturities on Long-Term Debt captions consist of the following (inthousands):

 
|                                                                                             |       | ** **  | **2007**    | ** ** |   |    | 2006   |   |   |
|--------------------------------------------------------------------------------------------------|------------|-------------|-------------|------------|--------|---------|--------|--------|--------|
|                                                                                             |       | ** **  |        |       |   |
| 7.25% Senior  Notes Due 2007, Net of Unamortized Discount of $36 in 2007 and $202 in 2006        | ** ** | **$**       | **81,139**  |       | $      | 80,973  |   |
| 8.875%  Senior Notes Due 2011, Net of Unamortized Discount of $2,091 in 2007 and  $2,649 in 2006 |       | **267,909** |        | 267,351    |   |
| Variable  Rate Term Notes Due 2008                                                               |       | **35,000**  |        | 35,000     |   |
| Total  Long-Term Debt                                                                            |       | **$**       | **384,048** |       | $      | 383,324 |   |
|                                                                                                  |            |             |             |            |        |         |        |        |        |  |  |

 

OnJuly 12, 2007, the Company entered into a $500 million amended and restatedmulticurrency credit agreement. See further discussion in Note 19 of the Notesto Consolidated Financial Statements.

 

OnAugust 8, 2006, the Company amended its unsecured three-year $125 million termloan agreement (the term loan) that expires on February 11, 2008 to allow arepurchase of its common stock for aggregate consideration not to exceed $120million during the period from August 10, 2006 through February 8, 2008. TheCompany prepaid $90 million of the term loan in the fourth quarter of fiscal2006. The Company is required to repay the aggregate principal balance of theterm loan on February 11, 2008 (maturity date).

 

Borrowingsunder the term loan by the Company bear interest at a rate per annum equal to,at its option, either:

 

(1)a 1, 2, 3 or 6 month LIBOR rate plus a margin varying from 0.50% to 1.75%,depending upon the rating of 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.

 

InMay 2001, the Company issued $275 million of 8.875% Senior Notes due March 15,2011. No principal payments are due before the maturity date; however, theCompany repurchased $5.0 million of the bonds in the second quarter of fiscalyear 2006 after receiving unsolicited 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 transactions; consolidate, merge, sell or lease all or substantiallyall of its assets; and dispose of assets or the proceeds of sales of itsassets. The credit facility contains financial covenants that require theCompany to maintain a minimum interest coverage ratio and net worth and imposea maximum leverage ratio. As of July 1, 2007, the Company was in compliancewith these covenants.

 

34

 

**Notes . ...**

 

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)      Other Income:**

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

 
|                                               | ** ** | ** ** | **2007**   | ** ** |   |   | 2006   |   |   |   | 2005 |   |   |
|----------------------------------------------------|------------|------------|------------|------------|--------|--------|--------|--------|--------|--------|------|--------|--------|
| Interest  Income                                   | ** ** | **$**      | **1,916**  |       | $      | 2,856  |   | $      | 1,155  |   |
| Income on  Preferred Stock                         | ** ** | **10,000** |       | 12,000     |   | 12,492 |   |
| Equity in  Earnings from Unconsolidated Affiliates | ** ** | **3,303**  |       | 4,174      |   | 5,289  |   |
| Deferred  Financing Costs                          | ** ** | **(1,173** | **)**      | (1,708     | )      | (1,233 | )      |
| Other Items                                        | ** ** | **790**    |       | 1,169      |   | 2,727  |   |
| Total                                              | ** ** | **$**      | **14,836** |       | $      | 18,491 |   | $      | 20,430 |   |
|                                                    |            |            |            |            |        |        |        |        |        |        |      |        |        |  |  |  |  |  |

 

**(10)    Commitments and Contingencies:**

Productand general liability claims arise against the Company from time to time in theordinary course of business. The Company is generally self-insured for claimsup to $2.0 million per claim. Accordingly, a reserve is maintained for theestimated costs of such claims. On July 1, 2007 and July 2, 2006 the reservefor product and general liability claims (which includes asbestos-relatedliabilities) was $7.2 million and $7.3 million, respectively. Because there isinherent uncertainty as to the eventual resolution of unsettled claims, noreasonable range of possible losses can be determined. Management does notanticipate that these claims, excluding the impact of insurance proceeds andreserves, will have a material adverse effect on the financial condition orresults of operations of the Company.

 

InOctober 1998, the Company joined seventeen other companies in guaranteeing a$17.9 million letter of credit issued as a guarantee of certain City ofMilwaukee Revenue Bonds used to develop a residential rental property. TheRevenue Bonds were issued on behalf of a not-for-profit organizationestablished to manage the project and rental property post construction. Therevenues from the rental property are used to fund operating expenses and alldebt service requirements. The Company’s share of the guarantee and the maximumexposure to the Company under the agreement is $1.8 million. The letter ofcredit and underlying guarantee expires August 15, 2008. Management believesthe likelihood is remote that material payments will be required under thisguarantee. Accordingly, no liability has been reflected in the accompanyingConsolidated Balance Sheets related to this item.

 

Certainindependent dealers and distributors finance inventory purchases through athird party financing company. Briggs & Stratton has indemnified the thirdparty finance company against credit default. The Company’s maximum exposureunder this agreement due to customer credit default in a fiscal year is $1.6million. In fiscal 2007 and fiscal 2006, the third party financing companyprovided financing for $289.1 million and $294.4 million of Briggs &Stratton product, respectively. As of July 1, 2007 and July 2, 2006 there were$184.7 million and $180.3 million in receivables outstanding under thisarrangement. Briggs & Stratton made no payments under this indemnityagreement in fiscal 2007 and fiscal 2006.

 

Certainof the Company’s vendors in Asia require their customers to obtain letters ofcredit, payable upon shipment of the product. At the end of fiscal 2007, theCompany had three letters of credit issued by Bank of America, totaling $14.1million. At July 2, 2006, the Company held two letters of credit from Bank ofAmerica, totaling $7.5 million. The products ordered typically arrive inpartial shipments spanning several months, with payment initiated at the timethe vendor provides documentation to the bank of the quantity and occurrence ofshipment.

 

OnJune 3, 2004, eight individuals who claim to have purchased lawnmowers inIllinois and Minnesota filed a lawsuit (Ronnie Phillips et al. v. Sears RoebuckCorporation et al., No. 04-L-334 (20th Judicial Circuit, St. Clair County, IL))against the Company and other defendants alleging that the horsepower labels onthe products

 

35

 

**Notes . ...**

 

they purchased wereinaccurate. The plaintiffs have amended their complaint several times andcurrently seek an injunction, compensatory and punitive damages, and attorneys’fees under various federal and state laws including the Racketeer Influencedand Corrupt Organization Act on behalf of all persons in the United States who,beginning January 1, 1994 through the present, purchased a lawnmower containinga two-stroke 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). The defendants subsequently filed cross claims against each otherfor indemnification and contribution, and filed a motion to dismiss the amendedcomplaint. On March 30, 2007, the Court issued an order granting the defendants’motion to dismiss the amended complaint in its entirety, but the order permitsthe plaintiffs to refile a complaint after amending several claims. An opinionof the Court providing more detail concerning its order is expected but has notyet been filed. Two defendants, MTD Products, Inc. and American Honda MotorCompany, have notified the Court that they have reached a settlement with theputative plaintiff class, but neither defendant’s agreement has yet beenapproved by the Court. Although it is not possible to predict with certaintythe outcome of these unresolved legal actions or the range of possible loss,Briggs & Stratton believes these unresolved legal actions will not have amaterial effect on its financial position.

 

**(11)Stock Incentives:**

EffectiveOctober 20, 2004, Briggs & Stratton adopted an Incentive Compensation Planunder which 4,000,000 shares of common stock (8,000,000 shares as a result ofthe 2-for-1 stock split) were reserved for future issuance. Briggs &Stratton previously had a Stock Incentive Plan under which 5,361,935 shares ofcommon stock were reserved for issuance. The adoption of the IncentiveCompensation Plan reduced the number of shares available for future issuanceunder the Stock Incentive Plan to zero. However, as of July 1, 2007, there were2,444,978 outstanding option and restricted stock awards granted under theStock Incentive Plan that are or may become exercisable in the future. Inaccordance with both plans, Briggs & Stratton can issue eligible employeesstock options, stock appreciation rights, restricted stock, deferred stock andcash bonus awards subject to certain annual limitations. The plans also allowBriggs & Stratton to issue directors non-qualified stock options anddirectors’ fees in stock.

 

Effective July 4, 2005,Briggs & Stratton’s stock based compensation plans are accounted for underStatement of Financial Accounting Standards (“ SFAS”) No. 123(R), “Share BasedPayment” using the modified prospective method. During fiscal 2007 and 2006,Briggs & Stratton recognized stock based compensation expense ofapproximately $8.5 million and $10.0 million, respectively. Prior to July 4,2005, the plans were accounted for according to Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees.” Had compensationcost for the plans been determined consistent with SFAS No. 123(R), Briggs& Stratton’s net income and earnings per share would have been reduced tothe following pro forma amounts for the fiscal year ended July 3, 2005 (inthousands, except per share data):

 

All share data isadjusted for the effect of the 2-for-1 stock split effective October 29, 2004.

 
|                                                                                                          |   |    | 2005    |   |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------|---------|--------|--------|
| Net income  as reported (in thousands):                                                                       |   | $       | 136,567 |   |
| Basic EPS:                                                                                                    |   |    |    |
| Deduct  employee compensation expense determined under a fair value based method, net  of related tax effects |   | (5,837  | )       |
| Income  Available to Common Stockholders:                                                                     |   | 130,730 |    |
| Diluted EPS:                                                                                                  |   |    |    |
| Add  reduction in interest expense related to convertible debt                                                |   | -       |    |
| Income  Available to Common Stockholders:                                                                     |   | $       | 130,730 |   |
|                                                                                                               |        |         |         |        |        |  |

 

36

 

**Notes . ...**

 
| Basic Earnings Per Share:   |   |   |   |
|-----------------------------|--------|--------|--------|
| As Reported                 |   | $      | 2.65   |   |
| Pro Forma                   |   | $      | 2.54   |   |
| Diluted Earnings Per Share: |   |   |   |
| As Reported                 |   | $      | 2.63   |   |
| Pro Forma                   |   | $      | 2.52   |   |
|                             |        |        |        |  |  |

 

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:

 
|                                                                                                                           |   | ** ** | **2007**   | ** ** |   |   | 2006   |   |   |   | 2005 |   |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|--------|--------|--------|--------|--------|------|--------|--------|
| Options  Granted During Grant Date Fair Value                                                                                  |   | **$**      | **5.46**   |       | $      | 7.37   |   | $      | 12.12  |   |
| (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                                                                                                       |   | **5.0%**   | ** ** | 4.3%       |   | 4.2%   |   |
| Expected  Volatility                                                                                                           |   | **27.4%**  | ** ** | 25.1%      |   | 28.4%  |   |
| Expected  Dividend Yield                                                                                                       |   | **3.2%**   | ** ** | 1.9%       |   | 1.9%   |   |
| Expected  Term (In Years)                                                                                                      |   | **5.0**    | ** ** | 5.0        |   | 10.0   |   |
|                                                                                                                                |        |            |            |            |        |        |        |        |        |        |      |        |        |  |  |  |

 

Information on the options outstanding is as follows:

 
|                          |   |          |       |       |       | Wtd.  Avg.  |   | Aggregate |       |
|-------------------------------|--------|---------------|------------|------------|------------|-------------|--------|-----------|------------|
|                          |   |          |       |       |       | Remaining   |   | Intrinsic |       |
|                          |   |          |       | Wtd.  Avg. |       | Contractual |   | Value     |       |
|                          |   | Shares        |       | Ex.  Price |       |        | Term   |      |       | (in  thousands) |   |
| 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** | ** ** | **$**      | **32.05**  |        |   |      |       |   |   |
| ** **                    |   | ** **    | ** ** | ** ** | ** ** |        |   |      |       |   |   |
| **Granted During the Year**   |   | **554,020**   | ** ** |       | **29.87**  |        |   |      |       |   |   |
| **Exercised During the Year** |   | **(143,332**  | **)**      |       | **23.36**  |        |   |      |       |   |   |
| **Expired During the Year**   |   | **(24,442**   | **)**      |       | **33.26**  |        |   |      |       |   |   |
| **Balance, July 1, 2007**     |   | **3,329,679** | ** ** | **$**      | **32.05**  | ** **  |   | **4.97**  | ** ** | **$** | **6,400** | ** ** |
| **Exercisable, July 1, 2007** |   | **1,365,908** | ** ** | **$**      | **27.54**  | ** **  |   | **4.07**  | ** ** | **$** | **5,490** | ** ** |
|                               |        |               |            |            |            |             |        |           |            |  |  |  |  |  |

 

37

 

**Notes . ...**

 

The total intrinsic valueof options exercised during the fiscal years ended 2007, 2006 and 2005, was$0.8 million, $3.4 million and $3.3 million, respectively, and the total fairvalue of options exercised during fiscal 2007 was $4.1 million. The exercise ofoptions resulted in cash receipts of $3.3 million, $11.3 million and $20.0million in fiscal 2007, 2006 and 2005, 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 |   | 40,948 |   |
| 2002          |       | 8-7-01 |   | 8-7-04 |   | 8-7-08 |   | 24.60 |   | 286,180 |   |
| 2003          |       | 8-13-02 |   | 8-13-05 |   | 8-13-09 |   | 23.35 |   | 280,460 |   |
| 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 |   | 345,881 |   |
| **2007**      | ** ** | **8-15-06** | ** ** | **8-15-09** | ** ** | **8-15-11** | ** ** | **29.87** | ** ** | **538,820** | ** ** |
|               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Below is a summary of thestatus of the Company’s nonvested shares as of July 1, 2007, 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 2, 2006** |   | **28,905**     | ** ** |             | **$**     | **35.45**                         | ** ** |   | **127,574** | ** ** | **$** | **32.11** | ** ** | **2,192,513** | ** ** | **$** | **32.69** | ** ** |
| **Granted**                        |   | **735**        | ** ** |             | **27.59** | ** **                        |       | **21,425** | ** ** | **29.24** | ** ** | **554,020** | ** ** | **27.59** | ** ** |
| **Cancelled**                      |   | **-**          | ** ** |             | **-**     | ** **                        |       | **(4,772** | **)** | **33.42** | ** ** | **(24,442** | **)** | **30.38** | ** ** |
| **Vested**                         |   | **-**          | ** ** |             | **-**     | ** **                        |       | **(12,000** | **)** | **26.79** | ** ** | **(758,320** | **)** | **28.49** | ** ** |
| **Nonvested shares, July 1, 2007** |   | **29,640**     | ** ** |             | **35.26** | ** **                        |       | **132,227** | ** ** | **32.08** | ** ** | **1,963,771** | ** ** | **32.90** | ** ** |
|                                    |        |                |            |                  |           |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of July 1, 2007, therewas $3.7 million of total unrecognized compensation cost related to nonvestedshare-based compensation. That cost is expected to be recognized over aweighted average period of 1.7 years. The total fair value of shares vestedduring fiscal 2007 was $21.3 million.

 

Under the plans, theCompany has issued restricted stock to certain employees. During fiscal years2007, 2006 and 2005, the Company has issued 21,425, 42,574 and 26,000 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 is approximately $0.6 million, $1.5 millionand $1.0 million in fiscal 2007, 2006 and 2005, respectively, and has beenrecorded within the Shareholders’ Investment section of the ConsolidatedBalance Sheets, and is being amortized over the five-year vesting period.

 

Under the plans, theCompany may also issue stock to its directors in lieu of directors fees. TheCompany has issued 3,497, 3,477 and 3,463 shares in fiscal 2007, 2006 and 2005,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 735 and 27,905 shares in fiscal 2007and 2006, respectively, under this provision. The aggregate market value on thedate of issue was approximately $20,000 and $990,000, respectively. Expense isrecognized ratably over the five-year vesting period.

 

38

 

**Notes . ...**

 

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

 
|                                        |   | ** ** | **2007**   | ** ** | ** ** |   | 2006   |   |   |   | 2005 |   |
|---------------------------------------------|--------|------------|------------|------------|------------|--------|--------|--------|--------|--------|------|--------|
| Stock Options:                              |   | ** ** | ** ** |       |       |   |
| Pretax  compensation expense                |   | **$**      | **7,258**  | ** ** | $          | 8,252  |   | $      | 754    |   |
| Tax benefit                                 |   | **(2,831** | **)**      | (3,218     | )          | (294   | )      |
| Stock option  expense, net of tax           |   | **$**      | **4,427**  | ** ** | $          | 5,034  |   | $      | 460    |   |
| Restricted  Stock:                          |   |       | ** ** |       |       |   |   |
| Pretax  compensation expense                |   | **$**      | **900**    | ** ** | $          | 1,142  |   | $      | 511    |   |
| Tax benefit                                 |   | **(351**   | **)**      | (445       | )          | (199   | )      |
| Restricted  stock expense, net of tax       |   | **$**      | **549**    | ** ** | $          | 697    |   | $      | 312    |   |
| Deferred  Stock:                            |   |       | ** ** |       |       |   |   |
| Pretax  compensation expense                |   | **$**      | **326**    | ** ** | $          | 605    |   | $      | 3      |   |
| Tax benefit                                 |   | **(127**   | **)**      | (236       | )          | (1     | )      |
| Deferred  stock expense, net of tax         |   | **$**      | **199**    | ** ** | $          | 369    |   | $      | 2      |   |
| Total  Stock-Based Compensation:            |   |       | ** ** |       |       |   |   |
| Pretax  compensation expense                |   | **$**      | **8,484**  | ** ** | $          | 9,999  |   | $      | 1,268  |   |
| Tax benefit                                 |   | **(3,309** | **)**      | (3,899     | )          | (494   | )      |
| Total  stock-based compensation, net of tax |   | **$**      | **5,175**  | ** ** | $          | 6,100  |   | $      | 774    |   |
|                                             |        |            |            |            |            |        |        |        |        |        |      |        |  |  |  |

 

**(12)  Shareholder Rights Agreement:**

On August 6, 1996, theBoard of Directors declared a dividend distribution of one common stockpurchase right (a right) for each share of the Company’s common stockoutstanding on August 19, 1996. Each right would entitle shareowners to buy one-halfof one share of the Company’s common stock at an exercise price of $160.00 perfull common share ($80.00 per full common share after taking into considerationthe effect 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 ratified the amendedrights agreement at their annual meeting on October 18, 2006.

 

**(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 inexchange rates.

 

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.

 

The Company has thefollowing forward currency contracts outstanding at the end of fiscal 2007: 

 
|                  |   |     |     | 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**  |     | **2,300.0**  |   |         | **19.2** |        |   | **19.0** |   |   | **.2** |   |   | **U.S.** |   | **March 2008** |   |
| **Euro**              |   | **Sell** |     | **38.0**     |   |         | **51.4** |        |   | **51.6** |   |   | **.2** |   |   | **U.S.** |   | **March 2008** |   |
| **Australian Dollar** |   | **Sell** |     | **4.5**      |   |         | **3.6**  |        |   | **3.8** |   |   | **.2** |   |   | **U.S.** |   | **October 2007** |   |
|                       |        |          |          |              |        |              |          |             |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

39

 

 

**Notes. . .**

 

The Company had 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 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 2007 or 2006.

 

**(14)Employee Benefit Costs:**

Retirement Plan and OtherPostretirement Benefits

 

The prior accounting fordefined pension and other postretirement plans allowed for delayed recognitionof changes in plan assets and benefit obligations and recognition of aliability that may have been significantly less than the underfunded status ofthe plans or an asset for plans that may have been overfunded. The followingtable illustrates the incremental effect of applying SFAS 158 for pension,postretirement and postemployment benefits on individual line items in theCompany’s Consolidated Balance Sheets as of July 1, 2007 (in millions):
| ** **                                                  | ** ** | **Before  Application of** | ** **                | **SFAS 158  Adjustments  Increase** | ** ** | **After  Application of** |
|-------------------------------------------------------------|------------|----------------------------|---------------------------|-------------------------------------|------------|---------------------------|
| ** **                                                  |       |                       | **SFAS 158**              |                                |       |                      | **(Decrease)** |   |   |   | **SFAS 158** |   |
| **Other  assets**                                           |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| Other  intangible assets, net                               |       |                       | $                         | 94                                  |       |                      |   | $ | (1 | ) |   |   | $ | 93 |   |
| Prepaid  pension                                            |       |                       | 76                        |                                |       |                      | 27 |   |   |   | 103 |   |
|                                                        |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| **Total  assets**                                           |       |                       | 1,861                     |                                |       |                      | 26 |   |   |   | 1,887 |   |
| ** **                                                  |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| **Long-term  liabilities**                                  |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| Deferred  income tax liability                              |       |                       | 79                        |                                |       |                      | (42 | ) |   |   | 37 |   |
| Accrued pension  cost                                       |       |                       | 27                        |                                |       |                      | 12 |   |   |   | 39 |   |
| Accrued  employee benefits                                  |       |                       | 17                        |                                |       |                      | 3 |   |   |   | 20 |   |
| Accrued postretirement  health care obligation              |       |                       | 69                        |                                |       |                      | 118 |   |   |   | 187 |   |
|                                                        |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| **Shareholders’  equity**                              |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| Accumulated other comprehensive income (loss),  net of tax: |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| Defined  benefit plans                                      |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| Minimum  Pension Liability                                  |       |                       | (2                        | )                                   |       |                      | 2 |   |   |   | -     |   |
| Prior  service cost                                         |       |                       | -     |                                |       |                      | (9 | ) |   |   | (9 | ) |
| Net  actuarial loss                                         |       |                       | -     |                                |       |                      | (58 | ) |   |   | (58 | ) |
|                                                        |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| **Shareholders’  equity**                              |       |                       | 911                       |                                |       |                      | (65 | ) |   |   | 846 |   |
| ** **                                                  |       |                       |                      |                                |       |                      |   |   |   |   |   |   |
| **Total  liabilities and shareholders’ equity**        |       |                       | 1,861                     |                                |       |                      | 26 |   |   |   | 1,887 |   |
|                                                             |            |                            |                           |                                     |            |                           |  |  |  |  |  |  |  |  |  |

 

The amounts inaccumulated other comprehensive income that are expected to be recognized ascomponents of net periodic benefit cost during the next fiscal year are asfollows (in thousands):

 
|                        |   |    |   | Other          |
|-----------------------------|--------|---------|--------|----------------|
|                        |   | Pension |   | Postretirement |
|                        |   |    | Plans  |           |   |   | Plans |   |
| Prior service credit (cost) |   |    | $      | (3,290         | ) |   |   | $ | 850 |   |
| Net actuarial gain (loss)   |   |    | 3,560  |           |   |   | (11,077 | ) |
|                             |        |         |        |                |  |  |  |  |  |  |

 

40

 

**Notes.. . .**

 

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

 
|                                                                             |   | Pension  Benefits |          | Other  Postretirement Benefits                                                                 |       |
|----------------------------------------------------------------------------------|--------|-------------------|---------------|------------------------------------------------------------------------------------------------|------------|
|                                                                             |   |              | **2007**      | ** **                                                                                     | ** ** |   | 2006 |   |   | ** ** | **2007** | ** ** | ** ** |   | 2006 |   |   |
| Actuarial Assumptions:                                                           |   | ** **        | ** **    |                                                                                           |       | ** ** | ** ** |   |   |
| Discounted Rate  Used to Determine Present Value of Projected Benefit Obligation |   | **6.35%**         | ** **    | 6.35%                                                                                          |       | **6.09%** | ** ** | 6.09% |   |
| 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                               |   | **$**             | **949,634**   | ** **                                                                                     | $          | 1,032,014 |   | **$** | **276,952** | ** ** | $ | 305,091 |   |
| Service Cost                                                                     |   | **13,324**        | ** **    | 15,430                                                                                         |       | **1,777** | ** ** | 3,031 |   |
| Interest  Cost                                                                   |   | **57,940**        | ** **    | 52,595                                                                                         |       | **16,007** | ** ** | 15,025 |   |
| Plan  Amendments                                                                 |   | **-**             | ** **    | ** **                                                                                     | 3,881      |   | **-** | ** ** | ** ** | (6,970 | ) |
| Plan  Participant Contributions                                                  |   | **-**             | ** **    | ** **                                                                                     | -          |   |   | **1,696** | ** ** | 3,558 |   |
| Actuarial  (Gain) Loss                                                           |   | **38,877**        | ** **    | (88,200                                                                                        | )          | **(17,830** | **)** | (13,551 | ) |
| Benefits  Paid                                                                   |   | **(73,303**       | **)**         | (66,086                                                                                        | )          | **(35,057** | **)** | (29,232 | ) |
| Projected  Benefit Obligation at End of Year                                     |   | **$**             | **986,472**   | ** **                                                                                     | $          | 949,634 |   | **$** | **243,545** | ** ** | $ | 276,952 |   |
| Change in Plan Assets:                                                           |   | ** **        | ** **    |                                                                                           |       | ** ** | ** ** |   |   |
| Fair Value  of Plan Assets at Beginning of Year                                  |   | **$**             | **945,203**   | ** **                                                                                     | $          | 917,443 |   | **$** | **-** | ** ** | ** ** | $ | - |   |   |
| Actual  Return on Plan Assets                                                    |   | **167,244**       | ** **    | 92,112                                                                                         |       | **-** | ** ** | ** ** |   |   |
| Plan  Participant Contributions                                                  |   | **-**             | ** **    | ** **                                                                                     | -          |   |   | **1,696** | ** ** | 3,558 |   |
| Employer  Contributions                                                          |   | **9,737**         | ** **    | 1,734                                                                                          |       | **33,361** | ** ** | 25,674 |   |
| Benefits  Paid                                                                   |   | **(73,303**       | **)**         | (66,086                                                                                        | )          | **(35,057** | **)** | (29,232 | ) |
| Fair Value  of Plan Assets at End of Year                                        |   | **$**             | **1,048,881** | ** **                                                                                     | $          | 945,203 |   | **$** | **-** | ** ** | ** ** | $ | - |   |   |
| Funded Status:                                                                   |   | ** **        | ** **    |                                                                                           |       | ** ** | ** ** |   |   |
| Plan Assets  (Less Than) in Excess of Projected Benefit Obligation               |   | **$**             | **62,409**    | ** **                                                                                     | $          | (4,431 | ) | **$** | **(243,545** | **)** | $ | (276,952 | ) |
| Remaining  Unrecognized Net Obligation                                           |   | **-**             | ** **    | ** **                                                                                     | 57         |   | **-** | ** ** | ** ** | 89 |   |
| Unrecognized  Net (Gain) Loss                                                    |   | **-**             | ** **    | ** **                                                                                     | 33,740     |   | **-** | ** ** | ** ** | 157,711 |   |
| Minimum Pension  Liability                                                       |   | **-**             | ** **    | ** **                                                                                     | (4,192     | ) | **-** | ** ** | ** ** | - |   |   |
| Unrecognized  Prior Service Cost                                                 |   | **-**             | ** **    | ** **                                                                                     | 23,628     |   | **-** | ** ** | ** ** | (6,362 | ) |
| Net Amount  Recognized at End of Year                                            |   | **$**             | **62,409**    | ** **                                                                                     | $          | 48,802 |   | **$** | **(243,545** | **)** | $ | (125,514 | ) |
| Amounts Recognized on the Balance Sheets:                                        |   | ** **        | ** **    |                                                                                           |       | ** ** | ** ** |   |   |
| Prepaid  Pension                                                                 |   | **$**             | **103,247**   | ** **                                                                                     | $          | 75,789 |   | **$** | **-** | ** ** | ** ** | $ | - |   |   |
| Accrued  Pension Cost                                                            |   | ** **        | **(39,438**   | **)**                                                                                          |       | (25,587 | ) | ** ** | **-** | ** ** | ** ** |   | **-** |   |   |
| Accrued  Wages and Salaries                                                      |   | **(1,400**        | **)**         | (1,400                                                                                         | )          | **-** | ** ** | ** ** |   |   |
| Accrued  Postretirement Health Care Obligation                                   |   | **-**             | ** **    | ** **                                                                                     | -          |   |   | **(186,868** | **)** | (84,136 | ) |
| Accrued  Liabilities                                                             |   | **-**             | ** **    | ** **                                                                                     | -          |   |   | **(37,504** | **)** | (26,000 | ) |
| Accrued  Employee Benefits                                                       |   | **-**             | ** **    | **               ** | -          |   |   | **(19,173** | **)** | (15,378 | ) |
| Net Amount  Recognized at End of Year                                            |   | **$**             | **62,409**    | ** **                                                                                     | $          | 48,802 |   | **$** | **(243,545** | **)** | $ | (125,514 | ) |
| Amounts Recognized in Accumulated Other  Comprehensive Income (Loss):            |   | ** **        | ** **    |                                                                                           |       | ** ** | ** ** |   |   |
| Minimum  Pension Liability                                                       |   | **-**             | ** **    | ** **                                                                                     | (2,228     | ) | ** ** | ** ** | **-** |   |   |
| Transition  assets (obligation)                                                  |   | **-**             | ** **    | ** **                                                                                     | **-**      |   | **(56** | **)** | ** ** | **-** |   |   |
| Net  Actuarial Gain (Loss)                                                       |   | **$**             | **19,282**    | ** **                                                                                     | $          | - |   |   | **$** | **(77,179** | **)** | $ | - |   |   |
| Prior  Service (Credit) Cost                                                     |   | **(12,406**       | **)**         | -                                                                                              |       |   | **3,363** | ** ** | - |   |   |
| Net Amount  Recognized at End of Year                                            |   | **$**             | **6,876**     | ** **                                                                                     | $          | (2,228 | ) | **$** | **(73,872** | **)** | $ | - |   |   |
|                                                                                  |        |                   |               |                                                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

41

 

**Notes . ...**

 

The accumulated benefitobligation for all defined benefit pension plans was $933 million and $898million at June 30, 2007 and 2006, respectively.

 

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

 
|                                           |   | Pension  Benefits |       | Other  Postretirement Benefits |       |
|------------------------------------------------|--------|-------------------|------------|--------------------------------|------------|
|                                           |   | ** **        | **2007**   | ** **                     | ** ** |   | 2006 |   |   |   | 2005 |   |   | ** ** | **2007** | ** ** | ** ** |   | 2006 |   |   |   | 2005 |   |   |
| Components of Net Periodic Expense  (Income):  |   | ** **        | ** ** |                           |       |   |   | ** ** | ** ** |   |   |   |   |
| Service  Cost-Benefits Earned During the Year  |   | **$**             | **13,324** | ** **                     | $          | 15,430 |   | $ | 12,993 |   | **$** | **1,777** | ** ** | $ | 3,031 |   | $ | 2,734 |   |
| Interest  Cost on Projected Benefit Obligation |   | **57,940**        | ** ** | 52,595                         |       | 54,448 |   | **16,007** | ** ** | 15,025 |   | 16,703 |   |
| Expected  Return on Plan Assets                |   | **(68,394**       | **)**      | (68,998                        | )          | (70,806 | ) | **-** | ** ** | **-** |   | - |   |
| Amortization of:                               |   | ** **        | ** ** |                           |       |   |   | ** ** | ** ** |   |   |   |   |
| Transition  Obligation (Asset)                 |   | **8**             | ** ** | 8                              |       | 8 |   | **46** | ** ** | 46 |   | 46 |   |
| Prior  Service Cost                            |   | **3,290**         | ** ** | 3,292                          |       | 3,140 |   | **(849** | **)** | (629 | ) | 31 |   |
| Actuarial  Loss (Gain)                         |   | **5,398**         | ** ** | 10,254                         |       | 772 |   | **13,337** | ** ** | 15,793 |   | 14,249 |   |
| Net Periodic  Expense                          |   | **$**             | **11,566** | ** **                     | $          | 12,581 |   | $ | 555 |   | **$** | **30,318** | ** ** | $ | 33,266 |   | $ | 33,763 |   |
|                                                |        |                   |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Significant assumptionsused in determining net periodic benefit cost for the fiscal years indicatedare as follows:

 
|                            |   | Pension  Benefits |     | Other  Postretirement Benefits |   |
|---------------------------------|--------|-------------------|----------|--------------------------------|--------|
|                            |   | ** **        | **2007** | ** **                     |   |   | 2006 |   |   |   | 2005 |   |   | ** ** | **2007** | ** ** |   |   | 2006 |   |   |   | 2005 |   |   |
|                            |   | ** **        |     |                           |   |   |   | ** ** |   |   |   |   |   |
| Discount  Rate                  |   | **6.35%**         |     | 5.25%                          |   | 6.25% |   | **6.09** | **%** |   | 5.25 | % |   | 6.25 | % |   |
| 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 1,2007, the Company’s additional pension obligation was $6.7 million, of which$4.1 million was included as a reduction in accumulated other comprehensiveincome, net of tax benefit of $2.6 million. At July 2, 2006, the Company’sadditional pension obligation was $4.2 million, of which $2.2 million wasincluded as a reduction in accumulated other comprehensive income, net of taxbenefit of $1.4 million, and $0.5 million was included as an intangible assetas part of the other assets in the Consolidated Balance Sheet.

 

The “Other PostretirementBenefit” plans are essentially unfunded.

 

For measurement purposesa 9% annual rate of increase in the per capita cost of covered health careclaims was assumed for Briggs & Stratton for the fiscal year 2007decreasing 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 also assumes a 9% annual rate ofincrease in the per capita cost decreasing gradually to 5% for the fiscal year2011. 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 $11.5 million and would increase theservice and interest cost by $0.9 million for fiscal 2007. A correspondingdecrease of one percentage point, would decrease the accumulated postretirementbenefit by $10.8 million and decrease the service and interest cost by $0.8million for the fiscal year 2007.

 

Plan Assets 

A Board of Directorsappointed Investment Committee (“Committee”) manages the investment of thepension plan assets. The Committee has established and operates under anInvestment Policy. It determines the asset allocation and target ranges basedupon periodic asset/liability studies and capital market projections. TheCommittee retains external investment managers to invest the assets. TheInvestment Policy prohibits certain investment transactions, such as letteredstock, commodity contracts, 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, 2007, and2006, by asset category are as follows:

 
|                                 |           |    |   | Plan Assets at Year-end |   |
|--------------------------------------|----------------|---------|--------|-------------------------|--------|
|                                 | Asset Category |    |   | Target %                |   | **2007** | ** ** | 2006 |   |
| Cash                                 |           | 0%-2%   |   | **3**                   | **%**  | ** ** | 0% |   |   |
| Domestic  Bonds                      |           | 12%-30% |   | **21**                  | **%**  | ** ** | 14% |   |   |
| Non-Investment  Grade Bonds          |           | 0%-15%  |   | **0**                   | **%**  | ** ** | 8% |   |   |
| Non-US Bonds                         |           | 0%-10%  |   | **0**                   | **%**  | ** ** | 5% |   |   |
| Domestic  Equities                   |           | 24%-46% |   | **35**                  | **%**  | ** ** | 38% | ** ** |   |
| Global &  International Equities |           | 8%-22%  |   | **19**                  | **%**  | ** ** | 16% |   |   |
| Alternative  & Absolute Return   |           | 5%-25%  |   | **18**                  | **%**  | ** ** | 15% |   |   |
| Real Estate                          |           | 4%-10%  |   | **4**                   | **%**  | ** ** | 4% |   |   |
| ** **                           |           |    |   | **100**                 | **%**  | ** ** | 100% |   |   |
|                                      |                |         |        |                         |        |  |  |  |  |  |  |

 

Theplan’s investment strategy is based on an expectation that, over time, equitysecurities will provide higher total returns than debt securities. The planprimarily minimizes the risk of large losses through diversification ofinvestments by asset class, by investing in different types of styles withinthe classes and by using a number of different managers. The Committee monitorsthe asset allocation and investment performance monthly, with a more comprehensivequarterly review with its consultant.

 

Theplan’s expected return on assets is based on management’s and the Committee’sexpectations of long-term average rates of return to be achieved by the plan’sinvestments. These expectations are based on the plan’s historical returns andexpected returns for the asset classes in which the plan is invested.

 

Contributions

TheCompany is not required to, nor intends to, make any contributions to thepension plans in fiscal 2008.

 

EstimatedFuture Benefit Payments 

Projectedbenefit payments from the plans as of July 1, 2007 are estimated as follows (inthousands):

 
|        |   | Pension Benefits |      | Other Postretirement Benefits |          |
|-------------|--------|------------------|-----------|-------------------------------|---------------|
| Year Ending |   |             | Qualified |                          | Non-Qualified |   | Retiree  Medical |   | Retiree Life |   | LTD |   |
| 2008        |   | $                | 71,723    |                          | $             | 1,664 |   | $ | 27,581 |   | $ | 1,147 |   | $ | 108 |   |
| 2009        |   | 66,113           |      | 1,658                         |          | 26,718 |   | 1,177 |   | 108 |   |
| 2010        |   | 66,680           |      | 1,661                         |          | 24,548 |   | 1,205 |   | 107 |   |
| 2011        |   | 67,397           |      | 2,330                         |          | 24,815 |   | 1,231 |   | 106 |   |
| 2012        |   | 67,968           |      | 2,323                         |          | 23,212 |   | 1,255 |   | 95 |   |
| 2013-2017   |   | 353,276          |      | 14,384                        |          | 83,729 |   | 6,546 |   | 307 |   |
|             |        |                  |           |                               |               |  |  |  |  |  |  |  |  |  |  |  |  |

 

DefinedContribution Plans 

Employees of the Companymay participate 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 $6.1 million in 2007, $6.7 million in 2006 and $5.7million in 2005.

 

PostemploymentBenefits 

TheCompany accrues the expected cost of postemployment benefits over the yearsthat the employees render service. These benefits are substantially smalleramounts because they apply only to employees who permanently terminateemployment prior to retirement. The items include disability payments, lifeinsurance and medical benefits. These amounts are also discounted using aninterest rate of 6.09% for fiscal years 2007 and 2006. Amounts are included inAccrued Employee Benefits in the Consolidated Balance Sheets.

 

43

 

**Notes . . .**

 

**(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:

 

Cashand Cash Equivalents, Receivables, Accounts Payable, Domestic Notes Payable,Foreign Loans,  Accrued Liabilities andIncome Taxes Payable: The carrying amounts approximate fairmarket value because of the short maturity of these instruments.

 

Long-Term Debt: Thefair market value of the Company’s long-term debt is estimated based on marketquotations at year-end.

 

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

 
|                          |   | **2007**     |        | 2006       |      |
|-------------------------------|--------|--------------|-------------|------------|-----------|
|                          |   | **Carrying** | ** **  | **Fair**   |      | Carrying |   | Fair |   |
|                          |   | **Amount**   | ** **  | ** ** | **Value** | ** ** |   | Amount |   |   | Value |   |   |
| Long-term Debt -              |   | ** **   | ** **  | ** ** |      |   |   |   |   |
| 7.25% Notes  Due 2007         |   | **$**        | **81,139**  | ** ** | **$**     | **83,124** |   | $ | 80,973 |   | $ | 83,672 |   |
| 8.875% Notes  Due 2011        |   | **$**        | **267,909** | ** ** | **$**     | **287,868** |   | $ | 267,351 |   | $ | 298,007 |   |
| Variable  Term Notes Due 2008 |   | **$**        | **35,000**  | ** ** | **$**     | **35,000** |   | $ | 35,000 |   | $ | 35,000 |   |
|                               |        |              |             |            |           |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

InJune of 1997, Briggs & Stratton issued $100 million of 7.25% senior notes,in May 2001, the Company issued $275 million of 8.875% senior notes and inFebruary 2005, the Company issued $125 million of variable rate term notes. Inaddition, Briggs & Stratton had a $350 million revolving credit facility thatwas to expire in May 2009 used to finance seasonal working capital needs. OnJuly 12, 2007, Briggs & Stratton entered into a $500 million amended andrestated multicurrency credit agreement. See further discussion in Note 19 ofthe Notes to Consolidated Financial Statements.

 

Underthe terms of Briggs & Stratton’s 8.875% senior notes, 7.25% senior notes,variable rate term notes 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 anytime a domestic subsidiary of Briggs & Stratton constitutes a significantdomestic subsidiary, then such domestic subsidiary will also become a guarantorof the Domestic Indebtedness. Currently all of the Domestic Indebtedness isunsecured. If Briggs & Stratton were to fail to make a payment of interestor principal on its due date, the Guarantor is obligated to pay the outstandingDomestic Indebtedness. Briggs & Stratton had the following outstandingamounts related to the guaranteed debt (in thousands):

 
|                                             |   | July 1, 2007 |    |      |   |
|--------------------------------------------------|--------|--------------|---------|-----------|--------|
|                                             |   | Carrying     |    | Maximum   |   |
|                                             |   | Amount       |    | Guarantee |   |
| 8.875% Senior Notes, due March 15, 2011          |   | $            | 267,909 |      | $      | 270,000 |   |
| Variable Rate Term Notes, due February 11,  2008 |   | $            | 35,000  |      | $      | 35,000 |   |
| 7.25% Senior Notes, due September 15, 2007       |   | $            | 81,139  |      | $      | 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 1, 2007**      |       | ** **                | **Corporation** | ** **    | **Subsidiaries** | ** **        | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Current  Assets              |       |                      | $               | 566,656       |             |              |             | $          | 833,255          |       |             |   | $ | 176,817 |   |   | $ | (580,935 | ) |   | $ | 995,793 |   |   |
| Investment  in Subsidiary    |       |                      | 793,747         |          |             |              | -                |       |             |       | -                |   |   | (793,747 | ) |   | - |   |   |
| Noncurrent  Assets           |       |                      | 418,213         |          |             |              | 438,506          |       |             |       | 34,656           |   |   | - |   |   | 891,375 |   |   |
|                         |       |                      | $               | 1,778,616     |             |              |             | $          | 1,271,761        |       |             |   | $ | 211,473 |   |   | $ | (1,374,682 | ) |   | $ | 1,887,168 |   |   |
|                         |       |                      |            |          |             |              |             |       |             |       |             |   |   |   |   |   |   |   |   |
| Current  Liabilities         |       |                      | $               | 443,188       |             |              |             | $          | 449,475          |       |             |   | $ | 140,043 |   |   | $ | (563,536 | ) |   | $ | 469,170 |   |   |
| Long-Term  Debt              |       |                      | 267,909         |          |             |              | -                |       |             |       | -                |   |   | - |   |   | 267,909 |   |   |
| Other  Long-Term Obligations |       |                      | 204,066         |          |             |              | 99,571           |       |             |       | 398              |   |   | - |   |   | 304,035 |   |   |
| Shareholders’  Equity   |       |                      | 863,453         |          |             |              | 722,715          |       |             |       | 71,032           |   |   | (811,146 | ) |   | 846,054 |   |   |
|                         |       |                      | $               | 1,778,616     |             |              |             | $          | 1,271,761        |       |             |   | $ | 211,473 |   |   | $ | (1,374,682 | ) |   | $ | 1,887,168 |   |   |
|                         |       |                      |            |          |             |              |             |       |             |       |             |   |   |   |   |   |   |   |   |
| As of July  2, 2006          |       |                      |            |          |             |              |             |       |             |       |             |   |   |   |   |   |   |   |   |   |
| Current  Assets              |       |                      | $               | 529,870       |             |              |             | $          | 693,450          |       |             |   | $ | 191,913 |   |   | $ |  (391,645 | ) |   | $ | 1,023,588 |   |   |
| Investment  in Subsidiary    |       |                      | 794,317         |          |             |              | -                |       |             |       | -                |   |   | (794,317 | ) |   | - |   |   |
| Noncurrent  Assets           |       |                      | 451,150         |          |             |              | 442,853          |       |             |       | 18,545           |   |   | - |   |   | 912,548 |   |   |
|                         |       |                      | $               | 1,775,337     |             |              |             | $          | 1,136,303        |       |             |   | $ | 210,458 |   |   | $ | (1,185,962 | ) |   | $ | 1,936,136 |   |   |
|                         |       |                      |            |          |             |              |             |       |             |       |             |   |   |   |   |   |   |   |   |
| Current  Liabilities         |       |                      | $               | 247,291       |             |              |             | $          | 314,349          |       |             |   | $ | 137,325 |   |   | $ |  (376,497 | ) |   | $ | 322,468 |   |   |
| Long-Term Debt               |       |                      | 383,324         |          |             |              | -                |       |             |       | -                |   |   | - |   |   | 383,324 |   |   |
| Other  Long-Term Obligations |       |                      | 142,368         |          |             |              | 100,428          |       |             |       | 342              |   |   | - |   |   | 243,138 |   |   |
| Shareholders’  Equity   |       |                      | 1,002,354       |          |             |              | 721,526          |       |             |       | 72,791           |   |   | (809,465 | ) |   | 987,206 |   |   |
|                         |       |                      | $               | 1,775,337     |             |              |             | $          | 1,136,303        |       |             |   | $ | 210,458 |   |   | $ | (1,185,962 | ) |   | $ | 1,936,136 |   |   |
|                              |            |                           |                 |               |                  |                   |                  |            |                  |            |                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

45

 

**Notes . . .**

 
| **STATEMENT  OF EARNINGS:**                                | ** ** | **Briggs  & Stratton** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|----------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| **For the Fiscal Year Ended July 1, 2007**                 | ** ** | **Corporation**            | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net Sales                                                  |       |                       | $          | 1,397,336        |       |              |       | $                | 861,835    |             |       |   | $ | 196,762 |   |   | $ | (298,700 | ) |   | $ | 2,157,233 |   |   |
| Cost of Goods Sold                                         |       |                       | 1,175,437  |             |       |              | 782,465    |             |       |             | 163,635    |   |   | (294,524 | ) |   | 1,827,013 |   |   |
| Impairment Charge                                          |       |                       | 33,900     |             |       |              | 7,907      |             |       |             | 1,281      |   |   | - |   |   | 43,088 |   |   |
| Gross Profit                                               |       |                       | 187,999    |             |       |              | 71,463     |             |       |             | 31,846     |   |   | (4,176 | ) |   | 287,132 |   |   |
| Engineering, Selling, General and Administrative Expenses  |       |                       | 164,352    |             |       |              | 74,502     |             |       |             | 26,742     |   |   | - |   |   | 265,596 |   |   |
|                                                       |
| Income (Loss) from Operations                              |       |                       | 23,647     |             |       |              | (3,039     | )                |       |             | 5,104      |   |   | (4,176 | ) |   | 21,536 |   |   |
| Interest Expense                                           |       |                       | (45,877    | )                |       |              | (122       | )                |       |             | (284       | ) |   | 2,592 |   |   | (43,691 | ) |   |
| Other Income (Expense), Net                                |       |                       | 12,352     |             |       |              | 3,143      |             |       |             | (948       | ) |   | 289 |   |   | 14,836 |   |   |
| Income (Loss) Before Provision for Income Taxes            |       |                       | (9,878     | )                |       |              | (18        | )                |       |             | 3,872      |   |   | (1,295 | ) |   | (7,319 | ) |   |
| Provision (Credit) for Income Taxes                        |       |                       | (10,076    | )                |       |              | (318       | )                |       |             | 1,226      |   |   | 1,703 |   |   | (7,465 | ) |   |
| Net Income                                                 |       |                       | $          | 198              |       |              |       | $                | 300        |             |       |   | $ | 2,646 |   |   | $ | (2,998 | ) |   | $ | 146 |   |   |
|                                                       |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| For the Fiscal  Year Ended July 2, 2006                    |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| 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 (Loss) 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 |   |   |

 

46

 

**Notes . . .**

 
| **STATEMENT  OF CASH FLOWS:**                                                  | ** ** | **Briggs  & Stratton** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| **For the Fiscal Year Ended July 1, 2007**                                     | ** ** | **Corporation**            | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                         |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net Income (Loss)                                                              |       |                       | $          | 198              |       |              |       | $                | 300        |             |       |   | $ | 2,646 |   |   | $ | (2,998 | ) |   | $ | 146 |   |   |
| Adjustments to Reconcile Net Income to Net Cash  Provided by (Used by)         |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Operating  Activities:                                                         |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Depreciation and Amortization                                                  |       |                       | 52,681     |             |       |              | 19,347     |             |       |             | 2,286      |   |   | - |   |   | 74,314 |   |   |
| Stock Compensation Expense                                                     |       |                       | 8,484      |             |       |              | -          |             |       |             | -          |   |   | - |   |   | 8,484 |   |   |
| Impairment Items                                                               |       |                       | 33,900     |             |       |              | 7,907      |             |       |             | 1,281      |   |   | - |   |   | 43,088 |   |   |
| Earnings of Unconsolidated Affiliates, Net of  Dividends                       |       |                       | (878       | )                |       |              | (175       | )                |       |             | (327       | ) |   | 2,956 |   |   | 1,576 |   |   |
| (Gain) Loss on Disposition of Plant and Equipment                              |       |                       | 2,783      |             |       |              | 75         |             |       |             | 81         |   |   | - |   |   | 2,939 |   |   |
| Provision for Deferred Income Taxes                                            |       |                       | (20,941    | )                |       |              | (514       | )                |       |             | (58        | ) |   | - |   |   | (21,513 | ) |   |
| Change in  Operating Assets and Liabilities:                                   |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| (Increase) Decrease in Receivables                                             |       |                       | (108,828   | )                |       |              | (46,758    | )                |       |             | 4,970      |   |   | 96,644 |   |   | (53,972 | ) |   |
| (Increase) Decrease in Inventories                                             |       |                       | 26,367     |             |       |              | (21,983    | )                |       |             | 1,097      |   |   | 2,251 |   |   | 7,732 |   |   |
| (Increase) Decrease in Prepaid Expenses and Other  Current Assets              |       |                       | 1,959      |             |       |              | 9,081      |             |       |             | 518        |   |   | - |   |   | 11,558 |   |   |
| Increase (Decrease) in Accounts Payable, Accrued  Liabilities and Income Taxes |       |                       | 20,829     |             |       |              | 88,184     |             |       |             | (1,094     | ) |   | (91,501 | ) |   | 16,418 |   |   |
| Change in Accrued/Prepaid Pension                                              |       |                       | 1,795      |             |       |              | 35         |             |       |             | -          |   |   | - |   |   | 1,830 |   |   |
| Other, Net                                                                     |       |                       | (4,276     | )                |       |              | (38        | )                |       |             | (445       | ) |   | (2 | ) |   | (4,761 | ) |   |
| Net Cash Provided by Operating Activities                                      |       |                       | 14,073     |             |       |              | 55,461     |             |       |             | 10,955     |   |   | 7,350 |   |   | 87,839 |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                         |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Additions to Plant and Equipment                                               |       |                       | (28,446    | )                |       |              | (22,038    | )                |       |             | (17,516    | ) |   | - |   |   | (68,000 | ) |   |
| Proceeds Received on Disposition of Plant and  Equipment                       |       |                       | 487        |             |       |              | 52         |             |       |             | 60         |   |   | - |   |   | 599 |   |   |
| Cash Investment in Subsidiary                                                  |       |                       | 8,619      |             |       |              | -          |             |       |             | 181        |   |   | (8,800 | ) |   | - |   |   |
| Net Cash Used by Investing Activities                                          |       |                       | (19,340    | )                |       |              | (21,986    | )                |       |             | (17,275    | ) |   | (8,800 | ) |   | (67,401 | ) |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                         |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net (Repayments) Borrowings on Loans and Notes  Payable                        |       |                       | 44,838     |             |       |              | (42,071    | )                |       |             | 3,811      |   |   | (7,051 | ) |   | (473 | ) |   |
| Cash Dividends Paid                                                            |       |                       | (43,870    | )                |       |              | -          |             |       |             | (1,201     | ) |   | 1,201 |   |   | (43,870 | ) |   |
| Capital Contributions Received                                                 |       |                       | -          |             |       |              | 382        |             |       |             | (7,682     | ) |   | 7,300 |   |   | - |   |   |
| Stock Option Exercise Proceeds and Tax Benefits                                |       |                       | 3,694      |             |       |              | -          |             |       |             | -          |   |   | - |   |   | 3,694 |   |   |
| Treasury Stock Repurchases                                                     |       |                       | (48,232    | )                |       |              | -          |             |       |             | -          |   |   | - |   |   | (48,232 | ) |   |
| Net Cash Used by Financing Activities                                          |       |                       | (43,570    | )                |       |              | (41,689    | )                |       |             | (5,072     | ) |   | 1,450 |   |   | (88,881 | ) |   |
| EFFECT OF FOREIGN CURRENCY                                                     |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| EXCHANGE RATE  CHANGES ON CASH AND CASH EQUIVALENTS                            |       |                       | (1         | )                |       |              | -          |             |       |             | 2,822      |   |   | - |   |   | 2,821 |   |   |
|                                                                           |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                           |       |                       | (48,838    | )                |       |              | (8,214     | )                |       |             | (8,570     | ) |   | - |   |   | (65,622 | ) |   |
| Cash and Cash Equivalents, Beginning of Year                                   |       |                       | 57,623     |             |       |              | 6,812      |             |       |             | 30,656     |   |   | - |   |   | 95,091 |   |   |
| Cash and Cash Equivalents, End of Year                                         |       |                       | $          | 8,785            |       |              |       | $                | (1,402     | )                |       |   | $ | 22,086 |   |   | $ | - |   |   | $ | 29,469 |   |   |

 

47

 

**Notes . . .**

 
| **STATEMENT  OF CASH FLOWS:**                                                                | ** ** | **Briggs  & Stratton** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| **For the Fiscal Year Ended July 2, 2006**                                                   | ** ** | **Corporation**            | ** ** | **Subsidiaries** | ** ** | **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 |   |   |
| Stock Compensation Expense                                                                   |       |                       | 9,999      |             |       |              | -          |             |       |             | -          |   |   | - |   |   | 9,999 |   |   |
| 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 | ) |   |
| Provision for Deferred Income Taxes                                                          |       |                       | (11,477    | )                |       |              | 266        |             |       |             | 773        |   |   | - |   |   | (10,438 | ) |   |
| Change in  Operating Assets and Liabilities:                                                 |       |                       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| (Increase) Decrease 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 | ) |   |
| (Increase) Decrease in Prepaid Expenses and Other Current  Assets                            |       |                       | 3,161      |             |       |              | (15,675    | )                |       |             | 212        |   |   | - |   |   | (12,302 | ) |   |
| Increase (Decrease) 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 |   |   |

 

48

 

**Notes . . .**

 
| **STATEMENT OF CASH FLOWS:**                                                   | ** ** | **Briggs  & Stratton** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| **For the Fiscal Year Ended July  3, 2005**                                    | ** ** | **Corporation**            | ** ** | **Subsidiaries** | ** ** | **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 |   |   |
| Stock Compensation Expense                                                     |       |                       | 1,268      |             |       |              | -          |             |       |             | -          |   |   | - |   |   | 1,268 |   |   |
| 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 |   |   |
| 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 |   |   |
| Increase (Decrease) in Accounts Payable, Accrued  Liabilities and Income Taxes |       |                       | (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 | ) |   | - |   |   |
| Stock Option Exercise Proceeds and Tax Benefits                                |       |                       | 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 |   |   |
|                                                                           |       |                       | $          | 143,034          |       |              |       | $                | 6,376      |             |       |   | $ | 12,163 |   |   | $ | - |   |   | $ | 161,573 |   |   |

 

49

 

**Notes . ...**

 

**(17) Reduction in Force**

Briggs& Stratton recorded an expense of approximately $4.1 million associatedwith a worldwide employee reduction during the year ended July 2, 2006. Theamount recorded represents expected expenditures for severance and otherrelated employee separation costs associated with the reduction. As of the yearended July 2, 2006, a reserve of $0.4 million remained. No reserve remained asof the year ended July 1, 2007.

 

**(18) Impairment and Disposal Charges**

Impairmentcharges were recognized in the Consolidated Statements of Earnings for $43.1million pretax ($26.2 million after tax) during fiscal 2007, of which $33.9 and$9.2 million were recognized in the Engines and Power Products Segments,respectively. The Engines Segment $33.9 million charge was primarily for thewrite-down of assets of the Rolla, Missouri (Rolla) engine manufacturingfacility that will be closing in fiscal 2008. The $9.2 million recognized inthe Power Products Segment primarily relates to the closure of the PortWashington, Wisconsin production facility expected to be completed in thesecond quarter of fiscal 2009. For each segment, it was determined that thecarrying value of the assets exceeded the undiscounted cash flows. Theimpairment was computed as the difference between estimated fair value and thecarrying value of the assets. Fair value was determined based on market pricesfor comparable assets.

 

Additionally,a liability was recorded within costs of goods sold to accrue for severancepayments to be paid to the employees of the Rolla facility upon its close.Accrued severance at July 1, 2007 was approximately $1.1 million. Severancepayments are contingent upon an employee working through the scheduled enddate, and will continue to accrue until the plant closes.

 

**(19) Subsequent Events**

On July 12, 2007, theCompany entered into a $500 million amended and restated multicurrency creditagreement. The Amended Credit Agreement (“Revolver”) provides a revolvingcredit facility for up to $500 million in revolving loans, including up to $25million in swing-line loans. The Company will use proceeds of the Revolver to,among other things; pay off amounts outstanding under the Company’s Term LoanAgreement dated February 11, 2005 with various financial institutions. TheRevolver has a term of five years and all outstanding borrowings on theRevolver will be due and payable on July 12, 2012. The Revolver containscovenants that the Company considers usual and customary for an agreement ofthis type, including a Maximum Total Leverage Ratio and Minimum InterestCoverage Ratio, but does not contain a Minimum Net Worth Covenant. Certain ofthe Company’s subsidiaries are required to be guarantors of the Company’sobligations under the Revolver. At any time during the term of the Revolver,the Company may, so long as no event of default has occurred and is continuingand certain other conditions are satisfied, elect to increase the maximumamount available under the Revolver from $500 million by up to an amount not toexceed $250 million through, at the Company’s election, increases ofcommitments by existing lenders and/or the addition of new lenders.

 

50

 

**Report ofIndependent Registered Public Accounting Firm**

 

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

 

Inour opinion, the consolidated financial statements listed in the indexappearing under Item 15(a)(1) present fairly, in all material respects, thefinancial position of Briggs & Stratton Corporation and its subsidiaries atJuly 1, 2007 and July 2, 2006, and the results of their operations and theircash flows for each of the three years in the period ended July 1, 2007 inconformity with accounting principles generally accepted in the United Statesof America.  In addition, in our opinion,the financial statement schedule listed in the index appearing under Item15(a)(2) presents fairly, in all material respects, the information set forththerein when read in conjunction with the related consolidated financialstatements. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of July 1,2007, based on criteria established in *InternalControl - Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company’s management isresponsible for these financial statements and financial statement schedule,for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting,included in the accompanying Management’s Report on Internal Control overFinancial Reporting appearing under Item 9A. Our responsibility is to expressopinions on these financial statements, on the financial statement schedule, andon the Company’s internal control over financial reporting based on ourintegrated audits. We conducted our audits in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement andwhether effective internal control over financial reporting was maintained inall material respects. Our audits of the financial statements includedexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. Our audit of internal control over financial reportingincluded obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based onthe assessed risk. Our audits also included performing such other procedures aswe considered necessary in the circumstances. We believe that our auditsprovide a reasonable basis for our opinions.

 

Asdiscussed in Notes 2 and 14 to the consolidated financial statements, theCompany changed its method of accounting for its defined benefit pension andother postretirement plans in 2007.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i)pertain to the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of thecompany; (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

**PricewaterhouseCoopersLLP**

Milwaukee, Wisconsin

August 30, 2007

 

51

 

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

 
|            |       |        | In Thousands  |       |
|-----------------|------------|-------------|---------------|------------|
|            | Quarter    |        |          |       | Net |   |   |   | Gross |   |   | Net Income |   |
|            | Ended      |        |          |       | Sales |   |   |   | Profit |   |   |   | (Loss) |   |   |
| **Fiscal 2007** | ** ** |        |          |       |   |   |   |   |
| **September**   | ** ** | **$**       | **338,249**   | ** ** | **$** | **44,362** | ** ** | **$** | **(18,038** | **)** |
| **December**    | ** ** | **423,059** | ** **    | **67,364** | ** ** | **(5,910** | **)** |
| **March**       | ** ** | **717,053** | ** **    | **85,212** | ** ** | **7,770** | ** ** |
| **June**        | ** ** | **678,872** | ** **    | **90,194** | ** ** | **16,324** | ** ** |
| **Total**       | ** ** | **$**       | **2,157,233** | ** ** | **$** | **287,132** | ** ** | **$** | **146** | ** ** |
| Fiscal 2006     |       |        |          |       |   |   |   |   |
| September       |       | $           | 511,709       |       | $ | 81,308 |   | $ | 4,727 |   |
| December        |       | 574,313     |          | 117,352    |   | 21,818 |   |
| March           |       | 800,194     |          | 180,933    |   | 60,008 |   |
| June            |       | 655,955     |          | 112,091    |   | 15,793 |   |
| Total           |       | $           | 2,542,171     |       | $ | 491,684 |   | $ | 102,346 |   |
|                 |            |             |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 
|            |       | Per Share of Common Stock |       |
|-----------------|------------|---------------------------|------------|
|            |       |                      |       |   |   | Market Price Range |   |
|            |       | Net                       |       |   |   | on New York |   |
|            | Quarter    |                      |       | Income |   | Dividends |   | Stock Exchange |   |
|            | Ended      |                      |       | (Loss) |   |   | Declared |   |   |   | High |   |   |   | Low |   |   |
| **Fiscal 2007** | ** ** |                      |       |   |   |   |   |   |   |   |
| **September**   | ** ** | **$**                     | **(.36)**  | ** ** | ** ** | **$** | **.22** | ** ** | ** ** | **$31.49** | ** ** | **$24.60** | ** ** |
| **December**    | ** ** | **(.12)**                 | ** ** | **.22** | ** ** | ** ** | **29.06** | ** ** | **24.79** | ** ** |
| **March**       | ** ** | **.15**                   | ** ** | **.22** | ** ** | ** ** | **31.45** | ** ** | **26.88** | ** ** |
| **June**        | ** ** | **.32**                   | ** ** | ** ** | **.22** | ** ** | ** ** | **33.06** | ** ** | **28.50** | ** ** |
| **Total**       | ** ** | **$**                     | **.00**    | ** ** | ** ** | **$** | **.88** | ** ** |   |   |   |   |   |
| Fiscal 2006     |       |                      |       |   |   |   |   |   |   |   |
| September       |       | $                         | .09        |   |   | $ | .22 |   |   | $37.99 |   | $33.25 |   |
| December        |       | .42                       |       | .22 |   |   | 40.38 |   | 31.02 |   |
| March           |       | 1.16                      |       | .22 |   |   | 40.21 |   | 33.40 |   |
| June            |       | .31                       |       |   | .22 |   |   | 38.19 |   | 30.01 |   |
| Total           |       | $                         | 1.98       |   |   | $ | .88 |   |   |   |   |   |   |
|                 |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The number of recordholders of Briggs & Stratton Corporation Common Stock on August 20, 2007was 3,671.

 

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

 

(1) Refer to Note 2 ofthe Notes 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.

 

52

 

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

 

None.

 

**ITEM9A.****                   ****CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

TheCompany’s management, with the participation of the Company’s Chief ExecutiveOfficer and Chief Financial Officer, have evaluated the effectiveness of theCompany’s disclosure controls and procedures (as such term is defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934, as amended (“the Exchange Act”)) as of the end of the period covered bythis report. Based on such evaluation, the Company’s Chief Executive Officerand Chief Financial Officer have concluded that, as of the end of such period,the Company’s disclosure controls and procedures are effective in recording,processing, summarizing, and reporting, on a timely basis, information requiredto be disclosed by the Company in the reports that it files or submits underthe Exchange Act.

 

**Management’s Report on Internal Control Over FinancialReporting**

TheCompany’s management is responsible for establishing and maintaining adequateinternal control over financial reporting, as such term is defined in ExchangeAct Rule 13a-15(f). The Company’s management, with the participation of theCompany’s Chief Executive Officer and Chief Financial Officer, has evaluatedthe effectiveness of the Company’s internal control over financial reportingbased on the framework in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Based on thisevaluation, the Company’s management has concluded that, as of the end of theperiod covered by this report, the Company’s internal controls over financialreporting were effective.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation of theeffectiveness to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

PricewaterhouseCoopersLLP, an independent registered public accounting firm, who has audited theCompany’s consolidated financial statements and the effectiveness of internalcontrols over financial reporting as of July 1, 2007, as stated in their reportwhich is included herein.

 

**Changes in Internal Control Over Financial Reporting**

Therehas not been any change in the Company’s internal control over financialreporting during the fourth fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**ITEM9B.****                   ****OTHER INFORMATION**

 

None.

 

**PART III**

 

**ITEM10.****                     ****DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

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

 

(b)         Directors. Theinformation required by this Item is in Briggs & Stratton’s definitiveProxy Statement, prepared for the 2007 Annual Meeting of Shareholders, underthe caption “Election of Directors”, and is incorporated herein by reference.

 

(c)          Section 16 Compliance.The information required by this Item is in Briggs & Stratton’s definitiveProxy Statement, prepared for the 2007 Annual Meeting of Shareholders, underthe caption “Section 16(a) Beneficial Ownership Reporting Compliance”, and isincorporated herein by reference.

 

53

 

(d)         Audit Committee FinancialExpert. The information required by this Item is in Briggs & Stratton’s definitiveProxy Statement, prepared for the 2007 Annual Meeting of Shareholders, underthe caption “Corporate Governance – Audit Committee”, and is incorporatedherein by reference.

 

(e)          Identification of AuditCommittee. The information required by this Item is in Briggs & Stratton’sdefinitive Proxy Statement, prepared for the 2007 Annual Meeting ofShareholders, under the caption “Corporate Governance – Audit Committee”, andis incorporated herein by reference.

 

(f)            Code of Ethics. Briggs& Stratton has adopted a written code of ethics, referred to as the Briggs& Stratton Business Integrity Manual applicable to all directors, officersand employees, which includes provisions related to accounting and financialmatters applicable to the Principal Executive Officer, Principal FinancialOfficer, Principal Accounting Officer and Controller. The Briggs & StrattonBusiness Integrity Manual is available on the Company’s corporate website at www.briggsandstratton.com.If the Company makes any substantive amendment to, or grants any waiver of, thecode of ethics for any director or officer, Briggs & Stratton will disclosethe nature of such amendment or waiver on its corporate website or in a CurrentReport on Form 8-K.

 

**ITEM11.****                     ****EXECUTIVE COMPENSATION**

 

Theinformation in Briggs & Stratton’s definitive Proxy Statement, prepared forthe 2007 Annual Meeting of Shareholders, concerning this item, under thecaptions “Compensation Committee Report”, “Compensation Discussion and Analysis”,“Compensation Tables”, “Agreements with Executives”, and “Director Compensation”is incorporated herein by reference.

 

**ITEM 12.****                 SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Theinformation in Briggs & Stratton’s definitive Proxy Statement, prepared forthe 2007 Annual Meeting of Shareholders, concerning this item, under thecaptions “Security Ownership of Certain Beneficial Owners”, “Security Ownershipof Directors and Executive Officers” and “Equity Compensation Plan Information”is incorporated herein by reference.

 

**ITEM 13.****                      CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

Theinformation in Briggs & Stratton’s definitive Proxy Statement, prepared forthe 2007 Annual Meeting of Shareholders, concerning this item, under thecaptions “Corporate Governance – Director Independence” and “CorporateGovernance – Audit Committee” is incorporated herein by reference.

 

**ITEM14.****                     ****PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

Theinformation required by this Item is in Briggs & Stratton’s definitiveProxy Statement, prepared for the 2007 Annual Meeting of Shareholders, underthe captions “Independent Auditors Fees” and “Corporate Governance – AuditCommittee”, and is incorporated herein by reference.

 

**PART IV**

 

**ITEM15.****                     ****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 
| (a)  1. | Financial  Statements                                                                                                                                                                     |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                      |
|    | The following financial  statements are included under the caption “Financial Statements and  Supplementary Data” in Part II, Item 8 and are incorporated herein by  reference: |

 

Consolidated BalanceSheets, July 1, 2007 and July 2, 2006

 

Forthe Fiscal Years Ended July 1, 2007, July 2, 2006 and July 3, 2005:

ConsolidatedStatements of Earnings

ConsolidatedStatements of Shareholders’ Investment

 

54

 

ConsolidatedStatements of Cash Flows

Notes toConsolidated Financial Statements

 

Report ofIndependent Registered Public Accounting Firm

 

2.                    FinancialStatement Schedules

 

Schedule II –Valuation and Qualifying Accounts

 

All otherfinancial statement schedules provided for in the applicable accountingregulations of the Securities and Exchange Commission are not required underthe related instructions.

 

3.                    Exhibits

 

Refer to theExhibit Index incorporated herein by reference. Each management contract or compensatoryplan or arrangement required to be filed as an exhibit to this report isidentified in the Exhibit Index by an asterisk following the Exhibit Number.

 

**BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES**

**SCHEDULE II**–**VALUATION AND QUALIFYING ACCOUNTS**

* *

*FORFISCAL YEARS ENDED JULY 1, 2007, JULY 2, 2006 AND JULY 3, 2005*

 

| 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 |   |   |
| 2007               |       | $         | 4,851,000 |      | 1,872,000  |        |   | (2,621,000)  |         |    | -         |   | $ | 4,102,000 |   |
| 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 |   |
|                    |            |           |           |           |            |             |        |              |              |         |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

* Reflects the write-offof a trade receivable of Murray, Inc.

 

55

 

**SIGNATURES**

 

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

 
|             | BRIGGS & STRATTON  CORPORATION |
|------------------|------------------------------------|
|             |                               |
|             |                               |
|             | By                                 | /s/  James E. Brenn |
|             |                               | James  E. Brenn |
| August  30, 2007 |                               | Senior  Vice President and |
|             |                               | Chief  Financial Officer |

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.*

 
| /s/  John S. Shiely                        |   | /s/  David L. Burner           |
|--------------------------------------------|--------|--------------------------------|
| John S. Shiely                             |   | David L. Burner                |
| Chairman, President and  Chief Executive   |   | Director                       |
| Officer and Director  (Principal Executive |   |                           |
| Officer)                                   |   |                           |
|                                       |   | /s/  Mary K. Bush              |
|                                       |   | Mary K. Bush                   |
| /s/  James E. Brenn                        |   | Director                       |
| James E. Brenn                             |   |                           |
| Senior Vice President and  Chief Financial |   |                           |
| Officer (Principal  Financial Officer)     |   | /s/  Keith R. McLoughlin       |
|                                       |   | Keith R. McLoughlin            |
| /s/  David J. Rodgers                      |   | Director                       |
| David J. Rodgers                           |   |                           |
| 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/  Michael E. Batten                     |   | Director                       |
| Michael E. Batten                          |   |                           |
| Director                                   |   | /s/  Brian C. Walker           |
|                                       |   | Brian C. Walker                |
|                                       |   | Director                       |
|                                       |   |                           |
|                                       |   |                           |
|                                       |   |                           |
|                                       |   | *Each signature affixed as  of |
|                                       |   | August  30, 2007.              |

 

56

 

BRIGGS& STRATTON CORPORATION(Commission File No. 1-1370)

 

EXHIBITINDEX2007 ANNUAL REPORT ON FORM 10-K

 

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                     |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                                                                                                                       |
| 3.1         |       | Articles of Incorporation.                                                                                                                                                                                                                                                                     |
|        |       | (Filed  as Exhibit 3.2 to the Company’s Report on Form 10-Q for the quarter ended  October 2, 1994 and incorporated by reference herein.)                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                           |
| 3.1(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 April 18, 2007.                                                                                                                                                                                                                                               |
|        |       | (Filed as Exhibit 3.2 to the Company’s Report on Form 8-K dated April  18, 2007 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.)                                                                                                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                           |
| 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.)                                                                                                                     |

 

57

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

 

58

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

 

59

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                  |
| 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.)                                             |
|        |       |                                                                                                                                                                                      |
| 10.15 (c)*  |       | Amendment  to Key Employee Savings and Investment Plan.                                                                                                                                   |
|        |       | (Filed as Exhibit 10.15 to the Company’s Report on Form 10-Q for the  quarter ended October 1, 2006 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.)                                      |
|        |       |                                                                                                                                                                                      |
| 10.19       |       | 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  September 12, 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  January 25, 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.)                       |
|        |       |                                                                                                                                                                                      |
| 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.)                                                              |

 

60

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Document Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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 as Exhibit 10.22 (b) to the Company’s Report on Form 10-K  dated September 1, 2006.)                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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 as Exhibit 10.23 (b) to the Company’s Report on Form 10-K for  fiscal year ended July 2, 2006 and incorporated by reference herein.)                                                                                                                                                                                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.23 (c)   |       | Amended and Restated Multicurrency  Credit Agreement, dated July 12, 2007, among Briggs & Stratton  Corporation, the financial institutions party hereto, and J.P. Morgan Chase  Bank, N.A., La Salle Bank National Association, M&I Marshall & Ilsley  Bank, U.S. Bank, National Association, as co-documentation agents, and Bank  of America, N.A., as administrative agent, issuing bank and swing line bank,  and Banc of America Securities LLC, lead arranger and book manager. |
|        |       | (Filed as Exhibit 4.1 to the Company’s Report on Form 8-K dated July  12, 2007 and incorporated by reference herein.)                                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 12          |       | Computation of Ratio of  Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |       | (Filed herewith.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 21          |       | Subsidiaries of the  Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |       | (Filed herewith.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 23.1        |       | Consent of  PricewaterhouseCoopers 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.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.1        |       | Certification of the  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                                                                                                          |
|        |       | (Furnished herewith.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

61

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

 

62