Briggs & Stratton Corporation Annual Report 2018

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FY2018 Annual Report · Briggs & Stratton Corporation

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2018

110th Year Annual Report

BRIGGS & STRATTON CORPORATION

Post Office Box 702

Milwaukee, WI 53201 USA

(414) 259-5333

WE’RE LOOKING FORWARD.110NYSE: BGG

www.basco.com 3

A LOOK AT WHERE WE’VE BEEN
AND WHERE WE’RE GOING

A Diversified Strategy
In 2015 Briggs & Stratton
announced its Business
Transformation, introducing a
multi-faceted plan to increase
the Company’s resiliency within
the ever-changing marketplace.
While top-of-the-line engines
remain at the heart of the business
and our position as the leading
and preferred global supplier of
power for residential lawn and
garden is secure behind continued
innovation, focus continues to shift
to the growing commercial and
rental landscape.

A Promising Future
Looking back even just a few years
ago, it’s amazing how different a
company Briggs & Stratton is today.
New customers, new product
lines and new acquisitions are a
testament to the momentum and
energy its employees have, driven
by a team of forward-looking
industry leaders and a culture that
encourages innovative thinking and
puts an abundance of resources
into understanding its customers
and potential customers.

A Guiding Purpose
Briggs & Stratton’s mission is to
make work easier by providing
innovative products, diverse
power solutions and a superior
support network. Throughout
the past fiscal year, the Company
has continued to stay true to that
mission and its strategy.

$505MM

RECORD SALES FOR
COMMERCIAL PRODUCTS

5.3%

NET SALES FISCAL 2018
$1.88 BILLION

Looking Ahead to What Could Be
The Concept ZTR is a showcase of innovative technologies that can be
developed for the next generation of ride-on lawn care machines. The new
advanced suspension and ergonomic seating provides better user control
and comfort at higher speeds and the modular deck system allows cutting
width to easily change depending on the application. It represents the future
of commercial cutting, enabling crews to work faster and more efficiently.

CHAIRMAN’S LETTER

DEAR SHAREHOLDERS,
Fiscal 2018 was a year of important progress
toward achieving our strategic goals.

Last November we held our
first investor day where we
introduced the roadmap to deliver
more consistent growth, higher
profitability and greater returns.
Overall, we executed on this
strategic roadmap as evidenced
by the increase in our revenues
while encountering challenges that
temporarily constrained growth
in certain areas of our business.
We maintained our leadership
position in delivering power to get
work done more efficiently while
continuing to be a recognized
leader in innovation, positioning us
for long-term success. This was a
year of investment in areas that will
allow us to grow in more profitable
areas and drive efficiencies in
our business. We did all of this
while continuing to return value to
shareholders through dividends and
share repurchases and maintaining
a strong balance sheet.

During the year, net sales increased
5.3% to $1.88 billion, which is
above our long-term goal of 3-5%

growth. This growth came primarily
in our commercial offerings which
totaled over $505 million, a record
for our company. Commercial sales
increased almost 16% this past year
and are now over 26% of total sales.
To put this growth into context, in
2013 commercial sales were less
than 15% of our total sales, and now
have grown at a compound annual
growth rate of over 14% since that
time. A significant portion of this
growth were sales into the rental
channel which is a key market for
us, providing diversification outside
of the traditional lawn and garden
markets. We also continued the
strong growth in our Vanguard®
engines, as professionals are
increasingly choosing Vanguard
products for their reliability and
innovative features that maximize
uptime, making them more
productive and more profitable. We
also continued to grow our Ferris®
mower products, as commercial
landscapers increasingly opt for our
innovations that maximize comfort
and productivity.

During the last 15 months, we also
made some substantial investments
that will play a significant role in
achieving our long-term goals.
We successfully upgraded our
enterprise resource planning
system that we have been working
on for the last three years. This
new system will provide a more
stable platform and will assist
us in achieving better efficiency
throughout our organization while
making it easier for customers
and suppliers to do business with
us. We completed two product
line acquisitions in commercial
equipment, Hurricane Power
and Ground Logic. Both of these
acquisitions have expanded
our offerings to commercial
landscapers by leveraging our
strong distribution network.
Significant progress was also made
in our commercial engine line
as we invested in manufacturing
capabilities in two of our existing
U.S. engine plants, allowing us to
more efficiently use our capacity
while better serving our customers.

TABLE OF
CONTENTS

PAG E

INNOVATING FOR
COMMERCIAL &
RENTAL MARKETS

NYSE: BGG

www.basco.com 5

Investments in our commercial
turf equipment manufacturing
capabilities provide us with state-of-
the-art manufacturing and increased
capacity in this growing market,
Last year I mentioned that these
investments were part of our business
optimization program. I am pleased
to report that we are on track to
achieve the annual $30-$35 million
savings in the next three years.

We also continued our launch
of innovative offerings this past
year. Horizontal shaft commercial
engines, several new light towers,
and InfoHub™ are just a few of the
new product introductions. This
is in addition to the significant
innovations that we launched over
the last five years, all of which are
enabling us to maintain market
share in the residential market
and gain share in the commercial
market. Briggs & Stratton is
recognized industry-wide as the
leading innovator in delivering
power to get work done. Our future
innovation will focus on enabling
technologies that we unveiled at
our investor day, namely, electronic
fuel injection for engines, internet-
of-things and electrification. We
continue to make excellent progress
on each of these technologies and
are beginning to introduce them
into the market. Expect to hear
much more on these innovations in
2019 and beyond.

2018 was not without its
challenges. Although we
maintained our industry-leading
position in residential engines,
the consumer lawn-cutting
marketplace encountered some
near-term challenges. A delayed
spring season across much of the
northern U.S. created a significant
delay in the start of the cutting
season which negatively impacted
our sales. When the weather finally
returned to normal in mid-May, we
saw a strong recovery throughout
the impacted areas. However, the
recovery was not enough to offset
the slow start. Accordingly, the
market was down when compared
to last year. Another transitory
factor that occurred this year was
retailers taking a very conservative
approach by reducing inventories
due to brand transitions that are
expected to occur in 2019. We do
not expect the unusual weather
nor these brand transitions to
recur in 2019.

All of these factors contributed
to adjusted earnings per share
of $1.29 in fiscal 2018 compared
to $1.31 per share last year. While
short-term results fell short of our
expectations, we did significantly
improve profitability in our Products
segment driven by our actions over
the last several years. Our overall
results this year do not diminish
our confidence in the long-term.

The activities we undertook in fiscal
2018 support long-term growth,
improving profitability and higher
capital returns. And our balance
sheet is even stronger as this year we
reduced long-term debt and funded
our pension liability while maintaining
our dividend and executing our
share repurchase program.

We have great confidence in the
future of Briggs & Stratton. I would
like to thank all of our stakeholders
who play an important role in
our growth journey. Without the
support of our channel partners,
suppliers and communities we
cannot accomplish our goals. I
would also like to recognize all of
our team members. There was a lot
of hard work this past year and our
team performed very well. There is
more work to be done and I know
this team is up for the challenge.
Finally, I would like to thank you, our
shareholders, for your continued
support and trust.

Todd Teske
Chairman, CEO
Briggs & Stratton Corporation

PAG E

POWERING
ACHIEVEMENT
WITH TECHNOLOGY

PAG E

DRIVING
EXCELLENCE

PAG E

FINANCIAL
HIGHLIGHTS

NYSE: BGG
www.basco.com

INNOVATING FOR COMMERCIAL & RENTAL MARKETS.
More commercial customers are turning to Briggs & Stratton for the
innovation it brings to higher-growth products and solutions which improve
the productivity and safety of workers in commercial cutting, infrastructure,
construction and other demanding jobs.

Building Vanguard® 200
Engines from the Ground Up
Briggs & Stratton’s Vanguard
brand introduced the first in
a complete line of all-new
single-cylinder horizontal shaft
commercial gasoline engines built
from the ground up based on
customer input. Staying true to its
mission of user driven problem
solving, the Company interviewed
hundreds of stakeholders to better
understand the issues they face:
the need for improved starting,
reduced maintenance, less noise
and vibration, and better service
and support. Then, it engineered a
superior product that outperforms
the competition in each category.

Introducing Commercial
Spreaders and
Spreader/Sprayers
Briggs & Stratton acquired the
assets of Ground Logic, a designer
and manufacturer of premium
stand-on commercial spreaders
and spreader/sprayers for fertilizer
and pesticide-herbicide lawn
applications. Spreaders and
spreader/sprayers complement
existing products, further fill the
commercial landscape trailer with
additional value-added products
and allow Briggs & Stratton
to enter a new market with an
already-established product
portfolio, displaying the already-
established Ferris® brand.

Transforming Allmand®
to Serve New Markets
When Briggs & Stratton acquired
Allmand in 2014, the company’s
focus was primarily on the oil
& gas industry. As that industry
started to waver, Briggs & Stratton
quickly reassessed priorities and
diversified the Allmand business
so it can grow with or without oil &
gas recovery. In just a couple years,
Allmand has expanded its lineup of
premium job site products to serve
the construction, mining, and rental
markets and is seeing all-time
record revenues.

PROVIDING SUPERIOR SERVICE AND SUPPORT.
As the commercial business continues to grow, Briggs & Stratton’s service
dealers are equipped to serve customers through advanced training and
technical support, comprehensive online resources, on-time delivery
of competitively priced parts and fast online warranty processing so
commercial users can get back out making money quickly.

WE’RE GROWING IN COMMERCIAL.8

NYSE: BGG
www.basco.com

POWERING ACHIEVEMENT WITH TECHNOLOGY.
As technology continues to rapidly advance, Briggs & Stratton recognizes
the need to invest in technologies that allow its products to perform at
a level end users expect from any product they purchase – fast, easy,
powerful and high quality.

Increasing Commercial
Cutters’ Profitability with
InfoHub™ Technology
InfoHub for Commercial Turf is a
first-of-its-kind solution to help
commercial cutters grow and
manage their business more
profitably by monitoring both
equipment and crews to reduce
downtime and maintenance costs
and improve efficiencies to drive
more revenue. The Internet of
Things (IoT) device can be installed
on any gas-powered engine
with a spark plug and battery, so
commercial cutters can track their
entire fleet regardless of engine or
product brand.

Adapting Technology Based
on Customer Need with
Vanguard® Electronic
Fuel Injection
Briggs & Stratton continues to
develop and expand its Electronic
Fuel Injection (EFI) offerings for
a growing lineup of Vanguard
commercial engines. These engines
power equipment across varying
applications, and are utilized by
customers with different priorities.
Whether it’s power, fuel efficiency
or reliable starting, each customer
will experience the Vanguard power
and performance they’ve come to
rely on, along with a wide range of
diagnostic solutions, unmatched
training and service and optimal
performance benefits.

Powering Equipment in New
Ways with Electrification
As demonstrated throughout
the past 110 years, as the market
changes, so will Briggs & Stratton.
As demand for battery-powered
equipment continues to emerge, the
Company will identify opportunities
to apply electrification not only
within the outdoor power equipment
space, but in other markets it
wouldn’t traditionally be found
in, utilizing its power application
expertise as a differentiator.

CREATING DEMAND FOR GAS-POWERED ENGINES.
If your mower is more than five years old, you owe it to yourself to see how
far mower engine technology has come. Lawn mowers that can fold to store
upright and save space. Engines that never need an oil change. A push button
start featuring lithium-ion battery technology. These and more conveniences
are available that weren’t thought of just a handful of years ago.

WE’RE ENABLING TECHNOLOGY.10

NYSE: BGG
www.basco.com

DRIVING EXCELLENCE.

Briggs & Stratton’s Business Optimization Program was introduced to increase
production capacity for higher-margin commercial mowers, bring engine production
closer to the customer and better utilize our facilities to drive efficiencies; ultimately
making it easier for customers to do business with the Company. This effort is
expected to generate $30 million to $35 million of annual pre-tax savings by FY2021.

Producing Product
Closer to the Customer
With over 85% of Briggs & Stratton
engines and products being made
in the made in the U.S.A. of US
and global parts, the Company is
close to its customer base with
faster production times and faster
shipping. To further support this,
Briggs & Stratton announced the
decision to move production of
its Vanguard® V-Twin Small and
BIG BLOCK™ engines from a joint
venture partnership in Japan to
its existing Statesboro, GA and
Auburn, AL facilities in the US.

Moving Ferris® to
Meet Market Demands
Given the significant growth in
commercial sales of more than
70 percent over the last five years,
the Company is expanding its
Ferris mower production capacity
in a new, modern facility in
Sherrill, NY. This allows employees
to more effectively produce
commercial offerings; thus, laying
the foundation for continued
profitable growth.

Streamlining Processes
to be a Better Partner
At the core of the business is
the Company’s ERP system.
Recognizing the need to be easier
to do business with and streamline
processes to be more efficient
and work more effectively, the
Company invested in an upgraded
ERP system that was recently
integrated into the business.

BEING A COMPANY OF CHOICE
It’s not just exceptional products and services that make a company great – it’s what a company stands for.
Throughout its 110-year history, Briggs & Stratton has had a genuine commitment to the communities within which
it operates, as demonstrated through its Foundation efforts, employee involvement, donations and sponsorships of
important community initiatives centered around education, community enrichment and cultural assets. Combine
that with its commitment to investing in offices, plants, distribution centers and people; its focus on sustainability;
a true passion for the customer; and a welcoming culture, it’s no wonder Briggs & Stratton is a company of choice.

■ Employees mowed 110 lawns in one afternoon for those in need as part of

Rodney Smith, Jr.’s 50 STATES, 50 LAWNS CHALLENGE.

■

In Calendar Year 2017, the Briggs & Stratton Corporation Foundation, Inc.
CONTRIBUTED $596,000 IN GRANTS to 501(c)(3) organizations.

■ Briggs & Stratton enhanced its recruitment and retention efforts based on what
employees say makes the Company great: EMPOWERMENT, Innovation, Self-
Directed Careers, Welcoming Culture, STABILITY and Legacy, Work-Life Balance.

WE’RE WORKING SMARTER.12

NYSE: BGG
www.basco.com

FINANCIAL HIGHLIGHTS
For the fiscal years ended July 1, 2018, July 2, 2017, and July 3, 2016.
In thousands, except per share data.

NET SALES

$2.0 B

$1.0 B

$1,881,294

$55,770

ADJUSTED NET INCOME

$60,000

$40,000

$20,000

2016

2017

2018

2016

2017

2018

NET OPERATING CASH FLOW (000’S)

DILUTED ADJUSTED EARNINGS
PER COMMON SHARE

2016

$92,723

2016

2017

2018

2017

$1.29

2018

1. FY 18 Net Loss was $11.3 million. FY18 Adjusted Net Income excludes after tax charges of $14.8 million of business optimization, $29.6 million for pension settlement charges,

$21.1 million related to Tax Reform, and $1.6 million for premiums on early bond repurchase.

2. FY 18 Dilutive Loss Per Common Share was $0.28. Adjusted Dilutive Earnings Per Common Share excludes after tax charges of $0.34 for business optimization, $0.70 for pension

settlement charges, $0.49 related to Tax Reform, and $0.04 for premiums on early bond repurchase.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

______________________________________________________

(Mark One)

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 1, 2018
OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________
Commission file number 1-1370

_____________________________________________________________

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

Wisconsin
(State or other jurisdiction of incorporation or organization)

39-0182330
(I.R.S. Employer 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
Common Stock (par value $0.01 per share)

Name of Each Exchange on Which Registered
g
g
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 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 information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K or any amendment of this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth
company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of Common Stock held by nonaffiliates of the registrant was approximately $1,108.7 million based on the last reported
sale price of such securities as of December 29, 2017, the last business day of the most recently completed second fiscal quarter.
Number of Shares of Common Stock Outstanding at August 17, 2018: 42,387,590.

Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting to be held on October 25, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

BRIGGS & STRATTON CORPORATION
FISCAL 2018 FORM 10-K
TABLE OF CONTENTS

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

PART II
Item 5.

Item 6.
Item 7.

Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.

Item 13.
Item 14.
PART IV
Item 15.
Item 16.

Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure

Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures

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Cautionary Statement on Forward-Looking Statements

This report contains certain forward-looking statements that involve risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking statements. The words "anticipate", “believe”,
“estimate”, “expect”, “forecast”, “intend”, “plan”, “project”, and similar expressions are intended to identify forward-
looking statements. The forward-looking statements are based on the Company’s current views and assumptions
and involve risks and uncertainties that include, among other things, the ability to successfully forecast demand for
its products; changes in interest rates and foreign exchange rates; the effects of weather on the purchasing
patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs
with whom the Company competes; changes in laws and regulations; changes in customer and OEM demand;
changes in prices of raw materials and parts that the Company purchases; changes in domestic and foreign
economic conditions (including effects from the U.K.’s decision to exit the European Union); the ability to bring new
productive capacity on line efficiently and with good quality; outcomes of legal proceedings and claims; the ability to
realize anticipated savings from restructuring actions; and other factors disclosed from time to time in its SEC filings
or otherwise, including the factors discussed in Item 1A, Risk Factors, of this Annual Report on Form 10-K and in
the Company's periodic reports on Form 10-Q. The Company is not undertaking any obligation to update forward-
looking statements or other statements it may make even though these statements may be affected by events or
circumstances occurring after the forward-looking statements or other statements were made.

PART I

ITEM 1.

BUSINESS

Briggs & Stratton Corporation ("Briggs & Stratton" or the “Company”) is focused on providing power to get
work done and make people's lives better. Briggs & Stratton is the world’s largest producer of gasoline
engines for outdoor power equipment, and is a leading designer, manufacturer and marketer of power
generation, pressure washer, lawn and garden, turf care and job site products through its Briggs & Stratton®,
Simplicity®, Snapper®, Ferris®, Vanguard®, Allmand®, Billy Goat®, Murray®, Branco® and Victa® brands.
Briggs & Stratton products are designed, manufactured, marketed and serviced in over 100 countries on six
continents.

The Company conducts its operations in two reportable segments: Engines and Products. Further information
about Briggs & Stratton’s business segments is contained in Note 8 of the Notes to Consolidated Financial
Statements.

The Company’s internet address is www.basco.com. The Company makes available free of charge (other
than an investor’s own internet access charges) through its internet website the 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 furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as
reasonably practicable after it electronically files such material with, or furnishes such material to, the
Securities and Exchange Commission. Charters of the Audit, Compensation, Finance, and Nominating and
Governance Committees, Corporate Governance Guidelines, Stock Ownership Guidelines and code of
business conduct and ethics contained in the Briggs & Stratton Integrity Manual are available on the
Company’s website and are available in print to any shareholder upon request to the Corporate Secretary.
The information contained on and linked from the Company's website is not incorporated by reference into
this Annual Report on Form 10-K.

Engines Segment

General

Briggs & Stratton manufactures four-cycle aluminum alloy gasoline engines with gross horsepower ranging
from 5.5hp up to 40hp and torque ranging from 4.50 ft-lbs gross torque to 21.00 ft-lbs gross torque. The
Company’s engines are used primarily by the lawn and garden equipment industry, which accounted for 89%
of the Engines segment's fiscal 2018 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 11%
of engine sales to OEMs in fiscal 2018 was for use on products for industrial, construction, agricultural and
other consumer applications that include portable and standby generators, pumps and pressure washers.
Many retailers specify the Company's engines on the power equipment they sell and the Briggs & Stratton
logo is often featured prominently on a product because of the appeal and reputation of the brand. The
Company mainly sells commercial engines under the Vanguard® name.

In fiscal 2018 approximately 33% of the Engines segment net sales was derived from sales in international
markets, primarily to customers in Europe. The Company serves its key international markets through its
European regional office in Switzerland, its distribution center in the Netherlands and sales and service
subsidiaries in Australia, Austria, Brazil, Canada, China, the Czech Republic, England, France, Germany,
India, Italy, Japan, Malaysia, Mexico, New Zealand, Russia, South Africa, Spain, and Sweden. Briggs &
Stratton is a leading supplier of gasoline engines in developed countries where there is an established lawn
and garden equipment market. Briggs & Stratton also exports engines to developing nations where its
engines are used in agricultural, marine, construction and other applications. More information about its
foreign operations is in Note 8 of the Notes to Consolidated Financial Statements.

The Company's engines are sold primarily by its worldwide sales force through direct interaction with
customers. The Company’s marketing staff and engineers provide support and technical assistance to its
sales force.

The Engines segment also manufactures replacement engines and service parts and sells them to sales and
service distributors. Beginning in fiscal 2014, the Company joined with one of its independent distributors to

form Power Distributors, LLC (the venture) to distribute service parts in the United States. During fiscal years
2014 through 2016, the venture acquired other independent distributors. In fiscal 2016, the venture achieved
a national distribution network. The Company's remaining domestic distributors are independently owned and
operated.

The Company owns its principal international distribution centers, but also uses independently owned and
operated distributors. These distributors supply service parts and replacement engines directly to
independently owned, authorized service dealers throughout the world. These distributors and service dealers
incorporate the Company’s commitment to reliability and service.

Customers

The Company's engine sales are primarily to OEMs. The Company's major external engine customers in
fiscal years 2018, 2017 and 2016 were Husqvarna Outdoor Products Group (HOP), MTD Products Inc.
(MTD), Deere & Company, and Power Distributors, LLC. Engines segment sales to the top three customers
combined were 42%, 47% and 49% of Engines segment sales in fiscal 2018, 2017 and 2016, respectively.
Under purchasing plans available to all of its gasoline engine customers, Briggs & Stratton typically enters
into annual engine supply arrangements. In certain cases, the Company has entered into longer supply
arrangements of two to three years.

The Company believes that in fiscal 2018 approximately 75% of all residential lawn and garden powered
equipment sold in the United States was sold through mass merchandisers such as The Home Depot, Inc.
(The Home Depot), Lowe’s Companies, Inc. (Lowe’s), Sears Holdings Corporation (Sears) and Wal-Mart
Stores, Inc. (Wal-Mart). Given the buying power of the mass merchandisers, Briggs & Stratton, through its
customers, has continued to experience pricing pressure; however, the development of new and innovative
products may assist the Company and its customers in realizing higher margins. The Company believes
commercial engines are mainly sold through independent dealer networks.

Competition

The Company’s major competitors in engine manufacturing are Honda Motor Co., Ltd. (Honda), Kawasaki
Heavy Industries, Ltd. (Kawasaki) and Kohler Co. (Kohler). Several Japanese and Chinese small engine
manufacturers, of which Honda and Kawasaki are the largest, compete directly with the Company in world
markets in the sale of engines to other OEMs and indirectly through their sale of end products.

The Company believes it has a significant share of the worldwide market for engines that power outdoor
equipment.

The Company believes the major areas of competition from all engine manufacturers include product quality,
brand, price, delivery and service. Other factors affecting competition are short-term market share objectives,
short-term profit objectives, exchange rate fluctuations, technology, new product innovation, product support,
distribution strength, and advertising. The Company believes its technology, product value, distribution,
marketing, and service reputation have given it strong brand name recognition and enhanced its competitive
position.

Seasonality of Demand

Sales of engines to lawn and garden OEMs are highly seasonal because of consumer buying patterns. The
majority of lawn and garden equipment is sold during the spring and summer months when most lawn care
and gardening activities are performed. Sales of lawn and garden equipment are also influenced by consumer
sentiment, employment levels, new and existing home sales and weather conditions. Engine sales in the
Company’s third fiscal quarter have historically been the highest, while sales in the first fiscal quarter have
historically been the lowest.

In order to efficiently use its capital investments and meet seasonal demand for engines, the Company
pursues a relatively balanced production schedule throughout the year. The schedule is adjusted to reflect
changes in estimated demand, customer inventory levels and other matters outside the control of the
Company. Accordingly, inventory levels generally increase during the first and second fiscal quarters in
anticipation of customer demand. Inventory levels begin to decrease as sales increase in the third fiscal
quarter. This seasonal pattern results in high inventories and low cash flow for the Company in the first,

second and the beginning of the third fiscal quarters. The pattern generally results in higher cash flow in the
latter portion of the third fiscal quarter and in the fourth fiscal quarter as inventories are liquidated and
receivables are collected.

Manufacturing

The Company manufactures engines and parts at the following locations: Auburn, Alabama; Statesboro,
Georgia; Murray,Kentucky; Poplar Bluff, Missouri; Wauwatosa, Wisconsin; and Chongqing, China. Briggs &
Stratton has a parts distribution center in Menomonee Falls, Wisconsin and Wijchen, Netherlands. The
Engines segment also purchases certain products under contract manufacturing agreements.

The Company manufactures a majority of the structural components used in its engines, including aluminum
die castings, carburetors and ignition systems. The Company purchases certain parts such as piston rings,
spark plugs, valves, ductile and grey iron castings, plastic components, some stampings and screw machine
parts and smaller quantities of other components. Raw material purchases consist primarily of aluminum and
steel. The Company believes its sources of supply are adequate.

The Company has joint ventures with Daihatsu Motor Company for the manufacture of engines in Japan, and
with Starting Industrial of Japan for the production of rewind starters and punch pressed components in the
United States. During fiscal 2018, the Company announced its business optimization program. The program
includes, among other things, moving production of larger commercial engines, which are currently sourced
from our joint venture with Daihatsu Motor Company,totwoof its existin g U.S. plants.

Products Seggment
General

The Products segment’s principal product lines include lawn and garden power equipment, turf care products,
portable and standby generators, pressure washers, snow throwers, and job site products. Products sells its
products primarily through multiple channels of retail distribution, including consumer home centers,
warehouse clubs, mass merchants, independent dealers and distributors, and on-line merchants. The
Company sells its lawn and garden products, turf care products, snow throwers, and standby generators
primarily through an independent dealer network and sells its pressure washers and portable generators
primarily through the U.S. mass retail channel. To support its international business, Products has leveraged
the existing Briggs & Stratton worldwide distribution network and regional sales offices. The Company sells its
job site products primarily into the rental channel to the construction and infrastructure, mining and oil &gas
industries.

Beginning in fiscal 2014, the Company joined with one of its independent distributors to form Power
Distributors, LLC to distribute certain service parts in the United States. During fiscal years 2014 through
2016, the venture acquired other independent distributors. In fiscal 2016, the venture achieved a national
distribution network.

The Products segment product lines are marketed under its own brands such as Briggs &Stratton®,
Simplicity®, Snapper®, Snapper Pro®, Ferris®, Allmand®, Billy Goat®, Murray®, Branco® and Victa®,as
well as other brands such as Craftsman and Troy-Bilt.

Customers

Historically, Products’ major customers have included Lowe’s, Sears, PACE Inc., The Home Depot, Bunnings
Warehouse, as well as numerous other distributors and dealers. Sales to the top three customers combined
were 24%, 25% and 25% of Products segment net sales in fiscal 2018, 2017 and 2016, respectively.
Commercial mowers are primarily sold through independent dealers.

Competition

The principal competitive factors in the outdoor power products industry include price, service, product
performance, brand, innovation and delivery. Products has various competitors, depending on the type of
equipment. Primary competitors include: Honda (portable generators, pressure washers and lawn and garden
equipment), Generac Power Systems, Inc. (portable and standby generators and job site products), Alfred
Karcher GmbH &Co. (pressure washers), Techtronic Industries (pressure washers and portable generators),
Deere &Compan y (commercial and consumer lawn mowers), MTD (consumer lawn mowers),The Toro

Company (commercial and consumer lawn mowers), Scag Power Equipment, a Division of Metalcraft of
Mayville, Inc. (commercial lawn mowers), and HOP (commercial and consumer lawn mowers).

Seasonality of Demand

A significant portion of Products’ sales are subject to seasonal patterns. Due to seasonal and regional
weather factors, sales of pressure washers and lawn and garden powered equipment are typically higher
during the third and fourth fiscal quarters than at other times of the year. Sales of portable generators and
snow throwers are typically higher during the first and second fiscal quarters and can spike during weather
related power outage events.

Manufacturing

Products’ manufacturing facilities are located in Sherrill, New York; Munnsville, New York; Wauwatosa,
Wisconsin; Holdrege, Nebraska; Lee's Summit, Missouri; and Sydney, Australia. Products also purchases
certain powered equipment under contract manufacturing agreements.

Products manufactures core components for its products, where such integration improves operating
profitability by providing lower costs.

Products purchases engines from its parent, Briggs & Stratton, as well as from Honda, Kawasaki and Kohler.
Products has not typically experienced any difficulty obtaining necessary engines or other purchased
components.

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

During fiscal 2018, the Company announced its business optimization program. The program includes,
among other things, expanding capacity and moving the commercial turf equipment operation into a larger,
more efficient facility in Sherrill, New York close to the current facility in Munnsville, New York.

Consolidated

General Information

The Company holds patents on features incorporated in its products; however, the success of the Company’s
business is not considered to be primarily dependent upon patent protection. The Company owns several
trademarks which it believes significantly affect a consumer’s choice of outdoor powered equipment and job
site products, and therefore create value. Licenses, franchises and concessions are not a material factor in
the Company’s business.

For the fiscal years ended July 1, 2018, July 2, 2017 and July 3, 2016, the Company spent approximately
$23.6 million, $23.0 million and $20.0 million, respectively, on research activities relating to the development
of new products or the improvement of existing products.

The average number of persons employed by the Company during fiscal 2018 and fiscal 2017 was 5,258 and
5,438, respectively. Employment in fiscal 2018 ranged from a high of 5,355 in April 2018 to a low of 5,185 in
June 2018.

Export Sales

Export sales for fiscal 2018, 2017 and 2016 were $324.4 million (17% of net sales), $337.1 million (19% of net
sales), and $285.5 million (16% of net sales), respectively. These sales were principally to customers in
Europe, Asia, Australia, and Canada.

Refer to Note 8 of the Notes to Consolidated Financial Statements for financial information about geographic
areas. Also, refer to Item 7A of this Form 10-K and Note 14 of the Notes to Consolidated Financial Statements
for information about Briggs & Stratton’s foreign exchange risk management.

ITEM 1A. RISK FACTORS

In addition to the risks referred to elsewhere in this Annual Report on Form 10-K, the following risks, among
others, may have affected, and in the future could materially affect, the Company and its subsidiaries’
business, financial condition or results of operations.

Demand for products fluctuates significantly due to seasonality. In addition, changes in the weather
and consumer confidence impact demand.

Sales of our products are subject to seasonal and consumer buying patterns. Consumer demand in our
markets can be reduced by unfavorable weather and weak consumer confidence. Although we manufacture
throughout the year, our sales are concentrated in the second half of our fiscal year. This operating method
requires us to anticipate demand of our customers many months in advance. If we overestimate or
underestimate demand during a given year, we may not be able to adjust our production quickly enough to
avoid excess or insufficient inventories, and that may in turn limit our ability to maximize our potential sales or
maintain optimum working capital levels.

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

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

A significant portion of our net sales comes from major customers and the loss of any of these
customers would negatively impact our financial results.

In fiscal 2018, our three largest customers accounted for 27% of our consolidated net sales. The loss of any
of these customers or a significant portion of the business from one or more of our key customers would
significantly impact our net sales and profitability.

A significant change or disruption in the U.S. retail market for lawn and garden products could have
an adverse impact on our business.

The retail market in the U.S. for lawn and garden products is concentrated with a few large traditional
retailers. A disruption or significant change at any of these large traditional retailers could have an adverse
impact on our customers and on our business.

Changes in environmental, tax, health care or other laws and regulations could require extensive
changes in our operations or to our products.

Our operations and products are subject to a variety of foreign, federal, state and local laws and regulations
governing, among other things, emissions to air, discharges to water, noise, the generation, handling, storage,
transportation, treatment and disposal of waste and other materials and health and safety matters as well as
taxes, health care and data privacy. We do not expect these laws and regulations to have an adverse effect
on us, but we cannot be certain that these or proposed changes in other applicable laws or regulations, or
their enforcement, will not adversely affect our business or financial condition in the future.

Our international operations are subject to risks and uncertainties, which could adversely affect our
business or financial results.

In fiscal 2018, we derived approximately 28% of our consolidated net sales from international markets,
primarily Europe. Our international operations are subject to various economic, political, and other risks and
uncertainties that could adversely affect our business and operating results, including, but not limited to,
regional or country specific economic downturns, fluctuations in currency exchange rates, trade protection
measures, tariffs, and other border taxes, labor practices, complications in complying with, or exposure to
liability under, a variety of laws and regulations, including anti-corruption and export control laws and
regulations, political instability and significant natural disasters and other events or factors impacting local
infrastructure.

Actions of our competitors could reduce our sales or profits.

Our markets are highly competitive and we have a number of significant competitors in each market.
Competitors may reduce their costs, lower their prices or introduce innovative products that could adversely

affect our sales or profits. In addition, our competitors may focus on reducing our market share to improve
their results.

Disruptions caused by labor disputes or organized labor activities or an inability to acquire and retain
skill sets needed could harm our business and reputation.

Currently, approximately 10% of our workforce is represented by labor unions. The Labor Agreement with
United Steelworkers Local 2-232 expired on July 31, 2017. This agreement covered 424 hourly employees in
the Wauwatosa, Milwaukee and Menomonee Falls, Wisconsin facilities. We have met with the union and
implemented our final offer to the Labor Union on June 14, 2018 but a new agreement has not been reached.
In addition, we may from time to time experience union organizing activities in our non-union facilities.
Disputes with the current labor union or new union organizing activities could lead to work slowdowns or
stoppages and make it difficult or impossible for us to meet scheduled delivery times for product shipments to
our customers, which could result in loss of business and damage to our reputation. Union activity could also
result in higher labor costs, which could harm our financial condition, results of operations and competitive
position. In addition, an inability to acquire and retain skill sets needed in the business could harm our
financial condition, results of operations and competitive position.

Our level of debt and our ability to obtain debt financing could adversely affect our operating
flexibility and put us at a competitive disadvantage.

Our level of debt and the limitations imposed on us by the indenture relating to the Senior Notes (as defined
below) and our other credit agreements could have important consequences, including the following:

•

•
•

we will have to use a portion of our cash flow from operations for debt service rather than for our
operations;
we may not be able to obtain additional debt financing for future working capital, capital expenditures
or other corporate purposes or may have to pay more for such financing;
some or all of the debt under our current or future revolving credit facilities will be at a variable
interest rate, making us more vulnerable to increases in interest rates;
we could be less able to take advantage of significant business opportunities, such as acquisition
opportunities, and to react to changes in market or industry conditions;
we may be more vulnerable to general adverse economic and industry conditions; and
we may be disadvantaged compared to competitors with less leverage.

The terms of the indenture for the 6.875% Senior Notes due December 2020 (the "Senior Notes") do not fully
prohibit us from incurring substantial additional debt in the future and our revolving credit facilities permit
additional borrowings, subject to certain conditions. If incremental debt is added to our current debt levels, the
related risks we now face could intensify.

We expect to obtain the money to pay our expenses and to pay the principal and interest on the outstanding
Senior Notes, the credit facilities and other debt primarily from our operations or by refinancing part of our
existing debt. Our ability to meet our expenses thus depends on our future performance, which will be
affected by financial, business, economic and other factors. We will not be able to control many of these
factors, such as economic conditions in the markets where we operate and pressure from competitors. We
cannot be certain that the money we earn will be sufficient to allow us to pay principal and interest on our debt
and meet our other obligations. If we do not have enough money, we may be required to refinance all or part
of our existing debt, sell assets or borrow more money. We cannot guarantee that we will be able to do so on
terms acceptable to us. In addition, the terms of existing or future debt agreements, including the revolving
credit facilities and our indentures, may restrict us from adopting certain of these alternatives.

We are restricted by the terms of the outstanding Senior Notes and our other debt, which could
adversely affect us.

The indenture relating to the Senior Notes and our multicurrency credit agreement include a number of
financial and operating restrictions, which may prevent us from capitalizing on business opportunities and
taking some corporate actions. These covenants could adversely affect us by limiting our ability 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:

•

incur more debt;

pay dividends, redeem stock or make other distributions;

•
• make certain investments;
create liens;
•
transfer or sell assets;
•
• merge or consolidate; and
•

enter into transactions with our affiliates.

In addition, our multicurrency credit agreement contains financial covenants that, among other things, require
us to maintain a minimum interest coverage ratio and impose a maximum average leverage ratio.

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

Worldwide economic conditions may adversely affect our industry, business and results of
operations.

General worldwide economic conditions have experienced volatility in recent years due to the sequential
effects of the subprime lending crisis, general credit market crisis, sovereign debt crisis, collateral effects on
the finance and banking industries, changes in energy costs, concerns about inflation, slower economic
activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business
conditions and liquidity concerns. These conditions make it difficult for our customers, our vendors and us to
accurately forecast and plan future business activities, and they may cause U.S. and foreign OEMs and
consumers to slow spending on our products. We cannot predict the timing or duration of any future economic
slowdown or the timing or strength of a subsequent economic recovery, worldwide or in the specific end
markets we serve. If the consumer and commercial lawn and garden markets significantly deteriorate due to
these economic effects, our business, financial condition and results of operations will likely be adversely
affected. Additionally, our stock price could decrease if investors have concerns that our business, financial
condition and results of operations will be negatively impacted by a worldwide economic downturn.

In addition, in June 2016, the United Kingdom (the "U.K.") held a referendum in which voters approved an exit
from the European Union (the "E.U."), commonly referred to as "Brexit". Negotiations between the U.K. and
E.U are underway to determine the terms of Brexit. Given the lack of comparable precedent and the status of
the negotiations, it is unclear what financial, trade and legal implications Brexit will have and how such
withdrawal would affect us. Brexit could disrupt the free movement of goods, services and people between
the U.K. and the E.U., undermine bilateral cooperation in key policy areas and significantly disrupt trade
between the U.K. and the E.U. In addition, Brexit could lead to legal uncertainty and potentially divergent
national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Moreover, Brexit
could lead to changes in the regulatory environment for engines, and new or heightened regulatory and
approval requirements may increase our expenses or limit or delay our ability to sell our engines or other
products in those markets. The announcement of Brexit and the withdrawal of the U.K. from the E.U. may
also create global economic uncertainty, which may cause our customers to closely monitor their costs and
reduce their spending budgets. Any of these effects of Brexit, among others, could adversely affect our
business, financial condition, operating results and cash flows.

We have goodwill and intangible assets, which were written down in fiscal 2016 and in prior years. If
we determine that goodwill and other intangible assets have become further impaired in the future,
net income in such years would be adversely affected.

At July 1, 2018, goodwill and other intangible assets represented approximately 17.9% of our total assets.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business
combinations. We are required to evaluate whether our goodwill and indefinite-lived intangible assets have
been impaired on an annual basis, or more frequently if indicators of impairment exist. In fiscal 2018 and
fiscal 2017, there was no impairment of goodwill or other intangible assets. In fiscal 2016, we recorded pre-
tax non-cash goodwill and tradename impairment charges of $10.3 million. The impairments were determined
as part of the fair value assessments of goodwill and other intangible assets. Any additional write-down of our
goodwill or intangible assets could adversely affect our results of operations.

We are subject to litigation, including product liability, patent infringement, and warranty claims, that
may adversely affect our business and results of operations.

We are a party to litigation that arises in the normal course of our business operations, including product
warranty and liability (strict liability and negligence) claims, patent and trademark matters, contract disputes
and environmental, asbestos, employment and other litigation matters. See Note 12, “Commitments and
Contingencies,” to the Consolidated Financial Statements for a description of unresolved legal actions. We
face an inherent business risk of exposure to product liability and warranty claims in the event that the use of
our products is alleged to have resulted in injury or other damage or our products are alleged to be defective.
In addition, we face an inherent risk that our competitors will allege that aspects of our product designs
infringe their protected intellectual property. While we currently maintain general liability and product liability
insurance coverage in amounts that we believe are adequate, we cannot be sure that we will be able to
maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against
potential liabilities that may arise. Any claims brought against us, with or without merit, may have an adverse
effect on our business and results of operations as a result of potential adverse outcomes, the expenses
associated with defending such claims, the diversion of our management’s resources and time and the
potential adverse effect to our business reputation.

Our pension and postretirement benefit plan obligations are currently underfunded, and we may have
to make significant cash payments to some or all of these plans, which would reduce the cash
available for our businesses.

We have unfunded obligations under our domestic and foreign pension and postretirement benefit plans. As
of July 1, 2018, our pension plans were underfunded by approximately $193 million. The funded status of our
pension plans is dependent upon many factors, including returns on invested assets, the level of certain
market interest rates, the mortality tables used, and the discount rate used to determine pension obligations.
Unfavorable returns on the plan assets or unfavorable changes in applicable laws or regulations could
materially change the timing and amount of required plan funding, which would reduce the cash available for
our businesses. In addition, a decrease in the discount rate used to determine pension obligations could
result in an increase in the valuation of pension obligations, which could affect the reported funding status of
our pension plans and future contributions, as well as the periodic pension cost in subsequent fiscal years.

Our dependence on, and the price of, raw materials may adversely affect our profits.

The principal raw materials used to produce our products are aluminum and steel. We source raw materials
on a global or regional basis, and the prices of those raw materials are susceptible to significant price
fluctuations due to supply/demand trends, transportation costs, government regulations and tariffs, changes in
currency exchange rates, price controls, the economic climate and other unforeseen circumstances. If we are
unable to pass on raw material price increases to our customers, our future profitability may be adversely
affected.

We may be adversely affected by health and safety laws and regulations.

We are subject to various laws and regulations relating to the protection of human health and safety and have
incurred and will continue to incur capital and other expenditures to comply with these regulations. Failure to
comply with regulations could subject us to future liabilities, fines or penalties or the suspension of production,
as well as damage our reputation.

The operations and success of our Company can be impacted by natural disasters, terrorism, acts of
war, international conflict and political and governmental actions, which could harm our business.

Natural disasters, acts or threats of war or terrorism, international conflicts and the actions taken by the
United States and other governments in response to such events could cause damage or disrupt our
business operations, our suppliers or our customers, and could create political or economic instability, any of
which could have an adverse effect on our business. Although it is not possible to predict such events or their
consequences, these events could decrease demand for our products, could make it difficult or impossible for
us to deliver products or could disrupt our supply chain. We may also be impacted by actions by foreign
governments, including currency devaluation, tariffs and nationalization, where our facilities, customers and/or
suppliers are located. Furthermore, as a result of changes to U.S. administrative policy, there may be
changes to existing trade agreements, like the North American Free Trade Agreement, greater restrictions on
free trade generally, or the enactment of or increases in tariffs, which could have an adverse impact on our

operating results and financial position. Such changes to foreign or U.S. policies could also disrupt
manufacturing and commercial operations. In addition, our foreign operations make us subject to certain U.S.
and foreign laws and regulations, including the Export Administration Regulations administered by the U.S.
Department of Commerce, the trade sanctions laws and regulations administered by the U.S. Department of
the Treasury’s Office of Foreign Assets Control, the Foreign Corrupt Practices Act, and the U.K. Bribery Act. A
violation of these laws and regulations could adversely affect our business, financial condition, and results of
operations and reputation.

We are subject to tax laws and regulations in many jurisdictions, and the inability to successfully
defend claims from taxing authorities could adversely affect our operating results and financial
position.

We conduct business in many countries, which requires us to interpret the income tax laws and rulings in
each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the
subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or
assessments. Claims from taxing authorities related to these differences could have an adverse impact on our
operating results and financial position.

If we fail to remain current with changes in gasoline engine technology or if the technology becomes
less important to customers in our markets due to the impact of alternative fuels or power sources,
our results would be negatively affected. In addition, if we are unable to continue to enhance existing
products, as well as develop and market new products, that respond to customer needs and
preferences and achieve market acceptance, our results may be negatively impacted.

Our ability to remain current with changes in gasoline engine technology may significantly affect our business.
Any advances in gasoline engine technology, including the impact of alternative fuels or power sources, may
inhibit our ability to compete with other manufacturers. Our competitors may also be more effective and
efficient at integrating new technologies.

Through our Products segment, we compete with certain customers of our Engines segment, thereby
creating inherent channel conflict that may impact the actions of engine manufacturers and OEMs
with whom we compete.

Through our Products segment, we compete with certain customers of our Engines segment. Any further
forward integration of our products may strain relationships with OEMs that are significant customers of our
Engines segment and have an adverse impact on operating results.

The financial stability of our suppliers and the ability of our suppliers to produce quality materials
could adversely affect our ability to obtain timely and cost-effective raw materials.

The loss of certain of our suppliers or interruption of production at certain suppliers from adverse financial
conditions, work stoppages, equipment failures or other unfavorable events would adversely affect our ability
to obtain raw materials and other inputs used in the manufacturing process. Our cost of purchasing raw
materials and other inputs used in the manufacturing process could be higher and could temporarily affect our
ability to produce sufficient quantities of our products, which could harm our financial condition, results of
operations and competitive position.

An inability to successfully manage information systems, or to adequately maintain these systems
and their security, as well as to protect data and other confidential information, could adversely affect
our business and reputation.

In the ordinary course of business, we collect and store sensitive data and information, including our
proprietary and regulated business information and that of our customers, suppliers and business partners, as
well as personally identifiable information about our employees. We depend on our information systems to
successfully manage our business. We have taken steps to maintain adequate data security by implementing
security technologies, internal controls, and network and data center resiliency and recovery processes.
However, any inability to successfully manage these systems, including matters related to system and data
security, privacy, reliability, compliance, performance and access, as well as any inability of these systems to
fulfill their intended purpose within our business, could have an adverse effect on our business.

Despite our efforts, our information systems, like those of other companies, are susceptible to damage or
interruption due to natural disasters, power loss, telecommunications failures, viruses, breaches of security,
system upgrades or new system implementations. Furthermore, our security measures may not detect or
prevent all security threats, whether from intentional or inadvertent breaches by our employees or attacks
designed to gain unauthorized access to our systems, networks and data, such as denial-of-service attacks,
viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks
and similar disruptions. Any operational failure or breach of security from increasingly sophisticated cyber
threats could lead to the loss or disclosure of both our and our customers’ financial, product and other
confidential information, result in regulatory actions and legal proceedings, or have an adverse effect on our
business and reputation.

Immediate steps were taken to both contain and thoroughly investigate the attack. The

The Company experienced a malware attack on its computer systems at its Milwaukee, Wisconsin and
Munnsville, New York locations that potentially compromised information from approximately July 25, 2017 to
July 28, 2017.
investigation revealed no evidence of actual misuse of any information. The Company provided notice of the
attack to the media, various state and federal agencies and potentially affected individuals in accordance with
applicable legal requirements and also offered credit monitoring and identity theft services free of charge to
such individuals.
In addition, the Company implemented process and technology improvements to enhance
its protections. However, attackers may outpace currently available malware preventative technologies and
as a result, there can be no assurance that the Company will not experience another malware attack in the
future.

We have implemented, and Wisconsin law contains, anti-takeover provisions that may adversely
affect the rights of holders of our common stock.

Our articles of incorporation contain provisions that could have the effect of discouraging or making it more
difficult for someone to acquire us through a tender offer, a proxy contest or otherwise, even though such an
acquisition might be economically beneficial to our shareholders. These provisions include a board of
directors divided into three classes of directors serving staggered terms of three years each and the removal
of directors only for cause and only with the affirmative vote of a majority of the votes entitled to be cast in an
election of directors.

We are subject to the Wisconsin Business Corporation Law, which contains several provisions that could
have the effect of discouraging non-negotiated takeover proposals or impeding a business combination.

These provisions include:

•

requiring a supermajority vote of shareholders, in addition to any vote otherwise required, to approve
business combinations not meeting adequacy of price standards;
prohibiting some business combinations between an interested shareholder and us for a period of
three years, unless the combination was approved by our board of directors prior to the time the
shareholder became a 10% or greater beneficial owner of our shares or under some other
circumstances;
limiting actions that we can take while a takeover offer for us is being made or after a takeover offer
has been publicly announced; and
limiting the voting power of shareholders who own more than 20% of our stock.

An inability to identify, complete and integrate acquisitions may adversely impact our sales, results of
operations, cash flow and liquidity.
Our historical growth has included acquisitions, and our future growth strategy includes acquisition
opportunities. For example, in fiscal 2015, the Company acquired Allmand®, a leading designer and
manufacturer of high quality towable light towers, industrial heaters and solar LED arrow boards, for
approximately $59.9 million in cash. Also, in fiscal 2015, the Company acquired Billy Goat®, a leading
manufacturer of specialty turf equipment, which includes aerators, sod cutters, overseeders, power rakes,
brush cutters, walk behind blowers, lawn vacuums, and debris loaders, for total cash consideration of $28.3
million. We may not be able to identify acquisition targets or successfully complete acquisitions in the future
due to the absence of quality companies in our target markets, economic conditions, competition from other
bidders, or price expectations from sellers. If we are unable to complete additional acquisitions, our growth
may be limited.

Additionally, as we grow through acquisitions, we will continue to place significant demands on management,
operational, and financial resources. Recent and future acquisitions will require integration of operations,
sales and marketing, information technology, finance and administrative operations, which could decrease the
time available to serve and attract customers. We cannot assure that we will be able to successfully integrate
acquisitions, that these acquisitions will operate profitably, or that we will be able to achieve the desired
financial or operational success. Our financial condition, cash flows, liquidity and results of operations could
be adversely affected if we do not successfully integrate the newly acquired businesses, or if our other
businesses suffer due to the increased focus on the newly acquired businesses.

An inability to successfully manage the upgrade of our global enterprise resource planning ("ERP")
system could adversely affect our operations and operating results.

We are in the process of upgrading our global ERP system which went live on July 9, 2018. This upgrade will
affect many of our existing operating and financial systems. This is a major undertaking both financially and
from a management and personnel perspective. Should the upgrade not be implemented successfully and
within budget, or if the system does not perform in a satisfactory manner, it could be disruptive and adversely
affect our operations and results of operations, including our ability to report accurate and timely financial
results.

Our common stock is subject to substantial price and volume fluctuations.

The market price of shares of our common stock may be volatile. Among the factors that could affect our
common stock price are those previously discussed, as well as:

•
•
•

•
•
•
•

quarterly fluctuation in our operating income and earnings per share results;
decline in demand for our products;
significant strategic actions by our competitors, including new product introductions or technological
advances;
fluctuations in interest rates or foreign currency exchange;
cost increases in energy, raw materials or labor;
changes in revenue or earnings estimates or publication of research reports by analysts; and
domestic and international economic and political factors unrelated to our performance.

In addition, the stock markets have experienced extreme volatility that has often been unrelated to the
operating performance of particular companies. These broad market fluctuations may adversely affect the
trading price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

The Company maintains leased and owned manufacturing, office, warehouse, distribution and testing
facilities throughout the world. The Company believes that its owned and leased facilities are adequate to
perform its operations in a reasonable manner. As the Company’s business is seasonal, additional warehouse
space may be leased when inventory levels are at their peak. Facilities in the United States occupy
approximately 5.4 million square feet, of which 56% is owned. Facilities outside of the United States occupy
approximately 0.9 million square feet, of which 28% is owned. Certain of the Company’s facilities are leased
through operating lease agreements. See Note 9 to the Consolidated Financial Statements for information on
the Company’s operating leases.

The following table provides information about each of the Company’s facilities (exceeding 25,000 square
feet) as of July 1, 2018:

Location

Type of Property

Owned/Leased

Segment

U.S. Locations:

Auburn, Alabama
McDonough, Georgia
Statesboro, Georgia
Murray, Kentucky
Lee's Summit, Missouri
Poplar Bluff, Missouri
Holdrege, Nebraska
Munnsville, New York
Sherrill, New York
Orangeburg, South Carolina
Menomonee Falls, Wisconsin
Milwaukee, Wisconsin
Wauwatosa, Wisconsin

Manufacturing, office and warehouse
Warehouse
Manufacturing, office and warehouse
Manufacturing, office and warehouse
Manufacturing, office and warehouse
Manufacturing, office and warehouse
Manufacturing, office and warehouse
Manufacturing and office
Manufacturing, office and warehouse
Distribution
Distribution and office
Distribution
Manufacturing, office and warehouse

Owned and Leased
Owned and Leased
Owned and Leased
Owned and Leased
Leased
Owned and Leased
Owned
Owned
Leased
Leased
Leased
Leased
Owned

Non-U.S. Locations:

Melbourne, Australia
Sydney, Australia
Curitiba, Brazil
Mississauga, Canada
Chongqing, China
Shanghai, China
Queretaro, Mexico
Wijchen, Netherlands

Office and warehouse
Manufacturing, office and warehouse
Office and warehouse
Office and warehouse
Manufacturing, office and warehouse
Office and warehouse
Office and warehouse
Distribution and office

Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased

Engines
Products
Engines
Engines
Products
Engines
Products
Products
Products
Engines
Engines, Products
Engines, Products
Engines, Products,
Corporate

Engines, Products
Products
Engines, Products
Products
Engines
Engines, Products
Engines, Products
Engines, Products

On August 17, 2018, the Company announced its decision to consolidate a number of its smaller existing
warehouses throughout the U.S. into two large warehouses in Germantown, Wisconsin and Auburn, Alabama.
Both facilities are expected to be operational in the fourth quarter of fiscal 2019.

ITEM 3.

LEGAL PROCEEDINGS

The Company is subject to various unresolved legal actions that arise in the normal course of its business. These
actions typically relate to product liability (including asbestos-related liability), patent and trademark matters, and
disputes with customers, suppliers, distributors and dealers, competitors and employees.

On May 12, 2010, Exmark Manufacturing Company, Inc. filed suit against Briggs & Stratton Power Products
Group, LLC (“BSPPG”), a wholly owned subsidiary of the Company that was subsequently merged with and into
the Company on January 1, 2017 (Case No. 8:10CV187, U.S. District Court for the District of Nebraska), alleging
that certain Ferris® and Snapper Pro® mower decks infringed an Exmark mower deck patent. Exmark sought
damages relating to sales since May 2004, attorneys’ fees, and enhanced damages.As a result of a reexamination
proceeding in 2012, the United States Patent and Trademark Office (“USPTO”) initially rejected the asserted
Exmark claims as invalid. However, in 2014, that decision was reversed by the USPTO on appeal by Exmark.
Following discovery, each of BSPPG and Exmark filed several motions for summary judgment in the Nebraska
district court, which were decided on July 28, 2015. The court concluded that older mower deck designs infringed
Exmark’s patent, leaving for trial the issues of whether current designs infringed, the amount of damages, and
whether any infringement was willful.

The trial began on September 8, 2015, and on September 18, 2015, the jury returned its verdict, finding that
BSPPG’s current mower deck designs do not infringe the Exmark patent. As to the older designs, the jury
awarded Exmark $24.3 million in damages and found that the infringement was willful, allowing the judge to
enhance the jury’s damages award post-trial by up to three times. Also on September 18, 2015, the U.S.
Court of Appeals for the Federal Circuit issued its decision in an unrelated case, SCA Hygiene Products
Aktiebolag SCA Personal Care, Inc. v. First Quality Baby Products, LLC, et al. (Case No. 2013-1564)
(“SCA”), confirming the availability of laches as a defense to patent infringement claims. Laches is an
equitable doctrine that may bar a patent owner from obtaining damages prior to commencing suit, in
circumstances in which the owner knows or should have known its patent was being infringed for more than
six years. Although the court in the Exmark case ruled before trial that BSPPG could not rely on the defense
of laches, as a result of the subsequent SCA decision, the court held a bench trial on that defense on October
21 and 22, 2015. On May 2, 2016, the United States Supreme Court agreed to review the SCA decision.
The parties submitted post-trial motions and briefing related to: damages; willfulness; laches; attorney fees;
enhanced damages; and prejudgment/post-judgment interest and costs. All post-trial motions and briefing
were completed on December 18, 2015. On May 11, 2016, the court ruled on those post-trial motions and
entered judgment against BSPPG and in favor of Exmark in the amount of $24.3 million in compensatory
damages, an additional $24.3 million in enhanced damages, and $1.5 million in pre-judgment interest along
with post-judgment interest and costs to be determined. The Company strongly disagrees with the jury
verdict, certain rulings made before and during trial, and the May 11, 2016 post-trial rulings. BSPPG appealed
to the U.S. Court of Appeals for the Federal Circuit on several bases, including the issues of obviousness and
invalidity of Exmark’s patent, the damages calculation, willfulness and laches.

Following briefing of the appeal and prior to oral argument, the United States Supreme Court overturned the
SCA decision, ruling that laches is not available in a patent infringement case for damages. That ruling
eliminated laches as one basis for BSPPG’s appeal of the Exmark case. The appellate court held a hearing
on the remainder of BSPPG’s appeal on April 5, 2017 and issued its decision on January 12, 2018. The
appellate court found that the district court erred in granting summary judgment concerning the patent’s
validity and remanded that issue to the district court for reconsideration. The appellate court also vacated the
jury’s damages award and the district court’s award of enhanced damages, remanding the case to the district
court for a new trial on damages and reconsideration on willfulness. The appellate court affirmed the district
court rulings in all other respects. The new trial has been scheduled to begin on December 10, 2018. The
parties are currently in the process of briefing pre-trial motions.

this review, the Company has concluded that a loss from this case is not probable and reasonably estimable
at this time and, therefore, a liability has not been recorded with respect to this case as of July 1, 2018.

Although it is not possible to predict with certainty the outcome of this and other unresolved legal actions or
the range of possible loss, the Company believes the unresolved legal actions will not have a material
adverse effect on its results of operations, financial position or cash flows.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

Executive Officers of the Registrant

Name, Age, Position

TODD J. TESKE, 53
Chairman, President & Chief Executive Officer (1)
(2)

KATHRYN M. BUONO, 56
Vice President, General Counsel & Corporate
Secretary (3)

RANDALL R. CARPENTER, 61
Vice President Corporate Marketing

DAVID G. DEBAETS, 55
Vice President Operations – Engines & Power

ANDREA L. GOLVACH, 47
Vice President & Treasurer

RACHELE M. LEHR, 41
Vice President Human Resources

Business Experience for At Least Past Five Years
Mr. Teske was elected to his current position effective
October 2010. He previously was President & Chief
Executive Officer from January 2010 to October 2010.
He served as President and Chief Operating Officer
from 2008 to 2010; as Executive Vice President &
Chief Operating Officer from 2005 to 2008; and as
Senior Vice President and President - Briggs & Stratton
Power Products Group, LLC from 2003 to 2005. Mr.
Teske also serves as a director of Badger Meter, Inc.
and Lennox International, Inc.

Ms. Buono was elected to her position effective April
2015 (initially with the title Vice President, General
Counsel & Secretary). Prior to joining Briggs &
Stratton, she held the position of Managing Partner of
the Milwaukee, Wisconsin office of the Quarles & Brady
LLP law firm from March 2014 through December 2014
and was a partner practicing in its Business Law Group
from 1996 through 2014.

Mr. Carpenter was elected to his current position
effective September 2016. Previously he served as
Vice President - Marketing (an elected officer position)
from 2009 through August 2016. He served as Vice
President - Marketing (an appointed position) from
2007 to 2009. Prior to joining Briggs & Stratton, he
held the position of Vice President Marketing and
Product Development for Royal Appliance
Manufacturing, a vacuum cleaner manufacturer.

Mr. DeBaets was elected to his current position
effective September 2015 (initially with the title Vice
President - Global Engines Operations). He previously
served as Vice President - North American Operations
from 2007 through August 2015 and as Vice President
and General Manager - Large Engine Division from
2000 to 2007.

Ms. Golvach was elected to her current position
effective November 2011 after serving as Vice
President of Treasury from May 2011 to November
2011. Prior to joining Briggs & Stratton, she held the
position of Director of Finance & Cash Management at
Harley-Davidson, Inc., a global motorcycle
manufacturer, from 2007 to 2011.

Ms. Lehr was elected to her current position in August
2018, to be effective as of September 1, 2018. She
previously served as Vice President Human Resources
(an appointed position) from July 2015 through August
2018. Prior to then, she served as Human Resources
Senior Director from March 2015 through June 2015,
as Human Resources Director from June 2013 through
February 2015, and as Controller from April 2010
through May 2013.

Name, Age, Position

Business Experience for At Least Past Five Years

HAROLD L. REDMAN, 53
Senior Vice President & President –
Turf & Consumer Products

WILLIAM H. REITMAN, 62
Senior Vice President & President – Support

DAVID J. RODGERS, 47
Senior Vice President & President – Engines &
Power

MARK A. SCHWERTFEGER, 41
Senior Vice President & Chief Financial Officer
(4)

JEFFREY M. ZEILER, 49
Vice President Product Innovation

Mr. Redman was elected to his current position
effective September 2014. He previously served as
Senior Vice President and President - Products Group
from 2010 to 2014; as Senior Vice President and
President - Home Power Products Group from 2009 to
2010; and as Vice President and President - Home
Power Products Group from 2006 to 2009. Prior to
joining Briggs & Stratton, he served as Senior Vice
President - Sales & Marketing of Simplicity
Manufacturing, Inc., the predecessor owner of the
Company's Simplicity® business.

Mr. Reitman was elected to his current position
effective September 2016 (initially with the title Senior
Vice President & President - Global Support).
Previously he served as Senior Vice President &
President - Global Service from 2015 to 2016; as
Senior Vice President - Managing Director Europe &
Global Service from 2013 to 2015; as Senior Vice
President - Business Development & Customer
Service from 2010 to 2013; as Senior Vice President -
Sales & Customer Support from 2007 to 2010; as
Senior Vice President - Sales & Marketing from 2006
to 2007; as Vice President - Sales & Marketing from
2004 to 2006; and as Vice President - Marketing from
1995 to 2004.

Mr. Rodgers was elected to his current position
effective August 2015 (initially with the title Senior Vice
President & President - Engines Group). He previously
served as Senior Vice President & Chief Financial
Officer from 2010 to 2015 and as Vice President -
Finance during 2010. He served as Controller from
2006 to 2010 and was elected an executive officer in
2007. Prior to joining Briggs & Stratton, he was
employed by Roundy’s Supermarkets, Inc., a Midwest
grocer, as Vice President - Corporate Controller from
2005 to 2006 and Vice President - Retail Controller
from 2003 to 2005.

Mr. Schwertfeger was elected to his current position
effective August 2015. He previously served as Vice
President & Controller (an executive officer position)
from 2014 to 2015; as Corporate Controller from 2010
to 2014; and as International Controller from 2008 to
2010. Prior to joining Briggs & Stratton, he held the
position of Director with KPMG LLP., a public
accounting firm.

Mr. Zeiler was elected to his current position in August
2018, to be effective as of September 1, 2018. He
previously served as Vice President Product Innovation
(an appointed position) from January 2013 through
August 2018. Prior to joining Briggs & Stratton, he held
the position of Senior Vice President of Business
Development at Milwaukee Electric Tool Corp., a
manufacturer of heavy-duty power tools, accessories
and hand tools for professional users.

(1) Officer is also the Company's principal executive officer and a Director of Briggs & Stratton.
(2) Member of the Board of Directors Executive Committee.
(3) Officer also serves as the Company's principal compliance officer.
(4) Officer also serves as the Company's principal financial officer.

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

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Briggs & Stratton common stock is traded on the NYSE under the symbol “BGG”. Information required by this
Item is incorporated by reference from the “Quarterly Financial Data, Dividend and Market
Information" (unaudited), included in Item 8 of this report.

Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The table below sets forth the information with respect to purchases made by or on behalf of the Company of
its common stock during the quarterly period ended July 1, 2018.

2018 Fiscal Month
April 2, 2018 to April 29, 2018

April 30, 2018 to May 27, 2018

May 28, 2018 to July 1, 2018

Total Fourth Quarter

Total Number of
Shares Purchased

Average Price Paid
per Share

29,158

45,503

9,716

84,377

20.57

18.18

18.01

22.06

Total Number
of Shares Purchased
as Part of a
Publicly Announced
Program (1)

Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Program (1)

29,158

45,503

9,716

84,377

71,209,186

70,381,941

50,000,000

(1) On April 21, 2016, the Board of Directors authorized up to $50 million in funds for use in the common share repurchase
program with an expiration date of June 29, 2018. The common share repurchase program authorizes the purchase of shares of
the Company's common stock on the open market or in private transactions from time to time, depending on market conditions
and certain governing debt covenants. On April 25, 2018 the Board of Directors authorized an additional $50 million under the
share repurchase program with an expiration date of June 30, 2020.

Five-year Stock Performance Graph

The graph below shows the cumulative total stockholder return of an investment of $100 (and the
reinvestment of any dividends thereafter) at the close of business on June 30, 2013 in each of Briggs &
Stratton common stock, the Standard & Poor’s (S&P) Smallcap 600 Index and the S&P Machinery Index.

FIVE YEAR CUMULATIVE TOTAL RETURN COMPARISON
Briggs & Stratton versus Published Indices

$250

$200

$150

$100

$50

06/30/13

06/30/14

06/30/15

06/30/16

06/30/17

06/30/18

Briggs & Stratton Corp

S&P Smallcap 600 Index

S&P 500 Machinery (Diversified)

ITEM 6.

SELECTED FINANCIAL DATA

Fiscal Year
(dollars in thousands, except per share data)
SUMMARY OF OPERATIONS

NET SALES
GROSS PROFIT
PROVISION FOR INCOME TAXES
NET INCOME (LOSS)
EARNINGS (LOSS) PER SHARE OF COMMON

STOCK:
Basic
Diluted

PER SHARE OF COMMON STOCK:

Cash Dividends
Shareholders’ Investment

WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in 000’s)

DILUTED NUMBER OF SHARES OF

COMMON STOCK OUTSTANDING (in 000’s)

OTHER DATA

SHAREHOLDERS’ INVESTMENT
LONG-TERM DEBT
TOTAL ASSETS (5)
PLANT AND EQUIPMENT
PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION

PROVISION FOR DEPRECIATION
EXPENDITURES FOR PLANT AND EQUIPMENT
WORKING CAPITAL (5)
Current Ratio (5)

NUMBER OF EMPLOYEES AT YEAR-END
NUMBER OF SHAREHOLDERS AT YEAR-END
QUOTED MARKET PRICE:

High
Low

2018(1)

2017

2016(2)

2015(3)

2014(4)

$ 1,881,294
398,082
22,421
(11,320)

$ 1,786,103
383,829
23,011
56,650

$ 1,808,778
362,455
8,795
26,561

$ 1,894,750
359,099
11,271
45,687

$ 1,859,060
346,783
8,787
28,347

(0.28)
(0.28)

0.56
13.56

42,068

570,424
199,954
1,443,966
1,175,165

422,080
53,783
103,203
295,100
1.8 to 1
5,185
2,306

1.31
1.31

0.56
13.26

42,178

42,263

559,334
221,793
1,450,979
1,104,583

364,880
51,855
83,141
359,063
2.1 to 1
5,300
2,431

0.61
0.60

0.54
11.47

43,019

43,200

493,626
221,339
1,456,667
1,056,893

326,273
49,973
64,161
377,700
2.2 to 1
5,445
2,558

1.00
1.00

0.50
12.94

44,392

44,442

574,250
222,685
1,456,424
1,035,326

314,838
48,496
71,710
414,256
2.2 to 1
5,480
2,681

0.59
0.59

0.48
14.50

46,366

46,436

672,434
222,159
1,446,865
1,035,848

297,007
47,190
60,371
518,190
2.7 to 1
5,695
2,815

27.34
17.11

$
$

25.92
17.90

$
$

24.48
15.47

$
$

21.09
17.14

$
$

23.02
18.21

$
$

(1)

(2)

(3)

In fiscal 2018, the Company had business optimization expenses of $3.4 million after-tax or $0.08 per diluted share of non-
cash charges related primarily to plant & equipment impairment and accelerated depreciation, and $11.4 million after-tax or
$0.26 per diluted share of cash charges related primarily to employee termination benefits, lease terminations, professional
services and plant rearrangement activities, non-cash charges of $29.6 after-tax or $0.70 per diluted share related to the
pension settlement. The Company recognized in interest expense $1.6 million after-tax or $0.04 per diluted share for
premiums paid to repurchase senior notes after receiving unsolicited offers from bondholders. Tax expense also includes a
$21.1 million or $0.49 per diluted share charge associated with the Tax Cuts and Jobs Act of 2017
In fiscal 2016, the Company had restructuring charges of $6.7 million after-tax or $0.15 per diluted share, acquisition-related
charges of $0.2 million after-tax or less than $0.01 per diluted share, litigation charges of $1.8 million after-tax or $0.04 per
diluted share, goodwill and tradename impairment charges of $9.4 million after-tax or $0.22 per share, pension settlement
charges of $13.2 million after-tax or $0.30 per diluted share, and a gain on sale of investment in marketable securities of
$2.8 million after-tax or ($0.07) per diluted share.
In fiscal 2015, the Company had restructuring charges of $17.7 million after-tax or $0.40 per diluted share and acquisition-
related charges of $1.4 million after-tax or $0.03 per diluted share.

(4)

In fiscal 2014, the Company had goodwill and tradename impairment charges of $5.5 million after-tax or $0.12 per diluted
share and restructuring charges of $5.2 million after-tax or $0.11 per diluted share.

(5) As discussed in Note 3 and Note 7 in the Notes to Consolidated Financial Statements, the Company adopted Accounting
Standards Update No. 2015-17, and retrospectively reclassified current “Deferred Income Tax Assets" to "Long-term
Deferred Income Tax Assets” in the Selected Financial Data table.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Results of Operations

FISCAL 2018 COMPARED TO FISCAL 2017

The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results
by segment, excluding business optimization charges, pension settlement charges, charges as a result of the
implementation of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), and senior note repurchase premiums
(in thousands, except per share data):

Gross Profit:
Engines
Products

Inter-Segment Eliminations

Total

Engineering, Selling, General and
Administrative Expenses:

Engines
Products

Total

Equity in Earnings of Unconsolidated
Affiliates

Engines
Products
Total

Segment Income (3):

Engines

Products
Inter-Segment Eliminations

Total

2018
Reported

Adjustments(1)

For the fiscal year ended June

2018
Adjusted(2)

2017
Reported

Adjustments(1)

2017
Adjusted(2)

$ 252,645
144,933
504
$ 398,082

$ 247,201
126,944
$ 374,145

5,234

4,023
9,257

2,854
3,775
—

6,628

$ 255,499
148,708
504
$ 404,710

$ 262,036
121,141
652
$ 383,829

48,096

4,339
52,435

$ 199,105
122,605
$ 321,711

$ 184,496
113,042
$ 297,538

2,964

—
2,964

8,198

4,023
12,221

6,625

4,431
11,056

— $ 262,036
121,141
—
—
652
— $ 383,829

— $ 184,496
—
113,042
— $ 297,538

— $
—
— $

6,625

4,431
11,056

10,678

53,913

64,591

84,165

22,012

504
33,194

8,113

—
62,026

30,125

504
95,220

12,530

652
97,347

— $
—

—
— $

84,165
12,530

652
97,347

Interest Expense

$ (25,320) $

2,228

$ (23,092)

$ (20,293) $

— $ (20,293)

Income Before Income Taxes
Provision (Credit) for Income Taxes
Net Income (Loss)

11,101

22,421
$ (11,320) $

64,254
(2,836)
67,090

Earnings (Loss) Per Share

Basic

Diluted

(0.28) $
(0.28)

1.57
1.57

75,355

19,585
55,770

1.29
1.29

79,661

23,011
56,650

1.31
1.31

—

—
— $

79,661

23,011
56,650

— $
—

1.31
1.31

(1) For the twelve months of fiscal 2018, business optimization expenses include $4.8 million ($3.4 million after tax) of non-cash
charges related primarily to plant & equipment impairment and accelerated depreciation, and $16.1 million ($11.4 million after tax) of
cash charges related primarily to employee termination benefits, lease terminations, professional services and plant rearrangement
activities. ESG&A includes $41.2 million ($29.6 million after tax) of non-cash charges related to the pension settlement. Tax expense
also includes a $21.1 million charge associated with the Tax Cuts and Jobs Act of 2017 comprised of $13.8 million to revalue deferred
tax assets and liabilities and $7.3 million to record the impact of the inclusion of foreign earnings. The company recognized in interest
expense $2.2 million ($1.6 million after tax) for premiums paid to repurchase senior notes after receiving unsolicited offers from
bondholders. For the twelve months of fiscal 2017, there were no adjustments.
(2) Adjusted financial results are non-GAAP financial measures. The Company believes this information is meaningful to investors as
it isolates the impact that restructuring charges, acquisition-related charges, certain litigation charges, pension settlement charges,
gains on sale of marketable securities, and goodwill and tradename impairment charges have on reported financial results and
facilitates comparisons between peer companies. The Company may utilize non-GAAP financial measures as a guide in the
forecasting, budgeting, and long-term planning process. While the Company believes that adjusted financial results are useful
supplemental information, such adjusted financial results are not intended to replace its GAAP financial results and should be read in
conjunction with those GAAP results.
(3) The Company defines segment income (loss) as income from operations plus equity in earnings of unconsolidated affiliates. For
all periods presented, equity in earnings of unconsolidated affiliates is included in segment income (loss). Beginning with the third
quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings of unconsolidated affiliates as a separate line
item within Income from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated
affiliates is classified in Other Income, Net.

Net Sales

Consolidated net sales for fiscal 2018 were $1.88 billion. Consolidated net sales increased $95.2 million or
5.3% from fiscal 2017. Fiscal 2018 net sales of commercial products increased by approximately 16% to $505
million.

Engines segment net sales for fiscal 2018 were $1.06 billion, which was $32.5 million or 3.0% lower than the
prior year. Sales were lower in North America due to certain channel partners taking a cautious approach to
ordering inventory due to a delayed start of spring weather and a desire to further reduce channel inventory in
advance of anticipated brand transitions next season. Sales into Europe were lower due to customers taking
a cautious approach to ordering due to a delayed start of spring weather and the desire of certain channel
partners to reduce their inventory levels in advance of new emissions requirements on engines that begin in
calendar 2019. Partially offsetting the decrease were higher sales of Vanguard commercial engines.

Products segment net sales for fiscal 2018 were $904.0 million, an increase of $125.6 million or 16.1% from
the prior year. Net sales increased primarily due to higher sales of commercial lawn and garden and job site
equipment and generators, which included approximately $55 million in shipments related to hurricane activity
in fiscal 2018.

Gross Profit Percentageg

The consolidated gross profit percentage was 21.2% in fiscal 2018, a decrease of 30 basis points from fiscal
2017.

Included in consolidated gross profit for fiscal 2018 were pre-tax charges of $6.6 million related to the
business optimization program. Of these charges, $3.8 million was recorded in the Products segment, and
$2.8 million was recorded in the Engines segment.

The Engines segment gross profit percentage for fiscal 2018 was 23.7%, which was lower than the 23.8% in
fiscal 2017. Adjusted gross profit percentage (which only included adjustments in the current year) increased
20 basis points compared to last year due to manufacturing efficiency improvements. The improvement in
gross margins was offset by 8% lower production volumes. Higher pricing offset material and freight cost
increases.

The Products segment gross profit percentage for fiscal 2018 was 16.0%, which was higher than the 15.6% in
fiscal 2017. Adjusted gross profit percentage (which only included adjustments in the current year) increased
80 basis points year over year due to the contribution margin from hurricane-related sales, favorable sales

mix from proportionately higher sales of commercial products and higher pricing. The margin improvement
was partially offset by a reduction in manufacturing throughput of approximately 3.5% and higher freight
costs.

Engineering, Selling, General and Administrative Expenses

Engineering, selling, general and administrative expenses were $374.1 million in fiscal 2018, an increase of
$76.6 million or 25.7% from fiscal 2017.

Included in engineering, selling, general and administrative for fiscal 2018 were pre-tax charges of $52.4
million related to the business optimization program and pension settlement charges. Of these charges, $4.3
million was recorded in the Products segment for the business optimization program, and $48.1 million was
recorded in the Engines segment for the business optimization program and pension settlement.

The Engines segment engineering, selling, general and administrative expenses were $247.2 million in fiscal
2018, or $62.7 million higher compared to fiscal 2017, primarily due to a $41.2 million pension settlement
charge and $6.9 million of business optimization program charges in fiscal 2018. Adjusted engineering,
selling, general and administrative expenses (which only included adjustments in the current year) were $14.6
million higher than fiscal 2017, primarily due to $2.9 million of higher spending related to the ERP upgrade,
higher marketing costs, and funding growth initiatives.

The Products segment engineering, selling, general and administrative expenses were $126.9 million in fiscal
2018, an increase of $13.9 million from fiscal 2017. Adjusted engineering, selling, general and administrative
expenses (which only included adjustments in the current year) were $9.6 million higher than fiscal 2017,
primarily due to increased sales commissions, increased spend related to the ERP upgrade, higher marketing
costs, and funding growth initiatives.

Interest Expense

Interest expense for fiscal 2018 was $25.3 million, which was $5.0 million higher than fiscal 2017 due to
premiums paid to repurchase senior notes after receiving unsolicited offers. Adjusted interest expense (which
only included adjustments in the current year) was $2.8 million higher than fiscal 2017 primarily due to
increased average net borrowings and higher interest rates.

Provision for Income Taxes

On December 22, 2017, the U.S. government enacted significant tax legislation commonly referred to as the
Tax Act. As a result of the Tax Act, the Company was subject to a U.S. federal statutory corporate income tax
rate of 28% for the fiscal year ending July 1, 2018 and a U.S. federal statutory corporate income tax rate of
21% in future fiscal years. Overall, the Company anticipates the decrease in the U.S. federal statutory rate
resulting from the enactment of the Tax Act will have favorable impact on our future consolidated tax expense
and operating cash flows.

Within the calculation of the Company’s tax rate, various assumptions and estimates have been used that
may change as a result of future guidance, interpretation, and legislation from the Internal Revenue Service,
the SEC, the Financial Accounting Standards Board (“FASB”) and/or various other taxing jurisdictions. For
example, the Company anticipates that U.S. state jurisdictions will continue to determine and announce their
conformity to the Tax Act which could have an impact on the Company’s tax rate. The Tax Act contains many
significant changes to U.S. tax laws, the consequences of which have not yet been fully determined.

In the second quarter of fiscal 2018, the Company removed its permanent reinvestment

of approximately $18 million. The Company has recorded the estimated tax impact in its financial statements
and continues to evaluate its cash needs and strategic opportunities to repatriate cash.

The Company continues to review the anticipated tax impacts of provisions of the Tax Act which are not
effective until its fiscal year 2019 as well, including but not limited to global intangible low taxed income
(“GILTI”) and base erosion anti-abuse tax (“BEAT”). Changes in corporate tax rates, the deferred tax assets
and liabilities relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of
expenses contained in the Tax Act or other future tax legislation could have a material impact on our future
consolidated tax expense.

Business Optimization Program

The Company made progress on implementing its previously announced business optimization program
during fiscal 2018. The program is designed to drive efficiencies and expand capacity in commercial engines
and cutting equipment. The program entails expanding production of Vanguard commercial engines into the
Company’s existing large engine plants, which are located in Georgia and Alabama, expanding Ferris
commercial mower production capacity in a new, modern facility which is located close to the current
manufacturing facility in New York, and the implementation of an ERP upgrade.

Production of Vanguard engines in the Company’s U.S. plants began in the fourth quarter of fiscal 2018 and is
expected to be phased in through the middle of fiscal 2019. Currently, the majority of Vanguard engines are
sourced from overseas. Production of Ferris commercial mowers began in the new facility in the fourth quarter
of fiscal 2018, and the exit from the existing plant and remote warehouse is planned for fiscal 2019. The
business optimization program also includes the project costs for the integration and go-live efforts associated
with the Company’s ERP upgrade and the anticipated operational excellence efficiency improvements. The
Company went live with the ERP upgrade on July 9, 2018.

For fiscal 2018, the Company recorded business optimization charges of $20.9 million ($14.8 million after tax
or $0.34 per diluted share). Total pre-tax expenses related to the business optimization program are expected
to be approximately $50 million to $55 million. The business optimization program is projected to generate
$30 million to $35 million of ongoing future annual pre-tax savings, in addition to supporting profitable
commercial growth. The Company estimates the future annual savings will be achieved over a three-year
period beginning in fiscal 2019.

FISCAL 2017 COMPARED TO FISCAL 2016

The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results
by segment, excluding restructuring charges, acquisition-related charges, litigation charges, pension
settlement charges, goodwill and tradename impairments, and a gain on the sale of investment in marketable
securities (in thousands, except per share data):

For the fiscal year ended June

2017
Reported

Adjustments(1)

2017
Adjusted (2)

2016
Reported

Adjustments(1)

2016
Adjusted (2)

Gross Profit:
Engines

Products

Inter-Segment Eliminations

Total

Engineering, Selling, General and
Administrative Expenses:

Engines

Products
Total

Segment Income (Loss) (3):

Engines

Products
Inter-Segment Eliminations

Total

Reconciliation from Segment Income (Loss)
to Income Before Income Taxes:
Equity in Earnings of Unconsolidated
Affiliates (3)

Income from Operations

Income Before Income Taxes

Provision for Income Taxes
Net Income

Earnings Per Share

Basic

Diluted

$ 262,036
121,141
652
$ 383,829

$ 184,496
113,042
$ 297,538

84,165
12,530

652
97,347

—
97,347

79,661
23,011
56,650

1.31
1.31

— $ 262,036
121,141
—
—
652
— $ 383,829

$ 252,833
110,944
(1,322)
$ 362,455

11,599

7,943
—

19,542

$ 264,432
118,887
(1,322)
$ 381,997

— $ 184,496
—
113,042
— $ 297,538

$ 193,716
111,766
$ 305,482

— $
—

—
— $

84,165
12,530

652
97,347

—
— $

—
97,347

—
—
— $

79,661
23,011
56,650

— $
— $

1.31
1.31

60,645
(9,775)
(1,322)
49,548

3,187
46,361

35,356
8,795
26,561

0.61
0.60

11,935
26

11,961

$ 181,781
111,740
$ 293,521

24,424
19,451

—
43,875

40,532
12,104
28,428

0.64
0.65

$
$

85,069
9,676
(1,322)
93,423

3,187
90,236

75,888
20,899
54,989

1.25
1.25

(1) For the fiscal year ended July 2, 2017, there were no adjustments. For the fiscal year ended July 3, 2016, includes pre-tax
restructuring charges of $10,195 ($6,672 after tax), goodwill impairment charge of $7,651 which is not deductible for income tax
purposes, pre-tax tradename impairment charge of $2,683 ($1,771 after tax), pre-tax acquisition-related charges of $276 ($180 after
tax), pre-tax litigation charges of $2,825 ($1,836 after tax), pre-tax pension settlement charges of $20,245 ($13,160 after tax), and a
pre-tax gain on the sale of an investment in marketable securities of $3,343 ($2,842 after tax).
(2) Adjusted financial results are non-GAAP financial measures. The Company believes this information is meaningful to investors as
it isolates the impact that restructuring charges, acquisition-related charges, certain litigation charges, pension settlement charges,
gains on sale of marketable securities, and goodwill and tradename impairment charges have on reported financial results and
facilitates comparisons between peer companies. The Company may utilize non-GAAP financial measures as a guide in the
forecasting, budgeting, and long-term planning process. While the Company believes that adjusted financial results are useful

supplemental information, such adjusted financial results are not intended to replace its GAAP financial results and should be read in
conjunction with those GAAP results.
(3) The Company defines segment income (loss) as income from operations plus equity in earnings of unconsolidated affiliates. For
all periods presented, equity in earnings of unconsolidated affiliates is included in segment income (loss). Beginning with the third
quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings of unconsolidated affiliates as a separate line
item within Income from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated
affiliates is classified in Other Income, Net.

Net Sales

Consolidated net sales for fiscal 2017 were $1.79 billion. Consolidated net sales decreased $23 million or
1.3% from fiscal 2016. Fiscal 2017 net sales of commercial products increased by approximately 7% to $434
million.

Engines segment net sales for fiscal 2017 were $1.1 billion, which was $44.0 million or 3.9% lower than the
prior year. Net sales decreased primarily due to lower shipments of engines in North America due to channel
partners taking a different approach to merchandising and inventory stocking this season compounded by
regional pockets of suboptimal spring weather. Partially offsetting the decrease were higher sales of Vanguard
commercial engines.

Products segment net sales for fiscal 2017 were $778 million, an increase of $6.2 million or 0.8% from the
prior year. Net sales increased primarily due to higher sales of commercial lawn & garden and job site
equipment and generators, which includes the higher shipments related to Hurricane Matthew. Pressure
washer sales decreased due to lesser category merchandising support at retail and cool spring temperatures.

Gross Profit Percentageg

The consolidated gross profit percentage was 21.5% in fiscal 2017, an increase of 150 basis points from fiscal
2016.

Included in consolidated gross profit for fiscal 2016 were pre-tax charges of $8.1 million related to
restructuring actions, $0.3 million related to acquisition-related charges recorded in the Products segment,
and $11.1 million of pension settlement expense recorded in the Engines segment.

The Engines segment gross profit percentage for fiscal 2017 was 23.8%, which was higher than the 22.1% in
fiscal 2016. Adjusted gross profit percentage (which only included adjustments in the prior year) increased 70
basis points compared to the prior year despite lower production of 5% year over year due to manufacturing
efficiency improvements and favorable sales mix including a higher proportion of commercial engine sales
and margin lift on new products.

The Products segment gross profit percentage for fiscal 2017 was 15.6%, which was higher than the 14.4% in
fiscal 2016. Adjusted gross profit percentage (which only included adjustments in the prior year) increased 20
basis points compared to the prior year due to favorable sales mix, which included higher sales of commercial
products. The profitability improvement was achieved despite 8% lower production throughput.

Engineering, Selling, General and Administrative Expenses

Engineering, selling, general and administrative expenses were $297.5 million in fiscal 2017, a decrease of
$7.9 million or 2.6% from fiscal 2016.

The Engines segment engineering, selling, general and administrative expenses were $184.5 million in fiscal
2017, or $9.2 million lower compared to fiscal 2016, primarily due to $9.1 million of pension settlement
charges and $2.8 million of litigation charges in fiscal 2016. Adjusted engineering, selling, general and
administrative expenses (which only included adjustments in the prior year) were $2.7 million higher than
fiscal 2016, primarily due to $4.0 million of higher spend related to an ERP system upgrade.

The Products segment engineering, selling, general and administrative expenses were $113.0 million in fiscal
2017, an increase of $1.3 million from fiscal 2016 primarily due to $1.3 million of higher spend related to an
ERP system upgrade.

Interest Expense

Interest expense for fiscal 2017 was $20.3 million, which was $0.3 million higher than fiscal 2016, due to
higher borrowings on the Revolver during fiscal 2017.

Provision for Income Taxes

The effective tax rate for fiscal 2017 was 28.9%, compared to 24.9% in fiscal 2016. The tax rates for fiscal
2017 and 2016 were lower than the statutory rates primarily due to the U.S. research and development tax
credit and foreign earnings in jurisdictions with tax rates that vary from the U.S. statutory rate. The tax rate for
fiscal 2017 was also impacted by the reversal of previously recorded reserves as the result of the effective
settlement of the Company’s IRS audit for its fiscal year 2010 and 2013 consolidated income tax returns and
the establishment of a valuation allowance against the deferred tax assets of the Company’s Brazilian
subsidiary.

Other Information

Prior to January 1, 2017, Briggs & Stratton Power Products Group, LLC was a wholly owned subsidiary of
Briggs & Stratton Corporation. On January 1, 2017, Briggs & Stratton Power Products Group, LLC was
merged with and into Briggs & Stratton Corporation.

Liquidity and Capital Resources

FISCAL YEARS 2018, 2017 AND 2016

Cash flows provided by operating activities for fiscal 2018 were $93 million compared to $90 million in fiscal
2017. The increase in cash provided by operating activities was primarily related to changes in working
capital, including more rapid collections of accounts receivable partially offset by higher inventory levels due
to timing of shipments. The improvement in operating cash flows was partially offset by a $30 million voluntary
contribution made to the pension plan in the third quarter of fiscal 2018.

Cash flows provided by operating activities for fiscal 2017 were $90 million compared to $115 million in fiscal
2016. The decrease in cash provided by operating activities was primarily related to changes in working
capital, including higher accounts receivable due to timing of sales and collections year over year.

Net cash used in investing activities was $109 million, $79 million, and $86 million in fiscal 2018, 2017 and
2016, respectively. These cash flows include capital expenditures of $103 million, $83 million, and $64 million
in fiscal 2018, 2017 and 2016, respectively. The capital expenditures related primarily to investment in the
ERP system upgrade, reinvestment in equipment, and new products and technology. In fiscal 2016,
approximately $19 million of cash was used for an increased investment in an unconsolidated affiliate.

Net cash provided by (used in) financing activities was $0.4 million, ($39) million, and ($55) million in fiscal
2018, 2017 and 2016, respectively. In fiscal 2018, the Company repurchased treasury stock at a total cost of
$10 million compared to $20 million and $37 million of stock repurchases in fiscal 2017 and 2016,
respectively. In fiscal 2018, 2017, and 2016, the Company received proceeds and tax benefits of $4 million,
$8 million, and $12 million, respectively, from the exercise of stock options. The Company paid cash dividends
on its common stock of $24 million in each of fiscal 2018, 2017 and 2016. In fiscal 2018, cash used for
financing activities was offset by cash provided by net revolver borrowings of $48 million and a long term note
payable related to New Market Tax Credits of $8 million.

Given the Company's international operations, a portion of the Company's cash and cash equivalents is held
in non-U.S. subsidiaries. The Company is in the process of evaluating its permanent reinvestment assertions
since the Tax Act may provide opportunity to repatriate overseas cash to the U.S. at a lower tax cost. As of

July 1, 2018, approximately $36 million of the Company's $45 million of cash and cash equivalents was held
in non-U.S. subsidiaries.

Future Liquidity and Capital Resources

On December 20, 2010, the Company issued $225 million of 6.875% Senior Notes ("Senior Notes") due
December 15, 2020. During fiscal 2018 and 2016, the Company repurchased $22 million and $2 million,
respectively, of the Senior Notes after receiving unsolicited offers from bondholders. There were no
repurchases in fiscal 2017.

The Senior Notes and the Revolver contain restrictive covenants. These covenants include restrictions on the
ability of the Company and/or certain subsidiaries to pay dividends, repurchase equity interests of the
Company and certain subsidiaries, incur indebtedness, create liens, consolidate, merge and dispose of
assets, and enter into transactions with affiliates. The Revolver contains financial covenants that require the
Company to maintain a minimum interest coverage ratio and impose on the Company a maximum average
leverage ratio. As of July 1, 2018, the Company was in compliance with these covenants.

On April 21, 2016, the Board of Directors authorized $50 million in funds for use in the common share
repurchase program which expired on June 29, 2018. On April 25, 2018, the Board of Directors authorized an
additional $50 million in funds for use in the common share repurchase program expiring June 30, 2020. As of
July 1, 2018, the total remaining authorization was $50 million. Share repurchases, among other things, allow
the Company to offset any potentially dilutive impacts of share-based compensation. The common share
repurchase program authorizes the purchase of shares of the Company's common stock on the open market
or in private transactions from time to time, depending on market conditions and certain governing debt
covenants. In fiscal 2018, the Company repurchased 467,183 shares on the open market at a total cost of
$10.3 million, or $22.07 per share. There were 995,655 shares repurchased in fiscal 2017 at a total cost of
$19.7 million, or $19.77 per share.

The Company expects capital expenditures to be approximately $65 million in fiscal 2019. These anticipated
expenditures reflect the Company's business optimization program as well as continued reinvestment in
efficient equipment and innovative new products.

During fiscal 2018, the Company made $30 million in voluntary cash contributions to the qualified pension
plan. Based upon current regulations and actuarial studies the Company is required to make no minimum
contributions to the qualified pension plan in fiscal 2019, but the Company may choose to make discretionary
contributions. The Company may be required to make further required contributions in future years or the
future expected funding requirements may change depending on a variety of factors including the actual
return on plan assets, the funded status of the plan in future periods, and changes in actuarial assumptions or
regulations.

Management believes that available cash, cash generated from operations, existing lines of credit and access
to debt markets will be adequate to fund the Company’s capital requirements and operational needs for the
foreseeable future.

Financial Strategy

Management believes that the value of the Company is enhanced if the capital invested in operations yields a
cash return that is greater than the cost of capital. Management maintains a balanced approach to capital
allocation. The balance is amongst the following areas: reinvesting capital into physical assets and products
that maintain or grow the global cost leadership and market positions that the Company has achieved and
drive the economic value of the Company, identifying strategic acquisitions or alliances that may enhance

revenues and provide a higher economic return, and returning capital to shareholders through dividends and/
or share repurchases.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements or significant guarantees to third parties not fully
recorded in its Consolidated Balance Sheets or fully disclosed in its Notes to Consolidated Financial
Statements. The Company’s significant contractual obligations include debt agreements and certain
employee benefit plans.

Contractual Obligations

A summary of the Company’s expected payments for significant contractual obligations as of July 1, 2018 is
as follows (in thousands):

Long-Term Debt
Interest on Long-Term Debt
Operating Leases
Purchase Obligations
Other Liabilities (a)

Total

Fiscal
2019

Fiscal
2020-2021

Fiscal
2022-2023

Thereafter

200,888
34,527
104,334
42,175
94,000
475,924

— $

13,811
16,080
40,789
—
70,680

200,888
20,716
23,648
1,386
—
246,638

— $
—
14,517
—
30,000
44,517

—
—
50,089
—
64,000
114,089

(a)

Includes an estimate of future expected funding requirements related to the Company's pension plans. Funding requirements
related to pension plans are based upon current regulations and actuarial studies. The amounts included may change in the
future depending on a variety of factors including the actual return on plan assets, the funded status of the plan in future periods,
and changes in actuarial assumptions or regulations. Any further funding requirements for pension plans beyond fiscal 2027
cannot be estimated at this time. Because their future cash outflows are uncertain, liabilities for unrecognized tax benefits and
other sundry items are excluded from the table above.

Critical Accounting Policies

The Company’s accounting policies are described in Note 2 of the Notes to Consolidated Financial
Statements. As discussed in Note 2, the preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions
about future events that affect the amounts reported in the financial statements and accompanying notes.
Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and
such differences may be material to the financial statements.

The Company believes the following critical accounting policies represent the more significant judgments and
estimates used in preparing the consolidated financial statements.

Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities
assumed arising from business combinations. Goodwill is not amortized. The Company evaluates goodwill
and other indefinite-lived intangible assets for impairment annually as of the end of the fourth fiscal quarter,
and more frequently if events or circumstances indicate that the assets may be impaired.

The Company tests goodwill using a two-step process. The first step of the goodwill impairment test is to
identify a potential impairment by comparing the carrying values of each of the Company's reporting units to
their estimated fair values as of the test dates. The estimates of fair value of the reporting units are computed
using either an income approach, a market approach, or a combination of both. The income approach utilizes
a multi-year forecast of estimated cash flows and a terminal value at the end of the cash flow period. The
forecast period assumptions consist of internal projections that are based on the Company's budget and long-
range strategic plan. The discount rate used at the test date is the weighted-average cost of capital which
reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would
expect to earn. Valuations using the market approach are derived from metrics of publicly traded companies

or historically completed transactions of comparable businesses. The selection of comparable businesses is
based on the markets in which the reporting units operate giving consideration to risk profiles, size,
geography, and diversity of products and services.

If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not deemed
impaired and the second step of the impairment test is not performed. If the book value of a reporting unit
exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of
impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the
reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is
determined by allocating the estimated fair value of the reporting unit to the estimated fair value of its existing
tangible assets and liabilities as well as existing identified intangible assets and previously unrecognized
intangible assets in a manner similar to a purchase price allocation. The unallocated portion of the estimated
fair value of the reporting unit is the implied fair value of goodwill. If the carrying amount of the reporting unit’s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal
to that excess.

The Company performed the annual impairment test on all of its reporting units as of July 1, 2018. A
quantitative test indicated that the estimated fair value of the Engines reporting unit exceeded its
corresponding carrying amount, including recorded goodwill, and as such, no impairment existed. At July 1,
2018, the Engines reporting unit had $137.4 million of goodwill.

The Company also performed a quantitative impairment test over its Products reportable segment, which
consists of three reporting units, specifically Turf & Consumer, Standby Generators, and Job Site reporting
units. The Standby Generators reporting unit does not have goodwill.

The impairment testing performed by the Company at July 1, 2018 indicated that the estimated fair value of
the Turf & Consumer reporting unit exceeded its corresponding carrying amount, including recorded goodwill,
and as such, no impairment existed. At July 1, 2018, the Turf & Consumer reporting unit had $13.8 million of
goodwill.

The impairment testing performed by the Company at July 1, 2018 indicated that the estimated fair value of
the Job Site reporting unit exceeded its corresponding carrying amount, including recorded goodwill, and as
such, no impairment existed. At July 1, 2018, the Job Site reporting unit had $12.0 million of goodwill.

The assumptions included in the impairment test require judgment, and changes to these inputs could impact
the results of the calculation. Other than management’s internal projections of future cash flows, the primary
assumptions used in the impairment test were the weighted-average cost of capital and long-term growth
rates.

Qualitative assessments of goodwill and quantitative assessments of goodwill and tradenames involve
significant judgments by management. Although the Company’s cash flow forecasts are based on
assumptions that are considered reasonable by management and consistent with the plans and estimates
management is using to operate the underlying businesses, there is significant judgment in determining the
expected future cash flows attributable to these businesses. Changes in such estimates or the application of
alternative assumptions could produce significantly different results.

Tradenames are not amortized. If impairment occurs, the impaired amount of the tradename is written off
immediately. For purposes of the tradename impairment analysis, the Company performs its assessment of
fair value based on an income approach using the relief-from-royalty method. This methodology assumes
that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits
of these types of assets. The Company determines the fair value of each tradename by applying a royalty rate
to a projection of net sales discounted using a risk adjusted cost of capital. The Company believes the relief-
from-royalty method to be an acceptable methodology due to its common use by valuation specialists in
determining the fair value of intangible assets. Sales growth rates are determined after considering current
and future economic conditions, recent sales trends, discussions with customers, planned timing of new
product launches and many other variables. Each royalty rate is based on profitability of the business to which
it relates and observed market royalty rates.

As discussed in Note 6 to the consolidated financial statements, the Company performed the annual
impairment test on its indefinite-lived intangible assets as of July 1, 2018 and determined that no indefinite-
lived intangible asset impairment existed. The assumptions included in the impairment test require judgment,
and changes to these inputs could impact the results of the calculation.

Definite-lived intangible assets consist primarily of customer relationships and patents. These definite-lived
intangible assets are amortized over their estimated useful lives and are subject to impairment testing if
events or changes in circumstances indicate that an asset may be impaired.

Pension and Other Postretirement Plans

The pension benefit obligation and related pension expense or income are impacted by certain actuarial
assumptions, including the discount rate, mortality tables, and the expected rate of return on plan assets.
These rates are evaluated on an annual basis considering such factors as market interest rates and historical
asset performance. Actuarial valuations at July 1, 2018 used a discount rate of 4.30% and the determination
of fiscal 2018 expense used an expected rate of return on plan assets of 7.10%. The discount rate was
selected using a methodology that matches plan cash flows with a selection of Standard and Poor’s AA or
higher rated bonds, resulting in a discount rate that better matches a bond yield curve with comparable cash
flows. A 0.25% decrease in the discount rate would decrease annual pension service and interest costs by
approximately $1.6 million. A 0.25% decrease in the expected return on plan assets would increase annual
pension service and interest costs by approximately $2.2 million. In estimating the expected return on plan
assets, the Company considers the historical returns on plan assets, adjusted for forward looking
considerations, including inflation assumptions and active management of the plan’s invested assets, knowing
that investment performance has been in the top decile compared to other plans. Changes in the discount
rate, mortality tables, and return on assets can have a significant effect on the funded status of the pension
plans, shareholders' investment and related expense. The Company cannot predict these changes in discount
rates or investment returns and, therefore, cannot reasonably estimate whether the impact in subsequent
years will be significant.

The funded status of the Company’s pension plan is the difference between the projected benefit obligation
and the fair value of its plan assets. The projected benefit obligation is the actuarial present value of all
benefits expected to be earned by the employees’ service adjusted for future potential wage increases. At
July 1, 2018 and July 2, 2017, the fair value of plan assets was less than the projected benefit obligation by
approximately $193 million and $246 million, respectively.

During the fourth quarter of fiscal 2018, the Company annuitized a portion of the qualified pension plan
obligation which removed approximately $100 million of pension benefit obligation and offsetting assets. This
transaction resulted in a non-cash pre-tax charge of $41.2 million ($29.6 million after tax) during 2018.

In 2012, the Board of Directors of the Company authorized an amendment to the Company's defined benefit
retirement plans for U.S. non-bargaining employees. The amendment froze accruals for all non-bargaining
employees effective January 1, 2014.

The other postretirement benefits obligation and related expense or income are impacted by certain actuarial
assumptions, including the health care trend rate. An increase of one percentage point in health care costs
would increase the accumulated postretirement benefit obligation by $0.9 million and would increase the
service and interest cost by $49 thousand. A corresponding decrease of one percentage point would
decrease the accumulated postretirement benefit by $1.0 million and decrease the service and interest cost
by $51 thousand.

For pension and postretirement benefits, actuarial gains and losses are accounted for in accordance with U.S.
GAAP. Refer to Note 15 of the Notes to the Consolidated Financial Statements for additional discussion.

Contingent Liabilities

The Company has contingent liabilities related to litigation and claims that arise in the normal course of
business. The Company accrues for contingent liabilities when management determines it is probable that a
liability has been incurred and the amount can be reasonably estimated. Liabilities are recorded based on
management’s current judgments as to the probable and reasonably estimable outcome of the contingencies.
To the extent that management’s future judgments related to the outcome of the contingencies differ from
current expectations or as additional information becomes available, earnings could be impacted in the period
such changes occur. See Note 12, “Commitments and Contingencies,” to the Consolidated Financial
Statements for a description of these matters.

New Accounting Pronouncements

Refer to Note 3 of the Notes to the Consolidated Financial Statements.

Other Matters

g
Labor Agreements

The Company has collective bargaining agreements with its unions. These collective bargaining agreements
cover approximately 10% of the total employees as of July 1, 2018. The Labor Agreement with United
Steelworkers Local 2-232 expired on July 31, 2017. This agreement covered 424 hourly employees in the
Wauwatosa, Milwaukee and Menomonee Falls, Wisconsin facilities. The Company and the union have met
and the Company implemented its final offer to the Union on June 14, 2018, but remains hopeful that the
parties will continue to work together to reach a new agreement. At the present time the Company does not
anticipate a work stoppage. The Company has another collective bargaining agreement with its remaining
union workforce which expires during calendar 2020.

Emissions

The United States Environmental Protection Agency (EPA) has adopted multiple stages of emission
regulations for small air cooled engines. The Company currently has a full product offering that complies with
the standards in those regulations.

Canada has recently adopted an updated regulation aligning its requirements to US EPA Phase 3, fully taking
effect January 1, 2019 for Briggs & Stratton. The Company does not anticipate that compliance with these
revisions will have a material adverse effect on its financial position or operations, as they will be substantially
similar to the existing EPA standards.

The California Air Resources Board (CARB) made revisions to its existing evaporative emission regulations
for small off road engines. The Company does not anticipate that compliance with these revisions will have a
material adverse effect on its financial position or operations. CARB has also announced its 2030 Plan which
contemplates changing the emission regulations for all mobile sources, however no date of implementation or
expectation of emission reductions has been formally announced.

The European Union has adopted multiple stages of emission standards for small air cooled engines and will
be implementing regulations in 2019 that align with the EPA's Phase 3 standards. The Company does not
anticipate that compliance with these revisions will have a material adverse effect on its financial position or
operations as they are substantially similar to the EPA's existing standards.

Australia has released an emission regulation aligning requirements with EU Stage II, EU Stage V and EPA
Phase 3 requirements beginning July 1, 2018.The Company does not anticipate that compliance with these
new regulations will have a material adverse effect on its financial position or operations as they are expected
to be substantially similar to EPA standards.

China announced that it will be adopting exhaust and evaporative emission regulations for small air cooled
engines that align with the EPA's Phase 3 standards to be effective in 2020. The Company does not

anticipate that compliance with these standards will have a material adverse effect on its financial position or
operations as they are expected to be substantially similar to the EPA's Phase 3 standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk stemming from changes in foreign exchange rates, commodity prices
and interest rates. The Company uses financial instruments to minimize earnings and cash flow volatility
associated with changes in certain foreign exchange rates, commodity prices and interest rates. The
Company does not hold or issue financial instruments for trading purposes. The Company is also exposed to
equity market risk pertaining to the trading price of the common stock.

Foreign Currency

In the normal course of business, the Company actively manages the exposure of foreign currency exchange
rate market risk by entering into financial instruments with highly rated counterparties. The Company’s
earnings are affected by fluctuations in the value of the U.S. Dollar against various currencies. The Company
receives Euros for certain products sold to European customers and receives Canadian dollars for certain
products sold to Canadian customers. The Yen and Renminbi are used to purchase engines from the
Company's joint venture in Japan and the Company's subsidiary in China, respectively. The Company's
foreign subsidiaries’ earnings are also influenced by fluctuations of local currencies, including the Australian
dollar and Brazilian Real, against the U.S. dollar as these subsidiaries purchase components and inventory
from vendors and the parent in U.S. dollars. Forward foreign exchange contracts are used to partially hedge
against the earnings effects of such fluctuations.

At July 1, 2018, the Company had the following forward foreign exchange contracts outstanding with the
notional value shown in local currency and the fair value and fair value (gains) losses shown in U.S. dollars (in
thousands):

Hedge
Currency
Australian Dollar
Brazilian Real
Canadian Dollar
Chinese Renminbi
Euro
Japanese Yen

Notional
Value

Fair Value

35,833
28,822
14,430
62,209
32,592
587,500

$
$
$
$
$
$

26,558
7,571
11,020
9,324
38,603
5,324

Conversion
Currency
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.

$
$
$
$
$
$

(Gain) Loss
at Fair Value

(1,322)
(889)
(373)
(90)
(1,045)
—

Amounts invested in the Company's non-U.S. subsidiaries and joint ventures are translated into U.S. dollars
at the exchange rates in effect at fiscal year-end. The resulting cumulative translation adjustments are
recorded in Shareholders’ Investment as Accumulated Other Comprehensive Income (Loss). The cumulative
translation adjustments component of Shareholders’ Investment decreased by $4.2 million during fiscal 2018.
Using the year-end exchange rates, the total amount invested in non-U.S. subsidiaries on July 1, 2018 was
approximately $293.1 million.

Commodity Prices

The Company is exposed to fluctuating market prices for commodities, including steel, natural gas, and
aluminum. The Company has established programs to manage commodity price fluctuations through financial
and physical contracts. The maturities of these contracts coincide with the expected usage of the
commodities for periods up to the next thirty-six months.

At July 1, 2018 the Company had the following outstanding commodity derivative contracts with the fair value
(gains) losses shown (in thousands):

Hedge
Commodity
Natural Gas (Therms)

Interest Rates

Notional
Value

Fair Value

(Gain) Loss
at Fair Value

10,553

3,392

(8)

The Company is exposed to interest rate fluctuations on its borrowings, depending on general economic
conditions. On July 1, 2018, long-term loans consisted of the following (in thousands):

Description
6.875% Senior Notes

Amount

200,888

Maturity
December 2020

Interest Rate
6.875%

The Senior Notes carry a fixed rate of interest and are therefore not subject to market fluctuation.

The Company is also exposed to interest rate risk associated with programs under which the Company
shares the expense of financing certain dealer and distributor inventories through third party financing
sources. The Company enters into interest rate swaps to manage a portion of this interest rate risk. The
swaps are designated as cash flow hedges and are used to effectively fix the interest payments to a third
party financing source, exclusive of lender spreads, ranging from 0.98% to 2.00% for a notional principal
amount of $110 million with expiration dates ranging from May 2019 to December 2021.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Consolidated Balance Sheets, July 1, 2018 and July 2, 2017

For the Fiscal Years Ended July 1, 2018, July 2, 2017, and July 3, 2016:

Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

FINANCIAL STATEMENT SCHEDULES

Schedule II – Valuation and Qualifying Accounts

Consolidated Balance Sheets

AS OF JULY 1, 2018 AND JULY 2, 2017
(in thousands)

ASSETS

2018

2017

CURRENT ASSETS:

Cash and Cash Equivalents
Receivables, Less Reserves of $2,608 and $2,645, Respectively
Inventories:

Finished Products
Work in Process
Raw Materials

Total Inventories

Prepaid Expenses and Other Current Assets

Total Current Assets

GOODWILL
INVESTMENTS
OTHER INTANGIBLE ASSETS, Net
LONG-TERM DEFERRED INCOME TAX ASSET
OTHER LONG-TERM ASSETS, Net
PLANT AND EQUIPMENT:

Land and Land Improvements
Buildings
Machinery and Equipment
Construction in Progress

Less - Accumulated Depreciation

Total Plant and Equipment, Net

44,923
182,801

290,108
111,409
10,314
411,831
39,651
679,206
163,200
50,960
95,864
12,149
20,507

15,188
134,896
879,535
145,546
1,175,165
753,085
422,080
1,443,966

61,707
230,011

265,720
102,187
6,972
374,879
22,844
689,441
161,649
51,677
100,595
64,412
18,325

15,179
135,226
867,445
86,733
1,104,583
739,703
364,880
1,450,979

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
35

AS OF JULY 1, 2018 AND JULY 2, 2017
(in thousands, except per share data)

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

2018

2017

CURRENT LIABILITIES:

Accounts Payable
Short-Term Debt
Accrued Liabilities:

Wages and Salaries
Warranty
Accrued Postretirement Health Care Obligation
Other

Total Accrued Liabilities

Total Current Liabilities
ACCRUED PENSION COST
ACCRUED EMPLOYEE BENEFITS
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION
ACCRUED WARRANTY
OTHER LONG-TERM LIABILITIES
LONG-TERM DEBT
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ INVESTMENT:

Common Stock -

Authorized 120,000 Shares $.01 Par Value, Issued 57,854 Shares

Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock at Cost, 15,237 and 15,074 Shares, Respectively

Total Shareholders’ Investment

204,173
48,036

41,136
29,546
8,418
52,797
131,897
384,106
189,872
20,196
30,186
15,781
33,447
199,954

193,677
—

43,061
28,640
9,755
55,245
136,701
330,378
242,908
21,897
35,132
14,468
25,069
221,793

579
76,408
1,071,480
(252,272)
(325,771)
570,424
1,443,966

579
73,562
1,107,033
(300,026)
(321,814)
559,334
1,450,979

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
36

Consolidated Statements of Operations

FOR THE FISCAL YEARS ENDED JULY 1, 2018, JULY 2, 2017 AND JULY 3, 2016
(in thousands, except per share data)

NET SALES
COST OF GOODS SOLD
RESTRUCTURING CHARGES

Gross Profit

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES

RESTRUCTURING CHARGES
GOODWILL IMPAIRMENT
TRADENAME IMPAIRMENT
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES

Income from Operations

INTEREST EXPENSE
OTHER INCOME, Net

Income Before Income Taxes
PROVISION FOR INCOME TAXES
NET INCOME (LOSS)

EARNINGS (LOSS) PER SHARE

Basic
Diluted

2018
1,881,294
1,483,212
—
398,082

2017
1,786,103
1,402,274
—
383,829

374,145
—
—
—
9,257
33,194
(25,320)
3,227
11,101
22,421
(11,320) $

297,538
—
—
—
11,056
97,347
(20,293)
2,607
79,661
23,011
56,650

(0.28) $
(0.28) $

1.31
1.31

$
$

2016
1,808,778
1,438,166
8,157
362,455

305,482
2,038
7,651
2,683
1,760
46,361
(20,033)
9,028
35,356
8,795
26,561

0.61
0.60

$
$

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic
Diluted

42,068
42,068

42,178
42,263

43,019
43,200

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
37

Consolidated Statements of Comprehensive Income (Loss)

FOR THE FISCAL YEARS ENDED JULY 1, 2018, JULY 2, 2017 AND JULY 3, 2016
(in thousands)

Net Income (Loss)
Other Comprehensive Income (Loss):

Cumulative Translation Adjustments
Unrealized Gain (Loss) on Derivative Instruments, Net of Tax
Provision (Benefit) of $2,552, $886, and ($1,659), respectively

Unrecognized Pension & Postretirement Obligation, Net of Tax
Provision (Benefit) of $17,646, $22,697, and ($31,098),
respectively

Other Comprehensive Income (Loss)
Total Comprehensive Income (Loss)

2018

2017

2016

(11,320) $

56,650

26,561

(4,184)

6,562

(881)

1,476

45,376
47,754
36,434

37,829
38,424
95,074

(4,746)

(2,764)

(51,830)
(59,340)
(32,779)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
38

Accumulated
Other Com-
prehensive
Income (Loss)
$

Treasury
Stock

Total
Shareholders'
Investment

Consolidated Statements of Shareholders’ Investment

FOR THE FISCAL YEARS ENDED JULY 1, 2018, JULY 2, 2017 AND JULY 3, 2016
(in thousands, except per share data)

BALANCES, JUNE 28, 2015
Net Income
Total Other Comprehensive Loss, Net of Tax
Cash Dividends Paid ($0.54 per share)
Stock Option Activity, Net of Tax
Restricted Stock
Amortization of Unearned Compensation
Deferred Stock
Deferred Stock - Directors
Treasury Stock Purchases
BALANCES, JULY 3, 2016
Net Income
Total Other Comprehensive Loss, Net of Tax
Cash Dividends Paid ($0.56 per share)
Stock Option Activity, Net of Tax
Restricted Stock
Amortization of Unearned Compensation
Deferred Stock
Deferred Stock - Directors (1)
Treasury Stock Purchases
BALANCES, JULY 2, 2017
Net Loss

Total Other Comprehensive Income, Net of

Tax

Cash Dividends Paid ($0.56 per share)
Stock Option Activity, Net of Tax
Restricted Stock
Amortization of Unearned Compensation
Deferred Stock
Deferred Stock - Directors
Treasury Stock Purchases
BALANCES, JULY 1, 2018

(1) See Note 13 for additional discussion.

Common
Stock

Additional
Paid-In
Capital

579
—
—
—
—
—
—
—
—
—
579
—
—
—
—
—
—
—
—
—
579
—

—
—
—
—
—
—
—
—
579

77,272
—
—
—
(1,955)
(3,058)
3,255
(3,461)
(33)
—
72,020
—
—
—
(1,628)
(3,439)
3,336
(655)
3,928
—
73,562
—

—
—
1,889
(3,119)
3,770
(489)
795
—
76,408

Retained
Earnings
$ 1,071,493
26,561
—
(23,617)
—
—
—
—
—
—
$ 1,074,437
56,650
—
(24,054)
—
—
—
—
—
—
$ 1,107,033
(11,320)

(23,951)
—
—
—
—
(282)

(279,110) $ (295,984)
—
—
—
15,111
584
—
2,495
275
(37,441)

—
(59,340)
—
—
—
—
—
—
—

(338,450) $ (314,960) $

—
38,424
—
—
—
—
—
—
—

—
—
—
8,551
2,506
—
1,675
94
(19,680)

(300,026) $ (321,814) $

—

47,754
—
—
—
—
—
—
—

—
—
3,943
1,763
—
649
—
(10,312)

$ 1,071,480

(252,272) $ (325,771) $

574,250
26,561
(59,340)
(23,617)
13,156
(2,474)
3,255
(966)
242
(37,441)
493,626
56,650
38,424
(24,054)
6,923
(933)
3,336
1,020
4,022
(19,680)
559,334
(11,320)

47,754
(23,951)
5,832
(1,356)
3,770
160
513
(10,312)
570,424

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
39

Consolidated Statements of Cash Flows

FOR THE FISCAL YEARS ENDED JULY 1, 2018, JULY 2, 2017 AND JULY 3, 2016
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income (Loss)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating

2018

2017

2016

(11,320) $

56,650

26,561

Activities:
Depreciation and Amortization
Stock Compensation Expense
Goodwill and Tradename Impairment
Pension Settlement Expense
Equity in Earnings of Unconsolidated Affiliates
Dividends Received from Unconsolidated Affiliates
Loss on Disposition of Plant and Equipment
Provision for Deferred Income Taxes
Cash Contributions to Qualified Pension Plans
Non-Cash Restructuring Charges
Change in Operating Assets and Liabilities:

Accounts Receivable
Inventories
Other Current Assets
Accounts Payable, Accrued Liabilities and Income Taxes
Other, Net

Net Cash Provided by Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital Expenditures (1)
Cash Paid for Acquisitions, Net of Cash Acquired
Cash Paid for Investment in Unconsolidated Affiliates
Proceeds Received on Disposition of Plant and Equipment
Proceeds on Sale of Investment in Marketable Securities
Increase to Restricted Cash
Other, Net

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net Borrowings on Revolver
Long Term Note Payable
Repayments on Long-Term Debt
Debt Issuance Costs
Cash Dividends Paid
Stock Option Exercise Proceeds
Payment of Acquisition Contingent Liability
Payments Related to Shares Withheld for Taxes for Stock Compensation
Treasury Stock Purchases

Net Cash Provided by (Used in) Financing Activities

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND

CASH EQUIVALENTS

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS END OF YEAR

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest Paid
Income Taxes Paid

$
$

58,258
6,675
—
41,157
(12,230)
10,911
1,915
35,351
(30,000)
—

47,180
(37,446)
(4,759)
(10,345)
(2,624)
92,723

(103,203)
(1,800)
—
339
—
(4,295)
—
(108,959)

48,036
7,685
(22,261)
(1,154)
(23,951)
3,772
—
(1,396)
(10,312)
419

(967)
(16,784)
61,707
44,923

24,075
606

$
$

56,183
4,923
—
—
(11,056)
9,067
857
10,316
—
—

(41,655)
11,204
(1,759)
8,152
(12,538)
90,344

(83,141)
—
—
1,027
3,343
—
—
(78,771)

—
—
—
—
(24,054)
7,770
(1,625)
(1,750)
(19,680)
(39,339)

(366)
(28,132)
89,839
61,707

19,422
4,683

$
$

54,400
5,109
10,334
20,245
(4,947)
6,119
751
2,194
—
3,903

23,917
(7,933)
1,231
(14,016)
(12,941)
114,927

(64,161)
(3,074)
(19,100)
1,359
—
—
(860)
(85,836)

—
—
(1,851)
(932)
(23,617)
12,389
—
(3,104)
(37,441)
(54,556)

(3,086)
(28,551)
118,390
89,839

18,804
5,980

(1) Non-cash investing activity: The change in the balance of unpaid purchases of property, plant, and equipment included in accounts
payable and accruals is $ $9.1 million and $8.4 million for fiscal year 2018 and 2017, and is not material for fiscal year 2016.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
40

Notes to Consolidated Financial Statements

FOR THE FISCAL YEARS ENDED JULY 1, 2018, JULY 2, 2017 AND JULY 3, 2016

(1) Nature of Operations:

Briggs & Stratton Corporation (the “Company”) is a U.S. based producer of gasoline engines and outdoor
power equipment. The Company’s Engines segment sells engines worldwide, primarily to original equipment
manufacturers of lawn & garden equipment and other gasoline engine powered equipment. The Company’s
Products segment designs, manufactures and markets a wide range of outdoor power equipment, job site
products, and related accessories.

(2) Summary of Significant Accounting Policies:

Fiscal Year: The Company’s fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day
of June in each year. The 2018 and 2017 fiscal years were each 52 weeks long, and the 2016 fiscal year was
53 weeks long. All references to years relate to fiscal years rather than calendar years.

Principles of Consolidation:
its majority owned domestic and foreign subsidiaries after elimination of intercompany accounts and
transactions. Investments in companies for which the Company has significant influence are accounted for by
the equity method.

The consolidated financial statements include the accounts of the Company and

The preparation of financial statements in conformity with accounting principles

Accounting Estimates:
g
generally accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.

Cash and Cash Equivalents:
Company considers all highly liquid investments purchased with an original maturity of three months or less to
be cash equivalents.

This caption includes cash, commercial paper and certificates of deposit. The

Receivables: Receivables are recorded at their original carrying value less reserves for estimated
uncollectible accounts. The Company estimates and records an allowance for doubtful accounts based on
specific identification and historical experience. The Company writes off uncollectible accounts against the
allowance for doubtful accounts after all collection efforts have been exhausted.

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, 2018 and 51% at July 2,
2017. The cost for the remaining inventories was determined using the first-in, first-out (FIFO) method. If the
FIFO inventory valuation method had been used exclusively, inventories would have been $65.4 million and
$63.0 million higher at the end of fiscal 2018 and 2017, respectively. The LIFO inventory adjustment was
determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the
FIFO amounts.

Goodwill and Other Intangible Assets:
assigned to identifiable net assets acquired. Goodwill is assigned to reporting units based upon the expected
benefit of the synergies of the acquisition.

Goodwill reflects the cost of acquisitions in excess of the fair values

Other Intangible Assets reflect identifiable intangible assets that arose from purchase acquisitions. Other
Intangible Assets are primarily comprised of tradenames, patents and customer relationships. Goodwill and
tradenames, which are considered to have indefinite lives, are not amortized; however, both must be tested
for impairment at least annually. Amortization is recorded on a straight-line basis for other intangible assets
with finite lives. Patents have been assigned an estimated useful life of 15 years. Customer relationships have
been assigned an estimated useful life of 14 to 25 years.

The Company performed the required impairment tests in fiscal 2018, 2017 and 2016. There were no goodwill
impairment charges or other intangible asset impairment charges recorded in fiscal 2018 or fiscal 2017. The
Company recorded non-cash goodwill impairment charges and non-cash intangible asset impairment charges

in fiscal 2016. Refer to Note 6 for a discussion of the non-cash goodwill impairment charges and the non-cash
intangible asset impairment charges recorded in fiscal 2016.

Investments: Investments represent the Company’s investments in unconsolidated affiliated companies.

Financial information of the unconsolidated affiliated companies are accounted for by the equity method,
generally on a lag of one month or less. Combined results of operations of unconsolidated affiliated
companies for the fiscal year (in thousands):

Results of Operations:

Sales
Cost of Goods Sold
Gross Profit
Net Income

2018

2017

2016

$
$

324,931
248,585
76,346
22,158

$
$

321,938
244,346
77,592
22,217

$
$

287,728
222,426
65,302
20,258

Combined balance sheets of unconsolidated affiliated companies as of fiscal year-end (in thousands):

Financial Position:

Assets:

Current Assets
Noncurrent Assets

Liabilities:

Current Liabilities
Noncurrent Liabilities

Equity

2018

2017

150,382
45,186
195,568

54,007
20,027
74,034
121,534

157,117
54,748
211,865

61,346
25,399
86,745
125,120

Net sales to equity method investees were approximately $107.2 million, $113.6 million and $98.9 million in
2018, 2017 and 2016, respectively. Purchases of finished products from equity method investees were
approximately $115.5 million, $94.9 million and $112.2 million in 2018, 2017 and 2016, respectively.

Beginning in fiscal 2014, the Company joined with one of its independent distributors to form Power
Distributors, LLC (the venture) to distribute service parts in the United States. During fiscal years 2014
through 2016, the venture acquired other independent distributors. During fiscal 2016, the Company
contributed $19.1 million in cash as well as non-cash assets in exchange for receiving an additional
ownership interest in the venture. Also during fiscal 2016, the venture achieved a national distribution
network. The Company uses the equity method to account for this investment, and the earnings of the
unconsolidated affiliate are allocated between the Engines and Products segments. As of July 1, 2018 and
July 2, 2017, the Company's total investment in the venture was $25.2 million and $27.4 million, respectively,
and its ownership percentage was 38.0%. The Company's equity method investments also include entities
that are suppliers for the Engines segment.

The Company concluded that its equity method investments are integral to its business. The equity method
investments provide manufacturing and distribution functions, which are important parts of its operations.
Beginning with the third quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings
of unconsolidated affiliates as a separate line item within Income from Operations. For periods prior to the
third quarter of fiscal 2016, equity in earnings from unconsolidated affiliates is classified in Other Income, Net
in the Consolidated Statements of Operations.

During fiscal 2016, the Company had an investment in marketable securities, which related to its ownership of
common stock of a publicly-traded company. The Company classified its investment as available-for-sale

securities, and it was reported at fair value. Unrealized gains and losses, net of the related tax effects, were
reported as a separate component of Accumulated Other Comprehensive Income (Loss). During the fourth
quarter of fiscal 2016, the Company sold its investment in marketable securities and recognized a gain of $3.3
million, which is recorded in Other Income, Net in the Consolidated Statements of Operations. The Company
received proceeds related to the sale in the first quarter of fiscal 2017.

Debt Issuance Costs: Direct and incremental costs incurred in obtaining loans or in connection with the
issuance of long-term debt are capitalized and amortized to interest expense over the terms of the related
credit agreements. The debt issuance costs are recorded as a direct deduction from the carrying value of the
debt liability; however, the Company classifies debt issuance costs related to the revolving credit facility as an
asset, regardless of whether it has any outstanding borrowings on the line of credit arrangements.
Approximately $0.9 million of debt issuance costs and original issue discounts were amortized to interest
expense in each of fiscal years 2018, 2017 and 2016, respectively.

q p

Plant and equipment are stated at historical cost. For financial
Plant and Equipment and Depreciation:
reporting purposes, plant and equipment are depreciated primarily by the straight line method over the
estimated useful lives of the assets which generally range from 3 to 10 years for software, from 20 to 40 years
for land improvements, from 20 to 50 years for buildings, and 3 to 20 years for machinery and
equipment. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for
major renewals and betterments, which significantly extend the useful lives of existing plant and equipment,
are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in cost
of goods sold or engineering, selling, general and administrative expenses.

Depreciation expense was approximately $53.8 million, $51.9 million and $50.0 million during fiscal years
2018, 2017 and 2016, respectively.

Impairment of Property, Plant and Equipment:
y
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If
the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group
of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or
group of assets. Refer to Note 16 for impairments associated with restructuring actions.

Property, plant and equipment are reviewed for impairment

q p

Warranty:y The Company recognizes the cost associated with its standard warranty on engines and products
at the time of sale. The general warranty period begins at the time of sale and typically covers two years, but
may vary due to product type and geographic location. The amount recognized is based on historical failure
rates and current claim cost experience. The following is a reconciliation of the changes in accrued warranty
costs for the reporting period (in thousands):

Balance, Beginning of Period
Payments
Provision for Current Year Warranties
Changes in Estimates
Balance, End of Period

2018

2017

43,108
(23,704)
24,436
1,487
45,327

44,367
(27,336)
25,513
564
43,108

Net sales include sales of engines, products, and related service parts and

Revenue Recognition:
accessories, net of allowances for cash discounts, customer volume rebates and discounts, floor plan interest
and advertising allowances. The Company recognizes revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and
collectibility is reasonably assured. This is generally upon shipment. Prior to fiscal 2017, revenue for certain
international shipments was recognized when the customer received the product.

Included in net sales are costs associated with programs under which the Company shares the expense of
financing certain dealer and distributor inventories, referred to as floor plan expense. This represents interest
for a pre-established length of time based on a variable rate (LIBOR) plus a fixed percentage from a contract
with a third party financing source for dealer and distributor inventory purchases. Sharing the cost of these

financing arrangements is used by the Company as a marketing incentive for customers to purchase the
Company's products to have floor stock for end users to purchase. The Company enters into interest rate
swaps to hedge cash flows for a portion of its interest rate risk. The financing costs, net of the related gain or
loss on interest rate swaps, are recorded at the time of sale as a reduction of net sales. Included in net sales
in fiscal 2018, 2017 and 2016 were financing costs, net of the related gain or loss on interest rate swaps, of
$9.6 million, $7.3 million and $6.6 million, respectively.

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

Income Taxes: The provision for income taxes includes federal, state and foreign income taxes currently
payable and those deferred because of temporary differences between the financial statement and tax bases
of assets and liabilities. The deferred income tax asset and liability represent temporary differences relating to
assets and liabilities. A valuation allowance is recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized.

Retirement Plans: The Company has noncontributory, defined benefit retirement plans and postretirement
benefit plans covering certain employees. Retirement benefits represent a form of deferred compensation,
which are subject to change due to changes in assumptions. Management reviews underlying assumptions
on an annual basis. Refer to Note 15.

Research and Development Costs:
including significant improvements and refinements to existing products, are expensed as incurred and
recorded in engineering, selling, general and administrative expenses within the Consolidated Statements of
Operations. The amounts charged against income were $23.6 million, $23.0 million and $20.0 million in fiscal
2018, 2017 and 2016, respectively.

Expenditures relating to the development of new products and processes,

Advertising Costs:
within the Consolidated Statements of Operations, are expensed as incurred. These expenses totaled $19.8
million in fiscal 2018, $19.0 million in fiscal 2017 and $18.0 million in fiscal 2016.

Advertising costs, included in engineering, selling, general and administrative expenses

pp g

Shipping and Handling Fees:
related shipping costs are recorded in cost of goods sold. Shipping fee revenue for fiscal 2018, 2017 and
2016 was $5.6 million, $5.0 million and $5.2 million, respectively.

Revenue received from shipping and handling fees is reflected in net sales and

Foreign currency balance sheet accounts are translated into dollars at the rates
Foreign Currency Translation:
of exchange in effect at fiscal year-end. Income and expenses incurred in a foreign currency are translated at
the average rates of exchange in effect during the year. The related translation adjustments are made directly
to a separate component of Shareholders’ Investment. Foreign currency transaction gains and losses are
included in the results of operations in the period incurred. The Company recorded pre-tax foreign currency
transaction gains (losses) of $(0.6) million, $0.8 million, and $2.6 million during fiscal 2018, 2017, and 2016,
respectively.

)

g (

The Company computes earnings (loss) per share using the two-class method,

Earnings (Loss) Per Share:
an earnings allocation formula that determines earnings per share for each class of common stock and
participating security according to dividends declared and participation rights in undistributed earnings. The
Company’s unvested grants of restricted stock, restricted stock units, and deferred stock awards contain non-
forfeitable rights to dividends (whether paid or unpaid), which are required to be treated as participating
securities and included in the computation of basic (loss) earnings per share.

Information on earnings (loss) per share is as follows (in thousands except per share data):

Net Income (Loss)

Less: Earnings Allocated to Participating Securities

Net Income (Loss) available to Common Shareholders

Average Shares of Common Stock Outstanding

Incremental Common Shares Applicable to Common Stock Options and
Performance Shares Based on the Common Stock Average Market Price
During the Period

Shares Used in Calculating Diluted Earnings Per Share

Adjustment for Participating Securities

Diluted Average Shares, Including Participating Securities

Basic Earnings (Loss) Per Share

Diluted Earnings (Loss) Per Share

Fiscal Year Ended

July 1, 2018

July 2, 2017

July 3, 2016

(11,320) $

56,650

(301)

(1,274)

(11,621) $

55,376

42,068

42,178

—

42,068

—

42,068

42,263

792

43,055

(0.28) $

1.31

26,561

(497)

26,064

43,019

181

43,200

722

43,922

0.61

0.60

The dilutive effect of the potential exercise of outstanding stock-based awards to acquire common shares is
calculated using the treasury stock method. The following options to purchase shares of common stock were
excluded from the calculation of diluted earnings per share as the exercise prices were greater than the
average market price of the common shares, and their inclusion in the computation would be antidilutive:

Options to Purchase Shares of Common Stock (in thousands)
Weighted Average Exercise Price of Options Excluded

July 1, 2018

Fiscal Year Ended
July 2, 2017

July 3, 2016

—
— $

408
20.82

Derivative Instruments & Hedging Activity:
flow hedges to manage certain interest rate, foreign currency and commodity exposures. Company policy
allows derivatives to be used only for identifiable exposures and, therefore, the Company does not enter into
derivative instruments for trading purposes where the sole objective is to generate profits.

y The Company enters into derivative contracts designated as cash

g g

The Company formally designates the financial instrument as a hedge of a specific underlying exposure and
documents both the risk management objectives and strategies for undertaking the hedge. The Company
formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments
that are used in hedging transactions are effective at offsetting changes in the forecasted cash flows of the
related underlying exposure. Because of the high degree of effectiveness between the hedging instrument
and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are
generally offset by changes in the forecasted cash flows of the underlying exposures being hedged.
Derivative financial instruments are recorded on the Consolidated Balance Sheets as assets or liabilities,
measured at fair value. The effective portion of gains or losses on derivatives designated as cash flow hedges
are reported as a component of Accumulated Other Comprehensive Income (Loss) (AOCI) and reclassified
into earnings in the same periods during which the hedged transaction affects earnings. Any ineffective
portion of a financial instrument’s change in fair value is immediately recognized in earnings.

The Company discontinues hedge accounting prospectively when it determines that the derivative is no
longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold,
terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not
probable of occurring, or management determines to remove the designation of the cash flow hedge.

In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the
Company continues to carry the derivative at its fair value on the balance sheet and recognizes any
subsequent changes in its fair value in earnings. When it is probable that a forecasted transaction will not

occur, the Company discontinues hedge accounting and recognizes immediately in earnings gains and losses
that were accumulated in other comprehensive income related to the hedging relationship.

(3) New Accounting Pronouncements:

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") No. 2018-02, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive Income. ASU No. 2018-02 allows a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax
Cuts and Jobs Act. The guidance is effective beginning fiscal year 2020, with early adoption permitted. The
Company is currently assessing the impact of this new accounting pronouncement on its financial position.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which
requires an employer to disaggregate the service cost component from the other components of net periodic
pension costs within the statement of income. The guidance is applied on a retrospective basis, and will
become effective for the Company in fiscal 2019, with early adoption available. The Company has adopted
this ASU effective July 2, 2018.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which
simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill
impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a
reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in ASU 2017-04, an
entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit
exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated
to that reporting unit. The updated guidance requires a prospective adoption. The guidance is effective
beginning fiscal year 2021. Early adoption is permitted. The Company is currently assessing the impact of this
new accounting pronouncement on its results of operations and financial position.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. Certain qualitative and quantitative
disclosures are required, as well as a modified retrospective recognition and measurement of impacted
leases. The guidance is effective beginning fiscal year 2020, with early adoption permitted. The Company is
currently assessing the impact of this new accounting pronouncement on its results of operations, financial
position, and cash flows.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU No. 2016-01). ASU No.
2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement
tools, simplifying impairment assessments for certain equity instruments, and modifying overall presentation
and disclosure requirements. The guidance is effective beginning fiscal year 2019, with early adoption
permitted. The Company does not expect the impact of adoption to have a material impact on the Company’s
results of operations, financial position, and cash flows.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The
core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Topic 606 also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a
contract. This guidance is effective beginning fiscal year 2019 under either full or modified retrospective
adoption. The Company has adopted this ASU effective July 2, 2018 using the modified retrospective
approach and this standard did not have a material impact on the Company's Condensed Consolidated
Financial Statements.

(4) Accumulated Other Comprehensive Income (Loss):

The following tables set forth the changes in accumulated other comprehensive income (loss) (in thousands):

Fiscal Year Ended July 1, 2018

Cumulative
Translation
Adjustments

Derivative
Financial
Instruments

Pension and
Postretirement
Benefit Plans

(24,744) $

(76) $

(275,206) $

Beginning Balance

Other Comprehensive Income (Loss) Before

Reclassification

Income Tax Benefit (Expense)

Net Other Comprehensive Income (Loss) Before

Reclassifications

Reclassifications:

Realized (Gains) Losses - Foreign Currency Contracts (1)

Realized (Gains) Losses - Commodity Contracts (1)
Realized (Gains) Losses - Interest Rate Swaps (1)

Amortization of Prior Service Costs (Credits) (2)
Amortization of Actuarial Losses (2)

Total Reclassifications Before Tax
Income Tax Expense (Benefit)

Net Reclassifications

Other Comprehensive Income (Loss)
Ending Balance

(4,184)
—

(4,184)

—
—

—

—
—
—
—

—
(4,184)
(28,928) $

4,303
(936)

3,367

4,795
96
(251)
—
—
4,640
(1,445)
3,195

6,562
6,486

Total
(300,026)

43,921
(11,492)

43,802
(10,556)

33,246

32,429

—
—

—
(1,255)
18,785
17,530
(5,400)
12,130

4,795
96
(251)
(1,255)
18,785
22,170
(6,845)
15,325

45,376
(229,830) $

47,754
(252,272)

(1) Amounts reclassified to net income are included in net sales or cost of goods sold. See Note 14 for
information related to derivative financial instruments.
(2) Amounts reclassified to net income are included in the computation of net periodic expense, which is
presented in cost of goods sold or engineering, selling, general and administrative expenses. See Note 15 for
information related to pension and postretirement benefit plans.

Cumulative
Translation
Adjustments

Fiscal Year Ended July 2, 2017
Pension and
Postretirement
Benefit Plans

Derivative
Financial
Instruments

(23,863) $

(1,552) $

(313,035) $

Beginning Balance

Other Comprehensive Income (Loss) Before

Reclassification

Income Tax Benefit (Expense)

Net Other Comprehensive Income (Loss) Before

Reclassifications

Reclassifications:

Realized (Gains) Losses - Foreign Currency Contracts (1)
Realized (Gains) Losses - Commodity Contracts (1)
Realized (Gains) Losses - Interest Rate Swaps (1)

Amortization of Prior Service Costs (Credits) (2)

Amortization of Actuarial Losses (2)

Total Reclassifications Before Tax

Income Tax Expense (Benefit)

Net Reclassifications
Other Comprehensive Income (Loss)
Ending Balance

(881)
—

(881)

—
—

—

—
(881)
(24,744) $

Total
(338,450)

44,069
(16,856)

1,003
(376)

43,947
(16,480)

627

357
258

743
—

—
1,358
(509)
849
1,476

(76) $

27,467

27,213

—
—

—
(2,474)
19,053
16,579
(6,217)
10,362
37,829
(275,206) $

357
258

743
(2,474)
19,053
17,937
(6,726)
11,211
38,424
(300,026)

Cumulative
Translation
Adjustments

Fiscal Year Ended July 3, 2016
Pension and
Postretirement
Benefit Plans

Derivative
Financial
Instruments

(19,117) $

1,212

(261,205) $

Beginning Balance

Other Comprehensive Income (Loss) Before

Reclassification

Income Tax Benefit (Expense)

Net Other Comprehensive Income (Loss) Before

Reclassifications

Reclassifications:

Realized (Gains) Losses - Foreign Currency Contracts (1)

Realized (Gains) Losses - Commodity Contracts (1)

Realized (Gains) Losses - Interest Rate Swaps (1)

Amortization of Prior Service Costs (Credits) (2)

Amortization of Actuarial Losses (2)
Plan Settlement (2)

Total Reclassifications Before Tax
Income Tax Expense (Benefit)

Net Reclassifications
Other Comprehensive Income (Loss)

Ending Balance

(4,746)
—

(4,746)

—

—
—

—
—
—
—

—
(4,746)
(23,863) $

Total
(279,110)

(121,344)
43,724

1,147
(430)

(117,745)
44,154

717

(73,591)

(77,620)

(7,584)
901

1,113
—

—
—
(5,570)
2,089
(3,481)
(2,764)
(1,552) $

—

—
(2,479)
17,051
20,245
34,817
(13,056)
21,761
(51,830)
(313,035) $

(7,584)
901

1,113
(2,479)
17,051
20,245
29,247
(10,967)
18,280
(59,340)
(338,450)

(5) Fair Value:

Assets and Liabilities Measured at Fair Value:

The following guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-driven valuations whose inputs are observable
or whose significant value drivers are observable.

Level 3: Significant inputs to the valuation model are unobservable.

The following table presents information about the Company’s financial assets and liabilities measured at fair
value on a recurring basis as of July 1, 2018 and July 2, 2017 (in thousands):

July 1, 2018

Level 1

Level 2

Level 3

Fair Value Measurement Using

Assets:

Derivatives

Liabilities:

Derivatives

Assets:

Derivatives

Liabilities:

Derivatives

7,938

231

July 2, 2017

2,081

3,213

— $

7,938

— $

231

Fair Value Measurement Using
Level 2

Level 3

Level 1

— $

2,081

— $

3,213

—

The fair value for Level 2 measurements are based upon the respective quoted market prices for comparable
instruments in active markets, which include current market pricing for forward purchases of commodities,
foreign currency forwards, and current interest rates.

The Company has currently chosen not to elect the fair value option for any items that are not already
required to be measured at fair value in accordance with accounting principles generally accepted in the
United States.

Fair Value of Financial Instruments:

The Company believes that the carrying values of cash and cash equivalents, trade receivables and accounts
payable are reasonable estimates of their fair values at July 1, 2018 and July 2, 2017 due to the short-term
nature of these instruments. The estimated fair value of the 6.875% Senior Notes due December 2020 is
based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the
valuation hierarchy.

The estimated fair market values of the Company’s indebtedness is (in thousands):

6.875% Senior Notes
Borrowings on Revolver

2018

2017

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

$
$

200,888
48,036

$
$

214,000
48,036

$
$

223,149

$
— $

245,888
—

(6) Goodwill and Other Intangible Assets:

The changes in the carrying amount of goodwill by reportable segment for the fiscal years ended July 1, 2018
and July 2, 2017 are as follows (in thousands):

Goodwill Balance at July 3, 2016
Effect of Translation
Goodwill Balance at July 2, 2017
Acquisitions
Effect of Translation
Goodwill Balance at July 1, 2018

Engines

Products

Total

137,943
131
138,074
—
(682)
137,392

23,625
(50)
23,575
2,573
(340)
25,808

161,568
81
161,649
2,573
(1,022)
163,200

At July 1, 2018, July 2, 2017 and July 3, 2016, accumulated goodwill impairment losses, as recorded in the
Products segment, were $131.4 million respectively.

The Company evaluates goodwill for impairment at least annually as of the fiscal year-end and more
frequently if events or circumstances indicate that the assets may be impaired. The Company will test
goodwill using a two-step process. The first step of the goodwill impairment test is to identify a potential
impairment by comparing the carrying values of each of the Company's reporting units to their estimated fair
values as of the test dates. The estimates of fair value of the reporting units are computed using either an
income approach, a market approach, or a combination of both. The income approach utilizes a multi-year
forecast of estimated cash flows and a terminal value at the end of the cash flow period. The forecast period
assumptions consist of internal projections that are based on the Company's budget and long-range strategic
plan. The discount rate used at the test date is the weighted-average cost of capital which reflects the overall
level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn.
Valuations using the market approach are derived from metrics of publicly traded companies or historically
completed transactions of comparable businesses. The selection of comparable businesses is based on the
markets in which the reporting units operate giving consideration to risk profiles, size, geography, and
diversity of products and services.

In fiscal 2016, the Company recorded a non-cash goodwill impairment charge of $7.7 million related to its Job
Site reporting unit, which was determined by comparing the carrying value of the reporting unit’s goodwill with
the implied fair value of goodwill for the reporting unit. The Company reached this conclusion because it
determined that its forecasted cash flow estimates used in the goodwill assessment for its Job Site reporting
unit were adversely impacted by elevated channel inventories. The inventory channel for job site products,
particularly portable light towers and portable heaters, was elevated due to the rapid and significant change in
market demand following the reduction in North American oil production and was compounded by the mild
winter. The impairment charge was a non-cash expense that was recorded as a separate component of
operating expenses. The goodwill impairment was not deductible for income tax purposes. The impairment
charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial
covenants under its revolving credit facility.

The Company’s other intangible assets as of July 1, 2018 and July 2, 2017 are as follows (in thousands) in
the table below. After an intangible asset has been fully amortized, it is removed from the table in the
subsequent year.

2018

2017

Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

Net

Amortized Intangible Assets:

Patents

Customer Relationships

Other Intangible Assets

Effect of Translation

Total Amortized Intangible Assets

Unamortized Intangible Assets:

Tradenames

Effect of Translation

Total Unamortized Intangible

Assets

7,300

(6,813) $

487

7,300

(6,327) $

60,182

839

(6,887)

61,434

63,967

(4,020)

59,947

(18,995)

(774)

1,065

(25,517)

—

41,187

(5,822)

35,917

63,967

(4,020)

60,182

839

(5,576)

62,745

63,967

(3,497)

59,947

60,470

(16,304)

(626)

637

(22,620)

—

973

43,878

213

(4,939)

40,125

63,967

(3,497)

60,470

Total Intangible Assets

121,381

(25,517) $

95,864

123,215

(22,620) $

100,595

The Company also performs an impairment test of its indefinite-lived intangible assets as of the fiscal year-
end and more frequently if events or circumstances indicate that the assets may be impaired. For purposes of
the indefinite-lived intangible asset impairment analysis, the Company performs its assessment of fair value
based on an income approach using the relief-from-royalty method. The Company determines the fair value
of each tradename by applying a royalty rate to a projection of net sales discounted using a risk adjusted cost
of capital. Sales growth rates are determined after considering current and future economic conditions, recent
sales trends, discussions with customers, planned timing of new product launches and many other variables.
Each royalty rate is based on profitability of the business to which it relates and observed market royalty
rates.

In fiscal 2016, the Company recorded a non-cash intangible asset impairment charge of $2.7 million. The
impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance
with financial covenants under its revolving credit facility.

Amortization expense of other intangible assets amounted to approximately $3.4 million in 2018, $3.5 million
in 2017, and $3.4 million in 2016.

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

2019
2020
2021
2022
2023

3,241
2,754
2,754
2,754
2,754

14,257

(7) Income Taxes and Tax Reform:

On December 22, 2017 the U.S. government enacted significant tax legislation (the “Tax Act”). The Tax Act
makes broad and complex changes to the U.S. tax code that will impact the Company’s financials, including
but not limited to a permanent decrease in the corporate federal statutory income tax rate and a one-time
charge from the inclusion of foreign earnings that the Company can elect to pay over eight years.

The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for
the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one
year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In
accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for
which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain
income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record
a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be
included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the
tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with the Company’s analysis of the impact of the Tax Act, a tax expense of approximately $21.1
million has been recorded in fiscal 2018. This amount consists of an expense resulting from the re-
measurement of deferred tax assets and liabilities for the corporate tax rate reduction of approximately $13.8
million and an expense related to the inclusion of foreign earnings of approximately $7.3 million. The
Company’s expense related to the re-measurement of deferred tax assets and liabilities of approximately
$13.8 million is lower than its previous provisional estimate of $17.7 million in the third quarter of fiscal 2018
due to activity in the fourth quarter of fiscal 2018 and provision to return adjustments. The Company’s
expense related to the inclusion of foreign earnings of approximately $7.3 million is higher than its previous
provisional estimate of $6.5 million in the third quarter of fiscal 2018 due to activity in the fourth quarter of
fiscal 2018, provision to return adjustments, and new tax regulations. The Company has not completed its
accounting for the income tax effects of certain elements of the Tax Act; however, reasonable estimates were
made in order to record provisional adjustments for areas where analysis is not yet complete. For instance,
the tax expense of approximately $13.8 million related to the re-measurement of the Company’s deferred tax
assets and liabilities from the enacted corporate tax rate reduction may be affected by other analyses related
to the Tax Act, including but not limited to the transition tax, expenditures that qualify for immediate expensing
and the state tax effect of adjustments made to federal temporary differences. Additionally, in calculating the
approximate tax expense of $7.3 million related to the inclusion of foreign earnings, the Company is required
to determine various components including the amount of accumulated and current earnings and profits of its
foreign subsidiaries, the amount of foreign income taxes paid on these earnings, and the cash and
equivalents held by its foreign subsidiaries at various prescribed measurement dates. The Company has
made a reasonable estimate of this expense and will continue to gather additional information to more
precisely compute the expense.

The Company is also in the process of evaluating its permanent reinvestment assertions since the Tax Act
may provide opportunity to repatriate overseas cash to the U.S. at a lower tax cost. There is a dividends
received deduction available for certain foreign distributions under the Tax Act, but certain foreign earnings
remain subject to withholding taxes upon repatriation. As of July 1, 2018, the Company has analyzed its
global working capital and cash requirements and the potential tax liabilities attributable to repatriation in
regards to its permanent reinvestment assertion. In the second quarter of fiscal 2018, the Company removed
its permanent reinvestment assertion on approximately $25 million of its foreign earnings. During the third
quarter of fiscal 2018, the Company made distributions from its foreign earnings related to the assertion
removal in the second quarter of approximately $18 million. The Company expects to repatriate approximately
an additional $15 million of foreign earnings. The Company continues to evaluate its cash needs and strategic
opportunities to repatriate cash. The Company was able to make a reasonable estimate of the tax effects of
the planned repatriation, and the provisional estimate has been recorded in the financials including
withholding taxes and currency gain and loss. The Company will continue to gather additional information to
more precisely compute the tax impact. For the remainder of its foreign earnings, approximately $100 million,
the Company has yet to determine whether it intends to change its prior assertion and repatriate earnings.
Accordingly, deferred taxes attributable to its investments in its foreign subsidiaries have not yet been
recorded. The tax effects of any change in the Company’s prior assertion will be recorded in the period that
analysis is completed and a reasonable estimate is able to be calculated, and any unrecognized deferred tax

liability for temporary differences related to its foreign investments will be disclosed if practicable.

Components of income before income taxes consists of the following (in thousands):

2018

2017

2016

U.S.
Foreign
Total

(5,350) $
16,451
11,101

66,555
13,106
79,661

The provision for income taxes consists of the following (in thousands):

Current

Federal
State
Foreign

Deferred
Federal
State
Foreign

Total

2018

2017

(12,072) $
(4,413)
3,556
(12,929)

31,235
4,462
(347)
35,350
22,421

7,333
933
4,429
12,695

8,156
583
1,577
10,316
23,011

22,203
13,153
35,356

2016

2,649
670
3,282
6,601

2,702
193
(701)
2,194
8,795

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

2018

2017

2016

U.S. Statutory Rate
State Taxes, Net of Federal Tax Benefit
Impact of Foreign Operations and Tax Rates
Valuation Allowance
Changes to Unrecognized Tax Benefits
U.S. Manufacturers Deduction
Research & Development Credit (1)
Goodwill Impairment
Return to Provision Adjustment
U.S. Tax Reform (2)
Impact of Joint Venture Business Optimization
Worthless Stock Loss
Warehouse Charitable Contribution
Other, Net
Effective Tax Rate

28.0 %
3.7 %
(2.5)%
6.7 %
1.3 %
— %
(25.2)%
— %
15.6 %
189.9 %
4.5 %
(10.8)%
(9.5)%
0.2 %
201.9 %

35.0 %
1.5 %
(2.1)%
5.3 %
(4.5)%
(2.4)%
(3.1)%
— %
(0.4)%
— %
— %
— %
— %
(0.4)%
28.9 %

35.0 %
2.0 %
(9.7)%
3.3 %
2.8 %
(3.7)%
(10.6)%
7.6 %
(4.2)%
— %
— %
— %
— %
2.4 %
24.9 %

(1) "Research & Development Credit” in fiscal 2016 includes fiscal 2016 and fiscal 2015 federal research &
development credit due to the reenactment of the credit during fiscal 2016.
(2) This amount consists of impacts from the Tax Act including an expense resulting from the re-measurement
of deferred tax assets and liabilities for the US corporate tax rate reduction of approximately $13.8 million and
an expense related to the inclusion of foreign earnings of approximately $7.3 million.

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

Long-Term Asset (Liability):
Difference Between Book and Tax Related to:

Pension Cost
Accumulated Depreciation
Intangibles
Accrued Employee Benefits
Postretirement Health Care Obligation
Inventory
Warranty
Payroll & Workers Compensation Accruals
Valuation Allowance
Net Operating Loss/State Credit Carryforwards
Other Accrued Liabilities
Miscellaneous

Deferred Income Tax Asset (Liability)

2018

2017

14,570
(53,103)
(34,166)
34,108
7,275
10,710
10,842
6,474
(28,537)
39,849
6,205
(2,359)
11,868

64,216
(48,679)
(54,360)
38,477
12,865
15,969
16,008
7,087
(23,461)
26,436
13,709
(3,904)
64,363

Total deferred tax assets were $130.1 million and $171.3 million as of July 1, 2018 and July 2, 2017,
respectively. Total deferred tax liabilities were $118.0 million and $106.9 million as of July 1, 2018 and July 2,
2017, respectively. During fiscal 2018, the total valuation allowance increased by $5.1 million. The Company
early adopted ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes as of July 2, 2017. The
Company retrospectively reclassified $44.7 million of current “Deferred Income Tax Assets" to "Long-term
Deferred Income Tax Assets” on the accompanying Condensed Consolidated Balance Sheet as of July 3,
2016.

Deferred tax assets were generated during the current year as a result of foreign income tax loss
carryforwards in the amount of $0.5 million. At July 1, 2018, there are $8 million of foreign income tax loss
carryforwards, consisting of $5.8 million that have no expiration date, and $2.2 million that will expire within
the next 5 to 10 years. A deferred tax asset of $24.9 million exists at July 1, 2018 related to state income tax
losses and state tax credit carryforwards. If not utilized against future taxable income, this amount will expire
from 2019 through 2029. Realization of the deferred tax assets are contingent upon generating sufficient
taxable income prior to expiration of these carryforwards. At July 1, 2018, a valuation allowance of $7.6 million
is recorded for the foreign losses which the Company believes are unlikely to be realized in the future. In
addition, a valuation allowance of $21.0 million is recorded related to state tax credits that are unlikely to be
realized.

The change to the gross unrecognized tax benefits of the Company during the fiscal years ended July 1,
2018, July 2, 2017, and July 3, 2016 is reconciled as follows:

Unrecognized Tax Benefits (in thousands):

Beginning Balance

Changes based on tax positions related to prior year
Additions based on tax positions related to current year
Settlements with taxing authorities
Lapse of statute of limitations

Ending Balance

2018

5,986
—
981
—
(1,068)
5,899

2017
10,922
(861)
461
(4,437)
(99)
5,986

2016
10,551
(208)
579
—
—
10,922

As of July 1, 2018, gross unrecognized tax benefits that, if recognized, would impact the effective tax rate
were $4.8 million. There is a reasonable possibility that approximately $1.0 million of the liability for uncertain
tax positions may be settled within the next twelve months due to the resolution of audits or expiration of
statutes of limitations.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
The total expense (income) recognized for fiscal years 2018, 2017 and 2016 was $(0.2) million, $(0.2) million,
and $0.2 million, respectively.

As of July 1, 2018 and July 2, 2017, the Company had $0.8 million and $1.2 million, respectively, accrued for
the payment of interest and penalties.

At July 1, 2018 and July 2, 2017, the liability for uncertain tax positions, inclusive of interest and penalties,
was $6.7 million and $7.2 million, respectively, which is recorded as an other long-term liability within the
Consolidated Balance Sheets.

Income tax returns are filed in the U.S., state, and foreign jurisdictions and related audits occur on a regular
basis. In the U.S., the Company is no longer subject to U.S. federal income tax examinations before fiscal
2015. The Company is also currently under audit by various state and foreign jurisdictions. The Company is
no longer subject to tax examinations before fiscal 2008 in its major foreign jurisdictions.

(8) Segment and Geographic Information and Significant Customers:

The Company aggregates operating segments that have similar economic characteristics, products,
production processes, types or classes of customers and distribution methods into reportable segments. The
Company concluded that it operates two reportable segments: Engines and Products. The Company uses
“segment income (loss)” as the primary measure to evaluate operating performance and allocate capital
resources for the Engines and Products segments. The Company defines segment income (loss) as income
from operations plus equity in earnings of unconsolidated affiliates. Summarized segment data is as follows
(in thousands):

NET SALES:
Engines
Products
Eliminations

GROSS PROFIT:

Engines
Products
Eliminations

SEGMENT INCOME (LOSS) (1)

Engines
Products
Eliminations

Reconciliation from Segment Income (Loss) to Income Before Income Taxes:
Equity in Earnings of Unconsolidated Affiliates(1)

Income from Operations

INTEREST EXPENSE
OTHER INCOME, Net

Income Before Income Taxes
PROVISION FOR INCOME TAXES

Net Income (Loss)

ASSETS:
Engines
Products
Eliminations

CAPITAL EXPENDITURES:

Engines
Products

DEPRECIATION & AMORTIZATION:

Engines
Products

2018

2017

2016

1,066,318
904,007
(89,031)
1,881,294

252,645
144,933
504
398,082

10,678
22,012
504
33,194

—
33,194
(25,320)
3,227
11,101
22,421
(11,320) $

965,677
547,540
(69,251)
1,443,966

79,724
23,479
103,203

44,361
13,897
58,258

1,098,809
778,378
(91,084)
1,786,103

262,036
121,141
652
383,829

84,165
12,530
652
97,347

—
97,347
(20,293)
2,607
79,661
23,011
56,650

987,943
551,207
(88,171)
1,450,979

67,218
15,923
83,141

44,384
11,799
56,183

1,142,815
772,154
(106,191)
1,808,778

252,833
110,944
(1,322)
362,455

60,645
(9,775)
(1,322)
49,548

3,187
46,361
(20,033)
9,028
35,356
8,795
26,561

984,119
546,104
(73,556)
1,456,667

58,186
5,975
64,161

44,480
9,920
54,400

(1) The Company concluded that its equity method investments are integral to its business. Beginning with the third quarter of fiscal
2016, the Company is prospectively classifying its equity in earnings of unconsolidated affiliates as a separate line item within Income

from Operations. For periods prior to the third quarter of fiscal 2016, equity in earnings from unconsolidated affiliates is classified in
Other Income, Net. For all periods presented, equity in earnings from unconsolidated affiliates is included in segment income (loss).

Pre-tax business optimization, restructuring charges, and acquisition-related charges impact on gross profit
(in thousands):

Engines
Products
Total

2018

2017

2016

2,854
3,775
6,629

— $
—
— $

11,599

7,943
19,542

Pre-tax restructuring charges, acquisition-related charges, goodwill and tradename impairment, pension
settlement charges, and litigation charges impact on segment income (loss) is as follows (in thousands):

Engines
Products

Total

2018

2017

2016

53,913
8,113
62,026

— $
—
— $

24,424

19,451
43,875

Information regarding the Company’s geographic sales based on product shipment destination (in
thousands):

United States
All Other Countries
Total

2018
1,346,687
534,607
1,881,294

2017
1,246,015
540,088
1,786,103

2016
1,299,003
509,775
1,808,778

Information regarding the Company’s net plant and equipment based on geographic location (in thousands):

United States
All Other Countries
Total

2018

2017

2016

405,808
16,272
422,080

347,664
17,216
364,880

309,089
17,184
326,273

Sales to the following customers in the Company’s Engines segment amount to greater than or equal to 10%
of consolidated net sales (in thousands):

Customer:

HOP
MTD

2018

2017

2016

Net Sales

184,008
192,402
376,410

10% $
10%
20% $

207,882
205,339
413,221

12% $
11%
23% $

229,899
235,220
465,119

13%
13%
26%

(9) Leases:

The Company leases certain facilities, vehicles, and equipment under operating leases. Operating leases are
not capitalized and lease payments are expensed over the life of the lease. Terms of the leases, including
purchase options, renewals, and maintenance costs, vary by lease. Rental expense for fiscal 2018, 2017 and
2016 was $20.0 million, $19.3 million and $19.3 million, respectively.

Future minimum lease commitments for all non-cancelable operating leases as of July 1, 2018 are as follows
(in thousands):

Fiscal Year
2019
2020
2021
2022
2023
Thereafter

Total future minimum lease commitments

(10) Indebtedness:

The following is a summary of the Company’s indebtedness (in thousands):

Multicurrency Credit Agreement
Total Short-Term Debt

Note Payable (NMTC transaction)
Unamortized Debt Issuance Costs associated with Note Payable

6.875% Senior Notes
Unamortized Debt Issuance Costs associated with 6.875% Senior Notes
Total Long-Term Debt

6.875% Senior Notes

Commitments
16,080
$
13,259
10,389
7,668
6,849
50,089
104,334

2018

2017

48,025
48,025

$
$

7,685
1,009
8,694

—
—

—
—
—

200,888
934
199,954

223,149
1,356
221,793

$
$

Multicurrency Credit Agreement

On March 25, 2016, the Company entered into a $500 million amended and restated multicurrency credit
agreement (the “Revolver”) that matures on March 25, 2021. The Revolver amended and restated the
Company's $500 million multicurrency credit agreement dated as of October 13, 2011 (as previously
amended), which would have matured on October 21, 2018. The initial maximum availability under the
Revolver is $500 million. Availability under the Revolver is reduced by outstanding letters of credit. The
Company may from time to time increase the maximum availability under the revolving credit facility by up
to $250 million if certain conditions are satisfied. In connection with the amendment to the Revolver in fiscal
2016, the Company incurred approximately $0.9 million in new debt issuance costs, which are being
amortized over the life of the Revolver using the straight-line method. The Company classifies debt issuance
costs related to the Revolver as an asset, regardless of whether it has any outstanding borrowings on the line
of credit arrangements. There were $48 million of borrowings under the Revlolver as of July 1, 2018. There
were no borrowings under the Revolver as of July 2, 2017.

Borrowings under the Revolver 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 1.25% to 2.25%, depending on the
Company’s average net leverage ratio; or

(2) the higher of (a) the federal funds rate plus 0.50%; (b) the bank's prime rate; or (c) the adjusted
LIBO rate for a one-month interest period plus 1.00% plus a margin varying from 0.25% to 1.25%. In
addition, the Company is subject to a 0.18% to 0.35% commitment fee and a 1.25% to 2.25% letter of
credit fee, depending on the Company’s average net leverage ratio.

The Revolver contains covenants that the Company considers usual and customary for an agreement of this
type, including a maximum average leverage ratio and minimum interest coverage ratio.

The Senior Notes and the Revolver contain restrictive covenants. These covenants include restrictions on the
ability of the Company and/or certain subsidiaries to pay dividends, repurchase equity interests of the
Company and certain subsidiaries, incur indebtedness, create liens, consolidate and merge and dispose of
assets, and enter into transactions with affiliates. The Revolver contains financial covenants that require the
Company to maintain a minimum interest coverage ratio and impose on the Company a maximum average
leverage ratio.

New Market Tax Credit

On August 16, 2017, the Company entered into a financing transaction with SunTrust Community Capital,
LLC (“SunTrust”) related to the Company's business optimization program under the New Markets Tax Credit
(“NMTC”) program. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000
(the “Act”) and is intended to induce capital investment in qualified low-income communities. The Act permits
taxpayers to claim credits against their Federal income taxes for qualified investments in the equity of
community development entities (“CDEs”). CDEs are privately managed investment institutions that are
certified to make qualified low-income community investments (“QLICIs”).

In connection with the financing, one of the Company’s subsidiaries loaned approximately $16 million to an
investment fund, and simultaneously, SunTrust contributed approximately $8 million to the investment fund.
SunTrust is entitled to substantially all of the benefits derived from the NMTCs. SunTrust’s contribution, net of
syndication fees, is included in Other Long-Term Liabilities on the consolidated balance sheets. The Company
incurred approximately $1.2 million in new debt issuance costs, which are being amortized over the life of the
note payable. The investment fund contributed the proceeds to certain CDEs, which, in turn, loaned the funds
to the Company, as partial financing for the business optimization program. The proceeds of the loans from
the CDEs (including loans representing the capital contribution made by SunTrust, net of syndication fees)
are restricted for use on the project. Restricted cash of $4.3 million held by the Company at July 1, 2018 is
included in Prepaid Expenses and Other Current Assets in the accompanying consolidated balance sheet.

This financing also includes a put/call provision that can be exercised beginning in August 2024 whereby the
Company may be obligated or entitled to repurchase SunTrust’s interest in the investment fund for a de
minimis amount.

The Company has determined that the financing arrangement is a variable interest entity (“VIE”) and has
consolidated the VIE in accordance with the accounting standard for consolidation.

(11) Other Income, Net:

The components of Other Income, Net are as follows (in thousands):

Interest Income
Equity in Earnings of Unconsolidated Affiliates
Gain on Sale of Investment in Marketable Securities
Other Items
Total

2018

2017

2016

1,526
—
—
1,701
3,227

1,203
—
—
1,404
2,607

695
3,187
3,343
1,803
9,028

The Company concluded that its equity method investments are integral to its business. Beginning with the
third quarter of fiscal 2016, the Company is prospectively classifying its equity in earnings of unconsolidated
affiliates as a separate line item within Income from Operations. For periods prior to the third quarter of fiscal
2016, equity in earnings from unconsolidated affiliates is classified in Other Income, Net.

(12) Commitments and Contingencies:
The Company is subject to various unresolved legal actions that arise in the normal course of its business. These
actions typically relate to product liability (including asbestos-related liability), patent and trademark matters, and
disputes with customers, suppliers, distributors and dealers, competitors and employees.

appellate court found that the district court erred in granting summary judgment concerning the patent’s
validity and remanded that issue to the district court for reconsideration. The appellate court also vacated the
jury’s damages award and the district court’s award of enhanced damages, remanding the case to the district
court for a new trial on damages and reconsideration on willfulness. The appellate court affirmed the district
court rulings in all other respects. The new trial has been scheduled to begin on December 10, 2018. The
parties are currently in the process of briefing pre-trial motions.

In assessing whether the Company should accrue a liability in its financial statements as a result of the May
11, 2016 post-trial rulings and related matters, the Company considered various factors, including the legal
and factual circumstances of the case, the trial record, the post-trial orders, the current status of the
proceedings, applicable law, the views of legal counsel, and the decision of the appellate court. As a result of
this review, the Company has concluded that a loss from this case is not probable and reasonably estimable
at this time and, therefore, a liability has not been recorded with respect to this case as of July 1, 2018.

(13) Stock Incentives:

Effective October 20, 2004, a total of 8,000,000 shares of common stock (as adjusted for the fiscal 2005 2-
for-1 stock split) was reserved for future issuance pursuant to the Company's Incentive Compensation Plan,
and as a result of an amendment approved by shareholders on October 21, 2009 an additional 2,481,494
shares were reserved. On October 15, 2014, the Company's shareholders approved the 2014 Omnibus
Incentive Plan, which constituted a complete amendment and restatement of the Company's Incentive
Compensation Plan and under which 3,760,000 shares of common stock were reserved for future issuance
(plus any shares remaining available for issuance under the Incentive Compensation Plan as of that date). On
October 25, 2017 the Company's shareholders approved the 2017 Omnibus Incentive Plan which constituted
a complete amendment and restatement of the Company's 2014 Omnibus Incentive Plan and under which
4,700,000 shares of common stock were reserved for future issuance (plus 494.315 shares remaining
available for future issuance under the 2014 Omnibus Incentive Plan as of August 22, 2017, along with any
other shares under the 2014 Omnibus Incentive Plan that become available for future issuance). Similar to
the Incentive Compensation Plan and the 2014 Omnibus Incentive Plan, in accordance with the 2017
Omnibus Incentive Plan, the Company can issue to eligible participants stock options, stock appreciation
rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based
and cash bonus awards subject to certain annual limitations. The plan also allows participants to defer the
payment of awards and the Company to issue directors’ fees in stock. Stock-based compensation vests in
accordance with the applicable plan and award agreements but can be accelerated under certain
circumstances by the Compensation Committee in the case of death, disability, retirement or a change in
control.

Stock-based compensation expense is calculated by estimating the fair value of incentive stock awards
granted and amortizing the estimated value over the awards’ vesting periods. During fiscal 2018, 2017 and
2016, the Company recognized stock-based compensation expense of approximately $6.7 million, $4.9
million and $5.1 million, respectively.

The fair value of each option is estimated using the Black-Scholes option pricing model, and the assumptions
are based on historical data and industry valuation practices and methodology. The exercise price of each
stock option is equal to the market value of the stock on the grant date. The assumptions used to determine
fair value are as follows:

Options Granted During
Grant Date Fair Value
(Since options are only granted once per year, the grant date fair value
equals the weighted average grant date fair value.)
Assumptions:

2018

2017

2016

4.64

3.84

3.72

Risk-free Interest Rate
Expected Volatility
Expected Dividend Yield
Expected Term (in Years)

Information on the options outstanding is as follows:

1.8%
30.7%
2.7%
5.5

1.2%
29.3%
2.9%
5.5

1.7%
25.1%
2.5%
5.5

Options

Wtd. Avg.
Exercise Price

Wtd. Avg.
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic Value
(in thousands)

Balance, June 28, 2015
Granted During the Year
Exercised During the Year
Expired During the Year
Balance, July 3, 2016
Granted During the Year
Exercised During the Year
Balance, July 2, 2017
Granted During the Year
Exercised During the Year
Balance, July 1, 2018
Exercisable, July 1, 2018

2,176,850
501,990
(697,309)
(136,988)
1,844,543
496,880
(414,176)
1,927,247
416,210
(184,530)
2,158,927
743,847

$
$

18.86
19.90
17.77
19.88
19.48
19.15
18.76
19.55
20.47
20.44
19.64
19.37

6.90
4.65

$
$

—
—

The total intrinsic value of options exercised during fiscal year 2018 was $0.5 million. The exercise of options
resulted in cash receipts of $3.8 million in fiscal 2018. The total intrinsic value of options exercised during
fiscal 2017 was $1.5 million. The exercise of options resulted in cash receipts of $7.8 million in fiscal 2017.
The total intrinsic value of options exercised during fiscal 2016 was $2.0 million. The exercise of options
resulted in cash receipts of $12.4 million in fiscal 2016.

Fiscal
Year
2014
2015
2016
2017
2018

Options Outstanding (as of July 1, 2018)

Grant
Date
8/20/2013
10/21/2014
8/18/2015
8/22/2016
8/21/2017

Date
Exercisable

8/20/2016
10/21/2017
8/18/2018
8/22/2019
8/21/2020

Expiration
Date
8/31/2018
10/21/2024
8/18/2025
8/22/2026
8/21/2027

$
$
$
$
$

Exercise
Price

Options
Outstanding

20.82
18.83
19.90
19.15
20.47

200,327
543,520
501,990
496,880
416,210

Below is a summary of the status of the Company’s nonvested shares as of July 1, 2018, and changes during
the year then ended:

Deferred Stock / RSU
Wtd. Avg.
Grant Date
Fair Value

Restricted Stock

Stock Options

Performance Shares

Wtd. Avg.
Grant Date
Fair Value

105,974
13,476
(3,989)
(36,640)

19.32
20.39
20.47

19.15

699,635
148,930
(11,940)
(141,370)

19.47
20.52
19.51

18.83

1,556,040
416,210
—
(557,170)

3.79
4.64
—

3.81

220,381
—
—
(113,941)

19.48
21.19
—

19.29

78,821

19.52

695,255

19.87

1,415,080

4.03

106,440

19.90

Nonvested
shares/units,
July 2, 2017
Granted
Cancelled

Vested
Nonvested
shares/units,
July 1, 2018

As of July 1, 2018, there was $5.2 million of total unrecognized compensation cost related to nonvested
stock-based compensation. That cost is expected to be recognized over a weighted average period of 1.4
years. The total fair value of shares vested during fiscal 2018 and 2017 was $7.7 million and $7.4 million,
respectively.

During fiscal years 2018, 2017 and 2016, the Company issued 148,930, 160,130 and 143,760 shares of
restricted stock, respectively. For restricted stock issued prior to October 15, 2014, the restricted stock vests
on the fifth anniversary date of the grant provided the recipient is still employed by the Company. For
restricted stock issued after October 15, 2014, the restricted stock vests on the third anniversary date of the
grant provided the recipient is still employed by the Company. The aggregate market value on the date of
issue was approximately $3.1 million, $3.1 million and $2.9 million in fiscal 2018, 2017 and 2016, respectively,
and has been recorded within the Shareholders’ Investment section of the Consolidated Balance Sheets, and
is being amortized over the five-year vesting period (issuances prior to October 15, 2014) or the three-year
vesting period (issuances after October 15, 2014).

The Company issued 46,120, 45,307 and 39,049 deferred shares to its directors in lieu of directors' fees in
fiscal 2018, 2017 and 2016, respectively, under this provision of the plans. Prior to January 1, 2017, the
Company accounted for certain deferred shares issued to directors as liability classified awards, rather than
equity classified awards. At January 1, 2017, the liability balance was $4.8 million. During the third quarter of
fiscal 2017, the Company determined that equity classification is appropriate and recorded correcting entries
to adjust the deferred shares balance and reclassify it from Accrued Liabilities to Additional Paid-In Capital.
The correcting entries did not have a material impact on the Consolidated Financial Statements.

The Company issued 13,476, 15,131 and 20,177 shares of deferred shares / RSU's to its officers and key
employees in fiscal 2018, 2017 and 2016, respectively. The aggregate market value on the date of grant was
approximately $0.3 million, $0.3 million and $0.4 million, respectively. For deferred stock issued prior to
October 15, 2014, the deferred stock vests on the fifth anniversary date of the grant provided the recipient is
still employed by the Company. For restricted stock units (RSU) issued after October 15, 2014, the restricted
stock units vest on the third anniversary date of the grant provided the recipient is still employed by the
Company.

The Company granted no performance share units in 2018 and 2017. The Company granted 120,451
performance share units in fiscal 2016. A maximum of two shares of Briggs & Stratton common stock per
performance share unit may be awarded to recipients if certain performance targets are met at the end of the
vesting period. The aggregate market value on the date of grant was approximately $2.4 million in fiscal 2016.
The performance share units vest based on Company-specific performance goals. The performance share
units are valued at the Company's share price on the date of grant multiplied by the probability of achieving
payout. Expense for each of the awards granted is recognized ratably over the three-year vesting period.

The following table summarizes the components of the Company’s stock-based compensation programs
recorded as expense:

2018

2017

2016

Stock Options:

Pretax compensation expense
Tax benefit

Stock option expense, net of tax
Restricted Stock:

Pretax compensation expense
Tax benefit

Restricted stock expense, net of tax
Deferred Stock:

Pretax compensation expense
Tax benefit

Deferred stock expense, net of tax
Performance Shares:

Pretax compensation expense
Tax expense (benefit)

Performance Share expense, net of tax
Total Stock-Based Compensation:
Pretax compensation expense
Tax benefit

Total stock-based compensation, net of tax

2,060
(576)
1,484

3,302
(924)
2,378

1,046
(292)
754

267
(75)
192

6,675
(1,867)
4,808

1,862
(698)
1,164

3,291
(1,234)
2,057

585
(220)
365

(815) $
306
(509) $

4,923
(1,846)
3,077

1,763
(661)
1,102

2,750
(1,031)
1,719

102
(38)
64

494
(185)
309

5,109
(1,915)
3,194

(14) Derivative Instruments & Hedging Activities:

The Company enters into interest rate swaps to manage a portion of its interest rate risk from financing
certain dealer and distributor inventories through third party financing sources. The swaps are designated as
cash flow hedges and are used to effectively fix the interest payments to a third party financing source,
exclusive of lender spreads, ranging from 0.98% to 2.00% for a notional principal amount of $110 million with
expiration dates ranging from May 2019 to December 2021.

The Company periodically enters into forward foreign currency contracts to hedge the risk from forecasted
third party and intercompany sales or payments denominated in foreign currencies. The Company's primary
foreign currency exchange rate exposures are with the Australian Dollar, the Brazilian Real, the Canadian
Dollar, the Chinese Renminbi, the Euro, and the Japanese Yen against the U.S. Dollar. These contracts
generally do not have a maturity of more than twenty-four months.

The Company uses raw materials that are subject to price volatility. The Company hedges a portion of its
exposure to the variability of cash flows associated with commodities used in the manufacturing process by
entering into forward purchase contracts or commodity swaps. Derivative contracts designated as cash flow
hedges are used by the Company to reduce exposure to variability in cash flows associated with future
purchases of natural gas. These contracts generally do not have a maturity of more than thirty-six months.

The Company has considered the counterparty credit risk related to all its interest rate, foreign currency, and
commodity derivative contracts and does not deem any counterparty credit risk material at this time.

The notional amount of derivative contracts outstanding at the end of the period is indicative of the level of the
Company’s derivative activity during the period. As of July 1, 2018 and July 2, 2017, the Company had the
following outstanding derivative contracts (in thousands):

Contract

Notional Amount

July 1, 2018

July 2, 2017

Interest Rate:

LIBOR Interest Rate (U.S. Dollars)

Fixed

Foreign Currency:

Australian Dollar
Brazilian Real
Canadian Dollar
Chinese Renminbi
Euro
Japanese Yen

Commodity:

Natural Gas (Therms)

Sell
Buy
Sell
Buy
Sell
Buy

Buy

110,000

35,833
28,822
14,430
62,209
32,592
587,500

10,553

95,000

39,196
28,137
14,725
74,950
31,240
570,000

11,307

The location and fair value of derivative instruments reported in the Consolidated Balance Sheets are as
follows (in thousands):

Balance Sheet Location

Asset (Liability) Fair Value

July 1, 2018

July 2, 2017

Interest rate contracts:

Other Current Assets
Other Long-Term Assets, Net
Accrued Liabilities
Other Long-Term Liabilities

Foreign currency contracts:
Other Current Assets
Other Long-Term Assets, Net
Accrued Liabilities
Other Long-Term Liabilities

Commodity contracts:

Other Current Assets
Other Long-Term Assets, Net
Accrued Liabilities
Other Long-Term Liabilities

161
3,844
—
—

3,881
31
(195)
—

16
5
(7)
(29)
7,707

—
1,852
(23)
(39)

157
31
(3,050)
(68)

40
1
(22)
(11)
(1,132)

The effect of derivatives designated as hedging instruments on the Consolidated Statements of Operations
and Comprehensive Income (Loss) is as follows (in thousands):

Twelve months ended July 1, 2018

Amount of
Gain (Loss)
Recognized in Other
Comprehensive
Income (Loss) on
Derivatives, Net of
Taxes (Effective
Portion)

Amount of
Gain (Loss)
Reclassified
from AOCI into
Income
(Effective Portion)

Recognized in
Earnings
(Ineffective
Portion)

Classification
of Gain (Loss)

Interest rate contracts
Foreign currency contracts – sell
Foreign currency contracts – buy
Commodity contracts

1,921 Net Sales
2,925 Net Sales
1,731 Cost of Goods Sold
(17) Cost of Goods Sold

6,560

251
(4,116)
(679)
(96)
(4,640) $

—
—
—
—
—

Twelve months ended July 2, 2017

Amount of
Gain (Loss)
Recognized in Other
Comprehensive
Income (Loss) on
Derivatives, Net of
Taxes (Effective
Portion)

Amount of
Gain (Loss)
Reclassified
from AOCI into
Income
(Effective Portion)

Recognized in
Earnings
(Ineffective
Portion)

Classification
of Gain (Loss)

Interest rate contracts
Foreign currency contracts – sell
Foreign currency contracts – buy
Commodity contracts

1,973 Net Sales
(887) Net Sales
297 Cost of Goods Sold
93 Cost of Goods Sold

1,476

(743) $
1,785
(2,142)
(258)
(1,358) $

—
—
—
—
—

Twelve months ended July 3, 2016

Amount of
Gain (Loss)
Recognized in Other
Comprehensive
Income (Loss) on
Derivatives, Net of
Taxes (Effective
Portion)

Amount of
Gain (Loss)
Reclassified
from AOCI into
Income
(Effective Portion)

Recognized in
Earnings
(Ineffective
Portion)

Classification
of Gain (Loss)

Interest rate contracts
Foreign currency contracts – sell
Foreign currency contracts – buy
Commodity contracts

(213) Net Sales
(2,187) Net Sales

(664) Cost of Goods Sold
300 Cost of Goods Sold

(2,764)

(1,113) $
5,554
2,030
(901)
5,570

—
—
—
—
—

During the next twelve months, the amount of the July 1, 2018 Accumulated Other Comprehensive Income
(Loss) balance that is expected to be reclassified into gains is $2.9 million.

The Company enters into forward exchange contracts to hedge purchases and sales that are denominated in
foreign currencies. The terms of these currency derivatives generally do not exceed twenty-four months, and
the purpose is to protect the Company from the risk that the eventual dollars being transferred will be
adversely affected by changes in exchange rates.

The Company has forward foreign exchange contracts to sell foreign currency, with the Euro as the most
significant. These contracts are used to hedge foreign currency collections on sales of inventory. The
Company also has forward contracts to purchase foreign currencies. The Company’s foreign currency forward
contracts are carried at fair value based on current exchange rates.

The Company had the following forward currency contracts outstanding at the end of fiscal 2018 with the
notional value shown in local currency and the contract value, fair value, and (gain) loss at fair value shown in
U.S. dollars:

Hedge

In Thousands

Currency
Australian
Dollar

Brazilian Real
Canadian
Dollar

Chinese

Renminbi

Euro

Japanese Yen

Contract

Notional
Value

Contract
Value

Fair Value

(Gain) Loss
at Fair Value

Conversion
Currency

Latest
Expiration Date

Sell

Buy

Sell

Buy

Sell

Buy

35,833

27,880

26,558

(1,322)

U.S.

May 2019

28,822

6,682

7,571

(889)

U.S.

March 2019

14,430

11,393

11,020

(373)

U.S.

August 2019

62,209

9,234

9,324

(90)

U.S.

June 2019

32,592

39,648

38,603

(1,045)

U.S.

July 2019

587,500

5,316

5,324

—

U.S.

November 2018

The Company had the following forward currency contracts outstanding at the end of fiscal 2017 with the
notional value shown in local currency and the contract value, fair value, and (gain) loss at fair value shown in
U.S. dollars:

Hedge

In Thousands

Currency
Australian
Dollar

Brazilian Real

Canadian
Dollar
Chinese

Renminbi

Euro

Japanese Yen

Contract

Notional
Value

Contract
Value

Fair Value

(Gain) Loss
at Fair Value

Conversion
Currency

Latest
Expiration Date

Sell

Buy

Sell

Buy

Sell

Buy

39,196

29,360

30,081

28,137

9,140

8,799

14,725

11,044

11,386

721

341

342

U.S.

August 2018

June 2018

May 2018

74,950

10,916

10,894

U.S.

September 2018

31,240

34,801

36,119

1,318

U.S.

August 2018

570,000

5,271

5,085

186

U.S.

May 2018

The Company continuously evaluates the effectiveness of its hedging program by evaluating its foreign
exchange contracts compared to the anticipated underlying transactions. The Company did not have any
ineffective currency hedges in fiscal 2018, 2017, or 2016.

(15) Employee Benefit Costs:

Retirement Plan and Other Postretirement Benefits

The Company has noncontributory, defined benefit retirement plans and other postretirement benefit plans
covering certain employees. In October 2012, the Board of Directors of the Company authorized an
amendment to the Company's defined benefit retirement plans for U.S. non-bargaining employees. The
amendment freezes accruals for all non-bargaining employees within the pension plan effective January 1,
2014. The Company uses a June 30 measurement date for all of its plans. The following provides a
reconciliation of obligations, plan assets and funded status of the plans for the two years indicated (in
thousands):

Actuarial Assumptions:

2018

2017

2018

2017

Discounted Rate Used to Determine Present Value of Projected

Benefit Obligation

Weighted Average Expected Long-Term Rate of Return on Plan
Assets

4.30%

7.00%

4.00%

7.10%

4.25%

n/a

3.85%

n/a

Pension Benefits