UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)



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

For the quarterly period ended ~~December 31, 2017~~September 30, 2018



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

12301 West Wirth Street, Wauwatosa, Wisconsin 53222

(Address of Principal Executive Offices) (Zip Code)

(414) 259-5333

(Registrant’s telephone number, including area code)

____________________________________________

Indicate by check mark whether the registrant (1) 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 ¨

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 ¨

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	x	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. ¨

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

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



Class		Outstanding at ~~January 30,~~October 26, 2018
COMMON STOCK, par value $0.01 per share		~~42,911,786~~42,388,681 Shares

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

INDEX



		Page No.

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – ~~December 31, 2017~~September 30, 2018 and July ~~2, 2017~~1, 2018	3

	Condensed Consolidated Statements of Operations – Three ~~and Six~~ Months Ended ~~December 31, 2017~~September 30, 2018 and ~~January~~October 1, 2017	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three ~~and Six~~ Months Ended ~~December 31, 2017~~September 30, 2018 and ~~January~~October 1, 2017	6

	Condensed Consolidated Statements of Cash Flows – ~~Six~~Three Months Ended ~~December 31, 2017~~September 30, 2018 and ~~January~~October 1, 2017	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2524

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3231

Item 4.	Controls and Procedures	32

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3233

Item 6.	Exhibits	3334

Signatures		3435

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS



	December 31, 2017		July 2, 2017		September 30, 2018		July 1, 2018
CURRENT ASSETS:
Cash and Cash Equivalents	$	66,366	$	61,707	$	29,012	$	44,923
Accounts Receivable, Net	201,253		230,011		185,188		182,801
Inventories -
Finished Products	372,236		265,720		385,624		290,108
Work in Process	122,371		102,187		148,702		111,409
Raw Materials	6,924		6,972		10,522		10,314
Total Inventories	501,531		374,879		544,848		411,831
Prepaid Expenses and Other Current Assets	37,901		22,844		34,811		39,651
Total Current Assets	807,051		689,441		793,859		679,206
OTHER ASSETS:
Goodwill	164,312		161,649		169,162		163,200
Investments	47,626		51,677		44,324		50,960
Other Intangible Assets, Net	98,895		100,595		99,263		95,864
Long-Term Deferred Income Tax Asset	43,882		64,412		31,463		12,149
Other Long-Term Assets, Net	19,870		18,325		22,166		20,507
Total Other Assets	374,585		396,658		366,378		342,680
PLANT AND EQUIPMENT:
Cost	1,140,232		1,104,583		1,183,485		1,175,165
Less - Accumulated Depreciation	754,654		739,703		766,515		753,085
Total Plant and Equipment, Net	385,578		364,880		416,970		422,080
TOTAL ASSETS	$	1,567,214	$	1,450,979	$	1,577,207	$	1,443,966

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(In thousands, except per share data)

(Unaudited)

LIABILITIES & SHAREHOLDERS’ INVESTMENT



	December 31, 2017			July 2, 2017			September 30, 2018			July 1, 2018
CURRENT LIABILITIES:
Accounts Payable	$	208,307		$	193,677		$	240,489		$	204,173
Short-Term Debt	128,647			—			201,406			48,036
Accrued Liabilities	142,785			136,701			128,265			131,897
Total Current Liabilities	479,739			330,378			570,160			384,106
OTHER LIABILITIES:
Accrued Pension Cost	232,769			242,908			186,455			189,872
Accrued Employee Benefits	21,664			21,897			20,138			20,196
Accrued Postretirement Health Care Obligation	31,361			35,132			28,705			30,186
Accrued Warranty	14,372			14,468			15,428			15,781
Other Long-Term Liabilities	37,092			25,069			36,095			33,447
Long-Term Debt	222,008			221,793			200,888			199,954
Total Other Liabilities	559,266			561,267			487,709			489,436
SHAREHOLDERS’ INVESTMENT:
Common Stock - Authorized 120,000 shares, $.01 par value, issued 57,854 shares	579			579			579			579
Additional Paid-In Capital	73,635			73,562			75,437			76,408
Retained Earnings	1,063,501			1,107,033			1,024,875			1,071,480
Accumulated Other Comprehensive Loss	(290,254		)	(300,026		)	(253,934		)	(252,272		)
Treasury Stock at cost, 14,942 and 15,047 shares, respectively	(319,252		)	(321,814		)
Treasury Stock at cost, 15,400 and 15,237 shares, respectively							(327,619		)	(325,771		)
Total Shareholders’ Investment	528,209			559,334			519,338			570,424
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT	$	1,567,214		$	1,450,979		$	1,577,207		$	1,443,966

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	December 31, 2017			January 1, 2017			December 31, 2017			January 1, 2017			September 30, 2018			October 1, 2017
NET SALES	$	446,436		$	428,236		$	775,531		$	715,034		$	278,997		$	329,094
COST OF GOODS SOLD	353,570			332,830			616,400			567,106			235,243			262,829
Gross Profit	92,866			95,406			159,131			147,928			43,754			66,265
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	77,891			73,032			164,605			145,095			100,858			86,471
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES	2,113			3,011			5,726			6,239			2,973			3,613
Income from Operations	17,088			25,385			252			9,072
Loss from Operations													(54,131		)	(16,593		)
INTEREST EXPENSE	(5,593		)	(5,133		)	(10,550		)	(9,638		)	(5,161		)	(4,957		)
OTHER INCOME, Net	685			381			1,403			836			343			476
Income (Loss) Before Income Taxes	12,180			20,633			(8,895		)	270
PROVISION (CREDIT) FOR INCOME TAXES	28,524			5,382			22,488			(833		)
NET INCOME (LOSS)	$	(16,344	)	$	15,251		$	(31,383	)	$	1,103
Loss Before Income Taxes													(58,949		)	(21,074		)
CREDIT FOR INCOME TAXES													(17,963		)	(6,036		)
NET LOSS													$	(40,986	)	$	(15,038	)

EARNINGS (LOSS) PER SHARE
Basic	$	(0.39	)	$	0.35		$	(0.75	)	$	0.02		$	(0.98	)	$	(0.36	)
Diluted	(0.39		)	0.35			(0.75		)	0.02			(0.98		)	(0.36		)

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	42,154			42,081			42,130			42,287			41,858			42,105
Diluted	42,154			42,142			42,130			42,337			41,858			42,105

DIVIDENDS PER SHARE	$	0.14		$	0.14		$	0.28		$	0.28		$	0.14		$	0.14

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	December 31, 2017			January 1, 2017			December 31, 2017			January 1, 2017			September 30, 2018			October 1, 2017
Net Income (Loss)	$	(16,344	)	$	15,251		$	(31,383	)	$	1,103
Net Loss													$	(40,986	)	$	(15,038	)
Other Comprehensive Income (Loss):
Cumulative Translation Adjustments	(681		)	(8,051		)	3,247			(6,450		)	(3,690		)	3,928
Unrealized Gain on Derivative Instruments, Net of Tax	1,579			2,815			1,047			2,768
Unrealized Gain (Loss) on Derivative Instruments, Net of Tax													(698		)	(532		)
Unrecognized Pension & Postretirement Obligation, Net of Tax	2,758			2,620			5,478			5,180			2,726			2,720
Other Comprehensive Income (Loss)	3,656			(2,616		)	9,772			1,498			(1,662		)	6,116
Total Comprehensive Income (Loss)	$	(12,688	)	$	12,635		$	(21,611	)	$	2,601
Total Comprehensive Loss													$	(42,648	)	$	(8,922	)

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended						Three Months Ended
	December 31, 2017			January 1, 2017			September 30, 2018			October 1, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(31,383	)	$	1,103
Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities:
Net Loss							$	(40,986	)	$	(15,038	)
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
Depreciation and Amortization	28,524			28,156			16,003			14,871
Stock Compensation Expense	3,869			2,826			2,632			2,306
Loss on Disposition of Plant and Equipment	1,553			331			—			1,103
Provision for Deferred Income Taxes	18,427			4,315			(20,482		)	(1,040		)
Equity in Earnings of Unconsolidated Affiliates	(6,948		)	(6,239		)	(3,910		)	(3,613		)
Dividends Received from Unconsolidated Affiliates	9,810			8,186			3,101			3,231
Change in Operating Assets and Liabilities:
Accounts Receivable	29,900			(36,077		)	(1,465		)	52,608
Inventories	(126,075		)	(99,787		)	(127,597		)	(84,958		)
Other Current Assets	(3,402		)	1,203			8,014			(8,817		)
Accounts Payable, Accrued Liabilities and Income Taxes	16,808			(23,350		)	27,374			14,138
Other, Net	(5,944		)	(7,240		)	629			(4,298		)
Net Cash Used in Operating Activities	(64,861		)	(126,573		)	(136,687		)	(29,507		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures	(45,597		)	(31,163		)	(21,246		)	(27,117		)
Proceeds Received on Disposition of Plant and Equipment	686			1,009			—			374
Cash Paid for Acquisition, Net of Cash Acquired	(1,800		)	—			(8,865		)	—
Proceeds on Sale of Investment in Marketable Securities	—			3,343
Increase to Restricted Cash	(12,704		)	—
Net Cash Used in Investing Activities	(59,415		)	(26,811		)	(30,111		)	(26,743		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings on Revolver	128,648			132,100			153,371			64,500
Long Term Note Payable	7,685			—			—			7,685
Debt Issuance Costs	(1,154		)	—			—			(1,154		)
Treasury Stock Purchases	(3,128		)	(15,153		)	(5,082		)	(2,105		)
Payment of Acquisition Contingent Liability	—			(813		)
Stock Option Exercise Proceeds and Tax Benefits	2,939			4,243			1,823			520
Cash Dividends Paid	(5,998		)	(6,039		)
Payments Related to Shares Withheld for Taxes for Stock Compensation	(1,147		)	(1,739		)	(232		)	(1,126		)
Net Cash Provided by Financing Activities	127,845			112,599			149,880			68,320
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	1,090			(1,727		)	(940		)	1,092
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,659			(42,512		)	(17,858		)	13,162
CASH AND CASH EQUIVALENTS, Beginning	61,707			89,839
CASH AND CASH EQUIVALENTS, Ending	$	66,366		$	47,327
CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH, Beginning (1)							49,218			61,707
CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH, Ending (2)							$	31,360		$	74,869

(1) Included within Beginning Cash, Cash Equivalents, and Restricted Cash is approximately $4.3 million and $0 of restricted cash as of July 1, 2018 and July 2, 2017, respectively.

(2) Included within Ending Cash, Cash Equivalents, and Restricted Cash is approximately $2.3 million and $17.8 million of restricted cash as of September 30, 2018 and October 1, 2017, respectively.

The accompanying notes are an integral part of these statements.

Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and General Information

Briggs & Stratton Corporation (the “Company”) is focused on providing power to get work done and make people's lives better. 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 ("OEMs") of lawn and garden equipment and other gasoline engine powered equipment. The Company also sells related service parts and accessories for its engines. The Company’s Products Segment designs, manufactures and markets a wide range of outdoor power equipment, job site products, and related accessories.

The majority of lawn and garden equipment is sold during the spring and summer months when most lawn care and gardening activities are performed. 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. 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 snowthrowers are typically higher during the first and second fiscal quarters.

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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes necessary for a fair statement of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but also does not include all disclosures required by accounting principles generally accepted in the United States. However, in the opinion of the Company, adequate disclosures have been presented to prevent the information from being misleading, and all adjustments necessary to fairly present the results of operations and financial position have been included. All of these adjustments are of a normal recurring nature, except as otherwise noted.

Interim results are not necessarily indicative of results for a full year. The information included in these condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto that were included in the Company's latest Annual Report on Form 10-K.

2. New Accounting Pronouncements

In ~~January 2017,~~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 became effective for the Company in fiscal 2019. Accordingly, the Company adopted this ASU effective July 2, 2018. Non-service cost components of net periodic pensions costs in the amount of $0.5 million and $0.2 million have been included in Other Income in the Statement of Operations for the three months ended September 30, 2018 and October 1, 2017, respectively.

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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective, on a retrospective basis, beginning fiscal year 2019. ~~Early adoption is permitted.~~Accordingly, the Company has adopted this ASU effective July 2, 2018. The ~~Company is currently assessing~~following table provides a reconciliation of the ~~impact of this new accounting pronouncement on its consolidated statements~~amount of cash ~~flows.~~and cash equivalents reported on the Condensed Consolidated Balance Sheets to the total of cash and cash equivalents and restricted cash shown on the Condensed Consolidated Statements of Cash Flows (in thousands):



	September 30, 2018		July 1, 2018
Cash and cash equivalents	$	29,012	$	44,923
Restricted cash	2,348		4,295
Cash, cash equivalents and restricted cash	$	31,360	$	49,218

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~~adopted this standard effective July 1, 2018 and it did 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 ~~begun its assessment of Topic 606~~adopted this ASU effective July 2, 2018 using the modified retrospective approach and has developed a comprehensive project plan that includes representatives from across the Company’s business. The project plan includes analyzing the standard’s impact on the Company’s various revenue streams, comparing its historical accounting policies and practices to the requirements of the new standard, and identifying potential differences from applying the requirements of the new standard to its contracts. The Company is in the process of identifying and implementing appropriate changes to its business processes, systems and controls to support revenue recognition and disclosures under Topic 606. Subject to the potential effects of any new related ASUs issued by the FASB, as well as the Company’s ongoing evaluation of transactions and contracts, the Company does not anticipate that the adoption of this standard ~~will~~did not have a material impact on the ~~company’s consolidated financial statements. The Company anticipates adopting Topic 606~~Company's Condensed Consolidated Financial Statements. Additional disclosures related to adoption of this ASU have been included at ~~the beginning of fiscal year 2019 using the modified retrospective approach.~~Note 4.

Table of Contents

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

3. Accumulated Other Comprehensive Income (Loss)

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


	Three Months Ended December 31, 2017												Three Months Ended September 30, 2018
	Cumulative Translation Adjustments			Derivative Financial Instruments			Pension and Postretirement Benefit Plans			Total			Cumulative Translation Adjustments			Derivative Financial Instruments			Pension and Postretirement Benefit Plans			Total
Beginning Balance	$	(20,816	)	$	(608	)	$	(272,486	)	$	(293,910	)	$	(28,928	)	$	6,486		$	(229,830	)	$	(252,272	)
Other Comprehensive Income (Loss) Before Reclassification	(681		)	1,471			—			790			(3,690		)	252			—			(3,438		)
Income Tax Benefit (Expense)	—			(551		)	—			(551		)	—			(61		)	—			(61		)
Net Other Comprehensive Income (Loss) Before Reclassifications	(681		)	920			—			239			(3,690		)	191			—			(3,499		)
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			1,047			—			1,047			—			(951		)	—			(951		)
Realized (Gains) Losses - Commodity Contracts (1)	—			27			—			27			—			(4		)	—			(4		)
Realized (Gains) Losses - Interest Rate Swaps (1)	—			(19		)	—			(19		)	—			(216		)	—			(216		)
Amortization of Prior Service Costs (Credits) (2)	—			—			(314		)	(314		)	—			—			(137		)	(137		)
Amortization of Actuarial Losses (2)	—			—			4,727			4,727			—			—			3,728			3,728
Total Reclassifications Before Tax	—			1,055			4,413			5,468			—			(1,171		)	3,591			2,420
Income Tax Expense (Benefit)	—			(396		)	(1,655		)	(2,051		)	—			282			(865		)	(583		)
Net Reclassifications	—			659			2,758			3,417			—			(889		)	2,726			1,837
Other Comprehensive Income (Loss)	(681		)	1,579			2,758			3,656			(3,690		)	(698		)	2,726			(1,662		)
Ending Balance	$	(21,497	)	$	971		$	(269,728	)	$	(290,254	)	$	(32,618	)	$	5,788		$	(227,104	)	$	(253,934	)

(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 89 for information related to derivative financial instruments.

(2) Amounts reclassified to net income (loss) 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 67 for information related to pension and postretirement benefit plans.

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	Three Months Ended January 1, 2017												Three Months Ended October 1, 2017
	Cumulative Translation Adjustments			Derivative Financial Instruments			Pension and Postretirement Benefit Plans			Total			Cumulative Translation Adjustments			Derivative Financial Instruments			Pension and Postretirement Benefit Plans			Total
Beginning Balance	$	(22,262	)	$	(1,599	)	$	(310,475	)	$	(334,336	)	$	(24,744	)	$	(76	)	$	(275,206	)	$	(300,026	)
Other Comprehensive Income (Loss) Before Reclassification	(8,051		)	4,149			—			(3,902		)	3,928			(3,206		)	—			722
Income Tax Benefit (Expense)	—			(1,556		)	—			(1,556		)	—			1,202			—			1,202
Net Other Comprehensive Income (Loss) Before Reclassifications	(8,051		)	2,593			—			(5,458		)	3,928			(2,004		)	—			1,924
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			18			—			18			—			2,349			—			2,349
Realized (Gains) Losses - Commodity Contracts (1)	—			120			—			120			—			5			—			5
Realized (Gains) Losses - Interest Rate Swaps (1)	—			217			—			217			—			2			—			2
Amortization of Prior Service Costs (Credits) (2)	—			—			(618		)	(618		)	—			—			(314		)	(314		)
Amortization of Actuarial Losses (2)	—			—			4,813			4,813			—			—			4,665			4,665
Total Reclassifications Before Tax	—			355			4,195			4,550			—			2,356			4,351			6,707
Income Tax Expense (Benefit)	—			(133		)	(1,575		)	(1,708		)	—			(884		)	(1,631		)	(2,515		)
Net Reclassifications	—			222			2,620			2,842			—			1,472			2,720			4,192
Other Comprehensive Income (Loss)	(8,051		)	2,815			2,620			(2,616		)	3,928			(532		)	2,720			6,116
Ending Balance	$	(30,313	)	$	1,216		$	(307,855	)	$	(336,952	)	$	(20,816	)	$	(608	)	$	(272,486	)	$	(293,910	)

(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 89 for information related to derivative financial instruments.

Six Months Ended December 31, 2017
Cumulative Translation Adjustments Derivative Financial Instruments Pension and Postretirement Benefit Plans Total
Beginning Balance $ (24,744 ) $ (76 ) $ (275,206 ) $ (300,026 )
Other Comprehensive Income (Loss) Before Reclassification 3,247
(755 ) —
2,492
Income Tax Benefit (Expense) —
283
—
283
Net Other Comprehensive Income (Loss) Before Reclassifications 3,247
(472 ) —
2,775
Reclassifications:

Realized (Gains) Losses - Foreign Currency Contracts (1) —
2,416
—
2,416
Realized (Gains) Losses - Commodity Contracts (1) —
32
—
32
Realized (Gains) Losses - Interest Rate Swaps (1) —
(17 ) —
(17 )
Amortization of Prior Service Costs (Credits) (2) —
—
(627 ) (627 )
Amortization of Actuarial Losses (2) —
—
9,392
9,392
Total Reclassifications Before Tax —
2,431
8,765
11,196
Income Tax Expense (Benefit) —
(912 ) (3,287 ) (4,199 )
Net Reclassifications —
1,519
5,478
6,997
Other Comprehensive Income (Loss) 3,247
1,047
5,478
9,772
Ending Balance $ (21,497 ) $ 971
$ (269,728 ) $ (290,254 )

~~(1) Amounts reclassified~~4. Revenue

The Company has adopted ASC 606 using the modified retrospective approach. Revenue is measured based on consideration expected to ~~net income (loss) are included in net sales or cost~~be received from a customer, and excludes any cash discounts, volume rebates and discounts, floor plan interest, advertising allowances, and amounts collected on behalf of ~~goods sold. See Note 8 for information related~~third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to ~~derivative financial instruments.~~

~~(2) Amounts reclassified to net income (loss) are included in the computation of net periodic expense,~~a customer, which is ~~presented~~generally upon shipment.

Nature of Revenue

The Company’s revenues primarily consist of sales of engines and products to its customers. The Company considers the purchase orders, which may also be governed by purchasing agreements, to be the contracts with customers. For each contract, the Company considers delivery of the engines and products to be the identified performance obligations. The following is a description of principal activities, separated by reportable segments, from which the Company generates its revenue. For more detailed information about reportable segments, see Note 14.

The Engines segment principally generates revenue by providing gasoline engines and power solutions to OEMs which serve commercial and residential markets primarily for lawn and garden equipment applications. The Company typically enters into annual purchasing plans with its engine customers. In certain cases, the Company has entered into longer supply arrangements of two to three years; however, these longer term supply agreements do not generally create unfulfilled performance obligations. The sale of products to OEMs represents a single performance obligation. Revenue is recognized at a point in ~~cost~~time when the product is shipped as substantially all engines are not customized for each customer and there is an alternative use for all inventory. The amount of ~~goods sold or engineering, selling, general~~revenue recognized is adjusted for variable consideration such as tiered volume discounts and ~~administrative expenses. See Note 6 for information related to pension~~rebates. Revenue recognized is also adjusted based on an estimate of future returns.

The Products segment generates revenue through the sale of end user products through retail distribution, independent dealer networks, the US mass retail channel, and ~~postretirement benefit plans.~~

the rental channel. These channels primarily serve

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commercial and residential end users. The sale of products to the various distribution networks represents a single performance obligation. Revenue is recognized at a point in time when the product is shipped as the products are not customized for each customer; therefore, there is an alternative use for all inventory. The amount of revenue recognized is adjusted for variable consideration such as tiered volume discounts, rebates, and floor plan interest. Revenue recognized is also adjusted based on an estimate of future returns.

Both the Engines and Products segments account for variable consideration and estimated returns according to the same accounting policies. The Company offers a variable discount if certain customers reach established volume goals in the form of tiered volume discounts. The Company applies the expected value approach to estimate the value of the discount which is then applied as a reduction to the transaction price. Included in net sales for the three months ended September 30, 2018 were reductions for tiered volume discounts of $1.2 million. The Company offers rebates in the form of promotional allowances to incentivize certain customers to make purchases. The expected value approach is used to estimate the rebate value relative to these allowances which is then applied as a reduction of the transaction price. Included in net sales for the three months ended September 30, 2018 were reductions for rebates of $0.8 million.

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 for the three months ended September 30, 2018 were financing costs, net of the related gain or loss on interest rate swaps, of $0.7 million.

The Company estimates the expected number of returns based on historical return rates and reduces revenue by the amount of expected returns.

The Company requires prepayment on sales in limited circumstances, but the contract liability related to prepayments is immaterial at as of September 30, 2018 and represents less than 1% of total sales.

The Company offers a standard warranty that is not sold separately on substantially all products that the Company sells which is accounted for as an assurance warranty. Accordingly, no component of transaction price is allocated to the standard warranty. The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience.

During the three month period ended September 30, 2018, the Company recorded $4.1 million of bad debt expense related to a trade customer declaring bankruptcy.

Disaggregation of Revenue

In the following table, revenue is disaggregated by primary product application. The table also includes a reconciliation of the disaggregated revenue with the reportable segments for the three months ended September 30, 2018.

Six Months Ended January 1, 2017
Cumulative Translation Adjustments Derivative Financial Instruments Pension and Postretirement Benefit Plans Total
Beginning Balance $ (23,863 ) $ (1,552 ) $ (313,035 ) $ (338,450 )
Other Comprehensive Income (Loss) Before Reclassification (6,450 ) 3,832
—
(2,618 )
Income Tax Benefit (Expense) —
(1,436 ) —
(1,436 )
Net Other Comprehensive Income (Loss) Before Reclassifications (6,450 ) 2,396
—
(4,054 )
Reclassifications:

Realized (Gains) Losses - Foreign Currency Contracts (1) —
(53 ) —
(53 )
Realized (Gains) Losses - Commodity Contracts (1) —
200
—
200
Realized (Gains) Losses - Interest Rate Swaps (1) —
449
—
449
Amortization of Prior Service Costs (Credits) (2) —
—
(1,237 ) (1,237 )
Amortization of Actuarial Losses (2) —
—
9,527
9,527
Total Reclassifications Before Tax —
596
8,290
8,886
Income Tax Expense (Benefit) —
(224 ) (3,110 ) (3,334 )
Net Reclassifications —
372
5,180
5,552
Other Comprehensive Income (Loss) (6,450 ) 2,768
5,180
1,498
Ending Balance $ (30,313 ) $ 1,216
$ (307,855 ) $ (336,952 )



	Engines		Products		Eliminations			Total
Commercial	$	36,017	$	71,583	$	(1,466	)	$	106,134
Residential	83,073		101,459		(11,669		)	172,863
Total	$	119,090	$	173,042	$	(13,135	)	$	278,997

~~(1) Amounts reclassified to net income (loss) are included in net sales or cost of goods sold. See Note 8 for information related to derivative financial instruments.~~

(2) Amounts reclassified to net income (loss) 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 6 for information related to pension and postretirement benefit plans.

4.5. Earnings (Loss) Per Share

The Company computes earnings (loss) per share using the two-class method, an earnings allocation formula that determines earnings (loss) per share for each class of common stock and participating security according to

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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 earnings (loss) per share.

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

Three Months Ended Six Months Ended
December 31,
2017 January 1,
2017 December 31,
2017 January 1,
2017
Net Income (Loss) $ (16,344 ) $ 15,251
$ (31,383 ) $ 1,103
Less: Allocation to Participating Securities (150 ) (332 ) (301 ) (225 )
Net Income (Loss) Available to Common Shareholders $ (16,494 ) $ 14,919
$ (31,684 ) $ 878
Average Shares of Common Stock Outstanding 42,154
42,081
42,130
42,287
Shares Used in Calculating Diluted Earnings (Loss) Per Share 42,154
42,142
42,130
42,337
Basic Earnings (Loss) Per Share $ (0.39 ) $ 0.35
$ (0.75 ) $ 0.02
Diluted Earnings (Loss) Per Share $ (0.39 ) $ 0.35
$ (0.75 ) $ 0.02

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	Three Months Ended
	September 30, 2018			October 1, 2017
Net Loss	$	(40,986	)	$	(15,038	)
Less: Allocation to Participating Securities	(154		)	(151		)
Net Loss Available to Common Shareholders	$	(41,140	)	$	(15,189	)
Average Shares of Common Stock Outstanding	41,858			42,105
Shares Used in Calculating Diluted Earnings (Loss) Per Share	41,858			42,105
Basic Earnings (Loss) Per Share	$	(0.98	)	$	(0.36	)
Diluted Earnings (Loss) Per Share	$	(0.98	)	$	(0.36	)

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 ~~(loss)~~ per share as the exercise prices were greater than the average market price of the common shares:


	Three Months Ended				Six Months Ended				Three Months Ended
	December 31, 2017		January 1, 2017		December 31, 2017		January 1, 2017		September 30, 2018		October 1, 2017
Options to Purchase Shares of Common Stock (in thousands)	—		408		—		408		2,286		—
Weighted Average Exercise Price of Options Excluded	$	—	$	20.82	$	—	$	20.82	$	19.76	$	—

As a result of the Company incurring a net loss for the three and six months ended December 31, 2017, potential incremental common shares of 1,166,615 and 1,044,604, respectively, were excluded from the calculation of diluted earnings (loss) per share because the effect would have been anti-dilutive.

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. During the ~~six~~three months ended ~~December 31, 2017~~,September 30, 2018, the Company repurchased ~~141,195~~282,126 shares on the open market at an average price of $~~22.16~~18.02 per share, as compared to ~~787,343~~99,281 shares purchased on the open market at an average price of $~~19.25~~21.20 per share during the ~~six~~three months ended ~~January~~October 1, 2017.

5.6. Investments

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

Financial information of the unconsolidated affiliated companies is accounted for by the equity method, generally on a lag of one month or less. The following table sets forth the unaudited results of operations of unconsolidated affiliated companies for the three and six months ended December 31, 2017 and January 1, 2017 (in thousands):

Three Months Ended Six Months Ended
December 31,
2017 January 1,
2017 December 31,
2017 January 1,
2017
Results of Operations:
Sales $ 75,579
$ 74,487
$ 156,426
$ 150,748
Cost of Goods Sold 57,699
55,097
119,681
113,408
Gross Profit $ 17,880
$ 19,390
$ 36,745
$ 37,340
Net Income $ 4,881
$ 5,541
$ 9,897
$ 8,940

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~~The following table sets forth the unaudited balance sheets of unconsolidated affiliated companies as of December 31, 2017 and July 2, 2017 (in thousands):~~

December 31,
2017 July 2,
2017
Financial Position:
Assets:
Current Assets $ 127,524
$ 157,117
Noncurrent Assets 50,004
54,748
177,528
211,865
Liabilities:
Current Liabilities $ 39,469
$ 61,346
Noncurrent Liabilities 22,714
25,399
62,183
86,745
Equity $ 115,345
$ 125,120

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. ~~Net sales to~~The Company classifies its equity ~~method investees were approximately $37.0 million and $50.0 million for the six months ended December 31, 2017 and January 1, 2017, respectively. Purchases~~in earnings of ~~finished products~~unconsolidated affiliates as a separate line item within Income from ~~equity method investees were approximately $57.3 million and $54.1 million million for the six months ended December 31, 2017 and January 1, 2017, respectively.~~Operations.

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7. Pension and Postretirement Benefits

The Company has noncontributory defined benefit retirement plans and postretirement plans covering certain employees. The following tables summarize the plans’ income and expense for the periods indicated (in thousands):

Pension Benefits Other Postretirement Benefits
Three Months Ended Three Months Ended
December 31,
2017 January 1,
2017 December 31,
2017 January 1,
2017
Components of Net Periodic (Income) Expense:
Service Cost (Credit) $ (300 ) $ 1,652
$ 25
$ 32
Interest Cost on Projected Benefit Obligation 10,760
10,832
591
597
Expected Return on Plan Assets (15,482 ) (16,095 ) —
—
Amortization of:
Prior Service Cost (Credit) 45
45
(359 ) (663 )
Actuarial Loss 3,871
4,276
856
661
Net Periodic (Income) Expense $ (1,106 ) $ 710
$ 1,113
$ 627

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	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
	Six Months Ended						Six Months Ended						Three Months Ended						Three Months Ended
	December 31, 2017			January 1, 2017			December 31, 2017			January 1, 2017			September 30, 2018			October 1, 2017			September 30, 2018			October 1, 2017
Components of Net Periodic (Income) Expense:
Service Cost	$	1,201		$	3,379		$	67		$	95		$	1,132		$	1,501		$	34		$	43
Interest Cost on Projected Benefit Obligation	21,534			21,678			1,186			1,191			9,937			10,774			580			595
Expected Return on Plan Assets	(30,956		)	(32,213		)	—			—			(13,589		)	(15,474		)	—			—
Amortization of:
Prior Service Cost (Credit)	90			90			(717		)	(1,327		)	45			45			(182		)	(359		)
Actuarial Loss	7,666			8,479			1,726			1,398			2,926			3,795			802			870
Net Periodic (Income) Expense	$	(465	)	$	1,413		$	2,262		$	1,357		$	451		$	641		$	1,234		$	1,149

The Company expects to make benefit payments of ~~$3.3~~$3.5 million attributable to its non-qualified pension plans for the full year of fiscal ~~2018.~~2019. During the first ~~six~~three months of fiscal ~~2018,~~2019, the Company made payments of approximately ~~$1.9~~$0.9 million for its non-qualified pension plans. The Company anticipates making benefit payments of approximately ~~$10.1~~$8.4 million for its other postretirement benefit plans for the full year of fiscal ~~2018.~~2019. During the first ~~six~~three months of fiscal ~~2018,~~2019, the Company made payments of ~~$5.2~~$2.1 million for its other postretirement benefit plans.

During the first ~~six~~three months of fiscal ~~2018,~~2019, the Company made no 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. During fiscal 2018, ~~but~~ the Company ~~may choose to make discretionary contributions. The Company does anticipate making a~~made $30 million in voluntary ~~contribution~~cash contributions to the qualified pension ~~plan of up to $50 million in fiscal 2018.~~plan. 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.

7.8. Stock Incentives

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 ~~period.~~periods. Stock based compensation expense was ~~$1.6 million and $3.9~~$2.6 million for the three ~~and six~~ months ended ~~December 31, 2017.~~September 30, 2018. For the three ~~and six~~ months ended ~~January~~October 1, 2017, stock based compensation expense was ~~$1.6 million and $2.8 million, respectively.~~$2.3 million.

8.9. Derivative Instruments & Hedging Activities

The Company enters into derivative contracts designated as cash 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.

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 within the Condensed 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

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Accumulated Other Comprehensive Income (Loss) (AOCI) and reclassified into earnings in the same period or 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.

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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.

The Company enters into interest rate swaps to manage a portion of its interest rate risk from financing certain dealer and distributor inventories through a third party financing source. The swaps are designated as cash flow hedges and are used to effectively fix the interest payments to third party financing sources, exclusive of lender spreads, ranging from 0.98% to 2.00% for a notional principal amount of $110.0 million with expiration dates ranging from May 2019 through December 2021.

The Company periodically enters into foreign currency contracts to hedge the risk from forecasted third party and intercompany sales or payments denominated in foreign currencies. Our primary foreign currency exposures are 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.

As of ~~December 31, 2017~~September 30, 2018 and July ~~2, 2017~~1, 2018, the Company had the following outstanding derivative contracts (in thousands):


Contract	Contract		Notional Amount		Contract		Notional Amount
			December 31, 2017	July 2, 2017			September 30, 2018	July 1, 2018
Interest Rate:
LIBOR Interest Rate (U.S. Dollars)		Fixed	110,000	95,000		Fixed	110,000	110,000
Foreign Currency:
Australian Dollar		Sell	41,388	39,196		Sell	39,330	35,833
Brazilian Real		Buy	20,437	28,137		Sell	16,708	28,822
Canadian Dollar		Sell	15,840	14,725		Sell	20,675	14,430
Chinese Renminbi		Buy	107,410	74,950		Buy	102,195	62,209
Euro		Sell	46,407	31,240		Sell	17,105	32,592
Japanese Yen		Buy	935,850	570,000		Buy	1,712,500	587,500
Commodity:
Natural Gas (Therms)		Buy	9,498	11,307		Buy	10,505	10,553

1615

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


Balance Sheet Location	Asset (Liability) Fair Value						Asset (Liability) Fair Value
	December 31, 2017			July 2, 2017			September 30, 2018			July 1, 2018
Interest rate contracts
Other Current Assets							$	135		$	161
Other Long-Term Assets	$	2,659		$	1,852		4,009			3,844
Accrued Liabilities	—			(23		)
Other Long-Term Liabilities	—			(39		)
Foreign currency contracts
Other Current Assets	822			157			3,188			3,881
Other Long-Term Assets	22			31			—			31
Accrued Liabilities	(3,680		)	(3,050		)	(579		)	(195		)
Other Long-Term Liabilities	(273		)	(68		)	(9		)	—
Commodity contracts
Other Current Assets	—			40			21			16
Other Long-Term Assets	—			1			2			5
Accrued Liabilities	(105		)	(22		)	(22		)	(7		)
Other Long-Term Liabilities	(24		)	(11		)	(38		)	(29		)
	$	(579	)	$	(1,132	)	$	6,707		$	7,707

The effect of derivative instruments on the Condensed Consolidated Statements of Operations and Comprehensive Loss is as follows (in thousands):


	Three Months Ended December 31, 2017									Three Months Ended September 30, 2018
	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives, Net of Taxes (Effective Portion)			Classification of Gain (Loss)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Recognized in Earnings (Ineffective Portion)		Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives, Net of Taxes (Effective Portion)			Classification of Gain (Loss)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Recognized in Earnings (Ineffective Portion)
Interest rate contracts	$	482		Net Sales	$	19		$	—	$	106		Net Sales	$	216		$	—
Foreign currency contracts - sell	592			Net Sales	(840		)	—		(331		)	Net Sales	1,116			—
Foreign currency contracts - buy	601			Cost of Goods Sold	(207		)	—		(457		)	Cost of Goods Sold	(165		)	—
Commodity contracts	(96		)	Cost of Goods Sold	(27		)	—		(16		)	Cost of Goods Sold	4			—
	$	1,579			$	(1,055	)	$	—	$	(698	)		$	1,171		$	—

Three Months Ended January 1, 2017

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

Classification of
Gain (Loss)

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

Recognized in
Earnings
(Ineffective Portion)
Interest rate contracts $ 1,565
Net Sales $ (217 ) $ —
Foreign currency contracts - sell 2,079
Net Sales 706
—
Foreign currency contracts - buy (1,169 ) Cost of Goods Sold (724 ) —
Commodity contracts 340
Cost of Goods Sold (120 ) —
$ 2,815
$ (355 ) $ —

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Six Months Ended December 31, 2017

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

Classification of
Gain (Loss)

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

Recognized in
Earnings
(Ineffective Portion)
Interest rate contracts $ 544
Net Sales $ 17
$ —
Foreign currency contracts - sell 116
Net Sales (1,674 ) —
Foreign currency contracts - buy 472
Cost of Goods Sold (742 ) —
Commodity contracts (85 ) Cost of Goods Sold (32 ) —
$ 1,047
$ (2,431 ) $ —


	Six Months Ended January 1, 2017									Three Months Ended October 1, 2017
	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives, Net of Taxes (Effective Portion)			Classification of Gain (Loss)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Recognized in Earnings (Ineffective Portion)		Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives, Net of Taxes (Effective Portion)			Classification of Gain (Loss)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Recognized in Earnings (Ineffective Portion)
Interest rate contracts	$	1,929		Net Sales	$	(449	)	$	—	$	61		Net Sales	$	(2	)	$	—
Foreign currency contracts - sell	1,953			Net Sales	400			—		(476		)	Net Sales	(1,720		)	—
Foreign currency contracts - buy	(1,401		)	Cost of Goods Sold	(347		)	—		(129		)	Cost of Goods Sold	(629		)	—
Commodity contracts	287			Cost of Goods Sold	(200		)	—		12			Cost of Goods Sold	(5		)	—
	$	2,768			$	(596	)	$	—	$	(532	)		$	(2,356	)	$	—

During the next twelve months, the estimated net amount of losses on cash flow hedges as of ~~December 31, 2017~~September 30, 2018 expected to be reclassified out of AOCI into earnings is $~~0.9~~2.9 million.

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10. Fair Value Measurements

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.

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The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of ~~December 31, 2017~~September 30, 2018 and July ~~2, 2017~~1, 2018 (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
	December 31, 2017		Level 1		Level 2		Level 3		September 30, 2018		Level 1		Level 2		Level 3
Assets:
Derivatives	$	3,503	$	—	$	3,503	$	—	$	7,355	$	—	$	7,355	$	—
Liabilities:
Derivatives	$	4,082	$	—	$	4,082	$	—	$	648	$	—	$	648	$	—
	July 2, 2017		Level 1		Level 2		Level 3		July 1, 2018		Level 1		Level 2		Level 3
Assets:
Derivatives	$	2,081	$	—	$	2,081	$	—	$	7,938	$	—	$	7,938	$	—
Liabilities:
Derivatives	$	3,213	$	—	$	3,213	$	—	$	231	$	—	$	231	$	—

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.

The estimated fair value of the Company's Senior Notes (as defined in Note ~~14)~~15) at ~~December 31, 2017~~September 30, 2018 and July ~~2, 2017~~1, 2018 was $~~245.4~~212.8 million and $~~245.9~~214.0 million, respectively, compared to the carrying value of $~~223.1~~200.9 million. The estimated fair value of the Senior Notes is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the valuation hierarchy. The carrying value of the Revolver (as defined in Note ~~14)~~15) approximates fair value since the underlying rate of interest is variable based upon LIBOR rates.

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 ~~December 31, 2017~~September 30, 2018 and July ~~2, 2017~~1, 2018 due to the short-term nature of these instruments.

~~10.~~

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11. Warranty

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, in general, 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):


	Six Months Ended						Three Months Ended
	December 31, 2017			January 1, 2017			September 30, 2018			October 1, 2017
Beginning Balance	$	43,108		$	44,367		$	45,327		$	43,108
Payments	(13,587		)	(14,754		)	(6,479		)	(7,715		)
Provision for Current Year Warranties	10,313			10,569			2,678			4,895
Changes in Estimates	509			(625		)	33			(675		)
Ending Balance	$	40,343		$	39,557		$	41,559		$	39,613

~~11.~~12. Income Taxes

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On December 22, 2017 the U.S. government enacted ~~significant tax legislation commonly referred to as~~ the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will impact the Company’s financial statements, 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 ~~initial~~ analysis of the impact of the Tax Act, a ~~discrete~~ tax expense of approximately ~~$24.9~~$21.1 million ~~has been~~was recorded in ~~the period ending December 31, 2017.~~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 ~~$18.7~~$13.8 million and an expense related to the inclusion of foreign earnings of approximately ~~$6.2~~$7.3 million. 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. ~~The~~For instance, the tax expense of approximately ~~$18.7~~$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 ~~$6.2~~$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 ~~December 31, 2017,~~September 30, 2018, the Company has analyzed its global working capital and cash requirements and the potential tax liabilities attributable to ~~a repatriation. The~~repatriation in regards to its permanent reinvestment assertion. During fiscal 2018, the Company removed its permanent reinvestment assertion on approximately ~~$25~~$33 million of its foreign earnings ~~recorded~~and made distributions from its foreign earnings related to the ~~estimated tax impact~~

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assertion removal in ~~its financial statements, and~~the second quarter of approximately $18 million. The Company expects to repatriate approximately an additional $15 million of foreign earnings in fiscal 2019. 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, ~~of those earnings,~~ and the provisional estimate has been recorded in the ~~financial statements~~financials including withholding taxes and currency gain ~~on previously taxed earnings.~~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 $95 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 ~~our~~its foreign investments will be disclosed if practicable.

When calculating the income tax provision, the Company uses an estimate of the annual effective tax rate based upon information known at each interim period. The actual effective tax rate is adjusted each quarter based upon changes to the forecast as compared to the beginning of the fiscal year and each following interim period.

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~~The effective tax rate for the second quarter of fiscal 2018 was 234.2%, compared to 26.1% for the same period last year.~~ The effective tax rate for the first ~~six months~~quarter of fiscal ~~2018~~2019 was ~~(252.8)%~~30.5%, compared to ~~(307.6)%~~28.6% for the same period of fiscal 2017. The Company’s fiscal year 2018 tax rates reflect the estimated impact of the Tax Act, including the aforementioned cost of approximately $18.7 million resulting from the re-measurement of the Company’s deferred tax assets and liabilities as of the second quarter of fiscal 2018 and tax expense related to the inclusion of foreign earnings of approximately $6.2 million. Also aslast year. As a result of the Tax Act, the Company ~~will be~~is 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% infor the fiscal year ending June 30, 2019 and future fiscal years.

The ~~effective~~ tax rates for the ~~second quarter and~~ first ~~six months~~quarters of fiscal ~~2017~~2019 and 2018 were primarily driven by the ~~reversal of previously recorded reserves as the result of the effective settlement of the Company’s IRS audit for its fiscal years 2010~~federal research and 2013 consolidated income tax returns in the amount of approximately $3.9 million and the establishment of a valuation allowance against the deferred tax assets of the Company’s Brazilian subsidiary in the amount of approximately $2.7 million.development credit.

~~12.~~13. 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.

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

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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

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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. Each of the Company and Exmark filed several pre-trial motions in the Nebraska district court. On October 12, 2018, as part of the pretrial ruling, the court reaffirmed the validity of Exmark’s patent. The court has yet to issue its opinion on willfulness. The issues of damages and potentially willfulness will be addressed at the new trial.

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.~~court and the Nebraska district court’s October 12, 2018 ruling. 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 ~~December 31, 2017.~~September 30, 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.

~~13.~~

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14. Segment Information

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. For all periods presented, segment income (loss) is equal to income (loss) from operations. Summarized segment data is as follows (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	December 31, 2017			January 1, 2017			December 31, 2017			January 1, 2017			September 30, 2018			October 1, 2017
NET SALES:
Engines	$	243,505		$	260,737		$	406,252		$	415,235		$	119,090		$	162,746
Products	222,080			190,701			408,676			341,497			173,042			186,597
Inter-Segment Eliminations	(19,149		)	(23,202		)	(39,397		)	(41,698		)	(13,135		)	(20,249		)
Total*	$	446,436		$	428,236		$	775,531		$	715,034		$	278,997		$	329,094
* International sales included in net sales based on product shipment destination	$	157,248		$	158,727		$	271,885		$	268,614		$	88,526		$	114,637
GROSS PROFIT:
Engines	$	55,429		$	61,573		$	86,648		$	92,559		$	16,042		$	31,219
Products	37,090			33,178			72,797			56,129			27,556			35,707
Inter-Segment Eliminations	347			655			(314		)	(760		)	156			(661		)
Total	$	92,866		$	95,406		$	159,131		$	147,928		$	43,754		$	66,265
SEGMENT INCOME (LOSS):
Engines	$	8,421		$	17,922		$	(11,437	)	$	6,269		$	(44,408	)	$	(19,590	)
Products	8,320			6,808			12,003			3,563			(9,880		)	3,658
Inter-Segment Eliminations	347			655			(314		)	(760		)	156			(661		)
Total	$	17,088		$	25,385		$	252		$	9,072		$	(54,132	)	$	(16,593	)

Pre-tax business optimization charges, bad debt expense related to a major retailer bankruptcy, litigation settlement charge, and acquisition integration activities included in gross profit were as follows (in thousands):



	Three Months Ended
	September 30, 2018		October 1, 2017
Engines	$	423	$	425
Products	2,880		768
Total	$	3,303	$	1,193



	Three Months Ended
	September 30, 2018		October 1, 2017
Engines	$	14,488	$	2,331
Products	11,641		2,906
Total	$	26,129	$	5,237

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~~Pre-tax business optimization charges included in gross profit were as follows (in thousands):~~

Three Months Ended Six Months Ended
December 31,
2017 January 1,
2017 December 31,
2017 January 1,
2017
Engines $ 703
$ —
$ 1,128
$ —
Products 754
—
1,522
—
Total $ 1,457
$ —
$ 2,650
$ —

~~Pre-tax business optimization charges included in segment income (loss) were as follows (in thousands):~~

Three Months Ended Six Months Ended
December 31,
2017 January 1,
2017 December 31,
2017 January 1,
2017
Engines $ 2,016
$ —
$ 4,347
$ —
Products 1,044
—
3,950
—
Total $ 3,060
$ —
$ 8,297
$ —

~~14.~~15. Debt

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


	December 31, 2017		July 2, 2017		September 30, 2018		July 1, 2018
Multicurrency Credit Agreement	$	128,647	$	—	$	201,406	$	48,036
Total Short-Term Debt	$	128,647	$	—	$	201,406	$	48,036

Note Payable (NMTC transaction)	$	7,685	$	—	$	7,685	$	7,685
Unamortized Debt Issuance Costs associated with Note Payable	1,091		—		968		1,009
	$	6,594	$	—	$	6,717	$	6,676

6.875% Senior Notes	$	223,149	$	223,149	$	200,888	$	200,888
Unamortized Debt Issuance Costs associated with 6.875% Senior Notes	1,141		1,356		750		934
	$	222,008	$	221,793	$	200,138	$	199,954
Total Long-Term Debt	$	228,602	$	221,793	$	206,855	$	206,630

On December 20, 2010, the Company issued $225 million of 6.875% Senior Notes ("Senior Notes") due December 15, 2020. ~~During fiscal 2016, the~~The Company has repurchased ~~$1.9~~$24 million of ~~the~~ Senior Notes after receiving unsolicited offers from ~~bondholders.~~bondholders since issuance of the Senior Notes. There were no repurchases during the three month periods ended September 30, 2018 or October 1, 2017.

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 ~~revolving credit facility~~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. As of ~~December 31, 2017, $128.6~~September 30, 2018 and July 1, 2018, $201.4 million and $48.0 million was outstanding under the ~~Revolver. There were no borrowings under the~~ Revolver, ~~as of July 2, 2017.~~respectively. 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.

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

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transactions with the Company's 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.

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

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use on the project. Restricted cash of ~~$12.7~~$2.3 million held by the Company at ~~December 31, 2017~~September 30, 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.

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16. Acquisitions

On July 31, 2018 the Company completed a cash acquisition of certain assets of Hurricane Inc., a designer and manufacturer of commercial stand-on leaf and debris blowers. The purchase price is comprised of $8.7 million of cash consideration and $2.0 million of contingent cash consideration. The Company has accounted for the acquisition in accordance with ASC 805 and it has been included in the Products segment. At September 30, 2018, the preliminary purchase price allocation resulted in the recognition of $6.2 million of goodwill, and $4.6 million of intangible assets.

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

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RESULTS OF OPERATIONS

The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results by segment, excluding business optimization charges, ~~goodwill impairment charges,~~bad debt expense related to a major retailer bankruptcy, litigation settlement charge, and ~~one-time charges as a result of the implementation of the Tax Cuts and Jobs Act of 2017~~acquisition integration activities for the three months ended fiscal ~~December~~September 2019 and 2018 ~~and 2017~~ (in thousands, except per share data):


	Three Months Ended Fiscal December														Three Months Ended Fiscal September
	2018 Reported			Adjustments⁽¹⁾			2018 Adjusted⁽²⁾		2017 Reported		Adjustments		2017 Adjusted⁽²⁾		2019 Reported			Adjustments⁽¹⁾		2019 Adjusted⁽³⁾			2018 Reported			Adjustments⁽²⁾		2018 Adjusted⁽³⁾
Gross Profit:
Engines	$	55,429		$	703		$	56,132	$	61,573	$	—	$	61,573	$	16,042		$	423	$	16,465		$	31,219		$	425	$	31,644
Products	37,090			754			37,844		33,178		—		33,178		27,556			2,880		30,436			35,707			768		36,475
Inter-Segment Eliminations	347			—			347		655		—		655		156			—		156			(661		)	—		(661		)
Total	$	92,866		$	1,457		$	94,323	$	95,406	$	—	$	95,406	$	43,754		$	3,303	$	47,057		$	66,265		$	1,193	$	67,458

Engineering, Selling, General and Administrative Expenses:
Engines	$	48,167		$	90		$	48,077	$	45,706	$	—	$	45,706	$	62,189		$	13,128	$	49,061		$	53,091		$	1,906	$	51,185
Products	29,724			290			29,434		27,326		—		27,326		38,670			8,761		29,909			33,380			2,138		31,242
Total	$	77,891		$	380		$	77,511	$	73,032	$	—	$	73,032	$	100,859		$	21,889	$	78,970		$	86,471		$	4,044	$	82,427

Equity in Earnings of Unconsolidated Affiliates
Engines	$	1,159		$	1,223		$	2,382	$	2,055	$	—	$	2,055	$	1,739		$	937	$	2,676		$	2,282		$	—	$	2,282
Products	954			—			954		956		—		956		1,234			—		1,234			1,331			—		1,331
Total	$	2,113		$	1,223		$	3,336	$	3,011	$	—	$	3,011	$	2,973		$	937	$	3,910		$	3,613		$	—	$	3,613

Segment Income (Loss):
Engines	$	8,421		$	2,016		$	10,437	$	17,922	$	—	$	17,922	$	(44,408	)	$	14,488	$	(29,920	)	$	(19,590	)	$	2,331	$	(17,259	)
Products	8,320			1,044			9,364		6,808		—		6,808		(9,880		)	11,641		1,761			3,658			2,906		6,564
Inter-Segment Eliminations	347			—			347		655		—		655		156			—		156			(661		)	—		(661		)
Total	$	17,088		$	3,060		$	20,148	$	25,385	$	—	$	25,385	$	(54,132	)	$	26,129	$	(28,003	)	$	(16,593	)	$	5,237	$	(11,356	)

Income (Loss) Before Income Taxes	12,180			3,060			15,240		20,633		—		20,633		(58,949		)	26,129		(32,820		)	(21,074		)	5,237		(15,837		)
Provision (Credit) for Income Taxes	28,524			(24,010		)	4,514		5,382		—		5,382		(17,963		)	6,154		(11,809		)	(6,036		)	1,509		(4,527		)
Net Income (Loss)	$	(16,344	)	$	27,070		$	10,726	$	15,251	$	—	$	15,251	$	(40,986	)	$	19,975	$	(21,011	)	$	(15,038	)	$	3,728	$	(11,310	)

Earnings (Loss) Per Share
Basic	$	(0.39	)	$	0.64		$	0.25	$	0.35	$	—	$	0.35	$	(0.98	)	$	0.47	$	(0.51	)	$	(0.36	)	$	0.09	$	(0.27	)
Diluted	(0.39		)	0.64			0.25		0.35		—		0.35		(0.98		)	0.47		(0.51		)	(0.36		)	0.09		(0.27		)

(1) For the ~~second~~first quarter of fiscal 2019, business optimization expenses include $763 ($598 after tax) of non-cash charges related to accelerated depreciation, and $19,168 ($14,598 after tax) of cash charges related primarily to activities associated with the Company's Q1 FY19 ERP go-live, professional services, employee termination benefits, and plant rearrangement activities. The Company recognized bad debt expense of $4,132 ($3,199 after tax) after a major retailer announced that it had filed for bankruptcy protection. The Company recognized $2,000 ($1,529 after tax) for amounts accrued related to a litigation settlement charge and $65 ($50 after tax) related to acquisition integration activities.

(2) For the first quarter of fiscal 2018, business optimization expenses include ~~$0.8 million~~$2,249 ($~~0.5 million~~1,697 after tax) of non-cash charges related primarily to plant & equipment impairment and accelerated depreciation, and ~~$2.3 million~~$2,988 ($~~1.6 million~~2,032 after tax) of cash charges related primarily to employee termination benefits, lease terminations, professional services and plant rearrangement activities. ~~See below for discussion related to the previously announced business optimization program. Tax expense also includes a $24.9 million charge associated with the Tax Cuts and Jobs Act~~

Table of ~~2017 comprised of $18.7 million to remeasure deferred tax assets and liabilities and $6.2 million to record a transition tax on accumulated foreign earnings.~~Contents

~~(2)~~BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

(3) Adjusted financial results are non-GAAP financial measures. The Company believes this information is meaningful to investors as it isolates the impact that business optimization charges and certain other items 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.

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~~NET SALES~~

~~Consolidated net sales for the second quarter of fiscal 2018 were $446.4 million, an increase of $18.2 million, or 4.3%, from the second quarter of fiscal 2017.~~

Engines Segment net sales in the second quarter of fiscal 2018 decreased $17 million or 6.6% from the prior year. Engine sales unit volumes decreased by 10%, or approximately 180,000 engines, in the second quarter of fiscal 2018 compared to the same period last year. The decrease was primarily due to an acceleration of international sales into the first quarter of fiscal 2018, as well as management's anticipation that domestic customers will produce closer to the lawn and garden season this year. Sales of service parts to the company’s service distribution venture were also lower this year due to a planned seasonal inventory reduction initiative. Partially offsetting the sales decline were increased sales of commercial engines.

Products Segment net sales in the second quarter of fiscal 2018 increased $31 million, or 16.5%, from the prior year. The increase was primarily due to higher sales of commercial job site products, commercial lawn and garden equipment and snow throwers. Generator sales were slightly lower in the second quarter of fiscal 2018 given the prior year's second quarter included the impact of Hurricane Matthew.

~~GROSS PROFIT~~

The consolidated gross profit percentage was 20.8% in the second quarter of fiscal 2018, a decrease from 22.3% in the same period last year. Adjusted gross profit percentage was 21.3% in the second quarter this year. The prior year gross profit percentage did not have any adjustments.

The Engines Segment gross profit percentage was 22.8% in the second quarter of fiscal 2018, a decrease of 80 basis points from 23.6% in the second quarter of fiscal 2017. Adjusted gross profit percentage decreased 50 basis points due to approximately 5% lower manufacturing volume and unfavorable sales mix, which includes lower service parts sales. Higher material costs were offset by modest pricing increases.

The Products Segment gross profit percentage was 16.7% for the second quarter of fiscal 2018, down from 17.4% in the second quarter of fiscal 2017. Adjusted gross profit percentage was 17.0% in the second quarter this year primarily due to a 4% reduction in manufacturing throughput. Production of pressure washers and residential riding mowers was lower in the quarter in order to right size the company's inventory which was elevated coming out of last season.

~~ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES~~

~~Engineering, selling, general and administrative expenses were $77.9 million in the second quarter of fiscal 2018, an increase of $4.9 million or 6.7% from the second quarter of fiscal 2017.~~

The Engines Segment engineering, selling, general and administrative expenses for the second quarter of fiscal 2018 increased $2.5 million from the first quarter of fiscal 2017. Adjusted Engines Segment engineering, selling, general and administrative expenses increased $2.4 million primarily due to higher employee compensation costs and the investment in the upgrade to the company’s ERP system.

The Products Segment engineering, selling, general and administrative expenses were $29.7 million for the second quarter of fiscal 2018, an increase of $2.4 million from the second quarter of fiscal 2017. Adjusted Products Segment engineering, selling, general and administrative expenses increased $2.1 million due to higher compensation costs, higher commissions expense on increased sales volume and higher costs associated with investments to upgrade the company’s ERP system and growing commercial offerings.

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The following table is a reconciliation of financial results by segment, as reported, to adjusted financial results by segment, excluding business optimization charges, goodwill impairment charges, and one-time charges as a result of the implementation of the Tax Cuts and Jobs Act of 2017 for the six months ended fiscal December 2018 and 2017 (in thousands, except per share data):

Six Months Ended Fiscal December
2018 Reported
Adjustments⁽¹⁾

2018 Adjusted⁽²⁾
2017 Reported Adjustments
2017 Adjusted⁽²⁾
Gross Profit:
Engines $ 86,648
$ 1,128
$ 87,776
$ 92,559
$ —
$ 92,559
Products 72,797
1,522
74,319
56,129
—
56,129
Inter-Segment Eliminations (314 ) —
(314 ) (760 ) —
(760 )
Total $ 159,131
$ 2,650
$ 161,781
$ 147,928
$ —
$ 147,928

Engineering, Selling, General and Administrative Expenses:
Engines $ 101,526
$ 1,996
$ 99,530
$ 90,161
$ —
$ 90,161
Products 63,079
2,428
60,651
54,934
—
54,934
Total $ 164,605
$ 4,424
$ 160,181
$ 145,095
$ —
$ 145,095

Equity in Earnings of Unconsolidated Affiliates
Engines $ 3,441
$ 1,223
4,664
$ 3,871
$ —
$ 3,871
Products 2,285
—
2,285
2,368
—
2,368
Total $ 5,726
$ 1,223
$ 6,949
$ 6,239
$ —
$ 6,239

Segment Income (Loss):
Engines $ (11,437 ) $ 4,347
$ (7,090 ) $ 6,269
$ —
$ 6,269
Products 12,003
3,950
15,953
3,563
—
3,563
Inter-Segment Eliminations (314 ) —
(314 ) (760 ) —
(760 )
Total $ 252
$ 8,297
$ 8,549
$ 9,072
$ —
$ 9,072

Income (Loss) Before Income Taxes (8,895 ) 8,297
(598 ) 270
—
270
Provision (Credit) for Income Taxes 22,488
(22,501 ) (13 ) (833 ) —
(833 )
Net Income (Loss) $ (31,383 ) $ 30,798
$ (585 ) $ 1,103
$ —
$ 1,103

Earnings (Loss) Per Share
Basic $ (0.75 ) $ 0.73
$ (0.02 ) $ 0.02
$ —
$ 0.02
Diluted (0.75 ) 0.73
(0.02 ) 0.02
—
0.02

(1) For the second quarter of fiscal 2018, business optimization expenses include $3.0 million ($2.1 after tax) of non-cash charges related primarily to plant & equipment impairment and accelerated depreciation, and $5.3 million ($3.7 million after tax) of cash charges related primarily to employee termination benefits, lease terminations, professional services and plant rearrangement activities. See below for discussion related to the previously announced business optimization program. Tax expense also includes a $24.9 million charge associated with the Tax Cuts and Jobs Act of 2017 comprised of $18.7 million to remeasure deferred tax assets and liabilities and $6.2 million to record a transition tax on accumulated foreign earnings.

(2) Adjusted financial results are non-GAAP financial measures. The Company believes this information is meaningful to investors as it isolates the impact that business optimization charges and certain other items 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.

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NET SALES

Consolidated net sales for the first ~~six months~~quarter of fiscal ~~2018~~2019 were ~~$775.5~~$279.0 million, ~~an increase~~a decrease of ~~$60~~$50.1 million, or ~~8.4%~~15.2%, from the ~~second~~first quarter of fiscal ~~2017.~~2018.

Engines Segment net sales in the first ~~six months~~quarter of fiscal ~~2018~~2019 decreased ~~$8.9~~$43.6 million, or ~~2.2%~~26.8%, from the prior year. Engine sales unit volumes decreased by 4%25%, or approximately ~~105,000~~260,000 engines, in the first ~~six months~~quarter of fiscal ~~2018~~2019 compared to the same period last year. ~~The decrease was~~Engine and service part sales were lower primarily due to ~~management's anticipation that domestic~~timing of shipments. Sales of approximately $15 million had been accelerated into the fourth quarter of fiscal 2018 to support customers ~~will produce closer~~during the go-live of the Company's upgraded ERP system in early July. In addition, shipments are expected to occur later this year compared to last year due to lower shipping throughput this year associated with the ~~lawn and garden season~~go-live of the Company's upgraded ERP system in the first quarter. Certain engine customers were shut down for longer maintenance periods in the first quarter this year. Sales ~~of service parts to the company’s service distribution venture~~into Europe and Australia were also lower ~~this year~~ due to ~~a planned seasonal inventory reduction initiative. Partially offsetting~~unseasonably dry weather conditions which began to improve subsequent to the ~~sales decline were increased sales~~end of ~~commercial engines.~~the first quarter.

Products Segment net sales in the first ~~six months~~quarter of fiscal ~~2018 increased $67~~2019 decreased $13.6 million, or ~~19.6%~~7.3%, from the prior year. ~~Net sales increased primarily~~The decrease was due to lower generator sales due to less hurricane related activity compared to last year, prolonged drought conditions in Australia and lower service parts sales due to timing. Offsetting these decreases were higher commercial sales of ~~generators from hurricane activity as well as higher shipments of commercial~~ job site products and ~~commercial lawn and garden equipment. In the first six months of fiscal 2018, Hurricanes Harvey, Irma, and Maria made landfall compared to Hurricane Matthew in the same period last year.~~Ferris mowers.

GROSS PROFIT

The consolidated gross profit percentage was ~~20.5%~~15.7% in the first ~~six months~~quarter of fiscal ~~2018,~~2019, a decrease from ~~20.7%~~20.1% in the same period last year. Adjusted gross profit percentage was ~~20.9%~~16.9% in the first ~~six months of~~quarter this ~~year. The prior~~ year compared to adjusted gross profit ~~percentage did not have any adjustments.~~margin of 20.5% in the prior year.

The Engines Segment gross profit percentage was ~~21.3%~~13.5% in the first ~~six months~~quarter of fiscal ~~2018, a decrease of 100 basis points~~2019, down from ~~22.3%~~19.2% in the first ~~six months~~quarter of fiscal ~~2017.~~2018. Adjusted gross profit percentage ~~decreased 70 basis points~~was 13.8% in the first quarter this year compared to 19.4% in the prior year primarily due to ~~approximately 3% lower manufacturing volume and~~ unfavorable sales mix, ~~which includes~~including a lower proportion of service parts sales. ~~Higher material costs~~Manufacturing volumes were ~~offset~~lower compared to last year by ~~modest pricing increases.~~over 15% due to the cut-over to the Company's upgraded ERP system.

The Products Segment gross profit percentage was ~~17.8%~~15.9% for the first ~~six months~~quarter of fiscal ~~2018, up~~2019, down from ~~16.4%~~19.1% in the first ~~six months~~quarter of fiscal ~~2017.~~2018. Adjusted gross profit percentage was ~~18.2%~~17.6% in the first ~~six months of~~quarter this ~~year. Adjusted gross profit percentage increased 175 basis points,~~year compared to 19.5% in the prior year primarily due to ~~the~~unfavorable sales mix of proportionately lower service parts sales and a lower contribution margin from ~~hurricane-related sales and favorable sales mix.~~less hurricane related sales. Manufacturing throughput was slightly lower year over year related to the cut-over to the upgraded ERP system in the first quarter.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses were ~~$164.6~~$100.9 million in the first ~~six months~~quarter of fiscal ~~2018,~~2019, an increase of ~~$19.5~~$14.4 million, or ~~13.4%~~16.6%, from the first ~~six months~~quarter of fiscal ~~2017.~~2018.

The Engines Segment engineering, selling, general and administrative expenses for the first ~~six months~~quarter of fiscal 2019 increased $8.9 million from the first quarter of fiscal 2018 due to increased ~~$11.3 million from the second quarter of fiscal 2017.~~business optimization charges. Adjusted Engines Segment engineering, selling, general and administrative expenses ~~increased $9.3~~decreased $2.3 million primarily due to ~~higher~~reduced costs associated with lower employee compensation ~~costs and the investment in the upgrade to the company’s ERP system.~~expense.

The Products Segment engineering, selling, general and administrative expenses were ~~$63.0~~$38.6 million for the first ~~six months~~quarter of fiscal ~~2018,~~2019, an increase of ~~$8.1~~$5.2 million from the first ~~six months~~quarter of fiscal ~~2017.~~2018 due to increased business optimization charges, bad debt expense related to a major retailer bankruptcy, a litigation settlement charge, and acquisition integration activities. Adjusted Products Segment engineering, selling, general and administrative expenses ~~increased $5.7~~decreased $1.4 million due to ~~higher compensation costs, higher commissions expense on increased sales volume and higher~~reduced costs associated with ~~investments to upgrade the company’s ERP system and growing commercial offerings.~~lower employee compensation expense.

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INTEREST EXPENSE

Interest expense for the first ~~six~~three months of fiscal ~~2018~~2019 was ~~$0.9~~$0.2 million higher than the same period last ~~year.~~year primarily due to increased average net borrowings and higher interest rates.

PROVISION FOR INCOME TAXES

As a result of the Tax ~~Cuts and Jobs~~ Act, ~~(the “Tax Act”),~~ the Company ~~will be~~was subject to a U.S. federal statutory corporate income tax rate of 28% for the fiscal year ~~ending~~ended July 1, 2018 and is subject to a U.S. federal statutory corporate

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income tax rate of 21% in the fiscal year ending June 30, 2019 and 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 a favorable impact on ~~our~~the Company's 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. 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 ~~December 31, 2017,~~ September 30, 2018, the Company has analyzed its global working capital and cash requirements and the potential tax liabilities attributable to a repatriation. The Company removed its permanent reinvestment assertion on approximately ~~$25~~$33 million of its foreign earnings during fiscal 2018, 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~~also establishes new tax laws that come into effect for the Company in fiscal year 2019, ~~as well,~~ including ~~but not limited~~the creation of a new provision designed to tax global intangible ~~low taxed~~low-taxed income ~~(“GILTI”)~~(GILTI), which allows for the possibility of using foreign tax credits (FTCs), a deduction of up to 50 percent to offset the income tax liability, and ~~base erosion anti-abuse~~a deduction for foreign derived intangible income (FDII) subject to certain limitations. During fiscal year 2019, the Company is estimating a current income tax ~~(“BEAT”).~~ expense from the new GILTI provisions of approximately $850,000 with an offsetting foreign tax credit of approximately $130,000.

Changes in corporate tax rates, the deferred tax assets and liabilities relating to ~~our~~the Company's 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~~the Company's future consolidated tax expense.

BUSINESS OPTIMIZATION PROGRAM

The ~~company~~Company made progress on implementing its previously announced business optimization program in the ~~second~~first quarter of fiscal ~~2018.~~2019. 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~~Company’s existing large engine plants, which are located in Georgia and Alabama, ~~and~~ expanding Ferris commercial mower production capacity ininto a new, modern facility which is located close to the current manufacturing facility in New ~~York.~~York, and the implementation of an ERP upgrade. The Company successfully went live with the ERP upgrade at the beginning of the first quarter of fiscal 2019.

Production of Vanguard engines in the ~~company’s~~Company’s U.S. plants began in the fourth quarter of fiscal 2018 and is expected to be phased in ~~beginning in late fiscal 2018~~ through the middle of fiscal 2019. ~~Currently,~~Previously, the majority of Vanguard engines ~~are~~were sourced from overseas. Production of Ferris commercial mowers ~~is expected to begin~~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 go-live for the ERP upgrade is expected near the endthird quarter of fiscal ~~2018, subsequent to the peak seasonal shipment period.~~2019 and remains on track.

For the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2018,~~2019, the ~~company~~Company recorded business optimization charges of ~~$3.1~~$19.9 million ($~~2.2~~15.2 million after tax or ~~$0.05~~$0.36 per diluted share) ~~and $8.3 million ($5.9 million after tax or $0.14 per diluted share), respectively. Total pre-tax expenses related to~~. Pre-tax charges associated with the business optimization program

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were in line with expectations for the first quarter. Full year costs are expected to be approximately $27 million to $32 million in fiscal 2019. Total program cost estimate remains unchanged at $50 million to $55 ~~million, of which $24 million to $28 million is expected be recognized in fiscal 2018.~~ 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~~Company estimates the future annual savings will be achieved over a three-year period beginning in fiscal 2019.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows used in operating activities for the first ~~six~~three months of fiscal ~~2018~~2019 were ~~$64.9~~$136.7 million compared to ~~$126.6~~$29.5 million in the first ~~six~~three months of fiscal ~~2017.~~2018. The ~~decrease~~increase in cash used in operating activities was primarily related to ~~changes in~~increased net loss and higher working ~~capital, including greater collections of accounts receivable due to timing of sales and customer payments, as well as higher accounts payable due to timing.~~

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capital.

Cash flows used in investing activities were ~~$59.4~~$30.1 million and ~~$26.8~~$26.7 million during the first ~~six~~three months of fiscal ~~2018~~2019 and fiscal ~~2017,~~2018, respectively. The ~~$32.6 million~~ increase in cash used in investing activities was primarily related to ~~an increase in restricted~~ cash ~~of $12.7 million associated with the New Markets Tax Credit (NMTC) transaction, which occurred in fiscal 2018, and a $14.4 million increase~~paid for acquisitions, offset by lower capital ~~expenditures year over year.~~expenditures.

Cash flows provided by financing activities were ~~$127.8~~$149.9 million and ~~$112.6~~$68.3 million during the first ~~six~~three months of fiscal ~~2018~~2019 and ~~2017,~~fiscal 2018, respectively. The ~~$13.5~~$81.6 million increase in cash provided by financing activities was attributable to ~~$3.1 million~~higher borrowings on the Revolver (as defined below) in ~~cash used to purchase treasury in~~the first quarter of fiscal ~~2018 as~~2019 compared to ~~$15.1 million used in~~ the ~~comparable period.~~same period last year.

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.

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 revolving credit facility 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. As of ~~December 31, 2017, $128.6~~September 30, 2018 and July 1, 2018, $201.4 million and $48.0 million was outstanding under the ~~Revolver. There were no borrowings under the~~ Revolver, ~~as of July 2, 2017.~~respectively. 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.

On April ~~21, 2016,~~25, 2018, the Board of Directors authorized ~~up to~~ $50 million in funds for use in the common share repurchase program ~~with an expiration date of~~expiring June ~~29, 2018.~~30, 2020. As of ~~December 31, 2017,~~September 30, 2018, the total remaining authorization was approximately ~~$27.4~~$44.9 million. 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. During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2018, the Company repurchased ~~141,195~~282,126 shares on the open market at an average price of ~~$22.16~~$18.02 per share, as compared to ~~787,343~~99,281 shares purchased on the open market at an average price of ~~$19.25~~$21.20 per share during the ~~six~~three months ended ~~January~~October 1, 2017.

The Company expects capital expenditures to be approximately ~~$80 million to $90~~$65 million in fiscal ~~2018.~~2019. These anticipated expenditures reflect the Company's business optimization program as well as ~~continuing to reinvest~~continued reinvestment in efficient equipment and innovative new products.

During the first six months of fiscal 2018, the Company made no 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 2018 but the Company may choose to make discretionary contributions. The Company does anticipate making a voluntary contribution to the qualified pension plan of up to $50 million in fiscal 2018. 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. During the fourth quarter of fiscal 2018, the Company plans to annuitize a portion of the qualified pension plan obligation which the Company expects will remove approximately $100 million of pension obligation and result in a non-cash pre-tax charge of $40 to $45 million.

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.

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maintain a minimum interest coverage ratio and impose on the Company a maximum average leverage ratio. As of

September 30,

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~~BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES~~

~~December 31, 2017,~~ 2018, the Company was in compliance with these covenants, and expects to be in compliance with all covenants during the remainder of fiscal ~~2018.~~2019.

On October 15, 2018, Sears Holdings Corporation ("Sears") announced that it had filed for bankruptcy protection. Net sales in support of Sears represent less than 3% of the Company's outlook for fiscal year 2019. The Company expects that the Sears bankruptcy will have a limited impact on the Company's fiscal 2019 outlook and will not have any material impact on long-term results. The Company will work closely with channel partners to mitigate sales loss due to a potential acceleration in the reduction of Sears stores. The Company recorded bad debt expense of $4.1 million for amounts due from Sears during the first quarter of fiscal year 2019.

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OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes since the August ~~29, 2017~~28, 2018 filing of the Company’s Annual Report on Form 10-K.

CONTRACTUAL OBLIGATIONS

There have been no material changes since the August ~~29, 2017~~28, 2018 filing of the Company’s Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies since the August ~~29, 2017~~28, 2018 filing of its Annual Report on Form 10-K. As discussed in its annual report, the preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 most significant accounting estimates inherent in the preparation of the Company's financial statements include a goodwill assessment, estimates as to the realizability of accounts receivable and inventory assets, as well as estimates used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, group health insurance, litigation and taxation. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and, in some instances, actuarial techniques. The Company re-evaluates these significant factors as facts and circumstances change.

NEW ACCOUNTING PRONOUNCEMENTS

A discussion of new accounting pronouncements is included in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q under the heading "New Accounting Pronouncements" and is incorporated herein by reference.

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, including U.S. tax reform, changes in tax rates, laws and regulations as well as related guidance; imposition of new, or change in existing, duties, tariffs and trade agreements; 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 the business optimization program and restructuring actions; and other factors disclosed from time to time in ~~its~~the Company's SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K and in its periodic reports on Form 10-Q. The Company ~~is not undertaking any~~undertakes no obligation to update ~~any~~ 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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There have been no material changes since the August ~~29, 2017~~28, 2018 filing of the Company’s Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

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

INTERNAL CONTROL OVER FINANCIAL REPORTING

In the first quarter of fiscal 2019, the Company went live with an upgraded ERP system. As a result of the ERP go-live, there was a material change to the Company's internal control framework. The Company's management believes it took the necessary steps to monitor and maintain appropriate internal controls during the cut over period of system change. The primary change to internal controls is the increase in automated controls and enhancement of role based security within the new ERP system, which will allow the Company to be more efficient and further enhance our internal controls over financial reporting.

~~There has~~Other than noted above, there have not been any ~~change~~changes in the Company’s internal control over financial reporting during the ~~second~~first fiscal quarter that ~~has~~have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A discussion of legal proceedings is included in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q under the heading "Commitments and Contingencies" and is incorporated herein by reference.

ITEM 1A. RISK FACTORS

There have been no material changes since the August ~~29, 2017~~28, 2018 filing of the Company’s Annual Report on Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 ~~December 31, 2017~~September 30, 2018.

2018 Fiscal Month Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Program (b) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (b)
October 2, 2017 to October 29, 2017 1,036
$ 21.99
160
$ 28,411,129
October 30, 2017 to November 26, 2017 29,054
24.41
29,054
27,701,817
November 27, 2017 to December 31, 2017 12,700
24.49
12,700
27,390,825
Total Second Quarter 42,790
$ 24.43
41,914
$ 27,390,825



2019 Fiscal Month	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program (b)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (b)
July 2, 2018 to July 29, 2018	122,519	$	17.49	122,519	$	47,857,372
July 30, 2018 to August 26, 2018	212,976	18.98		119,218	45,739,975
August 27, 2018 to September 30, 2018	40,389	20.37		40,389	44,917,146
Total First Quarter	375,884	$	18.64	282,126	$	44,917,146

(a) During the three months ended ~~December 31, 2017,~~September 30, 2018, the Company repurchased ~~876~~93,00 shares that were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock. These shares were not included in the authorized share repurchase program.

(b) On April ~~21, 2016,~~25, 2018, 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.~~30, 2020.

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ITEM 6. EXHIBITS



Exhibit Number		Description

10.1		~~Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit B to the Company’s Definitive Proxy Statement~~Amended and Restated Form of Officer Employment Agreement for ~~the Annual Meeting, filed~~new officers appointed on ~~September 8, 2017)~~or after August 15, 2018 (Filed herewith)

10.2		Form of Stock Option Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated October 25, 2017)

~~10.3~~		Form of Performance Unit Award Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan ~~(incorporated by reference~~for awards to ~~Exhibit 10.3 to the Company's Current Report~~be granted on ~~Form 8-K dated October 25, 2017)~~or after August 15, 2018 (Filed herewith)

~~10.4~~		Form of Restricted Stock Award Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated October 25, 2017)

~~10.5~~		Form Restricted Stock Unit Award Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K dated October 25, 2017)

~~10.6~~		Form of CEO Stock Option Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K dated October 25, 2017)

~~10.7~~10.3		Form of CEO Performance Unit Award Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan ~~(incorporated by reference~~for awards to ~~Exhibit 10.7 to the Company's Current Report~~be granted on ~~Form 8-K dated October 25, 2017)~~

~~10.8~~		Form of CEO Restricted Stock Award Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K dated October 25, 2017)

~~10.9~~		Form of CEO Restricted Stock Unit Award Agreement under the Briggs & Stratton Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company's Current Report on Form 8-K dated October 25, 2017)

~~10.10~~		Letter Agreement, dated October 25, 2017, between Briggs & Stratton Corporation and Todd J. Teske (incorporated by reference to Exhibit 10.10 to the Company's Current Report on Form 8-K dated October 25, 2017)or after August 15, 2018 (Filed herewith)

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)


32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017~~September 30, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related Notes to Condensed Consolidated Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		BRIGGS & STRATTON CORPORATION
		(Registrant)

Date:	~~February 5,~~November 6, 2018	/s/ Mark A. Schwertfeger
		Mark A. Schwertfeger
		Senior Vice President and Chief Financial Officer and Duly Authorized Officer

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	Six Months Ended December 31, 2017
	Cumulative Translation Adjustments			Derivative Financial Instruments			Pension and Postretirement Benefit Plans			Total
Beginning Balance	$	(24,744	)	$	(76	)	$	(275,206	)	$	(300,026	)
Other Comprehensive Income (Loss) Before Reclassification	3,247			(755		)	—			2,492
Income Tax Benefit (Expense)	—			283			—			283
Net Other Comprehensive Income (Loss) Before Reclassifications	3,247			(472		)	—			2,775
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			2,416			—			2,416
Realized (Gains) Losses - Commodity Contracts (1)	—			32			—			32
Realized (Gains) Losses - Interest Rate Swaps (1)	—			(17		)	—			(17		)
Amortization of Prior Service Costs (Credits) (2)	—			—			(627		)	(627		)
Amortization of Actuarial Losses (2)	—			—			9,392			9,392
Total Reclassifications Before Tax	—			2,431			8,765			11,196
Income Tax Expense (Benefit)	—			(912		)	(3,287		)	(4,199		)
Net Reclassifications	—			1,519			5,478			6,997
Other Comprehensive Income (Loss)	3,247			1,047			5,478			9,772
Ending Balance	$	(21,497	)	$	971		$	(269,728	)	$	(290,254	)



	December 31, 2017		July 2, 2017
Financial Position:
Assets:
Current Assets	$	127,524	$	157,117
Noncurrent Assets	50,004		54,748
	177,528		211,865
Liabilities:
Current Liabilities	$	39,469	$	61,346
Noncurrent Liabilities	22,714		25,399
	62,183		86,745
Equity	$	115,345	$	125,120



	Six Months Ended Fiscal December
	2018 Reported			Adjustments⁽¹⁾			2018 Adjusted⁽²⁾			2017 Reported			Adjustments		2017 Adjusted⁽²⁾
Gross Profit:
Engines	$	86,648		$	1,128		$	87,776		$	92,559		$	—	$	92,559
Products	72,797			1,522			74,319			56,129			—		56,129
Inter-Segment Eliminations	(314		)	—			(314		)	(760		)	—		(760		)
Total	$	159,131		$	2,650		$	161,781		$	147,928		$	—	$	147,928

Engineering, Selling, General and Administrative Expenses:
Engines	$	101,526		$	1,996		$	99,530		$	90,161		$	—	$	90,161
Products	63,079			2,428			60,651			54,934			—		54,934
Total	$	164,605		$	4,424		$	160,181		$	145,095		$	—	$	145,095

Equity in Earnings of Unconsolidated Affiliates
Engines	$	3,441		$	1,223		4,664			$	3,871		$	—	$	3,871
Products	2,285			—			2,285			2,368			—		2,368
Total	$	5,726		$	1,223		$	6,949		$	6,239		$	—	$	6,239

Segment Income (Loss):
Engines	$	(11,437	)	$	4,347		$	(7,090	)	$	6,269		$	—	$	6,269
Products	12,003			3,950			15,953			3,563			—		3,563
Inter-Segment Eliminations	(314		)	—			(314		)	(760		)	—		(760		)
Total	$	252		$	8,297		$	8,549		$	9,072		$	—	$	9,072

Income (Loss) Before Income Taxes	(8,895		)	8,297			(598		)	270			—		270
Provision (Credit) for Income Taxes	22,488			(22,501		)	(13		)	(833		)	—		(833		)
Net Income (Loss)	$	(31,383	)	$	30,798		$	(585	)	$	1,103		$	—	$	1,103

Earnings (Loss) Per Share
Basic	$	(0.75	)	$	0.73		$	(0.02	)	$	0.02		$	—	$	0.02
Diluted	(0.75		)	0.73			(0.02		)	0.02			—		0.02



2018 Fiscal Month	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program (b)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (b)
October 2, 2017 to October 29, 2017	1,036	$	21.99	160	$	28,411,129
October 30, 2017 to November 26, 2017	29,054	24.41		29,054	27,701,817
November 27, 2017 to December 31, 2017	12,700	24.49		12,700	27,390,825
Total Second Quarter	42,790	$	24.43	41,914	$	27,390,825