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 ~~April 1, 2018~~March 31, 2019



¨	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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (par value $0.01 per share)	BGG	New York Stock Exchange

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 April 30, ~~2018~~2019
COMMON STOCK, par value $0.01 per share		~~42,665,299~~42,057,970 Shares

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

INDEX



		Page No.

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – ~~April~~March 31, 2019 and July 1, 2018 ~~and July 2, 2017~~	3

	Condensed Consolidated Statements of Operations – Three and Nine Months Ended March 31, 2019 and April 1, 2018	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended March 31, 2019 and April ~~2, 2017~~1, 2018	5

	Condensed Consolidated Statements of ~~Comprehensive Income~~Shareholders' Investment – Three and Nine Months Ended March 31, 2019 and April 1, 2018 ~~and April 2, 2017~~	6

	Condensed Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2019 and April 1, 2018 ~~and April 2, 2017~~	78

	Notes to Condensed Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2527

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3337

Item 4.	Controls and Procedures	3337

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3337

Item 1A.	Risk Factors	3337

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3437

Item 6.	Exhibits	3538

Signatures		3639

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS



	April 1, 2018		July 2, 2017		March 31, 2019		July 1, 2018
CURRENT ASSETS:
Cash and Cash Equivalents	$	56,165	$	61,707	$	23,863	$	44,923
Accounts Receivable, Net	259,472		230,011		253,536		182,801
Inventories -
Finished Products	309,716		265,720		370,273		290,108
Work in Process	119,856		102,187		141,807		111,409
Raw Materials	8,920		6,972		13,130		10,314
Total Inventories	438,492		374,879		525,210		411,831
Prepaid Expenses and Other Current Assets	35,953		22,844		34,682		39,651
Total Current Assets	790,082		689,441		837,291		679,206
OTHER ASSETS:
Goodwill	164,213		161,649		169,693		163,200
Investments	50,224		51,677		46,937		50,960
Other Intangible Assets, Net	98,021		100,595		97,465		95,864
Long-Term Deferred Income Tax Asset	34,886		64,412		31,031		12,149
Other Long-Term Assets, Net	20,932		18,325		20,365		20,507
Total Other Assets	368,276		396,658		365,491		342,680
PLANT AND EQUIPMENT:
Cost	1,161,535		1,104,583		1,208,747		1,175,165
Less - Accumulated Depreciation	762,186		739,703		795,467		753,085
Total Plant and Equipment, Net	399,349		364,880		413,280		422,080
TOTAL ASSETS	$	1,557,707	$	1,450,979	$	1,616,062	$	1,443,966

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(In thousands, except per share data)

(Unaudited)

LIABILITIES & SHAREHOLDERS’ INVESTMENT



	April 1, 2018			July 2, 2017			March 31, 2019			July 1, 2018
CURRENT LIABILITIES:
Accounts Payable	$	202,822		$	193,677		$	272,125		$	204,173
Short-Term Debt	131,556			—			211,545			48,036
Accrued Liabilities	157,895			136,701			143,432			131,897
Total Current Liabilities	492,273			330,378			627,102			384,106
OTHER LIABILITIES:
Accrued Pension Cost	197,749			242,908			179,487			189,872
Accrued Employee Benefits	21,787			21,897			20,122			20,196
Accrued Postretirement Health Care Obligation	29,547			35,132			25,294			30,186
Accrued Warranty	14,983			14,468			15,729			15,781
Other Long-Term Liabilities	38,754			25,069			45,321			33,447
Long-Term Debt	202,332			221,793			195,464			199,954
Total Other Liabilities	505,152			561,267			481,417			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	75,001			73,562			77,523			76,408
Retained Earnings	1,089,364			1,107,033			1,018,265			1,071,480
Accumulated Other Comprehensive Loss	(280,546		)	(300,026		)	(255,021		)	(252,272		)
Treasury Stock at cost, 15,150 and 15,047 shares, respectively	(324,116		)	(321,814		)
Treasury Stock at cost, 15,784 and 14,942 shares, respectively							(333,803		)	(325,771		)
Total Shareholders’ Investment	560,282			559,334			507,543			570,424
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT	$	1,557,707		$	1,450,979		$	1,616,062		$	1,443,966

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
NET SALES	$	604,069		$	596,965		$	1,379,599		$	1,311,998		$	580,196		$	604,069		$	1,364,655		$	1,379,599
COST OF GOODS SOLD	473,796			462,194			1,090,196			1,029,299			483,209			473,796			1,131,422			1,090,196
Gross Profit	130,273			134,771			289,403			282,699			96,987			130,273			233,233			289,403
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	79,885			78,279			244,490			223,373			79,521			80,156			267,553			245,304
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES	713			1,079			6,438			7,318			(205		)	713			5,786			6,438
Income from Operations	51,101			57,571			51,351			66,644
Income (Loss) from Operations													17,261			50,830			(28,534		)	50,537
INTEREST EXPENSE	(8,617		)	(5,521		)	(19,167		)	(15,159		)	(9,088		)	(8,617		)	(21,731		)	(19,167		)
OTHER INCOME, Net	1,079			844			2,483			1,679			953			1,350			391			3,297
Income Before Income Taxes	43,563			52,894			34,667			53,164
PROVISION FOR INCOME TAXES	11,675			17,075			34,163			16,242
NET INCOME	$	31,888		$	35,819		$	504		$	36,922
Income (Loss) Before Income Taxes													9,126			43,563			(49,874		)	34,667
PROVISION (CREDIT) FOR INCOME TAXES													1,121			11,675			(14,331		)	34,163
NET INCOME (LOSS)													$	8,005		$	31,888		$	(35,543	)	$	504

EARNINGS PER SHARE
EARNINGS (LOSS) PER SHARE
Basic	$	0.74		$	0.83		$	0.00		$	0.86		$	0.19		$	0.74		$	(0.86	)	$	0.00
Diluted	0.74			0.83			0.00			0.86			0.19			0.74			(0.86		)	0.00

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	42,064			42,076			42,108			42,217			41,527			42,064			41,691			42,108
Diluted	42,307			42,175			42,362			42,271			41,527			42,307			41,691			42,362

DIVIDENDS PER SHARE	$	0.14		$	0.14		$	0.42		$	0.42		$	0.14		$	0.14		$	0.42		$	0.42

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS

(In thousands)

(Unaudited)

Three Months Ended Nine Months Ended
April 1,
2018 April 2,
2017 April 1,
2018 April 2,
2017
Net Income $ 31,888
$ 35,819
$ 504
$ 36,922
Other Comprehensive Income:
Cumulative Translation Adjustments 4,349
4,646
7,596
(1,804 )
Unrealized Gain (Loss) on Derivative Instruments, Net of Tax 2,034
(577 ) 3,081
2,191
Unrecognized Pension & Postretirement Obligation, Net of Tax 3,325
2,590
8,803
7,770
Other Comprehensive Income 9,708
6,659
19,480
8,157
Total Comprehensive Income $ 41,596
$ 42,478
$ 19,984
$ 45,079



	Three Months Ended					Nine Months Ended
	March 31, 2019			April 1, 2018		March 31, 2019			April 1, 2018
Net Income (Loss)	$	8,005		$	31,888	$	(35,543	)	$	504
Other Comprehensive Income (Loss):
Cumulative Translation Adjustments	1,196			4,349		(2,230		)	7,596
Unrealized Gain (Loss) on Derivative Instruments, Net of Tax	(4,157		)	2,034		(8,635		)	3,081
Unrecognized Pension & Postretirement Obligation, Net of Tax	2,708			3,325		8,116			8,803
Other Comprehensive Income (Loss)	(253		)	9,708		(2,749		)	19,480
Total Comprehensive Income (Loss)	$	7,752		$	41,596	$	(38,292	)	$	19,984

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT

(In thousands)

(Unaudited)



FOR THE THREE MONTHS ENDED MARCH 31, 2019	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholder Investment
BALANCES, DECEMBER 30, 2018	$	579	$	77,310		$	1,016,205		$	(254,768	)	$	(333,907	)	505,419
Net Income	—		—			8,005			—			—			8,005
Total Other Comprehensive Loss, Net of Tax	—		—			—			(253		)	—			(253		)
Cash Dividends Declared ($0.14 per share)	—		—			(5,895		)	—			—			(5,895		)
Stock Option Activity, Net of Tax	—		—			—			—			—			—
Restricted Stock	—		—			—			—			(241		)	(241		)
Amortization of Unearned Compensation	—		490			—			—			—			490
Deferred Stock	—		—			—			—			—			—
Deferred Stock - Directors	—		(277		)	(50		)	—			853			526
Treasury Stock Purchases	—		—			—			—			(508		)	(508		)
BALANCES, MARCH 31, 2019	$	579	$	77,523		$	1,018,265		$	(255,021	)	$	(333,803	)	$	507,543



FOR THE THREE MONTHS ENDED APRIL 1, 2018	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholder Investment
BALANCES, DECEMBER 31, 2017	$	579	$	73,635		$	1,063,501		$	(290,254	)	$	(319,252	)	528,209
Net Income	—		—			31,888			—			—			31,888
Total Other Comprehensive Income Net of Tax	—		—			—			9,708			—			9,708
Cash Dividends Declared ($0.14 per share)	—		—			(6,007		)	—			—			(6,007		)
Stock Option Activity, Net of Tax	—		(22		)	—			—			855			833
Restricted Stock	—		7			—			—			(179		)	(172		)
Amortization of Unearned Compensation	—		461			—			—			—			461
Deferred Stock	—		68			—			—			41			109
Deferred Stock - Directors	—		852			(18		)	—			—			834
Treasury Stock Purchases	—		—			—			—			(5,581		)	(5,581		)
BALANCES, APRIL 1, 2018	$	579	$	75,001		$	1,089,364		$	(280,546	)	$	(324,116	)	$	560,282

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT

(In thousands)

(Unaudited)



FOR THE NINE MONTHS ENDED MARCH 31, 2019	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholder Investment
BALANCES, JULY 1, 2018	$	579	$	76,408		$	1,071,480		$	(252,272	)	$	(325,771	)	570,424
Net Loss	—		—			(35,543		)	—			—			(35,543		)
Total Other Comprehensive Loss, Net of Tax	—		—			—			(2,749		)	—			(2,749		)
Cash Dividends Declared ($0.42 per share)	—		—			(17,492		)	—			—			(17,492		)
Stock Option Activity, Net of Tax	—		(43		)	—			—			1,862			1,819
Restricted Stock	—		(72		)	—			—			670			598
Amortization of Unearned Compensation	—		1,886			—			—			—			1,886
Deferred Stock	—		(879		)	—			—			520			(359		)
Deferred Stock - Directors	—		223			(180		)	—			853			896
Treasury Stock Purchases	—		—			—			—			(11,937		)	(11,937		)
BALANCES, MARCH 31, 2019	$	579	$	77,523		$	1,018,265		$	(255,021	)	$	(333,803	)	$	507,543



FOR THE NINE MONTHS ENDED APRIL 1, 2018	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholder Investment
BALANCES, JULY 2, 2017	$	579	$	73,562		$	1,107,033		$	(300,026	)	$	(321,814	)	559,334
Net Income	—		—			504			—			—			504
Total Other Comprehensive Income, Net of Tax	—		—			—			19,480			—			19,480
Cash Dividends Declared ($0.42 per share)	—		—			(18,016		)	—			—			(18,016		)
Stock Option Activity, Net of Tax	—		(1,671		)	—			—			3,943			2,272
Restricted Stock	—		1,404			—			—			1,816			3,220
Amortization of Unearned Compensation	—		1,851			—			—			—			1,851
Deferred Stock	—		(867		)	—			—			649			(218		)
Deferred Stock - Directors	—		722			(157		)	—			—			565
Treasury Stock Purchases	—		—			—			—			(8,710		)	(8,710		)
BALANCES, APRIL 1, 2018	$	579	$	75,001		$	1,089,364		$	(280,546	)	$	(324,116	)	$	560,282

BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	March 31, 2019			April 1, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(35,543	)	$	504
Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities:
Depreciation and Amortization	47,385			43,756
Stock Compensation Expense	5,496			5,312
Loss on Disposition of Plant and Equipment	66			1,595
Provision (Credit) for Deferred Income Taxes	(19,247		)	24,744
Equity in Earnings of Unconsolidated Affiliates	(8,403		)	(9,068		)
Dividends Received from Unconsolidated Affiliates	10,510			9,810
Cash Contributions to Qualified Pension Plans	—			(30,000		)
Change in Operating Assets and Liabilities:
Accounts Receivable	(70,876		)	(25,948		)
Inventories	(113,407		)	(62,780		)
Other Current Assets	(856		)	(3,430		)
Accounts Payable, Accrued Liabilities and Income Taxes	77,905			11,287
Other, Net	2,079			15,198
Net Cash Used in Operating Activities	(104,891		)	(19,020		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures	(46,379		)	(77,483		)
Proceeds Received on Disposition of Plant and Equipment	31			339
Cash Paid for Acquisition, Net of Cash Acquired	(8,865		)	(1,800		)
Net Cash Used in Investing Activities	(55,213		)	(78,944		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings on Revolver	163,509			131,556
Repayments on Long-Term Debt	(5,424		)	(19,781		)
Long Term Note Payable	—			7,685
Debt Issuance Costs	—			(1,154		)
Treasury Stock Purchases	(11,937		)	(8,710		)
Stock Option Exercise Proceeds and Tax Benefits	1,823			3,943
Cash Dividends Paid	(11,891		)	(12,007		)
Payments Related to Shares Withheld for Taxes for Stock Compensation	(257		)	(1,147		)
Net Cash Provided by Financing Activities	135,823			100,385
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(239		)	1,090
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(24,520		)	3,511
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, Beginning (1)	49,218			61,707
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, Ending (2)	$	24,698		$	65,218

(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.

Nine Months Ended
April 1,
2018 April 2,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 504
$ 36,922
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
Depreciation and Amortization 43,756
42,177
Stock Compensation Expense 5,312
4,560
Loss on Disposition of Plant and Equipment 1,595
610
Provision for Deferred Income Taxes 24,744
7,574
Equity in Earnings of Unconsolidated Affiliates (9,068 ) (7,318 )
Dividends Received from Unconsolidated Affiliates 9,810
8,186
Cash Contributions to Qualified Pension Plan (30,000 ) —
Change in Operating Assets and Liabilities:
Accounts Receivable (25,948 ) (110,978 )
Inventories (62,780 ) (27,553 )
Other Current Assets (3,430 ) 584
Accounts Payable, Accrued Liabilities and Income Taxes 11,287
30,041
Other, Net 15,198
(11,269 )
Net Cash Used in Operating Activities (19,020 ) (26,464 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (77,483 ) (48,780 )
Proceeds Received on Disposition of Plant and Equipment 339
1,014
Cash Paid for Acquisition, Net of Cash Acquired (1,800 ) —
Proceeds on Sale of Investment in Marketable Securities —
3,343
Increase to Restricted Cash (9,053 ) —
Net Cash Used in Investing Activities (87,997 ) (44,423 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings on Revolver 131,556
62,300
Repayments on Long-Term Debt (19,781 ) —
Long Term Note Payable 7,685
—
Debt Issuance Costs (1,154 ) —
Treasury Stock Purchases (8,710 ) (17,924 )
Payment of Acquisition Contingent Liability —
(1,625 )
Stock Option Exercise Proceeds and Tax Benefits 3,943
4,751
Cash Dividends Paid (12,007 ) (12,028 )
Payments Related to Shares Withheld for Taxes for Stock Compensation (1,147 ) (1,739 )
Net Cash Provided by Financing Activities 100,385
33,735
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,090
(590 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,542 ) (37,742 )
CASH AND CASH EQUIVALENTS, Beginning 61,707
89,839
CASH AND CASH EQUIVALENTS, Ending $ 56,165
$ 52,097
(2) Included within Ending Cash, Cash Equivalents, and Restricted Cash is approximately $0.8 million and $9.1 million of restricted cash as of March 31, 2019 and April 1, 2018, 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~~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~~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 Company's 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 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 August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting and Hedging Activities. ASU No. 2017-12 better aligns a Company's risk management activities and financial reporting for hedging relationships, in addition to simplifying certain aspects of ASC Topic 815. 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 pension costs in the amount of $0.5 million and $1.5 million have been included in Other Income in the Statement of Operations for the three and nine months ended March 31, 2019. Non-service cost components of net periodic pension costs in the amount of $0.3 million and $0.8 million have been included in Other Income in the Statement of Operations for the three and nine months ended April 1, 2018.

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

In 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):



	March 31, 2019		July 1, 2018
Cash and cash equivalents	$	23,863	$	44,923
Restricted cash	835		4,295
Cash, cash equivalents, and restricted cash	$	24,698	$	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's project plan involves identifying and implementing appropriate changes to its business processes, systems and controls as well

as compiling and evaluating lease arrangements to support lease accounting and disclosures under Topic 842. The Company made further progress during the quarter ended March 31, 2019 and is in the process of updating the Company's lease accounting system to prepare for adoption. 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).~~Liabilities. 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 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.

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3. Accumulated Other Comprehensive Income (Loss)

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


	Three Months Ended April 1, 2018												Three Months Ended March 31, 2019
	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	$	(21,497	)	$	971		$	(269,728	)	$	(290,254	)	$	(32,354	)	$	2,008		$	(224,422	)	$	(254,768	)
Other Comprehensive Income before Reclassification	4,349			606			—			4,955
Other Comprehensive Income (Loss) Before Reclassification													1,196			(7,393		)	—			(6,197		)
Income Tax Benefit (Expense)	—			(146		)	—			(146		)	—			1,848			—			1,848
Net Other Comprehensive Income Before Reclassifications	4,349			460			—			4,809
Net Other Comprehensive Income (Loss) Before Reclassifications													1,196			(5,545		)	—			(4,349		)
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			2,121			—			2,121			—			2,190			—			2,190
Realized (Gains) Losses - Commodity Contracts (1)	—			33			—			33			—			(20		)	—			(20		)
Realized (Gains) Losses - Interest Rate Swaps (1)	—			(80		)	—			(80		)	—			(320		)	—			(320		)
Amortization of Prior Service Costs (Credits) (2)	—			—			(314		)	(314		)	—			—			(137		)	(137		)
Amortization of Actuarial Losses (2)	—			—			4,696			4,696			—			—			3,700			3,700
Total Reclassifications Before Tax	—			2,074			4,382			6,456			—			1,850			3,563			5,413
Income Tax Expense (Benefit)	—			(500		)	(1,057		)	(1,557		)	—			(462		)	(855		)	(1,317		)
Net Reclassifications	—			1,574			3,325			4,899			—			1,388			2,708			4,096
Other Comprehensive Income	4,349			2,034			3,325			9,708
Other Comprehensive Income (Loss)													1,196			(4,157		)	2,708			(253		)
Ending Balance	$	(17,148	)	$	3,005		$	(266,403	)	$	(280,546	)	$	(31,158	)	$	(2,149	)	$	(221,714	)	$	(255,021	)

(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 April 2, 2017												Three Months Ended April 1, 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	$	(30,313	)	$	1,216		$	(307,855	)	$	(336,952	)	$	(21,497	)	$	971		$	(269,728	)	$	(290,254	)
Other Comprehensive Income before Reclassification	4,646			(778		)	—			3,868
Other Comprehensive Income (Loss) Before Reclassification													4,349			606			—			4,955
Income Tax Benefit (Expense)	—			292			—			292			—			(146		)	—			(146		)
Net Other Comprehensive Income Before Reclassifications	4,646			(486		)	—			4,160
Net Other Comprehensive Income (Loss) Before Reclassifications													4,349			460			—			4,809
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			(368		)	—			(368		)	—			2,121			—			2,121
Realized (Gains) Losses - Commodity Contracts (1)	—			53			—			53			—			33			—			33
Realized (Gains) Losses - Interest Rate Swaps (1)	—			169			—			169			—			(80		)	—			(80		)
Amortization of Prior Service Costs (Credits) (2)	—			—			(618		)	(618		)	—			—			(314		)	(314		)
Amortization of Actuarial Losses (2)	—			—			4,763			4,763			—			—			4,696			4,696
Total Reclassifications Before Tax	—			(146		)	4,145			3,999			—			2,074			4,382			6,456
Income Tax Expense (Benefit)	—			55			(1,555		)	(1,500		)	—			(500		)	(1,057		)	(1,557		)
Net Reclassifications	—			(91		)	2,590			2,499			—			1,574			3,325			4,899
Other Comprehensive Income	4,646			(577		)	2,590			6,659
Other Comprehensive Income (Loss)													4,349			2,034			3,325			9,708
Ending Balance	$	(25,667	)	$	639		$	(305,265	)	$	(330,293	)	$	(17,148	)	$	3,005		$	(266,403	)	$	(280,546	)

(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.


	Nine Months Ended April 1, 2018												Nine Months Ended March 31, 2019
	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	$	(24,744	)	$	(76	)	$	(275,206	)	$	(300,026	)	$	(28,928	)	$	6,486		$	(229,830	)	$	(252,272	)
Other Comprehensive Income before Reclassification	7,596			(149		)	—			7,447
Other Comprehensive Income (Loss) Before Reclassification													(2,230		)	(10,201		)	—			(12,431		)
Income Tax Benefit (Expense)	—			137			—			137			—			2,550			—			2,550
Net Other Comprehensive Income Before Reclassifications	7,596			(12		)	—			7,584
Net Other Comprehensive Income (Loss) Before Reclassifications													(2,230		)	(7,651		)	—			(9,881		)
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			4,537			—			4,537			—			(353		)				(353		)
Realized (Gains) Losses - Commodity Contracts (1)	—			65			—			65			—			(160		)				(160		)
Realized (Gains) Losses - Interest Rate Swaps (1)	—			(97		)	—			(97		)	—			(798		)				(798		)
Amortization of Prior Service Costs (Credits) (2)	—			—			(942		)	(942		)	—						(413		)	(413		)
Amortization of Actuarial Losses (2)	—			—			14,089			14,089			—						11,099			11,099
Total Reclassifications Before Tax	—			4,505			13,147			17,652			—			(1,311		)	10,686			9,375
Income Tax Expense (Benefit)	—			(1,412		)	(4,344		)	(5,756		)	—			327			(2,570		)	(2,243		)
Net Reclassifications	—			3,093			8,803			11,896			—			(984		)	8,116			7,132
Other Comprehensive Income	7,596			3,081			8,803			19,480
Other Comprehensive Income (Loss)													(2,230		)	(8,635		)	8,116			(2,749		)
Ending Balance	$	(17,148	)	$	3,005		$	(266,403	)	$	(280,546	)	$	(31,158	)	$	(2,149	)	$	(221,714	)	$	(255,021	)

(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.

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~~BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES~~


	Nine Months Ended April 2, 2017												Nine Months Ended April 1, 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	$	(23,863	)	$	(1,552	)	$	(313,035	)	$	(338,450	)	$	(24,744	)	$	(76	)	$	(275,206	)	$	(300,026	)
Other Comprehensive Income before Reclassification	(1,804		)	3,056			—			1,252
Other Comprehensive Income (Loss) Before Reclassification													7,596			(149		)	—			7,447
Income Tax Benefit (Expense)	—			(1,146		)	—			(1,146		)	—			137			—			137
Net Other Comprehensive Income Before Reclassifications	(1,804		)	1,910			—			106
Net Other Comprehensive Income (Loss) Before Reclassifications													7,596			(12		)	—			7,584
Reclassifications:
Realized (Gains) Losses - Foreign Currency Contracts (1)	—			(421		)	—			(421		)	—			4,537			—			4,537
Realized (Gains) Losses - Commodity Contracts (1)	—			253			—			253			—			65			—			65
Realized (Gains) Losses - Interest Rate Swaps (1)	—			618			—			618			—			(97		)	—			(97		)
Amortization of Prior Service Costs (Credits) (2)	—			—			(1,855		)	(1,855		)	—			—			(942		)	(942		)
Amortization of Actuarial Losses (2)	—			—			14,289			14,289			—			—			14,089			14,089
Total Reclassifications Before Tax	—			450			12,434			12,884			—			4,505			13,147			17,652
Income Tax Expense (Benefit)	—			(169		)	(4,664		)	(4,833		)	—			(1,412		)	(4,344		)	(5,756		)
Net Reclassifications	—			281			7,770			8,051			—			3,093			8,803			11,896
Other Comprehensive Income	(1,804		)	2,191			7,770			8,157
Other Comprehensive Income (Loss)													7,596			3,081			8,803			19,480
Ending Balance	$	(25,667	)	$	639		$	(305,265	)	$	(330,293	)	$	(17,148	)	$	3,005		$	(266,403	)	$	(280,546	)

(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.

4. Revenue

The Company has adopted ASC 606 using the modified retrospective approach. Revenue is measured based on consideration expected to 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 third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer, which is 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 time when the product is shipped as substantially all engines are not customized for each customer and there is an alternative use for such inventory. The amount of revenue recognized is adjusted for variable consideration such as tiered volume discounts and 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 mass retail channel, and the rental channel. These channels primarily serve 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 typically customized for each customer; therefore, there is an alternative use for such 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 and nine months ended March 31, 2019 were reductions for tiered volume discounts of $7.1 million and $9.5 million, respectively. 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 and nine months ended March 31, 2019 were reductions for rebates of $2.6 million and $4.5 million, respectively.

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 and nine months ended March 31, 2019 were financing costs, net of the related gain or loss on interest rate swaps, of $7.9 million and $9.5 million, respectively.

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 as of March 31, 2019 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 the 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 nine month period ended March 31, 2019, the Company recorded $4.1 million of bad debt expense related to a trade customer declaring bankruptcy. This charge occurred in the first quarter and there was no additional charge in the second or third quarter of fiscal 2019.

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 and nine months ended March 31, 2019, as follows (in thousands):



	Three Month Period Ended March 31, 2019
	Engines		Products		Eliminations			Total
Commercial	$	56,898	$	110,533	$	(6,464	)	$	160,967
Residential	279,345		160,676		(20,792		)	419,229
Total	$	336,243	$	271,209	$	(27,256	)	$	580,196

	Nine Month Period Ended March 31, 2019
	Engines		Products		Eliminations			Total
Commercial	$	151,103	$	281,882	$	(15,390	)	$	417,595
Residential	576,248		416,997		(46,185		)	947,060
Total	$	727,351	$	698,879	$	(61,575	)	$	1,364,655

5. Earnings (Loss) Per Share

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

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

Three Months Ended Nine Months Ended
April 1,
2018 April 2,
2017 April 1,
2018 April 2,
2017
Net Income $ 31,888
$ 35,819
$ 504
$ 36,922
Less: Allocation to Participating Securities (626 ) (821 ) (301 ) (776 )
Net Income Available to Common Shareholders $ 31,262
$ 34,998
$ 203
$ 36,146
Average Shares of Common Stock Outstanding 42,064
42,076
42,108
42,217
Shares Used in Calculating Diluted Earnings Per Share 42,307
42,175
42,362
42,271
Basic Earnings Per Share $ 0.74
$ 0.83
$ 0.00
$ 0.86
Diluted Earnings Per Share $ 0.74
$ 0.83
$ 0.00
$ 0.86

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~~BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES~~



	Three Months Ended						Nine Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
Net Income (Loss)	$	8,005		$	31,888		$	(35,543	)	$	504
Less: Allocation to Participating Securities	(196		)	(626		)	(455		)	(301		)
Net Income (Loss) Available to Common Shareholders	$	7,809		$	31,262		$	(35,998	)	$	203
Average Shares of Common Stock Outstanding	41,527			42,064			41,691			42,108
Shares Used in Calculating Diluted Earnings (Loss) Per Share	41,527			42,307			41,691			42,362
Basic Earnings (Loss) Per Share	$	0.19		$	0.74		$	(0.86	)	$	0.00
Diluted Earnings (Loss) Per Share	$	0.19		$	0.74		$	(0.86	)	$	0.00

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~~No 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~~

~~Nine Months Ended~~

~~April 1,~~
~~2018~~

~~April 2,~~
~~2017~~

~~April 1,~~
~~2018~~

~~April 2,~~
~~2017~~

~~Options to Purchase Shares of Common Stock (in thousands)~~

—

~~Weighted Average Exercise Price of Options Excluded~~

—

shares.

As a result of the Company incurring a net loss for the nine months ended March 31, 2019, potential incremental common shares of 529,644, respectively, were excluded from the calculation of diluted earnings (loss) per share because the effect would have been anti-dilutive.

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. As of ~~April 1, 2018,~~March 31, 2019, the total remaining authorization was approximately ~~$21.8~~$38.1 million. ~~Subsequent to the end of the third quarter of fiscal 2018, the Board of Directors authorized an additional $50 million under the share repurchase program with an expiration date of June 30, 2020.~~

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 nine months ended ~~April 1, 2018,~~March 31, 2019, the Company repurchased 725,321 shares on the open market at an average price of $16.46 per share, as compared to 382,806 shares purchased on the open market at an average price of $22.76 per share ~~as compared to~~ ~~916,040~~ ~~shares purchased on the open market at an average price of~~ ~~$19.57~~ ~~per share~~ during the nine months ended April ~~2, 2017~~1, 2018.

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 nine months ended March 31, 2019 and April 1, 2018 ~~and April 2, 2017~~ (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017		March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Results of Operations:
Sales	$	78,271	$	77,174	$	234,664	$	227,922	$	71,593	$	78,271	$	227,639	$	234,664
Cost of Goods Sold	59,992		59,091		179,794		172,338		55,048		59,992		178,125		179,794
Gross Profit	$	18,279	$	18,083	$	54,870	$	55,584	$	16,545	$	18,279	$	49,514	$	54,870
Net Income	$	4,444	$	5,137	$	14,202	$	14,238	$	3,884	$	4,444	$	11,799	$	14,202

The following table sets forth the unaudited balance sheets of unconsolidated affiliated companies as of ~~April~~March 31, 2019 and July 1, 2018 ~~and July 2, 2017~~ (in thousands):

April 1,
2018 July 2,
2017
Financial Position:
Assets:
Current Assets $ 152,729
$ 157,117
Noncurrent Assets 47,842
54,748
200,571
211,865
Liabilities:
Current Liabilities $ 60,406
$ 61,346
Noncurrent Liabilities 21,391
25,399
81,797
86,745
Equity $ 118,774
$ 125,120

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	March 31, 2019		July 1, 2018
Financial Position:
Assets:
Current Assets	$	142,352	$	150,382
Noncurrent Assets	40,210		45,186
	182,562		195,568
Liabilities:
Current Liabilities	$	55,083	$	54,007
Noncurrent Liabilities	15,969		20,027
	71,052		74,034
Equity	$	111,510	$	121,534

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 equity method investees were approximately ~~$65.1~~$48.2 million and ~~$75.9~~$65.1 million for the nine months ended March 31, 2019 and April 1, 2018, ~~and April 2, 2017,~~ respectively. Purchases of finished products from equity method investees were approximately ~~$86.8~~$94.1 million and ~~$82.3 million~~$86.8 million for the nine months ended March 31, 2019 and April 1, 2018, ~~and April 2, 2017,~~ respectively.

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						Pension Benefits							Other Postretirement Benefits
	Three Months Ended						Three Months Ended						Three Months Ended							Three Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019				April 1, 2018			March 31, 2019			April 1, 2018
Components of Net Periodic (Income) Expense:
Service Cost	$	601		$	1,689		$	34		$	48
Service Cost (Credit)													$	1,157			$	601		$	26		$	34
Interest Cost on Projected Benefit Obligation	10,767			10,839			593			596			9,930				10,767			583			593
Expected Return on Plan Assets	(15,478		)	(16,107		)	—			—			(13,582		)		(15,478		)	—			—
Amortization of:
Prior Service Cost (Credit)	45			45			(359		)	(663		)	45				45			(182		)	(359		)
Actuarial Loss	3,833			4,239			863			699			2,910			��	3,833			790			863
Net Periodic (Income) Expense	$	(232	)	$	705		$	1,131		$	680		$	460			$	(232	)	$	1,217		$	1,131


	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
	Nine Months Ended						Nine Months Ended						Nine Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
Components of Net Periodic (Income) Expense:
Service Cost	$	1,802		$	5,068		$	101		$	143		$	3,427		$	1,802		$	79		$	101
Interest Cost on Projected Benefit Obligation	32,301			32,517			1,779			1,787			29,790			32,301			1,749			1,779
Expected Return on Plan Assets	(46,434		)	(48,320		)	—			—			(40,745		)	(46,434		)	—			—
Amortization of:
Prior Service Cost (Credit)	134			135			(1,076		)	(1,990		)	134			134			(547		)	(1,076		)
Actuarial Loss	11,499			12,718			2,590			2,097			8,729			11,499			2,370			2,590
Net Periodic (Income) Expense	$	(698	)	$	2,118		$	3,394		$	2,037		$	1,335		$	(698	)	$	3,651		$	3,394

The Company expects to make benefit payments of ~~$3.3~~$3.4 million attributable to its non-qualified pension plans for the full year of fiscal ~~2018.~~2019. During the first nine months of fiscal ~~2018,~~2019, the Company made payments of approximately ~~$2.9~~$2.8 million for its non-qualified pension plans. The Company anticipates making benefit payments of approximately ~~$10.1~~$7.9 million for its other postretirement benefit plans for the full year of fiscal ~~2018.~~2019. During the first nine months of fiscal ~~2018,~~2019, the Company made payments of ~~$7.5~~$6.8 million for its other postretirement benefit plans.

During the first nine months of fiscal ~~2018,~~2019, the Company made ~~$30.0 million in voluntary~~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.~~2019. 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.

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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. Stock based compensation expense was ~~$1.4~~$2.3 million and ~~$5.3~~$5.5 million for the three and nine months ended ~~April 1, 2018.~~March 31, 2019, respectively. For the three and nine months ended April ~~2, 2017,~~1, 2018, stock based compensation expense was ~~$1.7~~$1.4 million and ~~$4.6~~$5.3 million, respectively.

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 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.

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%~~2.83% for a notional principal amount of ~~$110.0~~$130.0 million with expiration dates ranging from May 2019 through June 2024.

In the second quarter of fiscal 2019, the Company entered into interest rate swaps to manage a portion of its interest rate risk from anticipated floating rate, LIBOR based indebtedness, exclusive of lender spreads, ranging from 2.47% to 3.13%. The swaps are designated as cash flow hedges, in an aggregate amount of $120 million, with forward starting dates between June and December ~~2021~~.2019 and termination dates between June 2023 and December 2029.

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~~The Company's 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 of its interest rate, foreign currency, and commodity derivative contracts and does not deem any counterparty credit risk material at this time.

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As of ~~April 1, 2018~~March 31, 2019 and July ~~2, 2017~~1, 2018, the Company had the following outstanding derivative contracts (in thousands):


Contract	Contract		Notional Amount		Contract		Notional Amount
			April 1, 2018	July 2, 2017			March 31, 2019	July 1, 2018
Interest Rate:
LIBOR Interest Rate (U.S. Dollars)		Fixed	110,000	95,000		Fixed	250,000	110,000
Foreign Currency:
Australian Dollar		Sell	46,492	39,196		Sell	24,946	35,833
Brazilian Real		Sell	29,322	28,137		Sell	14,233	28,822
Canadian Dollar		Sell	16,495	14,725		Sell	17,240	14,430
Chinese Renminbi		Buy	100,345	74,950		Buy	98,160	62,209
Euro		Sell	44,412	31,240		Sell	7,060	32,592
Japanese Yen		Buy	678,250	570,000		Buy	450,000	587,500
Commodity:
Natural Gas (Therms)		Buy	9,025	11,307		Buy	7,648	10,553

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
	April 1, 2018			July 2, 2017			March 31, 2019			July 1, 2018
Interest rate contracts
Other Current Assets							$	43		$	161
Other Long-Term Assets	$	3,705		$	1,852		2,015			3,844
Accrued Liabilities	—			(23		)	(6,815		)	—
Other Long-Term Liabilities	—			(39		)
Foreign currency contracts
Other Current Assets	2,019			157			1,784			3,881
Other Long-Term Assets	84			31			126			31
Accrued Liabilities	(2,588		)	(3,050		)	(87		)	(195		)
Other Long-Term Liabilities	(325		)	(68		)	—			—
Commodity contracts
Other Current Assets	—			40			27			16
Other Long-Term Assets	—			1			5			5
Accrued Liabilities	(45		)	(22		)	(3		)	(7		)
Other Long-Term Liabilities	(24		)	(11		)	(6		)	(29		)
	$	2,826		$	(1,132	)	$	(2,911	)	$	7,707

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



	Three Months Ended March 31, 2019
	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	$	(1,125	)	Net Sales	$	320		$	—
Foreign currency contracts - sell	(409		)	Net Sales	(2,674		)	—
Foreign currency contracts - buy	2,036			Cost of Goods Sold	484			—
Commodity contracts	47			Cost of Goods Sold	20			—
Interest rate contracts	(4,706		)	Interest Expense	—			—
	$	(4,157	)		$	(1,850	)	$	—



	Three Months Ended April 1, 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)
Interest rate contracts	$	1,151	Net Sales	$	80		$	—
Foreign currency contracts - sell	289		Net Sales	(2,261		)	—
Foreign currency contracts - buy	566		Cost of Goods Sold	140			—
Commodity contracts	28		Cost of Goods Sold	(33		)	—
	$	2,034		$	(2,074	)	$	—


	Three Months Ended April 2, 2017									Nine Months Ended March 31, 2019
	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	$	214		Net Sales	$	(169	)	$	—	$	(1,944	)	Net Sales	$	798		$	—
Foreign currency contracts - sell	(1,453		)	Net Sales	1,330			—		(1,384		)	Net Sales	(37		)	—
Foreign currency contracts - buy	786			Cost of Goods Sold	(962		)	—		(632		)	Cost of Goods Sold	390			—
Commodity contracts	(124		)	Cost of Goods Sold	(53		)	—		29			Cost of Goods Sold	160			—
Interest rate contracts										(4,706		)	Interest Expense	—			—
	$	(577	)		$	146		$	—	$	(8,637	)		$	1,311		$	—



	Nine Months Ended April 1, 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)
Interest rate contracts	$	1,695		Net Sales	$	97		$	—
Foreign currency contracts - sell	405			Net Sales	(3,935		)	—
Foreign currency contracts - buy	1,038			Cost of Goods Sold	(602		)	—
Commodity contracts	(57		)	Cost of Goods Sold	(65		)	—
	$	3,081			$	(4,505	)	$	—

Nine Months Ended April 2, 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 $ 2,143
Net Sales $ (618 ) $ —
Foreign currency contracts - sell 500
Net Sales 1,730
—
Foreign currency contracts - buy (615 ) Cost of Goods Sold (1,309 ) —
Commodity contracts 163
Cost of Goods Sold (253 ) —
$ 2,191
$ (450 ) $ —

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During the next twelve months, the estimated net amount of ~~losses~~gain on cash flow hedges as of ~~April 1, 2018~~March 31, 2019 expected to be reclassified out of AOCI into earnings is ~~less than~~ $~~0.1~~1.4 million.

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.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of ~~April 1, 2018~~March 31, 2019 and July ~~2, 2017~~1, 2018 (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
	April 1, 2018		Level 1		Level 2		Level 3		March 31, 2019		Level 1		Level 2		Level 3
Assets:
Derivatives	$	5,809	$	—	$	5,809	$	—	$	4,000	$	—	$	4,000	$	—
Liabilities:
Derivatives	$	2,983	$	—	$	2,983	$	—	$	6,911	$	—	$	6,911	$	—
	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~~values 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 ~~April 1, 2018~~March 31, 2019 and July ~~2, 2017~~1, 2018 was $~~220.2~~201.9 million and $~~245.9~~214.0 million, respectively, compared to the carrying value of $~~203.4~~195.5 million and ~~223.1 million, respectively.~~$200.0 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 ~~April 1, 2018~~March 31, 2019 and July ~~2, 2017~~1, 2018 due to the short-term nature of these instruments.

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~~10.~~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 retail 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):


	Nine Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018
Beginning Balance	$	43,109		$	44,367		$	45,327		$	43,109
Payments	(17,941		)	(20,349		)	(18,169		)	(17,941		)
Provision for Current Year Warranties	18,633			18,212			17,964			18,633
Changes in Estimates	961			237			232			961
Ending Balance	$	44,762		$	42,467		$	45,354		$	44,762

~~11.~~12. Income Taxes

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 ~~Accounting Standards Codification ("ASC")~~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 accordance with SAB 118, the Company’s measurement period was over effective in the second quarter of fiscal 2019 and Company’s accounting for the Tax Act is complete.

In connection with the Company’s ~~initial~~ analysis of the impact of the Tax Act, a tax expense of approximately ~~$24.2~~$21.1 million ~~has been~~was recorded in ~~the first nine months of~~ 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 ~~$17.7~~$13.8 million and an expense related to the inclusion of foreign earnings of approximately ~~$6.5~~$7.3 million. ~~The~~In the second quarter of fiscal 2019, the Company ~~has not~~recorded an additional income tax expense of approximately $1.1 million related to the inclusion of foreign earnings, bringing the total expense to $8.4 million. Effective in the second quarter of fiscal 2019, the Company completed its accounting for the income tax effects of ~~certain elements of~~ the Tax Act; however, reasonable estimates were made in order to record provisional adjustments for areas where analysis is not yet complete. For instance, the tax expense of approximately $17.7 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 $6.5 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. Act.

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~~evaluated its permanent reinvestment assertions since the Tax Act ~~may~~can 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 ~~April 1, 2018,~~March 31, 2019, the Company has analyzed its global working capital and cash requirements and the potential tax liabilities attributable to ~~repatriation. In the second quarter of~~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. During the third quarter of fiscal 2018, the Company~~earnings and made distributions from its foreign earnings related to the

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assertion removal in the second quarter of approximately $18 million. The Company ~~has recorded~~repatriated the additional $15 million of foreign earnings in the second quarter of fiscal 2019. During the second quarter of fiscal 2019, the Company also removed its permanent reinvestment assertion on an additional approximately $21.6 million of its accumulated offshore earnings. This resulted in the previously mentioned estimated tax ~~impact in its condensed consolidated financial statements and continues to evaluate its cash needs and strategic opportunities to repatriate cash.~~

expense of $1.1 million. The Company ~~was able to make a reasonable estimate of~~has recorded the tax effects of the ~~repatriation of those earnings,~~distributions and ~~the provisional estimate has been recorded~~planned repatriations in ~~the condensed consolidated~~its financial statements, including withholding taxes and currency gain ~~on previously taxed earnings.The Company will continue to gather additional information to more precisely compute the tax impact.~~

and loss. For the remainder of its foreign earnings, ~~approximately $102 million,~~ the Company has ~~yet to determine whether it intends to change~~not changed its prior ~~assertion and repatriate earnings.~~assertion. 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 the Company's foreign investments will be disclosed if practicable.

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

2019. The effective tax rate for the third quarter of fiscal ~~2018~~2019 was ~~26.8%~~12.3%, compared to ~~32.3%~~26.8% for the same period last year. The effective tax rate for the first nine months of fiscal ~~2018~~2019 was ~~98.5%~~28.7%, compared to ~~30.6%~~98.5% for the same period last year. As a result of the Tax Act, the Company is subject to a U.S. federal statutory corporate income tax rate of 28% for the fiscal ~~2017.~~year ending July 1, 2018 and a U.S. federal statutory corporate income tax rate of 21% in the fiscal year ending June 30, 2019 and future fiscal years. The Company’s fiscal 2019 tax rate includes the aforementioned $1.1 million discrete income tax expense related to the removal of a portion of its accumulated foreign earnings. The Company’s fiscal year 2018 tax rates reflect the estimated impact of the Tax Act at that time, including ~~the aforementioned cost of~~ approximately ~~$17.7~~$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 ~~$6.5~~$6.2 million. Also as a result of the Tax Act, the Company will be subject to a U.S. federal statutory corporate income tax rate of 28% for the fiscal year ending July 1, 2018 and a U.S. federal statutory corporate income tax rate of 21% in future fiscal years.

The effective tax rates for the third quarter and first nine months of fiscal 2017 were primarily driven by the U.S. research and development tax credit and foreign earnings in jurisdictions with tax rates that vary from the U.S. statutory rate. The tax ~~rate~~rates for the first nine months and the third quarters of fiscal ~~2017 was~~2019 and 2018 were also impacted by the ~~reversal of previously recorded reserves as the result of the effective settlement of the Company’s IRS audit for its fiscal years 2010~~federal research and ~~2013 consolidated income tax and the establishment of a valuation allowance against the deferred tax assets of the Company’s Brazilian subsidiary.~~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

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Federal Circuit issued its decision in an unrelated case, SCA Hygiene Products Aktiebolag SCA Personal Care, Inc. v. First Quality Baby Products, LLC, et al. (Case No. 2013-1564) (“SCA”), confirming the availability of laches as a defense to patent infringement claims. Laches is an equitable doctrine that may bar a patent owner from obtaining damages prior to commencing suit, in circumstances in which the owner knows or should have known its patent was being infringed for more than six years. Although the court in the Exmark case ruled before trial that BSPPG could not rely on the defense of laches, as a result of the subsequent SCA decision, the court held a bench trial on that defense on October 21 and 22, 2015. On May 2, 2016, the United States Supreme Court agreed to review the SCA decision.

The parties submitted post-trial motions and briefing related to: damages; willfulness; laches; attorney fees; enhanced damages; and prejudgment/post-judgment interest and costs. All post-trial motions and briefing were completed on December 18, 2015. On May 11, 2016, the court ruled on those post-trial motions and entered judgment against BSPPG and in favor of Exmark in the amount of $24.3 million in compensatory damages, an additional $24.3 million in enhanced damages, and $1.5 million in pre-judgment interest along with post-judgment interest and costs to be determined. The Company strongly ~~disagrees~~disagreed with the jury verdict, certain rulings made before and during trial, and the May 11, 2016 post-trial rulings. BSPPG appealed to the U.S. Court of Appeals for the Federal Circuit on several bases, including the issues of obviousness and invalidity of Exmark’s patent, the damages calculation, willfulness and laches.

Following briefing of the appeal and prior to oral argument, the United States Supreme Court overturned the SCA decision, ruling that laches is not available in a patent infringement case for damages. That ruling eliminated laches as one basis for BSPPG’s appeal of the Exmark case. The appellate court held a hearing on the remainder of BSPPG’s appeal on April 5, 2017 and issued its decision on January 12, 2018. The appellate court found that the district court erred in granting summary judgment concerning the patent’s validity and remanded that issue to the district court for reconsideration. The appellate court also vacated the jury’s damages award and the district court’s award of enhanced damages, remanding the case to the district court for a new trial on damages and reconsideration on willfulness. The appellate court affirmed the district court rulings in all other respects. ~~The~~In subsequent rulings, the district court reaffirmed the validity of Exmark’s patent and its original ruling on willfulness. A new trial ~~has been scheduled to begin~~on the issue of damages commenced on December 10, ~~2018. The parties are currently~~2018, resulting in a damages assessment by the jury of $14.4 million.

On December 20, 2018, the district court entered judgment against the Company and in favor of Exmark in the ~~process~~amount of ~~briefing pre-trial motions.~~$14.4 million in compensatory damages, an additional $14.4 million in enhanced damages, as well as pre-judgment interest, post-judgment interest and costs to be determined. On April 15, 2019, the district court entered an order denying the Company’s post-trial motions related to modification of the jury’s damages award, as

well as seeking a new trial in light of certain evidentiary rulings. The district court awarded $6.0 million in pre-judgment interest, as well as post-judgment interest after December 19, 2018 and costs to be determined.

The Company strongly disagrees with the verdict and certain rulings made before, during and after the new trial and intends to vigorously pursue its rights on appeal. 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,~~this lawsuit, the Company considered various factors, including the legal and factual circumstances of the case, the trial ~~record,~~records and post-trial rulings of the ~~post-trial orders,~~district court, the decision of the appellate court, the current status of the proceedings, applicable law and the views of legal ~~counsel, and the decision of the appellate court.~~counsel. 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 ~~April 1, 2018.~~March 31, 2019.

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.

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~~13.~~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.~~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						Nine Months Ended						Three Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
NET SALES:
Engines	$	384,292		$	391,063		$	790,543		$	806,298		$	336,243		$	384,292		$	727,351		$	790,543
Products	245,169			233,510			653,845			575,007			271,209			245,169			698,879			653,845
Inter-Segment Eliminations	(25,392		)	(27,608		)	(64,789		)	(69,307		)	(27,256		)	(25,392		)	(61,575		)	(64,789		)
Total*	$	604,069		$	596,965		$	1,379,599		$	1,311,998		$	580,196		$	604,069		$	1,364,655		$	1,379,599
* International sales included in net sales based on product shipment destination	$	160,653		$	171,565		$	432,538		$	440,179		$	142,817		$	160,653		$	379,468		$	432,538
GROSS PROFIT:
Engines	$	96,780		$	98,814		$	183,428		$	191,373		$	72,529		$	96,780		$	144,272		$	183,428
Products	32,773			34,946			105,570			91,075			24,348			32,773			89,402			105,570
Inter-Segment Eliminations	720			1,011			405			251			110			720			(441		)	405
Total	$	130,273		$	134,771		$	289,403		$	282,699		$	96,987		$	130,273		$	233,233		$	289,403
SEGMENT INCOME:
SEGMENT INCOME (LOSS):
Engines	$	47,989		$	50,946		$	36,590		$	57,216		$	22,833		$	47,718		$	(16,579	)	$	35,776
Products	2,392			5,614			14,356			9,177			(5,682		)	2,392			(11,514		)	14,356
Inter-Segment Eliminations	720			1,011			405			251			110			720			(441		)	405
Total	$	51,101		$	57,571		$	51,351		$	66,644		$	17,261		$	50,830		$	(28,534	)	$	50,537

The following supplemental data is presented for informational purposes.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017		March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Engines	$	903	$	—	$	2,031	$	—	$	623	$	903	$	1,712	$	2,031
Products	971		—		2,493		—		3,267		971		6,978		2,493
Total	$	1,874	$	—	$	4,524	$	—	$	3,890	$	1,874	$	8,690	$	4,524

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017		March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Engines	$	2,896	$	—	$	7,243	$	—	$	5,211	$	2,896	$	27,083	$	7,243
Products	1,309		—		5,259		—		4,694		1,309		19,862		5,259
Total	$	4,205	$	—	$	12,502	$	—	$	9,905	$	4,205	$	46,945	$	12,502

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~~14.~~15. Debt

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


	April 1, 2018		July 2, 2017		March 31, 2019		July 1, 2018
Multicurrency Credit Agreement	$	131,556	$	—	$	211,545	$	48,036
Total Short-Term Debt	$	131,556	$	—	$	211,545	$	48,036

Note Payable (NMTC transaction)	$	7,685	$	—	$	7,685	$	7,685
Unamortized Debt Issuance Costs associated with Note Payable	1,050		—		885		1,009
	$	6,635	$	—	$	6,800	$	6,676

6.875% Senior Notes	$	203,368	$	223,149	$	195,464	$	200,888
Unamortized Debt Issuance Costs associated with 6.875% Senior Notes	1,036		1,356		530		934
	$	202,332	$	221,793	$	194,934	$	199,954
Total Long-Term Debt	$	208,967	$	221,793	$	201,734	$	206,630

On December 20, 2010, the Company issued $225 million of 6.875% Senior Notes ("Senior Notes") due December 15, 2020. During the three and nine ~~month periods~~months ended March 31, 2019, the Company repurchased $0.5 million and $5.4 million of the Senior Notes, respectively. During the three and nine months ended April 1, 2018, the Company repurchased $19.8 million of the Senior ~~Notes after receiving unsolicited offers from bondholders. There were no repurchases during the three and nine month periods ended April 2, 2017.~~Notes.

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 ~~April 1, 2018, $131.6~~March 31, 2019, $211.5 million was outstanding under the Revolver. There were nooutstanding borrowings of $48.0 million under the Revolver as of July ~~2, 2017.~~1, 2018. 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 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 ~~$9.1~~$0.8 million held by the Company at ~~April 1, 2018~~March 31, 2019 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.

16. Acquisitions

~~Table~~

On July 31, 2018 the Company completed a cash acquisition of ~~Contents~~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 March 31, 2019, the Company's preliminary purchase accounting resulted in the recognition of $6.4 million of goodwill and $4.4 million of intangible assets.

~~BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES~~

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

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,~~premiums on early repurchase of bonds, acquisition integration activities, and one-time charges as a result of the implementation of the Tax Cuts and Jobs Act (the “Tax Act”) for the three months ended fiscal March ~~2018~~2019 and ~~2017~~2018 (in thousands, except per share data):


	Three Months Ended Fiscal March																Three Months Ended Fiscal March
	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	$	96,780		$	903	$	97,683		$	98,814		$	—	$	98,814		$	72,529		$	623	$	73,151		$	96,780		$	903	$	97,683
Products	32,773			971		33,744			34,946			—		34,946			24,348			3,267		27,615			32,773			971		33,744
Inter-Segment Eliminations	720			—		720			1,011			—		1,011			110			—		110			720			—		720
Total	$	130,273		$	1,874	$	132,147		$	134,771		$	—	$	134,771		$	96,987		$	3,890	$	100,876		$	130,273		$	1,874	$	132,147

Engineering, Selling, General and Administrative Expenses:
Engines	$	48,853		$	587	$	48,266		$	48,450		$	—	$	48,450		$	49,287		$	3,835	$	45,452		$	49,124		$	587	$	48,537
Products	31,032			338		30,694			29,829			—		29,829			30,234			1,428		28,806			31,032			338		30,694
Total	$	79,885		$	925	$	78,960		$	78,279		$	—	$	78,279		$	79,521		$	5,264	$	74,258		$	80,156		$	925	$	79,231

Equity in Earnings of Unconsolidated Affiliates
Engines	$	62		$	1,406	$	1,468		$	582		$	—	$	582		$	(408	)	$	753	$	345		$	62		$	1,406	$	1,468
Products	651			—		651			497			—		497			203			—		203			651			—		651
Total	$	713		$	1,406	$	2,119		$	1,079		$	—	$	1,079		$	(205	)	$	753	$	548		$	713		$	1,406	$	2,119

Segment Income:
Segment Income (Loss):
Engines	$	47,989		$	2,896	$	50,885		$	50,946		$	—	$	50,946		$	22,833		$	5,211	$	28,044		$	47,718		$	2,896	$	50,614
Products	2,392			1,309		3,701			5,614			—		5,614			(5,682		)	4,694		(988		)	2,392			1,309		3,701
Inter-Segment Eliminations	720			—		720			1,011			—		1,011			110			—		110			720			—		720
Total	$	51,101		$	4,205	$	55,306		$	57,571		$	—	$	57,571		$	17,261		$	9,905	$	27,166		$	50,830		$	4,205	$	55,035

Interest Expense	$	(8,617	)	$	2,017	$	(6,600	)	$	(5,521	)	$	—	$	(5,521	)	$	(9,088	)	$	15	$	(9,073	)	$	(8,617	)	$	2,017	$	(6,600	)

Income Before Income Taxes	43,563			6,222		49,785			52,894			—		52,894			9,126			9,920		19,046			43,563			6,222		49,785
Provision (Credit) for Income Taxes	11,675			1,876		13,551			17,075			—		17,075
Provision for Income Taxes																	1,121			3,288		4,409			11,675			1,876		13,551
Net Income	$	31,888		$	4,346	$	36,234		$	35,819		$	—	$	35,819		$	8,005		$	6,632	$	14,637		$	31,888		$	4,346	$	36,234

Earnings Per Share
Basic	$	0.74		$	0.10	$	0.84		$	0.83		$	—	$	0.83		$	0.19		$	0.15	$	0.34		$	0.74		$	0.10	$	0.84
Diluted	0.74			0.10		0.84			0.83			—		0.83			0.19			0.15		0.34			0.74			0.10		0.84

(1) For the third quarter of fiscal 2019, business optimization expenses include $1.4 million ($0.9 million after tax) of non-cash charges related to accelerated depreciation, and $8.4 million ($5.6 million after tax) of cash charges related primarily to activities associated with the upgrade to the Company's ERP system, professional services, employee termination benefits, and plant rearrangement activities. The Company recognized $0.2 million ($0.1 million after tax) related to acquisition integration activities.

(2) For the third quarter of fiscal 2018, business optimization expenses include $0.9 million ($0.6 million after tax) of non-cash charges related primarily to plant & equipment impairment and accelerated depreciation, and $3.3 million ($2.9 million after tax) of cash charges related primarily to employee termination benefits, lease terminations, professional services and plant rearrangement activities. Tax expense also includes a $0.7 million benefit to revalue deferred tax assets and liabilities under the Tax Cuts and Jobs Act of 2017. The ~~company~~Company recognized in interest expense $2.0 million ($1.5 million after tax) for premiums paid to repurchase senior notes after receiving unsolicited offers from bondholders.

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~~(2)~~(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 third quarter of fiscal ~~2018~~2019 were ~~$604.1~~$580.2 million, ~~an increase~~a decrease of ~~$7.1~~$23.8 million, or ~~1.2%~~3.95%, from the third quarter of fiscal ~~2017.~~2018.

Engines ~~Segment~~segment net sales in the third quarter of fiscal ~~2018~~2019 decreased ~~$6.7~~$48.0 million or ~~1.7%,~~12.5% from the prior year. Engine sales unit volumes decreased by ~~7.3%~~18%, or approximately ~~199,000~~456,000 engines, in the third quarter of fiscal ~~2018~~2019 compared to the same period last year. ~~Sales into Europe were lower~~Domestically, as anticipated, consumer engine sales decreased due to ~~our customers taking a cautious approach to ordering due to a delayed start of spring weather~~the Sears bankruptcy and the ~~desire~~pull forward of ~~certain~~shipments to the second quarter to enable channel partners to ~~reduce their~~restock inventory ~~levels~~and facilitate brand transitions this year. Sales into Australia and Europe declined by over 25% in ~~advance of new emissions requirements on engines that begin in calendar 2019. Sales were also lower in North America~~the third quarter due to ~~certain~~prolonged historic drought conditions in Australia and elevated channel ~~partners taking~~inventories in Europe following last summer’s drought. Domestic service parts sales declined slightly year over year. The decrease in segment sales was mitigated by a ~~cautious approach~~nearly 10% increase in commercial Vanguard engine sales and higher pricing to ~~ordering inventory due to a delayed start of spring weather~~offset cost inflation and ~~a desire to further reduce channel inventory in advance of anticipated brand transitions next season.~~tariffs.

Products ~~Segment~~segment net sales in the third quarter of fiscal ~~2018~~2019 increased ~~$11.7~~$26.0 million, or 5%10.6%, from the prior year. The increase was primarily due to 16% growth in commercial products on higher sales of Ferris mowers and growth of commercial ~~job site products~~stand-on blowers from the Hurricane acquisition in fiscal 2019. Residential sales grew slightly on higher volumes of standby generators and ~~generators. Generator~~pressure washers, partially offset by lower sales ~~benefited~~of portable generators and riding mowers following cool spring temperatures in the U.S. Sales also benefitted from higher ~~than usual power outages due~~prices to ~~the east coast ice and snow storms. Sales of commercial mowers were lower in the third quarter due to timing of shipments driven by unseasonably cool spring weather.~~offset cost inflation.

GROSS PROFIT

The consolidated gross profit percentage was ~~21.6%~~16.7% in the third quarter of fiscal ~~2018,~~2019, a decrease from ~~22.6%~~21.6% in the same period last year. Adjusted gross profit percentage was ~~21.9%~~17.4% in the third quarter this ~~year. The prior~~ year, ~~gross profit percentage did not have any adjustments.~~a decrease from 21.9% in the same period last year.

The Engines ~~Segment~~segment gross profit percentage was 21.6% in the third quarter of fiscal 2019, a decrease of 360 basis points from 25.2% in the third quarter of fiscal ~~2018, a decrease of 10~~2018. Adjusted gross profit percentage also decreased 360 basis points due to unfavorable sales mix, a 14% reduction in manufacturing volume as planned and inefficiencies. Unfavorable sales mix was caused by proportionately less sales outside the U.S. and slightly lower service parts sales. Inefficiencies from ~~25.3%~~start-up activities related to the Company's ERP upgrade and the on-shoring of Vanguard engines led to temporarily elevated supply chain and labor costs to ensure timely delivery on the robust growth of Vanguard engines and improve the throughput of service parts sales. Higher prices offset higher commodity costs and tariffs. Foreign exchange was slightly favorable to margins in the quarter.

The Products segment gross profit percentage was 9.0% for the third quarter of fiscal 2019, down from 13.4% in the third quarter of fiscal ~~2017.~~2018. Adjusted gross profit percentage was 25.4% primarily due to favorable sales mix and plant efficiencies offsetting 9% lower production volumes, as anticipated, and freight rate increases. Material cost increases have been offset by higher pricing.

~~The Products Segment gross profit percentage was 13.4%~~10.2% for the third quarter of fiscal ~~2018,~~2019, down from ~~15.0%~~13.8% in the third quarter of fiscal ~~2017. Adjusted~~2018. The decrease in the adjusted gross profit percentage is largely attributed to inefficiencies and unfavorable sales mix. Inefficiencies from start-up activities related to the ERP upgrade, elevated international container shipping rates and higher supply chain and labor costs to ensure the Company's ability to meet delivery commitments on the robust growth of Ferris mowers. The Company also incurred higher labor costs to improve the throughput of service parts to support increased shipments during the peak season. Unfavorable sales mix was ~~13.8% in the third quarter this year primarily~~driven by lower sales of portable generators due to less spring storms, as well as lower sales of riding mowers through the dealer channel. Strong sales of pressure washers were driven by elevated pollen levels this spring and brand transitions at retail. Partially offsetting the unfavorable sales mix was the favorable impact of higher ~~freight costs~~commercial sales. Increases in pricing largely offset higher material and a 4% reduction in manufacturing throughput. As anticipated, production of pressure washers was lower in the quarter in order to right size inventory levels, which were elevated coming out of last season.tariff costs.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses (ESG&A) were ~~$79.9~~$79.5 million in the third quarter of fiscal ~~2018, an increase~~2019, a decrease of ~~$1.6~~$0.6 million or ~~2.1%,~~0.8% from the third quarter of fiscal ~~2017.~~2018.

The Engines ~~Segment engineering, selling, general and administrative~~segment ESG&A expenses for the third quarter of fiscal ~~2018~~2019 increased ~~$0.4~~$0.2 million from the third quarter of fiscal ~~2017.~~2018. Adjusted ~~Engines Segment engineering, selling, general and administrative~~ESG&A expenses decreased ~~$0.2~~$3.0 million ~~primarily~~from last year due to lower ~~variable~~employee compensation ~~costs, partially offset by the investment to upgrade the Company’s ERP system.~~costs.

The Products ~~Segment engineering, selling, general~~segment ESG&A decreased by $0.8 million and ~~administrative~~adjusted ESG&A expenses ~~were $31.0~~decreased by $1.9 million ~~for~~compared with the ~~third quarter of fiscal 2018, an increase of $1.2 million~~previous year from the third quarter of fiscal 2017. Adjusted Products Segment engineering, selling, general and administrative expenses increased $0.9 million due to 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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lower employee compensation costs.

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, premiums on early repurchase of bonds, acquisition integration activities, and one-time charges as a result of the implementation of the Tax Act for the nine months ended fiscal March ~~2018~~2019 and ~~2017~~2018 (in thousands, except per share data):


	Nine Months Ended Fiscal March															Nine Months Ended Fiscal March
	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	$	183,428		$	2,031		$	185,459		$	191,373	$	—	$	191,373	$	144,272		$	1,712	$	145,984		$	183,428		$	2,031		$	185,459
Products	105,570			2,493			108,063			91,075		—		91,075		89,402			6,978		96,380			105,570			2,493			108,063
Inter-Segment Eliminations	405			—			405			251		—		251		(441		)	—		(441		)	405			—			405
Total	$	289,403		$	4,524		$	293,927		$	282,699	$	—	$	282,699	$	233,233		$	8,690	$	241,923		$	289,403		$	4,524		$	293,927

Engineering, Selling, General and Administrative Expenses:
Engines	$	150,340		$	2,582		$	147,758		$	138,610	$	—	$	138,610	$	163,997		$	22,754	$	141,243		$	151,154		$	2,582		$	148,572
Products	94,150			2,766			91,384			84,763		—		84,763		103,556			12,884		90,672			94,150			2,766			91,384
Total	$	244,490		$	5,348		$	239,142		$	223,373	$	—	$	223,373	$	267,552		$	35,638	$	231,915		$	245,304		$	5,348		$	239,956

Equity in Earnings of Unconsolidated Affiliates
Engines	$	3,502		$	2,630		6,132			$	4,453	$	—	$	4,453	$	3,146		$	2,617	5,763			$	3,502		$	2,630		$	6,132
Products	2,936			—			2,936			2,865		—		2,865		2,640			—		2,640			2,936			—			2,936
Total	$	6,438		$	2,630		$	9,068		$	7,318	$	—	$	7,318	$	5,786		$	2,617	$	8,403		$	6,438		$	2,630		$	9,068

Segment Income:
Segment Income (Loss):
Engines	$	36,590		$	7,243		$	43,833		$	57,216	$	—	$	57,216	$	(16,579	)	$	27,083	$	10,504		$	35,776		$	7,243		$	43,019
Products	14,356			5,259			19,615			9,177		—		9,177		(11,514		)	19,862		8,348			14,356			5,259			19,615
Inter-Segment Eliminations	405			—			405			251		—		251		(441		)	—		(441		)	405			—			405
Total	$	51,351		$	12,502		$	63,853		$	66,644	$	—	$	66,644	$	(28,534	)	$	46,945	$	18,411		$	50,537		$	12,502		$	63,039

Interest Expense	$	(19,167	)	$	2,017		$	(17,150	)	$	15,159	$	—	$	15,159	$	(21,731	)	$	263	$	(21,468	)	$	(19,167	)	$	2,017		$	(17,150	)

Income Before Income Taxes	34,667			14,519			49,186			53,164		—		53,164
Income (Loss) Before Income Taxes																(49,874		)	47,208		(2,666		)	34,667			14,519			49,186
Provision (Credit) for Income Taxes	34,163			(21,104		)	13,059			16,242		—		16,242		(14,331		)	9,602		(4,729		)	34,163			(21,104		)	13,059
Net Income	$	504		$	35,623		$	36,127		$	36,922	$	—	$	36,922
Net Income (Loss)																$	(35,543	)	$	37,606	$	2,063		$	504		$	35,623		$	36,127

Earnings Per Share
Earnings (Loss) Per Share
Basic	$	0.00		$	0.84		$	0.84		$	0.86	$	—	$	0.86	$	(0.86	)	$	0.90	$	0.04		$	—		$	0.84		$	0.84
Diluted	0.00			0.83			0.83			0.86		—		0.86		(0.86		)	0.90		0.04			—			0.83			0.83

(1) For the first nine months of fiscal 2019, business optimization expenses include $2.9 million ($2.3 million after tax) of non-cash charges related to accelerated depreciation, and $37.3 million ($29.0 million after tax) of cash charges related primarily to activities associated with the upgrade to the Company's ERP system, professional services, employee termination benefits, and plant rearrangement activities. The Company recognized bad debt expense of $4.1 million ($3.1 million after tax) after a major retailer announced that it had filed for bankruptcy protection. The Company recognized $2.0 million ($1.5 million after tax) for amounts accrued related to a litigation settlement and $0.5 million ($0.3 million after tax) related to acquisition integration activities. Interest expense includes $0.2 million ($0.2 million after tax) for premiums paid to repurchase senior notes. Tax expense includes a $1.1 million charge associated with the Tax Cuts and Jobs Act of 2017 to record the impact of the inclusion of foreign earnings.

(2) For the first nine months of fiscal 2018, business optimization expenses include $3.8 million ($2.8 million after tax) of non-cash charges related primarily to plant & equipment impairment and accelerated depreciation, and $8.6 million ($7.1 million after tax) of cash charges related primarily to employee termination benefits, lease terminations, professional services and plant rearrangement activities. Tax expense also includes a $24.2 million charge associated with the Tax Cuts and Jobs Act of 2017 comprised of $17.7 million to revalue deferred tax assets and liabilities and $6.5 million to record the impact of the inclusion of foreign earnings. The company recognized in interest expense $2.0 million ($1.5 million after tax) for premiums paid to repurchase senior notes after receiving unsolicited offers from bondholders.

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NET SALES

Consolidated net sales for the first nine months of fiscal ~~2018~~2019 were ~~$1,379.6~~$1,364.7 million, ~~an increase~~a decrease of ~~$67.6~~$14.9 million, or ~~5.2%~~3.9%, from the ~~third quarter~~first nine months of fiscal ~~2017.~~2018.

Engines ~~Segment~~segment net sales in the first nine months of fiscal ~~2018~~2019 decreased ~~$15.8~~$63.1 million or ~~2.0%,~~8.0% from the prior year. Engine sales unit volumes ~~decreased~~increased by ~~5.7%~~8.3%, or approximately ~~312,000~~427,000 engines, in the first nine months of fiscal ~~2018~~2019 compared to the same period last year. Sales of approximately $15 million had been accelerated into the fourth quarter of fiscal 2018 to support customers during the go-live of the Company's upgraded ERP system in early July. Sales into Europe and Australia were also lower due to ~~our customers taking a cautious approach~~the effects of prolonged drought conditions. The decrease in sales was mitigated by growth in commercial Vanguard engine sales and higher pricing to ~~ordering due to a delayed start of spring weather~~offset cost inflation and the desire of certain channel partners to reduce their inventory levels in advance of new emissions requirements on engines that begin in calendar 2019. Sales were also lower in North America due to certain channel partners taking a cautious approach to ordering inventory due to a delayed start of spring weather and a desire to further reduce channel inventory in advance of anticipated brand transitions next season. Partially offsetting the sales decline were increased sales of commercial engines.tariffs.

Products ~~Segment~~segment net sales in the first nine months of fiscal ~~2018~~2019 increased ~~$78.8~~$45.0 million, or ~~13.7%~~6.7%, from the prior year. ~~Net sales increased~~The increase was primarily due to higher sales of ~~generators from hurricane activity as well as higher shipments of~~commercial riding mowers, commercial job site products and ~~commercial lawn and garden equipment. In the first nine months of fiscal 2018, Hurricanes Harvey, Irma, and Maria made landfall~~pressure washers. Sales also benefited from higher prices to offset cost inflation. The increase was partially offset due to decreased storm sales compared to ~~Hurricane Matthew in~~ the ~~same period last year.~~prior year due to less hurricane related activity.

GROSS PROFIT

The consolidated gross profit percentage was ~~21.0%~~17.1% in the first nine months of fiscal ~~2018,~~2019, a decrease from ~~21.5%~~21.0% in the same period last year. Adjusted gross profit percentage was ~~21.3%~~17.7% in the first ~~six~~nine months of this ~~year. The~~year compared to 21.3% for the same period in the prior ~~year gross profit percentage did not have any adjustments.~~year.

The Engines ~~Segment~~segment gross profit percentage was 19.8% in the first nine months of fiscal 2019, a decrease of 340 basis points from 23.2% in the first nine months of fiscal ~~2018, a decrease of 50~~2018. Adjusted gross profit percentage also decreased 340 basis points due to 12% lower manufacturing volumes, inefficiencies driven by lower service distribution throughput, and unfavorable sales mix, which included lower service parts sales. Higher material costs and tariffs were largely offset by pricing increases.

The Products segment gross profit percentage was 12.8% for the first nine months of fiscal 2019, down from ~~23.7%~~16.1% in the first nine months of fiscal 2017. Adjusted gross profit percentage decreased 30 basis points due to approximately 5% lower manufacturing volume. Higher material costs were offset by modest pricing increases and favorable sales mix.

~~The Products Segment gross profit percentage was 16.1% for the first nine months of fiscal 2018, up from 15.8% in the first nine months of fiscal 2017.~~2018. Adjusted gross profit percentage was ~~16.5%~~13.8% in the first nine months of this ~~year. Adjusted gross profit percentage increased 70 basis points,~~year, down from 16.5% in the prior year, primarily due to the unfavorable sales mix of proportionately lower service parts sales, lower contribution margin from ~~hurricane-related~~less hurricane related sales, and ~~favorable sales mix.~~manufacturing inefficiencies. Higher pricing offset increases in material costs and tariff costs.

ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Engineering, selling, general and administrative expenses (ESG&A) were ~~$244.5~~$267.6 million in the first nine months of fiscal ~~2018,~~2019, an increase of ~~$21.1~~$22.2 million, or ~~9.5%~~9.1%, from the first nine months of fiscal ~~2017.~~2018.

The Engines ~~Segment engineering, selling, general and administrative~~segment ESG&A expenses for the first nine months of fiscal ~~2018~~2019 increased ~~$11.7~~$12.8 million from the ~~third quarter~~first nine months of fiscal ~~2017.~~2018 due to increased business optimization charges. Adjusted Engines ~~Segment engineering, selling, general and administrative~~segment ESG&A expenses ~~increased $9.1~~decreased $7.3 million primarily due to ~~higher~~reduced compensation ~~costs and the investment in the upgrade to the Company’s ERP system.~~costs.

The Products ~~Segment engineering, selling, general and administrative~~segment ESG&A expenses were ~~$94.2~~$103.5 million for the first nine months of fiscal ~~2018,~~2019, an increase of $9.4 million from the first nine months of fiscal ~~2017.~~2018 due to increased business optimization charges, bad debt related to a major retailer bankruptcy, and a litigation settlement. Adjusted Products ~~Segment engineering, selling, general and administrative~~segment ESG&A expenses ~~increased $6.7~~decreased $0.7 million due to ~~higher~~lower 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.~~costs.

INTEREST EXPENSE

Interest expense for the first nine months of fiscal ~~2018~~2019 was ~~$4.0 million higher than the same period last year. Adjusted interest expense was $2.0~~$2.6 million higher than the same period last year ~~primarily~~ due to ~~increased average net~~higher borrowings on the revolver and higher interest rates.

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PROVISION FOR INCOME TAXES

As a result of 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 July 1, 2018 and is subject to a U.S. federal statutory corporate 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 favorable impact on 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~~has evaluated its permanent reinvestment assertions since the Tax Act ~~may~~can 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 ~~April 1, 2018,~~March 31, 2019, the Company has analyzed its global working capital and cash requirements and the potential tax liabilities attributable to ~~repatriation. In the second quarter of~~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. During the third quarter of fiscal 2018, the Company~~earnings and made distributions from its foreign earnings related to the assertion removal in the second quarter of approximately $18 million. The Company repatriated the additional $15 million of foreign earnings in the second quarter of fiscal 2019. During the second quarter of fiscal 2019, the Company also removed its permanent reinvestment assertion on an additional approximately $21.6 million of its accumulated offshore earnings. This resulted in the previously mentioned estimated tax expense of $1.1 million. The Company has recorded the ~~estimated~~ tax ~~impact~~effects of the distributions and planned repatriations in its ~~condensed consolidated~~ financial statements, including withholding taxes and ~~continues~~currency gain and loss. For the remainder of its foreign earnings, the Company has not changed its prior assertion. Accordingly, deferred taxes attributable to ~~evaluate~~ its ~~cash needs and strategic opportunities to repatriate cash.~~investments in its foreign subsidiaries have not yet been recorded.

The ~~Company continues to review the anticipated tax impacts of provisions of the~~ Tax Act also establishes new tax laws that come into effect for the Company in the current fiscal year, including the creation of a new provision designed to tax global intangible low-taxed income (GILTI), which ~~are not effective until its~~allows for the possibility of using foreign tax credits (FTCs), a deduction of up to 50 percent to offset the income tax liability, and a deduction for foreign derived intangible income (FDII) subject to certain limitations. During fiscal year 2019, ~~as well, including but not limited to global intangible low taxed~~the Company is estimating no current income ~~(“GILTI”) and base erosion anti-abuse~~ tax ~~(“BEAT”).~~ expense from the new GILTI.

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

BUSINESS OPTIMIZATION PROGRAM

The Company made progress on implementing its previously announced business optimization program in the third 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 existing large engine plants, which are located in Georgia and Alabama, expanding Ferris commercial mower production capacity ininto a new, modern facility which is located close to the current manufacturing facility in New 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 U.S. plants ~~is expected to be phased in beginning~~began in the fourth quarter of fiscal 2018 ~~through~~and additional lines were phased in by the ~~middle~~end of the third quarter of fiscal 2019. ~~Currently,~~Previously, the majority of Vanguard engines ~~are~~were sourced from overseas. Production of Ferris commercial mowers began in the new facility in the fourth quarter of fiscal 2018 and all remaining production was transitioned in 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 in July of fiscal 2019, subsequent to the peak seasonal shipment period.third quarter.

For the ~~third quarter~~three and ~~first~~ nine months ~~of fiscal 2018,~~ended March 31, 2019, the Company recorded business optimization charges of ~~$4.2~~$9.8 million ($~~3.1~~6.4 million after tax or ~~$0.07~~$0.14 per diluted share) and ~~$12.5~~$40.2 million ($~~9.6~~31.3 million after tax or ~~$0.23~~$0.75 per diluted share)~~, respectively. Total pre-tax expenses related to the business optimization program~~. Full year costs in fiscal 2019 are expected to be approximately ~~$50~~$42 million to ~~$55 million,~~$46 million. Total program cost are expected to be in the range of ~~which $24~~$60 million to ~~$28 million is expected be recognized in fiscal 2018.~~$70 million. The business optimization program is ~~projected~~expected to generate ~~$30~~pre-tax savings of $35 million to ~~$35~~$40 million of ongoing future annual pre-tax savings, in addition to supporting profitable commercial growth. The Company estimates the future annual savings will be achieved over a three-year period beginning in fiscal 2019.

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LIQUIDITY AND CAPITAL RESOURCES

Cash flows used in operating activities for the first nine months of fiscal ~~2018~~2019 were ~~$19.0~~$104.9 million compared to ~~$26.5~~$19.0 million in the first nine months of fiscal ~~2017.~~2018. The ~~decrease~~increase in cash used in operating activities was primarily related to higher business optimization expenses and changes in working capital, including ~~greater~~lower collections of accounts receivable due to timing of sales and customer payments, as well as higher inventory balances, partially offset by ~~a $30 million contribution to the Company's qualified~~lower pension ~~plan.~~contributions.

Cash flows used in investing activities were ~~$88.0~~$55.2 million and ~~$44.4~~$78.9 million during the first nine months of fiscal ~~2018~~2019 and fiscal ~~2017,~~2018, respectively. The ~~$43.6~~$23.7 million ~~increase~~decrease in cash used in investing activities was primarily related to ~~an increase in restricted cash of $9.1 million associated with the New Markets Tax Credit transaction, which occurred in fiscal 2018, and a $28.7 million increase for~~lower capital expenditures, ~~year over year.~~partially offset by increased cash paid for acquisitions.

Cash flows provided by financing activities were ~~$100.4~~$135.8 million and ~~$33.7~~$100.4 million during the first nine months of fiscal ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~$66.7~~$35.4 million increase in cash provided by financing activities was attributable to higher borrowings on the Revolver (as defined below) ~~at period end~~in the first nine months of fiscal 2019 compared to the 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. ~~During the third quarter of fiscal 2018, the Company repurchased $19.8 million of the Senior Notes after receiving unsolicited offers from bondholders.~~

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 ~~April~~March 31, 2019 and July 1, 2018, ~~$131.6~~$211.5 million and $48.0 million was outstanding under the Revolver. ~~There were no borrowings under the Revolver as of July 2, 2017.~~ 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 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 nine months ended ~~April 1, 2018,~~March 31, 2019, the Company repurchased 725,321 shares on the open market at an average price of $16.46 per share, as compared to 382,806 shares purchased on the open market at an average price of $22.76 per share ~~as compared to 916,040 shares purchased on the open market at an average price of $19.57 per share~~ during the nine months ended April ~~2, 2017.~~1, 2018.

The Company expects capital expenditures to be approximately ~~$100~~$65 million in fiscal ~~2018.~~2019. These anticipated expenditures reflect the Company's business optimization program as well as continued reinvestment in efficient equipment and innovative new products. ~~The company continues to anticipate that fiscal 2019 capital expenditures will decrease to approximately $65 million.~~

During the first nine months of fiscal 2018, the Company made a $30.0 million voluntary cash contribution 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 for the remainder of 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.

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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.

The Senior Notes and the Revolver contain restrictive covenants. These covenants include restrictions on the ability of the Company and/or certain subsidiaries to pay dividends, repurchase equity interests of the Company and certain subsidiaries, incur indebtedness, create liens, consolidate and merge and dispose of assets, and enter into transactions with the Company's affiliates. The Revolver contains financial covenants that require the Company to maintain a minimum interest coverage ratio of 3.0 to 1.0 and impose on the Company a maximum average leverage ~~ratio.~~ratio of 3.5 to 1.0. The Senior Notes contain a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 2.0 to 1.0, as defined by the indenture. As of ~~April 1, 2018,~~March 31, 2019, the Company was in compliance with these covenants, and expects to be in compliance with all covenants during the remainder of fiscal ~~2018.~~2019. As of March 31, 2019, the Company's interest coverage ratio, average leverage ratio, and fixed charge coverage ratio were 4.70, 3.06, and 3.17, respectively.

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

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

There has not been any change in the Company’s internal control over financial reporting during the third fiscal quarter that has 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 ~~April 1, 2018~~March 31, 2019.

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)
January 1, 2018 to January 28, 2018 600
$ 24.49
600
$ 27,376,132
January 29, 2018 to February 25, 2018 231,862
23.17
229,350
22,062,582
February 26, 2018 to April 1, 2018 16,349
21.74
11,661
21,808,966
Total Third Quarter 248,811
$ 23.10
241,611
$ 21,808,966



2019 Fiscal Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program (a)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (a)
December 31, 2018 to January 27, 2019	—	$	—	—	$	38,570,940
January 28, 2019 to February 24, 2019	40,499	12.54		40,499	38,062,939
February 25, 2019 to March 31, 2019	—	—		—	38,062,939
Total Third Quarter	40,499	$	12.54	40,499	$	38,062,939

(a) During the three months ended April 1, 2018, the Company repurchased 7,200 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. Subsequent to the end of the third fiscal quarter of 2018, the Board of Directors authorized an additional $50 million under the share repurchase program with an expiration date of June~~ 30, 2020.

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ITEM 6. EXHIBITS



Exhibit Number		Description


10.1		Amendment to the Briggs & Stratton Corporation Supplemental Executive Retirement Plan

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 ~~April 1, 2018~~March 31, 2019 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 Statement of Shareholders' Investment, (v) the Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) 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:	May ~~8, 2018~~7, 2019	/s/ Mark A. Schwertfeger
		Mark A. Schwertfeger
		Senior Vice President and Chief Financial Officer and Duly Authorized Officer

3639



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)
January 1, 2018 to January 28, 2018	600	$	24.49	600	$	27,376,132
January 29, 2018 to February 25, 2018	231,862	23.17		229,350	22,062,582
February 26, 2018 to April 1, 2018	16,349	21.74		11,661	21,808,966
Total Third Quarter	248,811	$	23.10	241,611	$	21,808,966