1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 19951996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________from to
_______________--------------- ---------------
Commission file number 1-1370
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BRIGGS & STRATTON CORPORATION
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(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
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(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class FebruaryMay 8, 1996
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COMMON STOCK, par value $0.01 per share 28,927,000 Shares
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
DecemberMarch 31, 1995,1996, July 2, 1995 and
January 1,April 2, 1995 3
Consolidated Condensed Statements of Income -
Three Months and SixNine Months Ended
DecemberMarch 31, 19951996 and January 1,April 2, 1995 4
Consolidated Condensed Statements of Cash Flows -
SixNine Months Ended DecemberMarch 31, 19951996 and
January 1,April 2, 1995 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
ASSETS
Dec.31March 31 July 2 Jan. 1April 2
1996 1995 1995
1995
----------------- ------ ------- --------
CURRENT ASSETS: (Unaudited) (Unaudited)
Cash and cash equivalents $ 6,32359,158 $170,648 $ 10,956$114,247
Receivables, net 270,142273,310 94,116 288,973265,432
Inventories -
Finished products and parts 156,11794,840 96,540 109,97087,881
Work in process 44,08731,206 40,107 35,00434,773
Raw materials 4,5604,229 4,027 5,469
----------------------------------3,863
-------- -------- --------
Total inventories $204,764 $140,674 $150,443130,275 140,674 126,517
Future income tax benefits 31,74434,964 31,376 32,34934,479
Prepaid expenses 14,79614,539 16,516 20,001
----------------------------------13,746
-------- -------- --------
Total current assets $527,769 $453,330 $502,722
----------------------------------512,246 453,330 554,421
PREPAID PENSION COST $ 727 $1,898 - $ 7,873
----------------------------------12,406
DEFERRED INCOME TAX ASSET $ 4,157 $5,907 1,866 -
----------------------------------
PLANT AND EQUIPMENT at cost: $759,178 $726,331 $692,563-
Cost 769,731 726,331 670,867
Less - Accumulated depreciation and
unamortized investment tax credit 387,056395,212 383,034 390,223
----------------------------------376,472
-------- -------- --------
Total plant and equipment, net $372,122 $343,297 $302,340
----------------------------------
$904,775374,519 343,297 294,395
-------- -------- --------
$894,570 $798,493 $812,935
==================================$861,222
======== ======== ========
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 62,25172,996 $ 63,913 $ 58,79880,248
Domestic notes payable 101,55810,000 6,750 1,750
Foreign loans 20,06623,959 19,653 21,59524,764
Accrued liabilities 94,602104,504 108,817 109,506129,930
Dividends payable 7,521 - 7,232
Federal and state income taxes 12,81531,611 (1,878) 13,571
----------------------------------21,487
-------- -------- --------
Total current liabilities $298,813 $197,255 $212,452
----------------------------------250,591 197,255 265,411
DEFERRED INCOME TAX LIABILITY $ - $ - $ 9,660
----------------------------------7,383
ACCRUED EMPLOYEE BENEFITS $ 17,260 $17,676 16,447 $ 15,918
----------------------------------15,966
ACCRUED PENSION COST $ - $ 1,606 -
----------------------------------
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION $ 69,143 $69,577 68,707 $ 65,341
----------------------------------63,566
LONG-TERM DEBT $ 75,000 $ 75,000 $ 75,000
----------------------------------
SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000,000 shares, $.01 par value
Issued and outstanding 28,927,000 shares $ 289 $ 289 $ 289
Additional paid-in capital 41,32741,001 41,698 42,05941,775
Retained earnings 403,209440,914 397,627 393,388392,521
Cumulative translation adjustments (266)(478) (136) (1,172)
----------------------------------(689)
-------- -------- --------
Total shareholders' investment $444,559 $439,478 $434,564
----------------------------------
$904,775481,726 439,478 433,896
-------- -------- --------
$894,570 $798,493 $812,935
==================================$861,222
======== ======== ========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands of dollars except amounts per share)
(Unaudited)
Three Months Ended SixNine Months Ended
------------------ -----------------
Dec.------------------
March 31 Jan. 1 Dec.April 2 March 31 Jan. 1April 2
1996 1995 1996 1995
1995 1995-------- ------- -------- ------- ---------
NET SALES $329,357 $366,717 $518,834 $594,562$460,201 $450,163 $979,035 $1,044,725
COST OF GOODS SOLD 263,594 283,193 433,930 471,239356,119 344,725 790,049 815,964
-------- -------- -------- ------------------
Gross profit on sales $104,082 $105,438 $188,986 $ 65,763 $ 83,524 $ 84,904 $123,323228,761
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 24,801 26,697 49,284 48,973
--------- -------30,055 27,742 79,339 76,715
-------- -------- -------- ----------
Income from operations $ 40,96274,027 $ 56,82777,696 $109,647 $ 35,620 $ 74,350152,046
INTEREST EXPENSE (2,919) (2,121) (4,976) (4,212)(2,879) (2,195) (7,855) (6,407)
OTHER INCOME, net 541 557 2,620 3,8591,798 2,100 4,418 5,959
-------- -------- -------- ------------------
Income before provision
for income taxes $ 38,58472,946 $ 55,26377,601 $106,210 $ 33,264 $ 73,997151,598
PROVISION FOR INCOME TAXES 14,660 21,550 12,640 28,86027,720 30,270 40,360 59,130
-------- -------- -------- ------------------
Net income $ 23,92445,226 $ 33,71347,331 $ 20,62465,850 $ 45,13792,468
======== ======== ======== ==================
PER SHARE DATA* -
Net income $ .821.57 $ 1.171.64 $ .712.28 $ 1.563.20
====== ====== ====== ======
Cash dividends $ .26 $ .25 $ .52.78 $ .48.73
====== ====== ====== ======
* Based on 28,927,000 shares outstanding.
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase(Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
(Unaudited)
SixNine Months Ended
---------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Dec.March 31, 1996 April 2, 1995
Jan. 1, 1995-------------- ------------- ------------
Net income $ 20,62465,850 $ 45,13792,468
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation 20,938 22,662
(Gain)31,704 33,848
Loss on disposition of plant and equipment 680 (7)1,318 608
(Increase)decrease in operating assets -
Accounts receivable (176,026) (166,376)(179,194) (160,191)
Inventories (64,090) (64,773)10,399 (48,596)
Other current assets 1,352 1,066(1,611) (5,053)
Other assets (3,018) 808(5,939) 1,252
Increase(decrease) in liabilities -
Accounts payable and accrued
liabilities 6,337 3,68645,780 59,825
Other liabilities (357) (900)493 (2,004)
--------- -----------------
Net cash used by
operating activities $(193,560) $(158,697)$ (31,200) $ (27,843)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment $ (51,423)(65,341) $ (41,416)(70,709)
Proceeds received on sale of plant and equipment 928 2,0321,006 2,075
Decrease in cash due to spin-off of lock business - (174)
--------- ---------
Net cash used in investing activities $ (50,495)(64,335) $ (39,384)(68,808)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings onfrom domestic and
foreign loans $ 95,2217,556 $ 2,02212,191
Dividends (15,042) (13,885)(22,563) (21,117)
Purchase of common stock for treasury (547) (295)(1,032) (784)
Proceeds from exercise of stock options 176 140335 345
--------- ---------
Net cash provided(used)used by financing activities $ 79,808(15,704) $ (12,018)(9,365)
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS $ (78)(251) $ (46)(838)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS $(164,325) $(210,145)$(111,490) $(106,854)
CASH AND CASH EQUIVALENTS, beginning 170,648 221,101
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 6,32359,158 $ 10,956114,247
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,5967,905 $ 4,1806,351
========= =========
Income taxes paid $ 2,57615,795 $ 26,74853,271
========= =========
The accompanying notes are an integral part of these statements.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated condensed 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 presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of the Company, adequate disclosures have
been presented to make the information not misleading, and all adjustments
necessary to present fair statements of the results of operations and financial
position have been included. All of these adjustments are of a normal
recurring nature. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
During the currentsecond quarter of fiscal 1996, the Company recorded a change
in an accounting estimate originally made in the last quarter of fiscal 1995.
During that period,the last quarter of fiscal 1995, a charge totaling $19,059,000 was added
to pension and postretirement health care expenses to reflect the costs of
early retirement windows that were offered and accepted at the end of fiscal
1995. In October 1995, when the retirements were to occur, a number of those
employees who had accepted the offer canceled their acceptance, and thus a
credit totaling $3,477,000 was recorded as a change in the original accounting
estimate during
the second quarter of fiscal 1996.estimate.
The Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation" in October 1995, which establishes
financial accounting and reporting standards for stock-based employee
compensation. The Company plans to adopt only the pro forma disclosure
requirements of this statement, and will continue to apply the accounting
provisions of APB Opinion No. 25 to stock-based employee compensation
arrangements, as is allowed by the statement. This disclosure will be
effective for the financial statements ending in June 1997.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's results of operations and
financial condition during the periods included in the accompanying
consolidated condensed financial statements.
RESULTS OF OPERATIONS
SALES
Net sales for the second fiscalthird quarter of fiscal 1996 decreased 10%increased 2% or
$37,360,000 compared to$10,038,000. This was the same periodnet result of a $26,420,000 increase in engine
sales, partially offset by the lack of lock sales in the preceding year. Approximately
two-thirdscurrent quarter in the
amount of this decrease is attributable to the absence of lock sales. This$16,382,000 included in last year's third quarter before that
business was spun off to the shareholders at the end of February 1995. The
remaining portion of the change isincrease in engine sales was due to a 7% decrease9% increase in engine units sold
between years. Thisunit shipments
which occurred because domestic manufacturers of lawn and garden
equipment continued their reduced production rates from the first fiscal
quarter. As was the case in the first quarter, the decrease in unit sales was
larger than the decrease in sales dollars because it occurred primarily in the Company's lower selling price small engine line. There wereLarger
engine unit sales remained steady between years. The largest portion of this
increase was in the domestic market, although the export markets had small
improvementsimprovements. Service sales showed a decline in export sales for the quarter which were offset by reductions in service
sales.current year.
Net sales for the sixnine months ended December 1995March 1996 decreased 13%6% to
$518,834,000. Over half of this$979,035,000. This decrease wasis almost entirely attributable to the spun-offabsence of
lock business. Engine unit shipmentssales in the current year. Total engine units sold, however, showed a 3%
decrease. There was not a corresponding sales dollar decrease because there
were down 13%. All other comments made above
are applicable to this period.larger decreases in sales of the Company's lower selling price engines
than higher selling price engines. Decreases in the domestic market and in
service sales were offset by increases in export markets.
GROSS PROFIT
Gross profit decreased 21%, reflecting a decrease1% or $1,356,000 between comparable third
quarter periods. The gross profit rate decreased less than 1%. Gross profit
was generated from the net increase in rate from 23% last
year to 20%sales; small reductions in the current year. This decrease was the resultcost of
the absence of
gross profit from the spun-off lock business, lower unit sales, the spreading of
fixed costs over fewer engine units and the expected lower manufacturing
efficiency associated with the four new plants. Partially offsetting this was
lower profit sharing accruals, the credit resulting from a change in an
accounting estimate (described in the notes on page 6), and a small reduction in
aluminum, costs, the major raw material used in the manufacture of engines.engines; and lower
profit sharing accruals. The favorable effect of these items was offset by the
expected costs associated with the transition to new plants and the spreading
of fixed costs over fewer engines produced.
Nine-month gross profit decreased 17%, or $39,775,000. The gross
profit rate decreased from 22% in the previous year to 19% in the current year.
The same factors causeddescribed above were in effect except that lower sales had a
negative impact over the decrease innine-month period. There was also the absence of
gross profits of $38,419,000 or
31% when comparing the first six months of fiscal 1996profit related to the same period in
fiscal 1995. Added to these factors was the first quarter start-up cost of the
new plants which totaled $9,800,000.spun-off lock business.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category of expenses decreased $1,896,000increased $2,313,000 or 7%8% between comparable quarters.
This was due to planned increases in manpower costs related to the second
quarter of fiscal 1996Company's
service operations and 1995. This decrease resulted primarily fromincreases in professional services, offset in part by
reduced profit sharing accruals and the lack of engineering and selling
expenses that were part offrom the spun-off lock business
and lower profit sharing accruals.
Six-month comparison in this category reflects a 1%business.
The 3% increase between
years. Larger advertising and marketing expenses in the first quarter were
almost offset bynine-month comparison is also due to the reductionsfactors
described in the preceding paragraph.above.
INTEREST EXPENSE
Interest expense for the secondthird fiscal quarter of 1996 increased 38%31% over the
samecomparable period in the preceding year. This increase reflectsThe nine- month amount increased 23%.
These increases were the result of the use of domestic short-term borrowing to
finance increases in accounts receivable and inventories and capital expenditures associated with plant projects described
later. There was no domestic short-term borrowing in the second quarterinventories. Substantially all of
the current year domestic borrowings were paid off by the end of the quarter.
The preceding year. The same factors effected the six-month interest experience
comparisons.year had a minimal amount of short-term borrowing.
OTHER INCOME
Other income was comparableThis category decreased between quarters. However,years in both the six-month
comparison reflectsquarterly and
nine-month comparisons. These decreases were caused by a 32% reduction due to lower investment income because ofin
investable funds during the lack of investable funds.current year for the same reasons described in
Interest Expense.
PROVISION FOR INCOME TAXES
The effective tax rate used for both the first six months of operationsquarter and nine-month periods
was 38%. This rate reflectsis management's estimate of what the rate will be for the
entire fiscal year.
OUTLOOK
TheA late spring in the eastern half of the United States has clouded the
outlook for the fourth quarter. In the few places that have enjoyed warm, wet
weather, retail sales of outdoor power equipment this spring
seemshave been good, which is
encouraging. Where winter has refused to be good. The econometric forecasting services the Company uses
predictsmake a timely departure, retail sales
willhave been poor, which is what would be somewhat stronger than last spring, assuming
normal weather. Retailers are optimistic, and their indicationsexpected. The question for which an
answer is awaited: Will warm weather return before consumers decide to
their
equipment suppliers reflect their optimism. Equipment manufacturers are
optimistic, too, and their indications reflect their optimism. However, the
rate at which they are taking engines does not validate their optimism. Unlesspostpone purchases until next spring? Until this rate changes soon, prudence will dictate that thequestion is answered, no
prediction of fourth quarter results can be made. Company should reduce
assembly rates so as to keep the end of season inventory within a reasonable
range. It now appears that earnings for the third quarter are unlikely to reach
last year's record level and that a return to favorable comparisons will be
postponed to the fourth quarter. It is now certainmanagement believes
that earnings for the full year will be lower than for last year.
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (Continued)
FINANCIAL CONDITION
Cash and cash equivalents decreased $164,325,000$111,490,000 since the end of the
previous fiscal year. Cash wasThis reduction in cash and the increase in accounts
payable and accrued liabilities were used to finance the $176,026,000$179,194,000 seasonal
increase in accounts receivable, the $64,090,000 increase in inventories, capital expenditures totaling $51,423,000,$65,341,000, and
the payment of dividends totaling $15,042,000. Additional funds were obtained from net profits and depreciation
and new short-term debt.
The increase in accounts receivable is a normal seasonal increase at
this time$22,563,000.
Inventories decreased $10,399,000 since the end of the fiscal year.
Inventory increases are mostlyThe high level of finished goods inventories carried during most of fiscal 1996
was reduced by shipments late in the finished goods
category which reflectsthird fiscal quarter.
A major part of the Company's continued maintenance of a stable rate of
production. The continuance of this production rate was discussed previously$65,341,000 in the Outlook section.
Additions to plant and equipmentcapital expenditures during the
first sixnine months of fiscal year 1996 totaled $51,423,000. Capitalwas for previously announced projects
involving three new engine plants, a foundry and plant expansionsexpansions. These
projects were substantially completed during the December quarter. These new plants are now in operation.quarter and
manufacturing operations have begun at these locations. The Company plans to
spend approximately $30,000,000 of$15,000,000 on additional capital expenditures on other projects
during the
remainderfinal fiscal quarter.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis contain
forward-looking information (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risk and uncertainty. Company results may
differ materially from those in the fiscal year.
CALIFORNIA EMISSION STANDARDS
Recentlyforward-looking statements. Any
forward-looking statements are based on management's current views and
assumptions and involve risks and uncertainties that could significantly affect
final results. These uncertainties could include the California Air Resources Board has granted the Company's request
that the California standard for carbon monoxide be relaxed to harmonize it
with that adopted by the U.S. Environmental Protection Agency (EPA). As a
resulteffects of this change, a wider rangeweather;
actions of the Company's engines will meet
California's current emission standards.competitors; changes in laws and regulations, including accounting
standards; customer demand; prices of purchased raw materials and parts;
domestic economic conditions; housing starts; and foreign economic conditions,
including currency rate fluctuations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
10.3(c) Amendment to Economic Value Added Incentive Compensation Plan.
(Filed herewith.)
10.11 Officer Employment Agreement.
(Filed herewith.)
10.12 Deferred Compensation Plan for Directors.
(Filed herewith.)
27 Financial Data Schedule.
(Filed herewith.)
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(Filed herewith)
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the secondthird quarter ended DecemberMarch 31,
1995.1996.
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: FebruaryMay 8, 1996 /s/ R. H. Eldridge
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R. H. Eldridge
Executive Vice President & Chief
Financial Officer, Secretary-Treasurer
Date: FebruaryMay 8, 1996 /s/ J. E. Brenn
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J. E. Brenn
Vice President and Controller
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BRIGGS & STRATTON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.3(c) Amendment to Economic Value Added Incentive Compensation Plan
(Filed herewith)
10.11 Officer Employment Agreement
(Filed herewith)
10.12 Deferred Compensation Plan for Directors
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)