FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 27, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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

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

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

12301 WEST WIRTH STREET
WAUWATOSA, WISCONSIN 53222
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(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code: 414-259-5333

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

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock (par value $0.01 per share) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange

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

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $1,353,195,000 based on the reported last sale
price of such securities as of August 24, 1999.

Number of Shares of Common Stock Outstanding at August 24, 1999: 23,123,389.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K Into Which Portions
Document of Document are Incorporated
-------- ------------------------------------
Proxy Statement for Annual Meeting
on October 20, 1999 Part III

The Exhibit Index is located on page 30.

BRIGGS & STRATTON CORPORATION
1999 FORM 10-K - TABLE OF CONTENTS

PART I PAGE

Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
Executive Officers of the Registrant 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 28
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28
Signatures 29

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

Certain statements in Item 1. Business and Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations may contain
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",
"objective", and "think" or 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 effects of weather on the purchasing patterns
of the Company's customers and end use purchasers of the Company's engines; the
seasonal nature of the Company's business; actions of competitors; changes in
laws and regulations, including accounting standards; employee relations;
customer demand; prices of purchased raw materials and parts; domestic economic
conditions, including housing starts and changes in consumer disposable income;
foreign economic conditions, including currency rate fluctuations; the ability
of the Company's customers and suppliers to meet year 2000 compliance; and
unanticipated internal year 2000 issues. Some or all of the factors may be
beyond the Company's control.

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PART I

ITEM 1. BUSINESS

GENERAL

Briggs & Stratton Corporation is the world's largest producer of air cooled
gasoline engines for outdoor power equipment. The Company designs, manufactures,
markets and services these products for original equipment manufacturers (OEMs)
worldwide. These engines are aluminum alloy gasoline engines ranging from 3
through 25 horsepower.

The Company's engines are used primarily by the lawn and garden equipment
industry, which accounted for 77% of fiscal 1999 OEM engine sales. The major
lawn and garden equipment applications include walk-behind lawn mowers, riding
lawn mowers and garden tillers. The remaining 23% of OEM sales in fiscal 1999
were for use on many products for industrial, construction, agricultural and
consumer applications, including generators, pumps and pressure washers. Many
retailers specify the Company's engines on the powered equipment they sell, and
the Briggs & Stratton name is often featured prominently on a product despite
the fact that its engine is just a component. Briggs & Stratton engines are
marketed under various brand names including Classic(TM), Sprint(TM),
Quattro(TM), Quantum(R), INTEK(TM), I/C(R), Diamond I/C(R), Industrial Plus(TM)
and Vanguard(TM).

In fiscal 1999, approximately 21% of the Company's net sales were derived from
sales in international markets, primarily to customers in Europe. Briggs &
Stratton serves its key international markets through its European regional
office in Switzerland, its distribution center in the Netherlands and sales and
service subsidiaries in Australia, Austria, Canada, the Czech Republic, France,
Germany, Mexico, New Zealand, South Africa, Sweden and the United Kingdom. The
Company is a leading supplier of gasoline engines in developed countries where
there is an established lawn and garden equipment market. The Company also
exports to developing nations where its engines are used in agricultural,
marine, construction and other applications.

Briggs & Stratton engines are sold primarily by its worldwide sales force
through direct calls on customers. The Company's marketing staff and engineers
provide support and technical assistance to its sales force.

Briggs & Stratton also manufactures replacement engines and service parts and
sells them to sales and service distributors. The Company owns its principal
international distributors. In the United States the distributors are
independently owned and operated. These distributors supply service parts and
replacement engines directly to approximately 32,000 independently owned
authorized service dealers throughout the world. These distributors and service
dealers implement Briggs & Stratton's commitment to reliability and service.

CUSTOMERS

The Company's sales are made primarily to original equipment manufacturers. The
Company's three largest customers in each of the last three fiscal years were AB
Electrolux (including its Frigidaire Home Products group), MTD Products Inc.,
and Tomkins PLC (including its Murray subsidiary). Sales to each of these
customers were more than 10% of net sales in fiscal 1999, 1998 and 1997. Sales
to all three combined were 42% of net sales in fiscal 1999 and 46% of net sales
in fiscal 1998 and 1997. Under purchasing plans available to all of its gasoline
engine customers, the Company typically enters into annual engine supply
arrangements with these large customers. The Company has no reason to anticipate
a change in this practice or in its historical business relationships with these
equipment manufacturers.

Over the past several years, sales in the United States of lawn and garden
equipment by mass merchandisers have increased significantly, while sales by
independent distributors and dealers have declined. The Company believes that in
1999 more than 75% of all lawn and garden equipment sold in the United States
was sold through mass merchandisers such as Wal-Mart, Sears, Home Depot, Lowe's
and Kmart. Given the buying power of the mass merchandisers, the Company,
through its

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customers, has experienced pricing pressure. The Company expects that this trend
will continue in the foreseeable future. The Company believes that a similar
trend has developed for commercial products for industrial and consumer
applications.

COMPETITION

The small gasoline engine industry is highly competitive. The Company's major
domestic competitors in engine manufacturing are Tecumseh Products Company,
Honda Motor Co., Ltd., Kohler Co. and Kawasaki Heavy Industries, Ltd. Also, two
domestic lawn mower manufacturers, Toro Co. under its Lawn-Boy brand, and Honda,
manufacture their own engines. Eight Japanese small engine manufacturers, of
which Honda and Kawasaki are the largest, compete directly with the Company in
world markets in the sale of engines and indirectly through their sale of end
products that compete with the end products produced by the Company's customers.
Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe.

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

SEASONALITY OF DEMAND

Sales of engines to lawn and garden equipment manufacturers are highly seasonal
because of the buying patterns of retail customers. The majority of lawn and
garden equipment is sold during the spring and summer months when most lawn care
and gardening activities are performed. Sales of lawn and garden equipment are
also influenced by weather conditions. Sales in the Company's fiscal third
quarter have historically been the highest, while sales in the first fiscal
quarter have historically been the lowest.

The sale of lawn and garden equipment has shifted from smaller dealers to larger
mass merchandisers, who do not wish to carry large inventories of lawn and
garden equipment. In order to efficiently use its capital investments and meet
seasonal demand for engines, the Company pursues a balanced production schedule
throughout the year, subject to ongoing adjustment to reflect changes in
estimated demand, customer inventory levels and other matters outside the
control of the Company. Accordingly, inventory levels are generally higher
during the first and second fiscal quarters in anticipation of increased
customer demand in the third fiscal quarter, at which time inventory levels
begin to decrease as sales increase.

Lawn and garden equipment manufacturers have tended to purchase the majority of
engines in the Company's third and fourth fiscal quarter. This seasonal pattern
results in high inventories and low cash for the Company in the second and the
beginning of the third fiscal quarters, with a rapid shift to lower inventories
and ultimately higher cash in the latter portion of the third fiscal quarter and
in the fourth fiscal quarter.

MANUFACTURING

Briggs & Stratton manufactures engines and parts at the following locations in
the United States: Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and
Rolla, Missouri; Auburn, Alabama; and Statesboro, Georgia. The Company has a
parts distribution center in Menomonee Falls, Wisconsin. The Company has
recently experienced capacity shortages in some of its product offerings.
Management believes that such a condition could persist into the future and,
accordingly, the Company anticipates adding capacity over the next two fiscal
years.

Briggs & Stratton manufactures a majority of the structural components used in
its engines, including aluminum die castings and a high percentage of other
major components, such as carburetors and ignition systems. The Company
purchases certain finished standard commercial

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parts such as piston rings, spark plugs, valves, ductile and grey iron castings,
zinc die castings and plastic components, some stampings and screw machine parts
and smaller quantities of other components. Raw material purchases are
principally for aluminum and steel. The Company believes its sources of supply
are adequate.

The Company has joint ventures with Daihatsu Motor Company for the manufacture
of engines in Japan, with Puling Machinery Works and Yimin Machinery Plant for
the production of engines in China, and with Starting Industrial of Japan for
the production of rewind starters in the U.S. The Company also has two joint
ventures in India. Kirloskar Briggs & Stratton, a joint venture with Kirloskar
Oil Engines Ltd., is responsible for sales and distribution of Briggs & Stratton
engines and parts in India and assembles and distributes generators and pumps
powered by Briggs & Stratton engines. Hero Briggs & Stratton is a joint venture
with Hero Motors, part of the Hero Group, for the manufacture of engines and
transmissions to be used in two wheel transportation vehicles.

The Company has a strategic relationship with Mitsubishi Heavy Industries (MHI)
for the international distribution of air-cooled gasoline engines manufactured
by MHI in Japan.

OTHER GENERAL INFORMATION

The Company holds certain patents on features incorporated in its products;
however, the success of the Company's business is not considered to be primarily
dependent upon patent protection. Licenses, franchises and concessions are not a
material factor in the Company's business.

For the years ending June 27, 1999, June 28, 1998 and June 29, 1997, the Company
spent approximately $17,920,000, $19,950,000 and $19,525,000, respectively, on
Company sponsored research activities relating to the development of new
products or the improvement of existing products. Included in fiscal 1998 and
fiscal 1997 were costs related to the Company's software business of $3,136,000
and $1,968,000, respectively. This business was sold in the first quarter of the
1999 fiscal year.

The average number of persons employed by the Company during the fiscal year was
7,615. Employment ranged from a low of 7,142 in August 1998 to a high of 7,994
in June 1999.

EXPORT SALES

Export sales for fiscal 1999 were $316,115,000 (21% of total sales), for fiscal
1998 were $288,510,000 (22% of total sales) and for fiscal 1997 were
$304,230,000 (23% of total sales). These sales were principally to customers in
European countries.

ITEM 2. PROPERTIES

The corporate offices and one of the Company's manufacturing facilities are
located in a suburb of Milwaukee, Wisconsin. The Company also has manufacturing
facilities in Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn,
Alabama and Statesboro, Georgia. These are owned facilities containing 3.6
million square feet of office and production area. The Company occupies
warehouse space totalling 400,000 square feet in a suburb of Milwaukee,
Wisconsin under a reservation of interest agreement. The Company also leases
80,000 square feet of manufacturing space in the Milwaukee area.

The engine business is seasonal, with demand for engines at its height in the
winter and early spring. Engine manufacturing operations run at capacity levels
during the peak season, with many operations running three shifts. Engine
operations generally run one shift in the summer, when demand is weakest and
production is considerably under capacity. During the winter, when finished
goods inventories reach their highest levels, owned warehouse space may be
insufficient and capacity may be expanded through rented space. Excess warehouse
space exists in the spring and summer seasons. The Company's owned properties
are well maintained.

The Company leases 200,000 square feet of space to house its European warehouse
in the Netherlands and its foreign sales and service operations in Australia,
Austria, Canada, the Czech Republic, France, Germany, India, Mexico, New
Zealand, Russia, South Africa, Sweden, Switzerland and the United Kingdom.

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ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings that are required to be reported under
this item.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended June 27,
1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

Name, Age, Position Business Experience for Past Five Years
------------------- ---------------------------------------

FREDERICK P. STRATTON, JR., 60 Mr. Stratton was elected to the position of Chief
Chairman and Chief Executive Officer Executive Officer in May 1977 and Chairman in
(1) (2) (3) November 1986.

JOHN S. SHIELY, 47 Mr. Shiely was elected to his current position in
President and Chief Operating Officer August 1994.
(1) (2)

ROBERT H. ELDRIDGE, 60 Mr. Eldridge was elected to the position of Executive
Executive Vice President and Vice President in April 1995 and Secretary-Treasurer
Secretary-Treasurer (1) in January 1984. He also served as Chief Financial
Officer from April 1995 to October 1998.

MICHAEL D. HAMILTON, 57 Mr. Hamilton was elected to his current position
Executive Vice President - effective June 1989.
Sales and Service

JAMES E. BRENN, 51 Mr. Brenn was elected to his current position in
Senior Vice President and October 1998, after serving as Vice President and
Chief Financial Officer Controller since November 1988.

RICHARD J. FOTSCH, 44 Mr. Fotsch was elected to his current position in May
Senior Vice President and 1999 after serving as Senior Vice President -
General Manager Operations since January 1999. He had previously
held the position Senior Vice President - Engine
Group since July 1997 and prior to that Vice
President; General Manager - Small Engine
Division since May 1993.

HUGO A. KELTZ, 51 Mr. Keltz was elected to his current position in May
Vice President - International 1992.

CURTIS E. LARSON, JR., 51 Mr. Larson was elected to this executive officer
Vice President - Distribution position in October 1995 after serving as Vice
Sales and Service President - Industrial Engine Division since January
1993.

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PAUL M. NEYLON, 52 Mr. Neylon was elected to his current position in
Vice President - Production May 1999, after serving as Vice President -
Operations Support since January 1999. He had
previously held the position of Vice President;
General Manager - Spectrum Division since 1993.

WILLIAM H. REITMAN, 43 Mr. Reitman was elected an executive officer
Vice President - Marketing effective April 20, 1998. He had served as Vice
President Marketing since November 1995, after
serving as Marketing Director - New Ventures since
March 1993.

STEPHEN H. RUGG, 52 Mr. Rugg was elected to his current position in May
Senior Vice President - Sales and Service 1999, after serving as Vice President - Sales since
November 1995. His prior position was Vice
President - Sales and Marketing.

THOMAS R. SAVAGE, 51 Mr. Savage was elected to his current position
Senior Vice President - Administration effective July 1997, after serving as Vice President
Administration and General Counsel since
November 1994. He joined the Company in April
1992 as General Counsel.

TODD J. TESKE, 34 Mr. Teske was elected to his current position in
Controller October 1998, after serving as Assistant Controller
since joining the Company in June 1996. He held the
position of Audit Manager at Arthur Andersen LLP,
a public accounting firm, from 1992 to 1996.

GERALD E. ZITZER, 52 Mr. Zitzer was elected to his current position in
Vice President - Human Resources November 1988.

(1) Officer is also a Director of the Company.

(2) Member of Executive Committee.

(3) Member of Planning Committee.

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

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Information required by this Item is incorporated by reference to "Quarterly
Financial Data, Dividend and Market Information" on page 27.

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ITEM 6. SELECTED FINANCIAL DATA

- -----------------------------------------------------------------------------------------------------------------
Fiscal Year 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)

SUMMARY OF OPERATIONS
NET SALES .......................... $1,501,726 $1,327,610 $1,316,413 $1,287,029 $1,339,677
GROSS PROFIT ON SALES .............. 305,355 254,674 221,216 261,748 271,618
PROVISION FOR INCOME TAXES ......... 63,670 42,500 37,740 56,640 65,570
NET INCOME ......................... 106,101 70,645 61,565 92,412 104,805
PER SHARE OF COMMON STOCK:
Basic Earnings ................... 4.55 2.86 2.16 3.19 3.62
Diluted Earnings ................. 4.52 2.85 2.15 3.18 3.61
Cash Dividends ................... 1.16 1.12 1.09 1.05 .98
Shareholders' Investment ......... $ 15.77 $ 13.28 $ 13.82 $ 17.30 $ 15.19
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING ....... 23,344 24,666 28,551 28,927 28,927
DILUTED NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING .......... 23,459 24,775 28,678 29,059 29,072

OTHER DATA
SHAREHOLDERS' INVESTMENT ........... $ 365,910 $ 316,488 $ 351,097 $ 500,505 $ 439,478
LONG-TERM DEBT ..................... 113,307 128,102 142,897 60,000 75,000
TOTAL ASSETS ....................... 875,885 793,409 842,189 838,164 798,493
PLANT AND EQUIPMENT ................ 859,848 812,428 796,714 776,638 726,331
PLANT AND EQUIPMENT, NET OF RESERVES 404,454 391,927 396,266 374,212 343,297
PROVISION FOR DEPRECIATION ......... 49,346 47,511 43,345 43,032 44,445
EXPENDITURES FOR PLANT AND EQUIPMENT 65,998 45,893 71,262 77,746 131,034
WORKING CAPITAL .................... $ 176,644 $ 159,101 $ 204,422 $ 266,208 $ 256,075
Current Ratio .................... 1.6 to 1 1.7 to 1 2.0 to 1 2.4 to 1 2.3 to 1
NUMBER OF EMPLOYEES AT YEAR END .... 7,994 7,265 7,661 7,199 6,958
NUMBER OF SHAREHOLDERS AT YEAR END . 4,628 4,911 5,336 5,879 6,792
QUOTED MARKET PRICE:
High ............................. $ 70-15/16 $ 53-3/8 $ 53-5/8 $ 46-7/8 $ 39-1/4
Low .............................. $ 33-11/16 $ 36-7/8 $ 36-1/2 $ 32-3/4 $ 30-1/2

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL 1999 COMPARED TO FISCAL 1998

Sales

Net sales for fiscal 1999 totaled $1,502 million, an increase of $174 million or
13% when compared to the prior year. This increase was due to a $120 million
increase in sales dollars resulting from an 8% increase in unit shipments, a
favorable mix change in engines sold of $38 million and $16 million from
increased prices.

Gross Profit

The gross profit margin increased to 20% in the 1999 fiscal year from 19% in the
preceding year. This increase resulted primarily from the following factors: $16
million of price increases, $15 million attributed to the benefit of higher
production during the year and $14 million in lower costs for purchased parts
and engines and raw material. Lower aluminum costs, the major raw material used
in engines, accounted for $8 million of the lower raw material costs. Offsetting
these improvements were a mix shift to lower margin engines of $22 million and
inefficiencies of $3 million caused by operating plants at full capacity.

Engineering, Selling, General and Administrative Expenses

Engineering, selling, general and administrative expenses for fiscal 1999
decreased 4% or $5 million compared to fiscal 1998. This decrease was primarily
due to a $10 million decrease in costs related to the Company's POWERCOM
software business that was sold in the first quarter of this fiscal year. Costs
related to implementing the Company's new enterprise-wide information system
decreased $2 million between the fiscal years. Offsetting these reductions in
costs was a $4 million increase in profit sharing expenses due to improved
results and a $1 million increase in research and development expenses.

Interest Expense

Interest expense decreased 12% or $2 million for the 1999 fiscal year compared
to the 1998 fiscal year. This decrease was the result of $15 million repayment
of long-term debt at the end of the 1998 fiscal year and lower average interest
rates on working capital borrowings throughout the year.

Provision for Income Taxes

The effective tax rate decreased to 37.5% in 1999 from 37.6% in the previous
year due to lower state income taxes and reductions in other related items.

FISCAL 1998 COMPARED TO FISCAL 1997

Sales

Net sales for fiscal 1998 totaled $1,328 million, up 1% or $11 million from the
preceding year. This increase resulted primarily from a $34 million increase in
sales dollars due to a 3% increase in engine unit shipments and a $6 million
increase in service parts sales due to increased demand. These increases were
partially offset by a $19 million decrease in sales dollars due to a mix change
to lower horsepower, lower priced engines and a $10 million decrease in revenue
from European customers with whom the Company shares currency risk.

Gross Profit

The gross profit margin for the 1998 fiscal year increased to 19% from 17% in
the 1997 fiscal year. The primary reason for this favorable change was the lack
of the $37 million charge related to an early retirement window. There was also
a $2 million increase due to improvements in manufacturing productivity. These
were offset by the $10 million in lost gross profit due to the reduced revenue
from European customers described above.

Engineering, Selling, General and Administrative Expenses

Engineering, selling, general and administrative expenses increased $12 million
or 11% between years. This increase was caused primarily by the costs associated
with the new enterprise-wide information system which totaled $7 million
(discussed later) and increased costs of new venture activities which totaled $7
million, of which $4 million related to the Company's POWERCOM software
business.

Interest Expense

Interest expense for the 1998 fiscal year was $9 million higher than in 1997.
This resulted from using increased domestic short-term borrowings to finance
seasonal increases in accounts receivable and inventories during the year and an
increase in long-term debt over the preceding year. Seasonal borrowings were
paid off by the end of the fiscal year.

Provision for Income Taxes

The effective tax rate decreased to 37.6% in 1998 from 38.0% in the previous
year. This was due

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primarily to reductions in the foreign tax provision and in other tax related
items that were individually insignificant.

LIQUIDITY AND CAPITAL RESOURCES

FISCAL YEARS 1999, 1998 AND 1997

Cash flow from operating activities was $114 million, $136 million and $143
million, in fiscal 1999, 1998 and 1997, respectively. The primary source of
funds was from net income excluding depreciation. The significant change between
fiscal 1999 and fiscal 1998 amounts was due to changes in working capital as
explained below.

The fiscal 1999 cash flow from operating activities reflects improved net
income, excluding depreciation, of $37 million. Offsetting it is an increased
requirement for operating capital of $60 million, caused primarily by strong
fourth quarter business which increased year-end receivables and a restoration
of inventories to higher year-end levels.

The fiscal 1998 cash flow from operating activities reflects a $7 million
increase in accounts receivable and an $18 million decrease in inventories
resulting from increased sales late in the last fiscal quarter.

The fiscal 1997 cash flow from operating activities reflects an increase in
accounts receivable of $11 million and lower inventories of $11 million
resulting from increased sales at the end of the fiscal year when compared to
the previous year. Also, increased accounts payable of $17 million caused by the
timing of payments, increased accrued liabilities of $5 million resulting
primarily from increased profit sharing provisions, and increased federal and
state income taxes payable of $4 million caused by the timing of payments, all
contributed to the cash flows of the Company.

Net cash used in investing activities amounted to $65 million, $45 million and
$51 million in fiscal 1999, 1998 and 1997, respectively. Cash flows used in
investing activities included additions to plant and equipment of $66 million,
$46 million and $71 million in fiscal 1999, 1998 and 1997, respectively. The
fiscal 1999 and 1997 capital expenditures related primarily to reinvestment in
equipment and new products. The fiscal 1998 capital expenditures principally
related to investment in equipment. The 1997 cash flows from investing
activities also included $16 million related to the sale of the Menomonee Falls,
Wisconsin facility. The sale of this facility is described under "Other
Matters."

Net cash used in financing activities amounted to $73 million, $119 million and
$129 million in fiscal 1999, 1998 and 1997, respectively. These financing
activities included the repurchase of the Company's common stock, totaling $75
million in 1999, $86 million in 1998 and $180 million in 1997. In each of the
fiscal years, $15 million was paid on the 9.21% Senior Notes due 2001. Cash
dividends totaled $27 million, $28 million and $31 million in fiscal 1999, 1998
and 1997, respectively. The cash dividends paid decreased from the preceding
year because the common stock repurchase program resulted in less stock
outstanding. In fiscal 1997, the Company issued ten-year notes which resulted in
$98 million of net proceeds from the offering. Proceeds from the exercise of
stock options amounted to $45 million in 1999, substantially higher than in
prior years due to increased option activity.

Future Liquidity and Capital Resources

The Company has in place a $250 million revolving credit facility to be used to
fund seasonal working capital requirements and other financing needs. This
credit facility expires in April 2002 and contains certain restrictive
covenants. Because the Company plans to use available cash to finance capacity
expansions in fiscal 2000 and 2001, the Company will continue to utilize
borrowings under the revolving credit facility to fund working capital needs.
Accordingly, interest expense should stay approximately the same between years.

In April 1999, the Company's Board of Directors approved capital expenditures of
$95 million for fiscal 2000. Of this, the Company expects to spend approximately
$75 million in fiscal 2000, with the remainder spent in fiscal 2001. These
anticipated expenditures include a significant amount for capacity increases, as
well as, continuing investment in equipment and new products.

In May 1997, the Company filed a shelf registration for $175 million of debt
securities to be issued periodically. Of this, $75 million has not yet been
issued on the registration statement. The Company may decide to offer all or
part of the remaining securities depending on many factors, including general
economic conditions or cash required for operations.

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

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FINANCIAL STRATEGY

Management of the Company subscribes to the premise that the value of the
Company is enhanced if the capital invested in the Company's operations yields a
cash return that is greater than the Company's cost of capital. Given this
belief, the Company implemented this financial strategy by means of a "dutch
auction" tender offer (described below) and a public debt offering in fiscal
1997. The Company also continued the repurchase of its outstanding common stock
in the open market in fiscal 1999 and 1998. The Company believes this will
provide a capital structure that makes greater use of financial leverage without
imposing excessive risk on either the Company's shareholders or creditors. The
Company also believes that the substitution of lower (after-tax) cost debt for
equity in its permanent capital structure will reduce its overall cost of
capital and that its profitability and strong cash flows will accommodate the
increased use of debt without impairing its ability to finance growth or
increase cash dividends per share on its common stock.

The share repurchase program authorized by the Board of Directors in fiscal 1997
for $300 million of its common stock was completed in the second quarter of
fiscal 1999. In January 1999, the Board of Directors approved a repurchase of up
to 1.3 million additional shares of the Company's common stock in open market or
private transactions. Under this authorization, stock repurchases totaling .7
million shares were made in the second half of the year in open market
transactions. The latest share repurchase authorization is intended to minimize
dilution from shares issued for employee benefit plans and will be funded from
available cash.

Also as a part of its financial strategy, subject to the discretion of its Board
of Directors and the requirements of applicable law, the Company currently
intends to increase future cash dividends per share at a rate approximating the
inflation rate.

OTHER MATTERS

Year 2000 Issues

The Company is continuing implementation of an overall comprehensive Year 2000
Readiness Program to address year 2000 issues. This program is based on the
Automotive Industry Action Group's model system consisting of five steps:
Awareness; Inventory and Assessment; Remediation; Testing; and Readiness
Certification. Progress is reported to the Company's Board of Directors
regularly.

The Company completed implementation of its new enterprise-wide information
system in January of 1999. All business transactions are being processed on the
new system which addresses the great majority of information technology year
2000 computer issues. Other internal year 2000 issues not directly related to
the previously described project are being addressed and tested. These are
expected to be completed by October of 1999.

Project expenditures to date total $33 million. The Company expects any
additional incremental costs to be immaterial.

The Company completed assessment of its non-information technology systems. An
outside auditor was utilized to review these systems. The vast majority of
remedial activities have been completed without material incremental costs. All
remedial activities are expected to be completed by October 1999.

Random testing of both information and non-information systems has been
conducted and will continue to be conducted until the end of the calendar year
in order to ensure year 2000 readiness.

The Company's largest customers have certified that they will be year 2000
compliant before the end of calendar year 1999 as to their relationships with
the Company. The Company's vendors and financial institutions have also been
surveyed for year 2000 readiness. Contingency plans have been developed to
ensure that the Company will be able to continue operations for up to three days
without deliveries. The Company will not be open for operations from December
31, 1999 to January 3, 2000. All major financial institutions have provided the
Company with year 2000 preparedness statements.

The Company will utilize its December 31, 1999 to January 3, 2000 shutdown
period to back up its systems, re-start those systems and resolve any open
issues.

The last payroll for calendar year 1999 will be issued on December 29, 1999 and
all arrangements for payment of the January 3, 2000 dividend payment will be
made prior to December 31, 1999.

The Company believes its Year 2000 Program is adequate to detect in advance year
2000 compliance issues, and that it has the necessary resources to remedy them.
However, the year 2000 problem has many aspects and potential consequences, some
of which are not reasonably foreseeable, and there can be no assurance that
unforeseen consequences will not arise.

9
12

Emissions

The U.S. Environmental Protection Agency (EPA) has developed national emission
standards under a two phase process for small air cooled engines. The Company
currently has a complete product offering which complies with EPA's Phase I
engine emission standards. The EPA finalized its Phase II emission standards in
March of 1999. The Phase II program will impose more stringent standards over
the useful life of the engine and will be phased in from 2001 to 2005 for Class
II (225 or greater cubic centimeter displacement) engines and from 2003 to 2008
for Class I (under 225 cubic centimeter displacement) engines. The Company does
not believe compliance with the new standards will have a material adverse
effect on its financial position or results of operations.

The Company submitted a supplemental compliance plan to the California Air
Resources Board (CARB), as required of companies which sell more than a
threshold number of Class I engines into California. The objective of the plan
is to achieve additional reductions in extreme non-attainment areas. While
CARB's aggressive program will result in a reduced product offering by the
Company in California, the Company does not believe the California program will
have a material effect on the financial condition or results of operations of
the Company.

Sale of the Menomonee Falls, Wisconsin Facility

The sale of the Company's Menomonee Falls, Wisconsin facility for approximately
$16.0 million was completed during fiscal 1997. The provisions of the contract
state that the Company will continue to own and occupy the warehouse portion of
the facility for a period of up to ten years (the "Reservation Period"). The
contract also contains a buyout clause, at the buyer's option and under certain
circumstances, of the remaining Reservation Period. Under the provisions of
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," the Company is required to account for this as a financing
transaction as the Company continues to have substantial involvement with the
facility during the Reservation Period or until the buyout option is exercised.
Under this method, the cash received is reflected as a deferred revenue, and the
assets and the accumulated depreciation remain on the Company's books.
Depreciation expense continues to be recorded each period, and imputed interest
expense is also recorded and added to deferred revenue. Offsetting this is the
fair value lease income on the non-Company occupied portion of the building. A
pretax gain, which will be recognized at the earlier of the exercise of the
buyout option or the expiration of the Reservation Period, is estimated to be
$10 million to $12 million. The annual cost of operating the warehouse portion
of the facility is not material.

New Accounting Pronouncements

In June 1998 the Financial Accounting Standards Board issued Financial
Accounting Standard (FAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities". This new standard as amended will be effective for the
Company in fiscal 2001, and requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Any fair value
changes will be recorded in net income or comprehensive income. The Company does
not expect that the adoption of this standard will have a material effect on the
results of operations.

Subsequent Event - Disposition of Foundry Assets

Effective August 23, 1999, the Company contributed certain assets related to its
foundry operations to a third party. In exchange for this contribution, the
Company received $23.6 million of cash and preferred stock with a face value of
$45 million. The provisions of the preferred stock include a 15% cumulative
dividend and is convertible into at least 31% of the common stock of the third
party. The disposition will result in a gain.

10
13

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign exchange and
interest rates. To reduce the risk from changes in foreign exchange rates, the
Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.

FOREIGN CURRENCY

The Company's earnings are affected by fluctuations in the value of the U.S.
dollar against foreign currencies primarily as a result of purchasing engines
from its Japanese joint venture. The Company's foreign subsidiaries' earnings
are also influenced by fluctuations of the local currency against the U.S.
dollar as these subsidiaries purchase inventory from the parent in U.S. dollars.
Forward foreign exchange contracts are used to partially hedge against the
earnings effects of such fluctuations. At June 27, 1999, the Company had the
following forward foreign exchange contracts outstanding at the Fair Value Gains
and (Losses) shown (in thousands):

Notional U.S. Fair Value
Currency Value Dollars Gains and (Losses)
- -------- ----- ------- ------------------

Japanese Yen 2,426,000 20,400 ($265)
Australian Dollars 10,000 6,400 (288)
Canadian Dollars 2,000 1,300 9

All of the above contracts expire in less than one year.

Although the Company sells its domestically produced engines to foreign
customers in U.S. dollars, the Company has shared some of the currency risk with
customers for certain sales transactions. Accordingly, the Company is exposed to
fluctuations in foreign exchange rates, primarily related to the U.S.
dollar/Euro rate. Historically, the Company has managed these risks through
limitations on the amount of sharing provided to customers. These programs are
generally for one year.

Fluctuations in currency exchange rates may also impact the stockholders' equity
of the Company. Amounts invested in the Company's non-U.S. subsidiaries are
translated into U.S. dollars at the exchange rates in effect at year end. The
resulting translation adjustments are recorded in stockholders' equity as
cumulative translation adjustments. The cumulative translation adjustments
component of stockholders' equity decreased $0.2 million during the year. Using
the year-end exchange rates, the total amount invested in subsidiaries at June
27, 1999 was approximately $19.1 million.

INTEREST RATES

The Company is exposed to interest rate fluctuations on its borrowings. The
Company manages its interest rate exposure through a combination of fixed and
variable rate debt. Depending on general economic conditions, the Company has
typically used variable rate debt for short-term borrowings and fixed rate debt
for longer-term borrowings.

At June 27, 1999, the Company had the following short-term loans outstanding
(amount in thousands):

Average Annual
Currency Amount Interest Rate
- -------- ------ -------------

German Mark 20,519 5.25%
Dutch Guider 1,488 5.00%
Canadian Dollars 2,971 5.51%
Swedish Krona 1,000 8.05%
French Franc 200 5.19%
U.S. Dollars 4,335 5.31%

All of the above loans carry variable interest rates.

Long-term loans consisted of the following (amounts in thousands):

Description Amount Maturity
- ----------- ------ --------

9.21% Senior Notes $30,000 $15,000 in Fiscal 2000 and
2001
7.25% Notes 98,307 2007

Each of the above loans carries a fixed rate of interest.

11
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AS OF JUNE 27, 1999 AND JUNE 28, 1998
- --------------------------------------------------------------------------------
(in thousands)

ASSETS 1999 1998
---- ----
CURRENT ASSETS:

Cash and Cash Equivalents................................................. $ 60,806 $ 84,527
Receivables, Less Reserves of $1,516 and $1,537, Respectively............. 194,096 136,629
Inventories -
Finished Products and Parts............................................. 72,196 58,975
Work in Process......................................................... 59,665 45,217
Raw Materials........................................................... 5,587 3,684
-------- --------
Total Inventories..................................................... 137,448 107,876
Future Income Tax Benefits................................................ 34,383 31,287
Prepaid Expenses.......................................................... 32,413 21,727
-------- --------
Total Current Assets.................................................. 459,146 382,046
MARKETABLE SECURITIES...................................................... 2,730 -
DEFERRED INCOME TAX ASSETS................................................. 2,039 9,555
CAPITALIZED SOFTWARE....................................................... 7,516 9,881
PLANT AND EQUIPMENT:
Land and Land Improvements................................................ 16,024 15,781
Buildings................................................................. 151,035 148,868
Machinery and Equipment................................................... 651,129 630,043
Construction in Progress.................................................. 41,660 17,736
-------- --------
859,848 812,428
Less - Accumulated Depreciation........................................... 455,394 420,501
-------- --------
Total Plant and Equipment, Net........................................ 404,454 391,927
-------- --------
$875,885 $793,409
======== ========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

- --------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' INVESTMENT 1999 1998
---- ----
CURRENT LIABILITIES:

Accounts Payable...................................................... $ 117,757 $ 76,915
Domestic Notes Payable................................................ 4,335 4,700
Foreign Loans......................................................... 13,824 14,336
Current Maturities on Long-Term Debt.................................. 15,000 15,000
Accrued Liabilities -
Wages and Salaries.................................................. 38,744 29,502
Warranty............................................................ 36,978 29,565
Other............................................................... 43,963 42,398
--------- ---------
Total Accrued Liabilities......................................... 119,685 101,465
Federal and State Income Taxes........................................ 11,901 10,529
--------- ---------
Total Current Liabilities......................................... 282,502 222,945
DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT......................... 15,798 15,893
ACCRUED PENSION COST.................................................... 17,306 26,477
ACCRUED EMPLOYEE BENEFITS............................................... 13,185 12,571
ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION........................... 67,877 70,933
LONG-TERM DEBT.......................................................... 113,307 128,102
COMMITMENTS AND CONTINGENCIES...........................................
SHAREHOLDERS' INVESTMENT
Common Stock-
Authorized 60,000 Shares $.01 Par Value,
Issued 28,927 in 1999 and 1998.................................... 289 289
Additional Paid-In Capital............................................ 37,657 37,776
Retained Earnings..................................................... 612,807 533,805
Accumulated Other Comprehensive Income................................ (1,732) (2,110)
Unearned Compensation on Restricted Stock............................. (235) --
Treasury Stock at cost,
5,727 Shares in 1999 and 5,103 in 1998.............................. (282,876) (253,272)
--------- ---------
Total Shareholders' Investment.................................... 365,910 316,488
--------- ---------
$ 875,885 $ 793,409
========= =========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

13
16

CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 27, 1999, JUNE 28, 1998 AND JUNE 29, 1997
- --------------------------------------------------------------------------------
(in thousands, except per share data)

1999 1998 1997
---- ---- ----

NET SALES........................................ $1,501,726 $1,327,610 $1,316,413
COST OF GOODS SOLD............................... 1,196,371 1,072,936 1,095,197
---------- ---------- ----------
Gross Profit on Sales......................... 305,355 254,674 221,216
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......................... 125,219 129,986 117,497
---------- ---------- ----------
Income from Operations........................ 180,136 124,688 103,719
INTEREST EXPENSE................................. (17,024) (19,352) (9,880)
OTHER INCOME, Net................................ 6,659 7,809 5,466
---------- ---------- ----------
Income Before Provision for Income Taxes...... 169,771 113,145 99,305
PROVISION FOR INCOME TAXES....................... 63,670 42,500 37,740
---------- ---------- ----------
NET INCOME....................................... $ 106,101 $ 70,645 $ 61,565
========== ========== ==========
Average Shares Outstanding.................... 23,344 24,666 28,551
BASIC EARNINGS PER SHARE......................... $ 4.55 $ 2.86 $ 2.16
========== ========== ==========
Diluted Average Shares Outstanding............ 23,459 24,775 28,678
DILUTED EARNINGS PER SHARE....................... $ 4.52 $ 2.85 $ 2.15
========== ========== ==========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

14
17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT

Accumulated
Additional Other
Common Paid-In Retained Comprehen-
Stock Capital Earnings sive Income
------ ---------- -------- ------------

BALANCES, JUNE 30, 1996 $289 $40,898 $459,666 $ (348)
Comprehensive Income -
Net Income - - 61,565 -
Foreign Currency Translation
Adjustments - - - (685)

Total Comprehensive Income - - - -

Cash Dividends Paid
($1.09 per share) - - (30,549) -
Purchase of Common Stock
for Treasury - - - -
Exercise of Stock Options - (365) - -
-------------------------------------------------------------------------
BALANCES, JUNE 29, 1997 $289 $40,533 $490,682 $(1,033)
Comprehensive Income -
Net Income - - 70,645 -
Foreign Currency Translation
Adjustments - - - (1,077)

Total Comprehensive Income - - - -

Cash Dividends Paid
($1.12 per share) - - (27,522) -
Purchase of Common Stock
for Treasury - - - -
Exercise of Stock Options - (2,757) - -
-------------------------------------------------------------------------
BALANCES, JUNE 28, 1998 $289 $37,776 $533,805 $(2,110)
Comprehensive Income -
Net Income - - 106,101 -
Foreign Currency Translation
Adjustments - - - (199)
Unrealized Gain on Marketable
Securities, net of tax of $368 - - - 577

Total Comprehensive Income - - - -

Cash Dividends Paid
($1.16 per share) - - (27,099) -
Purchase of Common Stock
for Treasury - - - -
Exercise of Stock Options - (13) - -
Restricted Stock Issued - (106) - -
Amortization of Unearned
Compensation - - - -
-------------------------------------------------------------------------
BALANCES, JUNE 27, 1999 $289 $37,657 $612,807 $(1,732)
=========================================================================

Unearned
Compensation
on Restricted Treasury Comprehensive
Stock Stock Income
------------- -------- -------------

BALANCES, JUNE 30, 1996 $ - $ -
Comprehensive Income -
Net Income - - $ 61,565
Foreign Currency Translation
Adjustments - - (685)
--------
Total Comprehensive Income - - $ 60,880
========
Cash Dividends Paid
($1.09 per share) - -
Purchase of Common Stock
for Treasury - (179,924)
Exercise of Stock Options - 550
----------------------------
BALANCES, JUNE 29, 1997 $ - $(179,374)
Comprehensive Income -
Net Income - - $ 70,645
Foreign Currency Translation
Adjustments - - (1,077)
--------
Total Comprehensive Income - - $ 69,568
========
Cash Dividends Paid
($1.12 per share) - -
Purchase of Common Stock
for Treasury - (85,943)
Exercise of Stock Options - 12,045
----------------------------
BALANCES, JUNE 28, 1998 $ - $(253,272)
Comprehensive Income -
Net Income - - $106,101
Foreign Currency Translation
Adjustments - - (199)
Unrealized Gain on Marketable
Securities, net of tax of $368 - - 577
--------
Total Comprehensive Income - - $106,479
========
Cash Dividends Paid
($1.16 per share) - -
Purchase of Common Stock
for Treasury - (75,141)
Exercise of Stock Options - 45,143
Restricted Stock Issued (288) 394
Amortization of Unearned
Compensation 53 -
----------------------------
BALANCES, JUNE 27, 1999 $ (235) $(282,876)
============================

The accompanying notes to consolidated financial statements are an integral part
of these statements.

CONSOLIDATED STATEMENTS OF CASH FLOW

1999 1998 1997
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 106,101 $ 70,645 $ 61,565
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and Amortization 49,604 47,716 43,362
Loss on Disposition of Plant and Equipment 2,355 1,973 1,608
Provision (Credit) for Deferred Income Taxes 4,052 7,735 (16,105)
Change in Operating Assets and Liabilities -
Increase in Receivables (58,738) (6,752) (10,531)
(Increase) Decrease in Inventories (29,570) 18,081 11,446
Increase in Prepaid Expenses (10,805) (3,606) (2,396)
Increase in Accounts Payable,
Accrued Liabilities and Income Taxes 61,697 8,274 25,378
Other, Net (10,748) (7,676) 28,590
--------- --------- ---------
Net Cash Provided by Operating Activities 113,948 136,390 142,917
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (65,998) (45,893) (71,262)
Proceeds Received on Sale of Plant and Equipment 1,142 620 4,133
Proceeds Received on Sale of Menomonee Falls,
Wisconsin Facility -- -- 15,966
--------- --------- ---------
Net Cash Used in Investing Activities (64,856) (45,273) (51,163)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Repayments) Borrowings on Loans and Notes Payable (401) 677 (1,563)
Net Borrowings on 7.25% Notes Due 2007 -- -- 97,880
Repayment on 9.21% Senior Notes Due 2001 (15,000) (15,000) (15,000)
Cash Dividends Paid (27,099) (27,522) (30,549)
Purchase of Common Stock for Treasury (75,141) (85,943) (179,924)
Proceeds from Exercise of Stock Options 45,130 9,288 185
--------- --------- ---------
Net Cash Used in Financing Activities (72,511) (118,500) (128,971)
--------- --------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (302) (949) (563)
--------- --------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (23,721) (28,332) (37,780)
CASH AND CASH EQUIVALENTS:
Beginning of Year 84,527 112,859 150,639
--------- --------- ---------
End of Year $ 60,806 $ 84,527 $ 112,859
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Paid $ 17,025 $ 17,989 $ 9,298
========= ========= =========
Income Taxes Paid $ 54,491 $ 33,352 $ 49,707
========= ========= =========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

16
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

(1) NATURE OF OPERATIONS:
Briggs & Stratton Corporation (the Company) is a U.S. based producer of air
cooled gasoline engines. These engines are sold primarily to original equipment
manufacturers of lawn and garden equipment and other gasoline engine powered
equipment worldwide.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks, ending on the
Sunday nearest the last day of June in each year. Therefore, the 1999, 1998 and
1997 fiscal years were 52 weeks long. All references to years relate to fiscal
years rather than calendar years.

Principles of Consolidation: The consolidated financial statements include the
accounts of Briggs & Stratton Corporation and its wholly owned domestic and
foreign subsidiaries after elimination of intercompany accounts and
transactions.

Accounting Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents: This caption includes cash, commercial paper and
certificates of deposit. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.

Inventories: Inventories are stated at cost, which does not exceed market. The
last-in, first-out (LIFO) method was used for determining the cost of
approximately 89% of total inventories at June 27, 1999, 88% at June 28, 1998
and 93% at June 29, 1997. The cost for the remaining portion of the inventories
was determined using the first-in, first-out (FIFO) method. If the FIFO
inventory valuation method had been used exclusively, inventories would have
been $43,900,000, $48,100,000 and $48,894,000 higher in the respective years.
The LIFO inventory adjustment was determined on an overall basis, and
accordingly, each class of inventory reflects an allocation based on the FIFO
amounts.

Marketable Securities: This caption represents stock received in the sale of the
Company's POWERCOM software business at the end of the first quarter of fiscal
1999. These securities are being classified as available-for-sale and are being
reported at fair market value. The unrealized gain incurred on this stock is
recorded as Unrealized Gain on Marketable Securities in the Shareholders'
Investment section of the balance sheet.

Capitalized Software: This caption represents costs of software used in the
Company's business. Amortization of Capitalized Software is computed on an
item-by-item basis over a period of three to ten years, depending on the
estimated useful life of the software. Accumulated amortization amounted to
$5,655,000 as of June 27, 1999, and $7,137,000 as of June 28, 1998. Included in
the 1998 fiscal year ending balance is $1,891,000 of amortization related to the
Company's software business, which was sold in the first quarter of fiscal 1999.

Plant and Equipment and Depreciation: Plant and equipment is stated at cost, and
depreciation is computed using the straight-line method at rates based upon the
estimated useful lives of the assets.

Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for major renewals and betterments, which significantly extend the
useful lives of existing plant and equipment, are capitalized and depreciated.
Upon retirement or disposition of plant and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in other income.

Deferred Revenue on Sale of Plant & Equipment: The sale of the Company's
Menomonee Falls, Wisconsin facility for approximately $16.0 million was
completed at the beginning of the fiscal quarter ended December 29, 1996. The
provisions of the contract state that the Company will continue to own and
occupy the warehouse portion of the facility for

17
20
NOTES ....
- --------------------------------------------------------------------------------

a period of up to ten years (the "Reservation Period"). The contract also
contains a buyout clause, at the buyer's option and under certain circumstances,
of the remaining Reservation Period. Under the provisions of Statement of
Financial Accounting Standards (FAS) No. 66, "Accounting for Sales of Real
Estate," the Company is required to account for this as a financing transaction
as the Company continues to have substantial involvement with the facility
during the Reservation Period or until the buyout option is exercised. Under
this method, the cash received is reflected as a deferred revenue, and the
assets and the accumulated depreciation remain on the Company's books.
Depreciation expense continues to be recorded each period, and imputed interest
expense is also recorded and added to deferred revenue. Offsetting this is the
imputed fair value lease income on the non-Company occupied portion of the
building. A pretax gain, which will be recognized at the earlier of the exercise
of the buyout option or the expiration of the Reservation Period, is estimated
to be $10 million to $12 million. The annual cost of operating the warehouse
portion of the facility is not material.

Accrued Employee Benefits: The Company's life insurance program includes payment
of a death benefit to beneficiaries of retired employees. The Company accrues
for the estimated cost of these benefits over the estimated working life of the
employee. Past service costs for all retired employees have been fully provided
for. The Company also accrues for the estimated cost of supplemental retirement
and death benefit agreements with executive officers.

Income Taxes: The Provision for Income Taxes includes Federal, state and foreign
income taxes currently payable and those deferred or prepaid because of
temporary differences between the financial statement and tax basis of assets
and liabilities. The Future Income Tax Benefits represent temporary differences
relating to current assets and current liabilities and the Deferred Income Tax
Assets represent temporary differences relating to noncurrent assets and
liabilities.

Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements and refinements to
existing products, are expensed as incurred. The amounts charged against income
were $17,920,000 in 1999, $19,950,000 in 1998 and $19,525,000 in 1997. Included
in the fiscal 1998 and fiscal 1997 amounts were software development costs
related to the Company's software business of $3,136,000 and $1,968,000,
respectively.

Advertising Costs: Advertising costs, included in Engineering, Selling, General
and Administrative Expenses on the accompanying Consolidated Statement of
Earnings, are expensed as incurred. These expenses totaled $7,724,000 in 1999,
$7,325,000 in 1998 and $7,989,000 in 1997.

Foreign Currency Translation: Foreign currency balance sheet accounts are
translated into United States dollars at the rates of exchange in effect at
fiscal year end. Income and expenses are translated at the average rates of
exchange in effect during the year. The related translation adjustments are made
directly to a separate component of Shareholders' Investment.

Earnings Per Share: The Company adopted Financial Accounting Standard No. 128
during the second quarter of 1998. The Company's earnings per share were
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share, for each
period presented, were computed on the assumption that stock options were
exercised at the beginning of the periods reported. The difference between
weighted average shares outstanding and diluted average shares outstanding
reflects the dilutive effects of stock options.

Earnings per share of common stock are computed based on the weighted average
number of shares outstanding during each period. The Company's ongoing share
repurchase program may affect the year-to-date comparisons.

Comprehensive Income: During fiscal 1999 the Company adopted Statement of
Financial Accounting Standard (FAS) No. 130, "Reporting Comprehensive Income".
This statement requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting

18
21

NOTES ...
- --------------------------------------------------------------------------------

method that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
Company has chosen to report Comprehensive Income and Accumulated Other
Comprehensive Income which encomposes net income, unrealized gain on marketable
securities and foreign currency translation in the Consolidated Statement of
Shareholder's Investment.

Accumulated
Unrealized Other
Gain on Cumulative Compre-
Marketable Translation hensive
Securities Adjustments Income
---------- ----------- -----------

Balance at June 30, 1996......... $ -- $ (348) $ (348)
Current year change.............. -- (685) (685)
---------- ----------- -----------
Balance at June 29, 1997......... -- (1,033) (1,033)
Current year change.............. -- (1,077) (1,077)
---------- ----------- -----------
Balance at June 28, 1998......... -- (2,110) (2,110)
Current year change.............. 577 (199) 378
---------- ----------- -----------
BALANCE AT JUNE 27, 1999......... $ 577 $ (2,309) $ (1,732)
========== =========== ===========

Derivatives: The Company uses derivative financial instruments to manage its
foreign currency exposures. Gains and losses relating to hedges of probable
transactions with noncontrolled subsidiaries and third parties are deferred and
recognized as adjustments of carrying amounts when the transaction occurs. Gains
and losses on hedges of transactions that are not probable of occurring and
hedges of transactions with controlled subsidiaries are recognized in the
Company's results of operations.

(3) INCOME TAXES:

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

Current 1999 1998 1997
---- ---- ----

Federal....................... $ 51,344 $ 29,295 $ 45,474
State......................... 7,014 4,442 6,723
Foreign....................... 1,260 1,028 1,648
-------- -------- --------
59,618 34,765 53,845
Deferred........................ 4,052 7,735 (16,105)
-------- -------- --------
Total........................... $ 63,670 $ 42,500 $ 37,740
======== ======== ========

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

1999 1998 1997
---- ---- ----

U.S. statutory rate................. 35.0% 35.0% 35.0%
State taxes, net of
Federal tax benefit............... 2.9% 3.1% 3.1%
Foreign Sales Corporation
tax benefit....................... (.5%) (.8%) (.9%)
Other............................... .1% .3% .8%
---- ---- ----
Effective tax rate.................. 37.5% 37.6% 38.0%
==== ==== ====

The components of deferred tax assets and liabilities at the end of the fiscal
year were (in thousands of dollars):

1999 1998
-------- --------
Future Income Tax Benefits:

Inventory...................... $ 3,402 $ 2,212
Payroll related accruals....... 4,363 3,602
Warranty reserves.............. 14,421 11,531
Other accrued liabilities...... 12,026 11,542
Miscellaneous.................. 171 2,400
-------- --------
$ 34,383 $ 31,287
======== ========

1999 1998
-------- --------
Deferred Income Taxes:

Difference between book and
tax methods applied to
maintenance and supply
inventories................... $ 11,463 $ 11,198
Pension cost................... 3,345 7,137
Accumulated depreciation....... (56,131) (53,109)
Accrued employee benefits...... 9,142 8,529
Postretirement
health care obligation........ 26,472 27,664
Deferred revenue on sale
of plant & equipment.......... 6,161 6,198
Miscellaneous.................. 1,587 1,938
-------- --------
$ 2,039 $ 9,555
======== ========

The Company has not recorded deferred income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations. These undistributed earnings amounted to approximately $8,100,000 at
June 27, 1999. If these earnings were remitted to the U.S., they would be
subject to U.S. income tax. However, this tax would be substantially less than
the U.S. statutory income tax because of available foreign tax credits.

19
22

NOTES...
- --------------------------------------------------------------------------------

(4) GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS:

The Company reviewed the criteria for determining segments of an operating
segment in accordance with FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and concluded that it operates as one
segment. Geographic sales by the location in which the sale originated is as
follows (in thousands of dollars):

1999 1998 1997
---- ---- ----

United States.................. $1,422,988 $1,258,609 $1,252,359
All Other Countries............ 78,738 69,001 64,054
---------- ---------- ----------
Total.......................... $1,501,726 $1,327,610 $1,316,413
========== ========== ==========

The Company has no material long lived assets in an individual foreign country.

In the fiscal years 1999, 1998 and 1997, there were sales to three major engine
customers that individually exceeded 10% of total Company net sales. The sales
to these customers are summarized below (in thousands of dollars and percent of
total Company sales):

1999 1998 1997
---- ---- ----
Customer Sales % Sales % Sales %
----- --- ----- --- ----- ---

A $250,755 17% $235,552 18% $282,428 21%
B 219,209 14% 203,931 15% 180,770 14%
C 161,857 11% 165,937 13% 142,840 11%
-------- -- -------- -- -------- --
$631,821 42% $605,420 46% $606,038 46%
======== == ======== == ======== ==

(5) INDEBTEDNESS:

The Company has access to a $250,000,000 revolving credit facility (the Credit
Facility) which expires in April 2002. The Company also has access to additional
domestic lines of credit totaling $18,000,000 which remain in effect until
canceled by either party. They provide amounts for short-term use at the then
prevailing rate. There are no significant compensating balance requirements for
any of these lines, and there were no borrowings at June 27, 1999 using these
lines or the Credit Facility.

Borrowings under the Credit Facility by the Company bear interest at a rate per
annum equal to, at its option, either:

(1) the higher of (a) the bank's reference rate or (b) 0.5% per annum above the
Federal Funds rate; or

(2) LIBOR plus a margin that may be adjusted up or down based on the Company's
debt ratings.

The Credit Facility contains certain restrictive covenants that require the
Company to maintain certain financial conditions including a maximum limit on
the ratio of debt to capital and a minimum fixed charge coverage ratio. The
Credit Facility imposes limitations on liens, certain indebtedness, the sales of
assets and certain investments.

The following data relates to domestic notes payable (in thousands of dollars):

1999 1998
---- ----

Balance at
Fiscal Year End............... $ 4,335 $ 4,700

Weighted Average
Interest Rate at
Fiscal Year End............... 5.31% 5.94%

The lines of credit available to the Company in foreign countries are in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. These amounts total $9,960,000, expire at various times
through April, 2000 and are renewable. None of these arrangements had material
commitment fees or compensating balance requirements.

The following information relates to foreign loans (in thousands of dollars):

1999 1998
---- ----

Balance at
Fiscal Year End............... $ 13,824 $ 14,336

Weighted Average
Interest Rate at
Fiscal Year End............... 5.30% 4.97%

The Long-Term Debt caption consists of the following (in thousands of dollars):

1999 1998
---- ----

9.21% Senior Notes Due 2001
at Face Amount................ $ 30,000 $ 45,000
7.25% Notes Due 2007, Net of
Unamortized Discount of
$1,693 in 1999 and
$1,898 in 1998................ 98,307 98,102
-------- --------
$128,307 $143,102

Less Current Maturities......... 15,000 15,000
-------- --------

Total Long-Term Debt.......... $113,307 $128,102
======== ========

20
23
NOTES ...
- --------------------------------------------------------------------------------

The 9.21% Senior Notes are due June 15, 2001. Payments on these notes are due in
five equal annual installments beginning in 1997. The notes include covenants
that limit total borrowings, require maintenance of a minimum net worth and set
certain restrictions on the sale or collateralizing of the Company's assets.

The 7.25% notes are due September 15, 2007. No principal payments are due before
that date. These notes have covenants that limit secured funded debt and certain
sale-leaseback transactions.

(6) OTHER INCOME:

The components of other income (expense) are (in thousands of dollars):

1999 1998 1997
---- ---- ----

Interest income............. $ 1,993 $ 2,720 $ 3,981

Loss on the
disposition of
plant and equipment........ (2,355) (1,973) (1,608)

Income from joint
ventures................... 5,442 5,232 3,026

Other items................. 1,579 1,830 67
------- ------- -------
Total....................... $ 6,659 $ 7,809 $ 5,466
======= ======= =======

(7) COMMITMENTS AND CONTINGENCIES:

The Company is a 50% guarantor on bank loans of three unconsolidated joint
ventures. They are in Japan for the manufacture of engines, in the United States
for the manufacture of parts and in India for the manufacture of engines and
parts. These bank loans totaled approximately $3,100,000 at the end of 1999.

Product and general liability claims arise against the Company from time to time
in the ordinary course of business. The Company is self-insured for future
claims up to $1 million per claim. Accordingly, a reserve is maintained for the
estimated costs of such claims. At June 27, 1999 and June 28, 1998, the reserve
for product and general liability claims was $6.8 million and $5.8 million,
respectively, based on available information. There is inherent uncertainty as
to the eventual resolution of unsettled claims. Management, however, believes
that any losses in excess of established reserves will not have a material
effect on the Company's financial condition or results of operations.

The Company has no material commitments for materials or capital expenditures at
June 27, 1999.

(8) STOCK OPTIONS:

The Company has a Stock Incentive Plan under which 3,361,935 shares of common
stock have been reserved for issuance. The Company accounts for the plan under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these plans been determined
consistent with FAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:

1999 1998 1997
---- ---- ----

Net Income (in thousands):
As Reported............. $106,101 $70,645 $61,565
Pro Forma............... $105,283 $69,574 $60,777

Basic Earnings Per Share:
As Reported............. $4.55 $2.86 $2.16
Pro Forma............... $4.51 $2.82 $2.13

Diluted Earnings Per Share:
As Reported............. $4.52 $2.85 $2.15
Pro Forma............... $4.49 $2.81 $2.12

Because the FAS No. 123 method of accounting has not been applied to options
granted prior to July 2, 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.

Information on the options outstanding is as follows:

Wtd. Avg.
Shares Ex. Price
------ ---------

Balance, June 30, 1996........... 1,704,531 $ 42.98
Granted during the year.......... 106,550 53.30
Exercised during the year........ (24,369) 17.26
---------
Balance, June 29, 1997........... 1,786,712 $ 43.95

Granted during the year.......... 241,980 65.69
Exercised during the year........ (236,873) 35.65
---------
Balance, June 28, 1998........... 1,791,819 $ 47.98

Granted during the year.......... 354,020 44.98
Exercised during the year........ (926,000) 45.30
Expired during the year.......... (177,828) 48.37
---------
Balance, June 27, 1999........... 1,042,011 $ 49.28
=========

21
24
NOTES ...
- --------------------------------------------------------------------------------

Grant Summary
- --------------------------------------------------------------------------------
Fiscal Grant Exercise Date Options Expiration
Year Date Price (a) Exercisable Outstanding Date
- ------ ----- --------- ----------- ----------- ----------

1990 2-20-90 $13.014 50%, 1-1-94; 1,076 2-19-00
50%, 1-1-95
1991 2-19-91 14.524 50%, 1-1-95; 20,345 2-18-01
50%, 1-1-96
1992 5-18-92 21.525 50%, 1-1-96; 71,514 5-17-02
50%, 1-1-97
1995 8-12-94 45.854 8-12-97 31,514 8-12-99
1996 8-7-95 49.080 8-7-98 215,012 8-7-00
1997 8-6-96 53.300 8-6-99 106,550 8-6-01
1998 8-5-97 65.690 8-5-00 241,980 8-5-02
1999 8-5-98 44.980 8-5-01 354,020 8-5-03

There were no options granted in fiscal 1993. Options granted in fiscal 1994
expired in fiscal 1999.

(a) Exercise prices of earlier grants have been adjusted as appropriate to
reflect a two-for-one stock split in October 1994 and the spin-off of the
Company's lock business in February 1995.

The fair value of each option is estimated using the Black-Scholes option
pricing model. The grant-date fair market value of the options and assumptions
used to determine such value are as follows:

Options granted during 1999 1998 1997
---- ---- ----

Grant date fair value......... $5.04 $5.98 $5.42

Assumptions:
Risk-free interest rates.... 5.4% 6.1% 6.3%
Expected volatility......... 22.3% 20.4% 20.6%
Expected dividend yield..... 2.5% 2.6% 2.5%
Expected term (in years).... 5.0 5.0 5.0

(9) SHAREHOLDER RIGHTS PLAN:
On August 6, 1996, the Board of Directors declared a dividend distribution of
one common stock purchase right (a "right") for each share of the Company's
common stock outstanding on August 19, 1996. Each right would entitle
shareowners to buy one-half of one share of the Company's common stock at an
exercise price of $160.00 per full common share, subject to adjustment. The
rights are not currently exercisable, but would become exercisable if certain
events occurred relating to a person or group acquiring or attempting to acquire
15 percent or more of the outstanding shares of common stock. The rights expire
on August 19, 2006, unless redeemed or exchanged by the Company earlier.

(10) FOREIGN EXCHANGE RISK MANAGEMENT:
The Company enters into forward exchange contracts to hedge purchase commitments
denominated in foreign currencies. The term of these currency derivatives does
not exceed one year and the purpose is to protect the Company from the risk that
the eventual dollars being transferred will be adversely affected by changes in
exchange rates.

The Company has forward foreign currency exchange contracts to purchase 2.4
billion Japanese yen for $20 million through September, 1999. These contracts
are used to hedge the commitments to purchase engines from the Company's
Japanese joint venture and accordingly any gain or loss has been deferred at the
end of the 1999 fiscal year. There are no significant gains or losses included
in the above amounts.

The Company's foreign subsidiaries have the following forward currency contracts
outstanding at the end of fiscal 1999:

In Millions
-------------
Local U.S. Latest
Currency Currency Dollars Expiration Date
- -------- -------- ------- ---------------

Australian Dollars......... 10.0 6.4 June, 2000
Canadian Dollars........... 2.0 1.3 January, 2000

There are no significant gains or losses included in the above amounts.

22
25

NOTES ...
- --------------------------------------------------------------------------------

(11) EMPLOYEE BENEFIT COSTS:

Retirement Plan and Postretirement Benefits
The Company has noncontributory, defined benefit retirement plans and
postretirement benefit plans covering most Wisconsin employees. Effective the
last quarter of fiscal 1999, the Company adopted FAS 132 "Disclosures about
Pensions and Other Postretirement Benefits". The following provides a
reconcilation of obligations, plan assets and funded status of the plans for the
two years indicated, (dollars in thousands):

Pension Benefits Other Postretirement Benefits
----------------------------- ---------------------------------------
1999 1998 1999 1998
---- ---- ---- ----

Actuarial Assumptions:
- ----------------------
Discounted Rate Used to Determine Present
Value of Projected Benefit Obligation............... 7.0% 7.0% 7.0% 7.0%

Expected Rate of Future Compensation
Level Increases..................................... 5.0% 5.0% n/a n/a

Expected Long-Term Rate of Return on
Plan Assets......................................... 9.0% 9.0% n/a n/a

Change in Benefit Obligations:
- ------------------------------
Actuarial Present Value of Benefit Obligations
at Beginning of Year................................ $ 649,083 $ 610,485 $ 96,580 $ 91,202
Service Cost......................................... 10,073 9,491 1,437 1,206
Interest Cost........................................ 44,911 44,531 6,466 6,773
Actuarial (Gain) Loss................................ 27,865 24,830 15,924 8,390
Benefits Paid........................................ (42,535) (40,254) (10,922) (10,991)
--------- --------- --------- ---------
Actuarial Present Value of Benefit Obligation
at End of Year...................................... $ 689,397 $ 649,083 $ 109,485 $ 96,580
--------- --------- --------- ---------

Change in Plan Assets:
- ----------------------
Plan Assets at Fair Value at Beginning of Year....... $ 845,955 $ 767,235 $ - $ -
Actual Return on Plan Assets......................... 82,474 118,445 - -
Employer Contributions............................... 528 529 10,922 10,991
Benefits Paid........................................ (42,535) (40,254) (10,922) (10,991)
--------- --------- --------- ---------
Plan Assets at Fair Value at End of Year............. $ 886,422 $ 845,955 $ - $ -
--------- --------- --------- ---------

Plan Assets in Excess of (Less Than) Projected
Benefit Obligation.................................. $ 197,025 $ 196,872 $(109,485) $ (96,580)
Remaining Unrecognized Net Obligation (Asset)........ (15,301) (20,739) 414 460
Unrecognized Net Loss(Gain).......................... (201,227) (202,625) 24,989 8,587
Unrecognized Prior Service Cost...................... 1,475 (513) 165 756
--------- --------- --------- ---------
Net Amount Recognized at End of Year................. $ (18,028) $ (27,005) $ (83,917) $ (86,777)
========= ========= ========= =========

Amounts Recognized on the Balance Sheets:
- -----------------------------------------
Accrued Pension...................................... $ (17,306) $ (26,477) $ - $ -
Accrued Salaries..................................... (722) (528) - -
Accrued Post Retirement Health Care.................. - - (67,877) (70,933)
Other Accruals....................................... - - (4,800) (4,800)
Accrued Employee Benefits............................ - - (11,240) (11,044)
--------- --------- --------- ---------
Net Amount Recognized at End of Year................. $ (18,028) $ (27,005) $ (83,917) $ (86,777)
========= ========= ========= =========

23
26
NOTES ...
- --------------------------------------------------------------------------------

The following table summarizes the plans' income and expense for the three years
indicated (dollars in thousands):

Pension Benefits Other Postretirement Benefits
--------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----

Components of Net Periodic Benefit Cost:
Service Cost-Benefits Earned During the Year. . . . . . . . $ 10,073 $ 9,491 $ 11,687 $ 1,437 $ 1,206 $ 1,359
Interest Cost on Projected Benefit Obligation . . . . . . . 44,911 44,531 41,850 6,466 6,773 6,190
Expected Return on Plan Assets. . . . . . . . . . . . . . . (58,252) (53,881) (50,230) - - -
Amortization of:
Transition Obligation (Asset) . . . . . . . . . . . . . . (5,306) (5,236) (5,118) 47 47 47
Prior Service Cost. . . . . . . . . . . . . . . . . . . . (106) (106) (160) 71 71 71
Actuarial (Gain) Loss . . . . . . . . . . . . . . . . . . 291 273 114 41 - -
-------- -------- -------- -------- -------- --------
Net Periodic Benefit Expense (Income) . . . . . . . . . . . $ (8,389) $ (4,928) $ (1,857) $ 8,062 $ 8,097 $ 7,667
======== ======== ======== ======== ======== ========

The Company's supplemental pension plan has benefit obligations in excess of
plan assets. The benefit obligation, accumulated benefit obligation and fair
value of plan assets were $16,555,000, $13,975,000 and $0, respectively for the
1999 fiscal year, and $15,392,000, $12,763,000 and $0, respectively for the 1998
fiscal year. The postretirement benefit plans are unfunded.

The Company offered an early retirement window to certain of its Milwaukee union
members during the 1997 fiscal year. As a result, $33,457,000 was added to
pension expense and $3,644,000 was added to postretirement health care expense
in the fourth quarter of the 1997 fiscal year.

For the other postretirement benefit plans, the assumed early retirement rates
were adjusted for participants with over 30 years of service in fiscal 1999. In
addition, the postretirement medical coverage was limited to 10 years for
coverage prior to age 65.

For measurement purposes a 9% annual rate of increase in the per capita cost of
covered health care claims was assumed for the years 1999 through 2000,
decreasing gradually to 6% for the 2007. The health care cost trend rate
assumption has a significant effect on the amounts reported. An increase of one
percentage point, would increase the accumulated postretirement benefit by
$6,803,000, and would increase the service and interest cost by $836,000 for the
year. A corresponding decrease of one percentage point, would decrease the
accumulated postretirement benefit by $6,403,000 and decrease the service and
interest cost by $788,000 for the year.

Defined Contribution Plans
The Company has a defined contribution retirement plan that includes most U.S.
non-Wisconsin employees. Under the plan the Company makes a contribution on
behalf of covered employees equal to 2% of each participant's gross income, as
defined. For the fiscal years 1999, 1998 and 1997, the cost to the Company was
$1,919,000, $1,641,000 and $1,352,000, respectively.

Most U.S. employees of the Company may participate in a salary reduction
deferred compensation retirement plan. The Company makes matching contributions
of $.50 for every $1.00 deferred by a participant to a maximum of 1-1/2% or 3%
of each participant's salary, depending upon the participant's group. Company
contributions totaled $4,213,000 in 1999, $3,918,000 in 1998 and $3,944,000 in
1997.

Postemployment Benefits
The balance in this reserve at the end of fiscal 1999 was $1,946,000 and at the
end of fiscal 1998 was $1,527,000. Both were included in the caption Accrued
Employee Benefits in the accompanying balance sheets.

The Company also accrues the expected cost of postemployment benefits over the
years that the employees render service. These benefits are substantially
smaller amounts because they apply only to employees who permanently terminate
employment prior to retirement. The items included in this amount are disability
payments, life insurance and medical benefits, and these amounts are also
discounted using a 7.0% interest rate.

24
27
NOTES ...
- --------------------------------------------------------------------------------

(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and Cash Equivalents, Domestic Notes Payable and Foreign Loans: The
carrying amount approximates fair value because of the short maturity of those
instruments.

Long-Term Debt: The fair value of the Company's long-term debt is estimated
based on quotations made on similar issues.

The estimated fair values of the Company's financial instruments are as follows
(in thousands of dollars):

1999
-------------------------
Carrying Fair
Amount Value
-------- -----

Cash and cash equivalents............. $ 60,806 $ 60,806
Domestic notes payable................ $ 4,335 $ 4,335
Foreign loans......................... $ 13,824 $ 13,824
Long-term debt--
9.21% Senior Notes due 2001,
including current maturities...... $ 30,000 $ 30,678
7.25% Notes due 2007................ $ 98,307 $ 97,545

1998
-------------------------
Carrying Fair
Amount Value
-------- -----

Cash and cash equivalents............. $ 84,527 $ 84,527
Domestic notes payable................ $ 4,700 $ 4,700
Foreign loans......................... $ 14,336 $ 14,336
Long-term debt--
9.21% Senior Notes due 2001,
including current maturities...... $ 45,000 $ 47,012
7.25% Notes due 2007................ $ 98,102 $105,071

(13) SALE OF SOFTWARE BUSINESS:
In September 1998, the Company completed the sale of its POWERCOM software
business. The proceeds on the sale were in the form of marketable securities,
and are shown as such on the balance sheet. This sale did not result in any
material gains or losses, but did result in the loss of $2 million of gross
profit and the elimination of $12 million in selling expenses in fiscal 1999.

(14) SUBSEQUENT EVENT - DISPOSITION OF FOUNDRY ASSETS:
Effective August 23, 1999, the Company contributed certain assets related to its
foundry operations to a third party. In exchange for this contribution, the
Company received $23.6 million of cash and preferred stock with a face value of
$45 million. The provisions of the preferred stock include a 15% cumulative
dividend and is convertible into at least 31% of the common stock of the third
party. The disposition will result in a gain.

25
28

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of
Briggs & Stratton Corporation:

We have audited the accompanying consolidated balance sheets of Briggs &
Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of June 27,
1999 and June 28, 1998, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended June 27, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Briggs & Stratton Corporation
and subsidiaries as of June 27, 1999 and June 28, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 27, 1999, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
July 29, 1999, (except with respect to Note 14, as to
which the date is August 23, 1999.)

26
29
QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------

In Thousands Per Share of Common Stock
------------------------ --------------------------------------
Market Price Range
on New York
Net Net Stock Exchange
Quarter Net Gross Income Income Dividends --------------
Ended Sales Profit (Loss) (Loss) Declared High Low
- ------- ----- ------ ------ ------ --------- ---- ---

FISCAL 1999
- -----------

SEPTEMBER $ 223,981 $ 37,612 $ 4,441 $ .19 $ .29 43-1/2 33-11/16

DECEMBER 359,943 71,471 24,637 1.05 .29 52-7/16 38-7/16

MARCH 476,259 102,831 41,813 1.79 .29 56-3/8 46-11/16

JUNE 441,543 93,441 35,210 1.51 .29 70-15/16 49-1/4
---------- -------- -------- ----- ------
TOTAL $1,501,726 $305,355 $106,101 $4.52* $ 1.16
========== ======== ======== ===== ======

Fiscal 1998
- -----------
September $ 170,557 $ 26,411 $ (2,632) $(.10) $ .28 51-3/8 47-1/8

December 308,481 50,897 10,294 .41 .28 53-3/8 47-1/4

March 469,055 94,773 35,778 1.45 .28 49 43-1/8

June 379,517 82,593 27,205 1.13 .28 46-1/4 36-7/8
---------- -------- -------- ----- ------
Total $1,327,610 $254,674 $ 70,645 $2.85* $ 1.12
========== ======== ======== ===== ======

The number of record holders of Briggs & Stratton Corporation Common Stock on
August 12, 1999 was 4,598.

Net Income (Loss) per share of Common Stock represents Diluted Earnings per
Share.

* See Footnote No. 2 "Summary of Accounting Policies-Earnings per Share" to the
Consolidated Financial Statements. Amounts do not total because of differing
numbers of shares outstanding at the end of each quarter.

27
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The Company has not changed independent accountants in the last two years.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information in the Corporation's definitive Proxy Statement, prepared for
the 1999 Annual Meeting of Shareholders, concerning directors of the Corporation
under the caption "Election of Directors", is incorporated herein by reference.
The information concerning "Executive Officers of the Registrant" as a separate
item, appears in Part I of this Form 10-K. There is no information required by
Item 405 of Regulation S-K to be reported.

ITEM 11. EXECUTIVE COMPENSATION

The information in the Corporation's definitive Proxy Statement, prepared for
the 1999 Annual Meeting of Shareholders, concerning this item, in paragraphs two
and three under the caption "Election of Directors", in the final two paragraphs
of the "Nominating, Compensation and Governance Committee Report on Executive
Compensation" and the "Executive Compensation" section, is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in the Corporation's definitive Proxy Statement, prepared for
the 1999 Annual Meeting of Shareholders, concerning this item, under captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management", is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has no relationships or related transactions to report pursuant to
Item 13.
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

Consolidated Balance Sheets, June 27, 1999 and June 28, 1998
For the Years Ended June 27, 1999, June 28, 1998 and June 29, 1997:

Consolidated Statements of Earnings and Shareholders' Investment
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements

Report of Independent Public Accountants

2. Financial Statement Schedules
All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions.

3. Exhibits
See Exhibit Index following the Signature Page, which is incorporated
herein by reference. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report is
identified in the Exhibit Index by an asterisk following the Exhibit
Number.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ James E. Brenn
------------------------------------
James E. Brenn
September 3 , 1999 Senior Vice President and
- --------------------------- Chief Financial Officer

--------------------------------------------------------
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Frederick P. Stratton, Jr. and John S. Shiely, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue thereof.

--------------------------------------------------------

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

/s/ F.P. Stratton, Jr. /s/ Peter A. Georgescu
- ----------------------------------------- -----------------------------------------
F. P. Stratton, Jr. Peter A. Georgescu
Chairman and Chief Executive Officer and Director
Director (Principal Executive Officer)

/s/ James E. Brenn /s/ Robert J. O'Toole
- ----------------------------------------- -----------------------------------------
James E. Brenn Robert J. O'Toole
Senior Vice President and Chief Financial Director
Officer (Principal Financial Officer)

/s/ Todd J. Teske /s/ C.B. Rogers, Jr.
- ----------------------------------------- -----------------------------------------
Todd J. Teske C. B. Rogers, Jr.
Controller (Principal Accounting Officer) Director

/s/ John S. Shiely
/s/ Michael E. Batten -----------------------------------------
- ----------------------------------------- John S. Shiely
Michael E. Batten President and Chief Operating Officer and
Director Director

/s/ Robert H. Eldridge /s/ Charles I. Story
- ----------------------------------------- -----------------------------------------
Robert H. Eldridge Charles I. Story
Executive Vice President and Director
Secretary-Treasurer and Director
*Each signature affixed as of
/s/ E. Margie Filter September 3 , 1999.
- ----------------------------------------- ------------------------
E. Margie Filter
Director

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

EXHIBIT INDEX
1999 ANNUAL REPORT ON FORM 10-K

Exhibit
Number Document Description
- ------ --------------------

3.1 Articles of Incorporation.
(Filed as Exhibit 3.2 to the Company's Report on Form 10-Q for the
quarter ended October 2, 1994, and incorporated by reference herein.)

3.2 Bylaws.
(Filed as Exhibit 3.2 to the Company's Registration Statement on Form
8-B dated October 12, 1992 and incorporated by reference herein.)

4.0 Rights Agreement dated as of August 7, 1996, between Briggs & Stratton
Corporation and Firstar Trust Company which includes the form of Right
Certificate as Exhibit A and the Summary of Rights to Purchase Common
Shares as Exhibit B.
(Filed as Exhibit 4.1 to the Company's Registration Statement on Form
8-A, dated as of August 7, 1996 and incorporated by reference
herein.)

4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation
and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.1 to the Company's Report on Form 8-K dated May
30, 1997 and incorporated by reference herein.)

4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs & Stratton
Corporation issued pursuant to the Indenture dated as of June 4, 1997
between Briggs & Stratton Corporation and Bank One, N.A., as Trustee.
(Filed as Exhibit 4.2 to the Company's Report on Form 8-K dated May
30, 1997 and incorporated by reference herein.)

4.3 Resolutions of the Board of Directors of Briggs & Stratton Corporation
authorizing the public offering of debt securities of Briggs & Stratton
Corporation in an aggregate principal amount of up to $175,000,000.
(Filed as Exhibit 4.3 to the Company's Report on Form 8-K dated May
30, 1997 and incorporated by reference herein.)

4.4 Actions of the Authorized Officers of Briggs & Stratton Corporation
authorizing the issuance of $100,000,000 aggregate principal amount of
7-1/4% Notes due September 15, 2007.
(Filed as Exhibit 4.4 to the Company's Report on Form 8-K dated May
30, 1997 and incorporated by reference herein.)

4.5 Officers' Certificate and Company Order of Briggs & Stratton Corporation
executed in conjunction with the issuance of $100,000,000 aggregate
principal amount of 7-1/4% Notes due September 15, 2007.
(Filed as Exhibit 4.5 to the Company's Report on Form 8-K dated May
30, 1997 and incorporated by reference herein.)

10.0* Forms of Officer Employment Agreements.
(Filed as Exhibit 10.0 to the Company's Report on Form 10-Q for the
quarter ended March 29, 1998 and incorporated by reference herein.)

10.1* Survivor Annuity Plan.
(Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K
for fiscal year ended June 30, 1986 and incorporated by reference
herein.)

10.2* Supplemental Retirement Program.
(Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K
for fiscal year ended June 30, 1990 and incorporated by reference
herein.)

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Exhibit
Number Document Description
- ------ --------------------

10.3* Economic Value Added Incentive Compensation Plan, as amended and
restated.
(Filed herewith.)

10.4* Form of Change of Control Employment Agreements.
(Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K
for fiscal year ended June 27, 1993 and incorporated by reference
herein.)

10.5(a)* Trust Agreement with an independent trustee to provide payments under
various compensation agreements with company employees upon the
occurrence of a change in control.
(Filed as Exhibit 10.5 (a) to the Company's Annual Report on Form
10-K for fiscal year ended July 2, 1995 and incorporated by
reference herein.)

10.5(b)* Amendment to Trust Agreement with an independent trustee to provide
payments under various compensation agreements with company employees.
(Filed as Exhibit 10.5 (b) to the Company's Annual Report on Form
10-K for fiscal year ended July 2, 1995 and incorporated by
reference herein.)

10.6(a)* Stock Incentive Plan.
(Filed as Exhibit A to the Company's 1993 Annual Meeting Proxy
Statement, which was filed as Exhibit 100A to the Company's Annual
Report on Form 10-K for fiscal year ended June 27, 1993 and
incorporated by reference herein.)

10.6(b)* Amended and Restated Stock Incentive Plan.
(Filed as Exhibit A to the Company's 1999 Annual Meeting Proxy
Statement and incorporated by reference herein.)

10.7(a)* Leveraged Stock Option Program.
(Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K
for fiscal year ended June 27, 1993 and incorporated by reference
herein.)

10.7(b)* Amendment to Leveraged Stock Option Program.
(Filed as Exhibit 10.7 (b) to the Company's Annual Report on Form
10-K for fiscal year ended July 2, 1995 and incorporated by
reference herein.)

10.7(c)* Amended and Restated Leveraged Stock Option Program.
(Filed herewith.)

10.8* Amended and Restated Deferred Compensation Agreement for Fiscal 1995.
(Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K
for fiscal year ended July 2, 1995 and incorporated by reference
herein.)

10.9* Deferred Compensation Agreement for Fiscal 1997.
(Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K
for fiscal year ended June 30, 1996 and incorporated by reference
herein.)

10.10* Deferred Compensation Agreement for Fiscal 1998.
(Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K
for fiscal year ended June 29, 1997 and incorporated by reference
herein.)

10.11* Deferred Compensation Agreement for Fiscal 1999.
(Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K
for fiscal year ended June 28, 1998 and incorporated by reference
herein.)

10.12* Deferred Compensation Agreement for Fiscal 2000.
(Filed herewith.)

10.13* Deferred Compensation Plan for Directors.
(Filed as Exhibit 10.12 to the Company's Report on Form 10-Q for
the quarter ended December 31, 1995 and incorporated by reference
herein.)

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Exhibit
Number Document Description
- ------ --------------------

10.14(a)* Director's Leveraged Stock Option Plan.
(Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K
for fiscal year ended June 29, 1997 and incorporated by reference
herein.)

10.14(b)* Amendment to Director's Leveraged Stock Option Plan.
(Filed herewith.)

10.15* Officer Separation Agreement.
(Filed as Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended December 27, 1998 and incorporated by reference
herein.)

10.16* Agreement with Executive Officer.
(Filed as Exhibit 10.2 to the Company's Report on Form 10-Q for the
quarter ended December 27, 1998 and incorporated by reference
herein.)

10.17* Executive Life Insurance Plan.
(Filed herewith.)

10.18* Key Employees Savings and Investment Plan.
(Filed herewith.)

10.19* Consultant Reimbursement Arrangement.
(Filed herewith.)

11 Computation of Earnings Per Share of Common Stock.
(Filed herewith.)

12 Computation of Ratio of Earnings to Fixed Charges.
(Filed herewith.)

21 Subsidiaries of the Registrant.
(Filed herewith.)

23 Consent of Independent Public Accountants.
(Filed herewith.)

24 Power of Attorney.
(Included in the Signatures Page of this report.)

- --------------------------------------------------------------------------------
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K.