Results of Operations
FISCAL 2012 COMPARED TO FISCAL 2011

Net Sales
Consolidated net sales for fiscal 2012 were $2.1 billion, a decrease of $43.5 million, or 2.1% when compared to fiscal 2011.
Engines segment net sales for fiscal 2012 were $1.3 billion, which was lower by $89.6 million or 6.4% compared to fiscal 2011. This decrease in net sales was primarily driven by an 11% reduction in shipment volumes of engines to OEMs for lawn and garden products in the North American and European markets due to drought conditions in North America and economic uncertainty in Europe leading to reduced consumer purchases of lawn and garden equipment and unfavorable foreign exchange of $8.7 million primarily related to the Euro. This was partially offset by increased engine pricing, a favorable mix of product shipped that reflected proportionally larger volumes of units used on snow throwers and portable and standby generators.
Products segment net sales for fiscal 2012 were $952.1 million, an increase of $73.1 million or 8.3% from fiscal 2011. The increase in net sales was primarily due to increased shipments of portable and standby generators due to widespread power outages in the U.S. as a result of landed hurricane Irene and a subsequent snow storm on the United States East Coast earlier in the fiscal year, increased shipments of snow equipment after channel inventories were depleted from the prior selling season, improved pricing, a favorable mix of lawn and garden sales through the dealer channel and favorable foreign exchange of $2.3 million. This increase was partially offset by reduced shipment volumes of riding lawn and garden equipment domestically and reduced volume in the international markets. There were no landed hurricanes in fiscal 2011. Gross Profit
The consolidated gross profit percentage was 16.3% in fiscal 2012, down from 18.9% in the same period last year.
The Engines segment gross profit percentage for fiscal 2012 was 19.1%, which was 3.7% lower compared to fiscal 2011. The gross profit percentage was unfavorably impacted by 0.8% due to reduced absorption on a 13% reduction in production volumes, 0.5% from unfavorable foreign exchange, 3.0% from higher manufacturing spending associated with rising commodity costs and start-up costs of $8.6 million associated with launching our Phase III emissions compliant engines, and 1.1% due to $14.3 million of restructuring charges. This reduction was partially offset by a 1.7% benefit due to improved engine pricing and a favorable mix of products sold.
The Products segment gross profit percentage for fiscal 2012 was 9.1%, which was 0.3% higher compared to fiscal 2011. The gross profit percentage improved by 3.1% from increased pricing and a favorable mix of lawn and garden sales through the dealer channel, 1.5% due to production operational improvements of $13.9 million and 1.7% resulted from improved absorption on higher production volumes. This was offset by a decrease of 2.8% due to increased commodity costs and 3.2% due to $30.5 million of restructuring charges. Engineering, Selling, General and Administrative Costs Engineering, selling, general and administrative expenses were $290.4 million in fiscal 2012, a decrease of $6.7 million or 2.2% from fiscal 2011. The Engines segment engineering, selling, general and administrative expenses were $179.7 million in fiscal 2012, a decrease of $18.9 million from fiscal 2011 primarily due to lower employee compensation expense and a planned reduction of spend in advertising costs and professional services in response to the softness in the global markets.

The Products segment engineering, selling, general and administrative expenses were $110.7 million in fiscal 2012, an increase of $12.2 million from fiscal 2011. The increase was attributable to greater selling expense to support investments in international growth, higher employee compensation expense, and $0.7 million higher bad debt expense recorded in fiscal 2012 primarily attributable to distributors in the European market. Restructuring Actions
In January 2012, the Company announced plans to reduce manufacturing capacity through closure of its Newbern, Tennessee and Ostrava, Czech Republic plants as well as the reconfiguration of its plant in Poplar Bluff, Missouri. In April 2012, the Company announced plans to further reduce manufacturing costs through consolidation of its Auburn, Alabama manufacturing facility as well as the reduction of approximately 10% of the Company's salaried employees. During fiscal 2012, the Company completed manufacturing operations at its Newbern, Tennessee and Ostrava, Czech Republic plants, carried out the reconfiguration of the Poplar Bluff, Missouri plant and implemented the salaried employee reductions. Pre-tax costs of all restructuring actions totaled $49.9 million in fiscal 2012, of which $44.8 million were included in gross profit as previously mentioned.
Additionally, beginning in fiscal 2013, as previously announced, the Company will no longer pursue placement of lawn and garden products at national mass retailers. The Engines segment will continue to support lawn and garden equipment OEMs who provide lawn and garden equipment to these retailers. The Products segment will continue to focus on innovative, higher margin products that are sold through our network of Simplicity, Snapper and Ferris dealers and regional retailers. The Company will also continue to sell pressure washers and portable and standby generators through the U.S. mass retail channel. Interest Expense
For fiscal 2012, interest expense was $4.8 million lower compared to fiscal 2011 due to $3.9 million of pre-tax charges associated with the refinancing of Senior Notes in fiscal 2011, which did not recur in fiscal 2012, as well as lower average outstanding borrowings at slightly higher weighted average interest rates in fiscal 2012.
Provision for Income Taxes
The effective tax rate for fiscal 2012 was 2.9% compared to 24.0% reported the same period one year ago. The decrease in the effective tax rate for fiscal 2012 compared to fiscal 2011 was primarily due to a net benefit of $5.6 million associated with restructuring charges incurred in connection with closing the Company's Ostrava plant facility and a net benefit of $5.1 million due to the expiration of a non-U.S. statute of limitation period during fiscal 2012 and the settlement of U.S. audits.

FISCAL 2011 COMPARED TO FISCAL 2010
Net Sales
Consolidated net sales for fiscal 2011 were $2.1 billion, an increase of $82.1 million or 4.0% when compared to fiscal 2010.
Engines segment net sales for fiscal 2011 were approximately $1.4 billion, which was $39.1 million or 2.9% higher than the same period in fiscal 2010 despite a 2.1% decline in total unit shipment volumes. This increase from the same period in fiscal 2010 is primarily due to higher international engine unit shipments, a favorable mix of product shipped that reflected proportionately larger volumes of units used on commercial applications, improved engine pricing and a $4.7 million foreign currency benefit, partially offset by reduced engine shipments primarily to customers in North America.
Products segment net sales for fiscal 2011 were $879.0 million, which was $35.3 million or 4.2% higher than the same period in fiscal 2010. This improvement was primarily due to increased sales in our Australia and Europe markets, partially offset by reduced unit shipment volumes of lawn and garden equipment, pressure washers and portable generators in the domestic market.

Gross Profit
The consolidated gross profit percentage was 18.9% in fiscal 2011, up from 18.7% in fiscal 2010.
The Engines segment gross profit percentage was 22.8% for fiscal 2011, an improvement from 22.1% in fiscal 2010. This improvement was due to a favorable mix of products shipped, improved engine pricing, increased manufacturing efficiencies, a $5.4 million foreign currency benefit and increased absorption on 4.0% higher production volumes, partially offset by higher commodity costs and increased manufacturing wages and benefits, including a $9.6 million increase in pension benefits expense.
The Products segment gross profit percentage decreased to 8.8% for fiscal 2011 from 10.2% in fiscal 2010. The decline between years resulted from higher manufacturing spending and budget conscious customers purchasing lower margin units, partially offset by increased sales of premium dealer lawn and garden products, increased unit pricing, and a $7.2 million foreign currency benefit. The increase in manufacturing spending relates to higher commodity costs, manufacturing inefficiencies in the first half of fiscal 2011 in launching new products and increased warranty, and increased freight expenses, partially offset by $8.0 million in incremental cost savings associated with the closure of our Jefferson, Wisconsin manufacturing facility in fiscal 2010. Engineering, Selling, General and Administrative Costs Engineering, selling, general and administrative expenses were $297.1 million in fiscal 2011, an increase of $16.9 million or 6% from fiscal 2010. The Engines segment engineering, selling, general and administrative expenses were $198.6 million in fiscal 2011, an increase of $12.5 million from fiscal 2010. The increase was due to higher international selling expenses and increased salaries and benefits, which included a $7.2 million increase in pension benefits expense.
The Products segment fiscal 2011 engineering, selling, general and administrative expenses of $98.5 million increased by $7.3 million in fiscal 2011 primarily related to increased international selling expenses and $1.7 million of unfavorable foreign currency. Goodwill Impairment
During the fourth quarter of fiscal 2011, the Company performed its annual goodwill impairment testing. Based on a combination of factors, including the influence of prolonged macro-economic conditions on the lawn and garden market in the U.S. and the operating results of the Products segment which lacked the benefit of certain weather related events that are favorable to the business during the past two years, the Company's forecasted cash flow estimates used in the goodwill assessment were adversely impacted. As a result, the Company concluded that the carrying value of the Products reporting unit exceeded its fair value. The non-cash goodwill impairment charge recorded in the fourth quarter of fiscal 2011 was $49.5 million, which was determined by comparing the carrying value of the reporting unit's goodwill with the implied fair value of goodwill for the reporting unit. This impairment charge is a non-cash expense that did not adversely affect the Company's debt position, cash flow, liquidity or compliance with financial covenants under its credit facilities. No impairment charges were recorded within the Engines segment. Restructuring Actions
In fiscal 2011, the Company made organization changes that involved a reduction of salaried employee headcount. These organization changes resulted in restructuring charges of $3.5 million, consisting of $1.3 million due to the modification of certain vesting conditions for the Company's stock incentive awards and approximately $2.2 million for severance and other related employee separation costs associated with the reduction. Interest Expense
Interest expense was $3.2 million lower for fiscal 2011 as compared to fiscal 2010 due to lower average outstanding borrowings and the reduced interest rate associated with the 6.875% Senior Notes due 2020 that were issued in December 2010, partially offset by $3.9 million of pre-tax charges related to the redemption premium on the 8.875% Senior Notes and the write-off of related deferred financing costs.

Other Income
Other income increased $0.7 million in fiscal 2011 as compared to fiscal 2010. This increase was primarily due to a $1.0 million increase in equity in earnings from unconsolidated affiliates.
Provision for Income Taxes
The effective tax rate was 24.0% and 25.4% for fiscal 2011 and fiscal 2010, respectively. The fiscal 2011 income tax provision includes $15.1 million of income tax benefit related to the $49.5 million non-cash goodwill impairment charge. Approximately $10.6 million of the goodwill impairment was related to non-deductible goodwill associated with past stock acquisitions for which a tax benefit was not recorded. The remaining goodwill impairment generated the $15.1 million of tax benefit. Due to the significant impact the impairment charge had on the effective tax rate, the Company believes the tax benefit and the effective tax rate excluding the $49.5 million impairment charge are more meaningful comparisons to the fiscal 2010 period. Excluding the non-cash goodwill impairment charge, the effective tax rate was 28.0% and 25.4% for fiscal 2011 and fiscal 2010, respectively. The annual fluctuations reflect the impact of changes in foreign earnings at different tax rates, the taxation of dividends from foreign operations as well as the resolution of certain tax matters.
Liquidity and Capital Resources
FISCAL YEARS 2012, 2011 AND 2010
Net cash provided by operating activities were $66 million, $157 million and $244 million in fiscal 2012, 2011 and 2010, respectively.
Cash flows provided by operating activities in fiscal 2012 were $91 million lower compared to fiscal 2011. The decrease in cash provided by operating activities was primarily related to a $32 million reduction in the decrease in accounts receivable compared to the previous year, which was partly due to $19 million of delayed funding under the Company's dealer inventory financing facility with GE Capital Commercial Distribution Finance implemented in fiscal 2012, and cash contributions to the pension plan of $29 million in fiscal 2012. The fiscal 2011 net cash provided by operating activities were $87 million lower than fiscal 2010. The decrease in net cash provided by operating activities was primarily due to working capital requirements to replenish inventory from lower levels at the end of fiscal 2010 and due to timing of payments associated with accounts receivable, accounts payable and accrued liabilities.
Net cash used in investing activities were $51 million, $60 million and $44 million in fiscal 2012, 2011 and 2010, respectively. These cash flows include capital expenditures of $50 million, $60 million and $44 million in fiscal 2012, 2011 and 2010, respectively. The capital expenditures relate primarily to reinvestment in equipment, capacity additions and new products. Net cash used in financing activities were $63 million, $4 million and $99 million in fiscal 2012, 2011 and 2010, respectively. In fiscal 2012, the Company repurchased treasury stock at a total cost of $39 million. There were no treasury stock repurchases in fiscal years 2011 or 2010. In fiscal 2012, as disclosed in Note 9 of the Notes to Consolidated Financial Statements, the Company incurred $2 million of debt issuance costs associated with the refinancing of its revolving credit facility. In fiscal 2011, as disclosed in Note 9 of the Notes to Consolidated Financial Statements, the Company issued $225 million aggregate principal amount of 6.875% Senior Notes due December 15, 2020 during fiscal 2011, the net proceeds of which were primarily used to redeem the $201 million outstanding principal amount of the 8.875% Senior Notes due March 15, 2011. The Company incurred $5 million of deferred financing costs in connection with the issuance of the 6.875% Senior Notes in fiscal 2011. In fiscal 2010, the Company reduced its outstanding debt by $78 million. The Company paid cash dividends on the common stock of $22 million in each of fiscal years 2012, 2011 and 2010.

Future Liquidity and Capital Resources
In December 2010, the Company issued $225 million aggregate principal amount of 6.875% Senior Notes due December 2020. Net proceeds were primarily used to redeem the remaining outstanding principal of the 8.875% Senior Notes due March 2011.
In October 2011, the Company entered into a $500 million multicurrency credit agreement (the "Revolver"). The Revolver replaced the Company's previous amended and restated multicurrency credit agreement dated as of July 12, 2007. The Revolver has a term of five years and all outstanding borrowings on the Revolver are due and payable on October 13, 2016. The initial maximum availability under the revolving credit facility is $500 million. Availability under the revolving credit facility is reduced by outstanding letters of credit. The Company may from time to time increase the maximum availability under the revolving credit facility by up to $250 million if certain conditions are satisfied. There were no borrowings under the Revolver as of July 1, 2012.
In August 2012, subsequent to the end of fiscal 2012, the Company announced that its Board of Directors declared an increase in the quarterly dividend from $0.11 per share to $0.12 per share on its common stock, payable on or after October 1, 2012 to shareholders of record at the close of business on August 20, 2012. In August 2011, the Board of Directors of Briggs & Stratton authorized up to $50 million in funds for use in a common share repurchase program with an expiration of June 30, 2013. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants. As of the end of fiscal 2012, the Company repurchased 2,409,972 shares on the open market at an average price of $16.30 per share. Subsequent to the end of fiscal 2012, the Company repurchased an additional 479,997 shares at an average price of $17.40 per share.
In August 2012, subsequent to the end of fiscal 2012, the Board of Directors of Briggs & Stratton authorized an additional $50 million in funds associated with the common share repurchase program and an extension of the expiration date to June 30, 2014. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants.
The Company expects capital expenditures to be approximately $50 to $60 million in fiscal 2013. These anticipated expenditures reflect our plans to continue to reinvest in efficient equipment and innovative new products.
On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21 Act) was signed into law. The MAP-21 Act included certain pension-related provisions which included changes to the methodology used to determine discount rates for ERISA funding purposes for qualified defined benefit pension plans. Based on historical interest rates, the MAP-21 Act allows plan sponsors to utilize a higher discount rate to value pension liabilities, which results in lower required pension plan contributions under ERISA. Based upon current regulations and actuarial studies the Company is required to make minimum contributions to the qualified pension plan of $45 million in fiscal 2013. The Company may be required to make further contributions in future years depending on the actual return on plan assets and the funded status of the plan in future periods.
Management believes that available cash, cash generated from operations, existing lines of credit and access to debt markets will be adequate to fund the Company's capital requirements and operational needs for the foreseeable future. The Revolver and the 6.875% Senior Notes contain restrictive covenants. These covenants include restrictions on the Company's ability to: pay dividends; repurchase shares; incur indebtedness; create liens; enter into sale and leaseback transactions; consolidate or merge with other entities; sell or lease all or substantially all of its assets; and dispose of assets or the proceeds of sales of its assets. The Revolver contains financial covenants that require the Company to maintain a minimum interest coverage ratio and impose a maximum average leverage ratio. As of July 1, 2012, the Company was in compliance with these covenants.

Financial Strategy
Management believes that the value of the Company is enhanced if the capital invested in operations yields a cash return that is greater than the cost of capital. Consequently, management's first priority is to reinvest capital into physical assets and products that maintain or grow the global cost leadership and market positions that the Company has achieved, and drive the economic value of the Company. Management's next financial objective is to identify strategic acquisitions or alliances that enhance revenues and provide a superior economic return. Finally, management believes that when capital cannot be invested for returns greater than the cost of capital, the Company should return capital to the capital providers through dividends and/or share repurchases. Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements or significant guarantees to third parties not fully recorded in our Balance Sheets or fully disclosed in our Notes to Consolidated Financial Statements. The Company's significant contractual obligations include our debt agreements and certain employee benefit plans.
Contractual Obligations
A summary of the Company's expected payments for significant contractual obligations as of July 1, 2012 is as follows (in thousands):

                                            Fiscal        Fiscal        Fiscal
                               Total         2013       2014-2015      2016-2017     Thereafter
Long-Term Debt               $ 225,000    $       -    $         -    $        -    $    225,000
Interest on Long-Term Debt     115,372       15,468         30,938        30,938          38,028
Capital Leases                     133          133              -             -               -
Operating Leases                42,549       12,874         18,700         6,801           4,174
Purchase Obligations            58,788       58,788              -             -               -
Other Liabilities (a)          153,200       44,700         40,000        68,500               -
                             $ 595,042    $ 131,963    $    89,638    $  106,239    $    267,202

(a) Includes an estimate of future expected funding requirements related to our pension plans. Any further funding requirements for pension plans beyond fiscal 2017 cannot be estimated at this time. Because their future cash outflows are uncertain, liabilities for unrecognized tax benefits and other sundry items are excluded from the table above.
Critical Accounting Policies
The Company's critical accounting policies are more fully described in Note 2 and Note 15 of the Notes to Consolidated Financial Statements. As discussed in Note 2, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The Company believes the following critical accounting policies represent the more significant judgments and estimates used in preparing the consolidated financial statements. There have been no material changes made to the Company's critical accounting policies and estimates during the periods presented in the consolidated financial statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities assumed arising from business combinations. Goodwill is not amortized. The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of the end of the fourth fiscal quarter, or more frequently if events or circumstances indicate that the assets may be impaired, by applying a fair value based test and, if impairment occurs, the amount of impaired goodwill is written off immediately.

Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is to identify a potential impairment by comparing the carrying values of each of the Company's reporting units to their estimated fair values as of the test dates. The Company has determined that its reporting units are the same as its reportable segments, Engines and Products. The estimates of fair value of the reporting units are computed using an income approach. The income approach utilizes a multi-year forecast of estimated cash flows and a terminal value at the end of the cash flow period. The forecast period assumptions consist of internal projections that are based on the Company's budget and long-range strategic plan. The discount rate used at the test date is the weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. The sum of the fair values of the reporting units is reconciled to the Company's current market capitalization (based upon the Company's trailing 20-day average stock price) plus an estimated control premium.
If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not deemed impaired and the second step of the impairment test is not performed. If the book value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of the reporting unit to the estimated fair value of its existing tangible assets and liabilities as well as existing identified intangible assets and previously unrecognized intangible assets in a manner similar to a purchase price allocation. The unallocated portion of the estimated fair value of the reporting unit is the implied fair value of goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
As discussed in Note 5 to the consolidated financial statements, the Company performed the annual impairment test on its Engines and Products reporting units as of July 1, 2012. The impairment testing performed by the Company at July 1, 2012 indicated that the estimated fair value of each reporting unit exceeded its corresponding carrying amount, including recorded goodwill and as such, no further impairment existed. Such impairment testing indicated that the estimated fair value of the Products reporting unit exceeded its corresponding carrying amount by 3%. The estimated fair value of the Engines reporting unit was substantially in excess of its carrying value. In fiscal 2011, the impairment analysis determined that the goodwill balance of the Products reporting unit was impaired. As a result, the Company recognized a $49.5 million non-cash goodwill impairment charge during fiscal 2011. The assumptions included in the impairment test require judgment; and changes to these inputs could impact the results of the calculation. Other than management's internal projections of future cash flows, the primary assumptions used in the impairment test were the weighted-average cost of capital, long-term growth rates and the control premium. . . .