The Toro Company
8111 Lyndale Avenue South
Bloomington, MN 55420-1196
952-888-8801
www.thetorocompany.com
CHARGING
FORWARD
THE TORO COMPANY
2021 Annual Report
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With over 30 professional-grade attachments to choose from, Ventrac offers true Versatility That Works®. Building on the success of the 4500 tractor, Ventrac introduced the new 4520 tractor with expanded capabilities and features. A productivity powerhouse, these incredibly rugged and dependable machines are trusted by golf courses, parks, acreage owners and others needing one machine to do it all. For over 25 years, Exmark's Lazer Z® has been the standard of excellence for commercial zero-turn mowers. As customer needs and preferences have evolved, the Lazer Z family has expanded to include four product series that strike a perfect balance of value and performance to get more work done, faster. Exmark’s top-of-the-line X-Series provides the productivity landscape contractors need with deck sizes ranging from 60- to 96-inches. And as always, the Lazer Z delivers the Exmark signature cut. With strong demand for specialty construction products that improve productivity and jobsite versatility, the Toro Dingo® TX 1000 continues to be trusted by contractors and homeowners in tackling countless projects from landscape to major construction. Designed with industry-leading traction controls, its 1,000-lb. rated operating capacity delivers maximum productivity with the combination of over 35 attachments for earth moving and trenching to lifting and hauling. ADVANCING PRIORITIES IN ALTERNATIVE POWER, SMART CONNECTED AND AUTONOMOUSIn what was a dynamic year, we continued to advance our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people. With the financial capacity to invest in the future and drive value for all stakeholders, we made meaningful investments in key technologies, both organically and through acquisitions, to advance our focus areas of alternative power, smart connected and autonomous customer solutions. Driving exciting advancements in technology, we continue to expand our no-compromise, sustainable battery offering for homeowners, contractors, and golf and grounds customers. Our market leadership with landscape professionals was further strengthened by the launch of our Revolution™ Series line of battery-powered stand-on and zero-turn riding mowers. Providing all-day run time on a single charge using our proprietary HyperCell™ battery system, these machines come equipped with our Horizon360® software which uses GPS and machine telematics to connect employees, equipment, crews and customer jobs together in one system.At the same time, acquisitions of Turflynx and Left Hand Robotics, along with our internal investments, have accelerated our innovation pipeline of autonomous products and furthered our momentum as a leader in technology advancements in the industries we serve.Power, pure and simple. Toro’s Z Master® 4000 has been engineered to last and built to reign. With unstoppable grit and durability, and unbeatable productivity and speed on giant Toro-exclusive Voodoo Trac™ tires, the Z Master 4000 is designed to offer go-all-day comfort with Toro’s patented MyRIDE® suspension system and unmatched cut quality with its grass-kicking high-strength steel TURBO FORCE® deck. Providing a unique blend of power, productivity and versatility, Toro’s Groundsmaster® 3200/3300 series delivers efficient performance to meet the demands of grounds and golf customers. A full range of attachments for mowing, blowing, sweeping and snow and ice maintenance provide all-season capabilities and functionality effectively leveraging the investment for this budget-friendly workhorse across seasons. When it comes to yard work, homeowners want powerful tools that give them the confidence to tackle it all. With Toro’s innovative 60V Flex-Force Power System®, customers can seamlessly swap the universal battery across a suite of more than 50 tools to power through any job with ease – season after season. For BOSS Snowplow, it’s all about building best-in-class snow and ice removal equipment to help customers restore order after winter’s wrath. To make quick work of clearing sidewalks, the BOSS Snowrator® is a labor saver effectively reducing the need for shovelers. A highly versatile machine, it offers operators the ability to brine, spread and plow at the same time to maximize productivity and profitability. 2021 Toro AR Cover.indd 4-62021 Toro AR Cover.indd 4-61/21/22 4:51 PM1/21/22 4:51 PM TO OUR VALUED SHAREHOLDERSLooking back on the success of fiscal 2021, I believe there has never been a more exciting time to be a part of The Toro Company. Our creative, hard-working teams drove innovative advancements in technology, focusing on alternative power, smart-connected products, and autonomous solutions. This culminated in the launch of our first commercial-grade, battery-powered, zero-emissions stand-on and zero-turn mowers and the showcasing of several autonomous prototypes. We experienced strong demand across our businesses and our resilient operations teams and dedicated channel partners worked tirelessly to fulfill customer needs. Recognized for our commitment to building trusted relationships, we continued to strengthen our market leadership positions worldwide. We were honored to be recognized by Tractor Supply Company with a Partner of the Year award for the second year in a row, and to be selected by the City of Amsterdam to enter into a four-year preferred supplier agreement and fleet management partnership to help with their sustainability objective of zero emissions by 2030. Most remarkably, this all occurred during one of the most challenging environments in our history with a global pandemic, unprecedented supply chain constraints and labor availability challenges. Despite these pressures, The Toro Company achieved record financial results with net sales of $3.96 billion, up 17.2%, adjusted net earnings of $392.7 million, up 19.8%, and adjusted earnings per diluted share up 19.9%, all compared to fiscal year 2020, enabling The Toro Company to invest in future innovations and increased manufacturing capacity while also returning value to shareholders through dividends and share repurchases. Our professional segment delivered impressive results across the portfolio, driven in part by the strength of our Exmark and Toro landscape contractor businesses, as customers looked to replace and upgrade their fleets. Our residential segment exceeded $1 billion in net sales for the first time. This growth was fueled by strong demand for riding and walk power mowers and snow products due to new product introductions, refreshed marketing and expanded distribution channels.FISCAL 2021 BUSINESS HIGHLIGHTSBATTERY REVOLUTIONLandscape professionals responded very positively to the introduction of Toro’s Revolution™ Series professional battery-powered products, featuring Toro’s proprietary HyperCell™ battery platform which provides all-day runtime on a single charge. The Toro Revolution Series mowers are built with the same commercial-grade chassis and Turbo Force® decks as their gas counterparts, providing the same durability and dependability our professional customers have trusted for years.Residential customers are increasingly excited about Toro’s 60V battery lineup, stacked with powerful products that Richard M. Olson, Chairman and Chief Executive Officertoro_annual_report_21.indd 4toro_annual_report_21.indd 41/21/22 1:47 PM1/21/22 1:47 PM don’t compromise on power, durability or quality. In fiscal 2021, we expanded the portfolio with the introduction of a 60V
two-stage snowblower that lives up to the Toro® Power Max® name. This heavy-duty snowblower is remarkably quiet
and easy to use and maintain with zero exhaust emissions. Our 60V line of products now includes over 50 tools and
attachments and counting.
Many golf course superintendents are realizing the benefits of operating on battery and hybrid technology, which is
helping them reduce or eliminate exhaust emissions and providing quiet operations throughout their facilities. This
includes Toro’s Greensmaster® eTriFlex® riding greens mower, electric Workman® GTX utility vehicles, Greensmaster®
e1021 Series walk greens mowers and Reelmaster® 5010-H hybrid fairway mowers.
SMART AND CONNECTED
Smart-connected technologies have continued to be a focus for The Toro Company across our businesses. Horizon360®,
which uses GPS and machine telematics, was designed to help landscape professionals manage their businesses by
connecting employees, equipment, crews and customer jobs together in one system, helping them increase productivity
and grow their businesses.
Our Toro Ag business debuted the Tempus® Automation System, which was recognized as the 2021 New Product
Winner in the agriculture irrigation category by the Irrigation Association. This innovative cloud-based system helps
growers more efficiently control irrigation valves and monitor field parameters for even more precision and flexibility.
GROWING GOLF
In fiscal 2021, the game of golf continued to welcome back seasoned players and attract new ones, invigorating the
industry with rounds of play exceeding pre-pandemic levels and driving a trend that we expect to continue.
We believe that as the only industry provider to offer a complete solution for both turf and irrigation, we have a unique
advantage over our competition. Committed to growing the game of golf, we were thrilled to be selected by The R&A
in Scotland, National Links Trust in Washington D.C., Pebble Beach Resorts, and PGA Frisco among many others who
chose Toro in the last year to help create and maintain top conditions for their golf facilities. Our teams earn these
relationships through our reputation for innovative, high-quality turf maintenance and irrigation equipment, supported
by top-performing distributors who deliver superior service and customer care.
ALL-SEASON ADVANTAGE
Versatility and productivity continue to be highly valued by our golf, grounds and landscape customers. With a wide
range of attachments across our Ventrac, Toro, and Ditch Witch product categories, customers are able to maximize the
investment in their equipment all year long.
In the winter months, BOSS® snowplows are key to increasing productivity and efficiency. For example, the combination
of our new rear-mounted BOSS® Drag Pro® 180Z and a front-mounted plow has appealed to customers, cutting time on
the job by up to 50%.
CAPITALIZING ON STRONG DEMAND
We experienced exceptionally strong demand across our businesses throughout a very difficult operating environment,
including continued supply chain constraints, inflationary pressures and the COVID-19 pandemic. Our businesses and
operations teams partnered closely to capitalize on the demand, while aggressively addressing challenges head-on.
This included assessing and evolving production and logistics strategies, disciplined control of expenses, a deeper
integration of LEAN principles, simplification of SKUs, and pricing adjustments aligned with market dynamics. We also
prioritized investments in our production facilities to increase capacity, advance automation and expand desirable
spaces for our employees.
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LOOKING AHEADDELIVERING ON TECHNOLOGY INVESTMENTSThe recent acquisitions of TurfLynx and Left Hand Robotics are accelerating our innovation capacity in designing and manufacturing autonomous equipment. In the coming year, trade show attendees will have the opportunity to preview the latest in autonomous products, including the Toro® GeoLink® Solutions fairway mower. This hybrid, robotic fairway mower is expected to be a game-changing first step for golf courses who increasingly seek quiet, zero emission mowers without sacrificing quality of cut. This is particularly crucial now, as our customers face challenges in attracting skilled labor. We also continue to develop software solutions to help customers increase productivity, including smart-connected solutions like the IntelliDash™ application. Soon, golf courses will be able to monitor, manage, track and control all aspects of their courses in one place. This comprehensive, convenient system includes everything from turf sensor data to staff assignments, equipment tracking and parts ordering. INFRASTRUCTURE OPPORTUNITIESThe recently passed U.S. infrastructure legislation is anticipated to provide multi-year growth opportunities for our specialty construction and underground businesses with investments in specific areas of roads, public transportation, broadband and utility installation, clean water and electric vehicle charging stations. The European Union is proposing similar stimulus plans, focusing on comprehensive 5G and gigabit fiber coverage by 2025, as well as prioritizing renewable energy. Our market-leading brands put The Toro Company in a desirable position with the right products, relationships, strategies and teams to support these initiatives, particularly when it comes to underground installation and repair. BUILDING MOMENTUMThe Toro Company’s success is rooted in our long-standing commitment to helping our customers succeed with innovative solutions and incredible support, all through sincere long-term relationships. This legacy is strengthened by our focus on our key strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. With these priorities as our compass, we exceeded the net sales and adjusted operating earnings goals for our fiscal 2021 Power Forward strategic employee initiative. To build on that momentum, we recently launched our new three-year employee initiative, Drive for Five, with the goal of exceeding $5 billion in annual net sales through organic growth, while also improving profitability, by the end of fiscal 2024. Of course, none of this would be possible without the exceptional creativity and passion consistently demonstrated by our talented employees and dedicated channel partners, as well as the continued confidence from our customers and shareholders. I am personally grateful for your support and for your trust in The Toro Company. Sincerely, Richard M. Olson Chairman and Chief Executive Officer toro_annual_report_21.indd 6toro_annual_report_21.indd 61/19/22 4:07 PM1/19/22 4:07 PM FINANCIAL HIGHLIGHTS
Fiscal years ended October 31
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
S
E
L
A
S
T
E
N
1
2
0
2
$3.96
BILLION
17.2%
vs. 2020
ADJUSTED NET EARNINGS1
$392.7M
19.8%
vs. 2020
ADJUSTED NET EARNINGS
AS A PERCENTAGE OF
NET SALES1
9.9%
ADJUSTED
DILUTED EPS1
$3.62
19.9%
vs. 2020
CASH DIVIDENDS PAID
ON COMMON STOCK
OUTSTANDING
$112.4M
SHARE
REPURCHASES
$302.3M
FREE CASH FLOW
CONVERSION1
110.1%
RETURN ON AVERAGE
INVESTED CAPITAL2
20.8%
AVERAGE NET WORKING
CAPITAL AS A PERCENTAGE
OF NET SALES3
14.8%
R & D INVESTMENT
$141.0M
13.6%
vs. 2020
NET SALES BY
SEGMENT
¢ Professional 74.0%
¢ Residential 25.5%
¢ Other 0.5%
NET SALES BY
PRODUCT
¢ Equipment 88.9%
¢ Irrigation 11.1%
NET SALES BY
GEOGRAPHICAL
LOCATION
¢ United States 79.1%
¢ International 20.9%
1 This Annual Report includes certain non-GAAP financial measures. Please refer to the disclosure, entitled “Non-GAAP Financial Measures,” which is included on pages 48-49 of the Form 10-K.
2 This metric represents a non-GAAP financial metric and a reconciliation of this non-GAAP financial metric can be found in our Investor Presentation, which is available in the Investor section
at www.thetorocompany.com.
3 Defined as average net accounts receivable plus average net inventory, less average accounts payable as a percentage of net sales for a 12-month period.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended October 31, 2021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from to
Commission file number: 1-8649
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
41-0580470
(I.R.S. Employer Identification No.)
8111 Lyndale Avenue South
Bloomington, Minnesota 55420-1196
Telephone Number: (952) 888-8801
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
___________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $1.00 per share
Trading Symbol(s)
TTC
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
☒
Accelerated filer
☐
Non-
accelerated filer
☐
Smaller reporting
company
☐
Emerging growth
company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing price of the common stock on April 30,
2021, the last business day of the registrant's most recently completed second fiscal quarter, as reported by the New York Stock Exchange, was
approximately $12.3 billion.
The number of shares of the registrant's common stock outstanding as of December 10, 2021 was 104,486,029.
Documents Incorporated by Reference: Portions of the registrant's definitive Proxy Statement for the 2022 Annual Meeting of Shareholders expected
to be held March 15, 2022 are incorporated by reference into Part III of this Annual Report on Form 10-K.
THE TORO COMPANY
FORM 10-K
TABLE OF CONTENTS
Description
GENERAL
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Information About Our Executive Officers
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
The Toro Company Common Stock Comparative Performance Graph
ITEM 6.
ITEM 7.
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
Results of Operations
Business Segments
Financial Position
Non-GAAP Financial Measures
Critical Accounting Policies and Estimates
ITEM 7A.
ITEM 8.
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibit and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
2
Page Number
3
3
4
15
29
29
30
30
31
32
33
33
34
34
37
39
41
48
49
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58
60
60
61
62
63
64
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97
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98
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102
103
GENERAL
Unless the context requires otherwise, references to “TTC,” the “Company,” “we,” “us,” and “our,” refer to The Toro Company
and its consolidated subsidiaries. References to fiscal years, such as "fiscal 2021," are to the fiscal year ending on October 31 of
the specified year.
We use “Toro” and other marks as trademarks in the United States and/or in other countries. This Annual Report on Form 10-K
contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience,
trademarks and trade names referred to in this Annual Report on Form 10-K, including logos, artwork and other visual displays,
may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to
the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.
We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or
endorsement or sponsorship of us by, any other entity.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains, or incorporates by reference, not only historical information, but also forward-
looking statements regarding future events and our future results within the meaning of Section 27A of the Securities Act of
1933, as amended ("Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and
the Private Securities Litigation Reform Act of 1995, and that are subject to the safe harbor created by those sections. In
addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including
telephone conferences and/or web casts open to the public, in press releases or reports, on our websites or otherwise. Statements
that are not historical are forward-looking and reflect expectations and assumptions that we believe to be reasonable. Forward-
looking statements are based on our current expectations of future events, and often can be identified in this report and
elsewhere by using words such as "expect," "strive," "looking ahead," "outlook," "guidance," "forecast," "goal," "optimistic,"
"encourage," "anticipate," "continue," "plan," "estimate," "project," "target," "improve," "believe," "become," "should," "could,"
"will," "would," "possible," "promise," "may," "likely," "intend," "can," "seek," "pursue," "potential," "pro forma," variations of
such words or the negative thereof, and similar expressions or future dates. Our forward-looking statements generally relate to
our future performance and may include, among others, statements relating to:
•
•
•
our anticipated operating results, liquidity requirements, financial condition, and the anticipated impacts of the
COVID-19 pandemic, and the current global supply chain disruptions and inflationary environment;
our business strategies, priorities, goals, and commitments; and
the effect of laws, rules, policies, regulations, tax reform, new accounting pronouncements, and outstanding litigation
on our business and future performance.
Forward-looking statements are only predictions and involve risks and uncertainties that could cause actual results to differ
materially from those projected or implied in the forward-looking statements. The factors known to us that could materially
adversely affect our business, reputation, operations, industry, financial position, or future financial performance are described
in Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K. We caution readers not to place undue reliance on any
forward-looking statement which speaks only as of the date made and to recognize that forward-looking statements are
predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in
the forward-looking statements and from historical results, due to the risks and uncertainties described elsewhere in this Annual
Report on Form 10-K, including in Part I, Item 1A, "Risk Factors," as well as others that we may consider immaterial or do not
anticipate at this time. The risks and uncertainties described in this Annual Report on Form 10-K, including in Part I, Item 1A,
"Risk Factors," are not exclusive and further information concerning the company and our businesses, including factors that
potentially could materially affect our financial results or condition, may emerge from time to time. We make no commitment
to revise or update any forward-looking statements in order to reflect actual results, events or circumstances occurring or
existing after the date any forward-looking statement is made, or changes in factors or assumptions affecting such forward-
looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K we file with, or furnish to, the United States Securities and
Exchange Commission.
3
PART I
ITEM 1. BUSINESS
Introduction
The Toro Company was incorporated in Minnesota in 1935
in 1914 and
to a business founded
as a successor
reincorporated in Delaware in 1983. Our executive offices
are located at 8111 Lyndale Avenue South, Bloomington,
Minnesota, 55420-1196, and our telephone number is
(952)888-8801. Our website for corporate and investor
information is www.thetorocompany.com. The information
contained on our websites or connected to our websites is not
incorporated by reference into, and should not be considered
part of, this Annual Report on Form 10-K.
We design, manufacture, market, and sell professional turf
maintenance equipment and services; turf irrigation systems;
landscaping equipment and lighting products; snow and ice
management products; agricultural irrigation ("ag-irrigation")
systems; rental, specialty and underground construction
equipment; and residential yard and snow thrower products.
Our products are marketed and sold worldwide through a
network of distributors, dealers, mass retailers, hardware
retailers, equipment rental centers, home centers, as well as
online (direct to end-users) under the primary trademarks of
Toro®, Ditch Witch®, eXmark®, BOSS®, Ventrac®,
Subsite®,
American Augers®, Trencor®,
HammerHead®, Radius®, PERROT®, Hayter®, Unique
Lighting Systems®, Irritrol®, and Lawn-Boy®, most of
which are registered in the United States ("U.S.") and/or in
the primary countries outside the U.S. where we market our
products branded under such trademarks.
Pope®,
We focus on innovation and quality in our products,
customer service, manufacturing, and marketing. We strive to
provide innovative, well-built, and dependable products
supported by an extensive service network. We commit to
funding research, development, and engineering activities in
order to improve and enhance existing products and develop
new products. Through these efforts, we seek to be
responsive to trends that may affect our target markets now
and in the future. A significant portion of our net sales has
historically been, and we expect will continue to be,
attributable to new and enhanced products. We define new
products as those introduced in the current and previous two
fiscal years.
We have continued to complement our brands, enhance our
product portfolios, and improve our technologies through
innovation and strategic acquisitions over the more than
100 years we have been in business. We plan to continue to
leverage a strategic and disciplined approach to pursue
to TTC by
targeted
complementing our existing brands, enhancing our product
portfolio, and/or improving our technologies.
acquisitions
add value
that
These Other activities consist of earnings (loss) from our
wholly-owned domestic distribution company, our corporate
activities, and the elimination of intersegment revenues and
expenses. Net sales of our reportable segments and Other
activities accounted for the following percentages of our
consolidated net sales for fiscal 2021: Professional, 74.0
percent; Residential, 25.5 percent; and Other, 0.5 percent.
Our purpose is to help our customers enrich the beauty,
productivity, and sustainability of the land. Our vision is to
be the most trusted leader in solutions for the outdoor
environment. Every day. Everywhere. Our mission is to
deliver superior innovation and to deliver superior customer
care. Sustainability is the foundation of our enterprise
strategic priorities of
accelerating growth, driving
productivity and operational excellence, and empowering our
people. Our focus on alternative power, smart connected, and
autonomous solutions, as well as our continued efforts to
address
including
environmental, social, and governance priorities, are
embedded as part of our "Sustainability Endures" initiative.
sustainability-focused
matters,
Impact of COVID-19
fiscal 2021. The continuing
In March 2020, the World Health Organization declared the
novel coronavirus ("COVID-19," "virus," or "the pandemic,")
outbreak a global pandemic. COVID-19 has negatively
impacted public health and portions of the global economy,
significantly disrupted global supply chains, and created
volatility in financial markets. The adverse global economic
impact of the pandemic has had a material impact on parts of
our business, customers, and suppliers and caused many
challenges for our business and manufacturing operations
during
implications of
COVID-19 on our business remain uncertain and will depend
on certain future developments, including the duration of the
pandemic; any adverse impact due to variants of the virus; its
impact on market demand for our products; its impact on our
employees, customers, and
range of
government mandated restrictions and other measures; and
the success of the deployment of approved COVID-19
vaccines, their effectiveness against the novel strain and
related variants, and their rate of adoption. This uncertainty
impact on our business and
could have a material
manufacturing operations
in future periods. Additional
information regarding the impact of COVID-19 on our
business can be found under the section titled "Impact of
COVID-19" included within Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results
of Operations," of this Annual Report on Form 10-K and
risks related to COVID-19 can be found under Part I, Item
1A, "Risk Factors," of this Annual Report on Form 10-K.
suppliers;
the
Business Combinations
Acquisition of Venture Products, Inc.
We classify our operations into two reportable business
segments: Professional and Residential. Our remaining
activities are presented as "Other" due to their insignificance.
On March 2, 2020, during the second quarter of fiscal 2020,
we completed our acquisition of Venture Products, Inc.
("Venture Products"), a privately held Ohio corporation and
4
manufacturer of Ventrac-branded products. Venture Products
designs, manufactures, markets, and sells articulating turf,
landscape, and snow and ice management equipment for
grounds, landscape contractor, golf, municipal, and rural
acreage customers and provides innovative product offerings
that broadened and strengthened our Professional segment
and expanded our dealer network. The acquisition
consideration was $163.2 million, of which $24.9 million of
cash consideration was paid to the former Venture Products
shareholders during fiscal 2021 upon the satisfaction of
indemnification and certain other obligations of Venture
Products to the company. We funded the acquisition
consideration with borrowings under our $600.0 million five-
year unsecured senior revolving credit facility ("revolving
credit facility") and net cash provided by operating activities.
For additional information regarding the Venture Products
acquisition, refer to Note 2, Business Combinations and Asset
Acquisitions,
to Consolidated Financial
Statements included in Part II, Item 8, "Financial Statements
and Supplementary Data," of this Annual Report on Form 10-
K.
the Notes
in
Acquisition of The Charles Machine Works, Inc.
Inc.
also providing
tools. CMW provides
On April 1, 2019, during the second quarter of fiscal 2019,
we completed our acquisition of The Charles Machine
Works,
("CMW"), a privately held Oklahoma
corporation. CMW designs, manufactures, and markets a
range of professional products to serve the underground
construction market, including horizontal directional drills,
walk and ride trenchers, stand-on skid steers, vacuum
excavators, asset locators, pipe rehabilitation solutions, and
innovative product
after-market
offerings that broadened and strengthened our Professional
segment product portfolio and expanded our dealer network,
while
complementary geographic
manufacturing footprint. The acquisition consideration was
$685.0 million, which we funded by using a combination of
cash proceeds from the issuance of borrowings under our
$500.0 million unsecured senior term loan credit agreement
and borrowings from our revolving credit facility. For
additional information regarding the CMW acquisition and
the financing agreements utilized to fund the aggregate
merger consideration, refer to Note 2, Business Combinations
and Asset Acquisitions, in the Notes to Consolidated
Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data," of this Annual Report
on Form 10-K.
a
Products by Market
We strive to be a leader in adapting advanced technologies to
products and services that provide innovative solutions for
turf care maintenance; landscapes; agricultural fields; rental,
specialty, and underground construction; snow and ice
management; and residential demands. The following is a
summary of our products, by market, for our Professional
segment and our products for our Residential segment.
Professional Segment
We design professional turf; landscape and lighting; rental,
specialty, and underground construction; snow and ice
management; and agricultural products. We market and sell
Professional segment products worldwide through a network
of distributors and dealers, as well as directly to government
customers, rental companies, and large retailers. These
channel partners then sell or rent our products primarily to
professional users engaged in maintaining turf, such as golf
courses, sports fields, municipal properties, as well as
residential and commercial landscapes; installing, repairing,
and replacing underground pipe and utilities; managing snow
and ice demands; irrigating turf and agricultural fields; and
creating, renovating, and
landscapes. The
following sections describe our Professional segment
products by market.
illuminating
Golf Market
course
solutions
for golf
innovative
We design, manufacture, market, and sell equipment products
under the Toro and Ventrac brands that are intended to
provide
turf
maintenance. Equipment products for the golf market include
large reel and rotary riding products for fairway, rough, and
trim cutting; riding and walking mowers for greens and
specialty areas; greens rollers; all-wheel drive articulating
tractors; turf sprayer equipment; utility vehicles; aeration
equipment; bunker maintenance equipment, and other
specialty turf equipment. We also market and sell irrigation
products for the golf market under the Toro brand that are
designed to provide innovative water application solutions
for golf course turf maintenance. These irrigation products
predominantly consist of sprinkler heads, controllers, turf
sensors, and electric, battery-operated, and hydraulic valves.
These equipment and irrigation products are primarily sold to
distributors and dealers, who then sell to owners, managers
and/or superintendents of golf courses.
Sports Fields and Grounds Market
We design, manufacture, market, and sell Toro and Ventrac-
branded equipment products that are intended to provide
innovative turf maintenance solutions to sports fields and
grounds customers. Equipment products for the sports fields
and grounds market primarily include riding rotary and reel
infield grooming
mowers and attachments, aerators,
equipment, all-wheel drive articulating tractors, multipurpose
vehicles and debris management products, which include
versatile debris vacuums, blowers, and sweepers. In addition
to equipment products, we also market and sell irrigation
products under the Toro and PERROT brands that are
designed to provide innovative water application solutions
for sports fields and grounds turf maintenance. These
include sprinkler heads,
irrigation products primarily
controllers, turf sensors, and electric, battery-operated, and
hydraulic valves. These products are primarily sold to
distributors and dealers, who then sell to owners and/or
managers of sports fields, governmental properties, and
residential and commercial landscapes, as well as directly to
government customers.
5
Our fiscal 2020 acquisition of Venture Products added
Ventrac-branded products that are designed to meet the needs
of customers in the sports fields and grounds market, as well
as customers in the snow and ice management, golf, and
landscape contractor markets. In fiscal 2021, we introduced
the new 4520 Tractor that is designed to provide increased
hydraulic power, faster hydraulic speed, quieter operation,
and other performance enhancing features as compared to the
previous model.
Landscape Contractor Market
We design, manufacture, market, and sell equipment products
under the Toro, eXmark, and Ventrac brands that are
intended to provide innovative turf management solutions to
landscape contractors. Equipment products for the landscape
contractor market include zero-turn radius riding mowers,
heavy-duty walk behind mowers, mid-size walk behind
mowers, stand-on mowers, and all-wheel drive articulating
tractors, as well as lawn solution, turf renovation, and tree
care equipment. These equipment products are primarily sold
to distributors and dealers, who then sell to landscape
contractors engaged in turf maintenance activities.
In fiscal 2021, our Toro brand introduced the innovative
Revolution Series of fully electric GrandStand® and Z
Master® zero-turn riding mower product lines, which are
commercial-grade models designed for professional use and
feature our HyperCell™ battery system, which is designed to
provide longer runtime and extended battery life required by
landscape contractors. In fiscal 2021, our eXmark brand
introduced the Vertex® S-Series, a new stand-on zero-turn
riding mower platform designed
to provide enhanced
operator stability and maneuverability to improve overall
operator comfort and features our UltraCut® Series 4 side-
discharge cutting deck.
Underground Construction Market
to serve
We design, manufacture, market, and sell a range of
professional grade products
the underground
construction market, including horizontal directional drills,
walk and ride trenchers, vacuum excavators, horizontal
directional drilling guidance and support equipment, utility
locators, utility inspection systems, pipe rehabilitation and
replacement solutions, as well as after-market
tools,
including drive chucks and sub savers, drill pipe, starter rods
and quick connects, bits and blades, rock tools, reamers, and
swivels. Such products are utilized by specialty contractors
worldwide to install water, gas, electric, telecommunication,
fiber optic, and other utility distribution systems. Our fiscal
2019 acquisition of CMW added a variety of new products to
our underground construction product portfolio with a family
of brands sold under the trade names of Ditch Witch,
American Augers, Trencor, HammerHead, Subsite, and
Radius. In fiscal 2021, HammerHead introduced the newly
redesigned Bluelight® LED Cured in Place Pipe lining
system designed for rehabilitation and replacement of laterals
and small drain pipes. This innovative LED light technology
uses a specially formulated resin that is designed to cure up
to five times faster than other methods.
6
During fiscal 2019, after the completion of the CMW
acquisition, we announced the wind down of our Toro-
branded large horizontal directional drill and riding trencher
product categories ("Toro underground wind down") as part
of our integration plan for the CMW business and to allow us
to maximize efficiencies and cost synergies post-acquisition
and adapt to changing underground construction market
conditions regarding our underground product portfolio. We
completed the Toro underground wind down during fiscal
2020. For additional
the Toro
underground wind down, refer to Note 7, Management
Actions, in the Notes to Consolidated Financial Statements
included in Part II, Item 8, "Financial Statements and
Supplementary Data," of this Annual Report on Form 10-K.
information regarding
Rental and Specialty Construction Market
We design, manufacture, market, and sell Toro and Ditch
Witch-branded equipment products that are intended to
provide innovative solutions to serve the rental and specialty
construction market. These products primarily consist of
stand-on skid steers, walk-behind trenchers, stump grinders,
and turf renovation products. We also have a line of Toro-
branded rental products that feature concrete and mortar
mixers, material handlers, compaction equipment, and other
concrete construction equipment. Our rental and specialty
construction equipment products are mainly sold to rental
companies and large retailers who subsequently rent the
products to end-users, as well as to dealers who market and
sell to end-customers primarily consisting of landscape
contractors, municipalities, and other government entities.
Snow and Ice Management Market
We design, manufacture, market, and sell equipment products
under the BOSS, Ventrac, and Toro brands that are intended
to provide innovative snow removal and ice management
solutions for the snow and ice management market. These
equipment products primarily consist of snowplows; ice
control products; accessories for light and medium duty
trucks, all-terrain vehicles, utility task vehicles, skid steers,
and front-end loaders; and all-wheel drive articulating
tractors, sidewalk snow and ice solution vehicles, and related
attachments and accessories. These products are mainly sold
through distributors and dealers who market and sell to end-
customers primarily consisting of landscape contractors,
municipalities, and other government entities.
Commercial Irrigation and Lighting Market
Irrigation products are designed, manufactured, marketed,
and sold under the Toro and Irritrol brands and primarily
include rotors; sprinkler bodies and nozzles; plastic, brass,
and hydraulic valves; drip tubing and subsurface irrigation;
electric control devices; and wired and wireless rain, freeze,
climate, and soil sensors. These irrigation products are
designed to provide innovative water application solutions
for both commercial and residential landscapes. Both the
Toro and Irritrol brands have received several U.S.
Environmental Protection Agency ("EPA") WaterSense
awards, as well as the EPA WaterSense certification for
numerous irrigation controller families and models. In fiscal
2021, TTC was recognized for the seventh consecutive year
with the WaterSense Excellence Award for our dedication to
offering products that are designed, in addition to other
factors, to help our customers save water. In addition to our
irrigation products, we market and sell Unique Lighting
Systems-branded products primarily consisting of a line of
lighting fixtures and transformers designed for commercial
and residential landscapes. Our commercial irrigation and
lighting products are predominantly sold to distributors and
dealers who market and sell to end-customers primarily
consisting of landscape contractors that professionally install
these products as new systems or use these products to
replace or retrofit existing systems.
Ag-Irrigation Market
Irrigation products for the ag-irrigation market are designed,
manufactured, marketed, and sold under the Toro brand and
are intended to provide an efficient means of water
in agricultural and greenhouse
application and usage
applications. These irrigation products primarily consist of
drip tape, polyethylene tubing, drip line, emitters, filters, and
fitting solutions. In addition to these core products, we offer a
complement of design software and connection options to
complete the ag-irrigation system. Our ag-irrigation products
are sold through dealers and distributors who then sell to end-
users for use primarily in vegetable fields, fruit and nut
orchards, and vineyard applications.
Residential Segment
We market and sell our Residential segment products to
homeowners through a variety of distribution channels,
including outdoor power equipment distributors and dealers,
mass retailers, hardware retailers, home centers, as well as
online (direct to end-users). We also license our trademark on
certain home solutions products as a means of expanding our
brand presence. The following sections describe our
Residential segment products.
Walk Power Mower Products
We design, manufacture, market, and sell walk power mower
equipment products under our Toro and Lawn-Boy brand
names, as well as the Hayter brand in the United Kingdom.
Our walk power mower equipment products are designed to
to
provide
homeowners. Models differ as to cutting width, type of
starter mechanism, method of grass clipping discharge, deck
type, operational controls, and power sources, and are either
self-propelled or operator-propelled push mowers.
turf cutting solutions primarily
innovative
In fiscal 2021, we improved upon our successful 22-inch
Recycler® platform, with enhancements made to models
powered by both gas engines as well as our 60V Flex-Force
Power System®. These enhancements include the addition of
our patent-pending Vortex Technology, which is designed to
provide additional airflow within the cutting chamber of the
mower deck to enhance the grass clipping mulching process.
Additionally, the platform features our redesigned Personal
design
Pace®
self-propel
additional
system
and
enhancements intended to improve grass clipping bagging
performance. These upgrades were introduced across the
channel on our rear wheel drive platform powered by both
gas engines as well as our 60V Flex-Force Power System®.
Zero-Turn Riding Mowers
Our residential zero-turn riding mower equipment products
are designed, manufactured, marketed, and sold under the
Toro brand name and are intended to provide innovative and
time saving
turf cutting solutions by using superior
maneuverability to navigate around obstacles more efficiently
and effectively than tractor technology. Many models of our
residential zero-turn riding mowers are available with a
variety of engines, decks, transmissions, and accessories. In
fiscal 2021, we introduced a new TITAN® MAX line of
residential zero-turn riding mowers that are designed to
commercial-grade
provide homeowners with
components and features
to extend
durability and performance and are more commonly found on
our Professional zero-turn riding mowers. Such commercial-
grade components and features include the IronForged® deck
and larger drive tires intended to improve traction..
that are
intended
certain
Snow Thrower Products
We design, manufacture, market, and sell a range of Toro-
branded battery, electric, and gas-powered single-stage and
two-stage snow thrower equipment products, as well as
battery and electric-powered power shovel equipment
products. Single-stage snow throwers are walk behind units
that are generally designed for small areas of light snow and
our two-stage snow throwers are generally designed for
relatively large areas of deep and heavy snow. Our battery
and electric-powered power shovels are designed to be
lightweight and ideal for clearing light snow from decks,
steps, sidewalks, and small driveways. In fiscal 2021, we
introduced the 60V Power Max 2-Stage Snow Blower, the
first battery-powered two-stage snow thrower in our 60V
Flex-Force Power System® lineup. This innovative battery-
powered two-stage snow thrower is offered in both 24-inch
and 26-inch models and, when powered with two 7.5 amp
hour batteries, is capable of clearing up to 30 car spaces with
up to 10 inches of snow on a single charge.
Home Solutions Products
Our home solutions equipment products are designed,
manufactured, marketed, and sold under the Toro and Pope
brand names. Our Toro-branded home solution equipment
products consist of a variety of yard tools that generally
include battery, electric, and/or gas-powered options and
primarily consist of grass trimmers, hedge trimmers, blower-
vacuums, chainsaws, edgers, cultivators, string mowers, and
related parts and accessories that are designed to provide
innovative yard maintenance solutions to homeowners. In
fiscal 2021, we continued to expand our successful battery-
powered 60V Flex-Force line to include pole chainsaws and
new grass trimmer and leaf blower models. The 60V Flex-
Force line now includes over 35 tools that utilize the same
7
lithium-ion smart battery platform that is designed for
extended life and low maintenance.
In Australia and New Zealand, we design, manufacture,
market, and sell Pope-branded garden watering and irrigation
products that primarily include hoses; reels, carts and
hangers; sprinklers; hand sprays and wands; hose end
fittings; tap timers; and various irrigation tools designed to
develop and maintain gardens. In fiscal 2021, we improved
our classification from "advanced" to "leading" in the
Australian Packaging Covenant review relating to our
sustainability efforts.
International Operations
We currently manufacture our products in the U.S., Mexico,
Australia, the United Kingdom, Italy, Romania, Germany,
Poland, and China for sale throughout the world. We
maintain sales offices in the U.S., the United Kingdom,
Australia, Japan, China, Italy, Poland, Germany, Spain, and
France. New product development is pursued primarily in the
U.S. with the intention of global distribution. Our net sales
outside the U.S. were 20.9 percent, 20.1 percent, and 23.1
percent of total consolidated net sales for fiscal 2021, 2020,
and 2019, respectively. For additional financial information
regarding our international operations and geographical
areas, refer to Note 3, Segment Data, in the Notes to
Consolidated Financial Statements included in Part II, Item 8,
"Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K.
As a result of our international operations, we are exposed to
foreign currency exchange rate risk arising from transactions
in the normal course of business. For additional information
regarding our foreign currency exchange rate risk exposure,
refer to Part II, Item 7A, "Quantitative and Qualitative
Disclosures about Market Risk," of this Annual Report on
Form 10-K.
Engineering and Research
We believe that our longstanding commitment to quality and
innovation in our products has been a key driver of our
history of market success. We are committed to an ongoing
engineering program dedicated to developing innovative new
products and improvements in the quality and performance of
existing products and when applicable, we may pursue
targeted and strategic acquisitions to acquire innovative
technologies
that we believe uphold and bolster our
longstanding commitment to quality and innovation in our
products. For example, during the first quarter of fiscal 2021,
we completed the asset acquisition of Turflynx, Lda, a
developer of innovative autonomous solutions for turf
management, and during the second quarter of fiscal 2021,
we completed the asset acquisition of Left Hand Robotics,
Inc., a developer of innovative autonomous solutions for turf
and snow management. These strategic asset acquisitions
complement and support the development of alternative
power, smart-connected, and autonomous products within
our Professional and Residential segments.
Engineering and research activities are performed at our
global test sites and facilities and our products are tested in
conditions and locations similar to those in which they are
intended to be used. We invest time up front with customers,
using "Voice of the Customer" tools, to help us develop
innovative products that are intended to meet or exceed
customer expectations. We use Design for Manufacturing
and Assembly
early
manufacturing involvement in new product designs intended
to reduce production costs. DFM/A focuses on reducing the
number of parts required to assemble new products, as well
as designing products to move more efficiently through the
manufacturing process. We strive to make improvements to
our new product development system as part of our
continuing focus on Lean methods to shorten development
time and reduce costs, while also improving quality.
("DFM/A")
ensure
tools
to
Manufacturing and Production
Our manufacturing facilities are designed to provide efficient
and flexible assembly-line manufacturing of our products. In
addition to most final assembly, we have strategically
identified specific core manufacturing competencies for
vertical integration, such as injection molding, extrusion,
laser cutting, painting,
welding, stamping, fabrication,
machining, and aluminum die casting, and have chosen
outside vendors to provide other services, where applicable.
We design component parts through collaboration with our
vendors, contract with them for the development of tooling,
and subsequently enter into agreements with such vendors to
purchase component parts manufactured using the tooling.
We
third-party
agreements with
to manufacture certain standalone end-
manufacturers
products on our behalf. In addition, our vendors regularly test
new technologies to be applied in the design and production
of component parts. Our manufacturing operations include
robotic and computer-automated equipment intended to speed
production, reduce costs, and improve resource use and the
quality, fit, and finish of our products. Our operations are
also designed to be flexible enough to accommodate product
design changes that are necessary to respond to market
conditions and changing customer requirements.
also have
some
In order to utilize our manufacturing facilities and technology
more efficiently and effectively, we pursue continuous
improvements in our manufacturing processes with the use of
Lean methods that are intended to streamline work and
eliminate waste. Additionally, we use computer-aided design
and manufacturing systems to shorten the time between
initial concept and final production. DFM/A principles are
used throughout the product development process to optimize
product quality and reduce cost. We spend considerable
effort to reduce manufacturing costs through Lean methods
and process improvement, product and platform design,
application
enhanced
environmental management systems, safety improvements,
and improved supply-chain management.
technologies,
advanced
of
Our Professional segment products and Residential segment
lawn and garden products are generally manufactured
8
taking
levels and
throughout the year with peak production generally occurring
ahead of the key selling seasons for certain of our businesses
and product lines that are more subject to seasonality.
However, our Residential segment snow thrower products are
generally manufactured in the summer and fall months but
may be extended into the winter months, depending upon
weather conditions in key regions and the related demand for
such products. Our production
inventory
management goals are based on estimates of wholesale and
retail demand for our products,
into account
production capacity; commodity, component part, and labor
availability; timing of shipments; and field inventory levels.
Our production system generally utilizes Kanban, supplier
pull, and build-to-order methodologies in our manufacturing
facilities, as appropriate, for the business units they support
in order to better align the production of our products to meet
customer demand. We believe this has resulted in improved
service levels for our participating suppliers, distributors,
dealers, and other channels. We may also periodically shut
down production at our manufacturing facilities in order to
allow for maintenance, rearrangement, capital equipment
installation, seasonality, and as needed, to adjust for market
demand, facility renovation projects, and other factors.
Production shut downs of this nature are generally not
materially disruptive to our business and are considered to be
normal.
to meet manufacturing
While our facilities remained operational during fiscal 2021
and we experienced a lesser degree of intermittent partial or
full factory closures due to government mandated measures
as compared to fiscal 2020, our manufacturing operations
were adversely impacted by the global macroeconomic
environment caused by COVID-19 and more specifically,
global supply chain disruptions that limited our ability to
procure certain commodities and components parts in a
timely manner
production
requirements. As a result, we experienced various degrees of
commodity and component parts availability issues, which
resulted in manufacturing inefficiencies and limited our
ability to meet customer demand and adequately replenish
certain raw materials, work in process, and finish goods
inventory levels. Further, given continued strong demand for
our Professional and Residential segment products, we shut
down production at our manufacturing facilities to a lesser
extent during fiscal 2021 as compared to fiscal 2020 in order
to allow for maintenance, rearrangement, capital equipment
installation, seasonality, and as needed, to adjust for market
demand, facility renovation projects, and other factors. For
additional information regarding the impact of COVID-19 on
our manufacturing and production activities, refer to the
section titled "Impact of COVID-19" included within Part II,
Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Annual Report
on Form 10-K.
Commodities, Components, Parts, and Accessories
We purchase commodities, components, parts, and
accessories for use in our manufacturing process and end-
products or to be sold as stand-alone end-products. Our
9
rubber,
copper,
transaxles,
linerboard,
lead,
hydraulics,
primary cost exposures for such items used in our products
are with steel, aluminum, petroleum and natural gas-based
engines,
resins,
transmissions,
electrification
components, and others, all of which we purchase from
several suppliers around the world. We generally purchase
commodities, components, parts, and accessories based upon
market prices that are established with suppliers as part of the
purchase process and generally attempt to obtain firm pricing
from most of our suppliers for volumes consistent with
planned production and estimates of wholesale and retail
demand for our products. However, most of the commodities,
components, parts, and accessories used in our manufacturing
process and end-products, or to be sold as stand-alone end-
products, are exposed to commodity cost changes, including,
for example, as a result of inflation, deflation, changing
prices, foreign currency fluctuations, tariffs, duties, trade
regulatory actions, industry actions, the inability of suppliers
to absorb incremental costs resulting from COVID-19 related
inefficiencies, continue operations or otherwise remain in
business as a result of COVID-19, financial difficulties, or
otherwise,
trade policies,
agreements, and/or regulation and competitor activity,
including antidumping and countervailing duties on certain
products imported from foreign countries, including certain
engines imported into the U.S. from China. For additional
information regarding changing costs of commodities, refer
to Part II, Item 7A, "Quantitative and Qualitative Disclosures
about Market Risk," of this Annual Report on Form 10-K in
the section entitled "Commodity Cost Risk."
international
changes
to
chain
supply
to deliver on
Most of the commodities, components, parts, and accessories
utilized in our products are generally commercially available
from a number of sources, and are in adequate supply.
Although we regularly monitor the adequacy of the supply of
our commodities, components, parts, and accessories, and the
financial health of the companies in our supply chain, and use
alternative suppliers when necessary and available, financial
hardship and/or government mandated restrictions on our
suppliers caused by COVID-19,
insufficient demand
planning, and/or the inability of companies throughout our
supply
commitments,
requirements, and/or demands as a result of COVID-19 or
otherwise, has caused disruptions in our ability to procure the
commodities, components, and parts required to manufacture
our products. During fiscal 2021, we experienced a greater
level of disruption within our global supply chain that limited
our ability to procure commodities, components, parts, and
accessories in a timely manner to meet manufacturing
production requirements than we experienced during fiscal
2020. As a result, we experienced various degrees of product
availability issues, which limited our ability to meet customer
demand and adequately replenish certain raw materials, work
in process, and finished goods inventory levels. Additionally,
we experienced increased inflationary cost pressures on
commodity, component parts, and other related costs in fiscal
2021 as compared to fiscal 2020. For additional information
regarding the impact of COVID-19 on our ability to procure
commodities, components, parts, and accessories, refer to the
section titled "Impact of COVID-19" included within Part II,
Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Annual Report
on Form 10-K.
Service and Warranty
Our products are warranted to ensure customer confidence in
design, workmanship, and overall quality. Standard warranty
coverage is generally for specified periods of time and on
select products' hours of usage, and generally covers parts,
labor, and other expenses for non-maintenance repairs. We
also sell extended warranty coverage on select products for a
prescribed period after the original warranty period expires.
Warranty coverage generally does not cover operator abuse
or improper use. An authorized company distributor or dealer
must perform warranty work. Distributors and dealers submit
claims for warranty reimbursement and are credited for the
cost of repairs, labor, and other expenses as long as the
repairs meet our prescribed standards. At the time of sale, we
recognize expense and record an accrual by product line for
estimated costs in connection with forecasted future warranty
claims. Our estimate of the cost of future warranty claims is
based primarily on the estimated number of products under
to service
warranty, historical average costs
warranty claims, the trend in the historical ratio of claims to
sales, and the historical length of time between the sale and
resulting warranty claim. Additionally, from time to time, we
may also establish warranty accruals for our estimate of the
costs necessary to settle major rework campaigns on a
product-specific basis during the period in which the
circumstances giving rise to the major rework campaign
become known and when the costs to satisfactorily address
the situation are both probable and estimable. The warranty
accrual for the cost of a major rework campaign is primarily
based on an estimate of the cost to repair each affected unit
and the number of affected units expected to be repaired.
Service support outside of the warranty period is provided by
authorized distributors and dealers at the customer's expense.
incurred
Product Safety and Liability
We have rigorous product safety standards and continually
work to improve the safety and reliability of our products.
We monitor for accidents and possible claims and establish
liability estimates based on internal evaluations of the merits
of individual claims. We purchase insurance coverage for
catastrophic product liability claims for incidents that exceed
our self-insured retention levels.
Patents and Trademarks
We own patents, trademarks, and trade secrets related to our
products in the U.S. and certain countries outside the U.S. in
which we conduct business. We expect to apply for future
patents and trademarks, as appropriate, in connection with the
development of innovative new products, services, and
enhancements. Although we believe that, in the aggregate,
our patents are valuable, and patent protection is beneficial to
our business and competitive positioning, our patent
protection will not necessarily deter or prevent competitors
from attempting to develop similar products. We are not
materially dependent on any one or more of our patents;
however, certain TTC trademarks that contribute to our
identity and the recognition of our products and services,
including but not limited to the Toro® name and logo, are an
integral part of our business.
We review certain patents issued by the U.S. Patent and
Trademark Office ("USPTO") and foreign patent offices to
help avoid potential liability with respect to others' patents.
Additionally, we periodically review competitors' products to
prevent possible infringement of our patents by others. We
believe these activities help us minimize our risk of being a
defendant in patent infringement litigation. From time to
time, we are involved in patent litigation cases, including
cases by or against competitors, where we are asserting or
defending against claims of patent infringement.
Similarly, we periodically monitor various
trademark
registers and the market to prevent infringement of and
damage to our trademarks by others. From time to time, we
are involved in trademark oppositions where we are asserting
our trademarks against third-parties who are attempting to
establish rights in trademarks that are confusingly similar to
ours. We believe these activities help minimize risk of harm
to our trademarks, and help maintain distinct products and
services that we believe are well regarded in the marketplace.
For a description of our material intellectual property legal
proceedings, refer to the headings titled "Litigation" and
"Litigation Settlement" within Note 12, Commitments and
Contingencies, of the Notes to Consolidated Financial
Statements included in Part II, Item 8, "Financial Statements
and Supplementary Data," of this Annual Report on Form 10-
K.
Seasonality
As a result of our global presence in key markets that are
subject to seasonal weather patterns, some of our businesses
are seasonal. Overall, our seasonal shipment volumes are
generally a function of the key selling seasons of our channel
partners based on their industry, geographic location, and the
nature and intended purpose of our products in relation to the
correlating season. Seasonal weather patterns can impact the
timing of the key selling seasons of our channel partners,
which may cause our quarterly financial results to differ
between fiscal years as demand for our products and related
shipment volumes can shift between quarters. Such shifts in
the demand for our products and related shipment volumes
may result in a negative or positive impact on our net sales
and Results of Operations for a particular period.
Our shipment volumes generally precede and overlap the key
selling seasons of our channel partners in order to better
allow our channel partners to align field inventory levels with
the anticipated retail demand from end-customers and as a
result, our shipment volumes have historically been the
highest in our fiscal second quarter and retail demand for our
products is generally highest in our fiscal third quarter.
Typically, our accounts receivable balances increase between
January and April as a result of higher shipment volumes and
10
extended payment terms made available to our customers.
Accounts receivable balances typically decrease between
May and December when payments are received. Our
financing requirements are subject to variations due to
seasonal changes in working capital levels, which typically
increase in the first half of our fiscal year and decrease in the
second half of our fiscal year. Seasonal cash requirements of
our business are financed from a combination of cash flows
from operations, cash on hand, and borrowings under our
revolving credit facility, as applicable.
Shipments of our Residential segment products, which
accounted for 25.5 percent of total consolidated net sales in
fiscal 2021, are seasonal, with shipments of lawn and garden
products occurring primarily between February and June,
depending upon seasonal weather conditions and demand for
our products. Shipments of snow thrower products occur
primarily between July and January, depending upon pre-
season demand, in-season snowfalls, and product availability.
Opposite seasons in global markets in which we sell our
Residential products somewhat moderate this seasonality of
our Residential segment product sales.
Seasonality of Professional segment product sales, which
accounted for 74.0 percent of total consolidated net sales in
fiscal 2021, also exists, but is slightly tempered because the
selling season in the Southern U.S. and our markets in the
Southern hemisphere generally continue for a longer portion
of the year than in Northern regions of the world. Our BOSS
and Ventrac brands offer a portfolio of counter-seasonal
snow and ice management products in our Professional
segment with our shipments of snow and ice management
products occurring primarily between April and December,
which can result
in variability of shipment volumes
depending upon pre-season demand, in-season snowfalls, and
product availability. Additionally, our rental, specialty, and
underground construction business is generally less seasonal
than certain of our Professional segment businesses primarily
due to the strong presence of certain of the underlying brands
in the Southern U.S. markets and the inherent nature of the
underground construction market being less impacted by
seasonal factors.
Effects of Weather
From time to time, seasonal weather conditions in particular
geographic regions or markets, particularly severe wet or dry
conditions, as well as significant weather events such as fires,
hurricanes, tornados, drought, rainfall, unseasonably warm
winter months, or other weather events, including those
exacerbated by global climate change, may adversely or
positively affect sales, demand, and field inventory levels of
some of our products. In addition, weather conditions in key
regions can cause disruption in our supply chain, which may
impact our ability to procure the commodities, components,
parts, and accessories needed to manufacture our products to
meet the needs of our customers, and such disruptions may
adversely or positively affect sales, demand, and field
inventory levels of some of our products.
Customers, Distribution, and Marketing
We market and sell the majority of our products through
more than 150 distributors worldwide, as well as a large
number of equipment dealers,
irrigation dealers and
distributors, mass retailers, hardware retailers, equipment
rental centers, home centers, and online (direct to end-users)
in more than 125 countries. Our distribution networks are
intended to assure quality of sales and market presence, as
well as to provide effective after-purchase service and
support. Overall, we believe that in the long-term we are not
dependent on any single customer. While the loss of any
substantial customer could have a material adverse short-term
impact on our business, we believe that our diverse
distribution channels and customer base should reduce the
long-term impact of any such loss.
Professional segment products are sold to distributors and
dealers primarily for resale to golf courses, sports fields,
industrial facilities, contractors, and government customers,
and in some markets for resale to dealers. We sell some
Professional segment products directly
to government
customers and municipalities and rental companies, as well
as to end-users in certain markets. Select irrigation and
lighting products are sold to professional irrigation and
lighting distributors and dealers, and certain professional-
grade retail irrigation products are sold to home centers.
Products
rental, specialty, and underground
the
rental
construction markets are sold
companies, as well as direct to end-users in certain markets.
Landscape contractor turf products are also sold to dealers in
certain regions of North America. Snow and ice management
products are primarily sold to distributors and dealers for
resale to contractors.
to dealers and
for
Residential segment products, such as walk power mowers,
zero-turn riding mowers, and snow throwers, are generally
sold to home centers, mass retailers, dealers, hardware
retailers, as well as online (direct to end-users). In certain
markets, these same products are sold to distributors for
resale to hardware retailers and dealers. Home solutions
products are primarily sold to home centers, mass retailers,
and hardware retailers. Internationally, Residential segment
products are sold to dealers and mass merchandisers in
Australia, Canada, and select countries in Europe. In most
other countries, Residential segment products are mainly sold
to distributors for resale to dealers and mass retailers.
On November 2, 2020, in the first quarter of fiscal 2021, we
completed the sale of our Northeastern U.S. distribution
company. During the remainder of fiscal 2021, we owned
one domestic distribution company. Our primary purpose in
owning a domestic distributorship is to improve operations
and test and deploy new strategies and business practices that
could be replicated by our independent distributors, as well
as facilitating ownership transfers.
Our current marketing strategy is to maintain distinct brands
and brand identification for Toro, Ditch Witch, eXmark,
BOSS, Ventrac, American Augers, Trencor, Pope, Subsite,
HammerHead, Radius, PERROT, Hayter, Unique Lighting
11
Systems, Irritrol, and Lawn-Boy products. Across our brands,
we market our Professional segment and Residential segment
products during the appropriate season through multiple
channels, including digital and online media, radio, print,
direct mail, email, television, and social media. Most of our
advertising and marketing efforts emphasize our brands,
trademarks.
products,
Advertising is purchased by us, through our agency partners,
as well as through cooperative programs with distributors,
dealers, and retailers.
and other valuable
features,
Customer Financing Arrangements
Wholesale Financing
We are party to a joint venture with TCF Inventory Finance,
Inc. ("TCFIF"), a subsidiary of The Huntington National
Bank, established as Red Iron Acceptance, LLC ("Red Iron").
The primary purpose of Red Iron is to provide inventory
financing to certain distributors and dealers of certain of our
products in the U.S.
Under separate agreements between Red Iron and the dealers
and distributors, Red Iron provides loans to the dealers and
distributors for the advances paid by Red Iron to us. Under
these financing arrangements, down payments are not
required, and depending on the finance program for each
product line, finance charges are incurred by us, shared
between us and the distributor and/or the dealer, or paid by
the distributor or dealer. Red Iron retains a security interest in
the distributors' and dealers' financed inventories and such
inventories are monitored regularly. Financing terms to the
distributors and dealers require payment as the equipment,
which secures the indebtedness, is sold to customers or when
payment otherwise becomes due under the agreements
between these financing entities and the distributors and
dealers, whichever occurs first. Rates are generally indexed
to LIBOR, or an alternative variable rate, plus a fixed
percentage that differs based on whether the financing is for a
distributor or dealer. Rates may also vary based on the
product that is financed.
Under a separate agreement, TCF Commercial Finance
Canada, Inc. ("TCFCFC") provides inventory financing to
dealers of certain of our products in Canada. We also have
floor plan financing agreements with other third-party
financial institutions to provide floor plan financing to certain
dealers and distributors not financed through Red Iron, which
include agreements with third-party financial institutions in
the U.S. and internationally. Additionally, we continue to
provide financing in the form of open account terms directly
to home centers and mass retailers, general line irrigation
dealers, certain domestic and international distributors and
dealers, ag-irrigation dealers and distributors, government
customers, and rental companies.
End-User Financing
We have agreements with third-party financing companies to
provide financing options to end-customers throughout the
world. The purpose of these agreements is to provide end-
12
users of our products alternative financing options when
purchasing our products.
Backlog of Orders
Our backlog of orders represents unfulfilled customer
purchase or sales orders on a particular day. The dollar value
of our backlog of orders is equal to the gross sales value that
we expect to bill to the customer and is not reduced for
expected variable consideration related to certain of our sales
promotions and incentives programs. Backlog is one of many
indicators of business conditions within the markets and
industries that we operate; however, our backlog of orders is
considered more representative of business conditions than
an indicator of our expectation of our future net sales because
the dollar value of our backlog of orders is a gross amount
that has not yet been reduced for the variable consideration
associated with certain of our sales promotions and incentives
programs and because backlog can fluctuate for a number of
reasons, including the seasonality of our business, product
mix, pricing actions, manufacturing and shipping schedules,
cancellation and rescheduling of orders by our customers,
and the timing of when orders are originally placed by
customers and when we are able to fulfill such orders.
to
the
inefficiencies due
We strive to balance timely order fulfillment to our
customers with the lead times required by our suppliers to
efficiently source commodities and component parts and
manage costs. However, during fiscal 2021, we experienced
unprecedented demand within our Professional and
Residential segment businesses that reduced field inventory
levels and drove an increase in purchase and sales orders that
outpaced our production capacity. Further, the pace at which
we were able to increase our production capacity was
hampered due to supply chain challenges, including the
inability to procure adequate volumes of certain commodities
and component parts inventories and COVID-19-related
continued
manufacturing
reconfiguration of certain of our manufacturing processes in
order to implement social distancing protocols within our
facilities. As a result, the approximate backlog of orders as of
October 31, 2021 and 2020 was $1,575.9 million and $370.9
million, respectively, an increase of $1,205.0 million. Barring
any significant and longer-term material supply chain
constraints, we expect that the majority of the existing
October 31, 2021 backlog of orders will be fulfilled during
fiscal 2022; however, it is possible that unanticipated effects
of COVID-19, continued global supply chain disruptions, or
other factors, such as customer issues, could cause further
delays in delivery, an inability to complete unfilled customer
orders, or even cancelled orders. For additional information
regarding the impact of COVID-19 on our business and
manufacturing operations, refer to the section titled "Impact
Item 7,
of COVID-19"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Annual Report
on Form 10-K.
included within Part
II,
Competition
Our global business operations result in us competing with
many U.S. and non-U.S. companies across our various
markets, industries, and product offerings. These competitors
and the degree of competition vary widely by industry,
product line, end market, geographic scope and/or geographic
location, including some competitors that have substantially
larger operations and financial resources than we do and
some
that have smaller operations offering various
capabilities to customers. We also experience a certain level
of competition among our own brands within certain
industries and end markets. Because of the diversity of our
product portfolios and industries, our businesses typically
have a different set of competitors in each geographic area
and end market in which they participate. Accordingly,
estimating the number of competitors or precise market share
is challenging; however, we believe that we are a principal
competitor in most of our industries and markets.
The principal competitive factors in our industries and
markets are product innovation; quality and reliability;
pricing and sales promotion and incentive programs; product
support and customer service; warranty; brand awareness;
reputation; distribution, shelf space, and product availability;
and financing options. We believe we offer total solutions
and full service packages with high quality products that have
the latest technology and design innovations. In addition, by
selling our products through a network of distributors,
dealers, mass retailers, hardware retailers, home centers, as
well as online (direct to end-users), users are offered
comprehensive service support during and after the warranty
period. We believe that we have a competitive advantage
because we manufacture a broad range of product lines, we
are committed to product innovation and customer service,
we have a strong history in, and focus on, the industries and
markets in which our business operates, and our distribution
channels position us well to compete in various markets.
Our Residential segment products generally face a higher
volume of competition than our Professional segment
products given the low barriers to entry resulting in numerous
other manufacturers selling products that compete directly
with our products. Internationally, our Residential segment
products face more competition because many foreign
competitors design, manufacture, market, and sell products in
their respective countries. We experience this competition
primarily in Europe. In addition, fluctuations in the value of
the U.S. dollar affect the price of our products in foreign
their competitiveness. We
markets,
provide pricing support to foreign customers, invoice in local
currency, and execute foreign currency derivative hedging
instruments, as appropriate,
in
international markets.
to remain competitive
impacting
thereby
Human Capital Resources and Management
We believe our commitment to our human capital resources
is key to our mission to deliver superior innovation and to
deliver superior customer care. During fiscal 2021, we
employed an average of 9,520 employees. The total number
13
of employees as of October 31, 2021 was 10,982. As of
October 31, 2021, approximately 13.3 percent of our
employees were represented by a union under a collective
bargaining agreement. From time to time, our collective
bargaining agreements expire and come up for renegotiation.
Our four collective bargaining agreements expire in March
2022, May 2022, October 2022, and October 2023. We
consider our employee relations to be good.
A highlight of our commitment to our employees is our
Sustainability Endures initiative, which includes "People" as
one of our three core "Pillars" that represent key areas of
focus for our company. Among the critical elements included
in the "People Pillar" are the following:
•
•
•
Focus on Safety: The safety of our employees is a
paramount value for us. We provide mandatory safety
trainings each month in our production facilities, which
are designed to focus on empowering our employees
with the knowledge and tools they need to make safe
choices and to mitigate risks. Supervisors also complete
safety management courses. In addition to traditional
training, we use safety scorecards, standardized signage,
and visual management throughout our facilities. Safety
best practices are also regularly featured in our employee
newsletters and town halls. In response to the COVID-19
pandemic, we implemented, and continue to adhere to,
certain
rigorous and meaningful safety measures
recommended by the U.S. Centers for Disease Control
and Prevention, World Health Organization, and federal,
state, local, and foreign authorities that we determined
were in the best interest of our employees, customers,
suppliers, and communities. These important safety
measures include the reconfiguration of manufacturing
processes and other workspaces to implement social
distancing protocols. For
information
regarding our COVID-19 employee safety measures,
refer to the section titled "Impact of COVID-19"
included within Part
Item 7, "Management's
Discussion and Analysis of Financial Condition and
Results of Operations," of this Annual Report on
Form 10-K.
Employee Engagement: We provide all employees with
the opportunity to share their opinions and feedback on
our culture through a culture survey that is generally
performed every two years, with pulse surveys that are
offered intermittently between culture surveys. Results
of the culture survey are measured and analyzed to
enhance the employee experience, promote employee
retention, drive change, and leverage the overall success
of our organization.
Talent Development: Our key talent philosophy is to
develop talent from within and supplement with external
hires. We provide all employees a wide range of
professional development experiences, both formal and
informal, at all stages in their careers. Our formal
tuition reimbursement, a diverse
offerings
leadership
programs,
learning
curriculum
training and
development experiences, vocational
include
of
additional
II,
that
robust
learning
intended
to ensure
external partnerships across the globe. One of our unique
leadership development programs is our Front-Line
("FLEX"), which
Leadership Excellence program
focuses on building the leadership capabilities of our
manufacturing supervisors globally, those with direct
oversight of the people building our products. FLEX is
designed to focus on helping our supervisors work
through obstacles and communication challenges in
order to enable the success of their teams. As a result of
COVID-19 and the implementation of rigorous and
to
meaningful employee safety measures
protect our employees, we transitioned many of our
professional development opportunities
to virtual
delivery options and expanded our offerings for on-
learning
demand
opportunities were still available to our employees who
were not required to by physically present at our
facilities and sites to perform their job responsibilities.
One such example of a virtual development program is
our Engaging Effectively program, which is offered to
leaders who are required to manage differently in a
remote and hybrid environment, yet still engage and
achieve high performance standards with their teams.
• Health and Wellness: The health and wellness of our
employees are critical to our success. We provide our
employees with access to a variety of innovative, flexible
and convenient health and wellness programs. Such
programs are designed to support employees' physical
and mental health by providing tools and resources to
help them improve or maintain their health status and
encourage engagement in healthy behaviors. During
fiscal 2021, we implemented an employee campaign in
support of COVID-19 vaccine efforts. This employee
campaign was designed to provide information about,
and support and encourage our employees to receive, a
COVID-19 vaccination. As part of this employee
campaign, we facilitated the offering of the vaccine to
our employees at certain of our facilities.
Diversity, Equity and Inclusion: We recognize that our
best performance comes when our teams are diverse, and
accordingly, diversity, equity and inclusion ("DEI") is
one of our core values. To promote diversity, equity and
inclusion in the workplace, we formed an employee DEI
committee with strategic pillars of focus that include
inclusive workspace, attracting and
nurturing an
maintaining a diverse workforce, and impacting the
communities and markets in which our employees live
and work. Initiatives developed by our employee DEI
committee include, but are not limited to, events to
celebrate heritage and awareness months, a new grant
program for advancing equitable communities, and the
inception of an employee resource group to support
women in the workforce.
Compensation and Benefits: We provide competitive
compensation and benefits in order to attract and retain
superior talent. In addition to salaries, our compensation
and benefits, which vary by country/region, can include
annual bonuses, stock-based compensation awards, a
•
•
•
of
outdoor
401(k) plan with employee matching opportunities,
healthcare and insurance benefits, health savings and
flexible spending accounts, paid time off, family leave,
family care resources, flexible work schedules, adoption
and surrogacy assistance, employee assistance programs,
tuition assistance and on-site services, such as health
centers and fitness centers, among many others.
Community Involvement: Our employees around the
world volunteer with local charitable organizations and
civic projects including supporting the beautification and
environments, water
preservation
conservation, community health and housing and youth
enrichment. We extend the impact of our employees’
efforts through matching gifts and the donation of
products and expertise, and by providing all full-time
salaried employees with the opportunity to volunteer up
to 20 hours of their time during the workday each year.
In addition, as part of our Land. Water. Thrive. effort, we
provide immersion experiences for our employees to
work with smallholder farmers in developing countries.
Our Land. Water. Thrive. Program is designed to
improve productivity and agricultural water practices
while also strengthening our employees’ empathy and
customer-focused approach to problem solving.
Environmental Matters and Other Governmental
Regulation
international,
Our business, operations, facilities, and products are subject
to numerous
federal, state, and other
governmental laws, rules, and regulations relating to, among
others, climate change; emissions to air, including Tier 4 or
similar engine emission regulations; discharges to water;
restrictions placed on water usage and water availability;
product and associated packaging; use of certain chemicals;
restricted substances, including "conflict minerals" disclosure
rules; import and export compliance, including country of
origin certification requirements; worker and product user
health and safety; energy efficiency; product life-cycles;
outdoor noise laws; and the generation, use, handling,
labeling, collection, management, storage, transportation,
treatment, and disposal of hazardous substances, wastes, and
other regulated materials. For example:
The U.S. EPA, the California Air Resources Board
("CARB"), and similar regulators in other U.S. states and
foreign jurisdictions in which we sell our products have
phased in, or are phasing in, emission regulations setting
maximum emission standards for certain equipment.
Specifically, these agencies from time to time adopt
increasingly stringent engine emission
regulations.
Following the EPA implementation of Tier 4 emission
requirements applicable to diesel engines several years
ago, China, the European Union ("EU") and related
countries, and the United Kingdom also have adopted
similar regulations, and similar emission regulations are
also being considered in other global markets, including
Australia, in which we sell our products. CARB
continues to propose and discuss implementation of Zero
that, when
Emissions
regulations
Equipment
•
14
•
•
in
(iii)
the Registration,
implemented, will phase
increasingly stringent
requirements on exhaust and other emissions from lawn
and garden equipment.
The U.S. federal government, several U.S. states, and
certain international jurisdictions in which we sell our
products, including the EU and each of its member
states, and related countries, have implemented one or
more of the following: product life-cycle laws, rules, or
regulations, which are intended to reduce waste and
environmental and human health impact, and require
manufacturers to label, collect, dispose, and recycle
certain products, including some of our products, at the
end of their useful life, including (i) the Waste Electrical
and Electronic Equipment directive, which mandates the
labeling, collection, and disposal of specified waste
electrical and electronic equipment; (ii) the Restriction
on the use of Hazardous Substances directive or similar
substance level laws, rules, or regulations, which restrict
the use of several specified hazardous materials in the
manufacture of specific types of electrical and electronic
equipment;
Evaluation,
Authorization and Restriction of Chemicals directive or
similar substance level laws, rules, or regulations that
require notification of use of certain chemicals, or ban or
restrict the use of certain chemicals; (iv) the Battery
Directive, which regulates the manufacture and disposal
of batteries; (v) country of origin laws, rules, or
regulations, which require certification of the geographic
origin of our finished goods products and/or components
used in our products through documentation and/or
physical markings, as applicable; (v) energy efficiency
laws, rules, or regulations, which are intended to reduce
the use and inefficiencies associated with energy and
natural resource consumption and require specified
efficiency ratings and capabilities for certain products;
(vi) outdoor noise laws, which are intended to reduce
noise emissions in the environment from outdoor
equipment; (vii) conflict minerals laws, such as the
Dodd-Frank Wall Street Reform and Consumer
Protection Act and the rules promulgated by the U.S.
Securities and Exchange Commission ("SEC"), which
require specific procedures for the determination and
disclosure of the use of certain minerals, known as
"conflict minerals," which are mined
the
Democratic Republic of the Congo and adjoining
countries; (viii) other product substance restriction laws,
some of which require certain labeling of products, such
as California Proposition 65; (ix) electromagnetic
compatibility laws and regulations, such as the EU
Electromagnetic Compatibility directive, and similar
laws and regulations in other markets; (x) wireless
product type approvals and licenses in global markets
and the EU Radio Equipment Directive and similar laws
and regulations related to wireless and radio usage; and
(xi) supply chain transparency laws and regulations
addressing modern slavery and human trafficking.
Our products may be subject to various federal, state,
and international laws, rules, and regulations that are
from
•
•
designed to protect users, including rules and regulations
of the U.S. Consumer Product Safety Commission.
Our vehicle and trailered products may be subject to
various federal, state and international laws, rules and
regulations related to vehicle safety and compliance with
road regulations and safety, including the U.S. National
Highway Transportation Safety Administration.
The manufacture and assembly of products within our
facilities must comply with environmental regulations
addressing air emissions, wastewater discharge, storm
water run-off, and hazardous waste disposal.
Compliance with existing laws, rules, and regulations has not
historically had a material impact on our capital expenditures,
earnings or global competitive position. With respect to
acquired properties and businesses, we conduct due diligence
regarding potential exposure to environmental liabilities but
cannot be certain that we have identified or will identify all
adverse environmental conditions. We are also involved in
the evaluation and environmental clean-up of a limited
number of properties currently and previously owned. We do
not expect that these matters will have a material adverse
effect on our Consolidated Financial Position or Results of
Operations.
Available Information
We are a U.S. public reporting company under the Exchange
Act, and file reports, proxy statements, and other information
with the SEC. Copies of these reports, proxy statements, and
other information can be accessed from the SEC's home page
on the Internet at www.sec.gov. We make available, free of
charge on our website www.thetorocompany.com (select the
"Investors" link and then the "Financials & Filings" link), our
Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, Proxy Statements
on Schedule 14A, Section 16 reports, amendments to those
reports, and other documents filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. We also provide
corporate governance and other information, including our
sustainability strategy, on our website. The information
contained on our website or connected to our website is not
incorporated by reference into, and should not be considered
part of, this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
The following are material risk factors known to us that
could materially adversely affect our business, reputation,
operating results, industry, financial position, or future
financial performance. The risks described below are not the
only risks we face. Additional risks not presently known to us
or that we currently deem immaterial may also impair our
business, reputation, operating results, industry, financial
position, or future financial performance.
15
Economic and Operational Risks
Our net sales and earnings have been and could continue to
be adversely affected by economic conditions and outlook in
the locations in which we conduct business.
Adverse economic conditions and outlook in the U.S. and in
other countries in which we conduct business, including as a
result of COVID-19, have and could continue to impact our
net sales and earnings. These adverse economic conditions
include, but are not limited to, business closures, slowdowns,
suspensions or delays of production and commercial activity;
recessionary conditions; slow or negative economic growth
rates; slowdowns or reductions in levels of interest in the
game of golf or golf course activity, development,
renovation, and improvement; golf course closures; reduced
governmental or municipal spending; reduced levels of home
ownership, construction, and sales; home foreclosures;
negative consumer confidence; reduced consumer spending
levels; increased or prolonged high unemployment rates;
higher costs, longer lead times, and reduced availability of
commodities, components, parts, and accessories, including
as a result of transportation-related costs, inflation, changing
prices, foreign currency fluctuations, tariffs, and/or duties;
inflationary or deflationary pressures; reduced infrastructure
spending; the impact of U.S. federal debt, state debt, and
sovereign debt defaults and austerity measures by certain
European
availability or
unfavorable credit terms for our distributors, dealers, and
end-user customers; higher short-term, mortgage, and other
interest rates; and general economic and political conditions
and expectations. In the past, some of these factors have
caused and may continue to cause our distributors, dealers,
and end-user customers to reduce spending and delay or
forego purchases of our products, which has had an adverse
effect on our net sales and earnings.
countries;
reduced
credit
COVID-19 materially adversely impacted portions of our
business, financial condition and operating results and
such impact will likely continue and could continue to be
material.
created
significant worldwide
COVID-19
volatility,
uncertainty and disruption and has materially adversely
impacted portions of our business and such adverse impact
will likely continue. However, the extent and duration of
such possible impacts will depend on numerous evolving
factors, including:
•
•
•
global governmental, business and individual actions that
have been, and continue to be, taken in response to
COVID-19;
the success of the deployment of approved COVID-19
vaccines, their effectiveness against the novel strain and
related variants, and their rate of adoption;
the effect of COVID-19 on our suppliers' and companies
throughout our
supply
commitments, requirements, and/or demands and our
ability to continue to obtain commodities, components,
parts, and accessories on a timely basis and at anticipated
costs;
to meet
supply
chain
•
•
•
•
•
•
•
•
•
•
•
•
the effect of COVID-19 on our dealers, distributors,
mass retailers, and other channel partners and customers,
including reduced or constrained budgets and cash
preservation efforts;
our ability to continue operations and/or adjust our
production schedules to maintain efficient manufacturing
operations and fulfill existing and future sales order
backlog;
significant reductions or volatility in demand for one or
more of our products or services;
increasing logistics costs and transportation challenges;
costs of necessary actions and preparedness plans we
have enacted and may enact in the future to help ensure
the health and safety of our employees and continued
operations;
availability of employees, their ability to continue to
conduct work under
revised work environment
protocols, the general willingness of employees to come
to normal working locations and perform work, as well
as our ability, and/or the ability of companies throughout
our supply chain, to adequately staff manufacturing and/
or other business processes in the event an employee, or
multiple employees, contract COVID-19 and must
remain away from work locations for an extended period
of time;
potential future restructuring,
charges;
our ability
estimates and assumptions used
Consolidated Financial Statements;
the continued impact of COVID-19 on the financial and
credit markets and economic activity generally;
our ability to access lending, capital markets, and other
sources of liquidity when needed on reasonable terms or
at all;
our ability to comply with the financial covenants in our
debt agreements if the material economic conditions
resulting from COVID-19 lead to substantially increased
indebtedness and/or lower adjusted EBITDA for us; and
the continued exacerbation of negative impacts of a
global or national recession, depression or other
sustained adverse market event as a result of COVID-19.
to establish and maintain appropriate
the
impairment or other
to prepare
In addition, the impacts from COVID-19 and efforts to
contain it have heightened the other risks described in this
Annual Report on Form 10-K.
If we are unable to continue to enhance existing products
and develop and market new products that respond to
customer needs and preferences and achieve market
acceptance, including by incorporating new, emerging, and/
or disruptive technologies that may become preferred by
our customers, demand for our products may decrease, and
our net sales, which have historically benefited from the
introduction of new products, may be adversely affected.
One of our strategies is to develop innovative, customer-
valued products to generate revenue growth. In the past, our
those
sales from new products, which we define as
introduced in the current and previous two fiscal years, have
16
represented a significant portion of our net sales and are
expected to continue to represent a significant portion of our
future net sales. We may not be able to compete as
effectively and ultimately satisfy the needs and preferences of
our customers, unless we can continue to enhance existing
products and develop new and innovative products, including
and/or disruptive
by
technologies that may become preferred by our customers.
incorporating new,
emerging,
or
new
products,
technologies
improvement, and
Product development,
introductions
require significant financial and technological resources,
talent, research, planning, design, development, engineering,
and testing at the technological, product, and manufacturing
process levels, and we may not be able to timely develop and
introduce
product
improvements. New and innovative competitive products
may beat our products to market; be higher quality or more
reliable; be more effective, have more features, and/or be less
expensive than our products; incorporate new, emerging, and/
or disruptive technologies; obtain better market acceptance;
or render our products obsolete. Any new products that we
develop may not receive market acceptance or otherwise
generate any meaningful net sales or profits for us relative to
our expectations based on, among other things, investments
in manufacturing capacity and commitments
to fund
advertising, sales incentive and promotion programs, and
research and development.
the availability of
Disruption and/or shortages
commodities, components, parts, or accessories used in our
products has, and could continue to, adversely affect our
business.
in
COVID-19, global supply chain disruptions, natural disasters,
antidumping and countervailing duty petitions regarding
certain engines imported into the U.S. from China, and other
tariffs has, to various and differing degrees, impacted the
availability of commodities, components, parts, and
accessories used in our products. In addition, while most of
the commodities, components, parts, or accessories used in
our products are generally commercially available from a
number of sources, certain items are sourced from single
suppliers, which has limited, and could continue to limit, the
availability of commodities, components, parts, and
accessories when such suppliers are unable to meet our
production requirements and we are unable to source such
items from an alternative supplier in a timely manner to meet
our production needs. Any continued or new disruption or
shortages in the availability of commodities, components,
parts, or accessories used in our products or sold as
standalone products, including as a result of labor staffing,
workforce shortage, or other challenges that our suppliers
may experience as a result of financial hardship and/or
COVID-19, pandemics and/or epidemics, natural disasters,
and adverse weather, the frequency and intensity of which
may be exacerbated by climate change, or other events, our
inability to timely or otherwise obtain substitutes for such
items, or any deterioration in our relationships with, the
financial viability or quality of, or the personnel relationships
at, our suppliers, could adversely affect our business and
operating results.
Weather conditions, including conditions exacerbated by
global climate change, have previously impacted, and may
continue to impact, demand for some of our products and/
or cause disruptions in our operations, including as a result
of disruption in our supply chain, which may adversely
affect our net sales or our operating results.
Weather conditions in a particular geographic region have
adversely impacted, and will likely in the future, adversely
affect sales, demand, and field inventory levels of some of
our products. Weather conditions also have disrupted our
own manufacturing and distribution facilities and our supply
chain, which has impacted our ability to manufacture product
to fulfill customer demand, and such disruptions may occur
in the future. For example, past drought or unusually wet
conditions have had an adverse effect on sales of certain
mowing equipment products. Unusually rainy weather or
severe drought conditions that result in watering bans, or
otherwise, have had an adverse effect on sales of our
irrigation products, and lower snowfall accumulations in key
markets have had an adverse effect on sales of our
Residential snow thrower products and products of our
Professional snow and ice management business. Similarly,
adverse weather conditions in one season may negatively
impact customer purchasing patterns and net sales for some
of our products in another season. For example, lower
snowfall accumulations may result in lower winter season
revenues for landscape contractor professionals, causing such
customers to forego or postpone spring purchases of our
mowing equipment products.
floods,
earthquakes,
Further, our facilities and other operations and those of our
distribution channel customers and suppliers have incurred
losses and experienced disruptions as a result of certain
weather conditions and such losses or disruption may
continue due to additional natural disasters, inclement
weather, and/or climate change-related events, such as
tornadoes, hurricanes,
tsunamis,
typhoons, drought, fire, other extreme weather conditions,
and other natural disasters and events that occur as a result of
such events, such as water or other natural resource
shortages, rising sea levels, power outages or shortages, or
telecommunications failures. Our insurance coverage with
respect to natural disasters and other disruptions is limited
and is subject to deductibles and coverage limits. Such
coverage may not be adequate, or may not continue to be
available at commercially reasonable rates and terms. The
occurrence of any such events could negatively impact our
business and operating results.
Global climate change may exacerbate the frequency and
intensity of unfavorable weather conditions, such as fires,
hurricanes, tornadoes, drought, water shortages, rainfall,
unseasonably warm winter months, or other weather events,
many of which have increased in severity in recent years, in
geographic areas where our products are manufactured,
distributed, sold, and used and where our supply chains our
17
located, and our sales and operating results may be affected
to a greater degree than we have previously experienced.
Such weather conditions could pose physical risks to our
facilities and critical infrastructure in the U.S. and abroad,
disrupt the operation of our supply chain and third-party
vendors, and may impact operational results. Additionally,
increased frequency and intensity of weather events due to
climate change could lead to lost sales as customers prioritize
basic needs.
Our Professional segment includes a variety of products
that depend on certain and varied factors.
Our Professional segment includes a variety of products that
are sold by distributors or dealers, or directly to government
customers, rental companies, construction companies, and
professional users engaged in maintaining and creating
properties and landscapes, such as golf courses, sports fields,
residential and commercial properties and landscapes, and
governmental and municipal properties. Any one or a
combination of the following factors, among others, many of
which have been and may continue to be adversely impacted
by COVID-19, could result in a decrease in spending and
demand for our products and have an adverse effect on our
Professional segment net sales:
•
•
•
•
•
•
•
•
•
reduced revenue for golf courses resulting from a
reduction in the level of interest in the game of golf and/
or a decrease in rounds played, memberships, and/or
food and beverage sales, as applicable;
reduced investment in golf course renovations and
improvements;
the level of new golf course development and golf course
closures;
reduced consumer and business spending on property
maintenance, such as lawn care and snow and ice
removal activities;
low or reduced levels of infrastructure improvements and
other construction activities;
decreased oil and gas construction activities;
a decline in acceptance of, and demand for, ag-irrigation
solutions for agricultural production;
availability of cash or credit on acceptable terms for our
customers to finance new product purchases; and
customer and/or government budgetary constraints
resulting in reduced spending for grounds maintenance
or construction equipment.
Our Residential segment net sales depend on consumers
buying our Residential segment products at dealers, mass
retailers, and home centers; the amount of product
placement at mass retailers and home centers; consumer
confidence and spending levels; changing buying patterns
of customers; and the impact of significant sales or
promotional events.
The elimination, reduction, or changes in the placement of
shelf space assigned to our Residential segment products at
mass retailers and home centers, could adversely affect our
Residential segment net sales. Our Residential segment net
sales also depend upon the buying patterns of consumers and
increased. We believe
changes to buying patterns could result in reduced sales. For
example, as consumers purchase products at home centers
and mass retailers that typically offer broader and lower price
points than dealers, demand for and sales of our Residential
segment products purchased at mass retailers and home
centers have
that our diverse
distribution channels and customer base should reduce the
long-term impact on us if we were to lose any substantial
customer, but the loss of any such customer, a significant
reduction in sales to such customers, our inability to maintain
adequate product placement at mass retailers and home
centers or our inability to respond to future changes in buying
patterns of consumers or new distribution channels could
have a material adverse impact on our business and operating
results. Furthermore, our quarterly or annual results can be
impacted as a result of the timing of significant sales or
promotional events for our Residential products.
Changes in our product mix between reportable segments
and/or within a reportable segment could adversely impact
our financial performance, including profit margins and
net earnings.
Our Professional segment products generally have higher
profit margins than our Residential segment products.
Accordingly, our financial performance, including our profit
margins and net earnings, have been and will continue to be
impacted depending on the mix of products we sell during a
given period. For example, if we experience lower sales of
our Professional segment products that generally carry higher
profit margins than our Residential segment products, our
financial performance, including profit margins and net
earnings, have been and could continue to be negatively
impacted. Similarly, within each reportable segment, if we
experience lower sales of products that generally carry higher
profit margins, our financial performance, including profit
margins and net earnings, have been and could continue to be
negatively impacted.
We face intense competition in all of our product lines with
numerous manufacturers and we may fail to compete
effectively against competitors' actions, which could harm
our business and operating results.
Our products are sold
in highly competitive markets
throughout the world and as a result, we compete with many
U.S. and non-U.S. companies across our various markets,
industries, and product offerings. These competitors and the
degree of competition vary widely by industry, product line,
end market, geographic scope and/or geographic location.
The principal competitive factors in our industries and
markets include product innovation; quality and reliability;
pricing and sales promotion and incentive programs; product
support and customer service; warranty; brand awareness;
reputation; distribution, shelf space, and product placement
and availability; and financing options. Some of our
competitors have substantially larger operations and greater
financial resources than us, and some have smaller operations
offering various and/or more specialized capabilities to
customers, and they may be able to adapt more quickly to
18
new or emerging technologies and changes in customer
preferences, or devote greater or more specialized resources
to the development, promotion, and sale of their products or
disruptive new products or technologies than we can. In
addition, competition could increase if new companies enter
the market, existing competitors combine or consolidate their
operations or if existing competitors expand their product
lines or intensify efforts within existing product lines. Our
current products, products
technologies under
development, and our ability to develop new and improved
products and technologies may be insufficient to enable us to
compete effectively with our competitors.
and
if our price increases are not accepted by our customers and
the market, our net sales, profit margins, earnings, and
market share could be adversely affected.
Any inability to cost-effectively expand existing facilities,
open and manage new or acquired facilities, move
production between manufacturing facilities, and/or any
disruption at or near any of our facilities or other
operations, or those of our suppliers, distribution channel
customers, mass retailers, or home centers where our
products are sold has and could continue to adversely affect
our business and operating results.
Our Residential segment products generally face a higher
volume of competition than our Professional segment
products given the low barriers to entry resulting in numerous
other manufacturers selling products that compete directly
with our products. Internationally, our Residential segment
products typically face more competition because many
foreign competitors design, manufacture, market, and sell
products
In addition,
fluctuations in the value of the U.S. dollar may affect the
price of our products in foreign markets, thereby impacting
their competitiveness. Competitors may move manufacturing
operations to low cost countries for significant cost and price
reductions, and we may not be able to compete, which could
harm our business and operating results.
respective countries.
their
in
Increases in the cost of commodities, components, parts,
and accessories that we purchase and/or increases in our
other costs of doing business, have, and could continue to,
adversely affect our profit margins and businesses.
We purchase commodities, components, parts, and
accessories for use in our manufacturing process and end-
products or to be sold as stand-alone end-products, such as
steel, aluminum, petroleum and natural gas-based resins,
linerboard, copper, lead, rubber, engines, transmissions,
transaxles, hydraulics, electrification components, and other
commodities, components, parts and accessories. Increased
costs, including as a result of COVID-19 and/or inflation,
increased tariff, duties, or other charges as a result of changes
to U.S. or international trade policies or trade agreements,
trade regulation and/or industry activity, or antidumping and
countervailing duty petitions on certain products imported
from foreign countries, including certain engines imported
into the U.S. from China, or the inability of suppliers to
continue operations or otherwise remain in business, have
affected our profit margins, operating results and businesses
and could continue to result in declines in our profit margins,
operating results and businesses. Historically, we have
mitigated commodity, component, parts, or accessories cost
increases, in part, by increasing prices on some of our
products and executing on our strategic productivity
initiatives, which include, but are not limited to, collaborating
with suppliers, reviewing alternative sourcing options,
substituting materials, utilizing Lean methods, and engaging
in internal cost reduction efforts, all as appropriate. However,
we may not be able to fully offset increased commodity,
component, parts, or accessories costs in the future. Further,
the ability
Production downtime and/or the inability to produce products
at our facilities or other disruptions have occurred and could
continue to occur as a result of supply chain challenges,
including
to procure adequate supplies of
commodities, components, parts, and accessories to meet our
production requirements and decreases
in work force
availability at our locations or those in our supply chains;
natural disasters; inclement weather; man-made disasters or
other external events, such as terrorist acts or acts of war,
pandemics and/or epidemics, including COVID-19, boycotts
and sanctions, widespread criminal activities, or protests and/
or social unrest, or other events, at or in proximity to any of
our facilities or in our manufacturing or other operations, or
those of our distribution channel customers, mass retailers or
home centers where our products are sold, or suppliers. A
work slowdown, strike, or similar action could occur at any
one of our facilities, or the facilities of our distribution
channel customers and suppliers, and such facilities could fail
to renew or enter into new collective bargaining agreements
or may have to enter into a new collective bargaining
agreement at a facility not currently covered by an
agreement. Furthermore, we plan to shift production between
our manufacturing facilities from time to time and open new
to align
manufacturing and/or distribution
production capacity with production goals. Such events and
disruptions could make
to
manufacture or to deliver products to our customers, produce
or maintain sufficient inventory of our products, receive
commodities, components, parts or accessories from our
suppliers, or perform critical functions, which could
adversely affect our business globally or in certain regions.
Such events also may result in shortages of commodities,
components, parts, or accessories; higher fuel, transportation,
and commodity costs; and delays in shipments to our
distribution channel customers.
it difficult or
impossible
facilities
Any failure by us, or our suppliers or distribution channel
partners, to hire and/or retain a labor force to adequately
staff manufacturing operations, perform service or
warranty work, or other necessary activities or allow
employees to adequately and safely perform their jobs,
could adversely affect our business, operating results, and
reputation.
Our labor needs, and those of our suppliers and distribution
channel partners, fluctuate throughout the year and by region.
During periods of peak manufacturing activity it is often
19
necessary to sharply increase the number of production staff
by utilizing new hires and temporary labor. Production staff
hired during such periods of peak manufacturing activity may
not have the same level of training, competency, experience,
or commitment as regular production employees. In addition,
due to limited workforce populations in areas around the
locations where we, or our suppliers and distribution channel
partners, manufacture products or conduct business, or other
factors, we, or our suppliers and distribution channel
partners, may not have a sufficient pool of individuals with
the right skills and experience available to fulfill labor
requirements on a cost-effective basis or otherwise.
the challenges
Our labor needs and those of our suppliers and distribution
channel partners have been negatively
impacted by
in
COVID-19, which has exacerbated
retaining and maintaining an adequate production staff,
including as a result of global governmental, business and
individual actions that have been, and continue to be, taken in
response to COVID-19, and such impacts are expected to
continue. Furthermore, we have incurred additional costs as a
result of necessary actions and preparedness plans to help
ensure the health and safety of our employees and continued
including enhanced cleaning processes and
operations,
protocols designed
social
distancing practices. If we, or our suppliers and distribution
channel partners, continue to be unable to hire, train, and/or
retain a labor force to adequately staff manufacturing
operations, perform service or warranty work, or other
necessary activities, and adhere to protocols established to
create a safe workplace, or we incur additional costs to help
ensure the health and safety of our employees and operations,
in our
we could continue
manufacturing and other processes, which have and could
continue to adversely impact our business, operating results
and reputation.
to experience disruptions
implement appropriate
to
If we underestimate or overestimate demand for our
products and do not maintain appropriate inventory levels,
our net sales and/or working capital could be negatively
impacted.
levels
inventory
Our ability to manage our inventory levels to meet our
customers' demand for our products and fulfill existing and
future sales order backlog is important for our business. Our
production levels and inventory management goals for our
products are based on estimates of demand for our products,
taking into account production capacity, timing of shipments,
existing sales order backlog, and field inventory levels.
the current COVID-19
Managing
commercial environment is particularly difficult as a result of
demand volatility; changes
to production operations,
locations and schedule; and supply chain challenges limiting
our ability to source an adequate supply of commodities,
components, parts, and accessories to meet our production
requirements. These factors have resulted manufacturing
inefficiencies
related unfavorable manufacturing
variances that have negatively impacted our financial results.
continue, we
If
underestimate or overestimate both channel and retail
such manufacturing
inefficiencies
and
in
demand for our products, are not able to manufacture product
to fulfill customer demand and existing and future sales order
backlog, and/or do not produce or maintain appropriate
inventory levels, our net sales, margins, net earnings, and/or
working capital could be negatively impacted. Furthermore,
such impacts hinder our ability to meet customer demand,
result in the loss of customers, and could cause us to incur
charges associated with inventory valuation adjustments for
excess and obsolete inventories.
Our business and operating results are subject to the
inventory management decisions of our distribution
channel customers.
We are subject to risks relating to the inventory management
decisions and operational and sourcing practices of our
distribution network. Our distribution channel customers
carry inventories of our products as part of their ongoing
operations and adjust those inventories based on their
assessments of future needs, including anticipated end-
customer demand. Such adjustments have impacted our
inventory management and working capital goals as well as
operating results, and such adjustments may impact us in the
future.
Changes in composition of, financial viability of, and the
relationships with, our distribution channel customers
could negatively impact our business and operating results.
If we fail to maintain an effective network of distribution
channel partners,
including distributors, dealers, mass
retailers, and home centers, for our products, we may not
have adequate market coverage for the optimal level of sales
of our products. Additionally, our distribution channel
customers may not commit the necessary resources to market
and sell our products as we would expect, and/or they may
not be successful in marketing and ultimately selling our
products. Any weak demand for, or quality issues with, our
products may cause our distribution channel customers to
reduce or terminate their relationships with us or adversely
affect our ability to engage new dealers and distributors or
maintain or obtain shelf space at mass retailers and home
centers. Changes in the ownership or control of our
distribution channel customers could also adversely affect
our relationships with them. If we are not able to maintain
effective distribution channels, if our distribution channel
customers are not successful in marketing and selling our
products, or if we experience a significant reduction or
cancellation or change in the size and timing of orders from
our distribution channel customers, our sales could decline
and have an adverse effect on our business and operating
results.
In addition, if adverse economic conditions continue or
business conditions worsen or other events cause a decline in
sales by our distribution channel customers or weakens their
financial condition, our net sales and earnings could be
adversely affected. Such situation could adversely affect the
ability of such customers to pay amounts owed, which could
require us to repurchase financed product.
20
Any material change in the availability or terms of credit
offered to our customers by our floor plan arrangements,
challenges or delays in transferring new distributors and
dealers from any business we might acquire or otherwise to
available
termination or
disruption of our floor plan arrangements, or any delay in
securing replacement credit sources could adversely affect
our net sales and operating results.
floor plan platforms, any
We are a party to various floor plan arrangements in order to
provide reliable, competitive floor plan financing to certain
of our distributors and dealers primarily in the U.S. and
Canada to support their businesses and improve our working
capital for our other strategic purposes. As a result, we
depend on such arrangements for our inventory financing
programs. The availability of financing from our floor plan
arrangements is affected by many factors, including, among
others, the overall credit markets, the credit worthiness of our
dealers and distributors, and regulations that may affect such
financing providers. Any material change in the availability
or terms of credit offered to our customers by our floor plan
financing providers, challenges or delays in transferring new
distributors and dealers from any business we might acquire
or otherwise to our available financing platforms, any
termination or disruption of our floor plan arrangements, or
any delay in securing replacement credit sources could
adversely affect our sales and operating results.
If our information systems, software, or information
security practices or those of our business partners or third-
party service providers fail to adequately perform and/or
protect sensitive or confidential information, or if we, our
service providers
business partners, or
experience an interruption in the operation of such systems,
software, or practices, our business, reputation, financial
condition, and operating results could be adversely affected.
third-party
We have many information systems and other software that
are critical to our business and certain of our products, some
of which are managed by third-parties. These information
systems and software are used to record, process, summarize,
transmit, and store electronic information, and to manage or
support a variety of business processes and activities,
including, among other things, our accounting and financial
functions; our manufacturing and supply chain processes;
managing personal data or other data relating to our
customers, suppliers, and employees; and the data related to
our research and development efforts. We may be unable to
enhance our existing information systems and software or
implement new information systems or software when
necessary; may
delays,
complications, or expenses in implementing, integrating, and
operating
substantial
expenditures or interruptions in operations in connection with
any system changes we might pursue, including as may be
necessary during the integration of acquisitions. The failure
of our information systems or software or those of our
business partners or third-party service providers to perform
properly, or difficulties encountered in the development of or
transfer over to new systems or the modification or upgrade
unanticipated
experience
systems;
require
and/or
our
of existing systems, could disrupt our business and harm our
reputation, which may result in decreased sales, increased
overhead costs, excess or obsolete inventory, and product
shortages, causing our business,
financial
condition, and operating results to suffer.
reputation,
Additionally, we take steps to secure our information systems
and software and any access provided by our business
partners or third-party service providers, including our
computer systems, intranet and internet sites, email and other
telecommunications and data networks. However,
the
security measures we have implemented may not be effective
and our systems may be vulnerable to theft, loss, damage,
and interruption from a number of potential sources and
events, including unauthorized access or security breaches,
data privacy breaches, natural or man-made disasters, cyber
attacks, computer viruses, malware, phishing, denial of
service attacks, power loss, or other disruptive events.
Information technology security threats have been increasing
in frequency and sophistication. Cyber attacks may be
random, coordinated, or targeted, including sophisticated
computer crime threats. These threats pose a risk to the
security of our systems and networks including those that
may be used by our products, and those of our business
partners and third-party service providers, and to the
confidentiality, availability, and integrity of our data or data
of our customers, suppliers or employees. Our business,
reputation, operating results, and financial condition could be
adversely affected if a significant cyber event or other event,
disrupts or shuts down our operations; our confidential,
proprietary information or data of our customers, suppliers,
or employees is stolen or disclosed; our intranet and internet
sites are compromised; data is manipulated or destroyed; we
incur costs, are required to pay fines or face other regulatory
enforcement actions, or our customers lose confidence in our
ability to adequately protect their information in connection
with stolen or disclosed customer, employee, or other
confidential or sensitive information; we must dedicate
significant resources to system repairs or increase cyber
security protection; or we otherwise
incur significant
litigation or other costs. As we continue to develop internet-
connected products and other new, emerging, and/or
disruptive technologies, similar risks may also be present in
the systems, technology, and software installed within such
products.
A portion of our consolidated net sales is generated outside
of the U.S., and we intend to continue to look for
opportunities to expand our international operations. Our
international operations require significant management
attention and financial resources, expose us to difficulties
presented by
legal,
regulatory, accounting, and business factors, and may not
be successful or produce desired levels of net sales.
international economic, political,
International markets have been, and will continue to be, a
strategic focus area for revenue growth, both organically and
through acquisitions. We currently manufacture our products
and maintain sales offices in the U.S. and other countries for
sale throughout the world. Our net sales outside the U.S.
21
time, we
were 20.9 percent, 20.1 percent, and 23.1 percent of our total
consolidated net sales for fiscal 2021, 2020, and 2019,
respectively. We believe many opportunities exist in the
international markets, and over
intend for
international net sales to comprise a larger percentage of our
total consolidated net sales; however, expanding our existing
into additional
international operations and entering
international markets
requires significant management
attention and financial resources. Several factors, including
the implications of withdrawal by the U.S. from, or revisions
to, international trade agreements, foreign trade or other
policy changes between the U.S. and other countries,
weakened international economic conditions or the impact of
sovereign debt defaults by certain European countries, could
adversely affect our international net sales.
Many of the countries in which we manufacture or sell our
products, or in which we otherwise have a presence are, to
some degree, subject to political, economic, and/or social
instability, which has been heightened as a result of
COVID-19. As a result, our international operations expose
us and our representatives, agents, and distribution channel
customers
foreign
inherent
jurisdictions. These risks include:
in operating
risks
in
to
•
•
•
•
•
•
•
•
•
•
•
•
foreign
foreign agents,
imposition of additional U.S. and
weakened economic conditions;
pandemics and/or epidemics, including COVID-19;
increased costs of customizing products for foreign
countries;
difficulties
international
in managing and staffing
operations and increases in infrastructure costs including
legal, tax, accounting, and information technology;
the
governmental controls or regulations;
new or enhanced trade restrictions and restrictions on the
activities of
representatives, and
distribution channel customers;
withdrawal from or revisions to international trade
policies or agreements and the imposition or increases in
import and export licensing and other compliance
requirements, customs duties and tariffs, import and
export quotas and other
license
obligations, other non-tariff barriers to trade;
the imposition of U.S. and/or international sanctions
against a country, company, person, or entity with whom
we do business that would restrict or prohibit our
business with the sanctioned country, company, person,
or entity;
international pricing pressures;
foreign trade or other policy changes between the U.S.
and other countries, trade regulation, and/or industry
activity
including
that favors domestic companies,
antidumping and countervailing duty petitions on certain
products imported from foreign countries, including
certain engines imported into the U.S. from China;
adverse currency exchange rate fluctuations;
longer payment cycles and difficulties in enforcing
agreements and collecting receivables through certain
foreign legal systems;
trade restrictions,
•
•
•
•
•
tax
and
rates
adverse
potentially higher
tax
consequences, including restrictions on repatriating cash
and/or earnings to the U.S.;
fluctuations in our operating performance based on our
geographic mix of sales;
transportation delays and interruptions;
national and international conflicts, including foreign
policy changes, acts of war or terrorist acts;
difficulties
intellectual property rights; and
in protecting, enforcing or defending
• multiple, changing, and often inconsistent enforcement
of laws, rules, regulations and standards, including rules
relating to taxes, environmental, health and safety
matters.
Our international operations may not produce desired levels
of net sales or, among other things, the factors listed above
may harm our business and operating results. Any material
decrease in our international sales or profitability could also
adversely impact our operating results.
We are
renovating and expanding certain office,
manufacturing, and other facilities and could experience
disruptions to our operations in connection with such
efforts.
We are continually renovating and, where appropriate or
necessary, expanding our facilities, primarily driven by the
growth of our business and the need to expand our
manufacturing capacity. We have historically financed, and
expect to continue to finance, such efforts with cash on hand
and cash from operating activities. Expanding and renovating
our facilities could disrupt our business operations, and such
effects could include but are not limited to potential
interruption in manufacturing processes, delivery of raw
materials, shipping finished goods, and data flow; unforeseen
construction, scheduling, engineering, environmental, or
geological problems; and unanticipated cost increases.
Strategic Risks
Future acquisitions and alliances, strong customer
investments, and
relations, and new
partnerships could be risky and may harm our business,
reputation, financial condition, and operating results.
joint ventures,
One of our strategies is to drive growth in our businesses and
expand our global presence through targeted acquisitions and
alliances, strong customer relations, and new joint ventures,
investments, and partnerships that add value and complement
our existing brands and product portfolio. For example, on
April 1, 2019 and March 2, 2020, we completed the CMW
and Venture Products acquisitions, respectively. The CMW
acquisition is the largest acquisition in our history and the
Venture Products acquisition is among one of the largest
acquisitions in our history.
Our continued ability to grow through acquisitions will
depend, in part, on the availability of suitable target
candidates at acceptable prices, terms, and conditions; our
ability to compete effectively for acquisition candidates; and
the availability of capital and personnel resources to complete
22
such acquisitions and operate and integrate the acquired
business effectively. Any acquisition, alliance, joint venture,
impair our business,
investment, or partnership could
financial condition, reputation, and operating results. For
instance, the benefits of an acquisition, or new alliance, joint
venture, investment, or partnership may take more time than
expected to achieve, or may not develop at all. Acquisitions,
alliances, joint ventures, investments, and partnerships may
involve a number of risks, the occurrence of which could
adversely affect our business, reputation, financial condition,
and operating results, including:
•
•
•
•
•
•
•
•
•
•
•
in
to successfully
the competitive
relationships with
intangible assets, and/or
integrate or develop a
diversion of management's attention to manage and
integrate the acquired business;
disruption to our existing operations and plans;
inability to effectively manage our expanded operations;
difficulties, delays, or unanticipated costs, which may be
exacerbated by the impact of COVID-19, in integrating
and assimilating information and financial systems,
internal controls, operations, manufacturing processes
and products or in realizing projected efficiencies,
growth prospects, cost savings, and other synergies;
inability
distribution channel for acquired product lines;
loss of key employees, customers, distributors, or dealers
of the acquired businesses or adverse effects on existing
business
suppliers, customers,
distributors, and dealers;
write-off of significant amounts of goodwill, other
indefinite-lived
long-lived
assets because of deterioration in the performance of an
acquired business or product line, adverse market
landscape,
conditions, changes
changes in laws or regulations that restrict activities of
an acquired business or product
line, or other
circumstances;
delays or challenges in transitioning distributors and
dealers of acquired businesses to available floor plan
financing arrangements;
violation of confidentiality, intellectual property, and
non-compete obligations or agreements by employees of
an acquired business or lack of or inadequate formal
intellectual property protection mechanisms in place at
an acquired business;
adverse impact on overall profitability if our expanded
operations do not achieve, or are delayed in achieving,
the growth prospects, net sales, net earnings, cost and/or
revenue synergies, or other financial results projected in
our valuation models;
reallocation of amounts of capital from other operating
initiatives and/or an increase in our leverage and debt
service requirements to pay acquisition purchase prices
or other business venture investment costs, which could
restrict our ability to access additional capital when
needed, result in a decrease in our credit rating, or limit
our ability to pursue other important elements of our
business strategy;
•
•
•
•
failure by acquired businesses or other business ventures
to comply with applicable international, federal, and
state product safety or other regulatory standards;
infringement by acquired businesses or other business
ventures of valid intellectual property rights of others;
inaccurate assessment of additional post-acquisition or
business venture investments, undisclosed, contingent or
other
liabilities or problems, unanticipated costs
associated with an acquisition or other business venture,
and despite the existence of representations, warranties
and indemnities in any definitive agreement and/or a
representation and warranty
if
applicable, an inability to recover or manage such
liabilities and costs; and
impacts as a result of purchase accounting adjustments,
incorrect estimates made
for
acquisitions, occurrence of non-recurring charges, or
other potential financial accounting or reporting impacts.
insurance policy,
the accounting
in
In addition, we need effective internal controls to provide
reliable and accurate financial reports and to effectively
prevent fraud. Integrating acquired businesses may make our
systems and controls more complex and difficult to manage.
We devote significant resources and time to comply with the
internal control over financial reporting requirements of the
Sarbanes-Oxley Act of 2002. However, we cannot be certain
that these measures will ensure that we design, implement,
and maintain adequate control over our financial processes
and reporting in the future, particularly in the context of
acquisitions of other businesses, regardless of whether such
acquired business was previously privately or publicly held.
Any difficulties in the assimilation of acquired businesses
into our internal control framework could harm our operating
results or cause us to fail to meet our financial reporting
obligations.
Also, some acquisitions may require the consent of the
lenders under our credit agreements. We cannot predict
whether such approvals would be forthcoming or the terms
on which the lenders would approve such acquisitions. These
risks, among others, could be heightened if we complete a
large acquisition or other business venture or multiple
transactions within a relatively short period of time.
Failure to successfully complete divestitures or other
restructuring activities could negatively affect our
operations.
From time to time, we may divest of all or a portion of
certain businesses and/or facilities, joint venture or minority
equity investment interests, subsidiaries, distributorships, or
product categories. Divestitures involve risk, including,
potential increased expense associated with the divestitures,
and potential issues with the acquirers, customers or suppliers
of the divested business, or products. Occasionally, we may
wind down certain business activities and/or facilities,
product
and/or perform other organizational
restructuring projects in an effort to reduce costs and
streamline operations. Such activities involve risks as they
may divert management's attention from our core businesses,
lines,
23
increase expenses on a short‑term basis and lead to potential
issues with employees, customers, or suppliers. If we do not
complete these activities in a timely manner, or do not realize
anticipated cost savings, synergies and efficiencies, business
disruption occurs during or following such activities, or we
incur unanticipated charges, this may negatively impact our
business, financial condition, operating results, and cash
flows.
Increased scrutiny from the public, investors, and others
regarding our environmental, social, and governance
("ESG") practices could impact our reputation.
and
leadership
sustainability,
for
resources,
We have a newly created executive officer position with
additional dedicated
responsibility
a
cross-functional/business
employee
sustainability
to further develop and
team
implement an enterprise-wide sustainability strategy. We also
have published a sustainability report and launched our
Sustainability Endures platform. Our sustainability reports
include our policies and practices on a variety of ESG
matters, including the value creation opportunities provided
by our products; diversity, equity, and inclusion; employee
health and safety; community giving; and human capital
management. These efforts may result in increased investor,
media, employee, and other stakeholder attention to such
initiatives, and such stakeholders may not be satisfied with
our ESG practices or initiatives. Additionally, organizations
that inform investors on ESG matters have developed rating
systems for evaluating companies on their approach to ESG.
Unfavorable ratings may lead to negative investor sentiment,
which could negatively impact our stock price. Any failure,
or perceived failure, to respond to ESG concerns could harm
our business and reputation.
Financial Risks
We may be required to incur impairment and other charges
resulting from the impairment of goodwill, indefinite-lived
intangible assets, or
in
connection with business
combinations and asset
acquisitions.
long-lived assets recorded
business
combinations,
We completed the CMW and Venture Products acquisitions
in April of fiscal 2019 and March of fiscal 2020,
respectively, and expect to continue to complete selected
business combinations and asset acquisitions in the future. In
connection with
applicable
accounting standards generally require the net tangible and
intangible assets of the acquired business to be recorded on
the balance sheet of the acquiring company at their fair
values as of the date of acquisition and any excess in the
purchase price paid by us over the fair value of net tangible
and intangible assets of any acquired business is recorded as
goodwill. Goodwill and indefinite-lived intangible assets are
not amortized, but are tested at least annually for impairment
or more frequently as events and circumstances dictate.
Goodwill is tested for impairment at the reporting unit level,
which is generally an operating segment or underlying
business component. Indefinite-lived intangible assets are
tested for impairment at the individual indefinite-lived
intangible asset or asset group level, as appropriate. Finite-
lived intangible assets other than goodwill considered long-
lived assets for impairment testing purposes, are tested for
impairment as events and circumstances dictate, and are
required to be amortized over their estimated useful lives and
this amortization expense may be significant to our ongoing
financial results.
If we determine that the anticipated future cash flows from
our reporting units, indefinite-lived intangible assets or asset
groups, or long-lived asset groups may be less than their
respective carrying values, our goodwill, indefinite-lived
intangible assets, and/or long-lived assets may be deemed to
be impaired. If this occurs, applicable accounting rules may
require us to write down the value of the goodwill, indefinite-
lived intangible assets, and/or long-lived assets on our
balance sheet to reflect the extent of any such impairment.
Any such write-down of goodwill, indefinite-lived intangible
assets, and/or
long-lived assets would generally be
recognized as a non-cash expense in our Consolidated
Statements of Earnings for the accounting period during
which any such write down occurs. As of October 31, 2021,
we had goodwill of $421.7 million, which is maintained in
various reporting units, including goodwill from the CMW
and Venture Products business combinations, and indefinite-
lived intangible assets of $190.6 million, which together
comprise 20.9 percent of our total assets as of October 31,
2021. Impairment charges, including such charges that could
arise as a result of COVID-19, could be significant and could
adversely affect our consolidated operating results and
financial condition.
Fluctuations in foreign currency exchange rates have
affected our operating results and could continue to result
in declines in our reported net sales and net earnings.
Because the functional currency of most of our foreign
operations is the applicable local currency, but our financial
reporting currency is the U.S. dollar, we are required to
translate the assets, liabilities, expenses, and revenues of our
foreign operations into U.S. dollars at the applicable
exchange rate in preparing our Consolidated Financial
Statements. Accordingly, we face foreign currency exchange
rate risk arising from transactions in the normal course of
business, such as sales and
to wholly owned
subsidiaries, sales to third-party customers, purchases from
suppliers, and bank lines of credit with creditors denominated
in foreign currencies.
loans
Foreign currency exchange rates have affected our net sales,
net earnings, and operating results and could continue to
result in declines in our reported net sales and net earnings.
Currency exchange rate fluctuations may also affect the
comparative prices between products we sell and products
our foreign competitors sell in the same market, which may
decrease demand for our products. Substantial exchange rate
fluctuations as a result of the strengthening of the U.S. dollar
or otherwise, may have an adverse effect on our operating
results, financial condition, and cash flows, as well as the
comparability of our Consolidated Financial Statements
24
between reporting periods. While we actively manage our
foreign currency market risk in the normal course of business
by entering into various derivative instruments to hedge
against such risk, these derivative instruments involve risks
and may not effectively limit our underlying exposure to
foreign currency exchange rate fluctuations or minimize our
net earnings and cash volatility associated with foreign
currency exchange rate changes. Further, the failure of one or
more counterparties to our foreign currency exchange rate
contracts to fulfill their obligations to us could adversely
affect our operating results.
We are subject
in our credit
to counterparty risk
arrangements and the terms of our credit arrangements and
the indentures governing our senior notes and debentures
could limit our ability to conduct our business, take
advantage of business opportunities and respond
to
changing business, market, and economic conditions.
Our credit arrangements, including our revolving credit
facility and term loan, and the indentures governing our
senior notes and debentures include a number of financial
and operating
restrictions. For example, our credit
arrangements contain financial covenants that, among other
things, require us to maintain a maximum leverage ratio. Our
credit arrangements and/or indentures also contain provisions
that restrict our ability, subject to specified exceptions, to,
among other things, create liens or other encumbrances on
in mergers or
our assets; dispose of assets; engage
consolidations; and pay dividends that are significantly
higher
those currently being paid, make other
distributions to our shareholders, or redeem shares of our
common stock. These provisions may limit our ability to
conduct our business,
take advantage of business
opportunities, and respond to changing business, market, and
economic conditions. They may also competitively
disadvantage us relative to other companies that may be
subject to fewer, if any, restrictions or may otherwise
adversely affect our business.
than
Potential important opportunities or transactions, such as
significant acquisitions, may require the consent of our
lenders, which consent may be withheld or granted subject to
conditions that may affect the attractiveness or viability of
the transaction. Additionally, market deterioration or other
factors could jeopardize the counterparty obligations of one
or more of the banks participating in our revolving credit
facility, which could have an adverse effect on our business if
we are not able to replace such revolving credit facility or
find other sources of liquidity on acceptable terms.
If we do not comply with the terms of our credit
arrangements and indentures, our credit arrangements
could be terminated and any amounts outstanding pursuant
to our credit arrangements and indentures could become
due and payable.
We cannot assure that we will be able to comply with all of
the terms of our credit arrangements and indentures,
particularly the financial covenants. Our ability to comply
with such terms depends on the success of our business and
25
our operating results, as well as various risks, uncertainties,
and events beyond our control. If we fail to comply with any
covenant required by our credit arrangements following any
applicable cure periods, the banks could terminate their
commitments unless we could negotiate a covenant waiver.
The banks could condition such waiver on terms that may be
unfavorable to us. In addition, any amounts outstanding
pursuant to our credit arrangements and indentures could
become due and payable if we were unable to obtain a
covenant waiver or
refinance our debt under such
arrangements.
A downgrade in our credit ratings could increase our cost
of funding and/or adversely affect our access to capital
markets or the availability of funding from a variety of
lenders.
Our credit ratings are important to our cost and availability of
capital. The major rating agencies routinely evaluate our
credit profile and assign credit ratings to us. This evaluation
is based on a number of factors, which include financial
strength, business and financial risk, transparency with rating
agencies, and timeliness of financial reporting. Further
leveraging our capital structure could result in a downgrade
to our credit ratings. For instance, if our credit rating falls
below investment grade and/or our leverage ratio rises above
1.50, the interest rate we currently pay on outstanding debt
under our revolving credit facility could increase. As such,
failure to maintain investment grade credit ratings could
adversely affect our cost of funding and our liquidity by
limiting the access to capital markets or the availability of
funding from a variety of lenders.
The expected phase out of LIBOR could impact the interest
rates paid on our variable rate indebtedness and cause our
interest expense to increase.
A portion of our borrowing capacity and outstanding
indebtedness bears interest at a variable rate based on
LIBOR. In July 2017, the United Kingdom's Financial
Conduct Authority, which regulates LIBOR, announced that
it intends to phase out LIBOR by the end of calendar 2021.
the
The U.S. Federal Reserve,
Alternative Reference Rates Committee,
steering
committee comprised of large U.S. financial institutions, is
considering replacing LIBOR with the Secured Overnight
Financing Rate ("SOFR"), a new index calculated based on
transactions in the market for short-term treasury securities.
in conjunction with
a
Our variable interest rate financing agreements include
language to determine a replacement rate for LIBOR, if
necessary. We are evaluating the potential impact of the
eventual replacement of the LIBOR benchmark interest rate,
however, we are not able to predict whether LIBOR will
cease to be available after calendar 2021, whether SOFR will
become a widely accepted benchmark in place of LIBOR, or
what the impact of such a possible transition to SOFR may be
on our operating results or financial condition.
Changes in accounting or tax standards and policies and/or
assumptions utilized in determining accounting or tax
estimates could adversely affect our financial statements,
including our operating results and financial condition.
In preparing the Consolidated Financial Statements in
conformity with U.S. generally accepted accounting
principles ("GAAP"), we must make decisions that impact
our operating results and/or financial condition, including
selecting the appropriate accounting and/or tax principles to
be applied and the assumptions on which to base accounting
and tax estimates. In reaching such decisions, we apply
judgments based on our understanding and analysis of the
relevant circumstances, historical experience, and actuarial
and other
specialist
valuations, all as appropriate. As a result, actual amounts
could differ
the
Consolidated Financial Statements are prepared.
independent external
those estimated at
third-party
from
time
the
the
In addition, various authoritative accounting or regulatory
entities, including the Financial Accounting Standards Board,
Public Company Accounting Oversight Board, and the SEC
may amend, expand, and/or eliminate
financial
accounting or reporting standards or tax positions that govern
the preparation of our Consolidated Financial Statements or
could reverse their previous interpretations or positions on
how various financial accounting and/or reporting standards
or tax positions should be applied. We disclose the impact of
accounting pronouncements that have been issued but not yet
adopted within our annual and quarterly reports on Form 10-
K and Form 10-Q, respectively. However, we do not provide
an assessment of proposed accounting pronouncements, as
such proposals are subject to change through the exposure
process and therefore, we cannot meaningfully assess their
effects on our Consolidated Financial Statements. Future
changes to accounting or tax standards could modify the
accounting or tax policies and procedures that we currently
use to prepare our Consolidated Financial Statements. Such
changes may be difficult to predict and implement and could
impact how we prepare and report our Consolidated Financial
Statements, Results of Operations, and Financial Condition.
For additional information regarding our accounting policies,
accounting pronouncements adopted, and accounting
pronouncements not yet adopted, refer to Part II, Item 7,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations," in the section entitled
"Critical Accounting Policies and Estimates" and Note 1,
Summary of Significant Accounting Policies and Related
Data, of the Notes to Consolidated Financial Statements
included in Part II, Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K.
Legal, Regulatory, and Compliance Risks
Our patents, trademarks, and contractual provisions may be
insufficient to protect our proprietary rights and intellectual
property from others who may sell similar products and our
products may infringe the valid proprietary rights of others.
relating
to protect our
to our products are protected
We hold patents and trademarks relating to various aspects of
our products and business and believe that proprietary
technical know-how is important to our business. The loss of
such intellectual property could have a material adverse
effect on our business and operating results. Proprietary
rights
from
unauthorized use by third-parties only to the extent that they
are covered by valid and enforceable patents or are
maintained in confidence as trade secrets. We cannot be
certain that we will be issued any patents from any pending
or future patent applications owned by or licensed to us, or
that the claims allowed under any issued patents will be
technology. Without
sufficiently broad
enforceable patent protection, we may be vulnerable to
competitors who attempt to copy our products or gain access
to our trade secrets and know-how. We also cannot be certain
that our products or technologies have not infringed or will
not infringe the valid proprietary rights of others. Others may
initiate litigation to challenge the validity of our patents,
allege that we infringe their patents, or use their resources to
design comparable products that do not infringe our patents.
Additionally, we may initiate proceedings to protect our
proprietary rights. Any litigation, whether initiated by us or
others, may cause us to incur substantial costs and possible
damages. If such litigation's outcome is unfavorable to us,
our business, operating results, and financial condition could
be adversely affected. We could also be forced to develop an
alternative that could be costly and time-consuming, or
acquire a license, which we might not be able to do on terms
favorable to us, or at all.
We rely on trade secrets and proprietary know-how that we
seek to protect, in part, by confidentiality agreements with
our employees, suppliers, consultants, and others. These
agreements may be breached, and we may not have adequate
remedies for any such breach. Even if these confidentiality
agreements are not breached, our trade secrets may otherwise
independently developed by
become known or be
competitors.
Our company, business, properties, and products are
subject to laws, rules, policies, and regulations, with which
compliance may require us to incur expenses, or modify our
products or operations, and non-compliance may result in
harm to our reputation and/or expose us to penalties.
We are subject to numerous international, federal, state,
municipal and other governmental laws, rules, policies,
regulations, and orders ("Laws") relating to, among other
things; climate change; emissions to air, including engine
emission requirements; discharges to water; restrictions
placed on water usage and water availability; product and
associated packaging; use of certain chemicals; restricted
substances, including "conflict minerals" disclosure rules;
import and export compliance, including country of origin
certification requirements; worker and product user health
and safety; energy efficiency; product life-cycles; outdoor
26
including, (i)
noise laws; the generation, use, handling, labeling, collection,
management, storage, transportation, treatment, and disposal
of hazardous substances, wastes, and other regulated
materials; and the registration of certain technologies with
various government agencies throughout the world and
operation of those technologies within the limits imposed by
those agencies, including but not limited to radio frequency,
broadband or other wireless technologies and technologies
within the airspace of commercial airplanes, such as
unmanned aerial systems. In addition, Laws may adversely
to address
affect our operating results,
COVID-19 or other health and safety
requirements,
(ii) taxation and tax policy changes, tax rate changes, new tax
laws, or revised tax law interpretations or guidance, which
individually or in combination may cause our effective tax
rate to increase or result in tax charges, (iii) changes to, or
adoption of new, healthcare
laws or regulations, or
(iv) changes to U.S. or international trade policies or
agreements, or trade regulation and/or industry activity,
including antidumping and countervailing duty petitions on
certain products imported from foreign countries, including
certain engines imported in the U.S. from China, that could
result in additional tariffs, duties or other charges on
commodities, components, parts or accessories that we
import and/or use in our products.
Although we believe that we are in substantial compliance
with currently applicable Laws, we are unable to predict the
ultimate impact of adopted or future Laws on our company,
business, properties, or products. Any of these Laws may
cause us to incur significant expenses to achieve or maintain
compliance, require us to modify our products, adversely
affect the price of, or demand for, some of our products or
manufacturing processes, and ultimately affect the way we
conduct our operations. Failure to comply with any of these
Laws could harm our reputation and/or lead to fines and
other penalties, including restrictions on the importation of
our products into, and the sale of our products in, one or
more jurisdictions. In addition, our competitors may adopt
strategies with respect to compliance with any such Laws that
differ significantly from ours. This may change customer
preferences and our markets in unanticipated ways which
may adversely affect market demand for our products and our
net sales and financial results. Other Laws impacting our
supply chain, such as the United Kingdom Modern Slavery
Act, or data privacy requirements, such as the EU's General
Data Protection Regulation, the California Consumer Privacy
Act, and other emerging domestic and global data privacy
and cybersecurity laws, may have similar consequences.
Climate change legislation, regulations, accords, mitigation
efforts, or other legislation may adversely impact our
operations and could impact the competitive landscape
within our markets and affect demand for our products.
We are currently subject to rules limiting exhaust and other
emissions and other climate-related rules and regulations in
certain jurisdictions where we operate. Concern over climate
change has resulted in, and could continue to result in, new
legal or regulatory requirements designed to reduce or
mitigate the effects of greenhouse gases. An example of such
legislation is California's AB 1346, which is expected to ban
the sale of new small off-road engines, such as those installed
in certain of our products, including leaf blowers and
lawnmowers, in the state of California beginning in 2024. We
may become subject to additional legislation, regulations, or
accords regarding climate change, and compliance with any
new rules could be difficult and costly as a result of increased
energy, environmental, and other costs and capital
expenditures to comply with any such legislation, regulation,
or accord or could otherwise decrease demand for our
products.
Due to uncertainty in the regulatory and legislative processes
and the negotiation and adoption of international climate
change accords, as well as the scope of such requirements
and initiatives, we cannot currently determine the effect any
such legislation, regulation, or accord may have on our
products and operations. Additionally, inconsistency of
regulations in the states and countries in which we operate
may affect the costs of compliance with such requirements. If
such laws or regulations are more stringent than current legal
or regulatory requirements, we may be subject to curtailment
or reduced access to resources or experience increased
compliance burdens and costs to meet the regulatory
obligations, which may adversely affect our business and
operating results.
legislation
Additionally, various other legislative proposals, if enacted,
could put us in a competitively advantaged or disadvantaged
position and affect customer demand for our products. For
example, any fiscal-stimulus or other
that
inordinately impacts the lawn and garden, outdoor power
equipment, or irrigation industries generally by promoting
the purchase of certain types of products that we sell, such as
through customer rebate or other incentive programs, could
impact us positively or negatively, depending on whether we
manufacture products that meet the specified legislative
criteria, including in areas such as fuel efficiency, alternative
energy or water usage. Such legislation may also cause
customers to perceive our product offerings to be more or
less attractive than our competitors' product offerings. We
cannot currently predict whether any such legislation will be
enacted, the specific terms and conditions of such legislation,
such legislation's impact on the competitive landscape within
our markets, or how, if at all, any such legislation might
ultimately affect customer demand for our products or our
operating results.
The costs of complying with the various environmental laws
related to our ownership and/or lease of real property, such
as clean-up costs and liabilities that may be associated with
certain hazardous waste disposal activities, could adversely
affect our financial condition and operating results.
Because we own and
real property, various
lease
environmental laws may impose liability on us for the costs
of cleaning up and responding to hazardous substances that
may have been released on our property, including releases
unknown to us. These environmental laws and regulations
27
could also require us to pay for environmental remediation
and response costs at third-party locations where we disposed
of or recycled hazardous substances. We are currently
involved in the evaluation and clean-up of a limited number
of properties we either currently or previously owned.
Although we do not expect that these current matters will
have a material adverse effect on our financial condition or
operating results, our future costs of complying with the
various environmental requirements, as they now exist or
may be altered in the future, could adversely affect our
financial condition and operating results.
We are subject to product quality issues, product liability
claims, and other litigation from time to time that could
adversely affect our business, reputation, operating results,
or financial condition.
The manufacture, sale, and use of our products expose us to
significant risks associated with product quality issues and
product liability claims and other litigation from time to time.
If a product liability claim or other claim or series of claims
is brought against us for liabilities exceeding our insurance
coverage, and it is ultimately determined that we are liable,
our business could suffer. While we believe that we
appropriately instruct our customers on the proper usage of
our products, we cannot ensure that they will implement our
instructions accurately or completely. If our products are
defective or used incorrectly by our customers, injury may
result and this could give rise to product quality issues and/or
product liability claims against us, which could result in
losses or damages or adversely affect our brand reputation
and the marketability of our products, which may negatively
impact our business and operating results.
Product defects can occur
through our own product
development, design, and manufacturing processes or
through our reliance on third-parties for certain component
design and manufacturing activities. Some of our products or
product improvements were developed relatively recently and
defects or risks that we have not yet identified, such as
unanticipated use of our products, may give rise to product
quality issues and/or product liability claims. Additionally,
we could experience a material design,
testing, or
manufacturing failure in our products, a quality system
failure, failures in our products and other challenges that are
associated with our inability to properly manage changes in
the suppliers and components that we use in our products,
insufficient
issues, or
testing procedures, other safety
heightened regulatory scrutiny that could warrant a recall of
some of our products. A recall of some of our products could
also result in increased product liability claims. Unforeseen
product quality and/or product liability problems in the
development and production of new and existing products
could also result in loss of market share, decreased demand,
reduced sales, rework costs, and higher warranty expense.
We are also subject to other litigation from time to time that
could adversely affect our business, reputation, operating
results or financial condition.
We operate in many different jurisdictions and we could be
adversely affected by violations of the U.S. Foreign Corrupt
Practices Act ("FCPA") and similar worldwide anti-
corruption laws.
The U.S. FCPA and similar worldwide anti-corruption laws
generally prohibit companies and their intermediaries from
making certain improper payments for the purpose of
obtaining or retaining business. The continued expansion of
our international operations could increase the risk of
violations of these laws. Significant violations of these laws,
or allegations of such violations, could harm our reputation,
disrupt our business, and result in significant fines and
penalties that could have a material adverse effect on our
operating results or financial condition.
General Risk Factors
We may not achieve our financial projections or other
business initiatives in the time periods that we anticipate, or
at all, which could have an adverse effect on our business,
operating results, and financial condition.
We generally provide financial projections such as our
expected revenue growth and net earnings per share. These
financial projections are based on management’s assumptions
and expectations at the time made. Failure to achieve our
financial projections could have an adverse effect on our
business, operating results, and financial condition.
We also set goals and objectives for the timing of certain
accomplishments, initiatives and milestones regarding our
business or operating results. Whether we achieve our goals
and objectives of such initiatives can vary due to a number of
factors, including the risk factors described in this Annual
Report on Form 10-K. As a result, there is no assurance that
we will succeed in achieving the goals and objectives of our
initiatives in the time periods that we anticipate, or ever. The
failure to achieve such goals and objectives in the time
periods that we anticipate, or at all, could have an adverse
effect on our business, operating results and financial
condition.
If we are unable to retain our executive officers or other
key employees, attract and retain other qualified employees,
or successfully implement executive officer, key employee
or other leadership or employee transitions, we may not be
able to meet strategic objectives and our business could
suffer.
Our ability to meet our strategic objectives and otherwise
profitably grow our business will depend to a significant
extent on the continued contributions of our leadership team
and our ability to identify, attract, engage, develop, and retain
other highly qualified employees worldwide. Competition for
these individuals is intense, and we may not succeed in
identifying, attracting, or retaining qualified employees.
Losing any of our executive officers or other key employees,
failure to identify, attract, or retain qualified leaders in the
future, ineffective executive officer or other employee
transitions, delays or the inability to hire necessary and
qualified office or production employees due to employment
28
conditions or otherwise, or any employee work slowdowns,
strikes, or similar actions could make it difficult for us to
conduct and manage our business and meet key objectives,
which could harm our business, financial condition, and
results of operations.
ITEM 2. PROPERTIES
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Our global business operations require the use of various facilities and other properties for manufacturing, distribution,
warehousing, engineering and product testing, sales and marketing, and other corporate activities. As of October 31, 2021, we
utilized manufacturing, distribution, warehouse, engineering, and office facilities totaling approximately 9.0 million square feet
of space worldwide. The extent to which we utilize our properties can vary by property and from period to period, including
manufacturing plant utilization, which typically varies during the year depending on the production cycle and the seasonality of
our business. We generally consider each of our current facilities to be in good operating condition, suitable for their respective
uses, and adequate for our current and future business needs as our business is presently conducted. However, we make ongoing
capital investments in our facilities, including expansion efforts when needed, and believe that our historical capital investments
in our manufacturing facilities have increased the production capacity of our operations and have enabled us to meet the needs
of our customers. We also believe that we would be able to obtain replacements for our leased premises at acceptable costs
should our existing leases not be renewed in a future period. From time to time, we may determine that certain of our properties
exceed our business requirements as we continue to optimize our global business operations and global footprint and such
properties may be exited, sold, or utilized in another manner.
Our significant facilities are listed below by location, ownership, and function as of October 31, 2021:
Location
United States:
El Cajon, California
Riverside, California
Sanford, Florida
Ankeny, Iowa
Sterling, Kentucky
Iron Mountain, Michigan
Bloomington, Minnesota
Brooklyn Center, Minnesota
Shakopee, Minnesota
Windom, Minnesota
St. Louis, Missouri
Beatrice, Nebraska
Orrville, Ohio
West Salem, Ohio
Perry, Oklahoma
El Paso, Texas
Weatherford, Texas
Baraboo, Wisconsin
Lake Mills, Wisconsin
Plymouth, Wisconsin
Tomah, Wisconsin
International Countries:
Beverley, Australia
Braeside, Australia
Oevel, Belgium
Xiamen City, China
Althengstett, Germany
Fiano Romano, Italy
Juarez, Mexico
Ploiesti, Romania
Reportable Segment
Facility Type/Use
Professional
Professional
Professional
Product manufacturing and test site
Product manufacturing and test facility
Product manufacturing
Professional & Residential
Distribution center
Professional
Professional
Other activities
Other activities
Product manufacturing
Product manufacturing
Corporate headquarters and test facility
Distribution facility
Professional & Residential
Component part manufacturing
Professional & Residential
Product manufacturing
Other activities
Distribution facility
Professional
Professional
Professional
Professional
Product manufacturing, test facility, and office
Product manufacturing and office
Product manufacturing and office
Product manufacturing, test facility, and office
Professional & Residential
Professional
Component part and product manufacturing and distribution center
Product manufacturing
Professional & Residential
Distribution center
Professional
Product manufacturing
Professional & Residential
Distribution center
Ownership
Owned/Leased
Owned/Leased
Leased
Leased
Leased
Owned/Leased
Owned/Leased
Leased
Owned
Owned/Leased
Leased
Owned/Leased
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Leased
Owned
Owned
Professional
Product manufacturing and distribution center
Owned/Leased
Professional
Product manufacturing
Professional & Residential
Distribution facility
Professional & Residential
Distribution center
Professional & Residential
Product and component part manufacturing
Professional
Professional
Product manufacturing
Product manufacturing
Professional & Residential
Product manufacturing
Professional
Product manufacturing and test facility
Owned
Leased
Owned/Leased
Leased
Owned
Owned/Leased
Leased
Owned
Owned
Hertfordshire, United Kingdom
Professional & Residential
Product manufacturing and test facility
29
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to litigation in the ordinary course of business, including claims for punitive, as well as
compensatory, damages arising out of the use of our products; litigation and administrative and judicial proceedings with
respect to claims involving asbestos and the discharge of hazardous substances into the environment; and commercial disputes,
employment disputes, and patent litigation cases. For a description of our material legal proceedings, refer to the headings titled
"Litigation" and "Litigation Settlement" within Note 12, Commitments and Contingencies, of the Notes to Consolidated
Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on
Form 10-K, which is incorporated into this Item 3 by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
30
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The list below identifies those persons designated by our Board of Directors as executive officers of the company. The list sets
forth each such person's age and position with the company as of December 10, 2021, as well as other positions held by him or
her for at least the last five years. There are no family relationships between any director, executive officer, or person
nominated to become a director or executive officer of the company. There are no arrangements or understandings between any
executive officer and any other person pursuant to which he or she was selected as an officer of the company.
Name, Age, and Position
Richard M. Olson
57, Chairman of the Board, President and Chief
Executive Officer
Business Experience during the Last Five or More Years
Chairman of the Board since November 2017 and President and Chief Executive Officer since November
2016. From September 2015 through October 2016, he served as President and Chief Operating Officer.
From June 2014 through August 2015, he served as Group Vice President, International Business, Global
Ag-Irrigation Business and Distributor Development.
Kevin N. Carpenter
47, Vice President, Global Operations and
Integrated Supply Chain
Jody M. Christy
53, Vice President, BOSS
Amy E. Dahl
47, Vice President, Human Resources and
General Counsel
Angela C. Drake
49, Vice President, Construction
Blake M. Grams
54, Vice President, Sustainability, Business
Analytics and Process Improvement
Bradley A. Hamilton
57, Group Vice President, Commercial,
International, Ventrac and Irrigation Businesses
Gregory S. Janey
43, Vice President, Residential and Landscape
Contractor Businesses
Peter D. Moeller
44, Vice President, International
Renee J. Peterson
60, Vice President and Chief Financial Officer
Vice President, Global Operations and Integrated Supply Chain since December 2021. Prior to joining the
company, he held several roles at the Carrier Global Corporation, serving as Vice President of
Operations, Residential and Light Commercial Systems from June 2021 to November 2021, Vice
President of Quality and Continuous Improvement from August 2020 to May 2021, Vice President of
Operations, Commercial HVAC from February 2020 to July 2020, and Vice President of Advanced
Manufacturing from May 2019 to January 2020. Prior to joining the Carrier Global Corporation, he held
several roles at Rockwell Automation, serving as Vice President of Manufacturing Services from June
2018 to April 2019 and Director of Manufacturing Services from May 2016 to May 2018.
Vice President, BOSS since December 2018. From June 2016 to November 2018, he served as General
Manager, BOSS. At the time of the acquisition of BOSS in November 2014 to May 2016, he served as
Director, Engineering for BOSS.
Vice President, Human Resources and General Counsel since November 2020. From January 2020
through October 2020, she served as Vice President, Human Resources, Distributor Development and
General Counsel. From December 2016 through December 2019, she served as Vice President, Human
Resources and Distributor Development. From April 2015 through November 2016, she served as Vice
President, Human Resources. From June 2013 through March 2015, she served as Managing Director,
Corporate Communications and Investor Relations. From July 2012 to May 2013, she served as Assistant
General Counsel and Assistant Secretary.
Vice President, Construction since April 2020. From April 2019 through March 2020, she served as
Senior Managing Director, Integration. From February 2011 through March 2019, she served as Chief
Financial Officer for The Charles Machine Works, Inc.
Vice President, Sustainability, Business Analytics and Process Improvement since December 2021. From
June 2013 to November 2021, he served as Vice President, Global Operations. From December 2008 to
May 2013, he served as Vice President, Corporate Controller.
Group Vice President, Commercial, International, Ventrac, and Irrigation Businesses since March 2020.
From October 2018 to February 2020, he served as Group Vice President, Commercial, International and
Irrigation Businesses. From November 2017 to September 2018, he served as Group Vice President,
Commercial and International Businesses. From October 2016 to October 2017, he served as Vice
President, Commercial Business. From April 2015 to September 2016, he served as General Manager,
Commercial Business.
Vice President, Residential and Landscape Contractor Businesses since November 2019. From November
2017 to October 2019, he served as General Manager, Residential and Landscape Contractor Businesses.
From April 2015 to October 2017, he served as Director, Marketing International Business. From January
2013 through March 2015, he served as Director, Residential Mass Sales and National Accounts in our
Residential Business.
Vice President, International since November 2020. From November 2019 to October 2020, he served as
Vice President, Sitework Systems Business. From November 2017 to October 2019, he served as General
Manager, Sitework Systems Business. From April 2015 to October 2017, he served as Managing
Director, Business Development and Strategic Planning.
Vice President and Chief Financial Officer since August 2011. She also served as Treasurer from July
2013 to March 2021.
Darren L. Redetzke
57, Vice President, Strategic Technologies
Vice President, Strategic Technologies since November 2020. From April 2015 to October 2020, he
served as Vice President, International Business.
Richard W. Rodier
61, Group Vice President, Construction,
Contractor and Residential Businesses
Kurt D. Svendsen
55, Vice President, Strategy, Corporate and
Channel Development
Group Vice President, Construction, Contractor and Residential Business since May 2020. From April
2019 to April 2020, he served as Group Vice President, Construction Businesses. From November 2017
to April 2019, he served as Vice President, Commercial Business. From October 2016 to November
2017, he served as Vice President, Sitework Systems. From February 2009 to October 2016, he served as
General Manager, Sitework Systems.
Vice President, Strategy, Corporate and Channel Development since November 2020. From June 2013 to
October 2020, he served as Vice President, Information Services.
31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock and Cash Dividends
Our common stock is listed for trading on the New York Stock Exchange and trades under the symbol "TTC." As of
October 31, 2021 and 2020, we had 175,000,000 shares of common stock authorized, $1.00 par value. As of October 31, 2021
and 2020, we had 105,205,734 and 107,582,670 shares of common stock outstanding, respectively. In each quarter of fiscal
2021, our Board of Directors declared a common stock cash dividend of $0.2625 per share, which was a 5.0 percent increase
over our common stock cash dividend of $0.25 per share paid in each quarter of fiscal 2020. As announced on December 14,
2021, our Board of Directors increased our fiscal 2022 first quarter common stock cash dividend by 14.3 percent to $0.30 per
share from the quarterly common stock cash dividend of $0.2625 paid in the first quarter of fiscal 2021. Future common stock
cash dividends will depend upon our Financial Condition, Results of Operations, capital requirements, and other factors deemed
relevant by our Board of Directors. Restrictions on our ability to pay dividends are disclosed in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Preferred Stock
As of October 31, 2021 and 2020, we had 1,000,000 voting shares and 850,000 non-voting shares of preferred stock authorized,
$1.00 par value. No shares of preferred stock were outstanding as of October 31, 2021 and 2020.
Shareholders
As of December 10, 2021, we had 2,648 shareholders of record.
Issuer Purchases of Equity Securities
The following table sets forth information with respect to shares of our common stock purchased by the company during each
of the three fiscal months in our fourth quarter ended October 31, 2021:
Period
July 31, 2021 through September 3, 2021
September 4, 2021 through October 1, 2021
October 2, 2021 through October 31, 2021
Total
Total Number of
Shares (or Units)
Purchased1, 2
Average Price
Paid per Share
(or Unit)
— $
749,483
507,779
1,257,262 $
—
100.24
98.64
99.59
Total Number of Shares
(or Units) Purchased As
Part of Publicly
Announced Plans or
Programs1
Maximum Number of
Shares (or Units) that
May Yet Be
Purchased Under the
Plans or Programs1
—
749,483
506,834
1,256,317
5,308,779
4,559,296
4,052,462
1
2
On December 3, 2015, the company's Board of Directors authorized the repurchase of 8,000,000 shares of the company's common stock in open-
market or in privately negotiated transactions. The company repurchased 308,779 shares under this tranche of authorized shares under the
company's stock repurchase program during the period indicated above and as a result, no shares remain available to repurchase under this
tranche as of October 31, 2021. On December 4, 2018, the company’s Board of Directors authorized the repurchase of up to an additional
5,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions. This authorized stock repurchase
program has no expiration date but may be terminated by the company's Board of Directors at any time. The company repurchased 947,538
shares under this tranche of authorized shares under the company's stock repurchase program during the period indicated above and as a result,
4,052,462 shares remained available to repurchase under this tranche of authorized shares under the company's stock repurchase program as of
October 31, 2021.
Includes 945 shares of the company's common stock purchased in open-market transactions at an average price of $98.55 per share on behalf of a
rabbi trust formed to pay benefit obligations of the company to participants in the company's deferred compensation plans. These 945 shares
were not repurchased under the company's authorized stock repurchase program described in footnote 1 above.
32
The Toro Company Common Stock Comparative Performance Graph
The information contained in The Toro Company Common Stock Comparative Performance Graph section shall not be deemed
to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of
Section 18 of the Exchange Act, except to the extent that we specifically request that it be treated as soliciting material or
incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
The following stock performance graph and table depict the cumulative total shareholder return (assuming reinvestment of
dividends) on $100 invested in each of TTC common stock, the S&P 500 Index, the S&P 500 Industrial Machinery Index, and
an industry peer group for the five-year period from October 31, 2016 through October 31, 2021. The total returns on TTC
common stock depicted in the stock performance graph and table are not necessarily indicative of future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The Toro Company, the S&P 500 Index, the S&P 500 Industrial Machinery Index, and Industry Peer Group
300
250
200
150
100
50
0
10/31/16
10/31/17
10/31/18
10/31/19
10/31/20
10/31/21
The Toro Company
S&P 500 Industrial Machinery Index
S&P 500
Industry Peer Group
*$100 invested on 10/31/16 in stock or index, including reinvestment of dividends. Fiscal years ending October 31.
Fiscal Years Ended October 31
2016
2017
2018
2019
2020
2021
The Toro Company
S&P 500
S&P 500 Industrial Machinery Index
Industry Peer Group
$
100.00 $
132.75 $
120.53 $
167.31 $
180.58 $
100.00
100.00
123.63
137.87
132.71
127.21
151.73
155.14
166.46
170.16
$
100.00 $
146.12 $
134.40 $
165.57 $
191.21 $
212.18
237.90
224.61
258.51
The S&P 500 Industrial Machinery Index has been added to the stock performance chart during fiscal 2021 and will be included
in future filings. The S&P 500 Industrial Machinery Index is a widely used market capitalization index that we believe more
appropriately represents manufacturing companies of comparable industry, size, and complexity to that of TTC as compared to
our industry peer group. As a result, we will not include the industry peer group in future filings. The industry peer group is
based on companies previously included in the Fortune 500 Industrial and Farm Equipment Index, which was discontinued after
2002 and currently includes: AGCO Corporation, Caterpillar Inc., Crane Co., Cummins Inc., Deere & Company, Dover
Corporation, Flowserve Corporation, Harsco Corporation, Illinois Tool Works Inc., International Game Technology Plc,
ITT Inc., Kennametal Inc., Lennox International Inc., NACCO Industries, Inc., Parker-Hannifin Corporation, Pentair Plc, Snap-
On Inc., Teleflex Inc., Terex Corporation, and The Timken Company.
ITEM 6. [RESERVED]
33
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") is intended
to provide a reader of our Consolidated Financial Statements
with a narrative from the perspective of management on our
Financial Condition, Results of Operations, Liquidity, and
certain other factors that may affect our future results. Our
Consolidated Financial Statements and Notes to Consolidated
Financial Statements are included in Part II, Item 8,
"Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K and all references in this
MD&A to the Notes to Consolidated Financial Statements
can be found in Part II, Item 8, "Financial Statements and
Supplementary Data," of this Annual Report on Form 10-K.
Unless expressly stated otherwise, the comparisons presented
in this MD&A refer to the year-over-year comparison of
changes in our Financial Condition and Results of Operations
as of and for the fiscal years ended October 31, 2021 and
2020. Discussion of fiscal 2019 items and the year-over-year
comparison of changes in our Financial Condition and
Results of Operations as of and for the fiscal years ended
October 31, 2020 and 2019 can be found in Part II, Item 7,
"Management’s Discussion and Analysis of Financial
Condition and Results of Operations," of our Annual Report
on Form 10-K for the fiscal year ended October 31, 2020.
Statements that are not historical are forward-looking and
involve risks and uncertainties, including those discussed in
Part I, Item 1A, "Risk Factors," and elsewhere in this Annual
Report on Form 10-K. These risks and uncertainties could
cause our actual results to differ materially from any future
performance suggested throughout this MD&A.
Our MD&A is presented as follows:
•
•
•
•
•
•
Company Overview
Results of Operations
Business Segments
Financial Position
Non-GAAP Financial Measures
Critical Accounting Policies and Estimates
Non-GAAP Financial Measures
this MD&A, we have provided financial
Throughout
measures that are not calculated or presented in accordance
with U.S. GAAP ("non-GAAP financial measures"), as
information supplemental and in addition to the most directly
comparable financial measures presented in this Annual
Report on Form 10-K that are calculated and presented in
accordance with U.S. GAAP. We believe that these non-
GAAP financial measures, when considered in conjunction
with our Consolidated Financial Statements prepared in
accordance with U.S. GAAP, provide investors with useful
supplemental financial information to better understand our
core operational performance and cash flows. These non-
financial measures, however, should not be
GAAP
considered superior to, as a substitute for, or as an alternative
to, and should be considered in conjunction with, the most
directly comparable U.S. GAAP
financial measures.
Reconciliations of non-GAAP financial measures to the most
directly comparable reported U.S. GAAP financial measures
are included in the section titled "Non-GAAP Financial
Measures" within this MD&A.
COMPANY OVERVIEW
General
systems;
ag-irrigation
The Toro Company is in the business of designing,
manufacturing, marketing, and selling professional turf
maintenance equipment and services; turf irrigation systems;
landscaping equipment and lighting products; snow and ice
management products;
rental,
specialty, and underground construction equipment; and
residential yard and snow thrower products. Our purpose is to
help our customers enrich the beauty, productivity, and
sustainability of the land. Sustainability is the foundation of
our enterprise strategic priorities of accelerating growth,
driving productivity and operational excellence, and
empowering our people, and our focus on alternative power,
smart connected, and autonomous solutions are embedded as
strategy. Our
"Sustainability Endures"
part of our
Sustainability Endures strategy also provides transparency on
our continued efforts
to address sustainability-focused
matters, including ESG priorities.
We sell our products worldwide through a network of
distributors, dealers, mass retailers, hardware retailers,
equipment rental centers, home centers, as well as online
(direct to end-users). We strive to provide innovative, well-
built, and dependable products supported by an extensive
service network. A significant portion of our net sales has
historically been, and we expect will continue to be,
attributable to new and enhanced products. We define new
products as those introduced in the current and previous two
fiscal years. We classify our operations into two reportable
business segments: Professional and Residential, and our
remaining activities are presented as "Other" due to their
insignificance, as described in greater detail within the
section titled "Business Segments" in this MD&A.
Executive Summary
We began fiscal 2021 in the midst of the COVID-19
pandemic, which continued to cause many challenges for our
business
and manufacturing operations. Specifically,
COVID-19 was the catalyst for the current challenging global
macroeconomic environment that has disrupted the global
inflationary environment
supply chain and created an
throughout fiscal 2021. The impact of COVID-19 on our
business is more fully described within the section titled
"Impact of COVID-19" in this MD&A. Despite these
challenges, we achieved double-digit consolidated net sales
growth in fiscal 2021.
Our Professional segment achieved 16.1 percent net sales
growth in fiscal 2021 primarily due to a combination of
strong demand for most products and strategic pricing actions
across our product lines. More specifically, we benefited
34
from a continued strong rebound in demand for many of the
products in our Professional segment businesses that were
more adversely impacted by COVID-19 during fiscal 2020.
Most notably, our landscape contractor business continued to
build upon the momentum generated during the fourth
quarter of fiscal 2020 as we continued to experience strong
retail demand from contractors and our channel partners
worked to replenish their field inventory levels during fiscal
2021. Additionally, our golf business continued to experience
strong demand as golf course investments increased and
spending patterns normalized as budgetary constraints
moderated. Our rental and specialty construction business
also experienced strong demand primarily due to favorable
construction industry trends. While the strong demand
experienced in our Professional segment was positive, our
Professional segment growth was partially offset by a
reduction of net sales within our underground construction
business driven by supply chain disruptions that resulted in
product availability issues that limited our ability to meet the
heightened demand for most of our products.
to build on
Our Residential segment continued
the
momentum generated during fiscal 2020 and achieved 23.1
percent net sales growth in fiscal 2021 primarily as a result of
strong retail demand across most product lines as a result of
new and enhanced products, favorable weather conditions,
expanded retail placement, and continued investments by
homeowners in their properties. We also achieved net sales
growth during fiscal 2021 as a result of strategic pricing
actions across our product lines. While the sales growth
achieved in our Residential segment was positive, the shift to
a greater percentage of Residential segment net sales as a
percentage of consolidated net sales has, and may continue
to, adversely pressure our consolidated gross margins.
We continued our history of paying quarterly cash dividends
throughout fiscal 2021 and increased our fiscal 2021
quarterly cash dividend by 5.0 percent to $0.2625 per share
compared to $0.25 per share paid in fiscal 2020. We also
resumed repurchasing shares of our common stock, thereby
reducing our total shares outstanding. As a result of the
combination of quarterly cash dividends and share
repurchases, we returned $414.7 million of cash to our
shareholders during fiscal 2021. As of October 31, 2021, we
had a strong liquidity profile with available liquidity of
$1,002.5 million, consisting of cash and cash equivalents of
$405.6 million and availability under our revolving credit
facility of $596.9 million.
Additionally, our fiscal 2021 results included the following
items of significance that are provided in summary format
here and described in greater detail throughout the "Results
of Operations," "Business Segments," and "Financial
Position" sections of this MD&A:
•
Consolidated net sales for fiscal 2021 were $3,959.6
million, an increase of 17.2 percent compared to
$3,378.8 million in fiscal 2020.
•
•
•
•
•
•
•
•
Professional segment net sales for fiscal 2021 were
$2,929.6 million, an increase of 16.1 percent compared
to $2,523.5 million in fiscal 2020.
Residential segment net sales for fiscal 2021 were
$1,010.1 million, an increase of 23.1 percent compared
to $820.7 million in fiscal 2020.
Gross margin was 33.8 percent in fiscal 2021 compared
to 35.2 percent in fiscal 2020, a decrease of 140 basis
points.
Non-GAAP gross margin was 33.8 percent in fiscal 2021
compared to 35.4 percent in fiscal 2020, a decrease of
160 basis points.
SG&A expense as a percentage of net sales in fiscal
2021 was 20.7 percent compared to 22.6 percent in fiscal
2020, an improvement of 190 basis points.
Net earnings for fiscal 2021 were $409.9 million, or
$3.78 per diluted share, compared to $329.7 million, or
$3.03 per diluted share, in fiscal 2020.
Non-GAAP net earnings for fiscal 2021 were $392.7
million, or $3.62 per diluted share, compared to $327.7
million, or $3.02 per diluted share, in fiscal 2020.
Field inventory levels were lower as of the end of fiscal
2021 compared to the end of fiscal 2020 as a result of
strong retail demand for our products that exceeded
product availability.
Please refer to the section titled "Non-GAAP Financial
Measures" within this MD&A for reconciliations of non-
GAAP financial measures to the most directly comparable
reported U.S. GAAP financial measures.
As we look ahead to fiscal 2022, we currently expect the
strong demand environment to continue across both our
Professional and Residential segments and benefit our future
net sales. We also expect to continue to realize favorable
impacts to both our net sales and gross margins as a result of
our strategic pricing actions and to our gross margins from
our productivity initiatives. However, the current challenging
supply chain and inflationary environment is anticipated to
continue and adversely impact our gross margins into fiscal
2022 and we anticipate that our quarterly sales cadence
during fiscal 2022 will be driven more by our ability to
produce product
than historical demand patterns and
seasonality. We intend to continue our historical practice of
prudently managing expenses and adjusting production levels
as needed to align with anticipated sales volumes and
availability of commodity and component parts inventories,
while also prioritizing investments that support long-term
sustainable growth across our businesses. However, given
our current expectation of continuing supply chain
disruptions into fiscal 2022 our ability to effectively and
efficiently adjust production levels as needed may be limited.
Power Forward
Despite uncertainty concerning the duration of COVID-19
and its impact on the global economy and supply chains, we
continued to embrace employee initiatives aligned with
driving defined enterprise financial performance goals. As a
result, for fiscal 2021, we implemented a one-year employee
35
initiative, "Power Forward." This employee initiative was
intended to help us drive net sales and operating earnings
growth and specifically focused on enterprise-wide financial
performance goals of net sales of $3.7 billion and non-GAAP
operating earnings of $485.0 million for fiscal 2021. Due to
strong business performance, we exceeded both enterprise-
wide financial performance goals during fiscal 2021 as we
realized $4.0 billion of net sales and $507.0 million of non-
GAAP operating earnings.
New Multi-Year Employee Initiative
Our new multi-year employee initiative, "Drive for Five," is
intended to align and engage employees on furthering our
strategic growth by offering innovative business and product
categories to serve our customers. As such, the core focus of
this initiative is our goal of exceeding $5.0 billion in net sales
through organic growth, while continuing our historical focus
on improving profitability, by the end of fiscal 2024. We
believe this goal will continue and enhance the innovation
and growth momentum for the organization.
Impact of COVID-19
In March 2020, the World Health Organization declared
COVID-19 a global pandemic. COVID-19 has negatively
impacted public health and portions of the global economy,
significantly disrupted global supply chains, and created
volatility in financial markets. The global impact of the
pandemic has had a material impact on parts of our business,
as well as our employees, customers, and suppliers, and
caused many challenges for our business and manufacturing
operations.
our
include
suppliers,
customers,
employees,
Our main focus from the beginning of the pandemic has
been, and will continue to be, the health, safety, and well-
being of our employees, customers,
suppliers and
communities around the world. In support of continuing our
global manufacturing and business operations, we have
adopted, and continue to adhere to, rigorous and meaningful
safety measures recommended by the U.S. Centers for
Disease Control and Prevention, World Health Organization,
and federal, state, local, and foreign authorities in an effort to
protect
and
communities. These important safety measures enacted at our
implementing social
facilities and other sites
reconfiguration of
distancing protocols such as
manufacturing processes and other workspaces, frequent
disinfecting of our facilities and workspaces, and providing
or accommodating the wearing of face coverings and other
sanitary measures at our facilities and sites where face
coverings are required by government mandates. During
fiscal 2021, we implemented an employee campaign in
support of COVID-19 vaccine efforts. This campaign was
designed to provide information about, and support and
encourage our employees
receive, a COVID-19
vaccination. As part of this campaign, we facilitated offering
the vaccine to our employees at certain of our facilities. We
expect to continue certain applicable and appropriate safety
measures for purposes of our global manufacturing and
business operations and we may take further actions as
the
to
government authorities require or recommend or as we
determine to be in the best interests of our employees,
customers, suppliers, and communities.
to meet manufacturing
In addition to our vigilant safety measures, we have also
maintained our focus on our responsibility to meet the needs
of our customers. While our facilities remained operational
during fiscal 2021 and we experienced a lesser degree of
intermittent partial or full factory closures due to government
mandated measures as compared
to fiscal 2020, our
manufacturing operations were adversely impacted by the
global macroeconomic environment, and more specifically,
global supply chain disruptions that limited our ability to
procure certain commodities and components parts in a
timely manner
production
requirements. As a result, we experienced various degrees of
commodity and component parts availability issues, which
resulted in manufacturing inefficiencies and limited our
ability to meet customer demand and adequately replenish
certain raw materials, work in process, and finish goods
inventory levels. Additionally, the global macroeconomic
environment has resulted in a greater degree of inflationary
cost pressures on commodity, component parts, and other
related costs during fiscal 2021 as compared to fiscal 2020.
Although we regularly monitor the adequacy of the supply of
commodities, components, parts, and accessories and the
financial health of the companies in our supply chain, and use
alternative suppliers when necessary and available, financial
hardship and/or government mandated restrictions on our
suppliers caused by COVID-19,
insufficient demand
planning, and/or the inability of companies throughout our
supply
commitments,
requirements, and/or demands as a result of COVID-19 or
otherwise, has and could continue to cause a disruption in our
ability to procure the commodities, components, and parts
required
products. Ongoing
communications continue with our suppliers in an attempt to
identify and mitigate such risks and to proactively manage
inventory levels of commodities, components, and parts to
align with anticipated demand for our products and other
government actions.
to manufacture
to deliver on
supply
chain
our
including
suppliers;
The continuing implications of COVID-19 on our business
and manufacturing operations remain uncertain and will
depend on certain future developments,
the
duration of the pandemic; any adverse impact due to variants
of the virus; its impact on market demand for our products;
its impact on the global supply chain; its impact on our
employees, customers, and
range of
government mandated restrictions and other measures; and
the success of the deployment of COVID-19 vaccines, their
effectiveness against the novel strain and related variants, and
their rate of adoption. As a result, the ultimate impact on our
future business and manufacturing operations, as well as
Results of Operations, Financial Position, and Cash Flows as
a result of COVID-19 is unknown at this time. We will
continue to monitor the situation and the guidance from
global government authorities, as well as federal, state, local
and foreign public health authorities, and may take additional
the
36
In
their
meaningful actions based on
requirements and
recommendations in an attempt to protect the health and
well-being of our employees, customers, suppliers, and
communities.
there may be
these circumstances,
developments outside our control requiring us to adjust our
operating plans and implement appropriate cost reduction
measures and such developments could occur rapidly. If the
adverse impacts from COVID-19 continue or worsen beyond
expectations, our business and related Results of Operations,
Financial Position, or Cash Flows could be adversely
impacted. Any sustained adverse impacts to our business, the
industries in which we operate, market demand for our
products, and/or certain suppliers or customers may also
affect the future valuation of certain of our assets, and
therefore, may increase the likelihood of a charge related to
an impairment, write-off, valuation adjustment, allowance, or
reserve associated with such assets, including, but not limited
to, goodwill, indefinite and finite-lived intangible assets,
inventories, accounts receivable, deferred income taxes,
right-of-use assets, and property, plant and equipment. Such a
charge could be material to our future Results of Operations,
Financial Position, or Cash Flows. For additional information
regarding risks associated with COVID-19, refer to Part I,
Item 1A, "Risk Factors," of this Annual Report on Form 10-
K.
Acquisition of Venture Products
On March 2, 2020, during the second quarter of fiscal 2020,
we completed our acquisition of Venture Products, the
manufacturer of Ventrac-branded products. Venture Products
designs, manufactures, markets, and sells articulating turf,
landscape, and snow and ice management equipment for
grounds, landscape contractor, golf, municipal, and rural
acreage customers and provides innovative product offerings
that broadened and strengthened our Professional segment
and expanded our dealer network. The acquisition
consideration was $163.2 million, of which $24.9 million of
cash consideration was paid to the former Venture Products
shareholders during fiscal 2021 upon the satisfaction of
indemnification and certain other obligations of Venture
Products to the company. We funded the acquisition
consideration with borrowings under our revolving credit
facility and net cash provided by operating activities.
Subsequent to the closing date, results of operations for
Venture Products have been included within our Professional
segment within our Consolidated Financial Statements and
had an incremental impact to our Professional segment net
sales and segment earnings for the fiscal year ended
October 31, 2021. For additional information regarding the
Venture Products acquisition, refer to Note 2, Business
Combinations and Asset Acquisitions, in the Notes to
Consolidated Financial Statements included in Part II, Item 8,
"Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Net Sales
Consolidated net sales in fiscal 2021 were $3,959.6 million
compared to $3,378.8 million in fiscal 2020, an increase of
17.2 percent. This net sales increase was primarily driven by
the following factors:
•
•
•
•
•
increased sales of Professional landscape contractor
zero-turn riding mowers due to strong retail demand and
low field inventory levels at the end of fiscal 2020;
price increases across our Professional and Residential
segment product lines;
strong retail demand for Residential zero-turn riding and
walk power mowers due to new and enhanced products;
increased shipments of golf equipment and Professional
irrigation products as a result of the normalization of golf
course spending patterns and course investments; and
strong demand for rental and specialty construction
equipment due to favorable construction industry trends.
The consolidated net sales increase was partially offset by
reduced sales of underground construction equipment as a
result of supply chain challenges limiting product availability
and our ability to meet construction industry demand.
Net sales in international markets were $827.6 million for
fiscal 2021 compared to $678.1 million in fiscal 2020, an
increase of 22.0 percent. Changes in foreign currency
exchange rates resulted in an increase in our net sales of
$19.3 million in fiscal 2021. The international net sales
increase was primarily driven by increased shipments of golf
equipment and irrigation products and strong demand for
both Professional and Residential segment zero-turn riding
products.
The following table summarizes our Results of Operations as
a percentage of our consolidated net sales:
Fiscal Years Ended October 31
Net sales
Cost of sales
Gross margin
SG&A expense
Operating earnings
Interest expense
Other income, net
Earnings before income taxes
Provision for income taxes
Net earnings
Gross Profit and Gross Margin
2021
2020
100.0 %
100.0 %
(66.2)
33.8
(20.7)
13.1
(0.7)
0.2
12.6
(2.2)
(64.8)
35.2
(22.6)
12.6
(1.0)
0.4
12.0
(2.2)
10.4 %
9.8 %
Gross profit represents net sales less cost of sales and gross
margin represents gross profit as a percentage of net sales.
Refer to Note 1, Summary of Significant Accounting Policies
and Related Data, of the Notes to Consolidated Financial
Statements within the section entitled "Cost of Sales," for a
description of expenses included in cost of sales. Gross profit
for fiscal 2021 was $1,338.5 million, up 12.5 percent
compared to gross profit of $1,189.8 million in fiscal 2020.
37
Other Income, Net
Other income, net primarily consists of our proportionate
share of income or losses from our Red Iron joint venture,
realized foreign currency exchange rate gains and losses,
interest and dividend income, gains or losses recognized on
actuarial valuation changes for our pension and post-
revenue, and other
retirement plans,
miscellaneous income. Other income, net for fiscal 2021 was
$10.2 million compared to $13.9 million in fiscal 2020, a
decrease of $3.7 million. This decrease in other income, net
was primarily due to the following factors:
financing
retail
•
•
lower income from our Red Iron joint venture as a result
of lower field inventory levels and increased inventory
turnover at our channel partners throughout fiscal 2021
as compared to fiscal 2020 as a result of strong retail
demand
that exceeded product
availability and
the unfavorable impact of foreign currency exchange
rates.
for our products
The other income, net decrease was partially offset by a
settlement charge incurred for the termination of our U.S.
defined benefit pension plan recognized in fiscal 2020 that
did not reoccur in fiscal 2021.
Provision for Income Taxes
The effective tax rate for fiscal 2021 was 18.0 percent
compared to 19.0 percent in fiscal 2020. The decrease in the
effective tax rate for fiscal 2021 was driven by the following
factors:
•
•
•
increased earnings in more favorable tax jurisdictions,
one-time adjustments related to prior fiscal years,
partially offset by
decreased tax benefits recorded as excess tax deductions
for stock-based compensation.
The non-GAAP effective tax rate for fiscal 2021 was 19.6
percent, compared to a non-GAAP effective tax rate of 20.9
percent in fiscal 2020. The decrease in the non-GAAP
effective tax rate or fiscal 2021 was primarily driven by the
following factors:
•
•
increased earnings in more favorable tax jurisdictions,
and
one-time adjustments related to prior fiscal years.
The non-GAAP effective tax rate excludes the impact of
discrete tax benefits recorded as excess tax deductions for
stock-based compensation. Reconciliations of non-GAAP
financial measures to the most directly comparable reported
U.S. GAAP financial measures are included in the section
titled "Non-GAAP Financial Measures" within this MD&A.
Gross margin was 33.8 percent in fiscal 2021 compared to
35.2 percent in fiscal 2020, a decrease of 140 basis points.
Non-GAAP gross profit was $1,338.5 million, up 12.0
percent compared to non-GAAP gross profit of $1,194.6
million in fiscal 2020. Non-GAAP gross margin was 33.8
percent in fiscal 2021 compared to 35.4 percent in fiscal
2020, a decrease of 160 basis points. The decrease in gross
margin and non-GAAP gross margin in fiscal 2021 as
compared
the
macroeconomic inflationary environment resulting in higher
commodity, component parts, and freight costs. This negative
impact was partially offset by the following factors:
to fiscal 2020 was primarily due
to
•
•
•
improved net price realization as a result of price
increases across our Professional and Residential
segment product lines;
productivity improvements; and
favorable product mix.
Non-GAAP gross profit and non-GAAP gross margin
exclude the impact of acquisition-related costs for our
acquisitions of Venture Products and CMW, including
charges incurred for the take-down of the inventory fair value
step-up amounts
from purchase accounting
impact of management actions,
adjustments, and
including charges incurred for inventory write-downs related
to the Toro underground wind down. Reconciliations of non-
GAAP financial measures to the most directly comparable
reported U.S. GAAP financial measures are included in the
section titled "Non-GAAP Financial Measures" within this
MD&A.
resulting
the
Selling, General and Administrative ("SG&A") Expense
the
section
entitled
"Selling, General
SG&A expense increased $56.8 million, or 7.4 percent, in
fiscal 2021 compared to fiscal 2020. Refer to Note 1,
Summary of Significant Accounting Policies and Related
Data, of the Notes to Consolidated Financial Statements
within
and
Administrative Expense" for a description of expenses
included in SG&A expense. The SG&A expense rate
represents SG&A expense as a percentage of net sales. The
SG&A expense rate in fiscal 2021 was 20.7 percent
compared to 22.6 percent in fiscal 2020, an improvement of
190 basis points. This SG&A expense rate improvement was
primarily the result of leveraging expense over higher sales
volumes, which further benefited from a favorable net legal
settlement with Briggs & Stratton Corporation.
Interest Expense
Interest expense primarily consists of interest costs incurred
on outstanding borrowings related to our fixed and variable
interest rate debt arrangements, as well as amortization of the
debt issuance costs associated with our debt arrangements.
Interest expense for fiscal 2021 decreased $4.5 million
compared to fiscal 2020. This decrease was driven by lower
average outstanding borrowings under our debt arrangements
and lower average interest rates due to reductions in LIBOR
rates in fiscal 2021 compared to fiscal 2020.
38
Net Earnings and Net Earnings per Diluted Share
BUSINESS SEGMENTS
Fiscal 2021 net earnings were $409.9 million compared to
$329.7 million in fiscal 2020, an increase of 24.3 percent.
Fiscal 2021 diluted net earnings per share were $3.78, an
increase of 24.8 percent from $3.03 per diluted share in fiscal
2020. The net earnings increase for fiscal 2021 was primarily
driven by the following factors:
•
•
•
•
higher sales volumes, which were further benefited from
improved net price realization as a result of price
increases across our Professional and Residential
segment product line and favorable product mix;
productivity improvements;
favorable net legal settlements; and
acquisition-related costs for our acquisitions of Venture
Products and CMW recorded in fiscal 2020 that did not
repeat in fiscal 2021.
Those favorable net earnings factors were partially offset by
the adverse impacts of the macroeconomic inflationary
environment, which
commodity,
component parts, and freight costs.
in higher
resulted
Non-GAAP net earnings for fiscal 2021 were $392.7 million,
or $3.62 per diluted share, compared to $327.7 million, or
$3.02 per diluted share, in fiscal 2020, an increase of 19.9
percent per diluted share. The non-GAAP net earnings
increase for fiscal 2021 was primarily driven by the
following factors:
•
•
higher sales volumes, which were further benefited from
improved net price realization as a result of price
increases across our Professional and Residential
segment product line and favorable product mix, and
productivity improvements.
Those favorable non-GAAP net earnings factors were
partially offset by the adverse impacts of the macroeconomic
inflationary
in higher
resulted
commodity, component parts, and freight costs.
environment, which
Non-GAAP net earnings and non-GAAP net earnings per
diluted share exclude the net impact of certain litigation
settlements; the impact of discrete tax benefits recorded as
for stock-based compensation;
excess
tax deductions
acquisition-related costs related
to our acquisitions of
Venture Products and CMW, including charges incurred
related to certain purchase accounting adjustments and
integration and transaction costs; and management actions,
including charges incurred for inventory write-downs related
to the Toro underground wind down. Reconciliations of non-
GAAP financial measures to the most directly comparable
reported U.S. GAAP financial measures are included in the
section titled "Non-GAAP Financial Measures" within this
MD&A.
reportable business
As more fully described in Note 3, Segment Data, of the
Notes to Consolidated Financial Statements, we operate in
two
segments: Professional and
Residential. Segment earnings for our Professional and
Residential reportable segments are defined as earnings from
operations plus other income, net. Our remaining activities
consisting of our wholly-owned domestic distribution
companies, Red Iron joint venture, our corporate activities,
and the elimination of intersegment revenues and expenses,
insignificance.
are presented as "Other" due
Corporate activities include general corporate expenditures,
such as finance, human resources, legal, information services,
public relations, business development, and similar activities,
as well as other unallocated corporate assets and liabilities,
such as corporate facilities and deferred tax assets and
liabilities. The following information provides perspective on
the net sales and operating results of our reportable business
segments' and Other activities.
their
to
Professional Segment
Professional segment net sales represented 74.0 percent and
74.7 percent of consolidated net sales for fiscal 2021 and
2020, respectively. The following
table presents our
Professional segment's net sales, earnings, and earnings as a
percentage of net sales (dollars in millions):
Fiscal Years Ended October 31
2021
2020
Net sales
$ 2,929.6
$ 2,523.5
Percentage change from prior year
16.1 %
3.3 %
Segment earnings
$
507.3
$
426.6
Segment earnings as a percentage of
segment net sales
17.3 %
16.9 %
Professional Segment Net Sales
Net sales for our Professional segment in fiscal 2021
increased 16.1 percent compared to fiscal 2020. This increase
was primarily driven by strong demand for many of the
products in our portfolio of Professional segment businesses,
most notably the Professional segment businesses that were
adversely impacted by COVID-19 during fiscal 2020.
Factors driving the Professional segment net sales increase
include:
•
•
•
•
•
increased sales of landscape contractor zero-turn riding
mowers due to strong retail demand and low field
inventory levels at the end of fiscal 2020;
price increases across our Professional segment product
lines;
increased shipments of golf equipment and irrigation
products as a result of the normalization of golf course
spending patterns and course investments;
strong demand for rental and specialty construction
equipment due to favorable construction industry trends;
and
incremental net sales as a result of our acquisition of
Venture Products and increased sales of such products in
fiscal 2021.
39
The Professional segment net sales increase was partially
offset by reduced sales of underground construction
equipment as a result of product availability that limited our
ability to meet construction industry demand.
Professional Segment Earnings
Professional segment earnings increased 18.9 percent in
fiscal 2021 compared to fiscal 2020, and when expressed as a
percentage of Professional segment net sales, increased to
17.3 percent from 16.9 percent. The following factors
positively impacted Professional segment earnings as a
percentage of Professional segment net sales for fiscal 2021:
•
•
•
•
improved net price realization as a result of price
increases across our Professional segment product lines;
reduced SG&A expense as a percentage of net sales due
to leveraging expense over higher sales volumes;
productivity improvements, including COVID-19-related
production downtime in fiscal 2020 that was experienced
to a lesser degree in fiscal 2021; and
favorable product mix.
The Professional segment earnings increase as a percentage
of Professional segment net sales was partially offset by the
macroeconomic inflationary environment resulting in higher
commodity, component parts, and freight costs.
Residential Segment
Residential segment net sales represented 25.5 percent and
24.3 percent of consolidated net sales for fiscal 2021 and
2020, respectively. The following
table presents our
Residential segment's net sales, earnings, and earnings as a
percentage of net sales (dollars in millions):
Fiscal Years Ended October 31
2021
2020
Net sales
$ 1,010.1
$
820.7
Percentage change from prior year
23.1 %
24.1 %
Segment earnings
$
121.5
$
113.7
Residential Segment Earnings
Residential segment earnings increased 6.9 percent in fiscal
2021 compared to fiscal 2020, and when expressed as a
percentage of Residential segment net sales, decreased to
12.0 percent from 13.8 percent. This Residential segment
earnings decrease as a percentage of Residential segment net
inflationary
sales was due
environment resulting in higher commodity, component
parts, and freight costs. The decrease was partially offset by
the following items:
the macroeconomic
to
•
•
•
•
improved net price realization as a result of price
increases across our Residential segment product lines;
productivity improvements, including COVID-19-related
production downtime in fiscal 2020 that was experienced
to a lesser degree in fiscal 2021;
reduced SG&A expense as a percentage of net sales due
to leveraging expense over higher sales volumes; and
favorable product mix.
Other Activities
companies
Net sales for our Other activities consist of sales from our
wholly-owned domestic distribution
less
intercompany sales from our Professional and Residential
business segments to the wholly-owned domestic distribution
companies. As further described in Note 7, Management
Actions, in the Notes to Consolidated Financial Statements,
during the first quarter of fiscal 2021, we completed the sale
of our Northeastern U.S. distribution company, resulting in
us owning only one wholly-owned domestic distribution
company during most of fiscal 2021. Net sales for our Other
activities represented 0.5 percent and 1.0 percent of
consolidated net sales for fiscal 2021 and 2020, respectively.
The following table presents net sales and operating loss for
our Other activities (dollars in millions):
Fiscal Years Ended October 31
2021
2020
Segment earnings as a percentage of
segment net sales
Residential Segment Net Sales
12.0 %
13.8 %
Net sales
$
19.9
$
34.6
Percentage change from prior year
(42.5) %
3.7 %
Operating loss
$
(129.0)
$
(133.2)
Net sales for our Residential segment in fiscal 2021 increased
by 23.1 percent compared to fiscal 2020. This increase was
primarily driven by growth across most of our product lines,
most notably due to the following drivers:
•
•
•
•
strong retail demand for zero-turn riding and walk power
mowers due to new and enhanced products;
price increases across our Residential segment product
lines;
increased sales of snow thrower products as a result of
favorable weather conditions in key regions during the
first half of fiscal 2021, enhanced retail placement, and
strong pre-season retail demand; and
increased sales of our 60V Flex-Force battery-powered
home solutions products primarily due to successful new
product introductions and enhanced retail placement.
Other Net Sales
Net sales for our Other activities in fiscal 2021 decreased
$14.7 million compared to fiscal 2020, primarily as a result
of the sale of our Northeastern U.S. distribution company
during the first quarter of fiscal 2021, partially offset by the
following factors:
•
•
reduced intercompany sales eliminations for sales from
our Professional and Residential segments
to our
remaining wholly-owned domestic distribution company
as a result of the sale of our Northeastern U.S.
distribution company and
increased sales from our remaining wholly-owned
domestic distribution company driven by strong retail
demand.
40
Other Operating Loss
Operating loss for our Other activities decreased $4.2 million
in fiscal 2021 compared to fiscal 2020. This operating loss
decrease was primarily driven by the following factors:
•
•
•
a favorable net legal settlement with Briggs & Stratton
Corporation;
reduced SG&A expense as a result of the sale of our
Northeastern U.S. distribution company; and
reduced interest expense as a result of lower average
outstanding borrowings under our debt arrangements and
lower average interest rates due to reductions in LIBOR
rates in fiscal 2021 compared to fiscal 2020.
The operating loss decrease for our Other activities was
partially offset by the following items:
•
•
a charge incurred for a legal settlement related to a series
of ongoing patent infringement disputes; and
increased incentive compensation costs as a result of
strong business performance.
Refer to Note 12, Commitments and Contingencies, of the
Notes to Consolidated Financial Statements within the
information
section entitled "Litigation" for additional
regarding the favorable net legal settlement with Briggs &
Stratton Corporation.
FINANCIAL POSITION
Working Capital
the
Given
environment
challenging macroeconomic
experienced throughout most of fiscal 2021 that has created
supply chain disruption and more specifically, resulted in
challenging conditions for sourcing adequate amounts of
certain commodity and component parts inventory and, in
certain cases, the inability of our suppliers to meet our
commodity and component parts demand requirements, our
working capital strategy for fiscal 2021 shifted to place
primary emphasis on
increasing our commodity and
component parts inventories in an attempt to hold requisite
inventory levels to meet our production requirements, avoid
manufacturing delays, and meet the strong demand for our
products, as well as attempting to ensure service parts
availability for our customers. The following table highlights
several key measures of our working capital performance
(dollars in millions):
Fiscal Years Ended October 31
2021
2020
Average receivables, net
Average inventories, net
Average accounts payable
$
$
$
315.3 $
678.0 $
407.1 $
Average days outstanding for receivables
Average inventory turnover (times per
fiscal year)
29.1
3.9
296.5
705.1
319.5
32.0
3.1
As of the end of fiscal 2021, our average net working capital
was 14.8 percent compared to 20.2 percent as of the end of
fiscal 2020. We calculate our average net working capital as
average net accounts receivable plus average net inventory,
less average accounts payable as a percentage of net sales for
a twelve month period.
The following factors impacted our average net working
capital during fiscal 2021 as compared to fiscal 2020:
•
•
•
for our products
Average net receivables increased by 6.3 percent,
primarily due to higher sales to channels not financed
through our Red Iron joint venture or other third-party
floor plan financing arrangements. Our average days
outstanding for receivables decreased to 29.1 days in
fiscal 2021 compared to 32.0 days in fiscal 2020.
Average net inventories decreased by 3.8 percent, mainly
due to lower finished goods inventories in certain of our
Professional segment businesses as a result of strong
that exceeded product
demand
availability. This decrease was partially offset by higher
raw materials and work in process inventories in our
Residential segment and certain of our Professional
segment businesses due to supply chain challenges that
prevented the conversion of raw materials and work in
process inventories into finished goods.
Average accounts payable increased by 27.4 percent,
mainly due to largely normalized corporate spending
activity throughout fiscal 2021 as compared to the lower
corporate spending activity in fiscal 2020 as a result of
COVID-19.
Cash Flows
Cash flows provided by/(used in) operating, investing, and
financing activities during the past two fiscal years are shown
in the following table (in millions):
Fiscal Years Ended October 31
Operating activities
Investing activities
Financing activities
Effect of exchange rates on cash
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents as of the end of
the fiscal period
Cash Provided by/
(Used in)
2021
2020
$
555.5 $
539.4
(128.5)
(503.7)
2.4
(216.1)
2.4
2.4
(74.3)
328.1
$
405.6 $
479.9
Cash Flows from Operating Activities
Our primary source of funds is cash generated from
operations. In fiscal 2021, cash provided by operating
activities increased by $16.1 million, or 3.0 percent, from
fiscal 2020. This increase was primarily due to a greater cash
benefit from accounts payable due to largely normalized
corporate spending activity and timing of invoice payments,
as well as higher net earnings. The increase to cash provided
by operating activities was partially offset by more cash
utilized for inventory purchases in our Professional and
Residential segment businesses as a result of strong demand
for our products and timing of component parts purchases
and higher accounts receivable as a result of the timing of
sales to channels not financed through our Red Iron joint
41
venture or other
arrangements.
third-party
floor plan
financing
Cash Flows from Investing Activities
Capital expenditures and acquisitions are a significant use of
our capital resources. These investments are intended to
enable sales growth in new and expanding markets, help us
meet product demand, and increase our manufacturing
efficiencies and capacity. Cash used in investing activities in
fiscal 2021 decreased by $87.6 million from fiscal 2020. This
decrease was primarily due to less cash utilized for the fiscal
2021 holdback release for our Venture Products business
than was used for the initial cash consideration transferred on
the acquisition date during fiscal 2020, as well as cash
proceeds received from the fiscal 2021 first quarter sale of
our Northeastern U.S. distribution company. The decrease to
cash used in investing activities was partially offset by higher
cash used for our asset acquisitions of Turflynx, Lda and Left
Hand Robotics, Inc. and increased purchases of property,
plant and equipment in fiscal 2021 as a result of the cessation
of the actions taken in fiscal 2020 to preserve our liquidity
position as a result of COVID-19.
Cash Flows from Financing Activities
Cash used in financing activities in fiscal 2021 was $503.7
million compared to $2.4 million of cash provided by
financing activities in fiscal 2020. This increase in cash used
in financing activities was mainly due to less cash provided
by borrowings under our debt arrangements during fiscal
2021 as compared to fiscal 2020 and more cash used for
repurchases of shares of our common stock under our Board
authorized repurchase program as we resumed repurchase
activity during fiscal 2021, partially offset by lower cash
used for repayments of outstanding indebtedness.
Cash and Cash Equivalents
Cash and cash equivalents as of the end of fiscal 2021
decreased by $74.3 million compared to the end of fiscal
2020. As of October 31, 2021, cash and cash equivalents held
by our foreign subsidiaries were $117.3 million. We consider
that $30.9 million of cash and cash equivalents held by our
foreign subsidiaries are intended to be indefinitely reinvested.
Should these cash and cash equivalents be distributed in the
future in the form of dividends or otherwise, we may be
subject to foreign withholding taxes, state income taxes, and/
or additional federal taxes for currency fluctuations. As of
October 31, 2021, the unrecognized deferred tax liabilities for
temporary differences related to our investment in non-U.S.
subsidiaries, and any withholding, state, or additional federal
taxes upon any future repatriation, are not material and have
not been recorded.
Capital Expenditures
We make ongoing capital investments in our property, plant,
and equipment and believe that our historical capital
investments in our manufacturing facilities and other capital
the production capacity of our
assets have
operations and enabled us to meet the needs of our
increased
42
customers. Fiscal 2021 capital expenditures of $104.0 million
were $25.9 million higher than fiscal 2020. This increase was
primarily due to increased capital investment levels in fiscal
2021 as a result of the cessation of the actions taken in fiscal
2020 to preserve our liquidity position as a result of
COVID-19. We anticipate fiscal 2022 capital expenditures in
the range of $150.0 million to $175.0 million as we plan to
continue to invest in future growth through the expansion of
our manufacturing operations and other facilities and capital
assets, new product tooling, productivity and automation
in our manufacturing and distribution
enhancements
processes, and continued
replacement of production
equipment.
Other Long-Term Assets
Other long-term assets as of October 31, 2021 were $1,447.0
million compared to $1,425.6 million as of October 31, 2020,
an increase of $21.4 million. This increase was primarily due
to an increase in purchases of property, plant, and equipment
and an incremental increase of other intangible assets as a
result of our asset acquisitions of Turflynx, Lda and Left
Hand Robotics, Inc. These increases to other long-term assets
were partially offset by depreciation of property, plant and
equipment and the amortization of our other intangible assets
and right-of-use lease assets during fiscal 2021.
Additionally, included in other long-term assets as of
October 31, 2021 was goodwill in the amount of $421.7
million. Based on our annual goodwill impairment analysis,
we determined there was no impairment of goodwill during
fiscal 2021 for any of our reporting units as the fair values of
the reporting units exceeded their carrying values, including
goodwill.
Liquidity and Capital Resources
Our businesses are seasonally working capital intensive and
require funding for purchases of raw materials used in
production, replacement parts inventory, payroll and other
administrative costs, capital expenditures, establishment of
new facilities, expansion and renovation of existing facilities,
as well as for financing receivables from customers that are
not financed with Red Iron or other third-party financial
institutions. Our accounts receivable balance historically
increases between January and April as a result of typically
higher sales volumes and extended payment terms made
available to our customers, and typically decreases between
May and December when payments are received.
debt
capital
contractual
repayments,
investments,
expenditures,
We generally fund cash requirements for working capital
obligations,
needs,
acquisitions,
interest
payments, quarterly cash dividend payments, and common
stock repurchases, all as applicable, through cash provided by
operating activities, availability under our revolving credit
facility, and in certain instances, other forms of financing
arrangements. Our revolving credit facility has been adequate
for these purposes, although we have negotiated and
completed additional financing arrangements as needed to
allow us to complete acquisitions or for other corporate
purposes. We currently believe that our existing liquidity
position, including the funds available through existing, and
potential future, financing arrangements and forecasted cash
flows from operations will be sufficient to provide the
necessary capital resources for our anticipated working
capital needs, capital expenditures,
investments, debt
repayments, interest payments, quarterly cash dividend
payments, and common stock repurchases, all as applicable,
for at least the next twelve months. As of October 31, 2021,
we had available liquidity of $1,002.5 million, consisting of
cash and cash equivalents of $405.6 million, of which $117.3
million was held by our foreign subsidiaries, and availability
under our revolving credit facility of $596.9 million.
Indebtedness
The following is a summary of our indebtedness (in
thousands):
October 31
Revolving credit facility
$270 million term loan
$200 million term loan
$300 million term loan
$190 million term loan
3.81% series A senior notes
3.91% series B senior notes
7.8% debentures
6.625% senior notes
Less: unamortized discounts, debt issuance
costs, and deferred charges
Total long-term debt
Less: current portion of long-term debt
2021
2020
$
— $
270,000
—
—
—
100,000
100,000
100,000
124,040
2,798
691,242
—
—
—
100,000
180,000
90,000
100,000
100,000
100,000
123,978
2,855
791,123
99,873
Long-term debt, less current portion
$
691,242 $
691,250
Principal payments required on our outstanding indebtedness,
based on the maturity dates defined within our debt
arrangements, for each of the next five fiscal years are as
follows: fiscal 2022, $0.0 million; fiscal 2023, $0.0 million;
fiscal 2024, $0.0 million; fiscal 2025, $27.0 million; fiscal
2026, $243.0 million; and after fiscal 2026, $425.0 million.
Interest payments required on our outstanding indebtedness,
assuming no prepayments of indebtedness, for each of the
next five fiscal years are as follows: fiscal 2022, $26.7
million; fiscal 2023, $26.7 million; fiscal 2024, $26.7
million; fiscal 2025, $26.6 million; fiscal 2026, $26.1
million; and after fiscal 2026, $128.2 million. Interest on
variable rate debt was calculated using the interest rate as of
October 31, 2021.
Revolving Credit Facility
Seasonal cash requirements are financed from operations,
cash on hand, and with borrowings under our revolving credit
facility, as applicable. On October 5, 2021, we entered into
an amended and restated credit agreement ("amended credit
agreement") that provided for, among other things, a five-
year unsecured revolving credit facility with a borrowing
capacity of up to $600.0 million ("revolving credit facility")
that matures on October 5, 2026 and replaced our prior
$600.0 million unsecured senior revolving credit facility
scheduled to mature on June 19, 2023. Included in the
revolving credit facility is a $10.0 million sublimit for
standby letters of credit and a $30.0 million sublimit for
swingline loans. At our election, and with the approval of the
named borrowers on the revolving credit facility and the
election of the lenders to fund such increase, the aggregate
maximum principal amount available under the revolving
credit facility may be increased by an amount of up to $300.0
million. Funds are available under the revolving credit
facility for working capital, capital expenditures, and other
lawful corporate purposes, including, but not limited to,
acquisitions and common stock repurchases, subject in each
case to compliance with certain financial covenants as
defined within
the amended credit agreement. As
of October 31, 2021, we had no outstanding borrowings
under
$3.1
million outstanding under the sublimit for standby letters of
credit, resulting in $596.9 million of unutilized availability
under our revolving credit facility. As of October 31, 2020,
we had no outstanding borrowings under our prior revolving
credit facility and $2.5 million outstanding under our prior
sublimit for standby letters of credit, resulting in $597.5
million of unutilized availability under our prior revolving
credit facility.
revolving
facility
credit
and
the
Outstanding loans under the revolving credit facility (other
than swingline loans), if applicable, bear interest at a variable
rate generally based on LIBOR or an alternative variable rate
based on the highest of the Bank of America prime rate, the
federal funds rate or a rate generally based on LIBOR, in
each case depending on the leverage ratio (as measured
quarterly and defined as the ratio of (i) total indebtedness to
(ii) consolidated EBIT (earnings before interest and taxes)
plus depreciation and amortization expense) and our debt
rating. Swingline loans under the revolving credit facility
bear interest at a rate determined by the swingline lender or
an alternative variable rate based on the highest of the Bank
of America prime rate, the federal funds rate or a rate
generally based on LIBOR, in each case depending on the
leverage ratio and our debt rating. Interest is payable
quarterly in arrears. Our debt rating for long-term unsecured
senior, non-credit enhanced debt was unchanged during
the fourth quarter of fiscal 2021 by Standard and Poor's
Ratings Group at BBB and by Moody's Investors Service at
Baa3. If our debt rating falls below investment grade and/or
our leverage ratio rises above 1.50, the basis point spread we
currently pay on outstanding debt under the revolving credit
facility would increase. However, the credit commitment
could not be canceled by the banks based solely on a ratings
downgrade. During fiscal 2020, we incurred interest expense
of $0.8 million on the outstanding borrowings under our prior
revolving credit facility. No interest expense was incurred
under our current and prior revolving credit facilities during
fiscal 2021.
Our revolving credit facility contains customary covenants,
including, without limitation, financial covenants, such as a
maximum leverage ratio; and negative covenants, which
among other things, limit cash dividends, disposition of
43
assets, consolidations and mergers, liens, and other matters
customarily restricted in such agreements. Most of these
restrictions are subject to certain minimum thresholds and
exceptions. Under the revolving credit facility, we are not
limited in the amount for payments of cash dividends and
common stock repurchases as long as, both before and after
giving pro forma effect to such payments, our leverage ratio
from the previous quarter compliance certificate is less than
or equal to 3.5 (or, at our option (which we may exercise
twice during the term of the facility) after certain acquisitions
with aggregate consideration in excess of $75.0 million, for
the first four quarters following the exercise of such option, is
less than or equal to 4.0), provided that immediately after
giving effect of any such proposed action, no default or event
of default would exist. As of October 31, 2021, we were not
limited in the amount for payments of cash dividends and
common stock repurchases. We were in compliance with all
covenants under the amended credit agreement for our
revolving credit facility as of October 31, 2021, and we
expect to be in compliance with all covenants during
fiscal 2022. If we were out of compliance with any covenant
required by this credit agreement following the applicable
cure period, the banks could terminate their commitments
unless we could negotiate a covenant waiver from the banks.
In addition, our long-term senior notes, debentures, term loan
facility, and any amounts outstanding under the revolving
credit facility could become due and payable if we were
unable to obtain a covenant waiver or refinance our
borrowings under the amended credit agreement.
$270.0 Million Term Loan Credit Agreement
The amended credit agreement executed on October 5, 2021
also provided for a five-year unsecured term loan in an
aggregate principal amount of $270.0 million, the entire
amount of which was funded on October 5, 2021 and matures
on October 5, 2026 ("$270.0 million term loan"). Under the
amended
loan
commitments may be established at our election and the
approval of the borrowers on the $270.0 million term loan by
an amount of up to $100.0 million.
incremental
agreement,
credit
term
Beginning December 31, 2024, we are required to make
quarterly principal amortization payments on the $270.0
million term loan equal to $6.75 million. On October 5, 2026,
the aggregate principal amount of any remaining outstanding
borrowings under the $270.0 million term loan are required
to be repaid. The $270.0 million term loan may be prepaid
and terminated at our election at any time without penalty or
premium. Amounts repaid or prepaid may not be reborrowed.
As of October 31, 2021, there was $270.0 million of
outstanding borrowings under the $270.0 million term loan.
Outstanding borrowings under the $270.0 million term loan
bear interest at a variable rate generally based on LIBOR or
an alternative variable rate based on the highest of the Bank
of America prime rate, the federal funds rate or a rate
generally based on LIBOR, depending on the leverage ratio
(as measured quarterly and defined as the ratio of (i) total
indebtedness to (ii) consolidated EBIT (earnings before
44
interest and
taxes) plus depreciation and amortization
expense) and our debt rating. Interest is payable quarterly in
arrears. For the fiscal year ended October 31, 2021, we
incurred interest expense of $0.2 million on the outstanding
borrowings under the $270.0 million term loan. No interest
expense was incurred during fiscal 2020.
The $270.0 million term loan contains customary covenants,
including, without limitation, financial covenants generally
consistent with those applicable under our revolving credit
facility. We were in compliance with all covenants related to
the $270.0 million term loan as of October 31, 2021, and we
expect to be in compliance with all covenants during
fiscal 2022. If we were out of compliance with any covenant
required by the $270.0 million term loan following the
applicable cure period, our term loan facility, long-term
senior notes, debentures, and any amounts outstanding under
the revolving credit facility could become due and payable if
we were unable to obtain a covenant waiver or refinance our
borrowings under the $270.0 million term loan.
$500.0 Million Term Loan Credit Agreement
incurred
In March 2019, we entered into a term loan credit agreement
with a syndicate of financial institutions for the purpose of
partially funding the CMW purchase price and the related
fees and expenses
in connection with such
acquisition. The term loan credit agreement provided for
a $200.0 million three-year unsecured senior term loan
facility maturing on April 1, 2022 ("$200.0 million term
loan") and a $300.0 million five-year unsecured senior term
loan facility maturing on April 1, 2024 ("$300.0 million term
loan" and collectively with the $200.0 million term loan, the
"$500.0 million term loan"). The funds under the $500.0
million term loan were received on the CMW closing date.
As of October 31, 2020, we had prepaid $100.0 million and
$120.0 million of the outstanding principal balances of the
$200.0 million term loan and $300.0 million term loan,
respectively. Thus, as of October 31, 2020, there was $100.0
million and $180.0 million of outstanding borrowings under
the $200.0 million term loan and $300.0 million term loan,
respectively. During the second quarter of fiscal 2021, we
prepaid $10.0 million of
remaining outstanding
borrowings under the $300.0 million term loan. As a result of
the execution of the amended credit agreement during the
fourth quarter of fiscal 2021, the remaining $100.0 million
and $170.0 million outstanding principal balances under the
$200.0 million term loan and $300.0 million term loan,
respectively, were paid in full. As a result of the prepayment,
there were no outstanding borrowings under the $200.0
million three-year unsecured senior term loan facility and
$300.0 million five-year unsecured senior term loan facility,
respectively, as of October 31, 2021.
the
Interest was previously calculated on outstanding borrowings
under the $500.0 million term loan by utilizing a variable rate
generally based on LIBOR or an alternative variable rate,
based on the highest of the Bank of America prime rate, the
federal funds rate, or a rate generally based on LIBOR, in
each case subject to an additional basis point spread as
in arrears. During
defined in the $500.0 million term loan. Interest was payable
quarterly
fiscal years ended
October 31, 2021 and 2020, we incurred $3.1 million and
$5.2 million, respectively, of interest expense on the
outstanding borrowings of the $500.0 million term loan.
the
$190.0 Million Term Loan Credit Agreement
On March 30, 2020, we entered into a $190.0 million term
loan credit agreement ("$190.0 million term loan") with
certain financial institutions for the purpose of refinancing
certain of our outstanding borrowings incurred in connection
with the acquisition of Venture Products on March 2, 2020,
as well as a precautionary measure to increase our liquidity
and preserve financial flexibility in light of the uncertainty in
the global financial and commercial markets as a result of
COVID-19. The $190.0 million term loan provided for a
$190.0 million three-year unsecured senior term loan facility
maturing on June 19, 2023.
As of October 31, 2020, we had prepaid $100.0 million of the
outstanding principal balance of the $190.0 million term
loan, resulting in a remaining outstanding principal balance
of $90.0 million. During the first quarter of fiscal 2021, we
prepaid the remaining $90.0 million outstanding principal
balance under the $190.0 million term loan. As a result of the
prepayment, there were no outstanding borrowings under the
$190.0 million term loan as of October 31, 2021.
Interest was previously calculated on outstanding borrowings
under the $190.0 million term loan by utilizing a variable rate
based on LIBOR or an alternative variable rate with a
minimum rate of 0.75 percent, subject to an additional basis
point spread as defined in the term loan credit agreement.
Interest was payable quarterly in arrears. For the fiscal years
ended October 31, 2021 and 2020 we incurred interest
expense of approximately $0.3 million and $2.4 million,
respectively, on the outstanding borrowings under the $190.0
million term loan.
3.81% Series A and 3.91% Series B Senior Notes
On April 30, 2019, we entered into a private placement note
purchase agreement with certain purchasers ("holders")
pursuant to which we agreed to issue and sell an aggregate
principal amount of $100.0 million of 3.81% Series A Senior
Notes due June 15, 2029 ("Series A Senior Notes") and
$100.0 million of 3.91% Series B Senior Notes due June 15,
2031 ("Series B Senior Notes" and together with the Series A
Senior Notes, the "Senior Notes"). On June 27, 2019, we
issued $100.0 million of the Series A Senior Notes and
$100.0 million of the Series B Senior Notes pursuant to the
private placement note purchase agreement. The Senior
Notes are our unsecured senior obligations.
No principal is due on the Senior Notes prior to their stated
due dates. We have the right to prepay all or a portion of
either series of the Senior Notes in amounts equal to not less
than 10.0 percent of the principal amount of the Senior Notes
then outstanding upon notice to the holders of the series of
Senior Notes being prepaid for 100.0 percent of the principal
amount prepaid, plus a make-whole premium, as set forth in
45
the private placement note purchase agreement, plus accrued
and unpaid interest, if any, to the date of prepayment. In
addition, at any time on or after the date that is 90 days prior
to the maturity date of the respective series, we have the right
to prepay all of the outstanding Senior Note of such series for
100.0 percent of the principal amount so prepaid, plus
accrued and unpaid interest, if any, to the date of prepayment.
Upon the occurrence of certain change of control events, we
are required to offer to prepay all Senior Notes for the
principal amount thereof plus accrued and unpaid interest, if
any, to the date of prepayment.
Interest on the Senior Notes is payable semiannually on the
15th day of June and December in each year. For each of the
fiscal years ended October 31, 2021 and 2020, we incurred
interest expense on the Senior Notes of $7.7 million.
things, provide
Our private placement note purchase agreement contains
customary representations and warranties, as well as certain
customary covenants, including, without limitation, financial
covenants, such as the maintenance of minimum interest
coverage and maximum leverage ratios, and other covenants,
which, among other
limitations on
transactions with affiliates, mergers, consolidations and sales
of assets, liens and priority debt. Under the private placement
note purchase agreement, we are not limited in the amount
for payments of cash dividends and common stock
repurchases as long as, both before and after giving pro
forma effect to such payments, our leverage ratio from the
previous quarter compliance certificate is less than or equal
to 3.5 (or, at our option (which we may exercise twice during
the term of the facility) after certain acquisitions with
aggregate consideration in excess of $75.0 million, for the
first four quarters following the exercise of such option, is
less than or equal to 4.0), provided that immediately after
giving effect of any such proposed action, no default or event
of default would exist. As of October 31, 2021, we were not
limited in the amount for payments of cash dividends and
common stock repurchases. We were in compliance with all
covenants related to the private placement note purchase
agreement as of October 31, 2021 and we expect to be in
compliance with all covenants during fiscal 2022. If we were
out of compliance with any covenant required by this private
placement note purchase agreement following the applicable
cure period, our term loan facility, long-term senior notes,
debentures, and any amounts outstanding under the revolving
credit facility would become due and payable if we were
unable to obtain a covenant waiver or refinance our
borrowings under our private placement note purchase
agreement.
7.8% Debentures
In June 1997, we issued $175.0 million of debt securities
consisting of $75.0 million of 7.125 percent coupon 10-year
notes and $100.0 million of 7.8 percent coupon 30-year
debentures. The $75.0 million of 7.125 percent coupon 10-
year notes were repaid at maturity during fiscal 2007. In
connection with the issuance of $175.0 million in long-term
debt securities, we paid $23.7 million to terminate three
forward-starting interest rate swap agreements with notional
amounts totaling $125.0 million. These swap agreements had
been entered into to reduce exposure to interest rate risk prior
to the issuance of the new long-term debt securities. As of the
inception of one of the swap agreements, we had received
payments that were recorded as deferred income to be
recognized as an adjustment to interest expense over the term
of the new debt securities. As of the date the swaps were
terminated, this deferred income totaled $18.7 million. The
excess termination fees over the deferred income recorded
was deferred and is being recognized as an adjustment to
interest expense over the term of the debt securities issued.
Interest on the debentures is payable semiannually on the
15th day of June and December in each year. For each of the
fiscal years ended October 31, 2021 and 2020, we incurred
interest expense of $8.0 million.
6.625% Senior Notes
On April 26, 2007, we issued $125.0 million in aggregate
principal amount of 6.625 percent senior notes due May 1,
2037 and priced at 98.513 percent of par value. The resulting
discount of $1.9 million is being amortized over the term of
the notes using the straight-line method as the results
obtained are not materially different from those that would
result from the use of the effective interest method. Although
the coupon rate of the senior notes is 6.625 percent, the
effective interest rate is 6.741 percent after taking into
account the issuance discount. The senior notes are our
unsecured senior obligations and rank equally with our other
unsecured and unsubordinated indebtedness. The indentures
under which the senior notes were issued contain customary
covenants and event of default provisions. We may redeem
some or all of the senior notes at any time at the greater of the
full principal amount of the senior notes being redeemed or
the present value of the remaining scheduled payments of
principal and interest discounted to the redemption date on a
semi-annual basis at the treasury rate plus 30 basis points,
plus, in both cases, accrued and unpaid interest. In the event
of the occurrence of both (i) a change of control of the
company, and (ii) a downgrade of the notes below an
investment grade
Investors
Service, Inc. and Standard & Poor's Ratings Services within a
specified period, we would be required to make an offer to
purchase the senior notes at a price equal to 101 percent of
the principal amount of the senior notes plus accrued and
unpaid interest to the date of repurchase. Interest on the
senior notes is payable semiannually on the 1st day of May
and November in each year. For each of the fiscal years
ended October 31, 2021 and 2020, we incurred interest
expense of $8.4 million.
rating by both Moody's
Capital Structure
The following table details the components of our capital
structure and debt-to-capitalization ratio (in millions, except
percentage data):
October 31
2021
2020
Long-term debt, including current portion
$
691.2
$
791.1
Stockholders' equity
Debt-to-capitalization ratio
$ 1,151.1
$ 1,114.8
37.5 %
41.5 %
Our debt-to-capitalization ratio decreased in fiscal 2021
compared to fiscal 2020 primarily due to lower outstanding
indebtedness as a result of repayments of outstanding
borrowings on our debt arrangements during fiscal 2021, as
well as higher stockholders' equity in fiscal 2021 compared to
fiscal 2020 as a result of higher net earnings, partially offset
by increased repurchases of our common stock under our
Board authorized repurchase program and increased cash
dividend payments on shares of our common stock.
Cash Dividends
In each quarter of fiscal 2021, our Board of Directors
declared a common stock cash dividend of $0.2625 per share,
which was a 5.0 percent increase over our common stock
cash dividend of $0.25 per share paid each quarter in fiscal
2020. On December 14, 2021, our Board of Directors
increased our fiscal 2022 first quarter common stock cash
dividend by 14.3 percent to $0.30 per share from the
quarterly common stock cash dividend of $0.2625 per share
paid in the first quarter of fiscal 2021. Future common stock
cash dividends will depend upon our Financial Condition,
Results of Operations, capital requirements, and other factors
deemed relevant by our Board of Directors.
Share Repurchases
for use
Our Board authorized stock repurchase program provides
shares
in connection with our stock-based
compensation plans, among other uses, and has no expiration.
The following table provides information with respect to
repurchases of our common stock during the past two fiscal
years (in millions, except share and per share data):
Fiscal Years Ended October 31
2021
2020
Shares of Board authorized common stock
purchased
Cost to repurchase common stock
Average price paid per share
2,989,794
$
$
302.3 $
101.10 $
—
—
—
In March 2020, we announced our intention to curtail share
repurchases as a prudent measure to enhance our liquidity
position in response to COVID-19. During fiscal 2021, we
resumed repurchasing shares of our common stock, thereby
reducing our total shares outstanding. As of October 31,
2021, 4,052,462 shares remained available for repurchase
under our Board authorized stock repurchase program. We
currently expect to continue share repurchases in fiscal 2022,
depending on our cash balance, debt repayments, market
conditions, our anticipated working capital needs, and/or
other factors.
46
Customer Financing Arrangements
Wholesale Financing
We are party to a joint venture with TCF Inventory Finance,
Inc. ("TCFIF"), a subsidiary of The Huntington National
Bank, established as Red Iron, the primary purpose of which
is to provide inventory financing to certain distributors and
dealers of certain of our products in the U.S. that enables
them to carry representative inventories of certain of our
products. Under separate agreements between Red Iron and
the dealers and distributors, Red Iron provides loans to the
dealers and distributors for the advances paid by Red Iron to
us. Under these financing arrangements, down payments are
not required, and depending on the finance program for each
product line, finance charges are incurred by us, shared
between us and the distributor and/or the dealer, or paid by
the distributor or dealer. Red Iron retains a security interest in
the distributors' and dealers' financed inventories and such
inventories are monitored regularly. Financing terms to the
distributors and dealers require payment as the equipment,
which secures the indebtedness, is sold to customers or when
payment otherwise become due under the agreements
between these financing entities and the distributors and
dealers, whichever occurs first. Rates are generally indexed
to LIBOR, or an alternative variable rate, plus a fixed
percentage that differs based on whether the financing is for a
distributor or dealer. Rates may also vary based on the
product that is financed. The net amount of receivables
financed for dealers and distributors under these financing
arrangements during fiscal 2021 and 2020 were $2,282.6
million and $1,832.5 million, respectively. The total amount
of net receivables outstanding under this arrangement as of
October 31, 2021 and 2020 was $420.5 million and $386.8
million, respectively. The total amount of receivables due
from Red Iron to us as of October 31, 2021 and 2020 were
$31.0 million and $12.6 million, respectively.
include agreements with
Under a separate agreement, TCF Commercial Finance
Canada, Inc. ("TCFCFC") provides inventory financing to
dealers of certain of our products in Canada. We also have
floor plan financing agreements with other third-party
financial institutions to provide floor plan financing to certain
dealers and distributors not financed through Red Iron or
TCFCFC, which
third-party
financial institutions in the U.S. and internationally. These
third-party financial institutions and TCFCFC financed
$460.5 million and $410.7 million of receivables for such
dealers and distributors during the fiscal years ended
October 31, 2021 and 2020, respectively. As of October 31,
2021 and 2020, $151.5 million and $137.6 million,
respectively, of receivables financed by the third-party
financing companies and TCFCFC, excluding Red Iron, were
outstanding.
We entered into a limited inventory repurchase agreement
with Red Iron and TCFCFC. Under such limited inventory
repurchase agreement, we have agreed to repurchase products
repossessed by Red Iron and TCFCFC, up to a maximum
aggregate amount of $7.5 million in a calendar year.
47
the
the
separate
separate
third-party
third-party
Additionally, as a result of our floor plan financing
agreements with
financial
institutions, we have also entered into inventory repurchase
agreements with
financial
institutions. Under such inventory repurchase agreements, we
have agreed to repurchase products repossessed by the
separate third-party financial institutions. As of October 31,
2021 and 2020, we were contingently liable to repurchase up
to a maximum amount of $96.8 million and $128.1 million,
respectively, of inventory related to receivables under these
inventory repurchase agreements. Our financial exposure
under these inventory repurchase agreements is limited to the
difference between the amount paid to Red Iron or other
third-party financing institutions for repurchases of inventory
and the amount received upon subsequent resale of the
repossessed product. We have repurchased
immaterial
amounts of inventory pursuant to such arrangements over the
past three fiscal years. However, a decline in retail sales or
financial difficulties of our distributors or dealers could cause
this situation to change and thereby require us to repurchase
financed product, which could have an adverse effect on our
Results of Operations, Financial Position, or Cash Flows.
line
We continue to provide financing in the form of open
account terms directly to home centers and mass retailers,
general
irrigation dealers, certain domestic and
international distributors and dealers other than the Canadian
distributors and dealers to whom Red Iron or other third-
party financing institutions provide financing arrangements,
ag-irrigation dealers and distributors, government customers,
and rental companies.
End-User Financing
We have agreements with third-party financing companies to
provide financing options to end-customers throughout the
world. The purpose of these agreements is to provide end-
users of our products alternative financing options when
purchasing our products. We have no material contingent
liabilities for residual value or credit collection risk under
these agreements with third-party financing companies.
From time to time, we enter into agreements where we
provide recourse to third-party finance companies in the
event of default by the customer for financing payments to
the third-party finance company. We may recover a portion
of any required recourse payments incurred under these
agreements from repossession and resale of the equipment
collateralizing the receivables. Our maximum exposure for
credit collection under those arrangements as of October 31,
2021 and 2020 was $11.4 million and $12.5 million,
respectively.
Termination or any material change to the terms of our end-
user financing arrangements, availability of credit for our
customers, including any delay in securing replacement credit
sources, or
repurchase
requirements could have a material adverse impact on our
future operating results.
financed product
significant
NON-GAAP FINANCIAL MEASURES
liquidity because we believe
We have provided non-GAAP financial measures, which are
not calculated or presented in accordance with U.S. GAAP,
as information supplemental and in addition to the most
directly comparable financial measures presented in this
Annual Report on Form 10-K that are calculated and
presented in accordance with U.S. GAAP. We use these non-
GAAP financial measures in making operating decisions and
assessing
they provide
meaningful supplemental information regarding our core
operational performance and cash flows, as a measure of our
liquidity, and provide us with a better understanding of how
to allocate resources to both ongoing and prospective
business initiatives. Additionally, these non-GAAP financial
measures facilitate our internal comparisons to both our
historical operating results and to our competitors' operating
results by factoring out potential differences caused by
charges and benefits not related to our regular, ongoing
business, including, without limitation, certain non-cash,
large, and/or unpredictable charges and benefits; acquisitions
and dispositions; legal judgments, settlements, or other
matters; and tax positions.
We believe that these non-GAAP financial measures, when
considered in conjunction with our Consolidated Financial
Statements prepared in accordance with U.S. GAAP, provide
investors with useful supplemental financial information to
better understand our core operational performance and cash
flows. These non-GAAP financial measures should not be
considered superior to, as a substitute for, or as an alternative
to, and should be considered in conjunction with, the most
directly comparable U.S. GAAP financial measures. The
non-GAAP financial measures may differ from similar
measures used by other companies.
Reconciliation of Non-GAAP Financial Performance
Measures
The following table provides a reconciliation of financial
performance measures calculated and reported in accordance
with U.S. GAAP to the most directly comparable non-GAAP
financial performance measures for the fiscal years ended
October 31, 2021 and 2020 (In thousands, except per share
and percentage data):
Fiscal Years Ended
Gross profit
Acquisition-related costs2
Management actions3
Non-GAAP gross profit
Gross margin
Acquisition-related costs2
Non-GAAP gross margin
October 31,
2021
October 31,
2020
$ 1,338,492
$ 1,189,774
—
—
3,950
857
$ 1,338,492
$ 1,194,581
33.8 %
— %
33.8 %
35.2 %
0.2 %
35.4 %
Operating earnings
$ 518,280
$ 426,357
Litigation settlements, net1
Acquisition-related costs2
Management actions3
(11,325)
—
—
—
6,183
857
Non-GAAP operating earnings
$ 506,955
$ 433,397
Earnings before income taxes
Litigation settlements, net1
Acquisition-related costs2
Management actions3
$ 499,818
$ 407,070
(11,325)
—
—
—
6,183
857
Non-GAAP earnings before income
taxes
$ 488,493
$ 414,110
Net earnings
$ 409,880
$ 329,701
Litigation settlements, net1
Acquisition-related costs2
Management actions3
Tax impact of stock-based
compensation4
(9,022)
—
—
—
5,021
677
(8,185)
(7,652)
Non-GAAP net earnings
$ 392,673
$ 327,747
Net earnings per diluted share
Litigation settlements, net1
Acquisition-related costs2
Management actions3
Tax impact of stock-based
compensation4
$
3.78
$
(0.08)
—
—
3.03
—
0.05
0.01
(0.08)
(0.07)
Non-GAAP net earnings per diluted
share
$
3.62
$
3.02
Effective tax rate
Tax impact of stock-based
compensation4
Non-GAAP effective tax rate
18.0 %
19.0 %
1.6 %
19.6 %
1.9 %
20.9 %
1 On November 19, 2020, Exmark Manufacturing Company
Incorporated ("Exmark"), a wholly-owned subsidiary of TTC, and
Briggs & Stratton Corporation ("BGG") entered into a settlement
agreement ("Settlement Agreement") relating to the decade-long
patent infringement litigation that Exmark originally filed in May
2010 against Briggs & Stratton Power Products Group, LLC
("BSPPG"), a former wholly-owned subsidiary of BGG (Case No.
8:10CV187, U.S. District Court for the District of Nebraska) (the
"Infringement Action"). The Settlement Agreement provided, among
other things, that upon approval by the bankruptcy court, and such
48
approval becoming final and nonappealable, BGG agreed to pay
Exmark $33.65 million ("Settlement Amount"). During January 2021,
the first quarter of fiscal 2021, the Settlement Amount was received
by Exmark in connection with the settlement of the Infringement
Action and at such time, the underlying events and contingencies
associated with the gain contingency related to the Infringement
Action were satisfied. As such, we recognized in selling, general and
the Consolidated Statements of
administrative expense within
Earnings during the first quarter of fiscal 2021 (i) the gain associated
with the Infringement Action and (ii) a corresponding expense related
to the contingent fee arrangement with our external legal counsel
customary in patent infringement cases equal to approximately 50
percent of the Settlement Amount. Additionally, during the third
quarter of fiscal 2021, we recorded a charge related to a legal
settlement for a series of ongoing patent infringement disputes within
selling, general and administrative expense in the Consolidated
Statements of Earnings. Accordingly, litigation settlements, net
represent the net amount recorded for the settlement of the
Infringement Action and the charge incurred for the settlement of the
patent infringement disputes. Refer to the headings titled "Litigation"
and "Litigation Settlement" within Note 12, Commitments and
Contingencies, of the Notes to Consolidated Financial Statements for
additional information regarding the settlement of the Infringement
Action.
2 On March 2, 2020, we completed the acquisition of Venture Products
and on April 1, 2019, we completed the acquisition of CMW.
Acquisition-related costs for the fiscal year ended October 31, 2020
represent transaction costs incurred for our acquisition of Venture
Products, as well as integration costs and charges incurred for the
take-down of the inventory fair value step-up amounts resulting from
purchase accounting adjustments related to the acquisitions of
Venture Products and CMW. No acquisition-related costs were
incurred for the fiscal year ended October 31, 2021. For additional
information regarding these acquisitions, refer to Note 2, Business
Combinations and Asset Acquisitions, of the Notes to Consolidated
Financial Statements.
3 During the third quarter of fiscal 2019, we announced the Toro
underground wind down. Management actions for the fiscal year
ended October 31, 2020 represent inventory write-down charges
incurred for the Toro underground wind down. No charges were
incurred for the Toro underground wind down for the fiscal year
ended October 31, 2021. Refer to Note 7, Management Actions, of the
Notes
for additional
information regarding these management actions.
to Consolidated Financial Statements
4 The accounting standards codification guidance governing employee
stock-based compensation requires that any excess tax deduction for
stock-based compensation be immediately recorded within income
tax expense. Employee stock-based compensation activity, including
the exercise of stock options under The Toro Company Amended and
Restated 2010 Equity and Incentive Plan, can be unpredictable and
can significantly impact our net earnings, net earnings per diluted
share, and effective tax rate. These amounts represent the discrete tax
benefits
for stock-based
compensation during the fiscal years ended October 31, 2021 and
2020.
recorded as excess
tax deductions
Reconciliation of Non-GAAP Liquidity Measures
We define non-GAAP free cash flow as net cash provided by
operating activities less purchases of property, plant and
equipment. Non-GAAP free cash flow conversion percentage
represents non-GAAP free cash flow as a percentage of net
earnings. We consider non-GAAP free cash flow and non-
GAAP free cash flow conversion percentage to be liquidity
measures that provide useful information to management and
investors about our ability to convert net earnings into cash
49
resources that can be used to pursue opportunities to enhance
shareholder value, fund ongoing and prospective business
initiatives, and strengthen our Consolidated Balance Sheets,
after reinvesting in necessary capital expenditures required to
maintain and grow our business. The following table
provides a reconciliation of net cash provided by operating
activities, the most directly comparable GAAP financial
measure, to non-GAAP free cash flow for the fiscal years
ended October 31, 2021 and October 31, 2020 (In thousands,
except percentage data):
Fiscal Years Ended
Net cash provided by operating
activities
Less: Purchases of property,
plant and equipment
Non-GAAP free cash flow
Net earnings
$
Non-GAAP free cash flow
percentage
October 31,
2021
October 31,
2020
$
555,469
$
539,374
104,012
451,457
409,880
$
78,068
461,306
329,701
110.1 %
139.9 %
CRITICAL
ESTIMATES
ACCOUNTING
POLICIES
AND
In preparing our Consolidated Financial Statements in
conformity with U.S. GAAP, we must make decisions that
impact the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures. Such decisions include
the selection of the appropriate accounting principles to be
applied and the assumptions on which to base accounting
estimates. In reaching such decisions, we apply judgment
based on our understanding and analysis of the relevant
circumstances, historical experience, and actuarial and other
independent external third-party specialist valuations, when
applicable. As a result, actual amounts could differ from
those estimated at the time the Consolidated Financial
Statements are prepared.
Our significant accounting policies are described in Note 1 of
the Notes to Consolidated Financial Statements. Some of
those significant accounting policies require us to make
difficult, subjective, or complex judgments or estimates. An
accounting estimate is considered to be critical if it meets
both of the following criteria: (i) the estimate requires
assumptions about matters that are highly uncertain and
susceptible to change at the time the accounting estimate is
made and different estimates reasonably could have been
used and (ii) changes in the estimate may have a material
impact on the presentation of our Financial Condition or
Results of Operations. Our critical accounting policies and
estimates include the following:
Sales Promotions and Incentives
We recognize revenues based on the transaction price of the
good or service sold to our customers, which is measured as
the amount of consideration we expect to receive in exchange
for transferring product or rendering services pursuant to the
terms of the contract with a customer. The amount of
consideration we receive and the revenue we recognize varies
with changes in the variable consideration associated with the
estimated expense of certain of our sales promotions and
incentives programs offered to customers that are determined
to represent price concessions. The estimated expense of each
sales promotion and incentive program is classified and
recorded as a reduction from gross sales or as a component of
selling, general and administrative expense within the
Consolidated Statements of Earnings when revenue is
recognized, depending on the nature of the respective
program. Generally, the cost of a program is recorded as a
reduction from gross sales when revenue is recognized and
thus is considered to be variable consideration if the expense
is determined to represent a price concession because the
program either: (i) results in an immediate reduction of the
transaction price with no anticipated future costs or
consideration to be provided to the customer or (ii) we
anticipate a future cost based on historical or expected future
business practice for which we do not receive a distinct good
or service in exchange for the future consideration provided
to the customer under the program. In other circumstances,
the anticipated future cost of a program based on historical or
expected future business practice is recorded as selling,
general and administrative expense because we receive a
the future
distinct good or service
consideration provided to the customer under the program.
in exchange for
Examples of significant sales promotions and incentive
programs that are considered to be variable consideration
because the cost of the program is classified as a reduction
from gross sales are as follows:
•
• Off-Invoice Discounts: Our off-invoice discounts
represent an immediate reduction in the selling price of
our products that is realized at the time of sale with no
anticipated future cost or consideration provided to the
customer.
Rebate Programs: Our rebate programs are generally
based on claims submitted from either our direct
customers or end-users of our products or are based on
our purchase or retail sales goals for our direct customers
of certain quantities or mixes of product during a
specified time period, depending upon the program. The
amount of the rebate varies based on the specific
program and is either a dollar amount or a percentage of
the purchase price and can also be based on actual retail
price as compared to our selling price. Consideration is
typically provided to our customers for our rebate
programs after the initial sale of our products to our
direct customers and
is generally an
thus,
anticipated future cost at the time revenue is recognized
based on historical and expected future business practice.
Financing Programs: Our financing programs consist
of wholesale floor plan financing with Red Iron and
separate third-party financial institutions and end-user
retail financing. Costs incurred for wholesale floor plan
financing programs represent financing costs associated
with programs under which we share the expense of
financing distributor and dealer inventories through
third-party financing arrangements for a specific period
there
•
of time. This charge represents interest for a pre-
established length of time based on a predefined rate
from the contract between the company and Red Iron or
the separate third-party financial institution to finance
distributor and dealer inventory purchases. End-user
retail financing is similar to floor planning with the
difference being that retail financing programs are
offered to end-user customers under which we, at our
discretion, may pay a portion of interest costs on behalf
of end-users for financing purchases of our equipment.
Examples of significant sales promotions and incentive
programs that are not considered to be variable consideration
because the cost of the program is classified as a component
of selling, general, and administrative expense are as follows:
•
•
that purchase and
Commissions Paid to Distributors and Dealers: For
certain products, we use a distribution network of
distributors and dealers
take
possession of products for sale to the end customer. We
also have dealers and distributors that act as sales agents
for us on certain products using a direct-selling type
model. Under this direct-selling type model, our network
of distributors and dealers facilitates a sale directly to the
dealer or end-user customer on our behalf. Commissions
to distributors and dealers in these instances represent
commission payments to sales agents that are also our
customers. In addition, TTC dealers are often paid a
commission to set up and deliver riding product
purchased at certain home centers.
Cooperative Advertising: Cooperative advertising
programs are based on advertising costs incurred by
distributors and dealers for promoting our products. We
support a portion of those advertising costs in which
claims are submitted by the distributor or dealer along
with evidence of the advertising material procured/
produced and evidence of the cost incurred in the form
of third-party invoices or receipts.
Regardless of classification of the cost of the sales promotion
and incentive program within the Consolidated Statements of
Earnings, we record an accrual within the Consolidated
Balance Sheets for the estimated future expense of certain of
our sales promotion and incentive programs for which we
anticipate a future cost based on historical or expected future
business practice by using the expected value method and
applying the portfolio approach practical expedient under the
accounting standards codification guidance for revenue from
contracts with customers. Under such approach, our
determination of variable consideration associated with the
estimated expense of certain of our sales promotions and
incentives programs is primarily based on the terms of the
sales arrangements and sales promotion and incentive
programs with customers, historical payment and rebate
claims experience, field inventory levels, quantity or mix of
products purchased, forecasted sales volumes, types of
programs offered, and expectations for the acceptance of
sales promotion and incentive programs offered in the future
or changes in other relevant trends.
50
Of our sales promotion and incentive programs that are
considered to be variable consideration, our off-invoice
discounts and financing programs are less subject to complex
judgment or estimates as compared to our rebate programs,
which are subject to a more significant level of estimation
uncertainty as they require inputs and assumptions that are
more susceptible to change or subjectivity. Specifically, our
rebate programs are primarily sensitive to fluctuations in
historical payment and rebate claims experience as compared
to actual realized payment and rebate claims, field inventory
levels, and forecasted wholesale and retail sales volumes and
the quantity or mix of products.
Adjustments to sales promotions and incentive accruals are
made from time to time as actual usage becomes known in
order to properly estimate the amounts necessary to generate
consumer demand based on market conditions as of the
balance sheet date. As of October 31, 2021, we had recorded
an accrual for sales promotion and incentive programs of
$103.7 million within the Consolidated Balance Sheets. We
believe that our accrual for sales promotion and incentive
programs is adequate as of October 31, 2021 and historically
has been adequate; however, due to the inherent uncertainty
in the accrual estimation process, actual results may differ
from these estimates if competitive factors dictate the need to
enhance, modify, or reduce sales promotion and incentive
programs or if customer usage, product mix, and field
inventory levels vary from historical trends.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill is initially recognized as a result of the excess of
purchase consideration transferred over the estimated fair
value of the net assets acquired in a business combination and
indefinite-lived intangible assets are initially recognized at
their estimated fair values as a result of a business
combination or asset acquisition. As of October 31, 2021, our
goodwill and indefinite-lived intangible asset balances, which
consist of certain trade names, were $421.7 million and
$190.6 million, respectively. Goodwill and indefinite-lived
intangible assets are not amortized, but are tested at least
annually for impairment during the fourth quarter of our
fiscal year unless events or changes in circumstances indicate
that impairment may have occurred prior to our annual
assessment. We test goodwill for impairment at the reporting
unit level and test indefinite-lived intangible assets for
impairment at the individual indefinite-lived intangible asset
or asset group level, as appropriate. A reporting unit is an
operating segment or, under certain circumstances, a
component of an operating segment that constitutes a
business, has available discrete financial information, and
whose operating
reviewed by
management. We combine and aggregate components of an
the
operating segment as a single reporting unit
components have similar economic characteristics. Our 11
reporting units are the same as our 11 operating segments as
defined
to
Consolidated Financial Statements. Eight of our reporting
units contain goodwill on their respective balance sheets as of
October 31, 2021.
in Note 3, Segment Data, of
results are
the Notes
regularly
if
Our impairment testing for goodwill is performed separately
from our impairment testing of indefinite-lived intangible
assets; however, for both types of assets we may elect to first
perform a qualitative assessment to determine whether
changes in events or circumstances since our most recent
quantitative test for impairment indicate that it is more likely
than not that the fair value of a reporting unit or the fair value
of an indefinite-lived intangible asset, or asset group, is less
than its respective carrying amount. For both types of assets,
we have an unconditional option to bypass the qualitative
indefinite-lived
assessment for any reporting unit or
intangible asset, or asset group, and proceed directly to
performing the respective quantitative analysis. If elected, in
conducting the initial qualitative assessment, we analyze our
most recent estimates of the fair value of each reporting unit
and indefinite-lived intangible asset, or asset group, by
assessing actual and projected growth trends for operating
results, as well as historical operating results versus planned
performance. Additionally, each reporting unit and indefinite-
lived intangible asset, or asset group, is assessed for critical
areas that may impact its business or brand and operating
performance, including macroeconomic conditions, industry
and market considerations, cost factors such as commodities
and component parts and labor, changes in competition and
technology such as new or discontinued products, changes in
management or key personnel and business or brand strategy,
market-related exposures such as fluctuations
in our
company's market capitalization and share price, and/or any
other potential risks to operating performance, such as
regulatory and environmental changes or otherwise, all as
applicable. We also assess for changes in the composition or
carrying value of a reporting unit's net assets. All
assumptions and estimates used in the qualitative assessment
require significant judgment. If, after evaluating the weight of
the changes in events and circumstances, both positive and
negative, we conclude that an impairment of goodwill or an
indefinite-lived intangible asset, or asset group, may exist, a
quantitative test for impairment is performed. During fiscal
2021, we elected to bypass the qualitative assessment for all
of our reporting units and indefinite-lived intangible assets,
or asset groups, and proceed directly to performing the
respective quantitative analyses.
If performed due to identified impairment indicators under
the qualitative assessment or our election to bypass the
qualitative assessment and move directly to the quantitative
analysis, the quantitative impairment analysis for both
goodwill and indefinite-lived intangibles assets is conducted
under the income approach. Under the income approach, we
calculate the fair value of our reporting units and indefinite-
lived intangible assets using the present value of future cash
flows. Assumptions utilized in determining fair value under
the income approach, such as forecasted operating results,
terminal growth rates, and weighted-average cost of capital
("WACC") or discount rates, are consistent with internal
projections and operating plans. Materially different
assumptions regarding future performance of our businesses
and brands, terminal growth rates, and/or WACC or discount
51
rate could result in impairment losses and such losses could
be material.
During the fourth quarter of fiscal 2021, we performed our
annual quantitative goodwill impairment test, which is a one-
step process. In performing the quantitative analysis, we
compare the carrying value of a reporting unit, including
goodwill, to its fair value. The carrying amount of each
reporting unit is determined based on the amount of equity
required for the reporting unit's activities, considering the
specific assets and liabilities of the reporting unit. We do not
assign corporate assets and liabilities to reporting units that
do not relate to the operations of the reporting unit or are not
considered in determining the fair value of the reporting unit.
Our estimate of the fair value of our reporting units under the
income approach requires the use of significant judgment
regarding the selection of various inputs and assumptions,
including projected operating results and growth rates from
our forecasting process, applicable tax rates, estimated capital
expenditures and depreciation, estimated changes in working
capital, terminal growth rates applied to projected operating
results in the terminal period, and a WACC rate. These inputs
and assumptions, which are independently determined and
vary for each reporting unit, are based on historical
experience, our projections of future operating results and
contemplate current and future business, industry, and
economic conditions, as well as relevant observable market
inputs and consideration of risk regarding future performance
for purposes of determining the WACC and terminal growth
rates. The WACC rate selected is commensurate with the
risks and uncertainty inherent in the respective reporting unit
and in our projected operating results and is calculated based
on weighted average returns on debt and equity from
guideline public companies. Therefore, changes in the market
that are beyond our control and that impact our guideline
public companies may have an adverse effect on our future
calculations of the estimated fair values of our reporting
units. Terminal growth rates are generally determined based
on economic and industry growth expectations, while also
considering the lifecycle stage of each respective reporting
unit. Where available, and as appropriate, comparable
EBITDA and revenue multiples are derived from the market
prices of stocks of guideline public companies and are used
to assist in developing an estimated business enterprise value
of our reporting units under the market approach to
corroborate our determination of the estimated fair values of
our reporting units under the income approach. Identifying
appropriate guideline public companies for purposes of
computing estimated market multiples and selecting an
appropriate WACC rate is subjective. We select guideline
public companies that are engaged in the same or similar
lines of business and that have reasonably similar qualitative
factors as our reporting units, while also considering relevant
quantitative
factors such as profitability and market
capitalization, where applicable. As a final corroboratory
step, we reconcile the aggregate estimated fair value of our
reporting units resulting from the income approach to our
company's market capitalization.
If the fair value of the reporting unit exceeds its carrying
value, goodwill of the reporting unit is not impaired. If the
carrying value of a reporting unit exceeds its fair value, an
impairment charge would be recognized for the amount by
which the carrying value of the reporting unit exceeds the its
fair value, not to exceed the total amount of goodwill
allocated to that reporting unit. Based on the quantitative
goodwill impairment analysis, which was also performed in
prior fiscal years, we determined there was no impairment of
goodwill during fiscal 2021 for any of our reporting units as
the fair value of each reporting unit substantially exceeded its
respective carrying value, including goodwill, in excess of
100 percent. We also performed sensitivity analyses on the
key
the
estimated fair value of our reporting units under the
discounted cash flow model under the income approach by
utilizing more conservative assumptions
reflect
reasonably likely future changes in the terminal growth rate
and WACC rate. The WACC rate was increased by 150 basis
points with no impairment indicated for any of our reporting
units. The terminal growth rate was decreased by 150 basis
points with no impairment indicated for any of our reporting
units.
inputs and assumptions used
in determining
that
Individual indefinite-lived intangible assets, or asset groups,
are quantitatively tested for impairment by comparing the
carrying amounts of the respective asset, or asset group, to its
estimated fair value determined under the income approach.
If the fair value of the indefinite-lived intangible asset, or
asset group, is less than its carrying value, an impairment loss
is recognized in an amount equal to the excess. During the
fourth quarter of fiscal 2021, we performed a quantitative
impairment analysis for our indefinite-lived intangible assets.
Our estimate of the fair value for an indefinite-lived
intangible asset, or asset group, is determined under the relief
from royalty method under the income approach and uses
various inputs and assumptions, including projected revenues
from our forecasting process, assumed royalty rates that
could be payable if we did not own the intangible asset,
terminal growth rates applied to forecasted revenues, and a
discount rate. These inputs and assumptions contemplate
business, industry, and overall economic conditions, as well
as relevant market data for royalty rates of similar intangible
assets. Based on our quantitative impairment analysis, which
was also performed in prior fiscal years, we conclude that our
indefinite-lived intangible assets were not impaired during
fiscal 2021 as the estimated fair value of each of our material
indefinite-lived intangible assets substantially exceeded its
carrying value, in excess of 50.0 percent. We also performed
sensitivity analyses on the key inputs and assumptions used
in determining the estimated fair value of indefinite-lived
intangible assets under the relief from royalty model by
reflect
utilizing more conservative assumptions
reasonably likely future changes in the royalty rate and
discount rate. The discount rate was increased by 75 basis
points with no impairment indicated for any of our material
indefinite-lived intangible assets. The royalty rate was
decreased by 75 basis points with no impairment indicated
for any of our material indefinite-lived intangible assets.
that
52
in
the underlying
Determining the estimated fair values of our reporting units
and indefinite-lived intangible assets, or asset groups,
judgment and such estimate are
requires considerable
sensitive
inputs and
to changes
assumptions. As a result, there can be no assurance that the
inputs and assumptions made for purposes of our annual
impairment assessments will prove to be an accurate
prediction of the future. Certain events or circumstances that
could reasonably be expected to negatively affect the
underlying key inputs and assumptions ultimately affect the
estimated fair values of our reporting units and indefinite-
lived intangible assets, and may require us to assess for
impairment on an interim basis. Such events or circumstances
could include a decrease in expected future operating results
and the related cash flows; adverse economic, market, and
industry conditions, including unfavorable impacts on our
guideline public companies used in determining our WACC
rate and the business enterprise value of our reporting units
under the market approach; prolonged periods of unfavorable
regulatory conditions
weather conditions; changes
impacting our products and industries; a volatile supply chain
environment and/or
increased costs of commodities,
component parts, and labor; lack of customer acceptance of
new or innovative technologies; increased competition; and
other factors. While our annual impairment assessment in
fiscal 2021 supported the carrying amount of our goodwill
and indefinite-lived intangible assets, we may be required to
re-evaluate the carrying amount in future periods utilizing
different inputs and assumptions that reflect the then current
market conditions and expectations regarding our operating
performance, which may result in a future impairment that
could be material.
in
Product Warranty Guarantees
Our products are warranted to provide assurance that the
product will function as expected and to ensure customer
confidence in design, workmanship, and overall quality.
Warranty coverage on our products is generally provided for
specified periods of time and on select products' hours of
usage, and generally covers parts, labor, and other expenses
for non-maintenance repairs. Warranty coverage generally
does not cover operator abuse or improper use. In addition to
the standard warranties offered on our products, we also sell
separately priced extended warranty coverage on select
products for a prescribed period after the original warranty
period expires.
At the time of sale, we recognize expense and record a
warranty accrual by product line for estimated costs in
connection with forecasted future warranty claims. Our
estimate of the cost of future warranty claims is based
primarily on the estimated number of products under
to service
warranty, historical average costs
warranty claims, the trend in the historical ratio of warranty
claims to sales, and the historical length of time between the
sale and resulting warranty claim. If applicable, historical
claims experience may be adjusted for known product design
improvements or for the impact of unusual product quality
issues. We periodically assess the adequacy of our warranty
incurred
53
accruals based on changes in our estimates and assumptions
and record any necessary adjustments if the cost of actual
claim experience differs from our estimate and indicates that
adjustments to our warranty accrual are necessary. Factors
that could have an impact on actual future claims and our
warranty accrual include, but are not limited to, items such as
performance of new products; product failure rates; factors
impacting product usage, such as weather; changes in sales
volumes and shifts in product mix; manufacturing quality and
product design issues, including significant manufacturing or
design defects not discovered until after the product is
delivered to customers; the extent of customers affected by
the product failure; higher or lower than expected service and
component part costs to satisfactorily address the repair, and
upon rare occasion, changes to the warranty coverage
periods. Additionally, from time to time, we also establish
warranty accruals for our estimate of the costs necessary to
settle major rework campaigns on a product-specific basis
during the period in which the circumstances giving rise to
the major rework campaign become known and when the
costs to satisfactorily address the situation are both probable
and estimable. The warranty accrual for the cost of a major
rework campaign is primarily based on an estimate of the
cost to repair each affected unit and the number of affected
units expected to be repaired.
We believe that our analysis of historical warranty claim
trends and knowledge of potential manufacturing and/or
product design improvements or issues provide sufficient
information to establish a reasonable estimate for the cost of
future warranty claims at the time of sale and our warranty
accruals as of the date of our Consolidated Balance Sheets.
We believe that our $116.8 million warranty accrual as of
October 31, 2021 is adequate and historically has been
adequate; however, due to the inherent uncertainty in the
accrual estimation process, including forecasting future
warranty claims, costs associated with servicing future
warranty claims, and unexpected major rework campaigns
that may arise in the future, our actual warranty costs
incurred may differ from our warranty accrual estimate. An
unexpected increase in warranty claims and/or in the costs
associated with servicing those claims would result in an
increase in our warranty accruals and a decrease in our net
earnings.
Inventory Valuation
For the majority of our inventories, we value inventories at
the lower of the cost of inventory or net realizable value, with
cost determined by either the first-in, first-out or average cost
method. All remaining inventories are valued at the lower of
cost or market, with cost determined under the last-in, first-
out method. As needed, we record an inventory valuation
adjustment for excess, slow moving, and obsolete inventory
that is equal to the excess of the cost of the inventory over the
estimated net realizable value or market value for the
inventory depending on inventory costing method. The
inventory valuation adjustment to net realizable value or
market value establishes a new cost basis of the inventory
inventory
that cannot be subsequently reversed. Such
valuation adjustments for excess, obsolete, and slow moving
inventory are not reduced or removed until the product is
sold or disposed of.
In developing inventory valuation adjustments for excess,
slow moving, and obsolete inventory, we are required to use
judgment and make estimates of future sales demand and
production requirements compared with current inventory
levels. Our estimate of forecasted sales demand and
production requirements is primarily based on actual orders
received, historical demand, technological and product life
trends, and
cycle changes, product pricing, economic
competitive factors, such as market and pricing trends for
similar products. Although management considers our
inventory valuation adjustment for excess, slow-moving, and
obsolete inventory to be adequate at $39.7 million as of
October 31, 2021, forecasting sales demand and production
requirements involves significant management judgment
regarding future events. Future events that could significantly
influence our judgments and related estimates include general
economic conditions within the specific markets in which we
operate, changes in demand for our products and customer
preference, price fluctuations, and actions of our competitors,
including the introduction of new products, technological
advances, and pricing changes. Forecasted sales demand and
the
production requirements can also be affected by
significant redesign of our existing products or
the
replacement of an existing product by an entirely new
generation of product. It is possible that an unfavorable
adjustment to our inventory valuation adjustment for excess,
slow moving, and obsolete inventory may be required in the
future if there is a change in any of the aforementioned
factors that adversely impacts our estimates of future demand
for our products and we do not adjust our purchases or
production schedule accordingly.
Business Combinations
When applicable, we account for the acquisition of a business
in accordance with the accounting standards codification
guidance for business combinations, whereby the total
consideration transferred is allocated to the assets acquired
and liabilities assumed, including amounts attributable to
non-controlling interests, when applicable, based on their
respective estimated fair values as of the date of acquisition.
Goodwill represents the excess of consideration transferred
over the estimated fair value of the net assets acquired in a
business combination.
Assigning estimated fair values to the net assets acquired
requires the use of significant estimates, judgments, inputs,
and assumptions regarding the fair value of intangible assets
that are separately identifiable from goodwill, inventory, and
property, plant, and equipment. While
the ultimate
responsibility for determining estimated fair values of the
acquired net assets resides with management, for material
acquisitions we may retain the services of certified valuation
specialists to assist with assigning estimated fair values to
certain acquired assets and assumed liabilities, including
identifiable from
that are separately
intangible assets
54
future
including
economic
conditions,
identifiable
from goodwill,
goodwill, inventory, and property, plant, and equipment.
Estimated fair values of acquired intangible assets that are
inventory, and
separately
property, plant, and equipment are generally based on
available historical
expectations,
information,
available market data, and assumptions determined to be
reasonable but are inherently uncertain with respect to future
events,
competition,
technological obsolescence, the useful life of the acquired
assets, and other factors. These significant estimates,
judgments, inputs, and assumptions include, when applicable,
the selection of an appropriate valuation method depending
on the nature of the respective asset, such as the income
approach, the market or sales comparison approach, or the
cost approach; estimating future cash flows based on
projected revenues and/or margins that we expect to generate
subsequent to the acquisition; applying an appropriate
discount rate to estimate the present value of those projected
cash flows we expect to generate; selecting an appropriate
terminal growth rate and/or royalty rate or estimating a
customer attrition or technological obsolescence factor where
necessary and appropriate given the nature of the respective
asset; assigning an appropriate contributory asset charge
where needed; determining an appropriate useful life and the
related depreciation or amortization method for the respective
asset; and assessing the accuracy and completeness of other
historical financial metrics of the acquiree used as standalone
inputs or as the basis for determining estimated projected
inputs such as margins, customer attrition, and costs to hold
and sell product.
In determining the estimated fair value of intangible assets
that are separately identifiable from goodwill, we typically
utilize the income approach, which discounts the projected
future cash flows using a discount rate that appropriately
reflects the risks associated with the projected cash flows.
Generally, we estimate the fair value of acquired trade names
using the relief from royalty method under the income
approach, which is based on the hypothetical royalty stream
that would be received if we were to license the acquired
trade name. For most other acquired intangible assets, we
estimate fair value using the excess earnings method under
the income approach, which is typically applied when cash
flows are not directly generated by the asset, but rather, by an
operating group that includes the particular asset. In certain
instances, particularly in relation to developed technology or
patents, we may utilize the cost approach depending on the
nature of the respective intangible asset and the recency of
the development or procurement of such technology. The
useful lives and amortization methods for the acquired
intangible assets
identifiable from
that are separately
goodwill are generally determined based on the period of
expected cash flows used to measure the fair value of the
acquired intangible assets and the nature of the use of the
respective acquired intangible asset, adjusted as appropriate
for entity-specific
regulatory,
contractual, competitive, economic, and/or other factors such
as customer attrition rates and product or order lifecycles that
may limit the useful life of the respective acquired intangible
including
factors
legal,
asset. In determining the estimated fair value of acquired
inventory, we typically utilize the cost approach for raw
materials and the sales comparison approach for work in
process, finished goods, and service parts. In determining the
estimated fair value of acquired property, plant, and
equipment, we
the sales comparison
approach or the cost approach depending on the nature of the
respective asset and the recency of the construction or
procurement of such asset.
typically utilize
the Euro, the Australian dollar, the Canadian dollar, the
British pound, the Mexican peso, the Japanese yen, the
Chinese Renminbi, and the Romanian New Leu against the
U.S. dollar, as well as the Romanian New Leu against the
Euro. Because our products are manufactured or sourced
primarily from the U.S. and Mexico, a stronger U.S. dollar
and Mexican peso generally have a negative impact on our
results from operations, while a weaker U.S. dollar and
Mexican peso generally have a positive effect.
the periods subsequent
We may refine the estimated fair values of assets acquired
and liabilities assumed, if necessary, over a period not to
exceed one year from the date of acquisition by taking into
consideration new information that, if known as of the date of
acquisition, would have affected the estimated fair values
ascribed to the assets acquired and liabilities assumed. The
judgments made in determining the estimated fair value
assigned to assets acquired and liabilities assumed, as well as
the estimated useful life and depreciation or amortization
method of each asset, can materially impact the net earnings
of
through
depreciation and amortization, and in certain instances
through impairment charges, if the asset becomes impaired in
the future. During the measurement period, any purchase
price allocation changes that impact the carrying value of
goodwill will affect any measurement of goodwill
impairment
if
applicable. If necessary, purchase price allocation revisions
that occur outside of the measurement period are recorded
within cost of sales or selling, general and administrative
expense within the Consolidated Statements of Earnings
depending on the nature of the adjustment.
the measurement period,
to an acquisition
taken during
Recent Accounting Pronouncements
recent
information
For
accounting
regarding
pronouncements, refer to Note 1, Summary of Significant
Accounting Policies and Related Data, in our Notes to
Consolidated Financial Statements under the sections entitled
"New Accounting Pronouncements Adopted" and "New
Accounting Pronouncements Not Yet Adopted."
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes
in market rates and prices. We are exposed to market risk
stemming from changes in foreign currency exchange rates,
interest rates, and commodity costs. We are also exposed to
equity market risk pertaining to the trading price of our
common stock. Changes in these factors could cause
fluctuations in our earnings and cash flows. See further
discussion on these market risks below.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange rate risk
arising from transactions in the normal course of business,
such as sales to third-party customers, sales and loans to
wholly-owned foreign subsidiaries, costs associated with
foreign plant operations, and purchases from suppliers. Our
primary foreign currency exchange rate exposures are with
55
To reduce our exposure to foreign currency exchange rate
risk, we actively manage the exposure of our foreign
currency exchange rate risk by entering
into various
derivative instruments to hedge against such risk, authorized
under a company policy that places controls on these hedging
activities, with counterparties that are highly rated financial
institutions. Decisions on whether to use such derivative
instruments are primarily based on the amount of exposure to
the currency involved and an assessment of the near-term
market value for each currency. Our worldwide foreign
currency exchange rate exposures are reviewed monthly. The
gains and losses on our derivative instruments offset the
changes in values of the related underlying exposures.
the values of our derivative
Therefore, changes
instruments are highly correlated with changes in the market
values of underlying hedged items both at inception and over
the
instrument. For additional
information regarding our derivative instruments, refer to
Note 14, Derivative Instruments and Hedging Activities, in
the Notes to Consolidated Financial Statements included in
Part II, Item 8, "Financial Statements and Supplementary
Data," of this Annual Report on Form 10-K.
the derivative
life of
in
The foreign currency exchange contracts in the table below
have maturity dates in fiscal 2022 through fiscal 2024. All
items are non-trading and stated in U.S. dollars. As of
October 31, 2021, the average contracted rate, notional
amount, fair value, and the gain (loss) at fair value of
outstanding derivative instruments were as follows (in
thousands, except average contracted rate):
Average
Contracted
Rate
Notional
Amount
Fair
Value
Gain
(Loss) at
Fair Value
0.7295 $ 99,039 $ 96,362 $
(2,677)
1.2827
38,231
37,050
(1,181)
1.1911
125,377
127,822
2,445
1.3362
34,702
33,976
(726)
22.0125 $ 23,337 $ 23,665 $
328
Buy U.S. dollar/
Sell Australian
dollar
Buy U.S. dollar/
Sell Canadian
dollar
Buy U.S. dollar/
Sell Euro
Buy U.S. dollar/
Sell British pound
Buy Mexican peso/
Sell U.S. dollar
Our net investment in foreign subsidiaries translated into
U.S. dollars is not hedged. Any changes in foreign currency
exchange rates would be reflected as a foreign currency
translation adjustment, a component of accumulated other
the
comprehensive
stockholders’ equity on
loss
in
Consolidated Balance Sheets, and would not impact net
earnings.
Interest Rate Risk
Our interest rate risk relates primarily to fluctuations in
variable interest rates on our revolving credit facility and
term loan credit agreement, as well as the potential increase
in the fair value of our fixed-rate long-term debt resulting
from a potential decrease in interest rates. We generally do
not use interest rate swaps to mitigate the impact of
fluctuations in interest rates. We have no earnings or cash
flow exposure due to interest rate risks on our fixed-rate
long-term debt obligations.
Our indebtedness as of October 31, 2021 included $424.0
million of gross fixed rate debt that is not subject to variable
interest rate fluctuations and $270.0 million of gross variable
rate debt under our term loan credit agreement. As of
October 31, 2021, we did not have an outstanding balance on
our variable-rate revolving credit facility. As of October 31,
2021, the estimated fair value of gross long-term debt with
fixed interest rates was $517.9 million compared to its
carrying amount of $424.0 million. Interest rate risk for
fixed-rate, long-term debt is estimated as the potential
increase in the fair value of gross fixed rate debt, resulting
from a hypothetical 10 percent decrease in interest rates, and
amounts to $12.3 million. The estimated fair value of gross
fixed rate debt is estimated by discounting the projected cash
flows of our gross fixed rate debt using the current interest
rate that could be obtained for similar amounts of debt and a
similar financing term.
Commodity Cost Risk
Most of the commodities, components, parts, and accessories
used in our manufacturing process and end-products, or to be
sold as standalone end-products, are exposed to commodity
cost changes. These changes may be affected by several
factors, including, for example, as a result of inflation;
deflation; changing prices; foreign currency fluctuations;
tariffs; duties; trade regulatory actions; industry actions; the
inability of suppliers to absorb incremental costs resulting
from COVID-19 related inefficiencies, continue operations or
otherwise remain in business as a result of COVID-19,
financial difficulties, or otherwise; and changes
to
international trade policies, agreements, and/or regulation and
competitor
and
countervailing duties on certain products imported from
foreign countries, including certain engines imported into the
U.S. from China.
antidumping
including
activity,
Our primary cost exposures for commodities, components,
parts, and accessories used in our products are with steel,
aluminum, petroleum and natural gas-based
resins,
linerboard, copper, lead, rubber, engines, transmissions,
transaxles, hydraulics, electrification components, and others.
Our largest spend for commodities, components, parts, and
accessories are generally for steel, engines, hydraulic
and
components,
electrification components, all of which we purchase from
transmissions,
aluminum,
resin,
several suppliers around the world. We generally purchase
commodities, components, parts, and accessories based upon
market prices that are established with suppliers as part of the
purchase process and generally attempt to obtain firm pricing
from most of our suppliers for volumes consistent with
planned production and estimates of wholesale and retail
demand for our products.
In any given period, we strategically work to mitigate any
potential unfavorable impact as a result of changes to the cost
of commodities, components, parts, and accessories that
affect our product lines through our productivity initiatives;
however, our productivity initiatives may not be as effective
as anticipated depending on macroeconomic cost trends for
commodities, components, parts, and accessories costs and/or
other factors. Our productivity initiatives include, but are not
limited to, collaborating with suppliers, reviewing alternative
sourcing options, substituting materials, utilizing Lean
methods, engaging in internal cost reduction efforts, and
utilizing tariff exclusions and duty drawback mechanisms, all
as appropriate. When appropriate, we may also increase
prices on some of our products to offset changes in the cost
of commodities, components, parts, and accessories. To the
extent that commodity and component costs increase and we
do not have firm pricing from our suppliers, or our suppliers
are not able to honor such prices, and/or our productivity
initiatives and/or product price increases are less effective
than anticipated and/or do not fully offset cost increases, we
may experience a decline in our gross margins. In fiscal
2021, the average cost of commodities, components, parts,
and accessories purchased, including the impact of inflation
and tariff costs, was significantly higher compared to the
average cost of commodities, components, parts, and
accessories purchased in fiscal 2020. We anticipate that the
average cost of commodities, components, parts, and
accessories purchased, including the impact of inflation and
tariff costs, for fiscal 2022 will be significantly higher than
the average costs experienced during fiscal 2021.
Equity Market Risk
Volatility in the trading price of our common stock impacts
the compensation costs associated with our stock-based
compensation awards. Additionally, when applicable,
declines in the trading price of our common stock can
impact our reconciliation of TTC's market
adversely
capitalization to the aggregate estimated fair value of our
reporting units as a component of our goodwill impairment
analysis and can also represent an interim period impairment
indicator requiring the need to quantitatively assess goodwill
for impairment during an interim period, which could result
in impairment charges. Refer to Note 10, Stock-Based
Compensation, and Note 1, Summary of Significant
Accounting Policies and Related Data, in the Notes to
Consolidated Financial Statements included in Part II, Item 8,
"Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K for additional information
regarding our stock-based compensation awards and our
goodwill impairment analysis, respectively.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for The Toro Company and
its subsidiaries. This system of internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.
The company's system of internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, and even
when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and
presentation. In addition, projection of any evaluation of the effectiveness of internal control over financial reporting to future
periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management, with the participation of the company's Chairman of the Board, President and Chief Executive Officer and Vice
President, Chief Financial Officer, evaluated the effectiveness of the company's internal control over financial reporting as of
October 31, 2021. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on this assessment,
management concluded that the company's internal control over financial reporting was effective as of October 31, 2021. Our
internal control over financial reporting as of October 31, 2021, has been audited by KPMG LLP, an independent registered
public accounting firm, as stated in their report, which is included herein.
/s/ Richard M. Olson
Chairman of the Board, President and Chief Executive Officer
/s/ Renee J. Peterson
Vice President, Chief Financial Officer
December 17, 2021
Further discussion of the company's internal controls and procedures is included in Part II, Item 9A, "Controls and Procedures"
of this Annual Report on Form 10-K.
57
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
The Toro Company:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of The Toro Company and subsidiaries (the Company) as of
October 31, 2021 and 2020, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and
cash flows for each of the years in the three-year period ended October 31, 2021, and the related notes (collectively, the
consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of
October 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of October 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
years in the three-year period ended October 31, 2021, in conformity with U.S. generally accepted accounting principles. Also
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
October 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 13 to the consolidated financial statements, the Company has changed its method of accounting for leases
as of November 1, 2019, due to the adoption of Accounting Standard Update 2016-02, Leases (Topic 842), and related
amendments.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
58
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Accrued sales promotions and incentives
As discussed in Note 1 to the consolidated financial statements, at the time of sale, the Company records an estimate for sales
promotion and incentive costs, a portion of which relates to rebate programs. As of October 31, 2021, the Company recorded
an accrual of $103.7 million for sales promotions and incentives. The Company's estimates for sales promotion and incentive
programs are primarily based on the terms of the sales arrangements and sales promotion and incentive programs with
customers, historical payment and rebate claims experience, field inventory levels, quantity or mix of products purchased,
types of programs offered, and expectations for the acceptance of sales promotion and incentive programs offered in the
future or changes in other relevant trends.
We identified the evaluation of the accrued sales promotions and incentives as a critical audit matter. To evaluate the
Company’s expectations for changes in other relevant trends that were used to develop the estimate, a high degree of auditor
judgment was required. Historical experience was an input used to develop expectations for changes in other relevant trends.
Changes in other relevant trends could have an impact to the accrual for sales promotions and incentives.
The following are the primary procedures performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls related to the Company’s sales promotions and incentives process. This
included controls related to the evaluation of the input described above. We evaluated the Company’s ability to estimate the
sales promotions and incentives accruals by comparing the prior year's accrual with subsequent payments. We developed an
expectation of the Company’s accrual considering historical experience and current year field inventory levels. Additionally,
we tested sales promotions and incentives paid subsequent to the balance sheet date by tracing a sample of payments to
underlying documentation supporting the program terms to evaluate the accrual estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1928.
Minneapolis, Minnesota
December 17, 2021
59
THE TORO COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Dollars and shares in thousands, except per share data)
Fiscal Years Ended October 31
Net sales
Cost of sales
Gross profit
Selling, general and administrative expense
Operating earnings
Interest expense
Other income, net
Earnings before income taxes
Provision for income taxes
Net earnings
Basic net earnings per share of common stock
Diluted net earnings per share of common stock
2021
2020
2019
$
3,959,584 $
3,378,810 $
3,138,084
2,621,092
1,338,492
820,212
518,280
2,189,036
1,189,774
763,417
426,357
2,090,121
1,047,963
722,934
325,029
(28,659)
(33,156)
(28,835)
10,197
499,818
89,938
13,869
407,070
77,369
25,939
322,133
48,150
409,880 $
329,701 $
273,983
3.82 $
3.06 $
3.78 $
3.03 $
2.57
2.53
$
$
$
Weighted-average number of shares of common stock outstanding – Basic
107,341
107,658
106,773
Weighted-average number of shares of common stock outstanding – Diluted
108,473
108,663
108,090
The financial statements should be read in conjunction with the Notes to Consolidated Financial Statements.
THE TORO COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Fiscal Years Ended October 31
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Derivative instruments, net of tax of $736, $(2,782), and $(862), respectively
Pension benefits, net of tax of $41, $45, and $(1,305), respectively
Other comprehensive income (loss), net of tax
Comprehensive income
2021
2020
2019
$
409,880 $
329,701 $
273,983
4,973
2,086
1,207
8,266
6,517
(8,485)
(245)
(2,213)
(1,314)
(2,498)
(4,300)
(8,112)
$
418,146 $
327,488 $
265,871
The financial statements should be read in conjunction with the Notes to Consolidated Financial Statements.
60
THE TORO COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
October 31
ASSETS
Cash and cash equivalents
Receivables, net:
Customers, net of allowances (2021 - $3,056; 2020 - $4,586)
Receivables from finance affiliate
Other
Total receivables, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Right-of-use assets
Investment in finance affiliate
Deferred income taxes
Other assets
Total assets
2021
2020
$
405,612 $
479,892
252,757
30,981
26,541
310,279
738,170
35,124
223,105
12,619
25,411
261,135
652,433
34,188
1,489,185
1,427,648
487,731
421,680
420,041
66,990
20,671
5,800
24,042
467,919
424,075
408,305
78,752
19,745
6,466
20,318
$
2,936,140 $
2,853,228
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt
$
— $
Accounts payable
Short-term lease liabilities
Accrued liabilities:
Warranty
Advertising and sales promotions and incentives programs
Compensation and benefit costs
Insurance
Interest
Other
Total accrued liabilities
Total current liabilities
Long-term debt, less current portion
Long-term lease liabilities
Deferred income taxes
Other long-term liabilities
503,116
14,283
116,783
103,661
108,536
14,497
6,092
70,051
419,620
937,019
691,242
55,752
50,397
50,598
99,873
363,953
15,447
107,121
98,883
58,789
13,452
10,065
88,214
376,524
855,797
691,250
66,641
70,435
54,277
Stockholders' equity:
Preferred stock, par value $1.00 per share, authorized 1,000,000 voting and 850,000 non-voting
shares, none issued and outstanding
Common stock, par value $1.00 per share, authorized 175,000,000 shares; issued and outstanding
105,205,734 shares as of October 31, 2021 and 107,582,670 shares as of October 31, 2020
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
The financial statements should be read in conjunction with the Notes to Consolidated Financial Statements.
61
—
—
105,206
107,583
1,071,922
1,041,507
(25,996)
(34,262)
1,151,132
1,114,828
$
2,936,140 $
2,853,228
THE TORO COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Fiscal Years Ended October 31
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Non-cash income from finance affiliate
Distributions from finance affiliate, net
Depreciation of property, plant and equipment
Amortization of other intangible assets
Fair value step-up adjustment to acquired inventory
Stock-based compensation expense
Deferred income taxes
Other
Changes in operating assets and liabilities, net of the effect of acquisitions:
Receivables, net
Inventories, net
Prepaid expenses and other assets
Accounts payable, accrued liabilities, and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Business combinations, net of cash acquired
Asset acquisitions, net of cash acquired
Proceeds from asset disposals
Investments in unconsolidated entities
Proceeds from sale of a business
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under debt arrangements
Repayments under debt arrangements
Proceeds from exercise of stock options
Payments of withholding taxes for stock awards
Purchases of TTC common stock
Dividends paid on TTC common stock
Net cash (used in) provided by financing activities
Effect of exchange rates on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents as of the beginning of the fiscal period
2021
2020
2019
$
409,880 $
329,701 $
273,983
(5,704)
(7,663)
(11,948)
4,779
75,468
23,848
—
21,809
(22,899)
457
(52,260)
(98,266)
2,953
195,404
555,469
12,066
76,108
19,507
3,951
15,408
2,269
492
15,206
20,963
11,828
39,538
539,374
10,343
69,314
18,384
39,368
13,429
(6,190)
6,357
(11,042)
(104,832)
9,747
30,458
337,371
(104,012)
(78,068)
(92,881)
(24,883)
(138,225)
(697,471)
(27,176)
1,035
—
26,584
—
216
—
—
—
4,669
(200)
12,941
(128,452)
(216,077)
(772,942)
270,000
636,025
900,000
(370,000)
(546,025)
(511,000)
13,100
22,198
(2,037)
(2,146)
(302,274)
—
(112,440)
(107,698)
(503,651)
2,354
(74,280)
479,892
2,354
2,413
328,064
151,828
29,336
(2,662)
(20,043)
(96,133)
299,498
(1,223)
(137,296)
289,124
151,828
Cash and cash equivalents as of the end of the fiscal period
$
405,612 $
479,892 $
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for:
Interest
Income taxes
$
$
31,568 $
101,835 $
34,109 $
69,524 $
30,167
54,738
The financial statements should be read in conjunction with the Notes to Consolidated Financial Statements.
62
THE TORO COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share data)
Balance as of October 31, 2018
$
105,601 $
587,252 $
(23,937) $
668,916
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Cash dividends paid on common stock - $0.90 per share
Issuance of 1,544,962 shares for exercised stock options
and vested restricted stock units and performance share
awards
Stock-based compensation expense
Contribution of stock to a deferred compensation trust
—
(96,133)
1,545
—
—
26,387
13,429
1,404
Purchase of 403,532 shares of common stock
(404)
(22,301)
Reclassification due to the adoption of ASU 2014-09
Other comprehensive loss
Net earnings
Balance as of October 31, 2019
Cash dividends paid on common stock - $1.00 per share
Issuance of 870,011 shares for exercised stock options and
vested restricted stock units and performance share awards
Stock-based compensation expense
Contribution of stock to a deferred compensation trust
Purchase of 29,422 shares of common stock
Other comprehensive loss
Net earnings
Balance as of October 31, 2020
—
—
—
106,742
864
—
273,983
784,885
—
(107,698)
870
—
—
(29)
—
—
18,760
15,408
2,568
(2,117)
—
329,701
—
—
—
—
—
—
(8,112)
—
(32,049)
—
—
—
—
—
(2,213)
(96,133)
27,932
13,429
1,404
(22,705)
864
(8,112)
273,983
859,578
(107,698)
19,630
15,408
2,568
(2,146)
(2,213)
—
329,701
107,583
1,041,507
(34,262)
1,114,828
Cash dividends paid on common stock - $1.05 per share
Issuance of 610,788 shares for exercised stock options and
vested restricted stock units and performance share awards
Stock-based compensation expense
Contribution of 22,700 shares to a deferred compensation
trust
—
611
—
23
(112,440)
11,004
21,809
1,462
Purchase of 3,010,424 shares of common stock
(3,011)
(301,300)
Other comprehensive income
Net earnings
—
—
—
409,880
—
—
—
—
—
8,266
—
(112,440)
11,615
21,809
1,485
(304,311)
8,266
409,880
Balance as of October 31, 2021
$
105,206 $
1,071,922 $
(25,996) $
1,151,132
The financial statements should be read in conjunction with the Notes to Consolidated Financial Statements.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• THE TORO COMPANY AND SUBSIDIARIES •
1 Summary of Significant Accounting Policies
and Related Data
The Toro Company is in the business of designing,
manufacturing, marketing, and selling professional turf
maintenance equipment and services; turf irrigation systems;
landscaping equipment and lighting products; snow and ice
management products; agricultural irrigation ("ag-irrigation")
systems; rental, specialty, and underground construction
equipment; and residential yard and snow thrower products.
The Toro Company sells its products worldwide through a
network of distributors, dealers, mass retailers, hardware
retailers, equipment rental centers, home centers, as well as
online (direct to end-users). The Toro Company strives to
provide innovative, well-built, and dependable products
supported by an extensive service network.
The
following are The Toro Company's significant
accounting policies in addition to those included in the other
Notes to Consolidated Financial Statements included within
this Part II, Item 8, "Financial Statements and Supplementary
Data," of this Annual Report on Form 10-K.
Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements have
been prepared in accordance with accounting principles
generally accepted ("GAAP") in the United States ("U.S.")
and include the accounts of The Toro Company and its
wholly-owned subsidiaries. In the opinion of management,
the Consolidated Financial Statements
all
adjustments, consisting primarily of recurring accruals,
the
considered necessary for
company's Consolidated Financial Position, Results of
Operations, and Cash Flows for the periods presented.
the fair presentation of
include
The company's businesses are organized, managed, and
internally grouped into segments based on similarities in
products and services. The company classifies its operations
into two reportable business segments: Professional and
Residential. The company's remaining activities are presented
as "Other" due to their insignificance. As further described in
Note 7, Management Actions, during the first quarter of fiscal
2021, the company completed the sale of its Northeastern
U.S. distribution company. Accordingly, as of and for the
fiscal year ended October 31, 2021, Other activities consisted
remaining wholly-owned domestic
of
distribution
the
corporate
elimination of intersegment revenues and expenses. As of
and for the fiscal years ended October 31, 2020 and 2019, the
company's Other activities consisted of its wholly-owned
domestic distribution companies, corporate activities, and the
elimination of intersegment revenues and expenses. For
additional information regarding the company's reportable
business segments refer to Note 3, Segment Data.
the company's
company,
activities,
and
The company uses the equity method to account for equity
investments in unconsolidated entities over which it has the
ability to exercise significant influence over operating and
financial policies. The company's share of the net earnings or
losses of these equity method investments are recorded
within other income, net on the Consolidated Statements of
Earnings. Equity investments in unconsolidated entities that
the company does not control and for which it does not have
the ability to exercise significant influence over operating and
financial policies are recorded at cost, less impairment, as
applicable, within the Consolidated Balance Sheets. All
intercompany accounts and transactions have been eliminated
from the Consolidated Financial Statements.
Impact of COVID-19
including
In March 2020, the World Health Organization declared the
novel coronavirus ("COVID-19," "virus," or "the pandemic")
outbreak a global pandemic. COVID-19 has negatively
impacted public health and portions of the global economy,
significantly disrupted global supply chains, and created
volatility in financial markets. The continuing implications of
COVID-19 on the company remain uncertain and will
depend on certain future developments,
the
duration of the pandemic; any adverse impact due to variants
of the virus; its impact on market demand for the company's
products; its impact on the company's employees, customers,
and suppliers; the range of government mandated restrictions
and other measures; and the success of the deployment of
approved COVID-19 vaccines, their effectiveness against the
novel strain and related variants, and their rate of adoption.
This uncertainty could have a material impact on accounting
the
estimates and assumptions utilized
Consolidated Financial Statements as of and for the fiscal
year ended October 31, 2021 and in future reporting periods,
which could result in a material adverse impact on the
company's Consolidated Financial Position, Results of
Operations, and Cash Flows.
to prepare
Accounting Estimates
In preparing the Consolidated Financial Statements in
conformity with U.S. GAAP, management must make
decisions that impact the reported amounts of assets,
liabilities, revenues, expenses, and the related disclosures,
including disclosures of contingent assets and liabilities.
Such decisions include the selection of the appropriate
accounting principles to be applied and the assumptions on
which to base accounting estimates. Estimates are used in
determining, among other
items, sales promotion and
incentive accruals; incentive compensation accruals; income
tax accruals;
inventory valuation; warranty accruals;
allowance for expected credit losses; pension accruals; self-
insurance accruals; legal accruals; right-of-use assets and
lease liabilities; useful lives for tangible and finite-lived
flows associated with
intangible assets;
future cash
64
specialist
liabilities assumed
valuations, when
impairment testing for goodwill, indefinite-lived intangible
assets, and other long-lived assets; and valuations of the
in a business
assets acquired and
combination or asset acquisition, when applicable. These
estimates and assumptions are based on management's best
estimates and judgments at the time they are made and are
generally derived from management's understanding and
analysis of the relevant and current circumstances, historical
experience, and actuarial and other independent external
third-party
applicable.
Management evaluates its estimates and assumptions on an
ongoing basis using historical experience and other factors
that management believes to be reasonable under the
circumstances, including the current economic environment
and other relevant factors, as applicable. Management adjusts
such
and
circumstances dictate. As future events and their effects
cannot be determined with certainty,
those
impacted by COVID-19, actual amounts could differ
the
significantly
Consolidated Financial Statements are prepared. Changes in
those estimates will be reflected
the Consolidated
Financial Statements in future periods.
those estimated at
assumptions when
including
estimates
from
facts
time
and
the
in
Business Combinations and Asset Acquisitions
When applicable, the company accounts for the acquisition of
a business in accordance with the accounting standards
codification ("ASC") guidance for business combinations,
whereby the total purchase consideration transferred is
allocated to the assets acquired and liabilities assumed,
including amounts attributable to non-controlling interests,
when applicable, based on their respective estimated fair
values as of the date of acquisition. Goodwill represents the
excess of purchase consideration
the
estimated fair value of the identifiable net assets acquired in a
business combination.
transferred over
Assigning estimated fair values to the net assets acquired
requires the use of significant estimates, judgments, inputs,
and assumptions regarding the fair value of the assets
acquired and liabilities assumed. Estimated fair values of
assets acquired and liabilities assumed are generally based on
available historical information, independent valuations or
appraisals, future expectations, and assumptions determined
to be reasonable but are inherently uncertain with respect to
future events, including economic conditions, competition,
the useful life of the acquired assets, and other factors. The
company may refine the estimated fair values of assets
acquired and liabilities assumed, if necessary, over a period
not to exceed one year from the date of acquisition by taking
into consideration new information that, if known at the date
of acquisition, would have affected the estimated fair values
ascribed to the assets acquired and liabilities assumed. The
judgments made in determining the estimated fair value
assigned to assets acquired and liabilities assumed, as well as
the estimated useful life and depreciation or amortization
method of each asset, can materially impact the net earnings
through
of
depreciation and amortization, and in certain instances
the periods subsequent
the acquisition
to
through impairment charges, if the asset becomes impaired in
the future. During the measurement period, any purchase
price allocation changes that impact the carrying value of
goodwill affects any measurement of goodwill impairment
taken during the measurement period, if applicable. If
necessary, purchase price allocation revisions that occur
outside of the measurement period are recorded within cost
of sales or selling, general and administrative expense within
the Consolidated Statements of Earnings depending on the
nature of the adjustment.
When an acquisition does not meet the definition of a
business combination because either: (i) substantially all of
the fair value of the gross assets acquired is concentrated in a
single identifiable asset, or group of similar identified assets,
or (ii) the acquired entity does not have an input and a
substantive process that together significantly contribute to
the ability to create outputs, the company accounts for the
acquisition as an asset acquisition. In an asset acquisition,
goodwill is not recognized, but rather, any excess purchase
consideration over the fair value of the net assets acquired is
allocated on a relative fair value basis to the identifiable net
assets as of the acquisition date and any direct acquisition-
related transaction costs are capitalized as part of the
purchase consideration.
to Note 2, Business Combinations and Asset
Refer
Acquisitions,
the
company's accounting for recent business combinations and
asset acquisitions.
for additional
information
regarding
Cash and Cash Equivalents
liquid
investments
The company considers all highly
purchased with an original maturity of three months or less to
be cash equivalents. Cash equivalents are stated at cost,
which approximates fair value. As of October 31, 2021 and
2020, cash and cash equivalents held by the company's
foreign subsidiaries were $117.3 million and $106.3 million,
respectively.
Receivables, Net
The company's financial exposure related to the collection of
accounts receivable is reduced due to its wholesale floor plan
financing programs, including its Red Iron Acceptance, LLC
("Red Iron") joint venture with TCF Inventory Finance, Inc.
("TCFIF"), as further discussed in Note 8, Investment in Joint
Venture. Under a separate agreement, the company has an
arrangement with TCF Commercial Finance Canada, Inc.
("TCFCFC") to provide inventory financing to dealers of
certain of the company's products in Canada. The company
also has floor plan financing agreements with separate third-
party financial institutions to provide inventory financing to
certain dealers and distributors not financed through Red Iron
and TCFCFC, which include agreements with third-party
financial institutions in the U.S. and internationally. For
receivables not serviced through Red Iron, TCFCFC, or other
third-party floor plan financing agreements, the company
provides financing in the form of open account terms in the
65
normal course of business and performs on-going credit
evaluations of customers.
for expected credit
Receivables are recorded at original carrying amount less an
estimated allowance
losses. The
allowance for expected credit losses is based on the
company's assessment of losses that will result from its
customers inability or unwillingness to pay amounts owed to
the company. The allowance for expected credit losses is
estimated using a combination of factors, including the age of
receivable balances and historical credit loss experience,
supplemented by the company's knowledge of customer-
specific
information, current market conditions, and
reasonable and supportable forecasts of future events and
economic conditions, when applicable. Receivables are
written-off against the allowance for expected credit losses
when all collection efforts have been exhausted.
Concentrations of Credit Risk
Financial instruments, which potentially subject the company
to concentrations of credit risk, consist principally of
accounts receivable and derivative instruments. Accounts
receivable balances are generally concentrated
the
Professional and Residential business segments. The credit
risk associated with these business segments is limited
because of the large number of customers in the company's
customer base and their geographic dispersion. The credit
risk associated with the company's derivative instruments is
limited as the company enters into derivative instruments
with multiple counterparties that are highly rated financial
institutions.
in
Inventories, Net
the company records an
Inventories are valued at the lower of cost or net realizable
value, with cost determined by the first-in, first-out ("FIFO")
and average cost methods for approximately 52.7 percent and
53.0 percent of total net inventories as of October 31, 2021
and 2020, respectively. All remaining inventories are valued
at the lower of cost or market, with cost determined under the
last-in, first-out ("LIFO") method. During fiscal 2021 and
fiscal 2020, LIFO layers were not materially reduced. As
needed,
inventory valuation
adjustment for excess, slow-moving, and obsolete inventory
that is equal to the excess of the cost of the inventory over the
estimated net realizable value or market value for the
inventory depending on the inventory costing method. Such
inventory valuation adjustment is based on a review and
comparison of current
to planned
production, as well as planned and historical sales of the
inventory. The
to net
realizable value or market value establishes a new cost basis
of the inventory that cannot be subsequently reversed. Such
inventory valuation adjustments for excess, obsolete, and
slow moving inventory are not reduced or removed until the
product is sold or disposed of. As of October 31, 2021 and
2020, the company's inventory valuation adjustment for
excess, slow-moving, and obsolete inventory was $39.7
million and $37.9 million, respectively.
inventory valuation adjustment
inventory
levels
Inventories, net were as follows (in thousands):
October 31
Raw materials and work in process
Finished goods and service parts
Total FIFO value
Less: adjustment to LIFO value
Total inventories, net
2021
2020
$ 335,325 $ 168,759
538,332
565,761
873,657
734,520
135,487
82,087
$ 738,170 $ 652,433
Property, Plant and Equipment, Net
Property, plant and equipment assets are carried at cost less
accumulated depreciation. The company generally accounts
for depreciation of property, plant and equipment utilizing
the straight-line method over the estimated useful lives of the
assets. Buildings and leasehold improvements are generally
depreciated over 10 to 40 years, machinery and equipment
are generally depreciated over two to 15 years, tooling is
generally depreciated over three to five years, and computer
hardware and software and website development costs are
generally depreciated over two to five years. Expenditures for
major renewals and improvements, which substantially
increase the useful lives of existing assets, are capitalized.
Costs associated with general maintenance and repairs are
expenses as incurred within cost of sales or selling, general
and administrative expense in the Consolidated Statements of
Earnings depending on the nature and use of the related asset.
Interest is capitalized during the construction period for
significant capital projects. During the fiscal years ended
October 31, 2021, 2020, and 2019, the company capitalized
$0.8 million, $1.0 million, and $1.3 million of interest,
respectively.
Property, plant and equipment, net was as follows (in
thousands):
October 31
Land and land improvements
2021
2020
$ 57,690 $ 57,387
Buildings and leasehold improvements
308,217
301,848
Machinery and equipment
Tooling
Computer hardware and software
Construction in process
522,012
499,312
220,966
231,142
97,485
85,722
102,312
48,157
Property, plant and equipment, gross
1,292,092
1,240,158
Less: accumulated depreciation
Property, plant and equipment, net
804,361
772,239
$ 487,731 $ 467,919
During fiscal 2021, 2020, and 2019, the company recorded
depreciation expense of $75.5 million, $76.1 million, and
$69.3 million, respectively.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill is initially recognized as a result of the excess of
purchase consideration transferred over the estimated fair
value of the net assets acquired in a business combination and
indefinite-lived intangible assets are initially recognized at
their estimated fair values as a result of a business
combination or asset acquisition. Goodwill is assigned to a
reporting unit based upon the expected benefit of the
synergies of the acquisition. Goodwill and certain trade
66
them
reviews
names, which are considered to have indefinite lives, are not
amortized; however,
for
the company
impairment annually during the fourth quarter of each fiscal
year or more frequently if changes in circumstances or the
occurrence of events indicate that the fair value may not be
recoverable. The company tests goodwill for impairment at
the reporting unit level and tests indefinite-lived intangible
assets for impairment at the individual indefinite-lived
intangible asset or asset group level, as appropriate. During
the fourth quarter of fiscal 2021, the company performed its
annual goodwill impairment test.
In performing the annual goodwill impairment test, the
company first reviewed its reporting units and determined
that it has eleven reporting units, which are the same as its
eleven operating segments as defined in Note 3, Segment
Data. Eight reporting units contain goodwill on their
respective balance sheets as of October 31, 2021. Next, the
company elected to bypass the qualitative assessment and
move directly to the quantitative goodwill impairment
analysis. In performing the quantitative goodwill impairment
analysis, the company compared the carrying value of each
reporting unit, including goodwill, to its respective fair value.
The carrying value of each reporting unit was determined
based on the amount of equity required for the reporting
unit's activities, considering the specific assets and liabilities
of the reporting unit. The company did not assign corporate
assets and liabilities that do not relate to the operations of the
reporting unit, or are not considered in determining the fair
value of the reporting unit, to the reporting units. The
company's estimate of the respective fair values of its
reporting units was determined based on a discounted cash
flow model under the income approach, which utilized
various
including projected
operating results and growth rates from the company's
forecasting process, applicable tax rates, estimated capital
expenditures and depreciation, estimated changes in working
capital, terminal growth rates applied to projected operating
results in the terminal period, and a weighted-average cost of
capital rate. Where available, and as appropriate, comparable
market multiples and the company's market capitalization
were also utilized to corroborate the results of the discounted
cash flow models under the income approach. If the fair
value of the reporting unit exceeds its carrying value,
goodwill of the reporting unit is not impaired. If the carrying
value of a reporting unit exceeds its fair value, an impairment
charge would be recognized for the amount by which the
carrying value of the reporting unit exceeds the its fair value,
not to exceed the total amount of goodwill allocated to that
reporting unit. Based on the quantitative goodwill impairment
analysis, the company determined there was no impairment
of goodwill during fiscal 2021 for any of its reporting units as
the fair values of the reporting units substantially exceeded
their respective carrying values, including goodwill. Further,
no impairment of goodwill was recorded during fiscal 2020
and 2019.
inputs and assumptions,
During the fourth quarter of fiscal 2021, the company also
its
performed a quantitative
impairment analysis
for
from
revenues
including projected
indefinite-lived intangible assets, which consist of certain
trade names. The company's estimate of the fair values of its
trade names are based on the relief from royalty method
under the income approach and utilizes various inputs and
assumptions,
the
company's forecasting process, assumed royalty rates that
could be payable if the company did not own the intangible
asset, terminal growth rates applied to forecasted revenues,
and a discount rate. If the fair value of the indefinite-lived
intangible asset, or asset group, is less than its carrying value,
an impairment loss is recognized in an amount equal to the
excess. Based on this quantitative impairment analysis, the
company concluded its indefinite-lived intangible assets were
not impaired during fiscal 2021 as the estimated fair values of
the company's material indefinite-lived intangible assets
substantially exceeded their carrying values. Further, the
company concluded its indefinite-lived intangible assets were
not impaired during fiscal 2020 and 2019 based on the same
quantitative
in each
respective prior fiscal year.
impairment analysis performed
Other Long-Lived Assets
Other long-lived assets primarily consist of property, plant
and equipment; right-of-use assets associated with operating
lease agreements, capitalized implementation costs for hosted
cloud-computing arrangements; finite-lived intangible assets,
and other assets, as applicable. The company's finite-lived
intangible assets are identifiable assets that were acquired as
a result of business combinations or asset acquisitions and
primarily consist of customer relationships and
lists,
developed technology, patents, trade names, non-compete
agreements, and order backlog and are generally amortized
on a straight-line basis over their expected useful lives, which
typically range from several months to 20 years depending on
the nature of the finite-lived intangible asset.
than
the carrying amount of
The company reviews other long-lived assets for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset, or asset group, may not be
recoverable. Asset groups have identifiable cash flows and
are largely independent of other asset groups. An impairment
loss is recognized when estimated undiscounted future cash
flows from the operation or disposition of the asset group are
less
the asset group.
Measurement of an impairment loss is based on the excess of
the carrying amount of the asset group over its fair value.
Fair value is generally measured using a discounted cash
flow model or independent appraisals, as appropriate. The
company did not record an impairment loss for fiscal 2021,
2020, and 2019 as the company's long-lived assets were
determined to not be at risk for impairment as no events or
changes in circumstances were identified that would indicate
that the carrying amount of an asset, or asset group, may not
be recoverable.
For other long-lived assets to be abandoned, the company
tests for potential impairment. If the company commits to a
plan to abandon or dispose of an other long-lived asset, or
asset group, before the end of its previously estimated useful
67
life, depreciation or amortization expense is recognized over
the revised estimated useful life.
Leases
The company enters into contracts that are, or contain,
operating lease agreements that convey the company's right
to direct the use of, and obtain substantially all of the
economic benefits from, an identified asset for a defined
period of time in exchange for consideration. The lease term
begins and is determined upon lease commencement, which
is the point in time when the company takes possession of the
identified asset, and includes all non-cancelable periods.
the
Lease liabilities represent the company's obligation to make
lease payments arising from the lease agreement. The
company accounts for operating lease liabilities at lease
commencement and on an ongoing basis as the present value
of the minimum remaining lease payments under the
respective lease term. Lease payments are determined at lease
commencement and represent fixed lease payments as
defined within the respective lease agreement or, in the case
of certain lease agreements, variable lease payments that are
measured as of the lease commencement date based on the
prevailing index or market rate. Future adjustments to
variable lease payments are defined and scheduled within the
respective lease agreement and are determined based upon
the prevailing market or index rate at the time of the
adjustment relative to the market or index rate determined at
lease commencement. Certain other lease agreements contain
variable lease payments that are determined based upon
actual utilization of
identified asset. Such future
adjustments to variable lease payments and variable lease
payments based upon actual utilization of the identified asset
are not included within the determination of lease payments
at commencement but rather, are recorded as variable lease
expense in the period in which the variable lease cost is
incurred. The company has operating leases with both lease
components and non-lease components. For purposes of
determining lease payments, the company accounts for lease
components separately from non-lease components based on
the relative market value of each component. Non-lease
components typically consist of common area maintenance,
utilities, and/or other repairs and maintenance services. The
costs related to non-lease components are not included within
the determination of lease payments at commencement.
Minimum remaining lease payments are discounted to
present value based on the rate implicit in the operating lease
agreement or the estimated incremental borrowing rate at
lease commencement if the rate implicit in the lease is not
readily determinable. Minimum remaining lease payments
are generally discounted to present value based the estimated
incremental borrowing rate at lease commencement as the
rate implicit in the lease is generally not readily determinable.
Right-of-use assets represent the company's right to use an
underlying asset throughout the lease term and are measured
as the amount of the corresponding operating lease liability
for the respective operating lease agreement, adjusted for
prepaid or accrued lease payments, the remaining balance of
any lease incentives received, unamortized initial direct costs,
and impairment of the operating lease right-of-use asset, as
applicable.
leases
the company's operating
Lease expense for
is
recognized on a straight-line basis over the lease term and is
recorded within either cost of sales or selling, general and
administrative expense in the Consolidated Statements of
Earnings depending on the nature and use of the identified
asset underlying the respective operating lease arrangement.
The company does not recognize right-of-use assets and lease
liabilities, but does recognize lease expense on a straight-line
basis, for short-term operating leases which have a lease term
of 12 months or less and do not include an option to purchase
the underlying asset.
Accounts Payable
The company has a supply chain finance service agreement
with a third-party financial institution to provide a web-based
platform that facilitates the ability of participating suppliers
to finance payment obligations from the company with the
third-party financial institution. Participating suppliers may,
at their sole discretion, make offers to finance one or more
payment obligations of the company prior to their scheduled
due dates at a discounted price to the third-party financial
institution. The company's obligations to its suppliers,
including amounts due and scheduled payment dates, are not
affected by suppliers' decisions to finance amounts under this
supply chain finance arrangement. As of October 31, 2021
and 2020, $91.6 million and $63.5 million, respectively, of
the company's outstanding payment obligations were
financed by participating suppliers through the third-party
finance web-based
financial
platform.
institution's supply chain
Insurance
The company is self-insured for certain losses relating to
employee medical, dental, workers' compensation, and
certain product liability claims. Specific stop loss coverages
are provided for catastrophic claims in order to limit
exposure to significant claims. Losses and claims are charged
to net earnings when it is probable a loss has been incurred
and the amount can be reasonably estimated. Self-insured
liabilities are based on a number of factors, including
historical claims experience, an estimate of claims incurred
but not reported, demographic and severity factors, and
utilizing valuations provided by independent third-party
actuaries, as applicable.
Product Warranty Guarantees
The company’s products are warranted to provide assurance
that the product will function as expected and to ensure
customer confidence in design, workmanship, and overall
quality. Standard warranty coverage is generally provided for
specified periods of time and on select products’ hours of
usage, and generally covers parts, labor, and other expenses
for non-maintenance repairs. In addition to the standard
warranties offered by the company on its products, the
company also sells separately priced extended warranty
68
coverage on select products for a prescribed period after the
original warranty period expires. For additional information
on the contract liabilities associated with the company's
separately priced extended warranties, refer to Note 4,
Revenue.
assessment of effectiveness are recognized immediately in
net earnings under the mark-to-market approach. Derivatives
that are not designated as cash flow hedging instruments are
adjusted to fair value through other income, net, on the
Consolidated Statements of Earnings.
incurred
At the time of sale, the company recognizes expense and
records an accrual by product line for estimated costs in
connection with forecasted future warranty claims. The
company's estimate of the cost of future warranty claims is
based primarily on the estimated number of products under
to service
warranty, historical average costs
warranty claims, the trend in the historical ratio of claims to
sales, and the historical length of time between the sale and
resulting warranty claim. The company periodically assesses
the adequacy of its warranty accruals based on changes in
these factors and records any necessary adjustments if the
cost of actual claims experience indicates that adjustments to
the company's warranty accrual are necessary. Additionally,
from time to time, the company may also establish warranty
accruals for its estimate of the costs necessary to settle major
rework campaigns on a product-specific basis during the
period in which the circumstances giving rise to the major
rework campaign become known and when the costs to
satisfactorily address the situation are both probable and
estimable. The warranty accrual for the cost of a major
rework campaign is primarily based on an estimate of the
cost to repair each affected unit and the number of affected
units expected to be repaired.
The changes in accrued warranties were as follows (in
thousands):
Fiscal Years Ended October 31
2021
2020
2019
Beginning balance
Warranty provisions
Acquisitions
Warranty claims
Changes in estimates
Ending balance
$ 107,121 $ 96,604 $ 76,214
73,666
—
60,273
2,557
57,277
18,418
(71,520)
(67,241)
(58,878)
7,516
14,928
3,573
$ 116,783 $ 107,121 $ 96,604
Derivative Instruments and Hedging Activities
liabilities. If
Derivative instruments, consisting primarily of forward
currency contracts, are used to hedge most foreign currency
transactions,
including forecasted sales and purchases
denominated in foreign currencies. All derivative instruments
are recognized on the Consolidated Balance Sheets at fair
value as either assets or
the derivative
instrument is designated as a cash flow hedging instrument,
changes in the fair values of the spot rate component of
outstanding, highly effective cash flow hedging instruments
included in the assessment of hedge effectiveness are
recorded in other comprehensive income within accumulated
other comprehensive loss (“AOCL”) on the Consolidated
Balance Sheets and are subsequently reclassified to net
earnings within the Consolidated Statements of Earnings
during the same period in which the cash flows of the
underlying hedged transaction affect net earnings. Changes in
the fair values of hedge components excluded from the
69
Foreign Currency Translation and Transactions
The functional currency of the company's foreign operations
is generally the applicable local currency. The functional
currency is translated into U.S. dollars using the respective
current exchange rate in effect as of the balance sheet date for
balance sheet accounts and the respective weighted-average
exchange rate during the fiscal year for revenue and expense
accounts. The resulting translation adjustments are deferred
as a component of other comprehensive income within the
Consolidated Statements of Comprehensive Income and the
Consolidated Statements of Stockholders' Equity. Gains or
losses resulting from transactions denominated in foreign
currencies are
the
in other
Consolidated Statements of Earnings.
income, net
included
in
Debt Issuance Costs
the
term of
Debt issuance costs incurred in connection with securing the
company’s financing arrangements are capitalized and
amortized over
the respective financing
arrangement under the straight-line method as the results
obtained are not materially different from those that would
result from the use of the effective interest method. Debt
issuance costs are generally presented in the Consolidated
Balance Sheets as a direct deduction from the carrying
amount of the outstanding borrowings, consistent with debt
discounts. However, the company classifies the debt issuance
costs related to its $600.0 million five-year senior unsecured
revolving credit facility ("revolving credit facility") within
other assets on the Consolidated Balance Sheets, regardless
of whether the company has any outstanding borrowings on
the revolving credit facility. Debt issuance costs related to
borrowings that are fully extinguished in advance of the
maturity date are charged to expense at the time of retirement
of the borrowings. Debt issuance costs, net of accumulated
amortization, were $4.6 million and $3.9 million as of
October 31, 2021 and 2020, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years that those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income tax expense in the period
that includes the enactment date. A valuation allowance is
provided when, in management's judgment, it is more likely
than not that some portion or all of the deferred tax asset will
not be realized. The company believes it has reflected the
the
tax assets and
necessary deferred
liabilities
in
accompanying Consolidated Balance Sheets. Management
believes the future tax deductions will be realized principally
through future taxable income, future reversals of existing
taxable temporary differences, and carryback to taxable
income in prior years.
The company recognizes the effect of income tax positions
only if it is more likely than not that those positions will be
sustained. Recognized income tax positions are measured at
the largest amount that is greater than 50.0 percent likely to
be realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment
occurs. The company also records interest and penalties
related to unrecognized tax benefits within income tax
expense.
Revenue Recognition
The company's primary source of revenue is generated
through the sale of equipment and irrigation products, as well
as rendering of services to its customers. As a result, the
company enters into contracts with its customers for the sale
of products or rendering of services in the ordinary course of
business, which generally occurs at the time the company
receives and accepts a purchase or sales order under a sales
contract with a customer. The company recognizes revenue
when, or as, performance obligations under the terms of a
contract with its customer are satisfied, which generally
occurs with the transfer of control of product or services at
the time a product is shipped, or in the case of certain
agreements, when a product is delivered or as services are
rendered. Revenue is recognized based on the transaction
price, which is measured as the amount of consideration the
company expects to receive in exchange for transferring
product or rendering services pursuant to the terms of the
contract with a customer. The amount of consideration the
company receives and the revenue the company recognizes
varies as a result of variable consideration. Variable
consideration is recorded at the time revenue is recognized as
a reduction of the transaction price and typically occurs as a
result of certain of the company's sales promotion and
incentive programs offered to customers that are determined
to represent price concessions, as well as anticipated product
returns, when applicable. If a contract contains more than one
performance obligation, the transaction price is allocated to
each performance obligation based on the relative standalone
selling price of the respective promised good or service. The
company does not recognize revenue in situations where
collectability from the customer is not probable, and defers
the recognition of revenue until collection is probable or
payment
is received and performance obligations are
satisfied.
Sales Promotions and Incentives
the
At the time revenue is recognized, the company records a
reduction of
the variable
transaction price
consideration associated with certain of the company's sales
promotions and incentives programs offered to customers
that are determined to represent price concessions. The
expense of each sales promotion and incentive program is
for
70
classified as a reduction from gross sales or as a component
of selling, general and administrative expense within the
Consolidated Statements of Earnings when revenue is
recognized, depending on the nature of the program.
Generally, the cost of a program is recorded as a reduction
from gross sales when revenue is recognized and thus, is
considered to be variable consideration, if the expense is
determined to represent a price concession because the
program either (i) results in an immediate reduction of the
transaction price with no anticipated future costs or
consideration provided to the customer or (ii) the company
anticipates future costs based on historical or expected future
business practice for which the company does not receive a
distinct good or service
the future
consideration provided to the customer under the program. In
other circumstances, the anticipated future cost of a program
based on historical or expected future business practice is
recorded as selling, general and administrative expense
because the company receives a distinct good or service in
exchange for the future consideration provided to the
customer under the program.
in exchange for
Examples of significant sales promotions and incentive
programs that are considered to be variable consideration
because the cost of the program is classified as a reduction
from gross sales are as follows:
•
• Off-Invoice Discounts: The company's off-invoice
discounts represent an immediate reduction in the selling
price of the company's products that is realized at the
time of sale with no anticipated future cost or
consideration provided to the customer.
Rebate Programs: The company's rebate programs are
generally based on claims submitted from either the
company's direct customers or end-users of
the
company's products or are based on purchase or retail
sales goals for the company's direct customers of certain
quantities or mixes of product during a specified time
period, depending upon the program. The amount of the
rebate varies based on the specific program and is either
a dollar amount or a percentage of the purchase price and
can also be based on actual retail price as compared to
the company's selling price. Consideration is typically
provided to the company's customers for the company's
rebate programs after the initial sale of the company's
products to the company's direct customers and thus,
there is generally an anticipated future cost at the time
revenue is recognized based on historical and expected
future business practice.
financing
Financing Programs: The
programs consist of wholesale floor plan financing
programs with Red Iron and separate
third-party
financial institutions and end-user retail financing. Costs
incurred for wholesale floor plan financing programs
represent financing costs associated with programs under
which the company shares the expense of financing
distributor and dealer inventories through third-party
financing arrangements for a specific period of time.
This charge represents interest for a pre-established
company's
•
institution
third-party financial
length of time based on a predefined rate from the
contract between the company and Red Iron or the
to finance
separate
distributor and dealer inventory purchase. The wholesale
financing costs for distributor and dealer inventories
were $20.8 million, $24.1 million, and $44.5 million for
the fiscal years ended October 31, 2021, 2020 and 2019,
respectively. End-user retail financing is similar to floor
planning with the difference being that retail financing
programs are offered to end-user customers under which
the company, at its discretion, may pay a portion of
interest costs on behalf of end-users for financing
purchases of the company's equipment.
Examples of significant sales promotions and incentive
programs that are not considered to be variable consideration
because the cost of the program is classified as a component
of selling, general, and administrative expense are as follows:
•
•
in
these
instances
Commissions Paid to Distributors and Dealers: For
the company uses a distribution
certain products,
network of dealers and distributors that purchase and
take possession of products for sale to the end customer.
The company also has dealers and distributors that act as
sales agents for it on certain products using a direct-
selling type model. Under this direct-selling type model,
the company's network of distributors and dealers
facilitates a sale directly to the dealer or end-user
customer on its behalf. Commissions to distributors and
dealers
represent commission
payments to sales agents that are also its customers. In
addition, TTC dealers are often paid a commission to set
up and deliver riding product purchased at certain home
centers.
Cooperative Advertising: Cooperative advertising
programs are based on advertising costs incurred by
distributors and dealers for promoting the company's
products. The company supports a portion of those
advertising costs in which claims are submitted by the
distributor or dealer along with evidence of
the
advertising material procured/produced and evidence of
the cost incurred in the form of third-party invoices or
receipts.
Regardless of classification of the cost of the sales promotion
and incentive program within the Consolidated Statements of
Earnings, the company records an accrual within the
Consolidated Balance Sheets for the estimated future expense
of certain of its sales promotion and incentive programs for
which the company anticipates a future cost based on
historical or expected future business practice by using the
expected value method and applying the portfolio approach
practical
standards
codification guidance for revenue from contracts with
customers. Under
company's
determination of variable consideration and the related
accrual associated with the estimated expense of certain of
the company's sales promotions and incentives programs is
primarily based on the terms of the sales arrangements and
sales promotion and incentive programs with customers,
expedient under
accounting
approach,
such
the
the
historical payment and rebate claims experience, field
inventory levels, quantity or mix of products purchased,
forecasted sales volumes, types of programs offered, and
expectations for the acceptance of sales promotion and
incentive programs offered in the future or changes in other
relevant trends.
Cost of Sales
Cost of sales is primarily comprised of direct materials and
supplies consumed to manufacture the company's products,
as well as compensations costs for manufacturing labor and
direct overhead expense necessary to convert direct materials
and supplies into finished product. Cost of sales also includes
freight costs for the procurement of direct materials and
to customers; charges
supplies and shipping products
associated with inventory valuation adjustments for excess,
slow-moving, and obsolete inventory; depreciation and
amortization expense on manufacturing-related tangible and
intangible assets; operating lease expense related to leased
manufacturing assets; cost of services provided; cash
discounts on payments to vendors, and other manufacturing-
related costs.
Selling, General and Administrative Expense
Selling, general and administrative expense is primarily
comprised of compensation costs for non-manufacturing
labor, occupancy and operating costs of distribution and
corporate facilities, warranty expense, depreciation and
amortization expense on non-manufacturing tangible and
intangible assets, operating lease expense related to leased
non-manufacturing assets; advertising, marketing, and selling
information
expenses, engineering and research costs,
systems costs, and other miscellaneous administrative costs,
such as legal costs for internal and outside services that are
expensed as incurred.
Advertising Expense
General advertising expenditures are expensed the first time
advertising takes place. Production costs associated with
advertising are expensed in the period incurred. Cooperative
advertising represents expenditures for shared advertising
costs that the company reimburses to customers and is
classified as a component of selling, general and
administrative expense within the Consolidated Statements of
Earnings. These obligations are accrued and expensed when
the related revenues are recognized in accordance with the
sales promotion and incentive programs established for
certain product lines. Advertising costs were $50.5 million,
$50.3 million, and $43.5 million for the fiscal years ended
October 31, 2021, 2020, and 2019, respectively.
Engineering and Research Expense
The company's engineering and research costs are expensed
as
incurred as a component of selling, general and
administrative expense within the Consolidated Statements of
Earnings and are primarily incurred in connection with the
development of new products that may have additional
applications or represent extensions of existing product lines,
71
improvements or enhancements to existing products, and cost
reduction efforts. Costs incurred for engineering and research
activities were $141.0 million, $124.1 million, and $109.1
million for the fiscal years ended October 31, 2021, 2020,
and 2019, respectively.
Stock-Based Compensation Expense
The company's stock-based compensation awards are
generally granted to executive officers, other employees, and
non-employee members of the company's Board of Directors
("Board"), and include unrestricted common stock awards,
performance share awards that are contingent on the
achievement of performance goals of the company, non-
qualified stock options, and restricted stock units. Generally,
compensation expense equal to the grant date fair value
determined under the Black-Scholes valuation method is
recognized for these awards over the vesting period and is
classified in selling, general and administrative expense
within the Consolidated Statements of Earnings. For stock
options and restricted stock units, expense recognized for
other employees not considered executive officers and non-
employee Board members is net of estimated forfeitures,
which is based on historical forfeiture experience. Stock
options granted to executive officers and other employees are
subject to accelerated expensing if the option holder meets
the retirement definition set forth in The Toro Company
Amended and Restated 2010 Equity and Incentive Plan, as
amended and restated (the "2010 plan"). In that case, the fair
value of the options is expensed in the fiscal year of grant
because generally, if the option holder is employed as of the
end of the fiscal year in which the options are granted, such
options will not be forfeited but continue to vest according to
their schedule following retirement.
Other Income, Net
Other income, net primarily consists of the company's
proportionate share of income or losses from the company's
Red Iron joint venture, realized foreign currency exchange
rate gains and losses, interest and dividend income, gains or
losses recognized on actuarial valuation changes for our
pension and post-retirement plans, retail financing revenue,
and other miscellaneous income.
Net Earnings Per Share
Basic net earnings per share is calculated as net earnings
available to common stockholders divided by the weighted-
average number of shares of common stock outstanding
during the year plus the assumed issuance of contingent
shares related to performance share awards under the 2010
plan. Diluted net earnings per share is similar to basic net
earnings per share except that the weighted-average number
of shares of common stock outstanding plus the assumed
issuance of contingent shares is increased to include the
number of additional shares of common stock that would
have been outstanding assuming
issuance of all
potentially dilutive shares, such as common stock to be
issued upon exercise of options, contingently issuable shares,
and restricted stock units.
the
Reconciliations of basic and diluted weighted-average shares
of common stock outstanding are as follows (in thousands):
Fiscal Years Ended October 31
2021
2020
2019
Basic
Weighted-average number of shares of
common stock
Assumed issuance of contingent
shares
Weighted-average number of shares of
common stock outstanding – Basic
Diluted
107,336
107,647
106,762
5
11
11
107,341
107,658
106,773
Weighted-average number of shares of
common stock outstanding – Basic
107,341
107,658
106,773
Effect of dilutive securities
1,132
1,005
1,317
Weighted-average number of shares of
common stock outstanding – Diluted
108,473
108,663
108,090
Incremental shares from options and restricted stock units are
computed under the treasury stock method. Stock option
awards to purchase 409,851, 447,032, and 716,343 shares of
common stock during fiscal 2021, 2020, and 2019,
respectively, were excluded from the computation of diluted
net earnings per share of common stock because they were
anti-dilutive.
New Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU") No.
2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments,
which modifies the measurement approach for credit losses
on financial assets measured on an amortized cost basis from
an 'incurred loss' method to an 'expected loss' method. Such
modification of the measurement approach for credit losses
eliminates the requirement that a credit loss be considered
probable, or incurred, to impact the valuation of a financial
asset measured on an amortized cost basis. The amended
guidance requires the measurement of expected credit losses
to be based on relevant information, including historical
experience, current conditions, and a reasonable and
supportable forecast that affects the collectability of the
related financial asset. This amendment affects
trade
receivables, off-balance-sheet credit exposures, and any other
financial assets not excluded from the scope of this
amendment that have the contractual right to receive cash.
The amended guidance was adopted in the first quarter of
fiscal 2021, under the modified retrospective transition
method, and did not have a material impact on the company's
Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair
Value Measurement (Topic 820) - Changes to the Disclosure
Requirements for Fair Value Measurement, which modifies
the disclosure requirements for fair value measurements by
removing, modifying, or adding certain disclosures. The
amended guidance was adopted in the first quarter of fiscal
2021 and did not have a material impact on the company's
Consolidated Financial Statements.
72
In August 2018, the FASB issued ASU No. 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans
(Topic 715), which modifies the disclosure requirements for
defined benefit pension plans and other post-retirement plans.
The amended guidance was adopted in the first quarter of
fiscal 2021 and did not have a material impact on the
company's Consolidated Financial Statements.
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which eliminates certain exceptions related to
the approach for intraperiod tax allocation, the methodology
for calculating income taxes in an interim period, and the
recognition of deferred tax liabilities for outside basis
differences. The amended guidance also clarifies and
simplifies other aspects of the accounting for income taxes
under ASC Topic 740, Income Taxes. The company will
adopt the amended guidance on November 1, 2021, the first
quarter of fiscal 2022, and such adoption will not have a
material impact on the company's Consolidated Financial
Statements.
In January 2020, the FASB issued ASU No. 2020-01,
Investments - Equity Securities (Topic 321), Investments -
Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815), which clarified that
before applying or upon discontinuing the equity method of
accounting for an investment in equity securities, an entity
should consider observable transactions that require it to
apply or discontinue the equity method of accounting for the
purposes of applying the fair value measurement alternative.
The company will adopt the amended guidance on November
1, 2021, the first quarter of fiscal 2022, and such adoption
will not have a material
the company's
Consolidated Financial Statements.
impact on
In March 2020, the FASB issued ASU No. 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting,
which provides temporary optional guidance to ease the
potential burden of accounting for reference rate reform due
to the cessation of the London Interbank Offered Rate,
commonly referred to as "LIBOR." The temporary guidance
provides optional expedients and exceptions for applying
U.S. GAAP to contracts, relationships, and transactions
affected by reference rate reform if certain criteria are met.
The guidance was effective upon issuance on March 12, 2020
and the provisions of the temporary optional guidance
provided by the ASU may be elected on a prospective basis
from the beginning of an interim period that includes the
issuance date of the ASU through December 31, 2022, when
the reference rate reform activity
to be
substantially complete. In January 2021, the FASB issued
ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to
provide supplemental guidance and to further clarify the
scope of the amended guidance. At this time, the company
does not have receivables, hedging relationships, or operating
lease agreements that reference LIBOR or another reference
is expected
73
rate expected to be discontinued and therefore, the company
has not applied the optional practical expedients under this
ASU to these classes of assets. On October 5, 2021, the
company entered into an amended and restated credit
agreement and at such time, the company concluded that the
optional practical expedients provided by the ASU would not
be elected as the required criteria were not met. The amended
and restated credit agreement includes a transition clause in
the event LIBOR is discontinued and the company's other
fixed-rate financing agreements do not reference LIBOR or
another reference rate expected to be discontinued as
disclosed in Note 6, Indebtedness. As such, the company
does not expect the transition of LIBOR to have a material
impact on the company's Consolidated Financial Statements;
however, a review of other contracts and agreements is
underway and is expected to be completed prior to December
31, 2022.
that all other recently
issued
The company believes
the
accounting pronouncements from
company has not noted above, will not have a material
impact on its Consolidated Financial Statements or do not
apply to its operations.
the FASB
that
2 Business Combinations and Asset
Acquisitions
Asset Acquisitions
and
Effective November 4, 2020, during the first quarter of fiscal
2021, the company completed the acquisition of Turflynx,
Lda, a developer of innovative autonomous solutions for turf
management and effective March 1, 2021, during the second
quarter of fiscal 2021, the company completed the acquisition
of Left Hand Robotics, Inc., a developer of innovative
autonomous solutions for turf and snow management. These
acquisitions complement and support the development of
alternative power,
autonomous
smart-connected,
products within the company's Professional and Residential
segments. Neither of these acquisitions met the definition of a
business combination as substantially all of the fair value of
the gross assets acquired in each acquisition was concentrated
in the respective finite-lived developed technology other
intangible asset and as a result, the company accounted for
each of these transactions as an asset acquisition. In an asset
acquisition, goodwill is not recognized, but rather, any excess
purchase consideration over the fair value of the net assets
acquired is allocated on a relative fair value basis to the
identifiable net assets as of the acquisition date and any direct
acquisition-related transaction costs are capitalized as part of
the purchase consideration. These asset acquisitions were
immaterial
the company's Consolidated
Financial Condition and Results of Operations and as a
result, additional purchase accounting disclosures have been
omitted.
in relation
to
Venture Products, Inc. ("Venture Products")
Venture Products Purchase Price Allocation
On March 2, 2020 ("Venture Products closing date"),
pursuant to an Agreement and Plan of Merger ("Venture
Products merger agreement") and an agreement to purchase
the real property used by Venture Products ("Venture
Products purchase agreement") both dated January 20, 2020,
the company completed its acquisition of Venture Products
("Venture Products transaction"), a privately held Ohio
corporation and
the manufacturer of Ventrac-branded
products. Venture Products designs, manufactures, markets,
and sells articulating turf, landscape, and snow and ice
management equipment for grounds, landscape contractor,
golf, municipal, and rural acreage customers and provides
innovative product offerings that broadened and strengthened
the company's Professional segment and expanded its dealer
network.
The Venture Products transaction was structured as a merger,
pursuant to which a wholly-owned subsidiary of the company
merged with and into Venture Products, with Venture
Products continuing as the surviving entity and a wholly-
owned subsidiary of the company. As a result of the merger,
all of the outstanding equity securities of Venture Products
were canceled and only represented the right to receive the
applicable consideration as described in the Venture Products
merger agreement. The Venture Products purchase agreement
was with an affiliate of Venture Products and was for the real
estate used by Venture Products. As of the Venture Products
closing date,
the company paid preliminary merger
consideration of $165.9 million, which consisted of a cash
payment of $136.4 million ("initial cash payment") and a
$29.5 million holdback to satisfy any indemnification or
certain other obligations of Venture Products to the company.
The preliminary merger consideration was subject to certain
customary adjustments, which were finalized during the third
quarter of fiscal 2020 and resulted in an aggregate merger
consideration of $163.2 million ("Venture Products purchase
price") and at such time, $4.5 million of the holdback set
aside
released
accordingly. During fiscal 2021, $24.9 million of cash
consideration was paid to the former Venture Products
shareholders to release the remaining holdback amount upon
the satisfaction of
indemnification and certain other
obligations of Venture Products to the company. The
company funded the cash payment with borrowings under its
revolving credit facility and net cash provided by operating
activities. For additional information regarding the company's
revolving credit facility, refer to Note 6, Indebtedness.
for such customary adjustments was
As a result of the acquisition, the company incurred $0.6
million of acquisition-related transaction costs, all of which
were incurred during the fiscal year ended October 31, 2020
and recorded within selling, general and administrative
expense within the Consolidated Statements of Earnings for
such fiscal period.
The company accounted for the acquisition in accordance
with the accounting standards codification guidance for
business combinations, whereby
the Venture Products
purchase price was allocated to the acquired net tangible and
intangible assets of Venture Products based on
their
estimated fair values as of the Venture Products closing date.
Such fair values were based on internal company and
independent external third-party valuations. The following
table summarizes the allocation of the Venture Products
purchase price to the fair values assigned to the Venture
Products assets acquired and
(in
thousands):
liabilities assumed
March 2, 2020
Cash and cash equivalents
$
Receivables
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Goodwill
Other intangible assets:
Finite-lived customer-related
Indefinite-lived trade name
Accounts payable
Accrued liabilities
Deferred income tax liabilities
Total fair value of net assets acquired
Less: cash and cash equivalents acquired
3,476
6,342
23,000
239
26,976
61,225
19,100
56,200
(4,075)
(5,196)
(20,586)
166,701
(3,476)
Total Venture Products purchase price
$
163,225
include
increased purchasing power
The goodwill recognized is primarily attributable to the value
of the workforce, the reputation of Venture Products,
expected future cash flows, and expected synergies, including
customer and dealer growth opportunities and integrating and
expanding existing product lines. Key areas of expected cost
synergies
for
commodities, components, parts, and accessories, and supply
chain consolidation. The goodwill resulting from
the
acquisition of Venture Products was recognized within the
company's Professional segment and is non-deductible for tax
purposes. During the first quarter of fiscal 2021, the company
completed its valuation of income taxes to finalize the
Venture Products purchase price allocation, which resulted in
a decrease to the carrying amount of goodwill of $1.0 million
from $412.1 million as of October 31, 2020. Such purchase
accounting adjustment did not
the company's
Consolidated Statements of Earnings for fiscal 2021.
impact
The allocation of the Venture Products purchase price to the
net assets acquired resulted in the recognition of $75.3
million of other intangible assets as of the Venture Products
closing date. The fair values of the acquired trade name and
customer-related intangible assets were determined using the
income approach whereby an intangible asset's fair value is
equal to the present value of future economic benefits
expected to be derived from ownership of the asset. The
useful lives of the acquired trade name and customer-related
intangible assets were determined based on the period of
74
is based on
expected cash flows used to measure the fair value of the
respective intangible assets adjusted as appropriate for entity-
specific factors including legal, regulatory, contractual,
competitive, economic, and/or other factors that may limit the
useful life of the respective intangible asset. The fair value of
the indefinite-lived trade name was determined using the
the
relief from royalty method, which
hypothetical royalty stream that would be received if the
company were to license the trade name and was based on
expected future revenues. The fair value of the customer-
related intangible asset was determined using the excess
earnings method and was based on the expected operating
cash flows attributable to the customer-related intangible
asset, which was determined by deducting expected
and
economic
contributory asset charges, from revenue expected to be
generated from the customer-related intangible asset. As of
the Venture Products closing date, the weighted-average
useful life of the finite-lived customer-related intangible asset
was determined to be 16.0 years.
including operating
expenses
costs,
The Charles Machine Works, Inc. ("CMW")
On April 1, 2019 ("CMW closing date"), pursuant to the
Agreement and Plan of Merger dated February 14, 2019
("CMW merger agreement"), the company completed the
acquisition of CMW ("CMW transaction"), a privately held
Oklahoma corporation. CMW designs, manufactures, and
markets a range of professional products to serve the
underground construction market,
including horizontal
directional drills, walk and ride trenchers, stand-on skid
steers, vacuum excavators, asset locators, pipe rehabilitation
solutions, and after-market tools. CMW provides innovative
product offerings that broadened and strengthened the
company's Professional segment product portfolio and
expanded
its dealer network, while also providing a
complementary geographic manufacturing footprint.
The CMW transaction was structured as a merger, pursuant
to which a wholly-owned subsidiary of the company merged
with and into CMW, with CMW continuing as the surviving
entity and a wholly-owned subsidiary of the company. As a
result of the merger, all of the outstanding equity securities of
CMW were canceled and only represented the right to
receive the applicable consideration as described in the CMW
merger agreement. At the CMW closing date, the company
paid preliminary merger consideration of $679.3 million. The
preliminary merger consideration was subject to certain
customary adjustments that were finalized during the fourth
quarter of fiscal 2019, which resulted in an aggregate merger
consideration of $685.0 million ("CMW purchase price").
The company funded the CMW purchase price by using a
combination of cash proceeds from
issuance of
borrowings under the company's $500.0 million unsecured
senior term loan credit agreement and borrowings from the
company's
additional
information regarding the financing agreements utilized to
fund the CMW purchase price, refer to Note 6, Indebtedness.
facility. For
revolving
credit
the
As a result of the acquisition, the company incurred $10.2
million of acquisition-related transaction costs, all of which
were incurred during the fiscal year ended October 31, 2019
and recorded within selling, general and administrative
expense within the Consolidated Statements of Earnings for
such fiscal period.
CMW Purchase Price Allocation
The company accounted for the acquisition in accordance
with the accounting standards codification guidance for
business combinations, whereby the CMW purchase price
was allocated to the acquired net tangible and intangible
assets of CMW based on their estimated fair values as of the
CMW closing date. Such fair values were based on internal
company and independent external third-party valuations.
The following table summarizes the allocation of the CMW
purchase price to the fair values assigned to the CMW assets
acquired and liabilities assumed (in thousands):
April 1, 2019
Cash and cash equivalents
$
Receivables
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Goodwill
Indefinite-lived other intangible assets:
Trade names
Finite-lived other intangible assets:
Customer-related
Developed technology
Trade names
Backlog
Other long-term assets
Accounts payable
Accrued liabilities
Deferred income tax liabilities
Other long-term liabilities
Total fair value of net assets acquired
Less: cash and cash equivalents acquired
Total CMW purchase price
$
16,341
65,674
241,429
8,050
142,779
134,657
103,700
130,800
20,900
5,200
3,590
7,971
(35,892)
(51,943)
(85,277)
(6,665)
701,314
(16,341)
684,973
The goodwill recognized is primarily attributable to the value
of the workforce, the reputation of CMW and its brands,
customer and dealer growth opportunities, and expected
synergies. Key areas of expected cost synergies include
increased purchasing power for commodities, components,
parts, and accessories, supply chain consolidation, and
administrative efficiencies. The goodwill resulting from the
acquisition of CMW was recognized within the company's
Professional segment and is mostly non-deductible for tax
purposes. During the second quarter of fiscal 2020, the
company completed its valuation of income taxes to finalize
the CMW purchase price allocation, which resulted in a
decrease to the carrying amount of Professional segment
goodwill of $0.9 million from $350.3 million as of October
31, 2019. Such purchase accounting adjustment did not
impact the company's Consolidated Statements of Earnings
for fiscal 2020.
75
factors
lives of
including
for entity-specific
The allocation of the purchase price to the net assets acquired
resulted in the recognition of $264.2 million of other
intangible assets as of the CMW closing date. The fair values
of the acquired trade name, customer-related, developed
technology and backlog intangible assets were determined
using the income approach whereby an intangible asset's fair
value is equal to the present value of future economic
benefits expected to be derived from ownership of the asset.
The useful
intangible assets were
the other
determined based on the period of expected cash flows used
to measure the fair value of the intangible assets adjusted as
appropriate
legal,
regulatory, contractual, competitive, economic, and/or other
factors that may limit the useful life of the respective
intangible asset. As of the CMW closing date, the acquired
finite-lived intangible assets had a weighted average useful
life of 16.6 years. The fair values of both the indefinite-lived
and finite-live trade names were determined using the relief
from royalty method, which is based on the hypothetical
royalty stream that would be received if the company were to
license the trade name and was based on expected future
revenues. The weighted-average useful life of the finite-lived
trade name intangible assets was determined to be 20.0 years
as of the CMW closing date. The fair values of the finite-
lived customer-related, developed technology, and backlog
intangible assets were determined using the excess earnings
method and were based on the expected operating cash flows
attributable to the respective other intangible asset, which
were determined by deducting expected economic costs,
including operating expenses and contributory asset charges,
from revenue expected to be generated from the respective
intangible asset. As of the CMW closing date, the weighted-
average useful lives of the finite-lived customer-related,
developed technology, and backlog intangible assets were
determined to be 18.3 years, 7.8 years, and 6 months,
respectively.
Unaudited Pro Forma Financial Information
Unaudited pro forma financial information represents the
company's fiscal 2019 acquisition of CMW as though the
acquisition had taken place at the beginning of fiscal 2018
and has been provided for comparative purposes only. The
unaudited pro forma financial information is only presented
for the fiscal year ended October 31, 2019 as CMW's results
are included within the Company's Results of Operations for
fiscal 2021 and 2020. The unaudited pro forma financial
information is not necessarily indicative of the results that
would have been achieved had the acquisition actually taken
place at the beginning of fiscal 2018 and the unaudited pro
forma financial information does not purport to be indicative
of future Consolidated Results of Operations. The unaudited
pro forma financial
information does not reflect any
synergies, operating efficiencies, and/or cost savings that
have been and may continue to be realized from the
integration of the acquisition.
The unaudited pro forma results for the fiscal year ended
October 31, 2019 were adjusted to exclude the pro forma
impact of the take-down of the inventory fair value step-up
76
amount and amortization of the backlog intangible asset;
include the pro forma impact of amortization of other
intangible assets, excluding backlog, based on the purchase
price allocations and useful lives; include the pro forma
impact of the depreciation of property, plant, and equipment
based on the purchase price allocations and useful lives;
include the pro forma impact of additional interest expense
relating to the acquisition; exclude the pro forma impact of
transaction costs
the company directly
attributable to the acquisition; and include the pro forma tax
effect of both earnings before income taxes and the pro forma
adjustments.
incurred by
The following table presents unaudited pro forma financial
information for fiscal 2019 (in thousands, except per share
data):
Net sales
Net earnings1
Basic net earnings per share of common stock
Diluted net earnings per share of common stock1
October 31,
2019
$ 3,437,335
363,452
3.40
3.36
$
1
On January 1, 2019, CMW amended its retiree medical plans so
that no employee hired, or rehired, after that date would be eligible
for such retiree medical plans. CMW further amended its retiree
medical plans on February 14, 2019 so that no employee who
terminates employment after February 14, 2019 is eligible to
participate in the retiree medical plans and to terminate its retiree
medical plans effective December 31, 2019. The amendments and
resulting termination of CMW's retiree medical plans resulted in a
gain of $45.8 million. This gain is reflected within net earnings in
the unaudited pro forma financial information for the fiscal year
ended October 31, 2019. The impact on diluted net earnings per
share of common stock for the fiscal year ended October 31, 2019
was $0.42 per diluted share of common stock.
Northeastern U.S. Distribution Company
Effective November 30, 2018, during the first quarter of
fiscal 2019, the company completed the acquisition of
substantially all of the assets of, and assumed certain
liabilities of, a Northeastern U.S. distribution company. The
purchase price of this acquisition was allocated to the
identifiable assets acquired and liabilities assumed based on
estimates of their fair value, with the excess purchase price
recorded as goodwill. This acquisition was immaterial based
on the company's Consolidated Financial Condition and
Results of Operations and as a result, additional purchase
accounting disclosures have been omitted.
3 Segment Data
The company's businesses are organized, managed, and
internally grouped into segments based on similarities in
products and services. Segment selection is based on the
manner in which the company's chief operating decision
maker organizes segments for making operating and
investment decisions and assessing performance. The
company has identified eleven operating segments and has
aggregated certain of those operating segments into two
reportable segments: Professional and Residential. The
aggregation of the company's segments is based on the
following similarities: economic
segments having
characteristics, types of products and services, types of
production processes, type or class of customers, and method
of distribution. The company's remaining activities are
presented as "Other" due to their insignificance.
the
snow and
The Professional reportable business segment consists of turf
and landscape equipment; rental, specialty, and underground
construction equipment;
ice management
equipment; and irrigation and lighting products. Turf and
landscape equipment products include sports fields and
grounds mowing and maintenance equipment, golf course
mowing and maintenance equipment, landscape contractor
landscape creation and renovation
mowing equipment,
equipment, and other maintenance equipment. Rental,
specialty, and underground construction equipment products
include horizontal directional drills, walk and ride trenchers,
stand-on skid steers, vacuum excavators, stump grinders, turf
renovation products, asset
locators, pipe rehabilitation
solutions, materials handling equipment, and other after-
market tools. Snow and ice management equipment products
primarily include snowplows; stand-on snow and ice removal
equipment, including the related snowplow, snow brush, and
snow thrower attachments; salt and sand spreaders; and
related parts and accessories for light and medium duty
trucks, utility task vehicles, skid steers, and front-end loaders.
Irrigation and lighting products consist of sprinkler heads,
electric and hydraulic valves, controllers, computer irrigation
central control systems, coupling systems, and ag-irrigation
drip tape and hose products, as well as professionally
through
installed
distributors and landscape contractors that also purchase
irrigation products. Professional reportable business segment
products are marketed and sold mainly through a network of
distributors and dealers to professional users engaged in
maintaining golf courses, sports fields, municipal properties,
agricultural fields, residential and commercial landscapes,
and removing snow and ice, as well as directly to government
customers, rental companies, and large retailers.
lighting products offered
landscape
The Residential reportable business segment primarily
consists of walk power mowers, zero-turn riding mowers,
snow throwers, replacement parts, and home solutions
products, including grass trimmers, hedge trimmers, leaf
blowers, blower-vacuums, chainsaws, string trimmers, and
underground, hose, and hose-end retail irrigation products
sold in Australia and New Zealand. Residential reportable
to
business segment products are marketed and sold
homeowners through a network of distributors and dealers,
and through a broad array of home centers, hardware
retailers, and mass retailers, as well as online.
As further described in Note 7, Management Actions, during
the first quarter of fiscal 2021, the company completed the
sale of its Northeastern U.S. distribution company. As a
result, for the fiscal year ended October 31, 2021, the
company's Other activities consisted of the company's
wholly-owned domestic distribution company, the company's
77
corporate activities, and the elimination of intersegment
revenues and expenses. For the fiscal year ended October 31,
2020, the company's Other activities consisted of the
company's wholly-owned domestic distribution companies,
the company's corporate activities, and the elimination of
intersegment revenues and expenses. Corporate activities
include general corporate expenditures (finance, human
resources,
information services, public relations,
business development, and similar activities) and other
unallocated corporate assets and liabilities, such as corporate
facilities and deferred tax assets and liabilities.
legal,
The accounting policies of the reportable business segments
are the same as those described in the summary of significant
accounting policies in Note 1, Summary of Significant
Accounting Policies and Related Data. The company
evaluates the performance of its Professional and Residential
reportable business segment results based on earnings from
operations plus other income, net. The reportable business
segment's operating profits or losses include direct costs
incurred at the reportable business segment's operating level
plus allocated expenses, such as profit sharing and
manufacturing expenses. The allocated expenses represent
costs that these operations would have incurred otherwise,
but do not include general corporate expenses, interest
expense, and income taxes. Operating loss for the company's
Other activities includes earnings (loss) from the company's
domestic wholly-owned distribution companies, corporate
activities, other income, and interest expense. The company
accounts for intersegment gross sales at current market
prices.
following
financial
The
information concerning the company's reportable business
segments and Other activities (in thousands):
tables present
summarized
Fiscal Year Ended
October 31, 2021
Professional Residential
Other
Total
Net sales
$ 2,929,600
$ 1,010,077
$ 19,907
$ 3,959,584
Intersegment gross
sales (eliminations)
Earnings (loss)
before income taxes
30,530
44
(30,574)
—
507,327
121,516
(129,025)
499,818
Total assets
2,032,350
388,246
515,544
2,936,140
Capital expenditures
79,515
16,730
7,767
104,012
Depreciation and
amortization
Fiscal Year Ended
October 31, 2020
$
73,747
$
13,470
$ 12,099
$
99,316
Professional Residential
Other
Total
Net sales
$ 2,523,452
$ 820,745
$ 34,613
$ 3,378,810
Intersegment gross
sales (eliminations)
Earnings (loss)
before income taxes
Total assets
46,703
80
(46,783)
—
426,560
1,940,844
113,669
282,061
(133,159)
630,323
407,070
2,853,228
Capital expenditures
49,975
13,669
14,424
78,068
Depreciation and
amortization
$
70,460
$
12,607
$ 12,548
$
95,615
Fiscal Year Ended
October 31, 2019
Professional Residential
Other
Total
Net sales
$ 2,443,448
$ 661,274
$ 33,362
$ 3,138,084
4 Revenue
Intersegment gross
sales (eliminations)
Earnings (loss)
before income taxes
59,453
310
(59,763)
—
380,914
65,151
(123,932)
322,133
Total assets
1,592,065
430,495
307,987
2,330,547
Capital expenditures
57,246
16,970
18,665
92,881
Depreciation and
amortization
$
63,885
$
11,897
$ 11,916
$
87,698
During fiscal 2021, sales to one customer in the Residential
segment accounted for 10.6 percent of total consolidated
gross sales. During fiscal 2020 and 2019, no customer
accounted for 10.0 percent or more of total consolidated
gross sales.
The following table presents the details of operating loss
before income taxes for the company's Other activities (in
thousands):
Fiscal Years Ended
October 31
2021
2020
2019
Corporate expenses
$
(112,419) $
(108,396) $
(124,422)
Interest expense
(28,659)
(33,156)
(28,835)
Earnings from wholly-
owned domestic
distribution companies
and other income, net
12,053
8,393
29,325
Total operating loss
$
(129,025) $
(133,159) $
(123,932)
The following geographic area data includes net sales based
on product shipment destination and long-lived assets, which
consist of property, plant and equipment, net, and is based on
physical location in addition to allocated capital tooling from
U.S. plant facilities (in thousands):
Fiscal Years Ended
October 31
United States
International
Countries
Total
2021
Net sales
$ 3,131,954 $
827,630 $ 3,959,584
Long-lived assets
$
440,555 $
47,176 $
487,731
2020
Net sales
$ 2,700,694 $
678,116 $ 3,378,810
Long-lived assets
$
426,378 $
41,541 $
467,919
2019
Net sales
$ 2,413,153 $
724,931 $ 3,138,084
Long-lived assets
$
395,937 $
41,380 $
437,317
The company enters into contracts with its customers for the
sale of products or rendering of services in the ordinary
course of business. A contract with commercial substance
exists at the time the company receives and accepts a
purchase or sales order under a sales contract with a
customer. The company recognizes revenue when, or as,
performance obligations under the terms of a contract with its
customer are satisfied, which generally occurs with the
transfer of control of product or services. Control is typically
transferred to the customer at the time a product is shipped,
or in the case of certain agreements, when a product is
delivered or as services are rendered. Revenue is recognized
based on the transaction price, which is measured as the
amount of consideration the company expects to receive in
exchange for transferring product or rendering services
pursuant to the terms of the contract with a customer. The
amount of consideration the company receives and the
revenue the company recognizes varies with changes in the
variable consideration associated with the estimated expense
of certain of the company's sales promotions and incentives
programs offered to customers, as well as anticipated product
returns, when applicable. The company recognizes a
provision for estimated variable consideration at the time
revenue is recognized as a reduction of the transaction price.
If a contract contains more than one performance obligation,
the transaction price is allocated to each performance
obligation based on the relative standalone selling price of
the respective promised good or service. The company does
not recognize revenue in situations where collectability from
the customer is not probable, and defers the recognition of
revenue until collection is probable or payment is received
and performance obligations are satisfied.
Freight and shipping revenue billed to customers concurrent
with revenue producing activities is included within revenue
and the cost for freight and shipping is recognized as an
expense within cost of sales when control has transferred to
the customer. Shipping and handling activities that occur
after control of the related products is transferred are treated
as a fulfillment activity rather than a promised service, and
therefore, are not considered a performance obligation. Sales,
use, value-added, and other excise taxes the company collects
concurrent with revenue producing activities are excluded
from revenue. Incremental costs of obtaining a contract for
which the performance obligations will be satisfied within the
next twelve months are expensed as incurred. Incidental
items, including goods or services, that are immaterial in the
context of the contract are recognized as expense when
incurred. Additionally, the company has elected not to
disclose the balance of unfulfilled performance obligations
for contracts with a contractual term of twelve months or
less.
78
The following tables disaggregate the company's reportable
segment net sales by similar product type and geographic
market (in thousands):
Fiscal Year
Ended October
31, 2021
Revenue by
product type:
Equipment
Irrigation
Professional
Residential
Other
Total
$ 2,530,777
$
975,832
$ 11,720
$ 3,518,329
398,823
34,245
8,187
441,255
Total net sales
$ 2,929,600
$ 1,010,077
$ 19,907
$ 3,959,584
Revenue by
geographic market:
United States
International
Countries
$ 2,268,878
$
843,169
$ 19,907
$ 3,131,954
660,722
166,908
—
827,630
Total net sales
$ 2,929,600
$ 1,010,077
$ 19,907
$ 3,959,584
Fiscal Year
Ended October
31, 2020
Revenue by
product type:
Equipment
Irrigation
Professional
Residential
Other
Total
$ 2,175,794
$
787,716
$ 21,785
$ 2,985,295
347,658
33,029
12,828
393,515
Total net sales
$ 2,523,452
$
820,745
$ 34,613
$ 3,378,810
Revenue by
geographic market:
United States
International
Countries
$ 1,976,690
$
689,391
$ 34,613
$ 2,700,694
546,762
131,354
—
678,116
Total net sales
$ 2,523,452
$
820,745
$ 34,613
$ 3,378,810
Fiscal Year
Ended October
31, 2019
Revenue by
product type:
Equipment
Irrigation
Professional
Residential
Other
Total
$ 2,097,965
$
628,521
$ 21,449
$ 2,747,935
345,483
32,753
11,913
390,149
Total net sales
$ 2,443,448
$
661,274
$ 33,362
$ 3,138,084
Revenue by
geographic market:
United States
International
Countries
$ 1,853,054
$
526,737
$ 33,362
$ 2,413,153
590,394
134,537
—
724,931
Total net sales
$ 2,443,448
$
661,274
$ 33,362
$ 3,138,084
Product Revenue
The company's product revenues are generated through sales
of manufactured equipment and irrigation products, including
related replacement parts and accessories. For the majority of
the company's products, control is transferred and revenue is
recognized when the product is shipped from the company's
manufacturing facilities or distribution centers
the
company's customers, which primarily consist of distributors,
dealers, and mass retailers. In certain situations, the company
transfers control and recognizes revenue when delivery to the
customer has occurred. In
the
company ships some of its products on a consignment basis
to a customer distribution center or warehouse whereby the
company retains control of the product stored at the
the
customer's distribution center or warehouse. As
limited circumstances,
to
company's products are removed from the distribution center
or warehouse by the customer and shipped to the retail sale
location, control is transferred from the company to the
customer. At that time, the company invoices the customer
and recognizes revenue for these consignment transactions.
The company does not offer a right of return for products
shipped to the customer's retail sale location from the
distribution center or warehouse. The
total value of
consignment inventory as of October 31, 2021 and 2020 was
$37.2 million and $24.6 million, respectively.
Product revenue is recognized based on the transaction price,
which is measured as the amount of consideration the
company expects to receive in exchange for transferring
control of a product to a customer. The company recognizes
variable consideration as a reduction of the transaction price
at the time of the initial product sale by applying the portfolio
approach practical expedient under the accounting standards
codification guidance for revenue from contracts with
customers. Variable consideration typically occurs as a result
of certain of the company's sales promotions and incentive
programs that are determined to represent price concessions
because the program either: (i) results in an immediate
reduction of the transaction price with no anticipated future
costs or consideration provided to the customer or (ii) the
company anticipates a future cost based on historical or
expected future business practice for which the company
does not receive a distinct good or service in exchange for the
future consideration provided to the customer under the
program. Such programs primarily consist of off-invoice
discounts, rebates, and floor plan and retail financing. The
cost of off-invoice discounts are incurred at the time of sale
as a reduction of the transaction price and as a result, have no
future cost. For all other sales promotion and incentive
programs recorded as a reduction of the transaction price at
the time of the initial product sale, the company estimates
variable consideration using the expected value method
because the company anticipates providing a future price
concession based on historical or expected future business
practice or other factors. Estimates of variable consideration
under the expected value method are primarily based on the
terms of the sales arrangements and sales promotion and
incentive programs with customers, historical payment and
rebate claims experience, field inventory levels, quantity or
mix of products sold, forecasted sales volumes, types of
programs offered, and expectations for the acceptance of
sales promotion and incentive programs offered in the future
or changes in other relevant trends. When revenue is
recognized, the estimated expense of these sales promotions
and incentives programs is recorded as a reduction from
gross sales within the Consolidated Statements of Earnings
with a corresponding accrual
recorded within sales
promotions and incentives programs in the Consolidated
Balance Sheets. Additionally, from time to time, the
company may offer its customers the right to return eligible
equipment and irrigation products, replacement parts, and
accessories. Such right of return offered on the company's
products is also considered to be variable consideration that
is estimated and recorded as a reduction of revenue based
79
primarily on historical experience, anticipated sales returns
estimated from sales terms, trend analysis, and other factors.
The company records the obligation for product returns
within accrued liabilities in the Consolidated Balance Sheets
and the right-of-return asset in prepaid expenses and other
current assets in the Consolidated Balance Sheets. The refund
liability and right-of-return asset are remeasured for changes
in the estimate at each reporting date with a corresponding
adjustment to net sales and cost of sales within the
Consolidated Statements of Earnings. There are no material
instances where variable consideration is constrained and not
recorded at the initial time of sale.
Collectability from the customer for product revenue is
generally assumed to be probable because the company's
financial exposure related to accounts receivable is reduced
due to its wholesale floor plan financing programs, including
its Red Iron joint venture. Red Iron provides floor plan
inventory financing to certain dealers and distributors of the
company's equipment and irrigation products. The company
also has wholesale floor plan financing arrangements with
separate third-party financial institutions to provide floor plan
inventory financing to certain dealers not financed through
Red Iron. When product sales are financed by Red Iron or
other third-party financial institutions, the transactions are
structured as an advance in the form of a payment to the
company on behalf of a dealer or distributor with respect to
institutions. These
invoices financed by
payments extinguish the obligation of such dealer or
distributor to make payment to the company under the terms
of the applicable invoice. Under a separate agreement
between each financial
the dealer or
distributor, the financial institution provides a loan to the
dealer or distributor for the advances paid by the financial
institutions to the company. The company's product sales to
customers that do not elect to finance product purchases
through Red Iron or the third-party financial institutions are
generally on open account with
that generally
approximate 30 to 120 days. The resulting receivables are
included within receivables, net on the Consolidated Balance
Sheets. The company performs ongoing credit evaluations of
customers on open account terms in order to assess
collectability.
institution and
the financial
terms
Service and Extended Warranty Revenue
In certain cases, the company renders service contracts to
customers, which typically range from 12 to 60 months. The
company also sells separately priced extended warranty
coverage on select products for a prescribed period after the
standard warranty period expires, which typically range from
12 to 24 months. Under both types of contracts, the company
receives payment at the inception of the contract and
recognizes revenue over the term of the agreement in
proportion to the costs expected to be incurred in satisfying
the performance obligations under the contract.
Contract Liabilities
Contract liabilities relate to deferred revenue recognized for
cash consideration received at contract inception in advance
80
of the company's performance under the respective contract
and generally relate to the sale of separately priced extended
warranty contracts, service contracts, and non-refundable
customer deposits. The company recognizes revenue over the
term of the contract in proportion to the costs expected to be
incurred in satisfying the performance obligations under the
separately priced extended warranty and service contracts.
For non-refundable customer deposits,
the company
recognizes revenue as of the point in time in which the
performance obligation has been satisfied under the contract
with the customer, which typically occurs upon change in
control at the time a product is shipped. As of October 31,
2021 and October 31, 2020, $24.1 million and $21.9 million,
respectively, of deferred revenue associated with outstanding
separately priced extended warranty contracts, service
contracts, and non-refundable customer deposits was reported
within accrued liabilities and other long-term liabilities in the
Consolidated Balance Sheets. For the fiscal year ended
October 31, 2021, the company recognized $10.0 million of
the October 31, 2020 deferred revenue balance. The company
expects to recognize approximately $11.1 million of the
October 31, 2021 deferred revenue balance within net sales in
the Consolidated Statements of Earnings in fiscal 2022 and
$13.0 million thereafter.
5 Goodwill and Other Intangible Assets
The company's acquisition of Venture Products on March 2,
2020 resulted in the recognition of $61.2 million and $75.3
million of goodwill and other intangible assets, respectively.
For additional information on the company's acquisition of
Venture Products, refer to Note 2, Business Combinations
and Asset Acquisitions.
Goodwill
The changes in the carrying amount of goodwill by
reportable segment for fiscal 2021 and 2020 were as follows
(in thousands):
Balance as of
October 31, 2019
Goodwill
acquired
Purchase price
allocation
adjustment
Translation
adjustments
Balance as of
October 31, 2020
Purchase price
allocation
adjustment
Goodwill
divested
Translation
adjustments
Balance as of
October 31, 2021
Professional Residential
Other
Total
$
350,250 $
10,469
$
1,534
$ 362,253
62,252
(866)
425
—
—
11
—
62,252
—
—
(866)
436
412,061
10,480
1,534
424,075
(1,027)
—
—
(1,027)
—
45
—
(1,534)
(1,534)
121
—
166
$
411,079 $
10,601
$
—
$ 421,680
Other Intangible Assets
The components of other intangible assets were as follows (in
thousands, except weighted-average useful life in years):
October 31, 2021
Patents
Non-compete
agreements
Weighted-
Average
Useful Life
in Years
Gross
Carrying
Amount
Accumulated
Amortization
Net
9.9
$ 18,283 $
(14,670) $ 3,613
5.5
6,914
(6,872)
42
Customer-related
18.2
239,679
(62,617)
177,062
Developed
technology
Trade names
Backlog and other
Total finite-lived
Indefinite-lived -
trade names
Total other
intangible
assets, net
7.0
15.4
0.6
87,473
7,524
4,390
(43,348)
44,125
(2,969)
(4,390)
4,555
—
14.6
364,263
(134,866)
229,397
190,644
—
190,644
6 Indebtedness
The following is a summary of the company's indebtedness
(in thousands):
2021
2020
October 31
Revolving credit facility
$270 million term loan
$200 million term loan
$300 million term loan
$190 million term loan
3.81% series A senior notes
3.91% series B senior notes
7.8% debentures
6.625% senior notes
Less: unamortized discounts, debt issuance
costs, and deferred charges
Total long-term debt
$
— $
270,000
—
—
—
100,000
100,000
100,000
124,040
2,798
691,242
—
—
100,000
180,000
90,000
100,000
100,000
100,000
123,978
2,855
791,123
99,873
691,250
$ 554,907 $
(134,866) $ 420,041
Less: current portion of long-term debt
Long-term debt, less current portion
—
691,242 $
$
October 31, 2020
Patents
Non-compete
agreements
Weighted-
Average
Useful Life
in Years
Gross
Carrying
Amount
Accumulated
Amortization
Net
9.9
$ 18,257 $
(13,919) $ 4,338
5.5
6,892
(6,831)
61
Customer-related
18.2
239,634
(48,005)
191,629
Developed
technology
Trade names
Backlog and other
Total finite-lived
Indefinite-lived -
trade names
Total other
intangible
assets, net
7.6
15.4
0.6
51,995
7,530
4,390
(35,208)
16,787
(2,552)
(4,390)
4,978
—
15.5
328,698
(110,905)
217,793
190,512
—
190,512
$ 519,210 $
(110,905) $ 408,305
Amortization expense for finite-lived intangible assets for the
fiscal years ended October 31, 2021, 2020, and 2019 was
$23.8 million, $19.5 million, and $18.4 million, respectively.
Estimated amortization expense for the succeeding fiscal
years is as follows: 2022, $24.2 million; 2023, $22.4 million;
2024, $21.4 million; 2025, $19.8 million; 2026, $19.0
million; and after 2026, $122.6 million.
Principal payments required on the company's outstanding
indebtedness, based on the maturity dates defined within the
company's debt arrangements, for each of the next five fiscal
years are as follows: fiscal 2022, $0.0 million; fiscal 2023,
$0.0 million; fiscal 2024, $0.0 million; fiscal 2025, $27.0
million; fiscal 2026, $243.0 million; and after fiscal 2026,
$425.0 million.
Revolving Credit Facility
On October 5, 2021, the company entered into an amended
and restated credit agreement ("amended credit agreement")
that provided for, among other things, a five-year unsecured
revolving credit facility with a borrowing capacity of up to
$600.0 million ("revolving credit facility") that matures on
the company's prior
replaced
October 5, 2026 and
$600.0 million unsecured senior revolving credit facility
scheduled to mature on June 19, 2023. Included in the
revolving credit facility is a $10.0 million sublimit for
standby letters of credit and a $30.0 million sublimit for
swingline loans. At the company's election, and with the
approval of the named borrowers on the revolving credit
facility and the election of the lenders to fund such increase,
the aggregate maximum principal amount available under the
revolving credit facility may be increased by an amount of up
to $300.0 million. Funds are available under the revolving
credit facility for working capital, capital expenditures, and
other lawful corporate purposes, including, but not limited to,
acquisitions and common stock repurchases, subject in each
case to compliance with certain financial covenants as
defined in the credit agreement. As of October 31, 2021, the
company had no outstanding borrowings under the revolving
credit facility and $3.1 million outstanding under the sublimit
for standby letters of credit, resulting in $596.9 million of
unutilized availability under the revolving credit facility. As
of October 31, 2020, the company had no outstanding
borrowings under the prior revolving credit facility and $2.5
million outstanding under the prior sublimit for standby
81
letters of credit, resulting in $597.5 million of unutilized
availability under the prior revolving credit facility.
Outstanding loans under the revolving credit facility (other
than swingline loans), if applicable, bear interest at a variable
rate generally based on LIBOR or an alternative variable rate
based on the highest of the Bank of America prime rate, the
federal funds rate or a rate generally based on LIBOR, in
each case subject to an additional basis point spread as
defined in the credit agreement. Swingline loans under the
revolving credit facility bear interest at a rate determined by
the swingline lender or an alternative variable rate based on
the highest of the Bank of America prime rate, the federal
funds rate or a rate generally based on LIBOR, in each case
subject to an additional basis point spread as defined in the
credit agreement. Interest is payable quarterly in arrears.
During fiscal 2020 and 2019, the company incurred interest
expense of $0.8 million, and $1.9 million, respectively, on
the outstanding borrowings under the prior revolving credit
the
facility. No
company's current and prior revolving credit facilities during
fiscal 2021.
interest expense was
incurred under
The company's revolving credit facility contains customary
covenants, including, without limitation, financial covenants,
such as the maintenance of a maximum leverage ratio; and
negative covenants, which among other things, limit cash
dividends, disposition of assets, consolidations and mergers,
liens, and other matters customarily restricted in such
agreements. Most of these restrictions are subject to certain
minimum thresholds and exceptions. The company was in
compliance with all covenants related to the credit agreement
for the company's revolving credit facility as of October 31,
2021.
$270.0 Million Term Loan Credit Agreement
The amended credit agreement executed on October 5, 2021
also provided for a five-year unsecured term loan in an
aggregate principal amount of $270.0 million, the entire
amount of which was funded on October 5, 2021 and matures
on October 5, 2026 ("$270.0 million term loan"). Under the
amended
loan
commitments may be established at the company's election
and the approval of the borrowers on the $270.0 million term
loan by an amount of up to $100.0 million.
incremental
agreement,
credit
term
Beginning December 31, 2024, the company is required to
make quarterly principal amortization payments on the
$270.0 million term loan equal to $6.75 million. On October
5, 2026, the aggregate principal amount of any remaining
outstanding borrowings under the $270.0 million term loan is
required to be repaid. The $270.0 million term loan may be
prepaid and terminated at the company's election at any time
without penalty or premium. Amounts repaid or prepaid may
not be reborrowed. As of October 31, 2021, there was $270.0
million of outstanding borrowings under the $270.0 million
term loan.
Outstanding borrowings under the $270.0 million term loan
bear interest at a variable rate generally based on LIBOR or
82
an alternative variable rate based on the highest of the Bank
of America prime rate, the federal funds rate or a rate
generally based on LIBOR, in each case subject to an
additional basis point spread as defined in the credit
agreement. Interest is payable quarterly in arrears. For
the fiscal year ended October 31, 2021, the company incurred
the outstanding
interest expense of $0.2 million on
borrowings under the $270.0 million term loan. No interest
expense was incurred during fiscal 2020 and 2019.
The $270.0 million term loan contains customary covenants,
including, without limitation, financial covenants generally
consistent with
the company's
those applicable under
revolving credit facility and the company was in compliance
with all covenants as of October 31, 2021.
$500.0 Million Term Loan Credit Agreement
In March 2019, the company entered into a term loan credit
agreement with a syndicate of financial institutions for the
purpose of partially funding the CMW purchase price and the
related fees and expenses incurred in connection with such
acquisition. The term loan credit agreement provided for a
$200.0 million three-year unsecured senior term loan facility
maturing on April 1, 2022 ("$200.0 million term loan) and a
$300.0 million five-year unsecured senior term loan facility
maturing on April 1, 2024 ("$300.0 million term loan" and
the
the $200.0 million
collectively with
the
term
"$500.0 million
$500.0 million term loan were received on the CMW closing
date.
loan,
funds under
loan"). The
term
term
remaining
As of October 31, 2020,
the company had prepaid
$100.0 million and $120.0 million of the outstanding
principal balances of the $200.0 million term loan and $300.0
million term loan, respectively. Thus, as of October 31, 2020,
there was $100.0 million and $180.0 million of outstanding
loan and
the $200.0 million
borrowings under
$300.0 million term loan, respectively. During the second
quarter of fiscal 2021, the company prepaid $10.0 million of
the
the
$300.0 million term loan. As a result of the execution of the
amended credit agreement during the fourth quarter of fiscal
2021, the remaining $100.0 million and $170.0 million
outstanding principal balances under the $200.0 million term
loan and $300.0 million term loan, respectively, were paid in
full. As a result of the prepayment, there were no outstanding
borrowings under the $200.0 million three-year unsecured
senior term loan facility and $300.0 million five-year
unsecured senior term loan facility, respectively, as of
October 31, 2021.
outstanding
borrowings
under
Interest was previously calculated on outstanding borrowings
under the $500.0 million term loan by utilizing a variable rate
generally based on LIBOR or an alternative variable rate,
based on the highest of the Bank of America prime rate, the
federal funds rate, or a rate generally based on LIBOR, in
each case subject to an additional basis point spread as
defined in the $500.0 million term loan. Interest was payable
fiscal years ended
quarterly
October 31, 2021, 2020, and 2019, the company incurred
in arrears. During
the
$3.1 million, $5.2 million, and $7.5 million, respectively, of
interest expense on the outstanding borrowings of the
$500.0 million term loan.
$190.0 Million Term Loan Credit Agreement
the company entered
On March 30, 2020,
into a
$190.0 million term loan credit agreement ("$190.0 million
term loan") with certain financial institutions for the purpose
of refinancing certain of its outstanding borrowings incurred
in connection with the company's acquisition of Venture
Products on March 2, 2020, as well as a precautionary
measure to increase the company's liquidity and preserve
financial flexibility in light of the uncertainty in the global
financial and commercial markets as a result of COVID-19.
The $190.0 million term loan provided for a $190.0 million
three-year unsecured senior term loan facility maturing on
June 19, 2023.
term
loan,
resulting
As of October 31, 2020,
the company had prepaid
$100.0 million of the outstanding principal balance of the
$190.0 million
remaining
outstanding principal balance of $90.0 million. During the
first quarter of fiscal 2021, the company prepaid the
remaining $90.0 million outstanding principal balance of the
$190.0 million term loan. As a result of the prepayment, there
were no outstanding borrowings under the $190.0 million
term loan as of October 31, 2021.
in a
Interest was previously calculated on outstanding borrowings
under the $190.0 million term loan by utilizing a variable rate
based on LIBOR or an alternative variable rate with a
minimum rate of 0.75 percent, subject to an additional basis
point spread as defined in the term loan credit agreement.
Interest was payable quarterly in arrears. For the fiscal years
ended October 31, 2021 and 2020, the company incurred
interest expense of approximately $0.3 million and $2.4
million, respectively, on the outstanding borrowings under
the $190.0 million term loan.
3.81% Series A and 3.91% Series B Senior Notes
On April 30, 2019, the company entered into a private
placement note purchase agreement with certain purchasers
("holders") pursuant to which the company agreed to issue
and sell an aggregate principal amount of $100.0 million of
3.81% Series A Senior Notes due June 15, 2029 ("Series A
Senior Notes") and $100.0 million of 3.91% Series B Senior
Notes due June 15, 2031 ("Series B Senior Notes" and
together with the Series A Senior Notes, the "Senior Notes").
On June 27, 2019, the company issued $100.0 million of the
Series A Senior Notes and $100.0 million of the Series B
Senior Notes pursuant to the private placement note purchase
agreement. The Senior Notes are unsecured senior
obligations of the company.
No principal is due on the Senior Notes prior to their stated
due dates. The company has the right to prepay all or a
portion of either series of the Senior Notes in amounts equal
to not less than 10.0 percent of the principal amount of the
Senior Notes then outstanding upon notice to the holders of
the series of Senior Notes being prepaid for 100.0 percent of
83
the principal amount prepaid, plus a make-whole premium, as
set forth in the private placement note purchase agreement,
plus accrued and unpaid interest, if any, to the date of
prepayment. In addition, at any time on or after the date that
is 90 days prior to the maturity date of the respective series,
the company has the right to prepay all of the outstanding
Senior Note of such series for 100.0 percent of the principal
amount so prepaid, plus accrued and unpaid interest, if any,
to the date of prepayment. Upon the occurrence of certain
change of control events, the company is required to offer to
prepay all Senior Notes for the principal amount thereof plus
accrued and unpaid interest, if any, to the date of prepayment.
Interest on the Senior Notes is payable semiannually on the
15th day of June and December in each year. The company
incurred interest expense on the Senior Notes of $7.7 million,
$7.7 million, and $2.6 million, respectively, for the fiscal
years ended October 31, 2021, 2020, and 2019.
The private placement note purchase agreement contains
customary representations and warranties of the company, as
well as certain customary covenants, including, without
limitation, financial covenants, such as the maintenance of
minimum interest coverage and maximum leverage ratios,
and other covenants, which, among other things, provide
limitations on
affiliates, mergers,
consolidations and sales of assets, liens and priority debt. The
company was
in compliance with all representations,
warranties, and covenants related to the private placement
note purchase agreement as of October 31, 2021.
transactions with
7.8% Debentures
terminate
three forward-starting
In June 1997, the company issued $175.0 million of debt
securities consisting of $75.0 million of 7.125 percent
coupon 10-year notes and $100.0 million of 7.8 percent
coupon 30-year debentures. The $75.0 million of 7.125
percent coupon 10-year notes were repaid at maturity during
fiscal 2007. In connection with the issuance of $175.0 million
in long-term debt securities, the company paid $23.7 million
to
interest rate swap
agreements with notional amounts totaling $125.0 million.
These swap agreements had been entered into to reduce
exposure to interest rate risk prior to the issuance of the new
long-term debt securities. As of the inception of one of the
swap agreements, the company had received payments that
were recorded as deferred income to be recognized as an
adjustment to interest expense over the term of the new debt
securities. As of the date the swaps were terminated, this
deferred
totaled $18.7 million. The excess
termination fees over the deferred income recorded was
deferred and is being recognized as an adjustment to interest
expense over the term of the debt securities issued.
income
Interest on the debentures is payable semiannually on the
15th day of June and December in each year. The company
incurred interest expense of $8.0 million, $8.0 million, and
$7.9 million, respectively, for
the fiscal years ended
October 31, 2021, 2020 and 2019.
6.625% Senior Notes
On April 26, 2007, the company issued $125.0 million in
aggregate principal amount of 6.625 percent senior notes due
May 1, 2037 and priced at 98.513 percent of par value. The
resulting discount of $1.9 million is being amortized over the
term of the notes using the straight-line method as the results
obtained are not materially different from those that would
result from the use of the effective interest method. Although
the coupon rate of the senior notes is 6.625 percent, the
effective interest rate is 6.741 percent after taking into
account the issuance discount. The senior notes are unsecured
senior obligations of the company and rank equally with the
company's other unsecured and unsubordinated indebtedness.
The indentures under which the senior notes were issued
contain customary covenants and event of default provisions.
The company may redeem some or all of the senior notes at
any time at the greater of the full principal amount of the
senior notes being redeemed or the present value of the
remaining scheduled payments of principal and interest
discounted to the redemption date on a semi-annual basis at
the treasury rate plus 30 basis points, plus, in both cases,
accrued and unpaid interest. In the event of the occurrence of
both (i) a change of control of the company, and (ii) a
downgrade of the notes below an investment grade rating by
both Moody's Investors Service, Inc. and Standard & Poor's
Ratings Services within a specified period, the company
would be required to make an offer to purchase the senior
notes at a price equal to 101 percent of the principal amount
of the senior notes plus accrued and unpaid interest to the
date of repurchase.
Interest on the senior notes is payable semiannually on the
1st day of May and November in each year. For each of the
fiscal years ended October 31, 2021, 2020, and 2019, the
company
interest expense of $8.4 million,
respectively.
incurred
7 Management Actions
Toro Underground Wind Down
On August 1, 2019, during the company's fiscal 2019 third
quarter, the company announced a plan to wind down the
company's Toro-branded large directional drill and riding
trencher product categories within its Professional segment
product portfolio ("Toro underground wind down"). As of
October 31, 2020, the company had completed the Toro
underground wind down; and as a result, no charges were
incurred during the fiscal year ended October 31, 2021. In
connection with the Toro underground wind down, for the
fiscal year ended October 31, 2020, the company recorded
$0.9 million of pre-tax charges related to write-downs to net
realizable value within cost of sales in the Consolidated
Statements of Earnings. For the fiscal year ended October 31,
2019, the company recorded $8.8 million of pre-tax charges
related to inventory write-downs to net realizable value and
accelerated depreciation on fixed assets that will no longer be
used within cost of sales in the Consolidated Statements of
84
Earnings as a result of the Toro underground wind down.
Additionally, the company recorded $1.2 million of pre-tax
charges related to inventory retail support activities within
net sales in the Consolidated Statements of Earnings during
the fiscal year ended October 31, 2019. No pre-tax charges
related to inventory retail support activities were incurred
during the fiscal years ended October 31, 2021 and 2020.
Corporate Restructuring
During the fourth quarter of fiscal 2019, the company
incurred corporate restructuring charges related to employee
severance costs as the company focused on aligning the
company's operations in the most strategic and cost-effective
structure subsequent to the CMW transaction. As a result of
such corporate restructuring, the company recorded pre-tax
charges of $0.6 million within cost of sales and pre-tax
charges of $6.0 million within selling, general and
administrative expense in the Consolidated Statements of
Earnings during fiscal 2019. The company did not incur
additional charges in fiscal 2021 and 2020 related to this
corporate restructuring event.
Divestitures
On November 2, 2020, during the first quarter of fiscal 2021,
the company completed the sale of its Northeastern U.S.
distribution company and during the fourth quarter of fiscal
2019,
the company divested of a used underground
construction equipment business, which was acquired as a
result of the company's acquisition of CMW. The divestitures
were immaterial based on the company's Consolidated
Financial Condition and Results of Operations.
8 Investment in Joint Venture
The company is party to a joint venture with TCFIF, a
subsidiary of The Huntington National Bank, established as
Red Iron, the primary purpose of which is to provide
inventory financing to certain distributors and dealers of
certain of the company’s products in the U.S. These
financing transactions are structured as an advance in the
form of a payment by Red Iron to the company on behalf of a
distributor or dealer with respect to invoices financed by Red
Iron. These payments extinguish the obligation of the dealer
or distributor to make payment to the company under the
terms of the applicable invoice. The company has also
entered into a limited inventory repurchase agreement with
Red Iron, under which the company has agreed to repurchase
certain repossessed products, up to a maximum aggregate
amount of $7.5 million in a calendar year. The company's
financial exposure under this limited inventory repurchase
agreement is limited to the difference between the amount
paid for repurchases of repossessed product and the amount
received upon the subsequent resale of the repossessed
product. The company has repurchased immaterial amounts
of
inventory repurchase
agreement for the fiscal years ended October 31, 2021, 2020,
and 2019.
inventory under
limited
this
Under separate agreements between Red Iron and the dealers
and distributors, Red Iron provides loans to the dealers and
distributors for the advances paid by Red Iron to the
company. The net amount of receivables financed for dealers
and distributors under this arrangement during fiscal 2021,
2020, and 2019 was $2,282.6 million, $1,832.5 million, and
total amount of
respectively. The
$1,924.9 million,
receivables due from Red Iron to the company as of
October 31, 2021 and 2020 were $31.0 million and $12.6
million, respectively.
in Red Iron under
The company owns 45 percent of Red Iron and TCFIF owns
55 percent of Red Iron. The company accounts for its
investment
the equity method of
accounting. The company and TCFIF each contributed a
specified amount of the estimated cash required to enable
Red Iron to purchase the company's inventory financing
receivables and to provide financial support for Red Iron's
inventory financing programs. Red Iron borrows
the
remaining requisite estimated cash utilizing a $625.0 million
secured revolving credit facility established under a credit
agreement between Red Iron and TCFIF. The company's total
investment in Red Iron as of October 31, 2021 and 2020 was
$20.7 million and $19.7 million, respectively. The company
has not guaranteed the outstanding indebtedness of Red Iron.
9 Income Taxes
Earnings Before Income Taxes
Earnings before income taxes were as follows (in thousands):
Fiscal Years Ended October 31
2021
2020
2019
Earnings before income taxes:
United States
Foreign
$ 446,256 $ 369,016 $ 283,730
53,562
38,054
38,403
Total earnings before income
taxes
$ 499,818 $ 407,070 $ 322,133
Reconciliation of Effective Tax Rate
A reconciliation of the statutory federal income tax rate to the
company's effective tax rate is summarized as follows:
Fiscal Years Ended October 31
2021
2020
2019
Statutory federal income tax rate
21.0 %
21.0 %
21.0 %
(1.5)
(1.7)
(3.7)
Excess deduction for stock-
based compensation
Domestic manufacturer's
deduction
State and local income taxes,
net of federal benefit
Foreign operations
Federal research tax credit
Foreign-derived intangible
income
Remeasurement of deferred
tax assets and liabilities
Deemed repatriation tax
—
1.4
(0.5)
(1.4)
(0.9)
—
—
—
2.4
(0.6)
(1.7)
—
—
—
Other, net
Effective tax rate
(0.1)
18.0 %
(0.4)
19.0 %
0.1
1.1
(0.3)
(1.5)
(1.3)
(0.1)
(0.2)
(0.2)
14.9 %
85
The Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") was signed into law on March 27, 2020 and
allowed for delayed payment of employer payroll taxes,
among other items. The company has reflected the impact of
the CARES Act for the fiscal years ended October 31, 2021
and 2020 within its Consolidated Financial Statements and
such impact was not material to the company's Consolidated
Financial Statements.
Provision for Income Taxes
Components of the company's provision for income taxes
were as follows (in thousands):
Fiscal Years Ended October 31
2021
2020
2019
Current provision:
Federal
State
Foreign
$ 90,222 $ 58,243 $ 37,415
15,973
9,163
11,322
5,534
7,495
6,846
Total current provision
$ 115,358 $ 75,099 $ 51,756
Deferred provision (benefit):
Federal
State
Foreign
Total deferred provision
(benefit)
$ (18,361) $
1,710 $
(37)
(6,486)
(573)
634
(74)
(3,205)
(364)
(25,420)
2,270
(3,606)
Total provision for income taxes
$ 89,938 $ 77,369 $ 48,150
Deferred Income Taxes
The components of the company's deferred income tax assets
and liabilities were as follows (in thousands):
Fiscal Years Ended October 31
2021
2020
Deferred income tax assets:
Compensation and benefits
Warranty and insurance
Lease liabilities
Advertising and sales promotions and
incentives
Inventory
Deferred revenue
Other
Valuation allowance
Deferred income tax assets
Deferred income tax liabilities:
Right-of-use assets
Depreciation
Amortization
Deferred income tax liabilities
Deferred income tax liabilities, net
$ 34,403 $ 30,363
30,840
17,735
6,669
21,118
4,232
10,520
28,480
20,843
6,937
4,937
2,910
9,643
(3,205)
(3,570)
$ 122,312 $ 100,543
$ (17,071) $ (20,179)
(47,551)
(102,287)
(49,018)
(95,315)
(166,909)
(164,512)
$ (44,597) $ (63,969)
The net change in the total valuation allowance between the
fiscal years ended October 31, 2021 and 2020 was a decrease
of $0.4 million. The change in valuation allowance is related
to state tax credits, branch foreign tax credits, capital loss
carryforwards, and net operating losses that are expected to
expire prior to utilization. As of October 31, 2021, the
company had net operating
loss carryforwards of
approximately $1.3 million in foreign jurisdictions, which are
comprised of $0.9 million that do not expire and $0.4 million
that expire between fiscal 2025 and fiscal 2038. The
company also had domestic credit carryforwards of $2.7
million that expire between fiscal 2028 and fiscal 2042.
The company considers that $22.3 million of the total
undistributed earnings of its foreign operations are intended
to be indefinitely reinvested. Should these earnings be
distributed in the future in the form of dividends or
otherwise,
foreign
the company may be subject
withholding taxes, state income taxes, and/or additional
federal taxes for currency fluctuations. As of October 31,
2021, the unrecognized deferred tax liabilities for temporary
differences related to the company’s investment in non-U.S.
subsidiaries, and any withholding, state, or additional federal
taxes that may be applied upon any future repatriation, are
expected to be immaterial.
to
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits as of October 31, 2020
$
2,860
Increase as a result of tax positions taken during a prior
period
Decrease as a result of tax positions taken during a prior
period
Increase as a result of tax positions taken during the
current period
Reductions as a result of statute of limitations lapses
Unrecognized tax benefits as of October 31, 2021
$
59
(98)
397
(105)
3,113
taxes within
The company recognizes interest and penalties related to
unrecognized tax benefits as a component of the provision for
the Consolidated Statements of
income
Earnings. In addition to the unrecognized tax benefits of $3.1
million, which have been recorded as an other accrued
liability within the Consolidated Balance Sheets as of
October 31, 2021, the company recorded $1.0 million of
accrued interest and penalties as an other accrued liability
within the Consolidated Balance Sheets as of October 31,
2021. Included in the balance of unrecognized tax benefits as
of October 31, 2021 are potential benefits of $3.3 million
that, if recognized, would affect the effective tax rate.
The company and its wholly owned subsidiaries file income
tax returns in the U.S. federal jurisdiction, and numerous
state and foreign jurisdictions. With few exceptions, the
company is no longer subject to U.S. federal, state and local,
and foreign income tax examinations by tax authorities for
taxable years before fiscal 2017. The company is under audit
in certain state jurisdictions and expects various statutes of
limitation to expire during the next 12 months. Due to the
uncertainty related to the response of taxing authorities, a
range of outcomes cannot be reasonably estimated at this
time.
10 Stock-Based Compensation
the company
The company maintains the 2010 plan for executive officers,
other employees, and non-employee Board members. The
2010 plan allows
to grant stock-based
compensation awards to such individuals, including stock
options, restricted stock units, restricted stock, performance
share awards, and unrestricted common stock awards. The
number of unissued shares of common stock available for
future stock-based compensation award grants under the
2010 plan was 3,063,231 as of October 31, 2021. Shares of
common stock
the exercise, vesting, or
settlement of stock options, restricted stock units, and
performance shares are issued from treasury shares.
issued upon
Compensation costs related to stock-based compensation
awards were as follows (in thousands):
Fiscal Years Ended October 31
Stock option awards
Performance share awards
Restricted stock unit awards
Unrestricted common stock
awards
Total compensation cost for
stock-based compensation
awards
Related tax benefit from stock-
based compensation awards
Stock Option Awards
2021
2020
2019
$
9,971 $
9,163 $
6,861
4,306
2,123
3,429
6,537
3,070
3,230
671
693
592
$ 21,809 $ 15,408 $ 13,429
$
5,221 $
3,696 $
3,200
Under the 2010 plan, stock options are granted with an
exercise price equal to the closing price of the company's
common stock on the date of grant, as reported by the New
York Stock Exchange. Options are generally granted to
executive officers, other employees, and non-employee
Board members on an annual basis in the first quarter of the
company's fiscal year but may also be granted throughout the
fiscal year in connection with hiring, mid-year promotions,
leadership transition, or retention, as needed and applicable.
Options generally vest one-third each year over a three-year
period and have a ten-year term but in certain circumstances,
the vesting requirement may be modified such that options
granted to certain employees vest in full on the three-year
anniversary of the date of grant and have a ten-year term.
Compensation cost equal to the grant date fair value
determined under the Black-Scholes valuation method is
generally recognized for these awards over the vesting
period. Compensation cost recognized for other employees
not considered executive officers and non-employee Board
members
forfeitures, which are
determined at the time of grant based on historical forfeiture
experience. Stock options granted to executive officers and
other employees are subject to accelerated expensing if the
option holder meets the retirement definition set forth in the
2010 plan. In that case, the fair value of the options is
expensed in the fiscal year of grant because generally, if the
option holder is employed as of the end of the fiscal year in
which the options are granted, such options will not be
is net of estimated
86
forfeited but continue to vest according to their schedule
following retirement. Similarly, if a non-employee Board
member has served on the company's Board for ten full fiscal
years or more, the awards will not be forfeited but continue
to vest according to their schedule following retirement.
Therefore, the fair value of the options granted is fully
expensed on the date of the grant.
The fair value of each stock option is estimated on the date of
grant using various inputs and assumptions under the Black-
Scholes valuation method. The expected life is a significant
assumption as it determines the period for which the risk-free
interest rate, stock price volatility, and dividend yield must be
applied. The expected life is the average length of time in
which executive officers, other employees, and non-
employee Board members are expected to exercise their stock
options, which is primarily based on historical exercise
experience. The company groups executive officers and non-
employee Board members for valuation purposes based on
similar historical exercise behavior. Expected stock price
volatility is based on the daily movement of the company's
common stock over the most recent historical period
equivalent to the expected life of the option. The risk-free
interest rate for periods within the contractual life of the
option is based on the U.S. Treasury rate over the expected
life at the time of grant. The expected dividend yield is
estimated over the expected life based on the company's
historical cash dividends paid, expected future cash dividends
and dividend yield, and expected changes in the company's
stock price.
The table below illustrates the weighted-average valuation
assumptions used under the Black-Scholes valuation method
for options granted in the following fiscal periods:
Fiscal Years Ended October 31
2021
2020
2019
Expected life of option in years
6.21
6.31
6.31
Expected stock price volatility
23.26 %
19.53 %
19.83 %
Risk-free interest rate
Expected dividend yield
Per share weighted-average fair
value at date of grant
0.55 %
0.86 %
1.73 %
0.99 %
2.77 %
1.18 %
$ 19.39
$ 15.23
$ 12.83
The table below presents stock option activity for fiscal 2021:
The table below presents the total market value of stock
options exercised and the total intrinsic value of options
exercised during the following fiscal years (in thousands):
Fiscal Years Ended October 31
2021
2020
2019
Market value of stock options
exercised
Intrinsic value of stock options
exercised1
$ 40,071 $ 56,761 $ 92,352
$ 25,952 $ 33,920 $ 62,288
1
Intrinsic value is calculated as the amount by which the stock price
at exercise date exceeded the option exercise price.
Performance Share Awards
Under the 2010 plan, the company grants performance share
awards to executive officers and other employees under
which they are entitled to receive shares of the company's
common stock contingent on the achievement of performance
goals of the company, which are generally measured over a
three-year period. The number of shares of common stock a
participant receives can be increased (up to 200 percent of
target levels) or reduced (down to zero) based on the level of
achievement of performance goals and will vest at the end of
a three-year period. Performance share awards are generally
granted on an annual basis in the first quarter of the
company's fiscal year. Compensation cost is recognized for
these awards on a straight-line basis over the vesting period
based on the per share fair value, which is equal to the
closing price of the company's common stock on the date of
grant, and the probability of achieving each performance
goal.
Factors related to the company's performance share awards
are as follows (in thousands, except per award data):
Fiscal Years Ended October 31
2021
2020
2019
Weighted-average fair value per
award at date of grant
Fair value of performance share
awards vested
$
$
90.59 $
77.33 $
59.58
3,428 $
6,271 $
6,300
The table below presents fiscal 2021 activity for unvested
performance share awards:
Performance
Shares
Weighted-Average
Fair Value at Date
of Grant
Stock
Option
Awards
Weighted
-Average
Exercise
Price
Weighted-
Average
Contractual
Life (years)
Aggregate
Intrinsic
Value (in
thousands)
Unvested as of October 31, 2020
187,421 $
Granted
Vested
53,976
(37,153)
2,646,603 $ 54.40
6.2
$ 73,305
Unvested as of October 31, 2021
204,244 $
67.58
90.59
65.40
76.16
Outstanding as of
October 31, 2020
Granted
Exercised
Forfeited
Outstanding as of
October 31, 2021
Exercisable as of
October 31, 2021
546,569
(403,134)
(18,684)
92.73
35.02
81.29
2,771,354 $ 64.60
6.3
$ 85,576
1,691,552 $ 53.90
5.0
$ 70,313
As of October 31, 2021, there was $3.1 million of total
unrecognized compensation cost related to unvested stock
options that is expected to be recognized over a weighted-
average period of 1.92 years.
87
As of October 31, 2021, there was $9.0 million of total
unrecognized compensation cost
to unvested
performance share awards that is expected to be recognized
over a weighted-average period of 1.80 years.
related
Restricted Stock Unit Awards
Under the 2010 plan, restricted stock unit awards are
generally granted to certain employees that are not executive
officers. Occasionally, restricted stock unit awards may be
granted, including to executive officers, in connection with
leadership
hiring, mid-year promotions,
transition, or
retention. Restricted stock unit awards generally vest one-
third each year over a three-year period, or vest in full on the
three-year anniversary of
the date of grant. In rare
circumstances, such awards may have performance-based
rather than time-based vesting requirements. Compensation
cost equal to the grant date fair value, net of estimated
forfeitures, is recognized for these awards over the vesting
period. The grant date fair value is equal to the closing price
of the company's common stock on the date of grant
multiplied by the number of shares subject to the restricted
stock unit awards and estimated forfeitures are determined on
the grant date based on historical forfeiture experience.
Factors related to the company's restricted stock unit awards
are as follows (in thousands, except per award data):
Fiscal Years Ended October 31
2021
2020
2019
Weighted-average fair value per
award at date of grant
Fair value of restricted stock
units vested
$
$
97.87 $
74.55 $
66.26
4,464 $
3,410 $
3,083
The table below presents fiscal 2021 activity for unvested
restricted stock units:
Restricted
Stock Units
Weighted-Average
Fair Value at Date
of Grant
Unvested as of October 31, 2020
100,280 $
Granted
Vested
Forfeited
73,098
(44,142)
(4,984)
Unvested as of October 31, 2021
124,252 $
67.69
97.87
65.68
79.15
85.54
As of October 31, 2021, there was $5.3 million of total
unrecognized compensation cost
to unvested
restricted stock units that is expected to be recognized over a
weighted-average period of 2.19 years.
related
Unrestricted Common Stock Awards
During fiscal 2021, 2020, and 2019, 8,070, 8,920, and 10,090
shares, respectively, of fully vested unrestricted common
stock awards were granted to certain Board members as a
component of their compensation for their service on the
Board and were recorded within selling, general and
administrative expense in the Consolidated Statements of
Earnings. Additionally, our Board members may elect to
convert a portion or all of their calendar year annual retainers
otherwise payable in cash into shares of the company's
common stock.
Deferred Compensation Plan
The company maintains a deferred compensation plan that
allows executive officers and certain other employees that
receive performance share awards under the 2010 plan to
defer receipt of shares of the company's common stock paid
out under such awards to a date in the future. Participants can
defer up to 100 percent of the common stock payout and are
always 100 percent vested in their accounts. Common stock
payout deferrals under this plan are held in a rabbi trust and
88
treated in a manner similar to treasury shares and are
recorded at cost within stockholders' equity
the
Consolidated Balance Sheets as of October 31, 2021 and
2020. The total of common stock required to settle this
deferred compensation obligation
the
denominator of the calculation of both basic and diluted net
earnings per share of common stock.
included
in
in
is
11 Stockholders' Equity
Stock Repurchase Program
On December 3, 2015, the company's Board authorized the
repurchase of 8,000,000 shares of the company's common
stock in open-market or in privately negotiated transactions.
On December 4, 2018, the company's Board authorized the
repurchase of up to an additional 5,000,000 shares of
common stock in open-market or in privately negotiated
transactions under the authorized stock repurchase program.
During fiscal 2021 and 2019, the company paid $302.3
million and $20.0 million to repurchase 2,989,794 and
359,758 shares, respectively, under the authorized repurchase
program; and as a result of the fiscal 2021 repurchase
activity, no shares remained authorized under the December
3, 2015 tranche of authorized shares under the company's
stock repurchase program as of October 31, 2021. The
company curtailed the repurchase of shares of its common
stock during fiscal 2020 as a result of the Venture Products
transaction and to enhance its liquidity position in response to
COVID-19; and thus, no shares were repurchased during
fiscal 2020. The company curtailed the repurchase of shares
of its common stock during the company's fiscal 2019
second, third, and fourth quarters as a result of the CMW
transaction. As of October 31, 2021, 4,052,462 shares
remained authorized by the company's Board for repurchase
under the December 4, 2018 tranche of authorized shares
under
the company's stock repurchase program. This
authorized stock repurchase program has no expiration date
but may be terminated by the Board at any time. The
authorized stock repurchase program does not include shares
of the company's common stock surrendered by employees to
satisfy minimum tax withholding obligations upon vesting of
certain stock-based compensation awards granted under the
company's 2010 plan.
Treasury Shares
Treasury shares generally consist of shares of the company's
common stock repurchased under the company's Board
authorized stock repurchase program. The company values
treasury shares on an average cost basis. As of October 31,
2021, the company had a total of 22,566,717 treasury shares
at a total average cost of $1,595.8 million. As of October 31,
2020, the company had a total of 20,545,330 treasury shares
at a total average cost of $1,323.2 million.
Accumulated Other Comprehensive Loss
the
The components of AOCL, net of
Consolidated Statements of Stockholders' Equity were as
follows (in thousands):
tax, within
As of October 31
2021
2020
Foreign currency translation adjustments
$ 19,535 $ 24,508
Pension benefits
Cash flow derivative instruments
3,899
2,562
5,106
4,648
Total accumulated other comprehensive loss
$ 25,996 $ 34,262
The components and activity of AOCL, net of tax, were as
follows (in thousands):
Foreign
Currency
Translation
Adjustments
Pension
Benefits
Cash Flow
Derivative
Instruments
Total
$
24,508 $
5,106 $
4,648 $ 34,262
(4,973)
(1,207)
(12,830)
(19,010)
—
—
10,744
10,744
(4,973)
(1,207)
(2,086)
(8,266)
$
19,535 $
3,899 $
2,562 $ 25,996
Foreign
Currency
Translation
Adjustments
Pension
Benefits
Cash Flow
Derivative
Instruments
Total
$
31,025 $
4,861 $
(3,837) $ 32,049
(6,517)
245
14,159
7,887
—
—
(5,674)
(5,674)
(6,517)
245
8,485
2,213
$
24,508 $
5,106 $
4,648 $ 34,262
Balance as of
October 31,
2020
Other
comprehensive
income before
reclassifications
Amounts
reclassified from
AOCL
Net current
period other
comprehensive
income
Balance as of
October 31,
2021
Balance as of
October 31,
2019
Other
comprehensive
(income) loss
before
reclassifications
Amounts
reclassified from
AOCL
Net current
period other
comprehensive
(income) loss
Balance as of
October 31,
2020
For additional information on the components reclassified
from AOCL to the respective line items in net earnings for
derivative
to Note 14, Derivative
instruments
Instruments and Hedging Activities.
refer
12 Commitments and Contingencies
Customer Financing Arrangements
Wholesale Financing
institutions
The company is party to a joint venture with TCFIF,
established as Red Iron, to provide wholesale financing to
certain dealers and distributors of certain of the company's
products. Refer to Note 8, Investment in Joint Venture, for
additional information related to Red Iron. Under a separate
agreement, TCFCFC provides inventory financing to dealers
of certain of the company's products in Canada. The
company also has floor plan financing agreements with other
to provide floor plan
third-party financial
financing to certain dealers and distributors not financed
through Red Iron, which include agreements with third-party
financial institutions in the U.S. and internationally. These
third-party financial institutions and TCFCFC financed
$460.5 million and $410.7 million of receivables for such
dealers and distributors during the fiscal years ended
October 31, 2021 and 2020, respectively. As of October 31,
2021 and 2020, $151.5 million and $137.6 million,
respectively, of receivables financed by the third-party
financing institutions and TCFCFC, excluding Red Iron,
were outstanding.
The company entered into a limited inventory repurchase
agreement with Red Iron and TCFCFC. Under such limited
inventory repurchase agreement, the company has agreed to
repurchase products repossessed by Red Iron and TCFCFC,
up to a maximum aggregate amount of $7.5 million in a
calendar year. Additionally, as a result of the company's floor
plan financing agreements with the separate third-party
financial institutions, the company also entered into inventory
repurchase agreements with the separate third-party financial
institutions. Under such inventory repurchase agreements, the
company has agreed to repurchase products repossessed by
the separate third-party financial institutions. For the fiscal
years ended October 31, 2021 and 2020, the company was
contingently liable to repurchase up to a maximum amount of
$96.8 million and $128.1 million, respectively, of inventory
related to receivables under these inventory repurchase
agreements. The company's financial exposure under these
inventory repurchase agreements is limited to the difference
between the amount paid to Red Iron or other third-party
financing institutions for repurchases of inventory and the
amount received upon subsequent resale of the repossessed
product. The company has repurchased immaterial amounts
of inventory pursuant to such arrangements during the fiscal
years ended October 31, 2021, 2020, and 2019.
End-User Financing
The company has agreements with third-party financing
companies to provide financing options to end-customers
throughout
the world. The company has no material
contingent liabilities for residual value or credit collection
risk under these agreements with third-party financing
companies. From time to time, the company enters into
89
agreements where it provides recourse to third-party finance
companies in the event of default by the end-customer for
financing payments to the third-party finance company. The
company's maximum exposure for credit collection for the
fiscal years ended October 31, 2021 and 2020 was $11.4
million and $12.5 million, respectively.
Purchase Commitments
As of October 31, 2021, the company had $57.1 million of
noncancelable purchase commitments with certain of the
company's suppliers for commodities as part of the normal
course of business. As of October 31, 2021, the company did
not have any material noncancelable purchase commitments
related to capital expenditures for renovation and expansion
efforts at the company's facilities and other property, plant
and equipment.
Litigation
From time to time, the company is party to litigation in the
ordinary course of business. Such matters are generally
subject to uncertainties and to outcomes that are not
predictable with assurance and that may not be known for
extended periods of time. Litigation occasionally involves
claims for punitive, as well as compensatory, damages arising
out of the use of the company's products. Although the
company is self-insured to some extent, the company
maintains insurance against certain product liability losses.
The company is also subject to litigation and administrative
and judicial proceedings with respect to claims involving
asbestos and the discharge of hazardous substances into the
environment. Some of these claims assert damages and
liability for personal injury, remedial investigations or clean-
up and other costs and damages. The company is also
occasionally involved in commercial disputes, employment
disputes, and patent litigation cases in which it is asserting or
defending against patent infringement claims. To prevent
possible infringement of the company's patents by others, the
company periodically reviews competitors' products. To
avoid potential liability with respect to others' patents, the
company reviews certain patents issued by the U.S. Patent
and Trademark Office and foreign patent offices. The
company believes these activities help minimize its risk of
being a defendant in patent infringement litigation.
The company records a liability in its Consolidated Financial
Statements for costs related to claims, including future legal
costs, settlements, and judgments, where the company has
assessed that a loss is probable and an amount can be
reasonably estimated. If the reasonable estimate of a probable
loss is a range, the company records the most probable
estimate of the loss or the minimum amount when no amount
within the range is a better estimate than any other amount.
The company discloses a contingent liability even if the
liability is not probable or the amount is not estimable, or
both, if there is a reasonable possibility that a material loss
may have been incurred. In the opinion of management, the
amount of liability, if any, with respect to these matters,
individually or in the aggregate, will not materially affect the
company's Consolidated Results of Operations, Financial
Position, or Cash Flows. In situations where the company
receives, or expects to receive, a favorable ruling related to a
litigation settlement, the company follows the accounting
standards codification guidance for gain contingencies. The
company does not allow for the recognition of a gain
contingency within its Consolidated Financial Statements
the underlying events or
prior
contingencies associated with the gain contingency. As a
result, the consideration related to a gain contingency is
recorded in the Consolidated Financial Statements during the
period in which all underlying events or contingencies are
resolved and the gain is realized.
the settlement of
to
Litigation Settlement
a
into
settlement
agreement
On November 19, 2020, Exmark Manufacturing Company
Incorporated ("Exmark"), a wholly-owned subsidiary of the
company, and Briggs & Stratton Corporation (“BGG”)
entered
(“Settlement
Agreement”) relating to the decade-long patent infringement
litigation that Exmark originally filed in May 2010 against
Briggs & Stratton Power Products Group, LLC (“BSPPG”), a
former wholly-owned subsidiary of BGG (Case No.
8:10CV187, U.S. District Court for the District of Nebraska)
(the “Infringement Action”). In the Infringement Action,
Exmark alleged that certain mower decks manufactured by
BSPPG infringed an Exmark mower deck patent. Despite
favorable judgments in the Infringement Action in favor of
Exmark, including with regard to awarded damages, actions
by BGG during the second half of calendar year 2020 put in
jeopardy the certainty and timing of the eventual receipt of
the damages awarded to Exmark in the Infringement Action,
including (i) the filing by BGG and certain of its subsidiaries
for bankruptcy relief under chapter 11 of title 11 of the
United States Bankruptcy Code (“BGG Bankruptcy”); (ii) the
sale of substantially all the assets (but not certain liabilities,
its
including
subsidiaries to a third-party pursuant to Section 363 of the
United States Bankruptcy Code; and (iii) a petition filed by
BGG for a panel rehearing of the United States Court of
Appeals for the Federal Circuit's decision in the Infringement
Action (“Rehearing Petition”).
the Infringement Action) of BGG and
to pay Exmark $33.65 million
As a result, on November 19, 2020, Exmark entered into the
Settlement Agreement with BGG which provided, among
other things, that (i) upon approval by the bankruptcy court,
and such approval becoming final and nonappealable, BGG
agreed
(“Settlement
Amount”), (ii) BGG agreed to immediately withdraw the
Rehearing Petition and otherwise not pursue additional
appellate review regarding the Infringement Action, and (iii)
after receipt of the Settlement Amount, Exmark agreed to
release a supersedeas appeal bond that had been obtained by
BGG to support payment of the damages awarded to Exmark
in the Infringement Action. On November 20, 2020, BGG
filed a motion to withdraw the Rehearing Petition and on
December 16, 2020, the bankruptcy court approved the
Settlement Agreement. During January 2021, the first quarter
of fiscal 2021, the Settlement Amount was received by
Exmark in connection with the settlement of the Infringement
90
time,
Action and at such
the underlying events and
contingencies associated with the gain contingency related to
the
the Infringement Action were satisfied. As such,
company recognized in selling, general and administrative
expense within the Consolidated Statements of Earnings
during the first quarter of fiscal 2021 (i) the gain associated
with the Infringement Action and (ii) a corresponding
expense related to the contingent fee arrangement with the
company's external
in patent
infringement cases equal to approximately 50 percent of the
Settlement Amount.
legal counsel customary
13 Leases
the
The company adopted ASU No. 2016-02, Leases (Topic)
842, on November 1, 2019, the first quarter of fiscal 2020,
under the modified retrospective transition method with no
cumulative-effect adjustment to beginning retained earnings
within the Consolidated Balance Sheet as of such date.
Accordingly,
company's Consolidated Financial
Statements for the fiscal years ended October 31, 2021 and
2020 have been prepared and presented in accordance with
ASC Topic 842, Leases, and the company's Consolidated
Financial Statements for the fiscal year ended October 31,
2019 continue to be prepared and presented in accordance
with the legacy lease accounting guidance at ASC Topic 840,
Leases.
The company enters into contracts that are, or contain,
operating lease agreements for certain property, plant, or
equipment assets utilized in the normal course of business,
such as buildings for manufacturing facilities, office space,
distribution centers, and warehouse facilities; land for
product testing sites; machinery and equipment for research
and development activities, manufacturing and assembly
processes, and administrative tasks; and vehicles for sales,
service, marketing, and distribution activities. Contracts that
explicitly or
to property, plant, and
equipment are assessed at inception to determine if the
contract is, or contains, a lease. Such contracts for operating
lease agreements convey the company's right to direct the use
of, and obtain substantially all of the economic benefits from,
an identified asset for a defined period of time in exchange
for consideration.
implicitly relate
The lease term begins and is determined upon lease
commencement, which is the point in time when the
company takes possession of the identified asset, and
includes all non-cancelable periods. The lease term may also
include options to extend or terminate the lease when it is
reasonably certain that such options will be exercised after
considering all relevant economic and financial factors.
Options to extend or terminate a lease are generally
exercisable at the company's sole discretion, subject to any
required minimum notification period
and/or other
contractual terms as defined within the respective lease
agreement, as applicable. The company's renewal options
generally range from extended terms of two to ten years.
Certain leases also include options to purchase the identified
91
asset. Lease expense for the company's operating leases is
recognized on a straight-line basis over the lease term and is
recorded in cost of sales or selling, general and administrative
expense within the Consolidated Statements of Earnings
depending on the nature and use of the identified asset
underlying the respective operating lease arrangement. The
company does not recognize right-of-use assets and lease
liabilities, but does recognize expense on a straight-line basis,
for short-term operating leases which have a lease term of 12
months or less and do not include an option to purchase the
underlying asset.
lease agreements contain variable
Lease payments are determined at lease commencement and
represent fixed lease payments as defined within the
respective lease agreement or, in the case of certain lease
agreements, variable lease payments that are measured as of
the lease commencement date based on the prevailing index
or market rate. Future adjustments to variable lease payments
are defined and scheduled within the respective lease
agreement and are determined based upon the prevailing
market or index rate at the time of the adjustment relative to
the market or index rate determined at lease commencement.
Certain other
lease
payments that are determined based upon actual utilization of
the identified asset. Such future adjustments to variable lease
payments and variable lease payments based upon actual
utilization of the identified asset are not included within the
determination of lease payments at commencement but
rather, are recorded as variable lease expense in the period in
which the variable lease cost is incurred. Additionally, the
company's operating leases generally do not include material
residual value guarantees. The company has operating leases
with both lease components and non-lease components. For
all underlying asset classes, the company accounts for lease
components separately from non-lease components based on
the relative market value of each component. Non-lease
components typically consist of common area maintenance,
utilities, and/or other repairs and maintenance services. The
costs related to non-lease components are not included within
the determination of lease payments at commencement.
at
for
lease
liabilities
operating
Right-of-use assets represent the company's right to use an
underlying asset throughout the lease term and lease
liabilities represent the company's obligation to make lease
payments arising from the lease agreement. The company
lease
accounts
commencement and on an ongoing basis as the present value
of the minimum remaining lease payments under the
respective lease term. Minimum remaining lease payments
are discounted to present value based on the rate implicit in
the operating lease agreement or the estimated incremental
borrowing rate at lease commencement if the rate implicit in
the lease is not readily determinable. Generally, the estimated
incremental borrowing rate is used as the rate implicit in the
lease is not readily determinable. The estimated incremental
borrowing rate represents the rate of interest that the
company would have to pay to borrow on a general and
unsecured collateralized basis over a similar term, an amount
in a similar economic
equal
lease payments
the
to
Fiscal Year Ended October 31
2021
2020
Total future minimum operating lease payments
$
20,361 $
19,637
Less: imputed interest
environment. The company determines
the estimated
incremental borrowing rate at lease commencement based on
available information at such time, including lease term, lease
currency, and geographical market. Right-of-use assets are
measured as the amount of the corresponding operating lease
lease agreement,
liability for
the
adjusted for prepaid or accrued
remaining balance of any
received,
lease
unamortized initial direct costs, and impairment of the
operating lease right-of-use asset, as applicable.
lease payments,
incentives
the respective operating
The following table presents the lease expense incurred on
the company’s operating, short-term, and variable leases (in
thousands):
Operating lease expense
Short-term lease expense
Variable lease expense
Total lease expense
2,953
97
2,949
134
$
23,411 $
22,720
Total lease expense related to the company's operating leases
under the legacy lease accounting guidance at ASC Topic
840, Leases, was $34.1 million for the fiscal year ended
October 31, 2019.
The following
table presents supplemental cash flow
information related to the company's operating leases (in
thousands):
Fiscal Year Ended October 31
2021
2020
Operating cash flows for amounts included
in the measurement of lease liabilities
Right-of-use assets obtained in exchange
for lease obligations
$
$
18,877 $
17,762
5,390 $
22,667
The following table presents other lease information related
to the company's operating leases as of October 31, 2021 and
October 31, 2020:
October 31,
2021
October 31,
2020
Weighted-average remaining lease term of
operating leases in years
Weighted-average discount rate of
operating leases
6.6
7.1
2.71 %
2.79 %
The following table reconciles the total undiscounted future
cash flows based on the anticipated future minimum
operating lease payments by fiscal year for the company's
operating leases to the present value of operating lease
liabilities recorded within the Consolidated Balance Sheets as
of October 31, 2021 (in thousands):
2022
2023
2024
2025
2026
Thereafter
October 31,
2021
$
16,833
13,568
12,042
10,446
5,408
18,239
76,536
6,501
Present value of operating lease liabilities
$
70,035
14 Derivative Instruments and Hedging
Activities
Risk Management Objective of Using Derivatives
The company is exposed to foreign currency exchange rate
risk arising from transactions in the normal course of
business, such as sales to third-party customers, sales and
loans to wholly-owned foreign subsidiaries, costs associated
with foreign plant operations, and purchases from suppliers.
The company’s primary currency exchange rate exposures
are with the Euro, the Australian dollar, the Canadian dollar,
the British pound, the Mexican peso, the Japanese yen, the
Chinese Renminbi, and the Romanian New Leu against the
U.S. dollar, as well as the Romanian New Leu against the
Euro.
To reduce its exposure to foreign currency exchange rate risk,
the company actively manages the exposure of its foreign
currency exchange rate risk by entering
into various
derivative instruments to hedge against such risk, authorized
under a company policy that places controls on these hedging
activities, with counterparties that are highly rated financial
institutions. The company’s policy does not allow the use of
derivative instruments for trading or speculative purposes.
The company has also made an accounting policy election to
use the portfolio exception with respect to measuring
counterparty credit risk for derivative instruments and to
measure the fair value of a portfolio of financial assets and
financial liabilities on the basis of the net open risk position
with each counterparty.
The company’s hedging activities primarily involve the use
of forward currency contracts to hedge most foreign currency
transactions,
including forecasted sales and purchases
denominated in foreign currencies. The company uses
derivative instruments only in an attempt to limit underlying
exposure from foreign currency exchange rate fluctuations
and to minimize earnings and cash flow volatility associated
with foreign currency exchange rate fluctuations. Decisions
on whether to use such derivative instruments are primarily
92
based on the amount of exposure to the currency involved
and an assessment of the near-term market value for each
currency. The company recognizes all derivative instruments
at fair value on the Consolidated Balance Sheets as either
assets or liabilities. The accounting for changes in the fair
value of a derivative instrument depends on whether it has
been designated and qualifies as a cash flow hedging
instrument.
Cash Flow Hedging Instruments
the
those cash
instruments and
The company formally documents relationships between cash
flow hedging
related hedged
transactions, as well as its risk-management objective and
strategy for undertaking cash flow hedging instruments. This
process includes linking all cash flow hedging instruments to
the forecasted transactions, such as sales to third-parties and
costs associated with foreign plant operations, including
purchases from suppliers. At the cash flow hedge’s inception
and on an ongoing basis, the company formally assesses
whether the cash flow hedging instruments have been highly
effective in offsetting changes in the cash flows of the hedged
transactions and whether
flow hedging
instruments may be expected to remain highly effective in
future periods. Changes in the fair values of the spot rate
component of outstanding, highly effective cash flow
hedging instruments included in the assessment of hedge
effectiveness are recorded in other comprehensive income
within AOCL on the Consolidated Balance Sheets and are
subsequently
the
Consolidated Statements of Earnings during the same period
in which the cash flows of the underlying hedged transaction
affect net earnings. Changes in the fair values of hedge
components excluded from the assessment of effectiveness
are recognized immediately in net earnings under the mark-
to-market approach. The classification of gains or losses
recognized on cash flow hedging instruments and excluded
components within the Consolidated Statements of Earnings
is the same as that of the underlying exposure. Results of
cash flow hedging instruments, and the related excluded
components, of sales and costs associated with foreign plant
operations, including purchases from suppliers, are recorded
in net sales and cost of sales, respectively. The maximum
amount of time the company hedges its exposure to the
variability in future cash flows for forecasted trade sales and
purchases is two years.
to net earnings within
reclassified
cash
flow hedge
When it is determined that a derivative instrument is not, or
has ceased to be, highly effective as a cash flow hedge, the
accounting
company discontinues
prospectively. The gain or loss on the dedesignated derivative
instrument remains in AOCL and is reclassified to net
earnings within
the same Consolidated Statements of
Earnings line item as the underlying exposure when the
forecasted
the
company discontinues cash flow hedge accounting because it
is no longer probable, but it is still reasonably possible that
the forecasted transaction will occur by the end of the
originally expected period or within an additional two-month
period of time thereafter, the gain or loss on the derivative
transaction affects net earnings. When
instrument remains in AOCL and is reclassified to net
earnings within
the same Consolidated Statements of
Earnings line item as the underlying exposure when the
forecasted transaction affects net earnings. However, if it is
probable that a forecasted transaction will not occur by the
end of the originally specified time period or within an
additional two-month period of time thereafter, the gains and
losses that were in AOCL are immediately recognized in net
earnings within other income, net in the Consolidated
Statements of Earnings. In all situations in which cash flow
the derivative
hedge accounting
instrument remains outstanding, the company carries the
derivative instrument at its fair value on the Consolidated
Balance Sheets, recognizing future changes in the fair value
within other income, net in the Consolidated Statements of
Earnings. As of October 31, 2021, the notional amount
outstanding of forward currency contracts designated as cash
flow hedging instruments was $266.0 million.
is discontinued and
Derivatives Not Designated as Cash Flow Hedging
Instruments
to mitigate
forward currency contracts
The company also enters into foreign currency contracts that
include
the
remeasurement of specific assets and liabilities on the
Consolidated Balance Sheets. These contracts are not
designated as cash flow hedging instruments. Accordingly,
changes in the fair value of hedges of recorded balance sheet
positions, such as cash, receivables, payables, intercompany
notes, and other various contractual claims to pay or receive
foreign currencies other than the functional currency, are
recognized
the
in other
Consolidated Statements of Earnings together with the
transaction gain or loss from the hedged balance sheet
position.
income, net, on
immediately
The following table presents the fair value and location of the
the Consolidated
company’s derivative
Balance Sheets (in thousands):
instruments on
Fair Value as of October 31
Derivative assets:
Derivatives designated as cash flow hedging
instruments:
Prepaid expenses and other current assets
2021
2020
Forward currency contracts
$
189 $
802
Derivatives not designated as cash flow hedging
instruments:
Prepaid expenses and other current assets
Forward currency contracts
Total derivative assets
Derivative liabilities:
Derivatives designated as cash flow hedging
instruments:
Accrued liabilities
133
$
322 $
131
933
Forward currency contracts
$ 1,260 $ 2,687
Derivatives not designated as cash flow hedging
instruments:
Accrued liabilities
Forward currency contracts
Total derivative liabilities
872
(203)
$ 2,132 $ 2,484
93
their
respective contracts. The
The company entered into an International Swap Dealers
Association
("ISDA") Master Agreement with each
counterparty that permits the net settlement of amounts owed
under
ISDA Master
Agreement is an industry standardized contract that governs
all derivative contracts entered into between the company and
the respective counterparty. Under these master netting
agreements, net settlement generally permits the company or
the counterparty to determine the net amount payable or
receivable for contracts due on the same date or in the same
currency for similar types of derivative transactions. The
company records the fair value of its derivative instruments
at the net amount on its Consolidated Balance Sheets.
The following table presents the effects of the master netting
arrangements on the fair value of the company’s derivative
instruments that are recorded on the Consolidated Balance
Sheets (in thousands):
Fair Value as of October 31
Derivative assets:
Forward currency contracts:
2021
2020
Gross amount of derivative assets
$
423 $ 1,139
Derivative liabilities offsetting derivative assets
(101)
(206)
Net amount of derivative assets
$
322 $
933
Derivative liabilities:
Forward currency contracts:
Gross amount of derivative liabilities
$ (4,853) $ (3,233)
Derivative assets offsetting derivative liabilities
2,721
749
The following tables present the impact and location of
derivative instruments on the Consolidated Statements of
Earnings for the company’s derivatives designated as cash
flow hedging instruments and the related components
excluded from hedge effectiveness testing (in thousands):
Gain (Loss) Recognized
in Earnings on Cash
Flow Hedging
Instruments
Net Sales
Cost of
Sales
$ 3,959,584
$ (2,621,092)
(10,883)
139
$
1,427
$
614
Gain (Loss) Recognized
in Earnings on Cash
Flow Hedging
Instruments
Net Sales
Cost of
Sales
$ 3,378,810
$ (2,189,036)
Fiscal Year Ended October 31, 2021
Total Consolidated Statements of Earnings
income (expense) amounts in which the effects of
cash flow hedging instruments are recorded
Gain (loss) on derivatives designated as cash
flow hedging instruments:
Forward currency contracts:
Amount of gain (loss) reclassified from
AOCL into earnings
Gain on components excluded from
effectiveness testing recognized in earnings
based on changes in fair value
Fiscal Year Ended October 31, 2020
Total Consolidated Statements of Earnings
income (expense) amounts in which the effects of
cash flow hedging instruments are recorded
Gain on derivatives designated as cash flow
hedging instruments:
Net amount of derivative liabilities
$ (2,132) $ (2,484)
Forward currency contracts:
The following table presents the impact and location of the
amounts reclassified from AOCL into net earnings on the
Consolidated Statements of Earnings and the impact of
derivative instruments on the Consolidated Statements of
Comprehensive Income for
the company's derivatives
designated as cash flow hedging instruments (in thousands):
Gain (Loss)
Reclassified from
AOCL into Income
Gain (Loss)
Recognized in OCI
on Derivatives
2021
2020
2021
2020
Fiscal Years Ended
October 31
Derivatives designated as
cash flow hedging
instruments:
Forward currency
contracts:
Net sales
$ (10,883) $ 5,023 $ 2,820 $ (8,232)
Cost of sales
Total derivatives
designated as cash flow
hedging instruments
139
651
(734)
(253)
$ (10,744) $ 5,674 $ 2,086 $ (8,485)
During fiscal 2021 and 2020, the company recognized
immaterial losses and gains, respectively, within other
income, net on the Consolidated Statement of Earnings due
to the discontinuance of cash flow hedge accounting on
certain forward currency contracts designated as cash flow
hedging instruments. As of October 31, 2021, the company
expects to reclassify approximately $4.4 million of losses
from AOCL to earnings during the next twelve months.
Amount of gain reclassified from AOCL into
earnings
Gain on components excluded from
effectiveness testing recognized in earnings
based on changes in fair value
5,023
651
$
3,229
$
313
The following table presents the impact and location of
derivative instruments on the Consolidated Statements of
Earnings for the company’s derivatives not designated as
cash flow hedging instruments (in thousands):
Fiscal Years Ended October 31
2021
2020
Loss on derivative instruments not designated
as cash flow hedging instruments:
Forward currency contracts:
Other income, net
Total loss on derivatives not designated as
cash flow hedging instruments
15 Fair Value Measurements
$
$
(4,566) $
(5,792)
(4,566) $
(5,792)
The company categorizes its assets and liabilities into one of
three levels based on the assumptions (inputs) used in valuing
the asset or liability. Estimates of fair value for financial
assets and financial liabilities are based on the framework
established in the accounting guidance for fair value
measurements. The framework defines fair value, provides
guidance for measuring fair value, and requires certain
disclosures. The framework discusses valuation techniques
such as the market approach (comparable market prices), the
94
income approach (present value of future income or cash
flows), and the cost approach (cost to replace the service
capacity of an asset or replacement cost). The framework
utilizes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three
broad levels. Level 1 provides the most reliable measure of
fair value, while Level 3 generally requires significant
management judgment. The three levels are defined as
follows:
Level 1: Unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities in
active markets; quoted prices for identical assets or
liabilities in markets that are not active; or other inputs
that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level 3: Unobservable inputs reflecting management's
assumptions about the inputs used in pricing the asset or
liability.
Recurring Fair Value Measurements
The company's derivative instruments consist of forward
currency contracts that are measured at fair value on a
recurring basis. The fair value of such forward currency
contracts
is determined based on observable market
transactions of forward currency prices and spot currency
rates as of the reporting date.
The following tables present, by level within the fair value
hierarchy, the company's financial assets and liabilities that
are measured at fair value on a recurring basis as of
October 31, 2021 and 2020, according to the valuation
their fair values (in
technique utilized
thousands):
to determine
October 31, 2021
Fair Value
Level 1
Level 2
Level 3
Fair Value Measurements Using
Inputs Considered as:
Assets:
Forward currency
contracts
Total assets
Liabilities:
Forward currency
contracts
Total liabilities
$
$
$
$
322 $
322 $
— $
— $
322 $
322 $
2,132 $
2,132 $
— $
2,132 $
— $
2,132 $
—
—
—
—
October 31, 2020
Fair Value
Level 1
Level 2
Level 3
Fair Value Measurements Using
Inputs Considered as:
Assets:
Forward currency
contracts
Total assets
Liabilities:
Forward currency
contracts
Total liabilities
$
$
$
$
933 $
933 $
— $
— $
933 $
933 $
2,484 $
2,484 $
— $
2,484 $
— $
2,484 $
—
—
—
—
Nonrecurring Fair Value Measurements
impairment charge. Assets acquired and
The company measures certain assets and liabilities at fair
value on a non-recurring basis. Assets and liabilities that are
measured at fair value on a nonrecurring basis include long-
lived assets, goodwill, and indefinite-lived intangible assets,
which would generally be recorded at fair value as a result of
an
liabilities
assumed as part of a business combination or asset
acquisition are also measured at fair value on a non-recurring
basis during
the
accounting standards codification guidance for business
combinations and asset acquisitions, when applicable. For
additional
company's business
combinations and asset acquisitions and the related non-
recurring fair value measurement of the assets acquired and
liabilities assumed, refer to Note 2, Business Combinations
and Asset Acquisitions.
the measurement period allowed by
information on
the
Other Fair Value Disclosures
The carrying values of the company's short-term financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, and short-term debt, including
current maturities of long-term debt, when applicable,
approximate their fair values due to their short-term nature.
As of October 31, 2021 and 2020, the company's long-term
debt included $424.0 million of gross fixed-rate debt that is
not subject to variable interest rate fluctuations. The gross
fair value of such long-term debt is determined using Level 2
inputs by discounting the projected cash flows based on
quoted market rates at which similar amounts of debt could
currently be borrowed. As of October 31, 2021, the estimated
gross fair value of long-term debt with fixed interest rates
was $517.9 million compared to its gross carrying amount of
$424.0 million. As of October 31, 2020, the estimated gross
fair value of long-term debt with fixed interest rates was
$508.2 million compared to its gross carrying amount of
$424.0 million. For additional information regarding long-
term debt with fixed interest rates, refer to Note 6,
Indebtedness.
95
17 Subsequent Events
The company has evaluated all subsequent events and
concluded that no additional subsequent events have occurred
that would require recognition in the Consolidated Financial
Statements or disclosure in the Notes to Consolidated
Financial Statements.
16 Employee Retirement Plans
Defined Contribution Plan
fund
retirement
contributions,
The company maintains The Toro Company Retirement Plan
for eligible employees. The company's expenses under this
plan, which include costs related to matching contributions
and discretionary
as
applicable, were $28.5 million, $17.4 million, and $23.4
million for the fiscal years ended October 31, 2021, 2020,
and 2019, respectively. The decrease in expense for the fiscal
year ended October 31, 2020, as compared to the fiscal years
ended October 31, 2021 and October 31, 2019, was primarily
the result of the company's suspension of discretionary
retirement fund contributions for fiscal 2020 as a proactive
cost reduction measure to mitigate the anticipated adverse
impacts of COVID-19. The increase in expense for the fiscal
year ended October 31, 2021 as compared to the fiscal year
ended October 31, 2020 is primarily the result of the
resumption of discretionary retirement fund contributions in
fiscal 2021.
Defined Benefit Plans
The company has a defined benefit pension plan covering
certain employees in the United Kingdom ("defined benefit
retirement plan"). The company was also previously a
sponsor to another defined benefit pension plan for certain
employees in the U.S. (collectively with the defined benefit
retirement plan, the "defined benefit retirement plans"). This
defined benefit pension plan for certain employees in the
U.S. was terminated as of October 31, 2020 and all
accumulated benefit obligations of the company related to
such plan have been satisfied. The projected and accumulated
benefit obligation of the defined benefit retirement plan was
$35.1 million and $33.4 million as of October 31, 2021 and
2020, respectively. The fair value of the defined benefit
retirement plan assets as of October 31, 2021 and 2020 was
$33.0 million and $29.5 million, respectively. The net funded
status of the defined benefit retirement plan as of October 31,
2021 and 2020 was underfunded at $2.1 million and $3.9
million, respectively.
Service costs of the defined benefit retirement plans are
presented in selling, general and administrative expense
within the Consolidated Statements of Earnings. Non-service
cost components of net periodic benefit cost (income),
including realized gains or losses as a result of changes in
actuarial valuation assumptions, are presented in other
income, net within the Consolidated Statements of Earnings.
The company recognized income of $0.1 million, $0.2
million, and $6.6 million for
the fiscal years ended
October 31, 2021, 2020, and 2019, respectively.
The company has omitted the remaining disclosures for the
defined benefit retirement plans as the company deems these
defined benefit retirement plans to be immaterial to its
Consolidated Financial Statements.
96
Attestation Report of the Independent Registered Public
Accounting Firm
The report of KPMG LLP, the company's independent
registered public accounting firm, regarding the effectiveness
of the company's internal control over financial reporting is
included in this Annual Report on Form 10-K within Part II,
Item 8, "Financial Statements and Supplementary Data,"
under the caption "Report of Independent Registered Public
Accounting Firm."
Changes in Internal Control over Financial Reporting
On March 2, 2020, during the second quarter of fiscal 2020,
the company completed the acquisition of Venture Products.
Prior to this acquisition, Venture Products was a privately-
held company not subject to the Sarbanes-Oxley Act of 2002,
the rules and regulations of the SEC, or other corporate
governance requirements to which public companies may be
subject. In accordance with guidance issued by the SEC,
companies are permitted to exclude acquisitions from their
final assessment of internal control over financial reporting
during the year of acquisition. As of the end of fiscal 2021,
the company has completed its integration activities related to
internal control over financial reporting for Venture Products.
Accordingly, the company has included Venture Products
within its assessment of the effectiveness of its internal
control over financial reporting as of October 31, 2021. Refer
to the company's management report on internal control over
financial reporting included in this Annual Report on Form
10-K within Part II, Item 8, "Financial Statements and
Supplementary Data," under the caption "Management's
Report on Internal Control over Financial Reporting" for
additional information.
With the exception of internal control-related integration
activities in connection with the company's acquisition of
Venture Products, there was no change in the company's
internal control over financial reporting that occurred during
the fourth quarter of fiscal 2021 that has materially affected,
or is reasonably likely to materially affect, the company's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN
JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS
AND
FINANCIAL DISCLOSURE
ACCOUNTING
ON
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The company maintains disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
that are designed to provide reasonable assurance that
information required to be disclosed by the company in the
reports it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the
time periods specified in the SEC's rules and forms and that
such information is accumulated and communicated to the
company's management, including its principal executive and
principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating its disclosure
controls and procedures, the company recognizes that any
controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving
the desired control objectives, and management is required to
apply judgment in evaluating the cost-benefit relationship of
possible internal controls.
The company's management evaluated, with the participation
of the company's Chairman of the Board, President and Chief
Executive Officer and Vice President, Chief Financial
Officer, the effectiveness of the design and operation of the
company's disclosure controls and procedures as of the end of
the period covered by this Annual Report on Form 10-K.
Based on that evaluation, the company's Chairman of the
Board, President and Chief Executive Officer and Vice
President, Chief Financial Officer concluded
the
company's disclosure controls and procedures were effective
as of the end of such period to provide reasonable assurance
that information required to be disclosed in its Exchange Act
reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC's rules and
forms, and that such information relating to the company and
its
and
communicated to management, including the Chairman of the
Board, President and Chief Executive Officer and Vice
President, Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosures.
consolidated
accumulated
subsidiaries
that
is
Management's Annual Report on Internal Control over
Financial Reporting
The company's management report on internal control over
financial reporting is included in this Annual Report on Form
10-K within Part II, Item 8, "Financial Statements and
Supplementary Data," under the caption "Management's
Report on Internal Control over Financial Reporting."
97
PART III
13. CERTAIN RELATIONSHIPS AND
ITEM
RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this item is incorporated by reference
to information to be contained under the caption "Corporate
Governance — Director Independence" and "Corporate
Governance — Related Person Transactions and Policies and
Procedures Regarding Related Person Transactions" in the
company's proxy statement for its 2022 Annual Meeting of
Shareholders to be filed with the SEC.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Information required by this item is incorporated by reference
to information to be contained under the captions "Proposal
Two — Ratification of Selection of Independent Registered
Public Accounting Firm — Audit, Audit-Related, Tax and
Other Fees" and "Proposal Two — Ratification of Selection
of Independent Registered Public Accounting Firm — Pre-
Approval Policies and Procedures" in the company's proxy
statement for its 2022 Annual Meeting of Shareholders to be
filed with the SEC.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information on executive officers required by this item is
incorporated by reference from "Information About Our
Executive Officers" in Part I of this Annual Report on Form
10-K. Additional information on certain executive officers
and other information required by this item is incorporated by
reference to information to be contained under the captions
"Proposal One — Election of Directors — Information About
Director Nominees and Continuing Directors," "Corporate
Governance — Code of Conduct and Code of Ethics for our
CEO and Senior Financial Personnel," and "Corporate
Governance — Board Committees," in the company's proxy
statement for its 2022 Annual Meeting of Shareholders to be
filed with the SEC.
During the fourth quarter of fiscal 2021, the company did not
make any material changes to the procedures by which
shareholders may recommend nominees to the Board of
Directors, as described in the company's proxy statement for
its 2021 Annual Meeting of Shareholders. The company has
a Code of Ethics for its CEO and Senior Financial Personnel,
a copy of which is posted on the company's website at
www.thetorocompany.com (select the "Investors" link, then
the "Corporate Governance" link, then the "Code of Conduct
and Ethics" link). The company intends to satisfy the
disclosure requirements of Item 5.05 of Form 8-K and
applicable NYSE rules regarding amendments to or waivers
from any provision of its Code of Ethics, as applicable, by
at
posting
www.thetorocompany.com (select the "Investors" link, then
the "Corporate Governance" link, then the "Code of Conduct
and Ethics" link).
its website
information
such
on
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference
to information to be contained under the captions "Executive
the
Compensation" and "Director Compensation"
company's proxy statement for its 2022 Annual Meeting of
Shareholders to be filed with the SEC.
in
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this item is incorporated by reference
to information to be contained under the captions "Stock
Ownership" and "Equity Compensation Plan Information" in
the company's proxy statement for its 2022 Annual Meeting
of Shareholders to be filed with the SEC.
98
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements
PART IV
The following Consolidated Financial Statements of The Toro Company and its consolidated subsidiaries are included
in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K:
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings for the fiscal years ended October 31, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Income for the fiscal years ended October 31, 2021, 2020, and 2019
Consolidated Balance Sheets as of October 31, 2021 and 2020
Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2021, 2020, and 2019
Consolidated Statements of Stockholders' Equity for the fiscal years ended October 31, 2021, 2020, and 2019
Notes to Consolidated Financial Statements
2. List of Financial Statement Schedules
57
58
60
60
61
62
63
64
All financial statement schedules have been omitted because the required information is either inapplicable,
immaterial, or the information is presented in the Consolidated Financial Statements or related Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K.
3. List of Exhibits
The following exhibits are incorporated herein by reference or are filed or furnished with this Annual Report on Form
10-K as indicated below:
Exhibit
Number
2.1 (1)
2.2 (2)
2.3 (3)
2.4 (4)
2.5 (4)
2.6 (1)
2.7
2.8 (2)
2.9 (3)
Description
Agreement to Form Joint Venture dated August 12, 2009 by and between The Toro Company and TCF Inventory
Finance, Inc. (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated August 12,
2009, Commission File No. 1-8649).**
First Amendment to Agreement to Form Joint Venture dated June 6, 2012 by and between The Toro Company and
TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 2.1 to Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 4, 2012, Commission File No. 1-8649).**
Second Amendment to Agreement to Form Joint Venture dated November 29, 2016 by and between The Toro
Company and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on
Form 8-K dated November 29, 2016, Commission File No. 1-8649).**
Third Amendment to Agreement to Form Joint Venture effective as of December 20, 2019 by and between The Toro
Company and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 2.2 to Registrant’s Quarterly Report
on Form 10-Q for the fiscal quarter ended January 31, 2020, Commission File No. 1-8649).
Fourth Amendment to Agreement to Form Joint Venture dated as of March 26, 2021 and effective as of March 2, 2020
by and between The Toro Company and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 2.2. to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2021, Commission File No. 1-8649).
Limited Liability Company Agreement of Red Iron Acceptance, LLC dated August 12, 2009 by and between Red Iron
Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to Exhibit 2.2 to Registrant's Current
Report on Form 8-K dated August 12, 2009, Commission File No. 1-8649).**
Amendment No. 1 to Limited Liability Company Agreement of Red Iron Acceptance, LLC dated May 31, 2011 by
and between Red Iron Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to Exhibit 2.4
to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 2012, Commission File
No. 1-8649).**
Second Amendment to Limited Liability Company Agreement of Red Iron Acceptance, LLC dated June 6, 2012 by
and between Red Iron Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to Exhibit 2.2
to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2012, Commission File
No. 1-8649).**
Third Amendment to Limited Liability Company Agreement of Red Iron Acceptance, LLC dated November 29, 2016
by and between Red Iron Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to
Exhibit 2.2 to Registrant's Current Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649).**
99
2.10
2.11
2.12
2.13 (3)
2.14 (4)
2.15
3.1 and
4.1
3.2 and
4.2
3.3 and
4.3
4.4
4.5
4.6
4.7
4.8
4.9
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Fourth Amendment to Limited Liability Company Agreement of Red Iron Acceptance, LLC dated as of July 17, 2019
by and between Red Iron Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to
Exhibit 2.9 to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 2020, Commission File
No. 1-8649).
Fifth Amendment to Limited Liability Company Agreement of Red Iron Acceptance, LLC effective as of December
20, 2019 by and between Red Iron Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to
Exhibit 2.3 to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2020, Commission
File No. 1-8649).
Receivable Purchase Agreement dated October 1, 2009 by and among Toro Credit Company, as Seller, The Toro
Company, and Red Iron Acceptance, LLC, as Buyer (incorporated by reference to Exhibit 2.1 to Registrant's Current
Report on Form 8-K dated October 1, 2009, Commission File No. 1-8649).**
Fourth Amended and Restated Program and Repurchase Agreement dated as of November 29, 2016 by and between
The Toro Company and Red Iron Acceptance, LLC (incorporated by reference to Exhibit 2.3 to Registrant's Current
Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649).
First Amendment to Fourth Amended and Restated Program and Repurchase Agreement effective as of December 20,
2019 by and between The Toro Company and Red Iron Acceptance, LLC (incorporated by reference to Exhibit 2.4 to
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2020, Commission File No.
1-8649).
Agreement and Plan of Merger dated as of February 14, 2019 among The Toro Company, Helix Company, Inc., The
Charles Machine Works, Inc. and Agent 186 LLC, as Shareholders’ Agent (incorporated by reference to Exhibit 2.1 to
Registrant’s Current Report on Form 8-K dated February 14, 2019, Commission File No. 1-8649).**
Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s
Current Report on Form 8-K dated June 17, 2008, Commission File No. 1-8649).
Certificate of Amendment to Restated Certificate of Incorporation of The Toro Company (incorporated by reference to
Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated March 12, 2013, Commission File No. 1-8649).
Amended and Restated Bylaws of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s
Current Report on Form 8-K dated July 19, 2016, Commission File No. 1-8649).
Specimen Form of Common Stock Certificate (incorporated by reference to Exhibit 4(c) to Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 1, 2008, Commission File No. 1-8649).
Description of Common Stock of The Toro Company (filed herewith).
Indenture dated as of January 31, 1997 between Registrant and First National Trust Association, as Trustee, relating to
The Toro Company's 7.80% Debentures due June 15, 2027 (incorporated by reference to Exhibit 4(a) to Registrant's
Current Report on Form 8-K dated June 24, 1997, Commission File No. 1-8649). (Filed on paper - hyperlink not
required pursuant to Rule 105 of Regulation S-T)
Indenture dated as of April 20, 2007, between Registrant and The Bank of New York Trust Company, N.A., as
Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.3 to
Registrant’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on April 23,
2007, Registration No. 333-142282).
First Supplemental Indenture dated as of April 26, 2007, between Registrant and The Bank of New York Trust
Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by
reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File
No. 1-8649).
Form of The Toro Company 6.625% Note due May 1, 2037 (incorporated by reference to Exhibit 4.2 to Registrant’s
Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649).
The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by
reference to Exhibit 10.1 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016,
Commission File No. 1-8649).*
Amendment No. 1 to The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as Amended and
Restated, dated as of December 3, 2019 (incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the fiscal year ended October 31, 2019, Commission File No. 1-8649).*
The Toro Company Performance Share Plan (As Amended January 15, 2008) (incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form 8-K dated January 15, 2008, Commission File No. 1-8649).*
The Toro Company Supplemental Benefit Plan, Amended and Restated Effective January 1, 2017 (incorporated by
reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February 3, 2017,
Commission File No. 1-8649).*
The Toro Company Deferred Compensation Plan, Amended and Restated Effective January 1, 2017 (incorporated by
reference to Exhibit 10.9 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February 3, 2017,
Commission File No. 1-8649).*
The Toro Company Deferred Compensation Plan for Officers, Amended and Restated Effective January 1, 2017
(incorporated by reference to Exhibit 10.10 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
February 3, 2017, Commission File No. 1-8649).*
The Toro Company Deferred Compensation Plan for Non-Employee Directors, Amended and Restated Effective
January 1, 2017 (incorporated by reference to Exhibit 10.11 to Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended February 3, 2017, Commission File No. 1-8649).*
Form of Nonemployee Director Stock Option Agreement between The Toro Company and its Non-Employee
Directors under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.11 to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2016, Commission File No. 1-8649).*
100
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Form of Nonqualified Stock Option Agreement between The Toro Company and its officers and other employees
under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2016, Commission File No. 1-8649).*
Form of Performance Share Award Agreement between The Toro Company and its officers and other employees
under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2016, Commission File No. 1-8649).*
Form of Annual Performance Award Agreement between The Toro Company and its officers and other employees
under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.18 to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2016, Commission File No. 1-8649).*
Form of Restricted Stock Award Agreement between The Toro Company and its officers and other employees under
The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by
reference to Exhibit 10.19 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016,
Commission File No. 1-8649).*
Form of Restricted Stock Unit Award Agreement between The Toro Company and its officers and other employees
under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.21 to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2016, Commission File No. 1-8649).*
Form of Indemnification Agreement with the members of the Board of Directors (incorporated by reference to
Exhibit 10(u) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 2006, Commission
File No. 1-8649).*
The Toro Company Change in Control Severance Compensation Policy and attached Form of Release (incorporated
by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated January 18, 2011, Commission File
No. 1-8649).*
Offer Letter dated July 25, 2011 between The Toro Company and Renee J. Peterson (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 29, 2011, Commission File No. 1-8649).*
Offer Letter dated August 18, 2015 between The Toro Company and Richard M. Olson (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated August 19, 2015, Commission File No. 1-8649).*
Offer Letter dated July 19, 2016 between The Toro Company and Richard M. Olson (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 19, 2016, Commission File No. 1-8649).*
Amended and Restated Credit Agreement dated as of October 5, 2021, by and among The Toro Company and Toro
Luxembourg S.à r.l., as Borrowers, the lenders from time to time party thereto, Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, Wells Fargo Bank, National Association and U.S. Bank
National Association, as Co-Syndication Agents, and BMO Harris Bank, N.A. and HSBC Bank USA, National
Association, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report
on Form 8-K dated October 6, 2021, Commission File No. 1-8649).
10.20 (1) Credit and Security Agreement dated August 12, 2009 by and between Red Iron Acceptance, LLC and TCF Inventory
Finance, Inc. (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated August 12,
2009, Commission File No. 1-8649).
10.22
10.23
10.24
10.21 (2) First Amendment to Credit and Security Agreement dated June 6, 2012 by and between Red Iron Acceptance, LLC
and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended May 4, 2012, Commission File No. 1-8649).
Second Amendment to Credit and Security Agreement dated November 29, 2016 by and between Red Iron
Acceptance, LLC and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649).
Third Amendment to Credit and Security Agreement effective as of December 20, 2019 by and between Red Iron
Acceptance, LLC and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly
Report on Form 10-Q for the fiscal quarter ended January 31, 2020, Commission File No. 1-8649).
Fourth Amendment to Credit and Security Agreement effective as of November 1, 2021 by and between Red Iron
Acceptance, LLC and TCF Inventory Finance, Inc. (filed herewith).
Note Purchase Agreement, dated as of April 30, 2019, by and among The Toro Company and the purchasers listed on
the Purchaser Schedule thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K dated April 30, 2019, Commission File No. 1-8649).
Subsidiaries of Registrant (filed herewith).
Consent of Independent Registered Public Accounting Firm (filed herewith).
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
(filed herewith).
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
(filed herewith).
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
21
23.1
31.1
10.25
31.2
32
101
101
104
The following financial information from The Toro Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 2021, filed with the SEC on December 17, 2021, formatted in Inline eXtensible Business Reporting
Language (Inline XBRL): (i) Consolidated Statements of Earnings for each of the fiscal years in the three-year period
ended October 31, 2021, (ii) Consolidated Statements of Comprehensive Income for each of the fiscal years in the
three-year period ended October 31, 2021, (iii) Consolidated Balance Sheets as of October 31, 2021 and 2020,
(iv) Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended October 31,
2021, (v) Consolidated Statements of Stockholders' Equity each of the fiscal years in the three-year period ended
October 31, 2021, and (vi) Notes to Consolidated Financial Statements (filed herewith).
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(1) Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under the Securities
Exchange Act of 1934, as amended (File No. 1-8649, CF # 35552). The redacted material was filed separately with the
Securities and Exchange Commission.
(2) Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under the Securities
Exchange Act of 1934, as amended (File No. 1-8649, CF # 35553). The redacted material was filed separately with the
Securities and Exchange Commission.
(3) Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under the Securities
Exchange Act of 1934, as amended (File No. 1-8649, CF # 34521). The redacted material was filed separately with the
Securities and Exchange Commission.
(4) Confidential portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
* Management contract or compensatory plan or arrangement.
** All exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. TTC will furnish
the omitted exhibits and schedules to the Securities and Exchange Commission upon request by the Securities and Exchange
Commission.
(b) Exhibits
See Item 15(a)(3) above.
(c) Financial Statement Schedules
See Item 15(a)(2) above.
ITEM 16. FORM 10-K SUMMARY
None.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
THE TORO COMPANY
(Registrant)
By:
/s/ Renee J. Peterson
Renee J. Peterson
Vice President, Chief Financial Officer
Dated: December 17, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Richard M. Olson
Richard M. Olson
/s/ Renee J. Peterson
Renee J. Peterson
/s/ Janet K. Cooper
Janet K. Cooper
/s/ Gary L. Ellis
Gary L. Ellis
/s/ Jeffrey M. Ettinger
Jeffrey M. Ettinger
/s/ Katherine J. Harless
Katherine J. Harless
/s/ Jeffrey L. Harmening
Jeffrey L. Harmening
/s/ D. Christian Koch
D. Christian Koch
/s/ Joyce A. Mullen
Joyce A. Mullen
/s/ James C. O'Rourke
James C. O'Rourke
/s/ Michael G. Vale
Michael G. Vale
Chairman of the Board, President and Chief Executive Officer
and Director (principal executive officer)
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
December 17, 2021
Vice President, Chief Financial Officer
(principal financial and accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
103
Janet K. Cooper Retired, Senior Vice President and TreasurerQwest Communications International Inc.Gary L. Ellis* Retired, Executive Vice President and Chief Financial Officer Medtronic plcJeffrey M. Ettinger Retired, Chairman and Chief Executive OfficerHormel Foods CorporationKatherine J. Harless Retired, President and Chief Executive OfficerIdearc Inc.Jeffrey L. Harmening Chairman and Chief Executive OfficerGeneral Mills, Inc. D. Christian KochChairman, President and Chief Executive OfficerCarlisle Companies IncorporatedJoyce A. MullenPresident and Chief Executive Officer Insight Enterprises, Inc.Richard M. OlsonChairman of the Board, President and Chief Executive OfficerThe Toro CompanyJames C. O’RourkePresident and Chief Executive OfficerThe Mosaic CompanyMichael G. Vale, Ph.D. Group President, Safety & Industrial3M CompanyBoard of DirectorsRichard M. OlsonChairman of the Board, President and Chief Executive OfficerKevin N. CarpenterVice President, Global Operations and Integrated Supply ChainJody M. ChristyVice President, BOSSAmy E. DahlVice President, Human Resources, General Counsel and Corporate SecretaryAngie C. DrakeVice President, ConstructionBlake M. GramsVice President, Sustainability, Business Analytics and Process ImprovementBradley A. Hamilton Group Vice President, Commercial, International, Ventrac and Irrigation BusinessesGregory S. JaneyVice President, Residential and Landscape Contractor BusinessesPeter D. MoellerVice President, InternationalRenee J. PetersonVice President and Chief Financial OfficerDarren L. RedetzkeVice President, Strategic TechnologiesRichard W. RodierGroup Vice President, Construction, Contractor and Residential BusinessesKurt D. SvendsenVice President, Strategy, Corporate and Channel DevelopmentDaryn A. WaltersVice President, ExmarkExecutive OfficersShareholder AssistanceCommunications concerning The Toro Company stock, including shareholder change of address, certificate replacement, share transfer requirements, the direct stock purchase plan, dividends, the dividend reinvestment plan and similar matters should be directed to our transfer agent at: Broadridge Shareholder Services c/o Broadridge Corporate Issuer Solutions P.O. Box 1342 Brentwood, NY 11717-0718 1-844-956-0809 or 1-303-562-9697 shareholder@broadridge.com www.shareholder.broadridge.com/TTCInvestor InquiriesIndividual shareholders may direct any questions to invest@thetorocompany.com.Shareholder Information *Presiding Non-Management Directortoro_annual_report_21.indd 8toro_annual_report_21.indd 81/19/22 4:07 PM1/19/22 4:07 PM With over 30 professional-grade attachments to choose from, Ventrac offers true Versatility That Works®. Building on the success of the 4500 tractor, Ventrac introduced the new 4520 tractor with expanded capabilities and features. A productivity powerhouse, these incredibly rugged and dependable machines are trusted by golf courses, parks, acreage owners and others needing one machine to do it all. For over 25 years, Exmark's Lazer Z® has been the standard of excellence for commercial zero-turn mowers. As customer needs and preferences have evolved, the Lazer Z family has expanded to include four product series that strike a perfect balance of value and performance to get more work done, faster. Exmark’s top-of-the-line X-Series provides the productivity landscape contractors need with deck sizes ranging from 60- to 96-inches. And as always, the Lazer Z delivers the Exmark signature cut. With strong demand for specialty construction products that improve productivity and jobsite versatility, the Toro Dingo® TX 1000 continues to be trusted by contractors and homeowners in tackling countless projects from landscape to major construction. Designed with industry-leading traction controls, its 1,000-lb. rated operating capacity delivers maximum productivity with the combination of over 35 attachments for earth moving and trenching to lifting and hauling. ADVANCING PRIORITIES IN ALTERNATIVE POWER, SMART CONNECTED AND AUTONOMOUSIn what was a dynamic year, we continued to advance our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people. With the financial capacity to invest in the future and drive value for all stakeholders, we made meaningful investments in key technologies, both organically and through acquisitions, to advance our focus areas of alternative power, smart connected and autonomous customer solutions. Driving exciting advancements in technology, we continue to expand our no-compromise, sustainable battery offering for homeowners, contractors, and golf and grounds customers. Our market leadership with landscape professionals was further strengthened by the launch of our Revolution™ Series line of battery-powered stand-on and zero-turn riding mowers. Providing all-day run time on a single charge using our proprietary HyperCell™ battery system, these machines come equipped with our Horizon360® software which uses GPS and machine telematics to connect employees, equipment, crews and customer jobs together in one system.At the same time, acquisitions of Turflynx and Left Hand Robotics, along with our internal investments, have accelerated our innovation pipeline of autonomous products and furthered our momentum as a leader in technology advancements in the industries we serve.Power, pure and simple. Toro’s Z Master® 4000 has been engineered to last and built to reign. With unstoppable grit and durability, and unbeatable productivity and speed on giant Toro-exclusive Voodoo Trac™ tires, the Z Master 4000 is designed to offer go-all-day comfort with Toro’s patented MyRIDE® suspension system and unmatched cut quality with its grass-kicking high-strength steel TURBO FORCE® deck. Providing a unique blend of power, productivity and versatility, Toro’s Groundsmaster® 3200/3300 series delivers efficient performance to meet the demands of grounds and golf customers. A full range of attachments for mowing, blowing, sweeping and snow and ice maintenance provide all-season capabilities and functionality effectively leveraging the investment for this budget-friendly workhorse across seasons. When it comes to yard work, homeowners want powerful tools that give them the confidence to tackle it all. With Toro’s innovative 60V Flex-Force Power System®, customers can seamlessly swap the universal battery across a suite of more than 50 tools to power through any job with ease – season after season. For BOSS Snowplow, it’s all about building best-in-class snow and ice removal equipment to help customers restore order after winter’s wrath. To make quick work of clearing sidewalks, the BOSS Snowrator® is a labor saver effectively reducing the need for shovelers. A highly versatile machine, it offers operators the ability to brine, spread and plow at the same time to maximize productivity and profitability. 2021 Toro AR Cover.indd 4-62021 Toro AR Cover.indd 4-61/21/22 4:51 PM1/21/22 4:51 PM The Toro Company
8111 Lyndale Avenue South
Bloomington, MN 55420-1196
952-888-8801
www.thetorocompany.com
CHARGING
FORWARD
THE TORO COMPANY
2021 Annual Report
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